Barops Taxation 2020

2020 UEP BAROPS REVIEWER IN TAXATION
Chairman:
Abella, Dave Matthew
Members:
Garcelazo, Rogelyn Melanie
Marquita, Shane Alexa
Plateja, Imee
Aguilana, Ariane
Andales, Angelica
Norona, Janet
Pamplona, Kimberly
Anonuevo, Meriam
Camacho, Keith
Duroy, Reixil
Floresca, Francis
Giray, Leoniel Jude
Pepito, Jeeren
Pinca,Eric
Sauro, Jonnel Jay
Servana, Rocher
SYLLABUS FOR THE

2020 BAR EXAMINATIONS
TAXATION LAW
Notes: All Bar candidates should be guided that only laws with their respective amendments and
canonical doctrines pertinent to these topics as of June 30, 2019 will be covered in the 2020 Bar
Examinations, except when provided in this syllabus. Principles of law are not covered by the cut-off
period. This syllabus is only a guide for the bar examinations. It should not be mistaken for a course
syllabus.
I. GENERAL PRINCIPLES
A. CONCEPT AND PURPOSE OF TAXATION
1. Definition
2. Purpose
3. Distinguish: tax and other forms of exactions
B. DISTINGUISH: POWER OF TAXATION, POLICE POWER, AND EMINENT DOMAIN
C. THEORY AND BASIS OF TAXATION
1. Lifeblood theory
2. Necessity theory
3. Benefits-received theory
D. JURISDICTION OVER SUBJECT AND OBJECTS
E. PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal adequacy
2. Theoretical justice
3. Administrative feasibility
F. INHERENT AND CONSTITUTIONAL LIMITATIONS ON TAXATION
G. STAGES OR ASPECTS OF TAXATION
H. REQUISITES OF AV ALID TAX
I. KINDS OF TAXES
J. GENERAL CONCEPTS IN TAXATION
1. Prospectivity of tax laws
2. Imprescriptibility
3. Situs of taxation
4. Double taxation
a. Strict sense
b. Broad sense
c. Tax treaties as relief from double taxation
5. Escape from taxation
a. Shifting of tax burden
b. Distinguish: tax avoidance and tax evasion
6. Exemption from taxation
7. Equitable recoupment
8. Prohibition on compensation and set-off
9. Compromise
10. Tax amnesty
K. CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES AND
REGULATIONS
II. NATIONALTAXATION
A. TAXING AUTHORITY
1. Jurisdiction, power, and functions of the Commissioner of Internal Revenue
2. Rule-making authority of the Secretary of Finance
B. INCOME TAX
1. Definition, nature, and general principles
a. Income tax systems
i. Global
ii. Schedular
iii. Others
b. Features of the Philippine income tax law
c. Criteria in imposing Philippine income tax
i. Citizenship
ii. Residence
iii. Source
d. General principles of income taxation
e. Types of Philippine income taxes
f. Kinds of taxpayers
g. Taxable period
2. Concept of income
a. Definition
b. When income is taxable
i. Existence of income
ii. Realization of income
iii. Recognition of income
c. Tests in determining whether income is earned for tax purposes
i. Realization test
ii. Claim of right doctrine or doctrine of ownership, command or control
iii. Economic benefit test or doctrine of proprietary interest
iv. Severance test
d. Methods of accounting
i. Distinguish: cash and accrual method
ii. Special method: installment, deferred payment, percentage of completion (in
long-term contracts)
e. Situs of Income
3. Gross income
a. Definition
b. Distinguish: gross income, net income, and taxable income
c. Sources of income subject to tax
i. Compensation income
ii. Fringe benefits
iii. Professional income
iv. Income from business
v. Income from dealings in property
(a) Distinguish ordinary asset and capital asset
(b) Types of gains
(c) Special rules pertaining to income or loss from dealings in property
classified as capital asset (loss limitation rule, loss carry-over rule, holding period
rule)
(d) Tax-free exchanges
vi. Passive investment income
(a) Interest
(b) Dividend
(c) Royalty income
(d) Rental income
vii. Annuities and proceeds from life insurance or other types of insurance
viii. Prizes and awards
ix. Pension, retirement benefit, or separation pay
x. Income from any source
(a) Condonation of indebtedness
(b) Recovery of accounts previously written off
(c) Receipt of tax refunds or credit
d. Exclusions
i. Rationale
ii. Taxpayers who may avail
iii. Distinguish: exclusions, deductions, and tax credits
iv. Exclusions under the Constitution
4. Deductions
a. General rule
b. Concept of return of capital
c. Distinguish: itemized deductions and optional standarddeduction
d. Requirements for deductible items
e. Items not deductible
5. Income tax on individuals
a. Resident citizens, non-resident citizens, and resident aliens
i. Coverage
ii. Taxation on compensation income
(a) Inclusions
(b) Exclusions
iii. Taxation of business income/income from practice ofprofession
(a) Schedular
(b) 8% option
iv. Taxation of partners in a general professional partnership
v. Taxation of passive income
vi. Taxation of capital gains
(a) Income from sale of shares of stock of a Philippine corporation
(b) Income from sale of real property situated in the Philippines
(c) Income from sale, exchange, and other disposition of other capital assets
b. Non-resident aliens engaged in trade or business
c. Non-resident aliens not engaged in trade or business
d. Aliens employed by regional headquarters, regional operating headquarters, offshore
banking units, and petroleum service contractors
e. Individual taxpayers exempt from income tax
i. Minimum wage earner
ii. Exemptions granted under international agreements
6. Income tax on corporations
a. Domestic corporations
i. Taxation - in general
(a) Regular Corporate Income Tax (RCIT)
(b) Minimum Corporate Income Tax (MCIT)
(c) Taxation of passive income
(d) Taxation of capital gains
(e) Improperly accumulated earnings tax
ii. Proprietary educational institutions and non-profit hospitals
iii. Government-owned or controlled corporations, agencies, instrumentalities
iv. Foreign currency deposit units
b. Resident foreign corporations
(c) Branch Profits Remittance Tax (BPRT)
(d) Taxation of passive income
(e) Taxation of capital gains
ii. Resident foreign corporations subject to preferential tax rates
(a) International carriers
(b) Foreign currency deposit units and offshore banking units
(c) Regional or area headquarters and regional operating headquarters
c. Non-resident foreign corporations (NRFC)
i. Taxation of NRFC in general
ii. NRFCs subject to preferential tax rates
d. Corporations exempt from income tax
e. Tax on other business entities: general partnerships, general professional
partnerships, co-ownerships, joint ventures, and consortia
7. Filing of returns and payment
a. Individual return
i. Who are required to file; exceptions
ii. Substituted filing
iii. When and where to file
b. Corporate returns
i. Quarterly income tax
ii. Final adjustment return
iv. Return of corporations contemplating dissolution or reorganization
c. Return on capital gains realized from sale of shares of stock and real estate
8. Withholding tax
a. Concept
b. Final withholding tax
c. Creditable withholding tax
i. Expanded withholding tax
ii. Withholding tax on compensation
d. Fringe benefits tax
e. Duties of a withholding agent
C. ESTATE TAX
1. Basic principles, concept, and definition
2. Classification of decedent
3. Composition of gross estate
a. Items to be included in determining gross estate
i. Decedent's interest
ii. Transfers in contemplation of death
iii. Revocable transfers
iv. Property passing under a general power of appointment
v. Proceeds of life insurance
vi. Prior interests
vii. Transfers for insufficient consideration
b. Allowable deductions from gross estate
c. Exclusions from gross estate and exemptions of certain acquisitions and transmissions
d. Tax credit for estate taxes paid to a foreign country
e. Filing of estate tax returns and payment of estate tax
D. DONOR'S TAX
2. Requisites of a valid donation
3. Transfers which may be considered as donation
a. Sale, exchange, or transfer of property for less than adequate and full consideration;
exception
b. Condonation or remission of debt
c. Renunciation of inheritance; exception
4. Classification of donor
5. Determination of gross gift
a. Composition of gross gift
b. Valuation of gifts made in property
c. Exemption of certain gifts
6. Tax credit for donor's taxes paid to a foreign country
7. Filing of return and payment
E. VALUE-ADDED TAX
1. Nature and characteristics of value-added tax
a. Tax on value added
b. Sales tax
c. Tax on consumption
d. Indirect tax: impact and incidence of tax
e. Tax credit method
f. Destination principle and cross-border doctrine
2. Persons liable to value-added tax
3. Imposition of value-added tax
a. On sale of goods or properties
i. Tax base: gross selling price
ii. Transactions deemed sale
iii. Change or cessation of status as value-added tax-registered person
b. On importation of goods
c. On sale of services and use or lease of properties
4. Zero-rated and effectively zero-rated sales of goods or properties, and services
5. Value-added tax-exempt transactions
6. Input and output tax
7. Refund or tax credit of excess input tax; procedure
8. Compliance requirements
a. Registration
b. Invoicing requirements
c. Filing of returns and payment
d. Withholding of final value-added tax on sales to government
e. Administrative and penal sanctions
F. PERCENTAGE TAXES: CONCEPT AND NATURE
G. EXCISE TAX: CONCEPT AND NATURE
H. DOCUMENTARY STAMP TAX: CONCEPT AND NATURE
I. TAX REMEDIES UNDER THE NATIONAL INTERNAL REVENUE CODE
1. Assessment of internal revenue taxes
a. Procedural due process in tax assessments
i. Letter of authority and tax audit
ii. Informal conference
iii. Preliminary assessment notice
iv. Formal letter of demand and final assessment notice
v. Disputed assessment
vi. Administrative decision on a disputed assessment
vii. Appeal from an administrative decision on disputed assessment
b. Requisites of a valid assessment
c. Tax delinquency and tax deficiency
d. Prescriptive period for assessment
i. General rule
ii. Distinguish: false returns, fraudulent returns, and non-filing of returns
iii. Suspension of statute of limitations
2. Taxpayer's remedies
a. Protesting an assessment
i. Period to file protest
ii. Kinds of protest - request for reconsideration or reinvestigation
iii. Submission of supporting documents
iv. Effect of failure to file protest
v. Action of the Commissioner on the protest filed
(a) Period to act upon or decide on protest filed
(b) Remedies of the taxpayer in case of denial or inaction of the
Commissioner
(c) Effect of failure to appeal
b. Recovery of tax erroneously or illegally collected
i. Grounds, requisites, and periods for filing a claim for refund or issuance of a tax
credit certificate
ii. Proper party to file claim for refund or tax credit
iii. Distinguish from input value-added tax refund
c. Power of Commissioner of Internal Revenue to compromise
d. Non-retroactivity of rulings f
3. Government remedies for collection of delinquent taxes
a. Requisites
b. Prescriptive periods; suspension of running of statute of limitations
c. Administrative remedies
i. Tax lien
ii. Distraint and levy
iii. Forfeiture of real property
iv. Suspension of business operation
v. Judicial remedies
d. No injunction rule; exceptions
4. Civil penalties
a. Delinquency interest and deficiency interest
b. Surcharge
c. Compromise penalty
d. Fraud penalty
III. LOCAL TAXATION
A. LOCAL GOVERNMENT TAXATION
1. Fundamental principles
2. Nature and source of taxing power
a. Grant of local taxing power under the Local Government Code
b. Authority to prescribe penalties for tax violations
c. Authority to grant local tax exemptions
d. Withdrawal of exemptions
e. Authority to adjust local tax rates
f. Residual taxing power of local governments
3. Scope of taxing power
4. Specific taxing power of local government units
5. Common revenue raising powers
6. Community tax
7. Common limitations on the taxing powers of local government units
8. Requirements for a valid tax ordinance
a. Protest
b. Refund
c. Action before the Secretary of Justice
10. Assessment and collection of local taxes
a. Remedies of local government units
b. Prescriptive period
B. REAL PROPERTY TAXATION
2. Nature
3. Imposition
a. Power to levy
b. Exemption from real property tax
4. Appraisal and assessment
a. Classes of real property
b. Assessment based on actual use
5. Collection
a. Date of accrual
b. Periods to collect
c. Remedies of local government units
a. Contesting an assessment
i. Payment under protest; exceptions
ii. File protest with Treasurer
iii. Refunds or credits of real property taxes
b. Contesting a valuation of real property
i. Appeal to the Local Board of Assessment Appeals (LBAA)
ii. Appeal to the Central Board of Assessment Appeals (CBAA)
iii. Effect of payment of taxes
c. Compromising real property tax assessment
IV. JUDICIAL REMEDIES
A. JURISDICTION OF THE COURT OF TAX APPEALS
1. Exclusive original and appellate jurisdiction over civil cases
2. Exclusive original and appellate jurisdiction over criminal cases
B. PROCEDURE
1. Filing of an action for collection of taxes
a. Internal revenue taxes
b. Local taxes
2. Civil cases
a. Who may appeal, mode of appeal, and effect of appeal
b. Suspension of collection of taxes
c. Injunction not available to restrain collection
3. Criminal cases
a. Institution and prosecution of criminal action
b. Institution of civil action in criminal action
c. Period to appeal
4. Appeal to the Court of Tax Appeals en bane
5. Petition for review on certiorari to the Supreme Court
LIST OF RELEVANT MATERIALS
I. 1987 CONSTITUTION
II. LAWS
Rep. Act No. 8424 as amended by Rep. Act No.

10963 including:
a. Revenue Regulations No. 6-2008, as
amended Rep. Act No. 7916 as amended by
b. Revenue Regulations No. 12-99, as Rep. Act No. 8748
amended
Rep. Act No. 7160 Rep. Act No. 9505
Rep. Act No. 1125 as amended by Executive Order No. 226 as amended by Rep.
Rep. Act No. 9282 Act No. 7918
Rep. Act No. 7227 as amended by Rep. Act No.
940
The National Internal Revenue Code of the

Philippines
Local Government Code
An Act Expanding the Jurisdiction of the Court of

Tax Appeals, Elevating its Rank to the Level of a
Collegiate Court with Special Jurisdiction and
Enlarging its Membership
An Act Amending Rep. Act No. 7916, Otherwise
Known as the Special Economic Zone Act of

1995
Personal Equity and Retirement Account Act of

2008
Omnibus Investments Code of 1987, as

Amended, and For Other Purposes
Bases Conversion and Development

Act of 1992
1. Definition
2. Purpose
B. DISTINGUISH: POWER OF TAXATION, POLICE POWER, AND EMINENT DOMAIN
C. THEORY AND BASIS OF TAXATION
1. Lifeblood theory
2. Necessity theory
3. Benefits-received theory
D. JURISDICTION OVER SUBJECT AND OBJECTS
E. PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal adequacy
2. Theoretical justice
3. Administrative feasibility
F. INHERENT AND CONSTITUTIONAL LIMITATIONS ON TAXATION
H. REQUISITES OF AV ALID TAX
I. KINDS OF TAXES
1. Prospectivity of tax laws
2. Imprescriptibility
4. Double taxation
a. Strict sense
b. Broad sense
c. Tax treaties as relief from double taxation
5. Escape from taxation
a. Shifting of tax burden
b. Distinguish: tax avoidance and tax evasion
6. Exemption from taxation
7. Equitable recoupment
8. Prohibition on compensation and set-off
9. Compromise
10. Tax amnesty
K. CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES AND
REGULATIONS
1. Definition
Taxation is a mode of raising revenue for public purposes
Taxes, on the other hand, are enforced proportional contributions from persons and property, levied
by the state by virtue of its sovereignty for the support of the government and for all its public needs.
("Cooley's definition," 1 Cooley 62)
They are not arbitrary exactions but contributions levied by authority of law, and by some rule of
proportion which is intended to insure uniformity of contribution and a just apportionment of the burdens of
government.
Thus:
a. Taxes are enforced contributions.
Taxes are obligations created by law. Taxes are never founded on contract or agreement, and are
not dependent for their validity upon the individual consent of the persons taxed.
b. Taxes are proportional in character, since taxes are based on one's ability to pay.
PAGE 8
c. Taxes are levied by authority of the law.
The power to impose taxes is a legislative power; it cannot be imposed by the executive department
nor by the courts.
d. Taxes are for the support of the government and all its public needs.
Essential Characteristic of Taxes [LEMP3S]

1. It is levied by the law-making body of the State
The power to tax is a legislative power which under the Constitution only Congress can exercise
through the enactment of laws. Accordingly, the obligation to pay taxes is a statutory liability.
2. It is an enforced contribution
A tax is not a voluntary payment or donation. It is not dependent on the will or contractual assent,
express or implied, of the person taxed. Taxes are not contracts but positive acts of the government.
3. It is generally payable in money
Tax is a pecuniary burden – an exaction to be discharged alone in the form of money which must be in
legal tender, unless qualified by law, such as RA 304 which allows backpay certificates as payment of
taxes.
4. It is proportionate in character - It is ordinarily based on the taxpayer’s ability to pay.
5. It is levied on persons or property - A tax may also be imposed on acts, transactions, rights or
privileges.
6. It is levied for public purpose or purposes - Taxation involves, and a tax constitutes, a burden to
provide income for public purposes.
7. It is levied by the State which has jurisdiction over the persons or property. - The persons, property
or service to be taxed must be subject to the jurisdiction of the taxing state.
2. Purpose
A. The primary purpose of taxation is to raise revenues.
"For the support of government and for all public needs," is according to Judge Cooley, the purpose
of taxes." And so it has been widely believed that the primary purpose of taxation is to raise funds or
property to enable the State to promote the general welfare and protection of its citizens. (52 Am. Jur. 34)
This was emphasized anew in the renowned case of Hon. Ramon Bagatsing, et al. v. Hon. Pedro
Ramirez,* where the tax ordinance enacted by the Municipal Board of Manila was assailed as not being a
"tax ordinance," because the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing
power but a revenue raising function. The Supreme Court observed that the pretense bore its own marks of
fallacy. Precisely, the raising of revenues is the principal object of taxation.
B. Secondary or non-revenue purposes

But, must an imposition, in order to be a tax, be levied solely for the purposes of revenue? The
answer is a resounding NO.
Other than to answer the ever-present need for revenues, taxation also seeks to: [PR2EP]
(1) promote general welfare
(2) reduce social inequality;
(3) encourage the growth of local industries;
(4) protect our local industries against unfair competition; and
(5) implement the police power of the state (regulatory purpose).
(1) Promotion of General Welfare

Taxation may be used as an implement of police power in order to promote the general welfare of
the people. [see Lutz vs Araneta (98 Phil 148) and Osmeňa vs Orbos (G.R. No. 99886, Mar. 31, 1993)]
(2) Reduction of Social Inequality

Our present tax system has adopted the progressive system of taxation, i.e., the tax rate increases
as the tax base increases. This system aims at reducing the inequality in the distribution of wealth by
preventing its undue concentration in the hands of a few individuals.
To illustrate: An estate tax is imposed upon the property left by the decedent. The proceeds of that
tax will be used to finance the projects of the government such as building low-cost houses for the less
privileged.
(3) Encourage the Growth of Local Industries

It is a settled rule that the power to tax carries with it the power to grant tax exemptions. Tax
exemptions and tax reliefs serve as incentives to encourage investment in our local industry and thereby
promote economic growth.
(4) Protect our Local Industry Against Unfair Competition

The Tariff and Customs Code allows the imposition of certain taxes (countervailing and dumping
duties) upon imported goods or articles to further protect our local industry. R.A. 8752 (Anti-Dumping Act)
imposes stricter conditions.
(5) As an Implement of the Police Power of the State (Regulatory Measure)

The power of taxation may be used as an implement of the police power of the State through the
imposition of taxes with the end in view of regulating a particular activity.
In the case of Tio v. Videogram Regulatory Board, the Supreme Court maintained the validity of
the challenged statute (P.D. 1987 entitled "An Act Creating the Videogram Regulatory Board"), seeing the
need to impose taxes upon the video industry as a regulatory measure, considering "the unfair competition
posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the
availability of unclassified and unreviewed video tapes containing pornographic films and
films with brutally violent sequences; and losses in government due to the drop in theatrical attendance."
Likewise, in the case of Manila Race Horse Trainers Association v. De La Fuente, the Court
upheld the validity of an ordinance taxing boarding stables of race horses because "(R)ace horses are
devoted to gambling, if legalized, their owners derive fat income and the public hardly any profit from horse
racing, and this business demands relatively heavy police supervision."
Still, in the celebrated case of Lutz v. Araneta which challenges the constitutionality of Secs. 2 and
3, C.A. 567, providing for an increase in the existing tax on the manufacture of sugar in issue, it was held
that:
the tax is levied with a regulatory purpose — to provide means for the rehabilitation and
stabilization of the threatened sugar industry. As the protection and promotion of the sugar industry
is a matter of public concern, the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed full play, subject only to the test of reasonableness; and it is not contended that the means
provided in Section 6 of C.A. 567 bear no relation to the objective pursued or are oppressive in
character. If objective and methods are alike constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the
implement of the State's police power.
But it must be stressed that the power of taxation, sometimes also called the "power to destroy,"
should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." (Antonio
Roxas, et al. v. Court of Tax Appeals, L-25043, April 26,1968, 23 SCRA 276)
May the power of taxation be used as an implement of the power of eminent domain?
YES. The Supreme Court in the case of CIR v. Central Luzon Drug Corp. [456 SCRA 414, 445]
held: Tax measures are but "enforced contributions exacted on pain of penal sanctions" and "clearly
imposed for a public purpose. In recent years, the power to tax has indeed become a most effective tool to
realize social justice, public welfare, and the equitable distribution of wealth.
While it is declared commitment under Section 1 of R.A. No. 7432, social justice "cannot be invoked
to trample on the rights of property owners who under our Constitution and laws are also entitled to
protection. The social justice consecrated in our Constitution [is] not intended to take away rights from a
person and give them to another who is not entitled thereto. For this reason, a just compensation for income
that is taken away from respondent (Central Luzon Drug Corp.) becomes necessary. It is in the tax credit
that our legislators find support to realize social justice, and no administrative body can alter the fact."

a. Tax versus TOLL
A toll is a sum of money for the use of something generally applied to the consideration, which is
paid of the use of a road, bridge or the like of a public nature.
b. Tax versus PENALTY
A penalty is a sanction imposed as a punishment for violation of law or acts deem injurious. The
violation of tax may give rise to imposition of penalty.
c. Tax versus SPECIAL ASSESSMENT
Special assessment is an enforced proportional contribution from owners of lands for special
benefits resulting from improvements.
d. Tax versus PERMIT or LICENSE FEE
Permit or license is a charge imposed under the police power for purposes of regulation.
e. Tax versus DEBT
Debt is based on a contract, may be paid in kind, assignable, subject to set off or compensation.
f. Tax versus SUBSIDY
Subsidy is a pecuniary aid directly granted the government to an individual or private commercial
enterprise deemed beneficial to the public.
g. Tax versus REVENUE
Revenue refers to all the funds or income derived by the government whether from tax or any other
source.
h. Tax versus CUSTOM DUTIES
Custom duties are taxes imposed on goods exported from or imported into a country.
i. Tax versus TARIFF
Tariff may be used in one of three senses:
a. A book of rates drawn usually in alphabetical order containing the names of several kinds of
merchandise with the corresponding duties to be paid for the same; or
b. The duties payable on goods imported or exported; or the system or principle of imposing duties
on the importation or exportation of goods. The term tariff and customs duties are used
interchangeably in the Tariff and Customs Code.
B. POWER OF TAXATION AS DISTINGUISHED FROM POLICE POWER AND EMINENT DOMAIN
Inherent Powers of the State

1. Police Power
2. Power of Eminent Domain
3. Power of Taxation
Distinctions among the Three Powers

TAXATION POLICE POWER EMINENT DOMAIN
Purpose
- levied for the purpose of - exercised to promote - taking of property for public use
raising revenue public welfare thru regulations
Amount Of Exaction
- no limit - limited to the cost of - no exaction, compensation paid by
regulations, issuance of the the government
license or surveillance
Benefits Received
- no special or direct benefits - no direct benefits but a - direct benefit results in the form of
received but the enjoyment healthy economic standard of just compensation
of the privileges of living in society or “damnum absque
an organized society injuria” is attained
Non-Impairment Of Contracts
-the impairment rule subsist - contract may be impaired - contracts may be impaired
TRANSFER OF PROPERTY RIGHTS
- taxes paid become part of - no transfer but only restraint - property is taken by the gov’t upon
public funds on the exercise of property payment of just compensation
right exists
Scope
- affects all persons, property - affects all persons, property, - affects only the particular property
and excise privileges, and even rights comprehended
Basis
- public necessity - public necessity and the right -public necessity, private property is
of the state and the public to taken for public use
self-protection and self-
preservation
Authority Which Exercises The Power
- only by the government or - only by the government or its - may be granted to public service,
its political subdivision s political subdivisions companies, or public utilities
Taxes are the enforced proportional contributions from persons and property, levied by the State by
virtue of its sovereignty, for the support of government and for all public needs. Taxation is the method by
which these contributions are exacted (Cooley, Taxation, 4th Ed., Sec. 1).
The importance of taxation derives from the unavoidable obligation of the government to protect the
people and extend them benefits in the form of public projects and services. In exchange for these, the
people are subjected to the reciprocal duty of sharing the expenses to be incurred therefor through the
payment by them of taxes (Cruz, Constitutional Law).
The obligation to pay taxes is not based on contract. It is a duty imposed upon the individual by the
mere fact of his membership in the body politic and his enjoyment of the benefits available from such
membership. Hence, except only in the case of poll taxes (Art. lll Sec. 20 Constitution) non-payment of a
tax may be the subject of criminal prosecution and punishment. The accused cannot invoke the prohibition
against imprisonment for debt as taxes are not considered debts.
The power of taxation is the most pervasive of all the fundamentals powers of the state as it affects
all citizens even those earning income from abroad. All income earned within the taxing state are subject to
its taxing power (Cruz, Constitutional Law).
The power to tax in inherent in the state. Primarily vested in the Legislature, it may now also be
exercised by the local legislative bodies, no longer by virtue of a valid delegation as before but pursuant to a
direct authority conferred by Article X, Section 5, of the Constitution which provides that “each local
government unit shall have the 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, consistent with the basic
policy of local autonomy.” (Cruz, Constitutional Law)
Taxation and Eminent Domain affect property rights only while police power regulates both liberty
and property. The property taken in taxation and eminent domain is wholesome and devoted to public use
or purpose while the property taken in police power is usually noxious or intended for a noxious purpose and
may thus be destroyed. Taxation and Police Power are exercised by the government while eminent domain
may be exercised by private entities.
The compensation in taxation is the protection given and/or public improvements instituted by
government for the taxes paid while the compensation in eminent domain is the full and fair equivalent of the
property taken and in police power the compensation is the altruistic feeling that the individual has
contributed to the public good.
The inherent powers of the state is exercised primarily by the legislature. It can be exercised without
need of express constitutional grant because these powers are necessary and indispensable; the state
cannot be effective without them. These powers are the means through which the state interferes with
private property and presupposes equivalent compensation.
C, THEORY AND BASIS OF TAXATION
1. Necessity Theory
Taxes proceed upon the theory that the existence of the government is a necessity; that it cannot
continue without the means to pay its expenses; and that for those means, it has the right to compel all
citizens and properties within its limits to contribute.
In a case, the Supreme Court held that:
Taxation is a power emanating from necessity. It is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry
and those which come with the State’s territory and facilities, and protection which a government is
supposed to provide. (Phil. Guaranty Co., Inc. vs Commissioner of Internal Revenue, 13 SCRA 775).
2. The Benefits-Protection Theory

The basis of taxation is the reciprocal duty of protection between the state and its inhabitants. In
return for the contributions, the taxpayer receives the general advantages and protection which the
government affords the taxpayer and his property.
Qualifications of the Benefit-Protection Theory:

a) It does not mean that only those who are able to pay and do pay taxes can enjoy the privileges and
protection given to a citizen by the government.
b) From the contributions received, the government renders no special or commensurate benefit to
any particular property or person.
c) The only benefit to which the taxpayer is entitled is that derived from his enjoyment of the privileges
of living in an organized society established and safeguarded by the devotion of taxes to public
purposes. (Gomez vs Palomar, 25 SCRA 829)
d) A taxpayer cannot object to or resist the payment of taxes solely because no personal benefit to him
can be pointed out as arising from the tax. (Lorenzo vs Posadas, 64 Phil 353)
3. Lifeblood Theory
Taxes are the lifeblood of the government, being such, their prompt and certain availability is an
imperious need. (Collector of Internal Revenue vs. Goodrich International Rubber Co., Sept. 6, 1965)
Without taxes, the government would be paralyzed for lack of motive power to activate and operate it.
Nature of Taxing Power

1. Inherent in sovereignty – The power of taxation is inherent in sovereignty as an incident or attribute
thereof, being essential to the existence of every government. It can be exercised by the government even if
the Constitution is entirely silent on the subject.
a. Constitutional provisions relating to the power of taxation do not operate as grants of the power to the
government. They merely constitute limitations upon a power which would otherwise be practically without
limit.
b. While the power to tax is not expressly provided for in our constitutions, its existence is recognized by
the provisions relating to taxation.
In the case of Mactan Cebu International Airport Authority vs Marcos, Sept. 11, 1996, as an incident
of sovereignty, the power to tax has been described as “unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found only in the responsibility of the legislative
which imposes the tax on the constituency who are to pay it.”
2. Legislative in character – The power to tax is exclusively legislative and cannot be exercised by the
executive or judicial branch of the government.
3. Subject to constitutional and inherent limitations – Although in one decided case the Supreme Court
called it an awesome power, the power of taxation is subject to certain limitations. Most of these limitations
are specifically provided in the Constitution or implied therefrom while the rest are inherent and they are
those which spring from the nature of the taxing power itself although, they may or may not be provided in
the Constitution.
D. JURISDICTION OVER SUBJECTS AND OBJECTS

Q: Discuss the State's jurisdiction over the subjects and objects of taxation.
ANS: The power to tax can only be exercised within the territorial jurisdiction of a taxing authority. The
State may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or
enjoyment of a right or privilege derived from the laws of another state and therein exercised or enjoyed (51
Am. Jur. 88).
Scope of Legislative Taxing Power [S2APKAM]

1. Subjects of Taxation (the persons, property or occupation etc. to be taxed)
2. Amount or rate of the tax
3. Purposes for which taxes shall be levied provided they are public purposes
4. Apportionment of the tax
6. Method of collection
Is the Power to Tax the Power to Destroy?

In the case of Churchill, et al. vs Concepcion (34 Phil 969) it has been ruled that:
The power to impose taxes is one so unlimited in force and so searching in extent so that the courts
scarcely venture to declare that it is subject to any restriction whatever, except such as rest in the discretion
of the authority which exercise it. No attribute of sovereignty is more pervading, and at no point does the
power of government affect more constantly and intimately all the relations of life than through the exaction
made under it.
And in the notable case of McCulloch vs Maryland, Chief Justice Marshall laid down the rule that the
power to tax involves the power to destroy.
According to an authority, the above principle is pertinent only when there is no power to tax a
particular subject and has no relation to a case where such right to tax exists. This opt-quoted maxim
instead of being regarded as a blanket authorization of the unrestrained use of the taxing power for any and
all purposes, irrespective of revenue, is more reasonably construed as an epigrammatic statement of the
political and economic axiom that since the financial needs of a state or nation may outrun any human
calculation, so the power to meet those needs by taxation must not be limited even though the taxes
become burdensome or confiscatory. To say that “the power to tax is the power to destroy” is to describe not
the purposes for which the taxing power may be used but the degree of vigor with which the taxing power
may be employed in order to raise revenue (I Cooley 179-181)
Constitutional Restraints Re: Taxation is the Power to Destroy

While taxation is said to be the power to destroy, it is by no means unlimited. It is equally correct to
postulate that the “power to tax is not the power to destroy while the Supreme Court sits,” because of
the constitutional restraints placed on a taxing power that violated fundamental rights.
In the case of Roxas, et al vs CTA (April 26, 1968), the SC reminds us that although the power of
taxation is sometimes called the power to destroy, in order to maintain the general public’s trust and
confidence in the Government, this power must be used justly and not treacherously. The Supreme Court
held:
“The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the ‘hen that lays the golden egg’. And, in order to maintain
the general public’ trust and confidence in the Government this power must be used justly and not
treacherously.”
The doctrine seeks to describe, in an extreme, the consequential nature of taxation and its resulting
implications, to wit:
a. The power to tax must be exercised with caution to minimize injury to proprietary rights of a taxpayer;
b. If the tax is lawful and not violative of any of the inherent and constitutional limitations, the fact alone
that it may destroy an activity or object of taxation will not entirely permit the courts to afford any relief; and
c. A subject or object that may not be destroyed by the taxing authority may not likewise be taxed. (e.g.
exercise of a constitutional right)
Power of Judicial Review in Taxation

The courts cannot review the wisdom or advisability or expediency of a tax. The court’s power is
limited only to the application and interpretation of the law.
Judicial action is limited only to review where involves:
1. The determination of validity on the tax in relation to constitutional precepts or provisions.
2. The determination, in an appropriate case, of the application of the law.
E. BASIC PRINCIPLES OF A SOUND TAX SYSTEM [FAT]
1. Fiscal Adequacy – the sources of tax revenue should coincide with, and approximate the needs of
government expenditure. Neither an excess nor a deficiency of revenue vis-à-vis the needs of government
would be in keeping with the principle.
2. Administrative Feasibility – tax laws should be capable of convenient, just and effective administration.
3. Theoretical Justice – the tax burden should be in proportion to the taxpayer’s ability to pay (ability-to-
pay principle). The 1987 Constitution requires taxation to be equitable and uniform.
*Note: A law will retain its validity even if it is not in consonance with the principles of fiscal
adequacy and administrative feasibility because the Constitution does not expressly require so. These
principles are only designed to make our tax system sound. However, if a tax law runs contrary to the
principle of theoretical justice, such violation will render the law unconstitutional considering that under the
Constitution, the rule of taxation should be uniform and equitable.
F. Inherent and constitutional limitations of taxation

Inherent limitations of taxation are those limitations which exist despite the absence of an express
constitutional provision:
1. Public Purpose
2. International Comity
3. Territoriality
4. Non-Delegation of the Power to Tax
5. Exemption from Taxation of Government Agencies/Instrumentalities
The Constitution provides for certain restrictions on the power of taxation, among them:
1. Tax must be for public purpose
The requisites for public purpose are as follows:
a.Taxes must be spent for the welfare of the people
b.Taxes must be in support of the government
c. Taxes must be spent for the objects of government
2. Prohibition against delegation of the power of taxation – the legislative enactment of the tax measure
cannot be delegated but the administrative implementation of a tax law may be delegated.
3. Due Process of Law
4. Equal Protection of Laws
5. Rule of Uniformity and Equity in taxation
Uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at
the same rate. It requires the uniform application and operation, without discrimination of the tax in
every place where the subject of the tax is found.
Equity in taxation means that taxes must be imposed in accordance with the ability to pay. Meaning
those who earn more should pay more and those who earn less should pay less otherwise the tax
measure becomes confiscatory.
6. Prohibition against non-payment of poll tax
7. Prohibition against impairment of contracts
8. Prohibition against infringement of religious freedom
9. Prohibition against appropriation of proceeds of taxation for the use, benefit or support of any religious
sect or church
10. Prohibition against taxation of religious, charitable institutions, mosques, convents and lands used
exclusively for educational purposes
11. Prohibition against taxation of non-stock and non-profit educational institution
Inherent Limitations
A. Public Purpose of Taxes

1. Important Points to Consider:
a. If taxation is for a public purpose, the tax must be used:
a.1) for the support of the state or
a.2) for some recognized objects of governments or
a.3) directly to promote the welfare of the community (taxation as an implement of police power)
b. The term “public purpose” is synonymous with “governmental purpose”; a purpose affecting the
inhabitants of the state or taxing district as a community and not merely as individuals.
c. A tax levied for a private purpose constitutes a taking of property without due process of law.
d.The purposes to be accomplished by taxation need not be exclusively public. Although private individuals
are directly benefited, the tax would still be valid provided such benefit is only incidental.
e.The test is not as to who receives the money, but the character of the purpose for which it is expended;
not the immediate result of the expenditure but rather the ultimate.
f. In the imposition of taxes, public purpose is presumed.
2. Test in determining Public Purposes in tax
a. Duty Test – whether the thing to be threatened by the appropriation of public revenue is something
which is the duty of the State, as a government.
b. Promotion of General Welfare Test – whether the law providing the tax directly promotes the welfare of
the community in equal measure.
B. Non-delegability of Taxing Power

1.Rationale: Doctrine of Separation of Powers; Taxation is purely legislative; Congress cannot delegate the
power to others.
2.Exceptions:
a. Delegation to the President (Art.VI. Sec. 28(2) 1987 Constitution)
The power granted to Congress under this constitutional provision to authorize the President to fix
within specified limits and subject to such limitations and restrictions as it may impose, tariff rates and other
duties and imposts include tariffs rates even for revenue purposes only. Customs duties which are assessed
at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue raising
and regulatory purposes (Garcia vs Executive Secretary, et. al., G.R. No. 101273, July
3, 1992)
b. Delegations to the Local Government (Art. X. Sec. 5, 1987 Constitution)
It has been held that the general principle against the delegation of legislative powers as a
consequence of the theory of separation of powers is subject to one well-established exception, namely, that
legislative power may be delegated to local governments. The theory of non-delegation of legislative powers
does not apply in maters of local concern. (Pepsi-Cola Bottling Co. of the Phil, Inc. vs City of Butuan, et . al.,
L-22814, Aug. 28, 1968)
c. Delegation to Administrative Agencies with respect to aspects of Taxation not legislative in
character.
Example: assessment and collection
3. Limitations on Delegation
a.It shall not contravene any
Constitutional provisions or inherent limitations of taxation;
b.The delegation is effected either by the Constitution or by validly enacted legislative measures or statute;
and
c. The delegated levy power, except when the delegation is by an express provision of Constitution itself,
should only be in favor of the local legislative body of the local or municipal government concerned.
4. Tax Legislation vis-à-vis Tax Administration

- Every system of taxation consists of two parts:
a.the elements that enter into the imposition of the tax [S 2 A P K A M], or tax regulation; and
b.the steps taken for its assessment and collection or tax administration
If what is delegated is tax legislation, the delegation is invalid; but if what is involved is only tax
administration, the non-delegability rule is not violated.
C. Territoriality or Situs of Taxation

a. Territoriality or Situs of Taxation means “place of taxation” depending on the nature of taxes being
imposed.
b. It is an inherent mandate that taxation shall only be exercised on persons, properties, and excise within
the territory of the taxing power because:
b.1) Tax laws do not operate beyond a country’s territorial limit.
b.2) Property which is wholly and exclusively within the jurisdiction of another state receives none of the
protection for which a tax is supposed to be compensation.
c. However, the fundamental basis of the right to tax is the capacity of the government to provide benefits
and protection to the object of the tax. A person may be taxed, even if he is outside the taxing state, where
there is between him and the taxing state, a privity of relationship justifying the levy.
2. Factors to Consider in determining Situs of Taxation

a. kind and Classification of the Tax
b. location of the subject matter of the tax
c. domicile or residence of the person
d. citizenship of the person
e. source of income
f. place where the privilege, business or occupation is being exercised
D. Exemption of the Government from Taxes

1. Important Points to Consider: Reasons for Exemptions:
a.1) to levy tax upon public property would render necessary new taxes on other public property for the
payment of the tax so laid and thus, the government would be taxing itself to raise money to pay over to
itself;
a.2) In order that the functions of the government shall not be unduly impede; and
a.3) to reduce the amount of money that has to be handed by the government in the course of its
operations.
2. Unless otherwise provided by law, the exemption applies only to government entities through which the
government immediately and directly exercises its sovereign powers (Infantry Post Exchange vs Posadas,
54 Phil 866)
3. Notwithstanding the immunity, the government may tax itself in the absence of any constitutional
limitations.
4. Government-owned or controlled corporations, when performing proprietary functions are generally
subject to tax in the absence of tax exemption provisions in their charters or law creating them.
E. International Comity
a. The property of a foreign state or government may not be taxed by another.
b. The grounds for the above rule are:
b.1) sovereign equality among states
b.2) usage among states that when one enter into the territory of another, there is an implied
understanding that the power does not intend to degrade its dignity by placing itself under the jurisdiction
of the latter
b.3) foreign government may not be sued without its consent so that it is useless to assess the tax since
it cannot be collected
b.4) reciprocity among states
CONSTITUTIONAL LIMITATIONS
1. Due Process of Law

a. Basis: Sec.1 Art. 3: “No person shall be deprived of life, liberty or property without due process of
law. x x x”
Requisites:
1. The interest of the public generally as distinguished from those of a particular class require the
intervention of the state;
2. The means employed must be reasonably necessary to the accomplishment for the purpose and
not unduly oppressive;
3. The deprivation was done under the authority of a valid law or of the constitution; and
4. The deprivation was done after compliance with fair and reasonable method of procedure
prescribed by law.
In a string of cases, the Supreme Court held that in order that due process of law must not be done
in an arbitrary, despotic, capricious, or whimsical manner.
2. Equal Protection of the Law

a. Basis: Sec.1 Art. 3: “x x x nor shall any person be denied the equal protection of the laws.”
Important Points to Consider:
1.Equal protection of the laws signifies that all persons subject to legislation shall be treated under
circumstances and conditions both in the privileges conferred and liabilities imposed
2. This doctrine prohibits class legislation which discriminates against some and favors others.
b. Requisites for a Valid Classification
1. Must not be arbitrary
2. Must not be based upon substantial distinctions
3. Must be germane to the purpose of law.
4. Must not be limited to exiting conditions only; and
5. Must play equally to all members of a class.
3. Uniformity, Equitability and Progressivity of Taxation

a. Basis: Sec. 28(1) Art. VI. “The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation. “
b. Important Points to Consider:
1. Uniformity (equality or equal protection of the laws) means all taxable articles or kinds or
property of the same class shall be taxed at the same rate. A tax is uniform when the same force
and effect in every place where the subject of it is found.
2. Equitable means fair, just, reasonable and proportionate to one’s ability to pay.
3. Progressive system of Taxation places stress on direct rather than indirect taxes, or on the
taxpayers’ ability to pay
4. Inequality which results in singling out one particular class for taxation or exemption infringes no
constitutional limitation. (see Commissioner vs. Lingayen Gulf Electric, 164 SCRA 27)
5. The rule of uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable.
4. Freedom of Speech and of the Press

a. Basis: Sec. 4 Art. III. “No law shall be passed abridging the freedom of speech, of expression or of
the press x x x “
1. There is curtailment of press freedom and freedom of thought if a tax is levied in order to
suppress the basic right of the people under the Constitution.
2. A business license may not be required for the sale or contribution of printed materials like
newspaper for such would be imposing a prior restraint on press freedom
3. However, an annual registration fee on all persons subject to the value-added tax does not
constitute a restraint on press freedom since it is not imposed for the exercise of a privilege but
only for the purpose of defraying part of cost of registration.
5. Non-infringement of Religious Freedom

a. Basis: Sec. 5 Art. III. “No law shall be made respecting an establishment of religion or prohibiting
the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall be forever be allowed. x x x”
1. License fees/taxes would constitute a restraint on the freedom of worship as they are
actually in the nature of a condition or permit of the exercise of the right.
2. However, the Constitution or the Free Exercise of Religion clause does not prohibit
imposing a generally applicable sales and use tax on the sale of religious materials by a religious
organization. (see Tolentino vs Secretary of Finance, 235 SCRA 630)
6. Non-impairment of Contracts
a. Basis: Sec. 10 Art. III. “No law impairing the obligation of contract shall be passed.”
1. A law which changes the terms of the contract by making new conditions, or changing those in the
contract, or dispenses with those expressed, impairs the obligation.
2. The non-impairment rule, however, does not apply to public utility franchise since a franchise is
subject to amendment, alteration or repeal by the Congress when the public interest so requires.
7. Non-imprisonment for non-payment of poll tax

a. Basis: Sec. 20 Art. III. “No person shall be imprisoned for debt or non-payment of poll tax.”
1. The only penalty for delinquency in payment is the payment of surcharge in the
form of interest at the rate of 24% per annum which shall be added to the unpaid amount from due
date until it is paid. (Sec. 161, LGC)
2. The prohibition is against “imprisonment” for “non-payment of poll tax”. Thus, a
person is subject to imprisonment for violation of the community tax law other than for non-payment of
the tax and for non-payment of other taxes as prescribed by law.
8. Origin or Revenue, Appropriation and Tariff Bills

a. Basis: Sec. 24 Art. VI. “All appropriation, revenue or tariff bills, bill authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.”
b. Under the above provision, the Senator’s power is not only to “only concur with amendments” but
also “to propose amendments”. (Tolentino vs Sec. of Finance, supra)
9. Delegation of Legislative Authority to Fix Tariff Rates, Imports and Export Quotas
a. Basis: Sec. 28(2) Art. VI “x x x The Congress may, by law, authorize the
President to fix within specified limits, and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the government.
10. Tax Exemption of Properties Actually, Directly and Exclusively used for Religious, Charitable
and Educational Purposes
a. Basis: Sec. 28(3) Art. VI. “Charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, building, and improvements actually, directly
and exclusively used for religious, charitable or educational purposes shall be exempt from taxation.”
1. Lest of the tax exemption: the use and not ownership of the property
2. To be tax-exempt, the property must be actually, directly and exclusively used for the
purposes mentioned.
3. The word “exclusively” means “primarily’.
4. The exemption is not limited to property actually indispensable but extends to facilities
which are incidental to and reasonably necessary for the accomplishment of said purposes.
5. The constitutional exemption applies only to property tax.
6. However, it would seem that under existing law, gifts made in favor or religious charitable
and educational organizations would nevertheless qualify for donor’s gift tax exemption. (Sec.
101(9)(3), NIRC)
11. Voting Requirements in connection with the Legislative Grant for tax exemption
a. Basis: Sec. 28(4) Art. VI. “No law granting any tax exemption shall be passed without the
concurrence of a majority of all the members of the Congress.”
b. The above provision requires the concurrence of a majority not of attendees constituting a quorum
but of all members of the Congress.
12. Non-impairment of the Supreme Courts’ jurisdiction in Tax Cases

a. Basis: Sec. 5 (2) Art. VIII. “The Congress shall have the power to define, prescribe, and apportion
the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction over
cases enumerated in Sec. 5 hereof.”
Sec. 5 (2b) Art. VIII. “The Supreme Court shall have the following powers: x x x(2) Review,
revise, modify or affirm on appeal or certiorari x x x final judgments and orders of lower courts in x x x
all cases involving the legality of any tax, impost, assessment, or toll or any penalty imposed in relation
thereto.”
13. Tax Exemptions of Revenues and Assets, including grants, endowments, donations or
contributions to Educational Institutions
a. Basis: Sec. 4(4) Art. XIV. “Subject to the conditions prescribed by law, all grants, endowments,
donations or contributions used actually, directly and exclusively for educational purposes shall be
exempt from tax.”
1. The exemption granted to non-stock, nonprofit educational institution covers income,
property, and donor’s taxes, and custom duties.
2. To be exempt from tax or duty, the revenue, assets, property or donation must be used
actually, directly and exclusively for educational purpose.
3. In the case or religious and charitable entities and non-profit cemeteries, the exemption is
limited to property tax.
4. The said constitutional provision granting tax exemption to non-stock, non-profit educational
institution is self-executing.
5. Tax exemptions, however, of proprietary (for profit) educational institutions require prior
legislative implementation. Their tax exemption is not self-executing.
6. Lands, Buildings, and improvements actually, directly, and exclusively used for educational
purposed are exempt from property tax, whether the educational institution is proprietary or non-
profit.
c. Department of Finance Order No. 13787, dated Dec. 16, 1987

The following are some of the highlights of the DOF order governing the tax exemption of non-
stock, non-profit educational institutions:
1. The tax exemption is not only limited to revenues and assets derived from strictly school operations
like income from tuition and other miscellaneous feed such as matriculation, library, ROTC, etc. fees, but it
also extends to incidental income derived from canteen, bookstore and dormitory facilities.
2. In the case, however, of incidental income, the facilities mentioned must not only be owned and
operated by the school itself but such facilities must be located inside the school campus. Canteens
operated by mere concessionaires are taxable.
3. Income which is unrelated to school operations like income from bank deposits, trust fund and
similar arrangements, royalties, dividends and rental income are taxable.
4. The use of the school’s income or assets must be in consonance with the purposes for which the
school is created; in short, use must be school-related, like the grant of scholarships, faculty development,
and establishment of professional chairs, school building expansion, library and school facilities.
Other Constitutional Provisions related to Taxation
1. Subject and Title of Bills (Sec. 26(1) 1987 Constitution)

“Every Bill passed by Congress shall embrace only one subject which shall be expressed in the title
thereof.”
→in the Tolentino E-VAT case, supra, the E-vat, or the Expanded Value Added Tax Law (RA 7716)
was also questioned on the ground that the constitutional requirement on the title of a bill was not
followed.
2. Power of the President to Veto items in an Appropriation, Revenue or Tariff Bill (Sec. 27(2), Art. VI
of the 1987 Constitution)
“The President shall have the power to veto any particular item or items in an Appropriation,
Revenue or Tariff bill but the veto shall not affect the item or items to which he does not object.”
3. Necessity of an Appropriation made before money may be paid out of the Treasury (Sec. 29(1),
Art. VI of the 1987 Constitution)
“No money shall be paid out of the Treasury except in pursuance of an appropriation made by law.”
4. Appropriation of Public Money for the benefit of any Church, Sect, or System of Religion (Sec.
29(2), Art. VI of the 1987 Constitution)
”No public money or property shall be appropriated, applied, paid or employed, directly or
indirectly for the use, benefit, support of any sect, church, denomination, sectarian institution, or system
of religion or of any priest, preacher, minister, or other religious teacher or dignitary as such except when
such priest, preacher, minister or dignitary is assigned to the armed forces or to any penal institution, or
government orphanage or leprosarium.”
5. Taxes levied for Special Purpose (Sec. 29(3), Art. VI of the 1987 Constitution)
“All money collected or any tax levied for a special purpose shall be treated as a special fund
and paid out for such purpose only. It the purpose for which a special fund was created has been fulfilled
or abandoned the balance, if any, shall be transferred to the general funds of the government.”
→An example is the Oil Price Stabilization Fund created under P.D. 1956 to stabilize the prices
of imported crude oil. In a decide case, it was held that where under an executive order of the President,
this special fund is transferred from the general fund to a “trust liability account,” the constitutional
mandate is not violated. The OPSF, according to the court, remains as a special fund subject to COA
audit (Osmeňa vs Orbos, et al., G.R. No. 99886, Mar. 31, 1993)
6. Allotment to Local Governments →Basis: Sec. 6, Art. X of the 1987 Constitution

“Local Government units shall have a just share, as determined by law, in the national taxes
which shall be automatically released to them.”

Aspects of Taxation
1.Levy – determination of the persons, property or excises to be taxed, the sum or sums to be raised, the
due date thereof and the time and manner of levying and collecting taxes (strictly speaking, such refers to
taxation)
2. Collection – consists of the manner of enforcement of the obligation on the part of those who are taxed.
(This includes payment by the taxpayer and is referred to as tax administration) The two processes together
constitute the “taxation system”.
H. REQUISITES OF A VALID TAX (JAPUL)

1. That either the person or property taxed be within the Jurisdiction of the taxing authority (Reagan v. C/R,
G.R. No. L-26379, December 27, 1969);
2. That the Assessment and collection of certain "kinds' of taReE gbarantee against injustice to individuals,
especially by providing notice and opportunity for hearing (VITUG & ACOSTA, Tax Law, supra at 12);
3. Should be for a Public purpose (Pascual v. Secretary of Public Works and Communications, G.R. No. L-
10405, December 29, 1960);
4. The rule of taxation shall be Uniform (CONST. Art. VI, Sec. 28, Par. (1)); and
5. The tax must not impinge on the inherent and Constitutional Limitations on the power of taxation (Basco
v. Philippine Amusements and Gaming Corp., supra).
I. KINDS OF TAXES
1. As to Scope
a. National – imposed by the national government like income tax, estate tax, donor’s tax, vat and
other percentage taxes and documentary stamp tax.
b. Local – imposed by LGUs such as municipal corporations like professional tax receipts.
2. As to Subject Matter or Object
a. Personal, Poll or Capitation – tax of fixed amount imposed upon individual whether citizens or not.
b. Property – tax imposed on property whether real or personal in proportion to its value or in
accordance with some other reasonable method of apportionment
c. Excise – any tax which does fall within the classification of a poll or property tax, this is a tax on the
exercise of certain rights and privileges.
3. As to who bears the burden
a. Direct – tax which is demanded from the person who also shoulders the burden of tax or tax which
the taxpayer cannot shift to another.
b. Indirect – tax which is demanded from one person in the expectation and intention that he shall
indemnify himself at the expense of another, the tax burden can be shifted.
4. As to the determination of the amount
a. Specific – tax of fixed amount imposed by the head or number or by some standard of weight or
measurement
b. Ad Valorem – tax of fixed proportion of the value of the property with respect to which the tax is
assessed
5. As to purpose
a. General, Fiscal or Revenue – tax imposed solely for the general purpose of the government
b. Special or Regulatory – tax imposed for a specific purpose that is to achieve some social or
economic ends irrespective of whether revenue is actually raised or not
6. As to authority of imposing the tax: As to graduation rate:
a. Proportional – tax based on a fixed percentages of amount of the property, receipts, or other basis
to be taxed.
b. Progressive or graduated – tax the rate of which increases as the tax base increases
c. Regressive – tax the of which decreases as the tax base increases
1. PROSPECTIVITY OF TAX LAWS

This principle states that “a tax bill must only be applicable and operative after becoming a law.”
Thus, the effectivity of the tax law commences upon its approval and its scope would only cover the present
and future transactions.
General Rule: Tax laws are prospective in application (CIVIL CODE, ART. 4; Commissioner of Internal
revenue v. PNB, G.R no. 195147 July 11, 2016)
Exception: When the language of the statute clearly demands or expresses that it shall have retroactive
effect (Lorenzo v. Posadas, G.R no. L-43082, June 18, 1937).
2. IMPRESCRIPTIBILITY
General Rule:
Taxes are imprescriptible as they are the lifeblood of the government.
Exception:
Tax statutes may provide for statutes of limitations. Although, the National Internal Revenue Code
provides for the limitation in the assessment and collection of taxes that were returnable, the prescriptive
period will only be time the taxpayer files the tax return and declares his tax liability. The court held that
there is no time on the right of the BIR Commissioner to assess taxes on unreasonable accumulated
earnings of the corporation.
General Rule:
Any revocation, modification or reversal of any of the rules and regulations, rulings and circulars
promulgated by the Commissioner shall not be given retroactive application if it will be prejudicial to the
taxpayers (NIRC. Sec. 246)
Exceptions:
1. Where the taxpayer deliberately misstates or omits material facts from his return or any document.
2. When the facts subsequently gathered by the BIR are materially different from the facts on which the
ruling is based
3. Where the taxpayer acted in bad faith (NIRC. Sec. 246)
3. SITUS OF TAXATION
Literally means place of taxation. General Rule: is that the taxing power cannot go beyond the
territorial limits of the taxing authority. Basic Rule: is that the state where the subject to be taxed has a situs
may rightfully levy and collect the tax; and the situs is necessarily in the state which has jurisdiction or which
exercises dominion over the subject in question.

a. Territoriality or Situs of Taxation means “place of taxation” depending on the nature of taxes being
imposed.
b. It is an inherent mandate that taxation shall only be exercised on persons, properties, and excise within
the territory of the taxing power because:
b.1) Tax laws do not operate beyond a country’s territorial limit.
b.2) Property which is wholly and exclusively within the jurisdiction of another state receives none of the
protection for which a tax is supposed to be compensation.
c. However, the fundamental basis of the right to tax is the capacity of the government to provide benefits
and protection to the object of the tax. A person may be taxed, even if he is outside the taxing state, where
there is between him and the taxing state, a privity of relationship justifying the levy.
2. Factors to Consider in determining Situs of Taxation
a. kind and Classification of the Tax
b. location of the subject matter of the tax
c. domicile or residence of the person
d. citizenship of the person
e. source of income
f. place where the privilege, business or occupation is being exercised
SITUS RULES OF TAXATION OF VARIOUS TAXES APPLIED AS FOLLOWS:

Situs of tax on persons (poll tax)
 Poll tax may be properly levied upon persons who are inhabitants or residents of the State, whether
or not they are citizens.
Situs of tax on real property
 Situs is where the property is located pursuant to the principle of lex rei sitae. This applies whether
or not the owner is a resident of the place where the property is located.
 This is so because the taxing authority has control over the property which is of a fixed and
stationary character.
 The place where the real property is located gives protection to the real property, hence, the owner
must support the government of that place.
Lex rei sitae
 This is a principle followed in fixing the situs of taxation of a property. This means that the property
is taxable in the State where it has its actual situs, specifically in the place where it is located, even
though the owner resides in another jurisdiction.
 With respect to property taxes, real property is subject to taxation in the State where it is located
and taxable only there. Lex rei sitae has also been adopted for tangible personal property under
Article 16 of the Civil Code. A different rule applies to intangible personal property,
specifically, mobilia sequuntur personam.
Situs of tangible personal property
 It is taxable in the State where it has actual situs although the owner resides in another jurisdiction.
 As stated above, lex rei sitae has also been adopted for tangible personal property under Article 16
of the Civil Code.
Situs of taxation of intangible personal property
 General rule: Situs is the domicile of the owner pursuant to the principle of mobilia sequuntur
personam. This rule is based on the fact that such property does not admit of any actual location
and that such property receives the protection and benefits of the law where they are located.
 Exceptions:
1. When it is inconsistent with the express provisions of the statute
2. When the property has acquired a business situs in another jurisdiction
Mobilia sequuntor personam
 This Latin maxim literally means that the property follows the person. Thus, the place where the
owner is found is the situs of taxation under the rule that movables follow the person. This is
generally where the owner resides.
 In taxation, this principle is applied to intangible personal property the situs of which is fixed by the
domicile of the owner. The reason is that this type of property rarely admits of actual location.
 However, there are two exceptions to the rule. One is when it is inconsistent with the express
provisions of a statute. Two, when the interests of justice demand that it should not be applied, i.e.
where the property has in fact a situs elsewhere.

The Supreme Court in a 1936 decision has clearly summed up the situs rules. The taxing power of
a state does not extend beyond its territorial limits, but within such limits it may tax persons, property,
income, or business. If an interest in property is taxed, the situs of either the property or interest must be
found within the state. If an income is taxed, the recipient thereof must have a domicile within the state or
the property or business out of which the income issues must be situated within the state so that the income
may be said to have a situs therein. Personal property may be separated from its owner and he may be
taxed on its account at the place where the property is although it is not a citizen or resident of the state
which imposes the tax.
Theories re: situs of income tax

Domiciliary theory
The location where the income earner resides is the situs of taxation. This is where he is given
protection; hence, he must support it.\
Nationality theory
The country of citizenship is the situs of taxation. This is so because a citizen is given protection by
his country no matter where he is found or no matter where he earns his income.
Source law
The country which is the source of the income or where the activity that produced the income is
the situs of taxation.
4. DOUBLE TAXATION
An act of the sovereign by taxing twice for the same purpose in the same year upon the same
property or activity of the same person, when it should be taxed once, for the same purpose and with the
same kind of character of tax (VALENCIA AND ROXAS, supra at 31).
There is double taxation when the same taxpayer is taxed twice when he should be taxed only once
for the same purpose by the same taxing authority within the same jurisdiction during the same taxing
period, and the taxes are of the same kind or character. Double taxation is obnoxious (NURSERYCARE
CORPORATION; SHOEMART, INC. ET. Al v. ANTHONY.ACEVEDO, GR. No. 180651, July 30,2014)
Two Types of Double Taxation:

a. Jurisdictional Double Taxation – when source rule overlaps, tax is imposed by two or more
countries as per their domestic laws in respect of the same transaction, income arises or
deemed to arise in their respective jurisdiction.
b. Economic Double Taxation – when same transaction, item of income or capital is taxed in two
or more states but in hands of different person, double taxation arises.
KINDS OF DOUBLE TAXATION
a. DIRECT DUPLICATE TAXATION/ OBNOXIOUS/ OBJECTIONABLE/ PROHIBITED (Strict Sense)
- referred to as direct duplicate taxation, double taxation means:
 taxing twice;
 by the same taxing authority;
 within the same jurisdiction or taxing district;
 for the same purpose;
 in the same year or taxing period;
 some of the property in the territory.
 It is the objectionable kind of double taxation in its prohibited sense, since it violates the equal
protection clause of the Constitution (City of Baguio v. De Leon, G.R No. L-24756, October 31,
1968).
Elements:
A. The same property or subject matter is taxed twice when it should only be taxed once.
B. Both taxes are levied for the same purpose
C. Imposed by the same taxing authority within the same jurisdiction, the same taxing period and
covering the same kind or character of tax.
b. INDIRECT DUPLICATE TAXATION (Broad Sense)
 It extends to all cases in which there is a burden of two or more pecuniary impositions. It is
usually allowed as long as there is no violation of the equal protection and uniformity clauses of
the Constitution.
c. INTERNATIONAL JURIDICAL DOUBLE TAXATION
 The imposition of comparable taxes in two or more states on the same taxpayer in respect
of the same subject matter and for identical periods (Commissioner of Internal revenue v. SC
Johnson and son, Inc,. G.R. No. 127105, June 25, 1999).
International juridical double taxation only occurs when the State of residence of the taxpayer
imposes tax on the income of the said taxpayer from sources within and without their state.
This double taxation usually takes place when a person is a resident of the first contracting state
and derives income, or owns capital in the other contracting state and both states impose taxes on
such income or capital. In order to eliminate double taxation, the two contracting states enter into a
tax treaty.
d. LOCAL DOUBLE TAXATION
 Happens when LGU impose a tax that is already imposed by National Government or by LGU
that has territorial jurisdiction over such LGU.
To avoid local double taxation, there is a limitation known as the pre-emption rule whereby the
Congress prevents LGU's from imposing taxes which are already imposed by the National
Government, unless otherwise provided in the Local Government Code.
Double liability may be mitigated in a number of ways, for example, a jurisdiction may:
 exempt foreign-source income from tax;
 exempt foreign-source income from tax if tax had been paid on it in another jurisdiction, or above
some benchmark to exclude tax haven jurisdictions; or
 fully tax the foreign-source income but give a credit for taxes paid on the income in the foreign
jurisdiction.
MODES OF RELIEF FROM DOUBLE TAXATION

Tax Credits
 An amount is subtracted from an individual or an entity's tax liability to arrive at the total tax liability.
Tax Exemption
 An immunity granted to persons or corporations from the obligation to pay taxes
Tax Deduction
 An amount of tax is written of or treated as a deduction from an individual or an entity's gross
income on which the resulting amount the tax liability is calculated.
Tax Treaties
 An agreement between two countries specifying what items of income will be taxed by the authority
of the country on which the income is earned.
Reduction of Philippine Income Tax Rate

 An example is the Tax Sparing rule wherein the dividend earned by a non-resident foreign
corporation (NRFC) within the Philippines is reduced by imposing a lower rate of 15% ( in lieu of 30%)
on the condition that the country to which the NRFC is domiciled shall Allow a credit against the tax due
from the NRFC, which taxes are deemed to have been paid in the Philippines (NIRC, Sec 28 (B) (5) (b);
Commissioner of Internal revenue v. Procter and Gamble G.R. No. L-66838, December 2, 1991).
TAX TREATIES AS RELIEF FROM DOUBLE TAXATION

A tax treaty is one of the sources of our law on taxation. The Philippine Government usually enters
into tax treaties in order to avoid or minimize the effects of double taxation. A treaty has the force and effect
of law.
In order to eliminate double taxation, a tax treaty resorts to two methods of relief, to wit:
1) EXEMPTION METHOD — the income or capital which is taxable in the state of source or situs is
exempted in the state of residence, although in some instances it may be taken into account in determining
the rate of tax applicable to the taxpayer's remaining income or capital.
2) CREDIT METHOD — the tax paid in the state of source is credited against the tax levied in the state of
residence. The basic difference between the two methods is that in the exemption method, the focus is on
the income or capital itself, whereas the credit method focuses upon the tax. (Baker, Double Taxation
Conventions and International Tax Law 11994], pp. 70-72)
5. ESCAPE FROM TAXATION

Six basic forms of escape from taxation
1. Shifting
2. Capitalization
3. Evasion
4. Exemption
5. Transformation
6. Avoidance
Note: With the exception of evasion, all are legal means of escape.
Shifting Tax Burden- Shifting is the transfer of burden of tax by the original payer or the one whom the tax
was assessed or imposed to another.
Note:
 What is transferred is not the payment of the tax but the burden of the tax.
 Only indirect taxes, as opposed to direct taxes, may be shifted.
Indirect Taxes - The liability for the payment of the tax remains with the taxpayer, but the burden thereof is
shifted to the purchaser (e.g. VAT, Excise Tax and other percentage tax)
Note: The imposition of indirect taxes is not a violation of the principle that taxes are personal liabilities.
The seller merely shifts the tax burden, not the liability to pay it.
Direct Taxes - Those that cannot be shifted and are exacted from the very person intended to pay.
KINDS OF SHIFTING
Forward shifting – When the burden of tax is transferred from a factor of production through the factors of
distribution until it finally settles on the ultimate purchaser or consumer.
Backward shifting – When the burden is transferred from the consumer through the factors of distribution
to the factors of production
Onward shifting – the tax is shifted two or more times either forward or backwards.
Distinguish: tax avoidance and tax evasion

a. Tax avoidance -It is reducing or totally escaping payment of taxes through legally permissible means.
Tax avoidance is the exploitation by the taxpayer of legally permissible alternative tax rates
or methods of assessing taxable property or income in order to avoid or reduce tax liability. It is politely
called “tax minimization” and is not punishable by law. (Delphers Traders Corp. v. Intermediate
Appellate Court; 157 SCRA 349)
Tax avoidance is the tax saving device within the means sanctioned by law. Taxpayers
should use this in good faith and at arm’s length. (Commissioner of Internal revenue v. Estate of
benignotoda jr., G.R. No. 147188, September 14, 2004).
A taxpayer has a legal right to decrease the amount of what would otherwise be his taxes or
altogether avoid them by means which the law permits (Delpher Trades Co. v. Intermediate Appellate
Court, G.R. no. L-69259, January 26, 1988).
b. Tax evasion - An illegal means of escaping taxation.

Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the
payment of a tax. It is also known as “tax dodging.” It is punishable by law. (Yutivo v. Court of Tax
Appeals; 1 SCRA 160)
It connotes fraud through the use of pretenses and forbidden devices to lessen or defeat
taxes. Hence, it subjects the taxpayer to further or additional civil or criminal liability.
A scheme used outside those of lawful means and when availed of, usually subjects the
taxpayer to further or additional civil or criminal liability. (Commissioner of Internal revenue v. Estate of
benignotoda jr)
ELEMENTS OF TAX EVASION

1. The end to be achieved, i.e., payment of less than that known by the taxpayer to be legally due, or
paying no tax when it is shown that the tax is due.
2. An accompanying state of mind which is described as being evil, in bad faith, willful, or deliberate and
not coincidental.
3. A course of action or failure of action which is unlawful.
6. EXEMPTION FROM TAXATION

This denotes a grant of express or implied immunity, to a particular person, corporations, or to
persons, corporations, of a particular class, from a tax upon property or an exercise which persons and
corporations generally the same taxing district are obliged to pay.
Tax exemptions are generally granted on the basis of (a) reciprocity, (b) public policy and (c)
contracts. Exemption is allowed only if there is a clear provision therefor. It is not necessarily discriminatory
as long as there is a reasonable foundation or rational basis
Tax exemption applies only to government entities through which the government immediately and
directly exercises its governmental function, like the Armed Forces of the Philippines (AFP). However, if
government entities are performing proprietary functions such as Philippine National Railway (PNR), they
are generally subject to tax in the absence of tax exemption provisions in their charters or the law creating
them.
Tax exemptions are governed by the following principles:

 They are not presumed.
 When granted, they are strictly construed against tax payer.
 They are highly disfavoured and may almost be said “to be directly contrary to the intention of tax laws.”
Classification of Tax Exemption:

Tax exemption may be classified as follows:
1.Expressed Exemption- this tax exemption s are statutory laws in nature as provided by the constitution,
statute, treaties, ordinances, franchise or similar legislative acts.
Examples of tax statutory tax exemption are:
a) Inter-corporate dividends by a domestic corporation from another domestic corporation;
b) Section 105 of the Tariff and Customs Code
c) Section 234 of the Local Government Code, and;
d) Other special laws such as Omnibus Investment Code of 1987 Philippine Overseas Shipping Act.
2.Implied Exemption by Omissions- this occurs when tax is imposed on a certain class of persons,
proprieties or transactions without mentioning other classes; those not mentioned are considered exempted
by omission.
3.Contractual Exemptions- are those lawfully entered into by the government contacts under existing
laws.
Tax Exemption by the Government

The state in its exercise of sovereignty, does not tax itself or any of its political subdivisions.
However, the state may tax any of its government-owned or controlled corporations exercising proprietary
functions. Therefore, agencies performing governmental functions are exempt from tax unless expressly
taxed, while those performing proprietary functions are subject to tax unless expressly implied.
Grounds for granting tax exemptions

 May be based on contract. In such a case, the public which is represented by the
government is supposed to receive a full equivalent therefor, i.e. charter of a corporation.
 May be based on some ground of public policy, i.e., to encourage new industries or to foster
charitable institutions. Here, the government need not receive any consideration in return for the tax
exemption.
 May be based on grounds of reciprocity or to lessen the rigors of international double or
multiple taxation
Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clear provision
therefor.
Does provision in a statute granting exemption from “all taxes” include indirect taxes?
NO. As a general rule, indirect taxes are not included in the grant of such exemption unless it is
expressly stated.
7. EQUITABLE RECOUPMENT
Equitable recoupment doctrine is a legal principle that grants a right to a creditor to recover debt. The
debt diminishes to the extent she/he holds the debtor’s property in violation of the debtor’s legal rights. This
doctrine allows a taxpayer to set off previously overpaid taxes due, even though the taxpayer is time-barred
from claiming refund on the previous taxes.
This also allows the government to set off those taxes that has been collected from a taxpayer against
the current claim for a refund, although the government is time-barred from collecting the previous taxes.
Doctrine of equitable recoupment is applicable only if the statute of limitations has created an inequitable
result. It is a defensive remedy which helps in the mitigation of damages.
In Wisconsin Dep’t of Revenue v. Van Engel, 230 Wis. 2d 607,609 (Wis. Ct. App. 1999), court ruled
that equitable recoupment can only occur when the untimely refund claim to be set off against the timely
assessment occurs within the same transaction or tax year. The court also held that the doctrine can only be
used as a defense to an assessment made during the same transaction or tax period.
8. PROHIBITION ON COMPENSATION AND SET-OFF

This doctrine states that taxes are not subject to set-off or legal compensation because government
and the tax payer are not mutual creditor and debtor to each other. A person cannot refuse to pay tax on the
basis that the government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government.
Exemptions to this rule are the following:
 Where both the claims of the government and the taxpayer against each other have already become
due, demandable, and fully liquidated.
 When there is an actual compromise between the taxpayer and the tax officer.
9. COMPROMISE
This doctrine provide that compromises are generally allowed and enforceable when the subject
matter thereof is not prohibited from being compromised and the person entering such compromise is duly
authorized to do so.
The law allows the following persons to compromise in behalf of the government:
a. Only the BIR Commissioner is expressly authorized by the tax code to enter into compromise for both
civil and criminal liabilities subject to certain conditions.
b. The Collector of Customs is given the power to compromise with respect customs duties limited to cases
where legitimate authority is specifically granted, such as in the remission of duties.
c. The Custom Commissioner, subject to approval by the Secretary for Finance, has the power to
compromise cases involving the imposition of fines surcharges and forfeitures;
d. The Local Government Code has no provision regarding compromise; however, tax liability (no criminal
liability) is not prohibited from being compromised. Even so, there is no specific authority given to any public
official to execute the compromise so as to render it effective.
10. TAX AMNESTY

Tax Amnesty is limited time opportunity for a specified group of taxpayers to pay a defined amount,
in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax
period or periods and without fear of criminal prosecution.
Republic Act (RA) No. 11213 or The Tax Amnesty Act was approved by President Rodrigo
Duterte on February 14, 2019. RA No. 11213 contains provisions on Estate Tax Amnesty and Tax Amnesty
on Delinquencies.
A. Tax Amnesty
Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted by statute. The
terms of the amnesty must also be construed against the taxpayer and liberally in favor of the government.
(Republic v. Intermediate Appellate Court, 196 SCRA 335)
Tax amnesty v. tax condonation v. tax exemption

 A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an
absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it and,
in this sense, prejudicial thereto, particularly to tax evaders who wish to relent and are willing to reform are
given a chance to do so and therefore become a part of the society with a clean slate.
 Like a tax exemption, a tax amnesty is never favored nor presumed in law, and is granted by
statute. The terms of the amnesty must be strictly construed against the taxpayer and liberally in favor of
the government. Unlike a tax exemption, however, a tax amnesty has limited applicability as to cover a
particular taxing period or transaction only.
 There is tax condonation or remission when the State desists or refrains from exacting, inflicting or
enforcing something as well as to restore what has already been taken. The condonation of a tax liability is
equivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressed in
the law.
THE ESTATE TAX AMNESTY

The Estate Tax Amnesty covers the estate of decedents who died on or before December 31, 2017,
with or without assessments duly issued therefore, whose estates have remained or have accrued as of
December 31, 2017.
The estate tax amnesty rate is 6% based on the decedent’s total net estate at the time of death. The
net estate refers to the gross estate less allowable deductions as provided in the Tax Code or the applicable
state laws prevailing at the time of death of the decedent. If an estate tax return was previously filed with the
BIR, the estate tax of 6% would be based on the net undeclared estate.
This estate amnesty tax may be filed by the Executor, Administrator, legal heirs, transferees or
beneficiaries of the Estate. Availment of the Estate Tax Amnesty within two (2) years from the effectivity of
the Implementing Rules and Regulations (IRR) of the Tax Amnesty Act. It should be filed with the
Revenue District Office (RDO) having jurisdiction over decedent’s last residence by filing a sworn Estate
Tax Amnesty Return. For non-resident decedents, the Estate Tax Amnesty Return should generally be filed
with RDO No. 39.
Taxpayers who avail of the Estate Tax Amnesty will enjoy immunity from the payment of estate
taxes, civil, criminal, and administrative cases and penalties.
The Estate Tax Amnesty shall not extend to the following:

a) Fall under the jurisdiction of the Presidential Commission on Good Government (PCGG);
b) Involve unexplained or unlawfully acquired wealth under the Anti-Graft and Corrupt Practices Act and
Plunder Act;
c) Involve violation of the Anti-Money Laundering Act;
d) Involve tax evasion and other criminal offenses under Chapter II of Title X of the Tax Code;
e) Involve felonies of fraud, illegal exactions and transactions, malversation of public funds and property.
B. Tax Amnesty on Delinquencies ( TAD)

The Tax Amnesty on Delinquencies covers all national internal revenue taxes such as, but not
limited to, income tax, withholding tax (including those withheld, but not remitted), capital gains tax, donor’s
tax, VAT, other percentage taxes, excise tax and DST collected by the BIR, including VAT and excise taxes
collected by the Bureau of Customs (BOC) for taxable year 2017 and prior years.
The TAD may be availed of in the following instances and at the following rates:
NATURE OF DELINQUENCY TAX AMNESTY RATE( ON THE BASIC TAX

ASSESSED)
Delinquencies and Assessments which have 40%
become final and executory
Tax Cases subject of final and executory judgment 50%

by the courts
Pending criminal cases with criminal information 60%

filed with the Department of Justice or the courts
for tax evasion and other criminal offenses under
Chapter II, Title X and Section 275 of the Tax
Code
Withholding agents who withhold taxes but failed to 100%

remit the same to the BIR
The TAD may be availed of by any person, natural or juridical, within one (1) year from the
effectivity of the IRR by filing with the RDO having jurisdiction over the residence or principal place of
business of the taxpayer, a Sworn Tax Amnesty on Delinquencies Return accompanied by a Certification of
Delinquency. The payment of the amnesty shall be made at the same time the return is filed.
For taxpayers who availed of the TAD, the tax delinquency will be considered settled. Moreover, the
taxpayers who availed of the TAD will enjoy immunity from payment of delinquency or assessment,
investigations as well as appurtenant civil, criminal, and administrative cases and penalties under the Tax
Code and any pending cases which are subject of the amnesty.
Furthermore, availment of the TAD will result in the termination of criminal cases with the DOJ or
courts for tax evasion and other criminal offenses under Chapter II, Title X & section 275 of the Tax Code
and corresponding civil and administrative cases. Any notices of levy, attachments, and warrants of
garnishment will be lifted.
K. CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES AND REGULATIONS

CONSTRUCTION OF TAX LAWS
1. Rule when legislative intent is clear
 Tax statutes are to receive a reasonable construction with a view to carrying out
their purpose and intent.
 They should not be construed as to permit the taxpayer easily to evade the
payment of taxes.
2. Rule when there is doubt
 No person or property is subject to taxation unless within the terms or plain import
of a taxing statute. In every case of doubt, tax statutes are construed strictly against
the government and liberally in favor of the taxpayer.
 Taxes, being burdens, are not to be presumed beyond what the statute expressly
and clearly declares.
3. Provisions granting tax exemptions
 Such provisions are construed strictly against the taxpayer claiming tax exemption.
INTERPRETATION AND APPLICATION OF TAX LAWS
Nature of internal revenue laws
1. Internal revenue laws are not political in nature.
2. Tax laws are civil and not penal in nature.
Not political in nature

 Internal revenue laws are not political in nature. They are deemed to be the laws of the occupied
territory and not of the occupying enemy.
 Thus, our tax laws continued in force during the Japanese occupation.
 Hilado v. Collector, 100 Phil 288
Civil, not penal, in nature
 Tax laws are civil and not penal in nature, although there are penalties provided for their violation.
 The purpose of tax laws in imposing penalties for delinquencies is to compel the timely payment of
taxes or to punish evasion or neglect of duty in respect thereof.
 Republic v. Oasan, 99 Phil 934:
 General rule: Tax laws are prospective in operation because the nature and amount of the tax
could not be foreseen and understood by the taxpayer at the time the transactions which the law
seeks to tax was completed.
 Exception: While it is not favored, a statute may nevertheless operate retroactively provided it is
expressly declared or is clearly the legislative intent. But a tax law should not be given retroactive
application when it would be harsh and oppressive.
REVENUE RULES AND REGULATIONS AND ADMINISTRATIVE RULINGS AND OPINIONS

Authority to promulgate rules and regulations and rulings and opinions
- The Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, shall
promulgate needful rules and regulations for the effective enforcement of the provisions of the NIRC.
- This is without prejudice to the power of the Commissioner of Internal Revenue to make rulings or
opinions in connection with the implementation of the provisions of internal revenue laws, including rulings
on the classification of articles for sales tax and similar purposes.
Purpose of rules and regulations

1. To properly enforce and execute the laws
2. To clarify and explain the law
3. To carry into effect the law’s general provisions by providing details of administration and procedure
Requisites for validity of rules and regulations
1. They must not be contrary to law and the Constitution.
2. They must be published in the Official Gazette or a newspaper of general circulation.
 Commissioner v. Court of Appeals, 240 SCRA 368
 La Suerte v. Court of Tax Appeals, 134 SCRA 29
Effectivity of revenue rules and regulations
 Revenue Memorandum Circular 20-86 was issued to govern the drafting, issuance, and
implementation of revenue tax issuances, including:
1. Revenue Regulations;
2. Revenue Audit Memorandum Orders; and
3. Revenue Memorandum Circulars and Revenue Memorandum Orders.
 Except when the law otherwise expressly provides, the aforesaid revenue tax issuances shall not
begin to be operative until after due notice thereof may be fairly assumed.
 Due notice of the said issuances may be fairly presumed only after the following procedures have
been taken:
1. Copies of the tax issuance have been sent through registered mail to the following business
and professional organizations:
a. Philippine Institute of Certified Public Accountants;
b. Integrated Bar of the Philippines;
c. Philippine Chamber of Commerce and Industry;
d. American Chamber of Commerce;
e. Federation of Filipino-Chinese Chamber of Commerce; and
f. Japanese Chamber of Commerce and Industry in the Philippines.
2. However, other persons or entities may request a copy of the said issuances.
3. The Bureau of Internal Revenue shall issue a press release covering the highlights and
features of the new tax issuance in any newspaper of general circulation.
4. Effectivity date for enforcement of the new issuance shall take place thirty (30) days from the
date the issuance has been sent to the above-enumerated organizations.
BIR rulings
 Administrative rulings, known as BIR rulings, are the less general interpretation of tax laws being
issued from time to time by the Commissioner of Internal Revenue. They are usually rendered on
request of taxpayers to clarify certain provisions of a tax law. These rulings may be revoked by the
Secretary of Finance if the latter finds them not in accordance with law.
 The Commissioner may revoke, repeal or abrogate the acts or previous rulings of his predecessors
in office because the construction of the statute by those administering it is not binding on their
successors if, thereafter, such successors are satisfied that a different construction of the law
should be given.
 Rulings in the form of opinions are also given by the Secretary of Justice who is the chief legal
officer of the Government.
II. NATIONALTAXATION
A. TAXING AUTHORITY
1. Jurisdiction, power, and functions of the Commissioner of Internal Revenue
2. Rule-making authority of the Secretary of Finance
B. INCOME TAX
1. Definition, nature, and general principles
a. Income tax systems
i. Global
ii. Schedular
iii. Others
b. Features of the Philippine income tax law
c. Criteria in imposing Philippine income tax
i. Citizenship
ii. Residence
iii. Source
d. General principles of income taxation
e. Types of Philippine income taxes
f. Kinds of taxpayers
g. Taxable period
2. Concept of income
a. Definition
b. When income is taxable
i. Existence of income
ii. Realization of income
iii. Recognition of income
c. Tests in determining whether income is earned for tax purposes
i. Realization test
ii. Claim of right doctrine or doctrine of ownership, command or control
iii. Economic benefit test or doctrine of proprietary interest
iv. Severance test
d. Methods of accounting
i. Distinguish: cash and accrual method
ii. Special method: installment, deferred payment, percentage of completion (in
long-term contracts)
e. Situs of Income
3. Gross income
a. Definition
b. Distinguish: gross income, net income, and taxable income
c. Sources of income subject to tax
i. Compensation income
ii. Fringe benefits
iii. Professional income
iv. Income from business
v. Income from dealings in property
(a) Distinguish ordinary asset and capital asset
(b) Types of gains
(c) Special rules pertaining to income or loss from dealings in property
classified as capital asset (loss limitation rule, loss carry-over rule, holding period rule)
(d) Tax-free exchanges
vi. Passive investment income
(a) Interest
(b) Dividend
(c) Royalty income
(d) Rental income
vii. Annuities and proceeds from life insurance or other types of insurance
viii. Prizes and awards
ix. Pension, retirement benefit, or separation pay
x. Income from any source
(a) Condonation of indebtedness
(b) Recovery of accounts previously written off
(c) Receipt of tax refunds or credit
d. Exclusions
i. Rationale
ii. Taxpayers who may avail
iii. Distinguish: exclusions, deductions, and tax credits
iv. Exclusions under the Constitution
TRAIN LAW PROVISIONS AMENDING THE NIRC OF 1997
NIRC PROVISIONS TRAIN LAW PROVISIONS (AMENDING THE NIRC

PROVISIONS)
Section 5 of TRAIN. Sec 24 of NIRC, as amended, is hereby
Section 24 Income Tax Rates further amended to read as follows
Sec.24 A(2) Sec.24 A(2)a
Income tax rates on individual citizen and Revised personal income tax brackets of 2018-2022:
individual resident alien of the Philippines Tax Schedule effective January 1, 2018 to
Taxable income of individuals are subject to the December 31, 2022
following graduated rates:
Over P250,000 but 20% of the excess over
not over P400000 P250,000
Over P400,000 but P30,000 + 25% of the
not over P800,000 excess over P400,000
Over P800,000 but P130,000 + 30% of the
not over P2million excess over P800,000
Over P2Million but P490,000 + 32% of the
not over P8Million excess over P2Million
Over P8Million P2,410,000 + 35% of
the excess over
P8Million
For 2023 onwards:
Tax Schedule effective January 1, 2023
onwards
Not over P250,000 0%

Over P250,000 but 15% of the excess
not over P400,000 over P250,000
Over P400,000 but P22,500 +20% of the
not over P800,000 excess over P400,000
Over P800,000 but P102,500 + 25% of the
not over P2,000,000 excess over P800,000
Over P2Million but P402,500 + 30% of the
not over P8Million excess over P2Million
Over P8Million P2,202,500 + 35% of
the excess over
P2Million
Sec.24 A(2)b
For purely self-employed and/or professionals whose
gross sales/receipt and other non-operating income do
not exceed the VAT threshold of P3Million, the tax shall
be, at the taxpayer’s option, either:
1. 8% income tax on gross sales or gross receipts in
excess of P250,000 in lieu of the graduated income
tax rates and the percentage tax under Sec. 116;
OR
2. Income tax based on the graduated income tax rates
for individuals (tax table above)
Sec.24 A(2)c
For mixed income earners (earning both compensation
income and income from business and/or practice of
profession), their income taxes shall be:
1. For income from compensation: based on
graduated income tax rates for individuals (tax table
above), AND
Section 24 (B) Rate of Tax on Certain Passive 2. For income from business and/or practice of
Income profession:
(1) a. Gross sales/receipts which do not exceed the
 Final tax on winnings VAT threshold of P3Million – 8% income tax
Philippine Charity Sweepstakes and Lotto on gross sales/receipts and other non-operating
winnings – exempt from the 20% final tax income (in lieu of income and percentage taxes)
OR income tax based on graduated income tax
 Final tax on interest on foreign rates on taxable income, at the taxpayer’s
currency deposit OPTION
Interest income received by an individual b. Gross sales/receipts and other non-operating
taxpayer (except a non-resident individual) income which exceeds the VAT threshold of
from a depository bank under the P3Million – income tax based on graduated tax
expanded foreign currency deposit (EFCD) rates for individuals
system is subject to 7.5% final tax
Section 24 (B) Rate of Tax on Certain Passive Income
Section 24 (C)Capital gains tax on sale of shares (1)
not traded through the stock exchange  Final tax on winnings
 The capital gains tax on net capital gains Philippine Charity Sweepstakes and Lotto
realized from sale, barter, or exchange or winnings of more than P10,000 shall be subject
other disposition of shares of stock in a to the 20% final tax
domestic corporation not traded through
the stock exchange is:  Final tax on interest on foreign currency
deposit
Not over P100,000 – 5% The rate of final tax on interest income received
On any amount in excess of P100,000 – by resident individual taxpayer under the
10% expanded foreign currency deposit system
increased from 7.5% to 15% final tax
Section 24 (C)Capital gains tax on sale of shares not

traded through the stock exchange
 The final tax rate of 15% for net capital gains
realized during the taxable year from the sale,
barter, exchange or other disposition of
shares of stock in a domestic corporation
except shares sold or disposed of through the
stock exchange

further amended to read as follows
Section 31. Taxable Income, Defined Section 31. Taxable Income, Defined
Means the pertinent items of gross income specified in The phrase “and/or personal and additional exemptions”
this Code, less the deductions and/or personal and is removed in the definition.
additional exemptions, if any, authorized for such
types of income by this Code or other special laws

further amended to read as follows
Section 32. Gross Income Section 32. Gross Income
Section 32 (B) (7) e Section 32 (B) (7) e
Tax exempt 13th month pay Tax exempt 13th month pay
 The amount of tax-exempt 13th month pay  The amount of tax-exempt 13th month pay and
and other benefits is P82,000. other benefits is increased to P90,000.
Section 10 of TRAIN. Sec 33 of NIRC, as amended, is

hereby further amended to read as follows
Section 33. Special Treatment of Fringe Benefit Section 33. Special Treatment of Fringe Benefit
Section 33 (A) Section 33 (A)
Tax on fringe benefits given to non-rank and file Tax on fringe benefits given to non-rank and file employees
employees  The Fringe Benefits Tax is increased to 35% effective
 Fringe benefits given to non-rank and file January 1, 2018
employees are subject to 32% final tax  The grossed up monetary value of the fringe benefit
 The grossed up monetary value of the fringe given to non-rank and file employees shall be
benefit given to non-rank and file employees determined by dividing the actual monetary value by
shall be determined by dividing the actual 65%
monetary value by 68%  Fringe benefits furnished to employees and taxable
under Subsections (B), (C), (D) and (E) of Sec. 25
shall be taxed at the applicable rates imposed
 The grossed-up monetary value of the fringe benefit
shall be determined by dividing the actual monetary
value of the fringe benefit by the difference between
100% and the applicable rates of income tax under
Subsections (B), (C), (D) and (E) of Sec. 25

Section 34. Deductions from Gross Income Section 34. Deductions from Gross Income
Section 34 (M) Premium payments on health and/or Section 34 (M) Premium payments on health and/or
hospitalization insurance of an Individual Taxpayer hospitalization insurance of an Individual Taxpayer
The allowable deduction for premium payments on Allowable deduction for premium payments on health and/or
health and/or hospitalization insurance of an individual hospitalization insurance of an individual taxpayer is
taxpayer is P2400 per year or P200 per month, subject removed.
to a gross family income threshold of P250,000.
Section 34 (L)
Optional Standard Deduction Section 34 (L)
Individual taxpayers (except non-resident alien) may Optional Standard Deduction
elect a standard deduction not exceeding 40% of gross In addition, For GPPs and the partners comprising them,
sales/receipts and corporations may elect standard OSD may be availed only once, i.e., either by the GPP
deduction not exceeding 40% gross income, in lieu of itself or by the partners comprising the GPP.
itemized allowable deductions.
Section 12 of TRAIN. Repealing Sec 35 of NIRC, as

amended
Section 35 Allowance for Personal Exemption for The Basic Personal and Additional Exemptions of individual
Individual taxpayers are removed.
 Individual taxpayers are entitled to: The related provision on furnishing exemption certificate is
Basic Personal Exemption – P50,000 likewise removed.
and
Additional Exemption – P25,000 per
qualified dependent child

Section 51 Individual Return Section 51 Individual Return
Section 51 (2) (A) Section 51 (2) (A)
An individual whose gross income does not exceed his Individual taxpayers whose taxable income is subject to zero
total personal and additional exemptions for percent under the new graduated tax table (i.e., does not
dependents are not required to file income tax return exceed P250,000) shall not be required to file an income tax
(ITR). return (except for individuals engaged in business/
practice of profession, regardless of the amount of gross
income)
Section 51 (5) Additional provision:

The ITR shall consist of a maximum of four (4) pages in
paper OR electronic form. It shall only contain the following
information:
 Personal profile and information
 Gross sales receipts or income from compensation,
from business, or from exercise of profession (except
income subject to final tax)
 Allowable deductions
 Taxable income
 Income tax due and payable
No provision Section 14 of TRAIN. A new section designated as Sec
51-A of NIRC, as amended, is hereby inserted to read as
follows:
Section 51-A. Substituted Filing of Income Tax Returns
by Employees Receiving Purely Compensation Income
Substituted filing or ITRs is available for individual taxpayers:
 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 correctly withheld
by the employer (i.e., tax due = tax withheld)
The Certificate of Withholding filed by the employers duly
stamped “RECEIVED” by the BIR shall be the substituted
filing by such employers

hereby further amended to read as follows:
Section 52 Corporate Returns Section 52 Corporate Returns
Section 52 (A) Section 52 (A)
Every corporation subject to tax, except foreign In addition:
corporations not engaged in trade or business in the The ITR shall consist a maximum of four (4) pages in paper
Philippines, shall render in duplicate, a true and OR electronic form.
accurate It shall only contain the following: information:
 Quarterly income tax return; AND 1. Corporate profile and information
 Final or adjustment return 2. Gross sales, receipts or income from services
rendered or conduct of trade or business except
income subject to final tax
3. Allowable deductions
4. Taxable income
5. Income tax due and payable
These requirements shall not affect the implementation of
TMTA or RA No. 10708.

Section 56. Payment and Assessment of Income Section 56. Payment and Assessment of Income Tax for
Tax for Individuals and Corporation Individuals and Corporation
Section 56 A (2) Installment Payment Section 56 A (2) Installment Payment
When tax due exceeds ₱2,000, the taxpayer (other The new deadline of payment of second installment is
than a corporation) may elect to pay the tax in two October 15 following the close of the calendar year.
equal installments. Payment of installments:
 First installment – time of filing of return
 Second installment – on or before July 15
following the close of the calendar year.
Section 57. Withholding of Tax at Source Section 57. Withholding of Tax at Source
Section 57 B Section 57 B
The rate of withholding tax on items of income payable Beginning January 1, 2019, the rate of withholding tax shall
by payor-corporations/persons shall be not less than be not less than one percent (1%) but not more than fifteen
one percent (1%) but not more than thirty-two percent percent (15%).
(32%).
The tax withheld shall be credited against the income
tax liability of the taxpayer.

Section 58. Returns and Payment of Taxes Section 58. Returns and Payment of Taxes Withheld at
Withheld at Source Source
The return for FWT and the return for creditable FWT and EWT returns shall be filed and the payment made
withholding taxes (EWT returns) shall be filed within not later than the last day of the month following the close of
ten (10) days after the end of each month [Sec. 2.58 of the quarter during which the withholding was made.
RR No. 2-98]
The provision that the Commissioner may require the
payment of the taxes withheld at more frequent intervals is
removed.
Section 19 of TRAIN. Repealing Sec 62 of NIRC, as

amended
Section 62. Exemption Allowed to Estates and
Trusts The exemption for estates and trusts is removed.
There is allowed personal exemption of ₱50,000 from
the income of the estate or trust.

Section 74. Declaration for Income Tax for Section 74. Declaration for Income Tax for Individuals
Individuals Section 74 A
Section 74 A The deadline for filing of declaration estimated income for
Every individual subject to income tax shall make and the current taxable year is on or before May 15 of the
file a declaration of his estimated income for the same taxable year.
current taxable year on or before April 15 of the
same taxable year. Filing of Income Tax Returns
Filing of Income Tax Returns • 1st Quarter May 15
• 1st Quarter April 15 • 2nd Quarter August 15
• 2nd Quarter August 15 • 3rd Quarter November 15
• 3rd Quarter November 15 • Annual April 15
• Annual April 15
II. NATIONAL TAXATION (NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED

BY R.A. 10693 OR THE TAX REFORM FOR ACCELERATION AND INCLUSION LAW)
A. TAXING AUTHORITY
1. JURISDICTION, POWER, AND FUNCTIONS OF THE COMMISSIONER OF INTERNAL
REVENUE
a. Interpreting Tax Laws And Deciding Law Cases (Sec. 4, Nirc)
1. Interpret provisions of NIBC and other tax law subjects to be reviewed by the Secretary of Finance
2. Decide on:
 Disputed assessments
 Refunds of internal revenue taxes, fees, and charges
 Penalties imposed in relation thereto
 Other matters arising from NIRC and other laws or portions thereof administered by the BIR
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals
In Agencia Exquisite of Bohol, Inc. v. CIR (G.R. No.150141)[2009] RMC No. 43-91 and RMO
No.15-91 were invalidated in the absence of publication. Although the rule-making authority of the
Commissioner is not doubted, “he may not disregard legal requirements or principles in the exercise of
quasi-legislative powers. The due observance of the requirements of notice, hearing, and publication should
not have been ignored.”
b. Non-Retroactivity Of Decisions (Sec. 246, Nirc)

Any revocation, modification, reversal of any of the rules and regulations promulgated in
accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner
shall NOT be given retroactive application IF the revocation, modification or reversal will be prejudicial to the
taxpayers, EXCEPT in the following cases:
1. Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the BIR;
2. Where the facts subsequently gathered by the BIR are materially different from the facts on
which the ruling is based; or
3. Where the taxpayer acted in bad faith.
In CIR v. Benguet Corporation, 463 SCRA 29 [2005], the Supreme Court affirmed that rulings,
circular, rules and regulations promulgated by the Commissioner of Internal Revenue would have no
retroactive application if to so apply them would be prejudicial to the taxpayer.
2. RULE-MAKING AUTHORITY OF THE SECRETARY OF FINANCE
Sec. 244, NIRC. Authority of Secretary of Finance to Promulgate Rules and Regulations.
The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful
rules and regulations for the effective enforcement of the provisions of this Code.
The Secretary of Finance has the power to revoke, repeal or abrogate the acts for previous rulings
of his predecessors in office. The reason for this is that the construction of the state by those administering it
is not binding on their successors if thereafter the latter becomes satisfied that a different construction
should be given. (Hilado v. Coll., 100 Phil. 288)
Under the guise of legislation, the power to make regulations is not the power to legislate in the true
sense. Statutes already enacted that are inconsistent with promulgated rules may not be altered or
modified. (De Leon, 2011) Regulations in conflict with the law are null and void. (Art. 7, Civil Code)
Regulations, although partake of administrative regulations of tax laws and are entitled to great respect from
the courts, are not conclusive upon the courts and will be ignored if judicially found to be erroneous. (Molina
v. Rafferty, 39 Phil. 169) The authority of the Secretary of Finance cannot be controverted; neither can it be
disputed that such rules and regulations, as well as administrative rulings and opinions, ordinarily deserve
weight and respect in the courts. Administrative rules and regulations are intended neither to carry out nor to
suppliant the law. (CIR v. CA, G.R. No. 108358, January 20, 1995)
B. INCOME TAX
1. DEFINITION, NATURE, AND GENERAL PRINCIPLES
DEFINITION
Income tax is a tax on a person’s emoluments, profits arising from property, practice of profession,
conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997, as
amended, less the deductions if any, authorized for such types of income, by the Tax Code, as amended, or
other special laws.
NATURE
It is a direct tax on actual or presumed (gross or net) of the taxpayer received, accrued, or realized
during taxable year.
Nature or purposes
1. It is a national tax or one imposed by the national government under the National Internal Revenue Code;
2. It is an excise tax because it is imposed on the right to generate or receive income through labor, capital
and others, and not or persons or property;
3. It is a direct tax since it is imposed on the person who is personally bound to pay the tax, a burden he
cannot shift to another
4. Income tax is a general tax because it is primarily intended to provide large amounts of revenue to the
government and secondarily to offset the regressive sales and consumption taxes, and to mitigate the evil of
inequalities in the distribution of wealth; and
5. It is progressive because the tax rate increases as the tax base increases.
When is income taxable

“Taxable income” means the pertinent items of gross income specified in the Tax Code less the deductions
authorized by the Tax Code or other special laws. (KPMG Asia Pacific Tax Centre)
1. When there is income, gain, or profit;
2. When such is received, accrued, and realized during the taxable year; and
3. When it is not exempt from income tax. (Exemption: Those with taxable income below Php 250,000.00)
A. INCOME TAX SYSTEMS

1. GLOBAL TAX SYSTEM
Global treatment is a system where the tax treatment views indifferently the tax base and generally
treats sin common all categories of taxable income of the taxpayer. (Tan v. Del Rosario, Jr. 237 SCRA 324).
It is the total allowable deductions as well as personal and additional exemptions, in case of qualified
individuals, or the total allowable deductions only, in case of corp. are deducted from the gross income.
GIST: All items of gross income, deductions and personal and additional exemptions, if any, are reported in
one income tax return
- to be filled at least annually
- and the applicable tax rate applied on the tax base
APPLICABLE TO:
- compensation income
- business or professional income
- capital gain and passive income not subject to Final Withholding Tax; and
- other income
2. SCHEDULAR TAX SYSTEM

Schedular approach is a system employed where the income tax treatment varies and made to
depend on the kind or category of taxable income of the taxpayer. (Tan v. Del Rosario, Jr. 237 SCRA 324).
Different types of income are subject to different sets of graduated or flat income rates. The applicable tax
rate/s will depend on the classification of the taxable income and the basis could be the gross income
(without deductions) or net income (the gross income less allowable deductions).
APPLICABLE TO:
- Passive investment income subject to Final Withholding Tax
- Capital gain from the sale or transfer of shares of stocks of a domestic corps; and
- Real properties classified as capital assets
3. SEMI-SCHEDULAR or SEMI-GLOBAL TAX SYSTEM

A system of taxation wherein both global and schedular tax systems are being applied, depending
on the kind of income. (Note: The Philippines follow semi-global or semi-schedular tax system.)
B. FEATURES OF PHILIPPINE INCOME TAX LAW

1.Direct Tax- the tax burden is borne by the income recipient upon the tax is imposed
2.Progressive Tax- tax bases increase as tax rate increases.
3.Comprehensive Tax- based on: citizenship principle, residence principle, and source principle. Any of the
3 is enough to justify the imposition of income tax on the resident citizen and Domestic Corporation that
are taxed on worldwide income.
C. CRITERIA IN IMPOSING INCOME TAX

1. CITIZENSHIP PRINCIPLE
 RESIDENT CITIZENS; taxable both for income from sources within and income without the
Philippines
 NON-RESIDENT CITIZENS; taxable only for income from sources within the Philippines
2. RESIDENCE PRINCIPLE
 RESIDENT ALIENS; taxable only for income from sources within the Phil, and exempt from
sources outside.
3. SOURCE PRINCIPLE
 NON-RESIDENT ALIENS; are subject to Philippine income tax only on income from sources
within the Philippines, this is despite of the fact that he never set foot in the Philippines
A non-resident German citizen, president of a domestic corporation, filed a claim for refund
with the BIR, contending that her sales commission income is not taxable in the Philippines
because the same was a compensation for her services rendered in Germany and therefore
considered as income from sources outside the Philippines. While it is the rule that “source of
income” relates to the property, activity or service that produced the income, the documents
presented by respondent did not constitute substantial evidence that it was in Germany where
she performed the income-producing service and thus the tax refund should be denied.
(Commissioner of Internal Revenue vs. Juliane Baier-Nickel, G.R. No. 153793, August 29,
2006).
D. GENERAL PRINCIPLES
General Rule: There must be an actual income, gain or profit.
Exception: In sale of real property located in the Philippines classified as a capital asset; presumed gain.
1. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without
the Philippines;
2. A nonresident citizen is taxable only on income derived from sources within the Philippines;
3. An individual citizen who is working and deriving income abroad as an OFW is taxable only on income from
sources within the Philippines Provided, that the OFW, who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an OFW;
4. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from
sources within the Philippines;
5. A domestic corporation is taxable on all income derived from sources within and without the Philippines;
and
6. A foreign corporation whether engaged or not in trade or business in the Philippines is taxable only on the
income derived from sources within the Philippines.
E. KINDS OF PHILIPPINE INCOME TAXES
TYPES OF INCOME
1. General (part of gross income, subject to 5-32% (depending on one’s bracket)
a) Compensation Income
b) Income from Business
c) Income from Exercise of Profession
2. Special Types of Income (not part of gross income, subject to final tax)
a) Passive Income- TRAIN imposes higher taxes including income from dollar and other foreign
currency deposits
- Interests, royalties, prizes and other winnings subject to final tax (Passive income)
- Cash & property dividends (does not include stock dividends; these are realized only upon their
subsequent sale) (Passive Income)
PASSIVE INCOME NIRC TRAIN
Interest from foreign currency deposit 7.5% 15%
Interest income from pre-terminated long term 5-20% 20%
deposits
b) Capital gains from sale of real property
c) Capital gains from sale of shares of stocks

- Capital gains from sales of shares of stock not listed in the stock exchange (5-15% final tax on net
gains)
- Capital gains from sale of shares of stock listed in stock exchange (subject to percentage tax)
(increased from 0.5% to 0.6% of the transaction value)
3. New Taxes
a) Introduction of excise tax on sweetened beverages (3-in-1 coffee and milk, among others, are
exempt)
b) Cosmetic tax (5% of gross receipts
c) PCSO winnings (20% for amount more than Php10, 000)
d) Excise taxes on cigarettes manufactured oils (petroleum products), mineral products and
automobiles (double the rates from 2% to 4%- with 4% increase every year),
e) Documentary stamp tax (100% increase for property, savings, and non-life insurance)
F. KINDS OF TAXPAYERS
I. INDIVIDUALS
A. Citizens
1. Resident Citizen- is a citizen of the Philippines who has a permanent or place of abode in the
Philippines to which he/she intends to return whenever he/she is absent for business or pleasure.
2. Nonresident Citizen - citizen of the Philippines who:
(a) Establishes the fact of his physical presence abroad with a definite intention to reside therein;
(b) Leaves the Philippines during the taxable year to reside abroad, as immigrant or for employment on a
permanent basis;
(c) Works & derives income from abroad & whose employment requires him to be physically present abroad
most of the time (i.e. not less than 183 days) during the taxable year. Previously considered as nonresident
citizen & arrives in the Philippines at any time during the taxable year to reside permanently in the
Philippines.
B. Aliens
1. Resident Alien- is an individual who is not a citizen of the Philippines but whose residents is
within the Philippines.
2. Nonresident Alien-
a) Those engaged in trade or business in the Philippines who come and stay in the
Philippines for an aggregate period of more than 180 days during any calendar year;
b) Those not engaged in trade or business in the Philippines, which include non-resident
aliens whose stay in the Philippines is 180 days or less;
c) Aliens employed by regional or area headquarters and regional operating headquarters
of multinational companies in the Philippines;
d) Aliens employed by offshore banking units; and
e) Aliens employed by petroleum contractors and subcontractor
II. ESTATES AND TRUSTS

A. Estate:
Property, rights and obligations of a person which are not extinguished by his death and those that
accrues thereto; taxed in the same way as an individual provided it is irrevocable and earns income;
what is taxed is not the property that constitutes the trust (this was already subject to donor’s tax)
but the income of such property.
B. Trust:
An arrangement created by agreement under which title to property is passed to another for
conservation or investment with the income and the corpus/principal distributed in accordance with
the directions of the creator; to be taxable as a separate entity, grantor must have absolutely and
irrevocably given up control and benefit over the trust.
III. CORPORATION
A corporation shall include partnerships, no matter how created or organized. Joint stock
companies, joint accounts, associations, and insurance companies, but does not include, for the
purpose of imposing ordinary 35% corporate income tax.
General Types:
A. Domestic Corporation is created or organized in the Philippines or under its laws.
B. Foreign Corporation is organized and existing under the laws of a foreign country
1. Resident foreign corporation – foreign corporation engaged in trade or business within the
Philippines; and
2. Nonresident foreign corporation – foreign corporation not engaged in trade or business within
the Philippines
Marubeni Japan claimed a refund for excess taxes it had paid, contending that since it had
a Philippine branch, it is a resident foreign corporation liable to pay only 10% inter-corporate final
tax on dividends received from a domestic corporation (and not to the branch profit remittance tax)
following the principal-agent theory. Marubeni Japan is considered a non-resident foreign
corporation as to the dividends because when the foreign corporation transacts business in the
Philippines independently of its branch, the principal-agent relationship is set aside. (Marubeni
Corp. vs. Commissioner of Internal Revenue, et al., G.R. No. 76573, September 14, 1989)
BOAC is a resident foreign corporation because it maintained a general sales agent in the
Philippines. There is no specific criterion as to what constitutes “doing” or “engaging in” or
"transacting” business. The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of commercial gain or for the purpose
and object of the business organization. In order that a foreign corporation may be regarded as
doing business within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a temporary
character. (CIR vs BOAC, G.R. No. L-65773-74 April 30, 1987)
IV. PARTNERSHIPS
Kinds of Partnerships
1) General Professional Partnerships
-Established solely for purpose of exercising common profession and not part of income
derived from engaging in trade or business.
-As an entity, it is not subject to income tax. Partners are liable for income tax on their
distributive share (computed by dividing net income of GPP). Each partner shall report his
distributive share as part of his gross income.
2) Taxable/Business/Ordinary Partnership
 All other partnerships no matter how created or organized.
 Includes unregistered joint ventures and business partnerships.
 Taxable as an entity ordinary corporate income tax.
 Joint ventures are not taxable as corporations when its purpose if a) undertaking construction
projects; b) engaged in petroleum, coal and other energy operation under a service contract
with the government.
 Partners are considered stockholders; therefore, their distributive share is taxed as dividends
Taxpayer Within Without

Resident Citizen  
Non-resident Citizen and  X
OCW
Resident and Non-resident  X
Alien
Domestic Corporation  
Foreign Corporation  X
G. TAXABLE PERIOD
1. CALENDAR METHOD
-ITR, whether for an individual or for corporation, association, or partnership, are required to be filed on
Dec. 31st of every year
2. FISCAL PERIOD
-Corporation, association, or partnership may with the approval of the Commissioner of Internal Revenue,
file their returns and compute their income on the basis of a fiscal year
-an accounting period of 12 months ending on the last day of the month other than December (DOES NOT
APPLY TO INDIVIDUAL TAXPAYER)
3. SHORT PERIOD
an accounting period of a taxpayer for less than 12 months, as when the annual accounting period of a
subsidiary is changed to conform with the annual accounting period adopted by its foreign parent company
for easy consolidation of their audited worldwide financial statements. (THIS IS AS AN EXCPETION TO
THE RULE that the accounting period or taxable year consists of 12 months)
2. CONCEPT OF INCOME
A. DEFINITION
(a) Income means all wealth which flows to the taxpayer other than a mere return of capital. It includes
gain derived from the sale or other disposition of capital assets. Income is a gain derived from labor or
capital, or both labor and capital; and includes the gain derived from the sale or exchange of capital
assets.
(b) Conwi v. CTA: It is an amount of money coming to a person within a specified time, whether as
payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its
equivalent. Income can also be thought of as a flow of the fruits of one's labor.
NATURE
Income includes earnings, lawfully or unlawfully acquired, without consensual recognition, express
or implied, of an obligation to repay and without restriction as their disposition. (James v. US, 366 US 213)
B WHEN INCOME IS TAXABLE

i. EXISTENCE OF TAXABLE INCOME
(1) There is INCOME, gain or profit
(2) RECEIVED or REALIZED during the taxable year
(3) NOT EXEMPT from income tax
WHEN IS THERE INCOME?

When there is a FLOW of wealth other than mere return of capital during the taxable period.
(a) Madrigal vs. Rafferty (1918): "The fact is that property is a tree, income is the fruit; labor is a tree, income
the fruit; capital is a tree, income the fruit." A tax on income is not a tax on property. "Income," as here
used, can be defined as "profits or gains."
(b) A mere increase in the value of property is not income, but merely unrealized increase in capital. (1
Mertens, Sec. 5.06) The increase in the value of property is also known as appraisal surplus or
revaluation increment.
Income v. Capital (Madrigal v. Rafferty)
Income Capital
Denotes a flow of Fund or property

wealth during a existing at one distinct
definite period of time. point in time.
Service of wealth Wealth itself
Subject to tax Return of capital is not
subject to tax
Fruit Tree
ii. WHEN IS INCOME RECEIVED OR REALIZED?

Actual vis-à-vis Constructive receipt
(1) Actual receipt – Income is actually reduced to possession. The realization of gain may take the form of
actual receipt of cash.
(2) Constructive receipt– An income is considered constructively received when it is credited to the
account of, or segregated in favor of a person. The person may withdraw the said account credited in
his favor anytime without any substantial limitations or conditions upon which payment or enjoyment is
to be made or exercised.
Examples of constructive receipt of income are:
(a) Interest credited on savings bank deposit
(b) Matured interest coupons not yet collected by the taxpayer
(c) Dividends applied by the corporation against the indebtedness of a stockholder
(d) Share in the profit of a partner in a general professional partnership, although not yet distributed, is
regarded as constructively received; or
(e) Intended payment deposited in court (consignation).
The doctrine of constructive receipt is designed to prevent the taxpayer using the cash basis from
deferring or postponing the actual receipt of taxable income. Without the rule, the taxpayer can
conveniently select the year in which he will report the income.
For a taxpayer using the accrual method, the determinative question is, when do the facts present
themselves in such a manner that the taxpayer must recognize income or expense? The accrual of income
and expense is permitted when the all-events test has been met. This test requires: (1) fixing of a right to
income or liability to pay; and (2) the availability of the reasonable accurate determination of such income
or liability [CIR v. Isabela Cultural Corporation].
C. TESTS IN DETERMINING WHETHER INCOME IS EARNED FOR

TAX PURPOSES
(1) Realization test – income is generally recognized when both of the following conditions are met:
a. The earning process is complete or virtually complete; and
b. An exchange has taken place (Mandarin Hotels, Inc. v. Commissioner of Internal Revenue, CTA
Case No. 5046, March 24, 1997).
(2)Claim of right doctrine – a taxable gain is conditioned upon the presence of a claim of right to the
alleged gain and the absence of a definite unconditional obligation to return or repay that which would
otherwise constitute a gain. To collect a tax would give the government an unjustified preference as to
the part of the money that rightfully and completely belongs to the victim. The embezzler’s title is void.
(3)Economic benefit test – any economic benefit to the employee that increases his net worth, whatever
may have been the mode by which it is effected, is taxable. Thus, in stock options, the difference
between the fair market value of the shares at the time the option is exercised and the option price
constitutes additional compensation income to the employee at the time of exercise (not upon the grant
or vesting of the right).
(4) Severance test – there is no taxable income until there is a separation from capital or something of
exchangeable value, thereby supplying the realization or transmutation which would result in the receipt
of income. This is also known as the Macomber test. (Eisner v Macomber, 252 US 189, 207-208)
Under the doctrine of severance test of income, in order that income may exist, is necessary that
there be a separation from capital of something of exchangeable value. The income required a
realization of gain. Thus, stock dividends are not income subject to income tax on the part of the
stockholder when he merely holds more shares representing the same equity interest in the corporation
that declared stock dividends (Fisher v Trinidad).
(5) All Events Test – for income or expense to accrue, this test requires the fixing of a right to income or
liability to pay, and the availability of the reasonable accurate determination of such income or liability.
The amount of liability does not have to be determined exactly; it must be determined with reasonable
accuracy (Commissioner of Internal Revenue vs. Isabela Cultural Corp., GR No. 172231, February 12,
2007).
(6)Income from whatever source – All income not expressly excluded or exempted from the class of
taxable income, irrespective of the voluntary or involuntary action of the taxpayer in producing the
income, and regardless of the source of income, is taxable (Gutierrez v. Collector, 101 Phil.
713).
All of the above tests are followed in the Philippines for purposes of determining whether income is
received by the taxpayer or not during the year.
D. METHODS OF ACCOUNTING IN REPORTING INCOME AND EXPENSES

Cash method vis-à-vis Accrual method
Cash method generally reports income upon cash collection and reports expenses upon payment.
If earned from rendering of services, income is to be reported in the year when collected, whether earned or
unearned.
(Sec. 108, NIRC).
Accrual method generally reports income when earned and reports expense when incurred. If
earned from sale of goods, income is to be reported in the year of sale, irrespective of collection. (Sec. 106,
NIRC).
Income realized pertains to the accrual basis of accounting, when recognition of income in the
books is when it is realized and expenses are recognized when incurred. It is the right to receive and not
the actual receipt that determines the inclusion of the amount in gross income
Examples:
(1) interest or rent income earned but not yet received
(2) rent expense accrued but not yet paid
(3) wages due to workers but remaining unpaid
Generally, trade and manufacturing businesses use accrual method while servicing businesses use
cash method. If the service business opted to report on accrual basis, such method can only be applied
when it comes to reporting of expense. To prevent tax evasion, individual taxpayers whose business
consists of the sale of inventories cannot use cash method. (Valencia)
Installment method vis-à-vis Deferred method vis-à-vis Percentage of completion method (in long-
term contracts)
Installment Method is a special method of accounting whereby income on installment sales of
property during the year is allowed to be reported in installments in proportion to the installment payments
actually received which the gross profit bears to the total contract price (Sec. 49, NIRC).
Income may be reported on the installment basis in the following cases:
Sales of personal property by a dealer
A dealer who regularly sells or otherwise disposes of personal property on the installment plan
Sales of real property (inventory) and casual sales of personalty
(1) casual sale or other casual disposition of personal property (not of a kind which would be includible
in the inventory of the taxpayer if on hand at the close of the taxable year) where the selling price >
P1,000 and the initial payments do not exceed 25% of the selling price, or
(2) Sale or other disposition of real property (inventory), if the initial payments do not exceed 25% of the
selling price. Note: This sale is subject to creditable withholding tax and normal tax which is 30% for
corporate taxpayer or 5% to 32% for individual taxpayer.
Sales of real property considered as capital asset by individuals
An Individual who sells or disposes of real property, considered as capital asset, if initial payments
do not exceed 25% of the selling price, may pay the capital gains tax in installments (Sec. 49(C), NIRC).
(Note: This sale is subject to a capital gains tax of 6% based on the selling price or zonal value, whichever
is higher.)
Note: Initial payments are the total payments received in cash or property (other than evidences of
indebtedness such as promissory notes, mortgages given) by the seller upon or before the execution of the
instrument of sale during the taxable year of the disposition of the real property. Considered as initial
payments are the down-payment and all other payments received by the seller during the year of sale,
including excess mortgage assumed by the buyer over the basis or cost of the property sold. It
contemplates at least one other payment in addition to the initial payment. If the entire purchase price is to
be paid in a lump sum in a later year, there being no payment during the first year, the income may not be
returned on the installment basis.
Selling price is the total amount or price of the sale including the cash or property received and all
notes of the buyer or mortgages assumed by him.
Contract price is the amount which the purchaser contracts to pay the seller in cash. It includes the
excess of the mortgages assumed over the cost or other basis of the property sold.
Change from accrual to installment basis A taxpayer entitled to the benefits of a dealer in personal
property may elect for any taxable year to report his taxable income on the installment basis. In computing
his income for the year of change or any subsequent year, amounts actually received during any such year
on account of sales or other dispositions of property made in any prior year shall not be excluded. [See
Sec. 49 (D), NIRC].
Deferred Payment
(a) If the initial payments exceed 25% of the selling price, the gain realized may be reported on a
deferred payment method.
(b) The taxable gain or income returnable during the year of sale is the difference between the selling
or contract price and the cost of the property, even though the entire purchase price has not been
actually received in the year of sale.
(c) The obligations of the purchaser received by the vendor are to be considered as equivalent of cash.
(*personal property not considered inventory)
Percentage of completion
Income from long-term construction contracts refers to the earnings derived from construction of a
building, installation or other construction contract usually covering a period in excess of one year. When
income is derived from long-term construction contracts, it is generally reported on the basis of percentage
of completion made every year that will be evidence by the certificates of engineers or architects. The
reportable income is calculated by deducting from the contract price the actual cost of construction.
In recognizing realized revenue for long-term construction contracts, accountants usually follow two
methods:
(a) Completed contract method – requires recognition of revenue only when the contract is finally
completed; and
(b) Percentage of completion method – requires recognition of income based on the progress of work.
Long-term contracts are no longer allowed to be reported based on the completed contract method
basis beginning January 1, 1998 pursuant to RA 8424; hence, all long-term contracts must be reported
using the percentage of completion method.
SITUS INCOME
The power to tax is limited only to persons, property or business within the jurisdiction or territory of
the taxing power.
The factors that determine the situs of taxation are:
1) Kind or classification of the tax being levied

2) Situs of the thing or property taxed
3) Citizenship of the tax payer
4) Residence of the taxpayer
5) Source of the income tax
6) Situs of the exercise, privilege, business or occupation being taxed.
Application of Situs Taxation
Kind of Tax Situs

Personal or community tax Residence or domicile of the taxpayer
Real property Tax Location of property (lex rei sitae)
Personal property tax -tangible: where it is physically located or
permanently kept (lex rei sitae)
-intangible: subject to Sec. 104 of the NIRC and
the principle of mobilia sequuntur personam
Business tax Place of business
Exercise of privilege tax Where the act is performed or where occupation
is pusued
Sales tax Where the sale is consummated
INCOME TAX CONSIDER: (1)CITIZENSHIP; (2)
RESIDENCE; (3) SOURCE OF INCOME. (Sec.
42, 1997 NIRC )
Transfer tax Residence or citizenship of the taxpayer or
location of property
Franchise tax State which granted the franchise
Corporate tax Law on incorporation
E. SITUS OF INCOME TAXATION
Income Situs
Interest Residence of the debtor

Dividends Residence of the corporation
Services Place of performance
Rentals Location of the property
Royalties Place of exercise
Sale of Real Location of realty
Property
Sale of (a) Tangible
Personal
Property (1) Purchase and sale:
Location of Sale
(2) Manufactured w/in and
sold w/o: Partly w/in and
partly w/o
(3) Manufactured w/o and sold
w/in: Partly w/in and partly
w/o
(b) Intangible
General rule: Place of Sale
Exception: Shares of stock of

domestic corporations: Place of
incorporation
Shares of Place of incorporation
Stock of
Domestic
Corporation
3. GROSS INCOME
A. DEFINITION
Gross Income means the pertinent items of income referred to in Section 32(A) of the Tax Code. It
includes all income derived from whatever source (unless exempt from tax by law), including but not limited
to the following items: (TRIP CARD GPP)
(1) Gross income derived from the conduct of Trade or business or the exercise of a profession
(2) Rents
(3) Interests
(4) Prizes and winnings
(5) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages,
commissions, and similar items
(6) Annuities
(7) Royalties
(8) Dividends
(9) Gains derived from dealings in property
(10)Pensions
(11) Partner’s distributive share from the net income of the general professional partnership
(GPP) [Sec 32A, NIRC]
(a) The list here is NOT exclusive

(b) The term “gross income” whenever used without qualification, is comprehensive, as defined above, and
is different from the limited meaning of gross income for purposes of minimum corporate income tax or
the gross income tax of corporations. Gross income includes gross profit from ordinary business and
other income not subject to passive income tax or final withholding tax.
(c) Gross income means income, gain, or profit subject to income tax.
It includes the compensation for personal services, business income, profits, and income derived
from any source whatever. (Whether legal or illegal)
It excludes unless it is exempt from income tax under the Constitution, tax treaty, or statute or it is
subject to final withholding income tax in accordance with the semi-global or semi-schedular tax system
adopted by the Philippines.
It is the difference between gross sales/revenue and the cost of goods sold/services. The definition
of gross income is broad and comprehensive to include proceeds from sales of transport documents.
(Mamalateo)
CONCEPT OF INCOME FROM WHATEVER SOURCE DERIVED

“income derived from whatever source “means inclusion of all income not expressly exempted
within the class of taxable income under the laws irrespective of the voluntary or involuntary action of the
taxpayer in producing the gains, and whether derived from legal or illegal sources (i.e. gambling, extortion,
smuggling, etc.).
GROSS INCOME VIS-À-VIS NET INCOME VIS-À-VIS TAXABLE

INCOME
(a) Gross income - means income, gain or profit subject to tax.
(b) Net income– means gross income less statutory deductions and/or exemptions (Sec. 31, NIRC)
(c) Taxable income – means the pertinent items of gross income specified in the Tax Code, less the
deductions and/or personal and additional exemptions, if any, authorized for such types of income by the
Tax Code or other special laws (Sec. 31, NIRC).
SOURCES OF INCOME
Source is ascribed to the place wherein the income is earned. It is governed by the situs of taxation. This
classification of income is necessary to determine whether such income is subject to tax or not. Income
may be:
(1) Derived entirely from sources within the Philippines. Examples: compensation for labor or service
derived from Philippine sources; interest on bonds, notes, deposits and the like earned in the Philippines;
dividends declared by domestic corporations; rentals and royalties from property located within the
Philippines; and gains, profits and income from sale of real property as well as from personal property in
the Philippines. As a rule, incomes earned with the Philippines are taxable.
(2) Derived entirely from sources without the Philippines. Examples: compensation for labor or service
rendered by overseas contract workers; interest on bonds, notes, deposits and the like earned abroad;
dividends declared by nonresident foreign corporation; rental and royalties from property located outside
the Philippines; and gains, profits and income from sale of real property as well as from personal
property located outside the Philippines. As a rule, incomes earned with the Philippines are taxable.
(3) Derived from sources partly within or partly without the Philippines.Examples: gains, profits and income
from transportation or other services rendered partly within and partly outside, and dividend received by
a resident citizen from a resident foreign corporation. (Sec. 43(E), NIRC). In general, when an income is
earned partly from within and partly from without, only income within is taxable in the Philippines, except
if the taxpayer is a resident citizen or a domestic corporation. A Filipino citizen or a domestic corporation
whose income is derived from within and without the Philippines is generally subject to tax.
SOURCES OF INCOME SUBJECT TO TAX
Income subject to tax
The incomes of individuals are grouped into different categories, to wit:
a. Compensation income, consists of income arising from employer-employee relationship such as

salaries, wages, emoluments and honoraria, commissions, taxable bonuses and fringe benefits, taxable
allowances (such as transportation, representation, entertainment, and the like) 1, non-monetary
compensation, director’s fees and the like, taxable pensions and retirement pay, amounts drawn as salaries
by partners of a partnership and other incomes of a similar nature unless specifically exempted by the Tax
Code. [Refer to item A (4)]
b. Business income and income from profession, consist of business and/or trade income, fees from
the exercise of profession, gains from sale or exchange of assets, commissions, rental income, and other
incomes not covered by compensation income.
c. Passive income and other sources of income2, consist of interest from foreign and Philippine
currency bank deposits (including yields and other monetary benefits from deposit substitutes and trust fund
and similar arrangements), royalties, prizes and other winnings, and dividends. The other sources of income
include capital gains from sales of shares of stock, sales of real property 3 , informer’s rewards, etc. 4
COMPENSATION INCOME
Compensation income is defined as taxable income arising from an employer/employee relationship

and include the following:
a) Salaries, wages, compensation, commissions, emoluments, and honoraria

b) Bonuses and other benefits exceeding P90,000.00
c) Allowances for transportation, representation, entertainment, and other similar items
d) Fees (including director’s fees paid to a director who is at the same time an employee of the payer)
e) Taxable pensions
f) Taxable retirement pay
g) Other income of a similar nature, including compensation paid-in-kind.
1
2
3
4
FRINGE BENEFITS
Fringe benefit tax (FBT) is a final income tax on the employment which shall be withheld and paid
by the employer on a quarterly basis.
Fringe benefit means any good, service, or other benefit furnished or granted by an employer, in
cash or in kind, in addition to basic salaries, to an individual employee (except rank and file employees)
such as, but not limited to the following:
1) Housing
2) Expense account
3) Vehicle of any kind
4) Household personnel, such as maid, driver, and others
5) Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted
6) Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs and similar organizations
7) Expenses for foreign travel
8) Holiday and vacation expenses
9) Educational assistance to the employee or his dependents; and
10) Life or health insurance and other non-life insurance premium or similar amounts on excess of what
the law allows.
Who are liable to FBT?
The employer (as a withholding agent), whether individual, professional partnership or a

corporation, regardless of whether the corporation is taxable or not, or the government and its
instrumentalities.
What are fringe benefits not subject to FBT?
1) If it is required or necessary to the business of employer

2) If it is for the convenience or advantage of employer
3) Fringe benefits which are authorized and exempted under special laws, such as the 13 th month Pay
and Order Benefits with the ceiling of P30,000
4) Contributions of the employer for the benefit of the employed to retirement insurance and
hospitalization benefit plans
5) Benefits given to the Rank and File Employees, whether granted under a collective bargaining
agreement or not; and
6) The De minimis benefits- benefits which are relatively small in value offered by the employer as a
means or promoting goodwill, contentment, efficiency of Employees.
Nature and Treatment of FBT
Deductibility to the taxable income of the employer.
General rule: The amount of taxable fringe benefit and the fringe benefit tax shall constitute allowable
deductions from gross income of the employer.
Exception: If the basis for computation of the fringe benefit tax is the depreciation value, the zonal value or
the fair market value, only the actual fringe benefits tax paid shall constitute a deductible expense for the
employer. The value of the fringe benefit shall not be deductible and shall be presumed to have been tacked
on or actually claimed as depreciation expense by the employer. Provided, however, that if the aforesaid
zonal value or fair market value of the said property is greater than its cost subject to depreciation, the
excess amount shall be allowed as a deduction from the employer’s gross income as fringe benefit
expense.
PROFESSIONAL INCOME
Refers to fees received by a professional from the practice of his profession, provided that there is
NO employer-employee relationship between him and his clients.
INCOME FROM BUSINESS
(a) Any income derived from doing business

(b) Doing business: The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of, the purpose and object of its organization.
INCOME FROM DEALINGS IN PROPERTY
Dealings in property such as sales or exchanges may result in gain or loss. The kind of property involved
(i.e., whether the property is a capital asset or an ordinary asset) determines the tax implication and income
tax treatment, as follows:
Net Capital Gains

Taxable Net (other than those subject to
= Ordinary Net Income +
Income final CGT)
DISTINGUISH ORDINARY ASSET AND CAPITAL ASSET
Ordinary Asset Capital Asset

Gain from sale, exchange or other disposition
Ordinary Gain (part of Gross Income) Capital Gain
Loss from sale, exchange, or other disposition
Ordinary Loss (part of Allowable Deductions

Capital Loss
Capital Loss from Gross Income)
Excess of Gains over Losses

Part of Gross Income Net Capital Gain
Excess of Losses over Gains
Part of Allowable Deductions from Gross Net Capital Loss
Rules governing dealing of properties or assets

Ordinary Asset Capital Asset Capital Asset
Part of ordinary income subject Major CA (a) sale of shares of Minor CA- other than sale of
to normal or basic tax stocks and (b) sale of real stocks and real property.
property.
Gain or .loss arising from any Subject to capital gains tax under Subject to specific rules as
sale, barter or exchange shall be section 24 (C) and (D) of the earlier mentioned above-herein.
part of ordinary taxable income of NIRC. Virtually gains or losses Subject to specific rules as
such seller, which is subject to are not recognized. earlier mentioned above-herein.
normal tax.
TYPES OF GAINS
 Capital gain tax is a tax imposed on capital gains or the profits that an individual males from selling
assets. The tax is only imposed once that asset has been converted into cash, and not when it’s still
in the hands of an investor. It is a profit accumulated from the sale of any capital asset. Such gains
can be accrued either through the sale of investment or real estate property.
 Depending on the duration, capital gains can be either short-term or long-term. Since profits are
categorized as an “income”, they are liable for taxation, which is known as capital gains tax.
SPECIAL RULES PERTAINING TO INCOME OR LOSS FROM DEALINGS IN PROPERTY CLASSIFIED

AS CAPITAL ASSET (LOSS LIMITATION RULE, LOSS C ARRY-OVER RULE, HOLDING PERIOD RULE)
The rules on the recognition of capital gains or losses
INDIVIDUAL TAXPAYER CORPORATE TAXPAYER

Holding Period No holding period
The percentages of gain or loss to be taken into
account shall be the following: Capital gains and losses are recognized to the
a. 100%- if the capital assets has been held for 12 extent of 100%.
mos. Or less; and
b. 50%- if the capital asset has been held for more
than 12 mos.
Non-deductibility of net capital loses

Capital losses are allowed only to extent of the Capital losses are allowed only to the extent of
capital gains; hence, the net capital loss is not the capital gains; hence, the net capital loss is not
deductible. deductible.
Net capital loss carry-over
Allowed Not allowed
The net capital loss (in an amount not in excess of
the taxable income before personal exemption for
such year) shall be treated in the succeeding year
(but not beyond 12 months) as deduction as short-
term capital loss (at 100%) from the net capital
gains.
TAX-FREE EXCHANGES
What are tax free exchanges?

Sales or exchanges resulting in non-recognition of gains or losses:
A. Exchange solely in kind in legitimate mergers and consolidation includes:
a) Between the corporations which are parties to the merger or consolidation (property for
stocks)
b) Between a stockholder of a corporation party to a merger or consolidation and the other
party corporation (stock for stock)
c) Between a security holder of a corporation party to a merger or consolidation and other
party corporation (securities for securities)
B. Transfer to a controlled corporation- exchange of property for tax stocks resulting in acquisition of
corporate control by a person, alone or together with others nor=t exceeding four.
Control means ownership of stocks in a corporation amounting to at least 51% of the total voting
power of all classes of stocks entitled to vote.
C. Sale or disposition of the old principle residence;
a) By natural persons- citizen or resident alien individual taxable under Sec. 24 of the Code (does
not include an estate or a trust)
b) The proceeds of which is fully utilized in (a) acquiring or (b) constructing a new principal
residence within 18 calendar months from date of sale or disposition;
c) Notify the Commissioner within 30 days from sale or disposition through a prescribed return of
his intention to avail the tax exemption;
d) Can only be availed of only once every 10 years
e) The historical cost or adjusted basis of his old principal residence sold, exchanged or disposed
shall be carried over to the cost basis of his new principal residence
f) If there is no full utilization, the portion of the gains presumed to have realized shall be subject
to capital gains tax.
PASSIVE INVESTMENT INCOME
INTEREST
DIFFERENT KINDS OF INTEREST INCOME
A. PASSIVE: Interest from bank deposit and deposit substitutes, trust fund or similar arrangement located in
the Philippines.
a) Resident Citizen (RC) 20% Final Tax

b) Non-resident citizen 20% final tax
c) Resident alien (RA) 20% final tax
d) Non-resident alien engaged in business 20% final tax
e) Special alien (SA) 20% final tax
f) Domestic corporation and resident corporation (DC and RC) 20% final tax
g) Interest on foreign loans by non-resident corporation 20% final tax.
h) Interest under an expanded foreign currency received by RC, RA, SA, as well as DC and RC 7.5%
final tax
i) Interest under an expanded foreign currency received by non-resident is exempt from tax.
B. ORDINARY: Interest from bank deposits and deposits substitutes trust fund or similar arrangements
located outside of the Philippines.
a) RC, NRC, RA, NRAETB, SA 5-32% Net Income Tax

b) DC and RC 35% Net Income Tax
And interecst from loans, trade receivables or accounts receivables
c) RC, NRC, RA, NRAETB, SA 5-32% Net Income Tax
d) DC and RC 35% Net Income Tax.
DIVIDEND
Different kinds of Dividends
A. Cash and property dividends
Individual Taxpayer: from domestic corporations and from foreign corporations
Corporate taxpayer: foreign to domestic corp; domestic to domestic corp.- exempt; intercorporate dividends
and domestic to foreign corp. (resident foreign corp-exempt and non-resident foreign corp- 15% subject to
the condition stated in sec. 28B5. Otherwise, it shall be taxed at 32%.)
B. Stock Dividends-
General rule: Not subject to tax because it does not constitute income: it represents transfer of
surplus to capital account.
Exemptions:
a) Sec. 73B, 1997 NIRC
i. There is redemption or cancellation
ii. The transaction involves stock dividends, and
iii. The time and manner of the transaction makes it essentially equivalent to a
distribution of taxable dividend.
b) the receipt is other than the shareholder
c) Change in the stockholder’s equity results by virtue of the stock dividend issuance.
C. Liquidating Dividends- When a corporation distributes all of its assets in complete liquidation or
dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporation, is
taxable income or deductible loss, as the case may be.
A liquidating dividend is not a dividend income. The transaction is considered as a sale or exchange
of property between the corporation and the stockholder.
ROYALTY INCOME
Kinds of royalty income
A. Passive: Royalty from authorship of books, musical composition and literary works.
a) Resident Citizen (RC) 10% Final Tax

b) Non-resident citizen 10% final tax
c) Resident alien (RA) 10% final tax
d) Non-resident alien engaged in business 10% final tax
and royalty other than from books, compositions, and literary works
e) Resident citizen 20% final tax
f) Non-resident citizen 20% final tax
g) Resident alien 20% final tax
h) Non-resident alien engaged in business 20% final tax.
RENTAL INCOME
(1) Refers to earnings derived from leasing real estate as well as personal property. Aside from the
regular amount of payment for using the property, it also includes all other obligations assumed to be
paid by the lessee to the third party in behalf of the lessor (e.g., interest, taxes, loans, insurance
premiums, etc.) [RR 19-86]
(2) Rent income may be in the following forms:
(a) Cash, at the stipulated price
(b) Obligations of the lessor to third persons paid or assumed by the lessee in consideration of the
contract of lease, e.g., real estate tax on the property leased assumed by the lessee
(c) Advance payment
(1) If the advance payment is actually a loan to the lessor, or an option money for the property, or a
security deposit for the faithful performance of certain obligations of the lessee, such advance
payment is not income to the lessor.
(2) However, a security deposit that is applied to rental is taxable income to the lessor.
(3) If the advance payment is, in fact, a prepaid rental, received by the lessor under a claim of right
and without restriction as to its use, then such payment is income to the lessor.
(4) Pre-paid rent must be reported in full in the year of receipt, regardless of the accounting method
used by the lessor.
Lease of personal property

Rental income on the lease of personal property located in the Philippines and paid to a non-resident
taxpayer shall be taxed as follows:
Non-Resident Corporation Non-

Resident Alien
Vessel 4.5% 25%
Aircraft, machineries and other 7.5% 25%
Equipment
Other assets 30% 25%
Lease of real property
Lessor Tax Rate
Citizen
Resident Alien Net taxable income shall be subject to the
Non-resident alien engaged in trade or business in graduated income tax
the rates
Philippines
Non-resident alien not engaged in trade or Rental income from real property located in the
business in the Philippines shall be subject to 25% final withholding
Philippines tax unless a lower rate is imposed
Lessor Tax Rate
pursuant to an effective tax treaty
Domestic Corporation Net taxable income shall be subject to 30%

Resident Foreign corporate income tax or its gross income will be
Corporation subject to 2% MCIT
Non-resident Foreign Gross rental income from real property located in

Corporation the
Philippines shall be subject to 30% corporate
income tax, such tax to be withheld and remitted by
the
lessee in the Philippines
ANNUITIES AND PROCEEDS FROM LIFE INSURANCE OR OTHER TYPES OF INSURANCE
(1) Annuities are installment payments received for life insurance sold by insurance companies.
(2) The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life
of one or more determinate persons in consideration of a capital consisting of money or other property,
whose ownership is transferred to him at once with the burden of the income. [ Art. 2021, New Civil
Code]
(3) The annuity payments represent a part that is taxable and not taxable. If part of annuity payment
represents interest, then it is a taxable income. If the annuity is a return of premium, it is not taxable.
PRIZES AND AWARDS
How to tax prizes and winning?
Generally, all prizes and winnings are passive income subject to final tax unless the prize do not
exceed 10,000.00 or such winnings are won outside the Philippines it becomes an ordinary income subject
to normal tax.
Contest prizes and awards received are generally taxable. Such payment constitutes gain derived
from labor.
The EXCEPTIONS are as follows:
(1) Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic,
literary or civic achievements are EXCLUSIONS from gross income if:
(a) The recipient was selected without any action on his part to enter a contest or proceedings; and
(b) The recipient is not required to render substantial future services as a condition to receiving the prize
or award.
(2) Prizes and awards granted to athletes in local and international sports competitions and tournaments
held in the Philippines and abroad and sanctioned by their national
(3) associations shall be EXEMPT from income tax.
PENSION, RETIREMENT BENEFIT, OR SEPARATION PAY
(1) paid for past employment services rendered.
(2) a stated allowance paid regularly to a person on his retirement or to his dependents on his death, in
consideration of past services, meritorious work, age, loss or injury. It is generally taxable unless the law
states otherwise. [VALENCIA,
INCOME FROM ANY SOURCE
Inclusion of all income not expressly exempted within the class of taxanle income under the laws
irrespective of the voluntary or involuntary action of the taxpayer in producing the gains, and whether
derived from legal or illegal sources.
CONDONATION OF INDEBTEDNESS
The cancellation or forgiveness of indebtedness may have any of three possible consequences:
(a) It may amount to payment of income. If, for example, an individual performs services to or for a creditor,
who, in consideration thereof, cancels the debt, income in that amount is realized by the debtor as
compensation for personal services.
(b) It may amount to a gift. If a creditor wishes merely to benefit the debtor, and without any consideration
therefore, cancels the debt, the amount of the debt is a gift to the debtor and need not be included in the
latter’s report of income.
(c) It may amount to a capital transaction. If a corporation to which a stockholder is indebted forgives the
debt, the transaction has the effect of a payment of dividend.
RECOVERY OF ACCOUNTS PREVIOUSLY WRITEEN OFF
Tax Benefit Rule
This isa general principle in taxation which states that is a taxpayer deducted an item on his income tax
return and enjoyed a tax benefit (reduced hisincome tax) thereby, and in a subsequent year recovers all or
part of that item, he will recognize gross income in the year the deducted item is recovered. The rule has
both an inclusionary and an exclusionary component, i.e., the recovery is included in the taxpayer’s gross
income to the extent that the taxpayer obtained a tax benefit from the prior year’s deduction, and the
recovery is excluded to the extent that the prior year’s deduction did not provide a tax benefit.
RECEIPT OF TAX REFUNDS OR CREDIT

EXCLUSIONS
General rule: a refund of a tax related to the business or the practice of profession, is taxable income (e.g.,
refund of fringe benefit tax) in the year of receipt to the extent of the income tax benefit of said deduction
(i.e., the tax benefit rule applies).
Exceptions: However, the following tax refunds are not to be included in the computation of gross income:
(CAP–IF–FED–VAT)
(1) Philippine income tax, except the fringe benefit tax
(2) Income tax imposed by authority of any foreign country, if the taxpayer claimed a credit for such tax in
the year it was paid or incurred.
(3) Estate and donor’s taxes
(4) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed
(Special assessments)
(5) Value Added Tax
(6) Fines and penalties due to late payment of tax
(7) Final taxes
(8) Capital Gains Tax
Note: The enumeration of tax refunds that are not taxable (income) is derived from an enumeration of tax
payments that are not deductible from gross income.
If a tax is not an allowable deduction from gross income when paid (no reduction of taxable income, hence
no tax benefit), the refund is not taxable.
EXCLUSIONS FROM GROSS INCOME

Exclusions from gross income refer to income received or earned but is not taxable as income because it is
exempted by law or by treaty. Such taxfree income is not to be included in the income tax retrun unless
information regarding it is specifically called for. Receipts which are not in fact income are, of course,
excluded from gross income. The exclusion of income should not be confused with the reduction of gross
income by the application of allowable deductions. While exclusions are simply not taken into account in
determining gross income, deductions are subtracted from gross income to
arrive at net income. (De Leon)
Items of Exclusions representing return of capital

(a) Amount of capital is generally recovered through deduction of the cost or adjusted basis of the property
sold from the gross selling price or consideration, or through the deduction from gross income of
depreciation relating to the property used in trade or business before it is sold.
(b) It may also related to indemnities, such as proceeds of life insurance paid to the insured’s beneficiaries
and return of premiums paid by the insurance company to the insured under a life insurance, endowment
or annuity contract.
(c) Damages, in certain instances, may also be exempt because they represent return of capital.
Items of Exclusion because it is subject to another internal revenue tax

The value of property acquired by gift, bequest, devise or descent is exempt from income tax on the part of
the recipient because the receipt of such property is already subject to transfer taxes (estate
tax or donor’s tax)
Items of Exclusions because they are expressly

exempt from income tax
(1) Under the Constitution

(2) Under a tax treaty
(3) Under special laws
Rationale for the exclusions

The term “exclusions” refers to items that are not included in the determination of gross income because:
(a) They represent return of capital or are not income, gain or profit;
(b) They are subject to another kind of internal revenue tax;
(c) They are income, gain or profit that are expressly exempt from income tax under the Constitution, tax
treaty, Tax Code, or a general or special law.
(Mamalateo)
Taxpayers who may avail of the exclusions
Exclusion Taxpayer
Return of capital All taxpayers since

there is no income.
Already subject to All taxpayers unless
internal revenue tax provided that income is
to be included.
Express exclusion As expressly provided.
Exclusions distinguished from deductions and tax credit

(a) Exclusions from gross income refer to a flow of wealth to the taxpayer which are not treated as part of
gross income for purposes of computing the taxpayer’s taxable income, due to the following reasons: (1)
it is exempted by the Constitution or a statute; or (2) it does not come within the definition of income.
Deductions, on the other hand, are the amounts which the law allows to be subtracted from gross
income in order to arrive at net income.
(b) Exclusions pertain to the computation of gross income, while deductions pertain to the computation of
net income.
(c) Exclusions are something received or earned by the taxpayer which do not form part of gross income
while deductions are something spent or paid in earning gross income.
Tax Credit refer toamounts subtracted from the computed tax in order to arrive at taxes payable.
(1) Under the Constitution

(a) Income derived by the government or its political subdivisions from the exercise of any essential
governmental function
(b) Also, all assets and revenues of a non-stock, non-profit private educational institution used directly,
actually and exclusively for private educational purposes shall be exempt from taxation.
(2) Under the Tax Code (Sec. 32, NIRC)
Proceeds of life insurance policies.—

General rule: The proceeds of life insurance policies paid to his estate or to any beneficiary (but not a
transferee for a valuable consideration), directly or in trust, upon the death of the insured, are excluded from
the gross income of the beneficiary. However, if such amounts are held by the insurer under an agreement
to pay interest thereon, the interest payments received by the insured shall be included in gross income.
The interest income shall be taxed at the graduated income tax rates.
Return of premium paid.—
General rule: The amount received by the insured as a return of premiums paid by him under life insurance,
endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the
contract or upon surrender of the contract is a return of capital and not income.
This refers to the cash surrender value of the contract.
Exception: If the amounts received by the insured (when added to the amounts already received before the
taxable year under such contract) exceed the aggregate premiums or considerations paid (whether or not
paid during the taxable year), then the excess shall be included in gross income.
Amounts received under life insurance, endowment or annuity contracts.—

Amounts received (other than amounts paid by reason of the death of the insured and interest payments on
such amounts) under a life insurance, endowment or annuity contracts are excluded from gross income, but
if such amounts (when added to amounts already received before the taxable year under such contract)
exceed the aggregate premiums of considerations paid (whether or not paid during the taxable year), then
the excess shall be included in gross income. However, in the case of a transfer for valuable consideration,
by assignment or otherwise, of a life insurance, endowment , or annuity contract, or any interest therein,
only the actual value of such consideration and the amount of the premiums and other sums subsequently
paid by the transferee are exempt from taxation.
Value of property acquired by gift, bequest, devise or descent.—

Gifts, bequests and devises (which are subject to estate or gift taxes) are excluded from gross income, BUT
not the income from such property. If the amount received is on account of services rendered, whether
constituting a demandable debt or not, or the use or opportunity to use of capital, the receipt is income
(Pirovano v. Commissioner).
Amount received through accident or health insurance

(Compensation for damages).—
As a rule, amounts received through accident or health insurance or under workmen’s compensation acts,
as compensation for personal injuries or sickness, plus the amount of any damages received, whether by
suit or agreement, on account of such injuries or sickness are excluded from gross income.
Examples of nontaxable and taxable damages recoveries are:
Nontaxable – Taxable –
compensation for compensation for
damages on account of damages on account
of
(1) Personal (physical) (1) Actual damages
injuries or sickness for loss of
anticipated profits
(2) Any other damages (2) .Moral and
recovered on exemplary
account of personal damages awarded
injuries or sickness as a result of break
of contract
(3) Exemplary and (3) Interest for
moral damages for nontaxable
out-ofcourt damages above
settlement, including
attorney’s fees
(4) Alienation of (4) Any damages as
affection, or breach compensation for
of promise to marry unrealized income
(5) Any amount
received as a return
of capital or
reimbursement of
expenses
Income exempt under tax treaty.—

Income of any kind, to the extent required by any treaty obligation binding upon the Government of the
Philippines.
Retirement benefits, pensions, gratuities, etc..—

These are
(1) Retirement benefits under RA 7641, RA 4917, and Section 60(B) of the NIRC
(2) Terminal pay
(3) Retirement Benefits from foreign government agencies
(4) Veterans benefits
(5) Benefits under the Social Security Act
(6) GSIS benefits
Retirement benefits received under RA 7641(The Retirement Pay Law) and those received by officials and
employees of private firms under a reasonable private benefit plan (RPBP) maintained by the employer
under RA 4917 (now Section 32(B)(6)(a) of NIRC) are excluded from gross income subject to income tax.
RA 7641 RPBP
Retiring employee Retiring official or

must be in the service employee must have
of same employer been in the service of
CONTINUOUSLY for
the same employer
at
forat least ten (10)
least five (5) years
years.
Retiring employee Retiring official or
must be at least sixty employee must be at
(60) years oldbut not least fifty (50) years
more than 65 years of old at the time of
age at the time of retirement
retirement
Availed of only once, Retiring employee
and only when there is shall not have
no previously availed of
RPBP the privilege under a
retirement benefit plan
of the same or another
employer
Plan must be
reasonable. Its
implementation must
be fair and equitable
for the benefit of all
employees (e.g. from
president to laborer)
Plan must be approved
by BIR
A 'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing plan maintained
by an employer for the benefit of some or all of his employees wherein contributions are made by such
employer, or employees, or both for the purpose of distributing to such employees the earnings and
principal of the fund thus accumulated
by the trust in accordance with such plan (trust fund)
Further, it should be provided in the plan that at no time prior to the satisfaction of all liabilities with respect
to employees under any trust, shall any part of the corpus or income of the fund be used for, or be diverted
to, any purpose other than for the exclusive benefit of his employees.
Terminal pay/Separation pay

Any amount received by an employee or by his heirs from the employer as a consequence of separation of
such official or employee from the service of the employer because of death, sickness, other physical
disability or for any cause beyond the control of the employee. The phrase “for any cause beyond the
control of the said official or employee” means that the separation of the employee must be involuntary and
not initiated by him.
The separation must not be of his own making.
Notes:
(a) Sickness must be life-threatening or one which renders the employee incapable of working
(b) Retrenchment of the employee due to unfavorable business conditions or financial reverses is
considered as involuntary. However, resignation or availment of an optional early retirement plan is
voluntary and bars a claim under this provision.
BIR Ruling 143-98:

The “terminal leave pay” (amount paid for the commutation of leave credits) of retiring government
employees is considered not part of the gross salary, and is exempt from taxes. The government
recognizes that for most public servants, retirement pay is always less than generous if not meager and
scrimpy. Terminal leave payments are given not only at the same time but also for the same policy
considerations governing retirement benefits.
(Commissioner v. Castaneda, 203 SCRA 72).
Retirement BENEFITS from foreign government agencies

The social security benefits, retirement gratuities, pensions and other similar benefits received by resident
or non-resident citizens or aliens who come to reside permanently in the Philippines from foreign
government agencies and other institutions, private
or public;
Payments of VETERANS benefits under U.S. Veterans

Administration
Payments of benefits due or to become due to any person residing in the Philippines under the laws of the
United States administered by the United States
Veterans Administration
Social Security Act benefits

Payments of benefits received under the Social Security Act of 1954 (RA 8282), as amended, e.g.,
Maternity Benefits
GSIS benefits
Benefits received from GSIS under the GSIS Act of 1937, as amended, and the retirement gratuity received
by government officials and employees are not taxable. [Sec. 32B6., NIRC; Sec. B1, RR 2-98]
Winnings, prizes and award, including those in sports competitions.—

(a) All prizes and awards granted to athletes:
(1) in local and international sports competitions and tournaments whether held in the
Philippines or abroad, AND
(2) sanctioned by their national sports associations.
shall not be included in gross income and shall be tax exempt. [Sec. 32 B7d, NIRC]
(b) Prizes and awards made primarily in recognition of charitable, literary, educational, artistic, religious,
scientific, or civic achievement (clear sc) are not taxable, provided:
(1) Recipient was selected without any action on his part to enter the contest or proceeding; and
(2) Recipient is not required to render substantial future services as a condition to receiving the prize or
award
(3) Under special laws

(a) Personal Equity and Retirement Account (b) Others:
(1) Under R.A. 6657 (Comprehensive Agrarian Reform Package Law), gain arising from the transfer of
agricultural property covered by the law shall be exempt from capital gains tax.
(2) Under R.A. 6938 (Cooperative Code of the Philippines), as amended by R.A. 9520, cooperatives
transacting business with both members and non-members shall not be subject to tax on their
transactions with members. In relation to this, the transactions of members with the cooperative
shall not be subject to any taxes and fees, including but not limited to final taxes on members'
deposits.
(3) Under R.A. 7916 (PEZA Law), as amended, PEZA-registered enterprises are given income tax
holidays of six or four years from the date of commercial operations, depending on whether their
activities are considered pioneer or non-pioneer.
(4) Under R.A. 9178 (Barangay Micro Business Enterprises Act of 2002), BMBEs shall be exempt
from income tax for income arising from the operation of the enterprise.
DISTINGUISH: EXCLUSION, DEDUCTIONS, AND TAX CREDITS
Exclusion Deductions
Refer to flow of wealth which are not treated as part Refer to the amounts which the law allows to be
of gross income due to; (1) exempted by the subtracted from gross income in order to arrive at
fundamental law;(2) exempted by the statute;(3) net income.
not come within the definition of income
Pertain to be computation of gross income Pertain to the computation of the net income
Something earned or received by the taxpayer Something spent or pain in earning of gross income
which do not form part of gross income
What are Deductions?
Deductions are items or amounts of which the law allows to be deducted from gross income in order
to arrive at the taxable income.
Basic Principles Governing Deductions
a) The taxpayer seeking a deduction must point to some specific provisions of the statute authorizing
the deduction;
b) Any amount paid or payable which is otherwise deductible from, or taken into account in computing
gross income or for which depreciation or amortization may allowed, shall be allowed as deduction
only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the
BIR.
EXCLUSIONS UNDER THE CONSTITUTION
Income derived by the Government or its political subdivision is exempt from gross income, if the
source of the income is from any public utility or from the exercise of any essential governmental functions.
Government owned and controlled corporations performing:
1. Governmental Functions;
Government agencies performing governmental functions are tax exmpt.
Exception: Unless expressly taxed.
Exception to the exception: Unless expressly exempted.
2. Proprietary Functions
They are subject to taxation.
Note: Under Sec. 27 (c) of RA 8424 the following corporations have been granted exemptions:
1. Government Service Insurance System
2. Social Security System

3. Philippine Health Insurance Corporation
4. Philippine Charity Sweepstakes Office
4. Deductions
a. General rule
b. Concept of return of capital
c. Distinguish: itemized deductions and optional standard deduction
d. Requirements for deductible items
e. Items not deductible
ALLOWABLE DEDUCTIONS, DEFINED

Deductions are the amounts, which the law allows to be deducted from gross income in order to
arrive at net income. On the other hand, "Exclusions" are something received earned by the taxpayers that
do not form part of gross income while deductions are something spent or aid in earning the gross income.
Exclusions pertain to the computation of gross income, while deductions pertain to the computation of net
income.
KINDS OF DEDUCTIONS
1. Itemized Deductions
2. Optional Standard Deduction
3. Special Deductions allowed in special cases.
TAXPAYER ALLOWABLE DEDUCTIONS
Individuals earning pure compensation income Beginning 2018, no more deduction is allowed to
purely compensation income earners.
Individuals deriving income from trade, business or Beginning 2018

practice of profession. 1) Itemized deductions or Optional Standard
Deduction
Corporations 1) Itemized deductions or Optional Standard

Deduction
ITEMIZED DEDUCTIONS
1. Ordinary and necessary business expenses in general
2. Interest
3. Taxes
4. Losses
5. Bad debts
6. Depreciation
7. Depletion
8. Charitable Contribution
9. Research and development
10. Contributions to Pension Trust
11. Premium Payments on Health and/or Hospitalization Insurance
ORDINARY AND NECESSARY TRADE, BUSINESS OR PROFESSIONAL EXPENSES

1. Salaries, wages, and other forms of compensation for personal service actually rendered, including the
grossed-up monetary value of fringe benefit granted by the employer to the employee.
2. Travel expenses
3. Rentals
4Entertainment, Amusement and Recreation Expense
5. Other necessary business expenses
REQUISITES FOR DEDUCTIBILITY IN GENERAL:
1. Must be ordinary and necessary
2. Paid or incurred during the taxable year;
3. Connected with trade, business or practice of profession;
4. Supported by sufficient evidence; and
5. Not against the law, morals, public policy or public order;
6. It must have been subjected to withholding tax, if applicable.
ENTERTAINMENT, AMUSEMENT AND RECREATION EXPENSE

AMOUNT DEDUCTIBLE - lower Amount between:
1. Actual
2. Limit
LIMIT
Sale of Goods or Properties Net Sales x 2 of 1%
Sale of services Net Revenue x 1%
MINOR OR ORDINARY REPAIRS & MAINTENANCE

KIND OF REPAIR TREATMENT
Repairs that materially add to the value of the property Capitalize
Repair that appreciably prolong the life of the property Capitalize
Repair that keep the property in its ordinarily efficient Outright Expense
operating condition
INTEREST EXPENSE
REQUISITES FOR DEDUCTIBILITY:
1. There must be an indebtedness;
2. The indebtedness must be that of the taxpayer;
3. The indebtedness is connected with taxpayer's trade, business or practice of profession;
4. There must be legal liability to pay interest;
5. It must be paid or incurred during the taxable year.
IF THE INTEREST EXPENSE ARISES FROM LOANS, the deductible amount shall be:
Interest Expense (from loans) Pxx
Less: (Interest Income subject to final tax x 33%) (xx)
Deductible Interest Pxx
EXCEPTION: Interest on tax delinquency or deficiency, provided, the tax is related to trade, business or
practice of profession shall be 100% deductible.
OPTIONAL TREATMENT OF INTEREST

Interest related to acquisition of property used in trade, business or profession may at the option of the
taxpayer, be:,
1. Claimed as outright expense;
2. Capitalize and claim depreciation.
NON-DEDUCTIBLE INTEREST
1. Interest paid to persons classified as related taxpayers under Section 36 (B) of RA 8424;
2. If the indebtedness is incurred to finance petroleum exploration;
3. Interest on preferred stock
TAXES
The term "taxes means taxes proper and no deductions should be allowed for amounts representing
interest, surcharge, or penalties incident to delinquency.
GENERAL RULE - Taxes paid or incurred within the taxable year in connection with the taxpayer's
profession, trade or business, shall be allowed as deduction.
EXCEPTION - The following taxes are not deductible:
1. Income tax
2. Income tax paid abroad if claimed as tax credit
3. Estate tax
4. Donor's tax
5. Special assessment
LOSSES
KINDS OF LOSSES:
1. Casualty Losses
2. Net operating loss carry-over (NOLCO)
3. Capital losses and securities becoming worthless
4. Special Losses
a) Losses from wash sales of stock or securities
b) Wagering losses
c) Abandonment losses
CASUALTY LOSSES
1. The loss arises from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement;
2. The property lost is connected with the trade, business or practie of profession;
3. Actually sustained during the taxable year;
4. Not compensated for by insurance or other forms of indemnity
5. Incurred in trade, profession or business
6. Reported with the BIR within forty-five (45) days from the time of loss; and
7. Not claimed as deduction for estate tax purposes
NET OPERATING LOSS CARRY-OVER

“Net Operating Loss" means the excess of allowable deduction over gross income of the business in a
taxable year.
The net operating loss of the business or enterprise for any taxable year shall be carried over as a
deduction from gross income for the next three (3) consecutive taxable year immediately following the year
of such loss.
REQUISITES FOR DEDUCTIBILITY

1. At the time of incurring net loss, the taxpayer must not be exempt from income tax;
2. There is no substantial change in the ownership of the business or enterprise in that -
a. Not less than seventy-five (75%) in nominal value of outstanding issued shares, if the
business is in the name of a corporation, is held by or on behalf of the same persons; or
b. Not less than seventy-five (75%) of the paid up capital or the corporation, if the
business is in the name of a corporation, is held by or on behalf of the same persons.
NOLCO FOR MINES OTHER THAN OIL & GAS WELLS

For mines other than oil and gas wells, net operating loss incurred in any of the first ten (10) years of
operation may be carried over for the next five (5) years.
LOSSES FROM WASH SALES OF STOCK OR SECURITIES

In case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or
securities shall not be deductible if:
1. The seller is not a dealer in securities;
2. Within a period of thirty (30) days before the sale ending thirty (30) days after the sale, the seller
either:
a. Acquired (by purchase or exchange) stock or securities identical to the stock or securities
sold; or
b. Has entered into a contract or option to acquire stock or securities identical to the stock
or securities sold.
WAGERING LOSSES
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.
ABANDONMENT LOSSES
1) In the event a contract area where petroleum operations are undertaken is partially or wholly abandoned,
all accumulated exploration and development expenditures pertaining thereto shall be allowed as deduction.
2) In case a producing well is subsequently abandoned, the unamortized costs thereof, as well as the
undepreciated costs of equipment directly used there shall be allowed as deduction.
EFFECT IF ABANDONED WELL IS REENTERED AND PRODUCTION IS RESUMED
OR EQUIPMENT IS RESTORED INTO SERVICE
If the abandoned well is re-entered and production is resumed or equipment is restored into service, the
effects are:
a) The amount previously claimed as deduction shall be recognized as income and
b) Such amount shall also be capitalized and amortized or depreciated, as the case may be.
BAD DEBTS
1. There must be an existing indebtedness due to the taxpayer which must be valid and legally
demandable;
2. The same must be connected with the taxpayer's trade, business or practice of profession;
3. The same must not be sustained in a transaction between related taxpayers;
4. The same must be actually charged off in the books of accounts of the taxpayer as of the end of the
taxable year; and
5. The same must be actually ascertained to be worthless and uncollectible.
SECURITIES BECOMING WORTHLESS

REQUISITES FOR DEDUCTIBILITY
1. Securities are ascertained to be worthless;
2. The same is charged off within the taxable year;
3. It must be a capital asset.
DEPRECIATION
1. The property subject to depreciation is used in the trade, business or practice of profession;
2. The allowance for depreciation must be sustained by the person who owns or who has a capital
investment in the property;
3. The allowance for depreciation must be reasonable;
4. The allowance for depreciation should not exceed the cost of the property;
5. The schedule of the allowance must be attached to the return.
METHODS OF COMPUTATION IN GENERAL

1. Straight-line method
2. Declining-balance method - rate should not exceed twice the rate in straight-line method
3. Sum-of-the-years-digit method; and
4. Any other method which may be prescribed by the Secretary of finance upon recommendation of the
PROPERTIES USED IN PETROLEUM OPERATIONS

Properties directly related to production 1. Straight-line
2. Declining-balance method
NOTE: Useful life to be used is shorter period
between:
a. 10 years; or
Properties not directly related to production b. Useful life
Only straight line method is allowed
Useful life is always presumed to be 5 years.
PROPERTIES USED IN MINING OPERATIONS

If expected life of property is ten (10) years or less Normal rate of depreciation (depreciate over
actual useful life)
If expected life is more than ten (10) years Depreciated over any number of years between
five (5) years and the expected life.
DEPRECIATION DEDUCTIBLE BY NON-RESIDENT ALIENS ENGAGE IN TRADE OR BUSINESS OR

RESIDENT FOREIGN CORPORATIONS
In the case of non-resident aliens engage in trade or business or resident foreign corporations, depreciation
shall be allowed only if the property is located in the Philippines.
OBSOLESCENCE MAY BE DEDUCTED IN ADDITION TO DEPRECIATION

Allowance for obsolescence may be deducted in addition to reasonable allowance for exhaustion, wear and
tear.
DEPLETION OF OIL AND GAS WELLS AND MINES

In case of oil and gas wells or mines, capital invested may be amortized using cost depletion method,
provided:
1. When allowance for depletion shall equal capital invested, no further allowance shall be
granted;
2. After production in commercial quantities has commenced, intangible exploration and
development drilling costs shall be treated as follows:
INTANGIBLE EXPLORATION AND DEVELOPMENT DRILLING COSTS
KINDS TREATMENT
Incurred for non-producing wells and/or mines Deductible in the year incurred.
At the option of the taxpayer
Incurred for producing wells and/or mines
OPTION 1 - Deductible in full in the year
paid or incurred; or
OPTION 2- Capitalize and amortize.
DEPLETION OF OIL AND GAS WELLS AND MINES DEDUCTIBLE BY A NON-RESIDENT ALIEN
INDIVIDUAL OR FOREIGN CORPORATION
In the case of non-resident aliens engage in trade or business or resident foreign corporations, depletion
shall be allowed only if the oil and gas wells or mines are located in the Philippines.
CHARITABLE CONTRIBUTIONS
FULLY DEDUCTIBLE DONATIONS
The following charitable contributions shall be fully deductible
1. Donations to the Government of the Philippines or to any of its agencies or political subdivisions
including fully owned government corporations, exclusively to be used in undertaking priority
activities in:
a. Education;
b. Heath;
c. Youth
d. Sports development;
e. Human settlements;
f. Science and culture
g. Economic development.
2. Donations to foreign institutions or international organizations which are fully deductible in
pursuance of:
a. Agreements; 7U33 7cOme
b. Treaties;
c. Commitments; or
d. Special laws.
3. Donations to Accredited Non-Government Organizations

The term non-government organization" means a non-profit domestic
corporation:
a. Organized and operated exclusively for:
i. Scientific
ii. Research;
iii. Educational;
iv. Character building;
v. Youth and sports development;
vi. Health;
vii. Social welfare;
viii. Cultural;
ix. Charitable purposes; or
x. A combination thereof.
b. No part of the net income of which inures to the benefit of any private individual;
c. Not later than 15" day of the third (3) month after the close of the taxable year in which
contributions are received, makes utilization, unless an extended period is granted by
the Secretary of Finance, upon recommendation of the Commissioner of Internal
Revenue.
d. The level of administrative expense of which shall, on an annual basis, in no case to
exceed thirty percent (30%) of the total expenses;
e. The assets of which, in the event of dissolution, would be distributed to:
i. Another domestic corporation organized for similar purpose or purposes; or
ii. The state for public purposes; or
iii. Another organization to be used in such manner as in the judgement of the
court shall best accomplish the general purpose for which the dissolved
organization was organized.
PER SPECIAL LAWS, DONATIONS MADE TO THE FOLLOWING ARE DEDUCTIBLE IN FULL:
1. Integrated Bar of the Philippines (P.D.181)
2. International Rice Research Institute (R.A. 2707)
3. University of the Philippines & other state colleges
4. Development Academy of the Philippines (P.D. 205)
5. Cultural Center of the Philippines
6. Artesian Well Fund (R.A. 1977)
7. Ramon Magsaysay Award Foundation
8. Task Force on Human Settlement
9. Donations to the National Museum, Library and Archives (P.D. 373)
10. National Commission on Culture
11. Humanitarian Science Foundation
12. National Social Action Council
DONATIONS SUBJECT TO LIMIT

The following donations, which do not fall under fully deductible donations, shall be subject to limit:
1. Donations to the Government of the Philippines or any age agencies or an political subdivision
thereof exclusively for public purposes;
2. Donations to accredited domestic corporations or associations operated exclusively for:
a. Religious
b. Charitable
c. Scientific;
d. Youth and sports development;
e. Cultural;
f. Educational
g. Rehabilitation of veterans;
h. Social welfare institutions; or
i. Non-government organization.
LIMIT:
BASE
TAXPAYER RATE
Corporation 5% Taxable Income from trade,
Individual 10% business or practice of
profession before charitable
contributions.
VALUATION IN CASE OF DONATION OF NON-CASH PROPERTY

The amount of any charitable contribution of property other than money shall be based on the acquisition
cost.
RESEARCH AND DEVELOPMENT

If not chargeable to capital account Claim as outright expense
If chargeable to capital account but not chargeable At the option of the taxpayer:
to property subject to depreciation or depletion OPTION 1- Claim as outright expense.
OPTION 2- Amortize over 60 months.
If chargeable to property subject to depreciation or
depletion Capitalize
LIMITATIONS ON DEDUCTION
The following Research and Development expenditures are not deductible
1. Any expenditure for the acquisition or improvement of land, or for the improvement of property to be
used in connection with research and development of a character which is subject to depreciation
and depletion; and
2. Any expenditure paid or incurred for the purpose of ascertaining the existence location, extent, or
quality of any deposit of ore or other mineral, including oil or gas.
PENSION TRUSTS
AMOUNT DEDUCTIBLE
Actual contribution to the extent of pension liability Pxox
Amortization of Past Service Cost
Total X
Pxx
PENSION LIABILITY
Pension liability is equivalent to Normal Cost.
PAST SERVICE COST

Past service cost is the excess of actual contributions over the Normal Cost. It shall be amortized over ten
(10) years.
OPTIONAL STANDARD DEDUCTION (OSD)

Optional Standard Deduction can be claimed in lieu of itemized deductions.
The following may be allowed to claim OSD:
1. Individuals
a. Resident Citizen
b. Non-resident citizen
c. Resident alien
d. Taxable estates and trusts
2. Corporations
a. Domestic corporation
b. Resident foreign corporation
AMOUNT DEDUCTIBLE
Individuals/Estates/Trusts Gross Sales/Gross Receipts x 40%
Corporations/Partnerships Gross Income x 40%
NON-DEDUCTIBLE ITEMS
1. Bribes, Kickbacks and other similar payments
2. Personal, living or family expenses
3. Any amount paid out for new buildings or for permanent improvements, or betterments made to
increase the value of any property or estate
4. Any amount expended in restoring property or in making good the exhaustion thereof for which
an allowance is or has been made
5. Premiums paid on any life insurance policy covering the life of any officer or employee, or of any
person financially interested in any trade or business carried on by the taxpayer, individual or
corporate, when the taxpayer is directly or indirectly a beneficiary under such policy.
6. Interest, Losses and Bad Debts:
a. Between members of a family. Family of an individual shall include only his brothers and
sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants; or
b. Except in the case of distributions in liquidation, between an individual and a corporation
more than fifty percent (50%) in value of the outstanding stock of which is owned, directly
or indirectly, by or for such individual; or
c. Except in the case of distributions in liquidation, between two corporations more than fifty
percent (50%) in value of the outstanding stock of each of which is owned, directly or
indirectly, by or for the same individual, if either one of such corporations, with respect to
the taxable year of the corporation preceding the date of the sale or exchange was a
personal holding company;
d. Between the grantor and a fiduciary of any trust; or
e. Between the fiduciary of a trust and fiduciary of another trust if the same person is the
grantor with respect to each trust; or
f. Between a fiduciary of a trust and a beneficiary of such trust.
SPECIAL DEDUCTIONS
EXPENSES ALLOWABLE TO PROPRIETARY (PRIVATE) EDUCATIONAL INSTITUTION
Cost incurred for the expansion of school facilities may at its option:
1. Capitalize and claim depreciation as deduction; or
2. Claim as outright expense.
SPECIAL DEDUCTIONS ALLOWED TO INSURANCE COMPANIES

1. Net additions made within the year to reserve funds; and
2. The sum other than dividends paid within the year on policy and annuity on policy and annuity
contracts.
3.
NOTE: Released reserve shall be treated as income for the year of release.
5. Income tax on individuals

a. Resident citizens, non-resident citizens, and resident aliens
i. Coverage
ii. Taxation on compensation income
(a) Inclusions
(b) Exclusions
iii. Taxation of business income/income from practice ofprofession
(a) Schedular
(b) 8% option
iv. Taxation of partners in a general professional partnership
v. Taxation of passive income
vi. Taxation of capital gains
(a) Income from sale of shares of stock of a Philippine corporation
(b) Income from sale of real property situated in the Philippines
(c) Income from sale, exchange, and other disposition of other capital
assets
b. Non-resident aliens engaged in trade or business
c. Non-resident aliens not engaged in trade or business
d. Aliens employed by regional headquarters, regional operating headquarters,
offshore banking units, and petroleum service contractors
e. Individual taxpayers exempt from income tax
i. Minimum wage earner
ii. Exemptions granted under international agreements
CLASSIFICATION OF INDIVIDUAL TAXPAYERS

1. Resident Citizen (RC)
2. Nonresident Citizen (NRC)
3. Resident Alien (RA)
4. Non-resident Alien (NRA)
a. Engaged in trade or business (ETB)
b. Not engaged in trade or business (NETB)
NONRESIDENT CITIZEN
The following are considered nonresident citizens (Section 22 (E), RA 8424):
1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner of the fact of his
physical presence abroad with a definite intention to reside therein.
2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad,
either as an immigrant or for employment on a permanent basis;
3. A citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time [for one hundred eighty-three
days [(183) or more] during the taxable year;
4. A citizen who has been previously considered as nonresident citizen who arrives in the Philippines
at any time during the taxable year to reside permanently in the Philippines shall be considered a
nonresident citizen for the taxable year in which he arrives in the Philippines with respect to income
derived from sources abroad until the date of his arrival in the Philippines.
Citizens not classified under this category are considered Resident Citizens
OVERSEAS CONTRACT WORKER

 Overseas Contract Workers (OCW's) refer to Filipino citizens employed in foreign countries,
commonly referred to as Overseas Filipino Workers (OFW), who are physically present in a foreign
country as a consequence of their employment thereat.
 Their salaries and wages are paid by an employer abroad and is not borne by any entity or person
in the Philippines.
 To be considered as an OCW or OFW, they must be duly registered as such with the Philippine
Overseas Employment Administration (POEA) with a valid Overseas Employment Certificate (OEC).
(RR No. 1-2011)
 A seaman who is a citizen of the Philippines and who receives compensation for services rendered
abroad as a member of the complement of a vessel engaged exclusively in international trade shall
be treated as an overseas contract worker. (Section 23 (C, RA 8424)
 In order for seafarers or seamen to be considered as OCW's or OFW's they must be duly registered
as such with the Philippine Overseas Employment Administration (POEA) with a valid Overseas
Employment Certificate (OEC) with a valid Seafarer's identification Record Book (SIRB) or
Seaman's Book issued by the Maritime Industry Authority (MARINA).
For taxation purposes, OCWs are classified as nonresident citizens
RESIDENT ALIEN
Resident Alien means an individual whose residence is within the Philippines and who is not a citizen
thereof (Section 22 (F), RA 8424).
The following are considered as resident alien:
1. An alien actually present in the Philippines who is not mere transient or sojourner. A person who
comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is
a transient.
2. An alien, who comes to the Philippines for a definite purpose, which, by its nature, would require an
extended stay making his home temporarily in the Philippines;
3. An alien who shall come to the Philippines with no definite intention as to his stay.
NON-RESIDENT ALIEN
1. Engaged in trade or business (Section 25 (A), RA 8424)
 An alien individual actually engaged in trade or business in the Philippines; and
 An alien who comes in the Philippines for an aggregate period of more than 180 days
during the calendar year during any calendar year shall be deemed a non-resident alien
doing business in the Philippines.
2. Not engaged in trade or business those NRAS not included above.
SOURCE(s) of TAXABLE INCOME:
TAXPAYER TAXABLE SOURCE(s)

RC = within and without the Phils.
NRC, RA, OCW, NRA-ETB, NRA-NETB = within the Phils. only
TYPES OF INCOME TAXES:

1. Basic Income Tax on regular or ordinary income
2. Final Withholding Tax on Passive income derived from Philippine sources
3. Capital Gains Tax on Sale of Shares of stock of unlisted domestic corporations
4. Capital Gains Tax on Sale of Real Properties located in the Philippines
The total amount of the taxes above is known as "Total Income Tax Expense"
FINAL WITHHOLDING TAX (FWT) ON PASSIVE INCOME

 Applicable only to passive income from sources within the Philippines. Passive incomes derived
from outside of the Philippines are subject to basic income tax under section 24(A) of the tax code
 It is a tax deducted from the income to be paid to the payee or seller.
 It is constituted as full and final payment of the income tax liability. Hence, the income subjected to
this tax is no longer included in the income tax return of the individual taxpayer subject to basic
income tax under Section 24(A) of the tax code.
 It cannot be credited/deducted against the basic income tax due.
 The liability for the payment of the tax is primarily on the payor as the withholding agent.
PASSIVE INCOME DERIVED FROM PHILIPPINE SOURCES SUBJECT TO FWT:

1. Interest Income
2. Royalties
3. Dividends
4. Prizes
5. Other winnings
PASSIVE INCOME DERIVED FROM PHILIPPINE SOURCES SUBJECT TO FWT:

 INTEREST INCOME
TAXPAYER
NRC
RC, RA NRANETTB
NRAET
a. Interest from any currency bank deposit; and 20% 20% 25%
Yield or any other monetary benefit from:
i. Deposit substitutes
ii. Trust funds
iii. Similar arrangements as above
DEPOSIT SUBSTITUTE - an alternative form of
obtaining funds from the PUBLIC*" other than deposits,
through the issuance, endorsement, or acceptance of
"debt instruments" for the borrower's own account, for
the purpose of re-lending or purchasing of receivables
and other obligations, or financing their own needs or
the needs of their agent or dealer (RR 14-2012).
**Public is defined as borrowing from twenty (20) or
more individual or corporate lenders at any one time
b. Interest from a depositary bank under the expanded 15% Exempt Exempt
foreign currency deposit system
 Under TRAIN Law (beginning Jan. 1, 2018)
c. Interest income from LONG TERM bank deposit or Exempt Exempt 25%
bank investment (at least 5-year maturity)
In case of pre-termination of the long-term deposit or
investment, depending on the holding period:
 5 years or more
 4 years to less than 5 years
 3 years to less than 4 years Exempt Exempt 25%
 Less than 3 years 5% 5% 25%
12% 12% 25%
20% 20% 25%
 ROYALTIES
TAXPAYER
RC, RA, NRC NRAET NRANETB
Royalties from: 10% 10% 25%
a) Literary works
b) Books
c) Musical
compositions
OTHER Royalties 20% 20% 25%
 DIVIDENDS TAXPAYER
TAXPAYER
RC, RA, NRC NRAET NRANETB
Dividends actually or
constructively received 10% 20% 25%
from:
i. Domestic
Corporation
ii. Joint Stock
Company
iii. Insurance or
mutual fund
company; and
iv. Regional
operating
headquarters of
a multinational
company
Share in the distributable

net income after 10% 20% 25%
tax of a partnership
(except GPP)*
Share in the net income

after tax of: 10% 20% 25%
1. Association
2. Joint Account
3. Taxable Joint
Venture or
Consortium***
 SHARE IN THE NET INCOME OFA PARTNERSHIP

General Professional Partnership
General Partnership
Treated as dividend income, generally subject to Not treated as dividend income. Subject to basic
10% final withholding tax. tax under section 24(A).
 SHARE IN THE NET INCOME OF A JOINT VENTURE

CO-VENTURER TAXABLE JV ****NON-TAXABLE JV
Individual Treated as dividend income, Not treated as dividend

generally subject to 10% final income. Subject to basic tax
withholding tax. under section 24(A).
Treated as inter-corporate
Corporation dividend income, hence, tax Subject to basic corporate tax
exempt (not as dividend income)
*NON-TAXABLE JV
Joint ventures or consortium organized for the following purposes:
1. Construction projects
2. Engage in petroleum, coal, geothermal and other energy operations pursuant to an operating or
consortium agreement under a service contract with the Government.
 PRIZES
TAXPAYER
RC, RA& NRC NRANETB

NRAET
Amount is more than 20%
20% 25%
P10,000
Amount is not more than 25%
Basic Tax Basic Tax
P10,000
 WINNINGS
TAXPAYER
RC, RA & NRC

NRAET NRANETB
OTHER Winnings 20% 20% 25%
(regardless of amount)*
PCSO/Lotto Winnings
 TRAIN Law
(beginning Jan.
1, 2018)
 Not more than
P10k Exempt Exempt 25%
 More than P10k
20% Exempt* * 25%
*NOT INCLUDED are winnings exempt from income tax such as but not limited to:
Winnings under Sec. 126 of the Tax Code (Winnings from horse racing - subject only to OPT of 4% or 10%,
as the case may be)
 Prizes and awards made primarily in recognition of religious, charitable, scientific, educational,
artistic, literary, or civic achievement but only if:
 The recipient was selected without any action on his part to enter the contest or
proceeding;
 The recipient is not required to render substantial future services as a condition to
receiving the prize or award.
 All prizes and awards granted to athletes in local and international sports competitions and
tournaments whether held in the Philippines or abroad and sanctioned by their national sports
associations.
**ONE OF THE OBVIOUS ERRORS/INCONSISTENCIES UNDER THE TRAIN LAW.
CAPITAL GAINS TAX (CGT) and STOCK TRANSACTION TAX (STT) ON SALE OF SHARES OF DC
TAX RATE
Not Through the local stock CGT 15% of capital gain

exchange(sold directly to a
buyer)
 Beginning 2018 (TRAIN
Law)
Through the local stock STT 6/10 of 1% of GSP
exchange
 Beginning 2018 (TRAIN
LAW)
 Sale of shares of a domestic corporation NOT Through the local stock exchange (directly to the buyer)
is subject to CGT.
FORMULA in computing the capital gain:
Selling Price Pxx
Acquisition Cost (xx)
Net Capital Gain Pxx
Rate 15%
CGT Pxx
 Under RR 6-2013, the value of the shares of stock at the time of sale shall be the fair
market value. In determining the value of the shares, the Adjusted Net Asset Method
shall be used whereby all assets and liabilities are adjusted to market values. For
purposes of discussion in this review material, the selling price is assumed to be the
market value computed using the aforementioned method, assuming the latter is not
provided.
 All individual taxpayers are subject to CGT on shares of stock of domestic corporations.
 Sale of shares of a domestic corporation THROUGH THE LOCAL STOCK EXCHANGE is not subject to
income tax but to a business tax' under Section 127(A) of the Tax Code:
 Tax Rate beginning Jan. 1, 2018: STT of 6/10 of 1% of Gross Selling Price
 Sale of shares of stock of a foreign corporation is subject to basic income tax.
 The CGT and STT are applicable only to shareholders/investors because for income taxation purposes,
sale of shares of stock by a dealer in securities regardless of whether the shares were sold directly to a
buyer or through the local stock exchange, is subject to basic income tax. Moreover, issuance of shares
by the issuing corporation is not subject to tax except DST and Stock Transaction Tax on Initial Public
Offering under Section 127(B) of the Tax Code.
CAPITAL GAINS TAX (CGT) ON SALE OF REAL PROPERTY

REQUISITES:
1. The real property must be a capital asset; and
2. It must be located in the Philippines.
FORMULA: Capital Gains Tax = TAX BASE x 6%
TAX BASE
1. Selling Price
2. Fair Market Value Whichever
3. Zonal Value is Higher
OPTIONS OF THE SELLER IN CASE OF SALE TO GOVERNMENT OR ANY POLITICAL

SUBDIVISIONS OR AGENCIES OR GOCC'S:
1. Pay 6% CGT; or
2. Pay Basic Income Tax
EXEMPTION ON SALE OF PRINCIPAL RESIDENCE
Requisites for Exemption:
1. The property sold must be the principal residence of the seller;
2. Proceeds is fully utilized in acquiring or constructing a new principal residence;
3. Utilization must be made within 18 calendar months from the date of sale or disposition,
4. Notify the BIR Commissioner within 30 days from the date of sale or disposition of the intention to
avail the exemption;
5. The said exemption can only be availed once every 10 years.
PARTIAL EXEMPTION/TAXABLE PORTION:

If there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have
been realized from the sale or disposition shall be subject to capital gains tax as follows.
Taxable Amount=Unutilized Portion x SP

Gross Selling Price FMV
CGT Taxable Amount x 6% Zonal
TAXATION OF NONRESIDENT ALIEN NOT ENGAGE IN TRADE OR IN BUSINESS (NRA-NETB)
NRA-NETB is subject to:

1. 25% FWT on ALL
a) Ordinary income
b) Passive income derived from sources within the Philippines (including interest income from
long-term bank deposit or investment and PCSO/Lotto winnings except interest income on bank
deposit under FCDU)
2. CGT on sale of shares of a domestic corporation directly to a buyer
3. CGT on sale of a real property classified as capital asset located in the Philippines
BASIC INCOME TAX

 Use the graduated tax rate or tax table, as amended
 Income subject to basic tax are:
 Ordinary income (i.e., compensation income, business income)
 Passive income derived abroad by RCs
 Capital gains not subject to CGTs
 Income subject to basic tax is reflected in the income tax return of the taxpayer,
 Generally subject to CWTS which may be deducted from the basic income tax due.
 It is the payee (income earner) who has the responsibility to file the return and pay theapplicable
tax.
GRADUATED TAX RATE under the TRAIN Law
TAXABLE YEAR 2023

TAXABLE YEAR 2018-2022
ONWARDS
TAX
INCOME TAX
Not over P250,000 Exempt Exempt
Over P250,000 but not over 20% of excess over P250,000 15% of excess over P250,000
P400,000
Over P400,000 but not over P30,000+25% in excess of P22,500+20% in excess of
P800,000 P400,000 P400,000
Over P800,000 but not over P2M P130,000+30% in excess of P102,500+ 25% in excess of
P800,000 P800,000
Over P2,000,000 but not over P490,000+ 32% in excess of P402,500+30% in excess of P2M
P8M P2M
Over P8,000,000 P2410,000 +35% in excess of P2,202,500+35% in excess of
P8M P8M
 Provided, that after 2020, the taxable income tax levels in the above schedules shall be adjusted once
every five (5).years, through rules and regulations issued by the Department of Finance, upon
recommendation of the Commissioner, after considering among others, the effect of the same of the 5-
year cumulative inflation rate.
Self-Employed and/or Professionals (SEP)

Sec. 24(A)(2)(B) of the Tax Code as amended by RA10963 (TRAIN Law) provides the following rules for
SEP:
PURELY SEP
MIXED INCOME EARNER
With gross sales/receipts
Business/Professional Income
P3M and below Above P3M Compensation P3M and below Above P3M
Regular Income Regular Income Regular income +Regular Income Tax OR Regular Income
Tax OR 8%** tax Tax tax 8%** tax on Gross Tax
on Gross Sales/Receipts and other
Sales/Receipts operating income IN LIEU
and other of the graduated tax rate
operating income and Sec.116
excess of
P250,000 IN
LIEU of the
graduated tax
rate and Section
116
**Provided, the SEP is:
1. Non-vat registered;
2. Not engaged in vat exempt-sales/transaction(s);
3. Not subject to other OPT other than Sec. 116.
NOTE:
 Sec. 116 is a business tax, not an income tax. It is computed as 3% of gross sales/receipts and
other operating income. Business taxes are discussed in volume 2 of this book entitled "Transfer
and Business Taxation".
 The option to be taxed at 8%** is available only to taxpayers who are (a) non-VAT registered and
(D) able for 3% percentage tax under Section 116 of the NIRC. As such, (a) VAT-registered
taxpayers or (D) those liable for Percentage Taxes under Title V of the NIRC (except for Sec. 116)
have no owner option than to be taxed using the graduated rates.
 Unless the taxpayer signifies in the 1" Quarter Return of the taxable year the intention to elect the
8% income tax, the taxpayer shall be considered as having availed of the graduated rates under
Section 24(A) of the Tax Code, as amended and such election shall be irrevocable. PROVIDED,
that at any time during a given taxable year, a taxpayer's gross sales or receipts exceeded the VAT
Threshold (P3,000,000, as amended; he/she shall automatically be subjected to the graduated rates
under Section 24(A)(2/a) of the Tax Code, as amended, with the following rules/guidelines:
 The taxpayer shall be allowed an income tax credit of quarterly payments initially made
under the 8% income tax option.
 Taxpayer is likewise liable for business tax(es), in addition to income tax. A percentage
tax pursuant to Section 116 of the Tax Code, as amended, shall be imposed on the first
P3, 000,000. The excess of the threshold shall be subject to VAT.
 Percentage tax due on the P3,000,000 shall be collected without penalty, if timely paid
on the due date immediately following the month the threshold was breached.
Minimum Wage Earners

The term "statutory minimum wage (SMW)" earner shall refer to a worker in the private
sector paid the statutory minimum wage, or to an employee in the public sector with compensation income
of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned (RR
10-2008). MWEs are exempt from income tax on:
1. Minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay
Basic Income Tax of Married Individuals

 Married individuals (i.e., husband and wife) are required by law to file a consolidated income tax
return, but they shall compute separately their individual income tax.
 Income which cannot be definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be equally divided between the spouses for
purposes of determining their taxable income.
 If the spouses are only physically separated and there is no legal separation, they are still required
by law to file consolidated or joint returns for which they are considered as jointly and severally
liable to the tax.
Income Tax of Senior Citizens (SC) and Persons with Disability (PWDs)
 For income taxation purposes, SCs and PWDs are taxable in the same manner as an ordinary
individual taxpayer. Hence, SCs and PWDs deriving returnable income are required to file their
income tax returns and pay the tax as they file the return.
 SCs/PWDs as MWE - Exempt from income tax on the said compensation income.
 If aggregate gross income does not exceed P250,000, he shall be exempt from income tax and
shall not be required to file income tax return.
Fringe Benefits (FBT) and De Minimis Benefits

FBT is a final withholding tax imposed on the grossed-up monetary value of the fringe benefit furnished,
granted or paid by the employer to managerial or supervisory employees, whether such employer is an
individual, professional partnership or corporation, regardless of whether the corporation is taxable or not, or
the government and its instrumentalities. (Section 33, RA 8424, RR NO. 3-98)
The term "Fringe Benefit" means any good, service, or other benefit furnished or granted by an employer in
cash or in kind, in addition to basic salaries, to an individual employee (except rank and file employee) such
as but not limited to the following:
a) Housing
b) Expense Account
c) Vehicle of any kind
d) Household personnel, such as maid, driver and others
e) Interest on loan at less than market rate to the extent of the difference between the market rate and
the actual rate granted
f) Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs or other similar organizations
g) Holiday and vacation expenses
h) Educational assistance to the employee or his dependents
i) Life or health insurance and other non-life insurance premiums or Similar amounts in excess of
what the law allows
j) Expenses for foreign travel
THE FOLLOWING FRINGE BENEFITS ARE NOT SUBJECT TO FBT:

1. Fringe benefits given to rank and file employees (not subject to FBT but subject to basic income tax)
2. Housing benefits/privilege:
a) Of military officials of the Armed Forces of the Philippines (AFP).
b) Which is situated inside or adjacent (within 50 meters from the perimeter of the business
premises) to the premises of a business or factory.
c) Which are "temporary" for an employee or for a temporary housing unit of three (3) months
or less.
3. Expenses incurred by the employee which are paid by the employer and expenses paid for by the
employee but reimbursed by his employer, provided:
a) The expenditures are duly receipted for and in the name of the employer;
b) It does not partake the nature of a personal expense attributable to the employee,
4. Allowances subject to liquidation (tax exempt allowances)
 Allowances not subject to liquidation are taxable.
 Representation and transportation allowances which are fixed in amounts and are
regularly received by the employees as part of their monthly compensation (exempt from
FBT but subject to basic income tax).
5. Reasonable business travel expenses:
 Inland travel expenses (such as expenses for food, beverages and local transportation)
during foreign travel.
 Lodging cost in a hotel (or similar establishments) amounting to an average of US$300 or
less per day during foreign travel.
 Cost of economy and business class airplane ticket for "foreign" travel.
 70% of the cost of first class airplane ticket for foreign travel.
 BUSINESS travel expenses "within the Philippines" are generally assumed to
be reasonable in amount.
6. Educational assistance
 TO THE EMPLOYEE, provided:
a) The education or study is directly connected with the employers trade, business or
profession; and
b) There is a written contract between them that the employee is under obligation to
remain in the employ of the employer for a period of time they have mutually
agreed upon
 THE DEPENDENTS OF THE EMPLOYEE, provided that the assistance provided through a
competitive scheme under the scholarship program of the Company.
7. Contributions of the employer for the benefit of the employee on the following:
a. Pursuant to the provisions of existing law, such as under SSS and
b. Similar contributions arising from provisions of any other existing law
c. To retirement, insurance and hospitalization benefit plans
8. The cost of premiums borne by the employer for the group insurance of his employees.
9. Fringe benefits which are/if:
 Authorized and exempted from income tax under the Tax Code or under any special law.
 The fringe benefit is required by the nature of or necessary to the trade, business or
profession of the employer.
 For the convenience or advantage of the employer.
De Minimis Benefits
The following are de minimis benefits under RR 1-2015 (amending RR 8-2012, RR 5-2011, RR 5-
2008):
a. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during
the year.
b. Monetized value of vacation and sick leave credits paid to government officials and employees.
c. Medical cash allowance to dependents of employees not exceeding P1,500 per employee per
semester or P250 per month (RR 11-2018; TRAIN Law);
d. Rice subsidy of P2,000 or one (1) sack of s0-kg. Rice per month amounting to not more than
P2,000 (RR 11-2018; TRAIN Law);
e.Uniform and clothing allowance not exceeding Pó,000 per annum (RR 11-2018: TRAIN Law);
f.Actual yearly medical benefits not exceeding P10,000 per annum;
g.Laundry allowance not exceeding P300 per month;
h.Employees achievement awards, e.g., for length of service or safety achievement, which he in the
form of a tangible personal property other than cash or gift certificate with an annual monetary value
nor exceeding Pl0,000 received by the employee an established written plan which does not
discriminate in favor of highly under paid
i. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;
j. Daily employee allowance for overtime work and night/graveyard shift not exceeding twenty- five
percent (25%) of the basic minimum wage.
k. Starting January 1, 2015, benefits received by an employee by virtue of a collective bargaining
agreement (CBA) and productivity incentive schemes, provided, that the total annual monetary
value received from both CBA and productivity incentive schemes combined, do not exceed
P10,000 per employee per taxable year.
BIR RULING No. 293-2015 (CBA/CNA and Productivity Incentive Pay):
 If not more than P10,000- considered as de minimis
 If more than P10,000 the entire amount shall be included in the "other benefits" with P90,000
ceiling
NOTE:
 This ruling shall apply only to benefits under CBA and productivity incentive schemes.
 CBA is also referred to as CNA (collective negotiation agreement)
13th Month Pay and "Other Benefits"

13th month pay and Other Benefits received by officials and employees of public and private entities
not exceeding P90,000 beginning January 1, 2018 under the TRAIN Law are exempt from income tax and
creditable withholding tax on compensation income. Amount "in excess of P90,000" should form part of an
individual's gross income and would be subject to income tax and applicable creditable withholding taxes.
“OTHER BENEFITS" under RR 2-98 as amended by RR 3-2015 include:

 Christmas bonus
 Productivity incentive bonus
 Loyalty awards
 Gifts in cash or in kind and other benefits of similar nature actually received by
officials and employees of both government and private offices
 Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee
per annum shall be treated as "de minimis" benefits. Any excess shall be included as part of "other
benefits" [RR 10-2008 as amended by RR 5-2011, RR 8-2012 and RR 1-2015].
EXCESS OF DE MINIMIS OVER THE CEILINGS & 13H MONTH PAY
 De minimis benefits "conforming" to the Tax Exempt;

"ceiling" Excluded in determining the P90,000 ceiling of
"other benefits"
 Excess" of the de minimis benefits over Included in determining the P90,000 ceiling of
their respective ceilings "other benefits"
Amount in excess of P90,000 is subject to basic
income tax.
FORMULA IN COMPUTING THE FRINGE BENEFITS TAX and MONETARY VALUE

Beginning January 1, 2018 under the TRAIN Law
EMPLOYEE
RC, NRC, RA, NRA- NRA-NETB
ET
Monetary value P xx
P xx
Divide by GUMVE 75%
65%
Grossed-up monetary value (GUMV) P xx
P xx
x FBT Rate 25%
35%
Fringe benefit tax P xx
P xx
MONETARY VALUE: In General, the valuation of fringe benefits shall be as follows

BENEFIT MONETARY VALUE
 Money Amount of money

 Non-cash property with transfer of FMV vs. ZV, if applicable
ownership
 Non-cash property; ownership is not Depreciation value
transferred
 Employer lends money free of interest Principal x 12%
 Employer lends money at a rate lower than
12% Principal x (12% - Actual Rate)
EXCEPTIONS: Monetary Value of Housing and Motor Vehicle as shown below:

HOUSING BENEFIT VALUATION
1. Employer leases a residential property for Rental paid 50%
the use of the employee.
2. Employer owns a residential property for
the use of the employee. FMV in the Real property declaration or Zonal
3. Employer purchases residential property in value x 5% x,50%
installment for use employee.
4. Employer purchases residential property Acquisition cost, exclusive of interest x 5% x50%
and transfers ownership to employee.
5. Employer purchases residential property Acquisition cost or Zonal value as determined by
and transfers ownership to employee on a the CIR.
lesser amount.
FMV in the real property declaration or Zonal as
determined by the CIR less cost to the employee.
MOTOR VEHICLE VALUATION
1. Employer owns and maintains a fleet of Acquisition cost of vehicles not normally used for
motor vehicles for the use of the business business divided by 5 years x 50%
and employees. Amount of rental payments not normally used for
2. Employer leases/maintains a fleet of motor business purposes x 50%
vehicles for the use of the business and the
employees. Acquisition cost
3. Employer purchases vehicle in the name of
the employee. Cash received
4. Employer provides employee with cash for
the purchase of the vehicle, and ownership
is placed in the name of the employee.
5. Employer purchases the vehicle on Acquisition cost exclusive of interest divided by 5
installment and ownership is placed in the years
name of the employee.
6. Employer shoulders a portion of the Amount shouldered by employer
amount of the purchase price of vehicle
and ownership is placed in the name of the
employee.
TREATMENT OF ALIEN INDIVIDUALS EMPLOYED IN THE PHILIPPINES BY REGIONAL OR AREA

HEADQUARTERS AND REGIONAL OPERATING HEADQUARTERS OF MULTINATIONAI COMPANIES,
OFFSHORE BANKING UNITS AND PETROLEUM SERVICE CONTRACTORS AND SUBCONTRACTORS
(PREVIOUSLY KNOWN AS SPECIAL EMPLOYEES)
RMC 116-2019 dated October 18, 2019 provides that, the respective incomes of the alien
individuals employed by the above-stated entities are now similarly taxed as income of regular employees of
locally established entities. Accordingly, these alien individuals are subject to the same administrative
requirements of the BIR imposed on other regular employees, such as the substituted fling, issuance of BIR
Form 2316, inclusion in the month withholding tax remittance on compensation, as well as in the prescribed
alphalists, etc.
With respect to those alien individuals who are employed by foreign principals and who are
assigned to render services exclusively to those local entities, otherwise known as "seconded employees or
secondees", they are likewise subject to the regular income tax rates. It is grounded on the principle of situs
of taxation considering that the services rendered by these alien individuals are being performed within the
Philippines, regardless of whether their salaries are being paid by the foreign principals or advanced by
these local entities.
FILING OF INCOME TAX RETURNS

Manner of Filing
Filing of Tax Returns may be made through:

 Manual Filing
 Electronic Filing and Payment System (EFPS)
 eBIR Forms
1. Final Withholding Tax on passive income

MANUAL FILING
January to November 10th day of the month following the month the
withholding was made
December January 15 of the succeeding year
2. Capital Gains Tax

a) Shares of stock - 30 days after each transaction
b) Real Property -30 days following each sale or other disposition
3. Fringe Benefits Tax - shall be filed and the tax paid/remitted not later than the last day of the
month following the close of the quarter during which withholding was made (TRAIN Law;
RR 11-2018).
4. Basic Income Tax
 Apply calendar year
 Purely Compensation income earners: April 15 of the succeeding year.
 For Business income earners including income from practice of profession:
The individual taxpayer is required to file a quarterly tax return (regardless of the results of
operations) as follows:
1st Quarter May 15 (TRAIN Law)

2nd Quarter Aug. 15 (or 45 days after end of Quarter)
3rd Quarter Nov. 15 (or 45 days after the end of the Quarter)
April 15 of the succeeding year (same with 1 st
Annual return quarter return for income earned prior to TRAIN
Law)
Required to File:
1. Resident citizens receiving income from sources within or outside the Philippines.
2. Employees deriving purely compensation income from 2 or more employers, concurrently or
successively at any time during the taxable year.
3. Employees deriving purely compensation income regardless of the amount, whether from a single
or several employers during the calendar year, the income tax of which has not been withheld
correctly ( i.e. tax due to the tax withheld) resulting to collectible or refundable return.
4. Self-employed individuals receiving income from the conduct of trade or business and/or practice of
profession.
5. Individuals deriving mixed income, i.e., compensation income and income from the conduct of trade
or business and/or practice of profession.
6. Individuals deriving other non-business, non-professional related income in addition to
compensation income not otherwise subject to a final tax.
7. Individuals receiving purely compensation income from a single employer, although the income of
which has been correctly withheld, but those spouse is not entitled to substitute filing.
8. Non-resident citizens receiving income from sources within the Philippines.
9. Aliens, whether resident or not, receiving income from sources within the Philippines.
NOT Required to File:

1. An individual who is a minimum wage earner.
2. Marginal income earner (self-employed whose annual gross sales and/or receipts do not exceed
P100,000).
3. An individual whose income has been subjected to final withholding tax [including non-resident
aliens not engaged in trade or business].
4. Those who are qualified under "substituted filing" of income tax returns. However, substituted filing
applies only if all of the following requirements are present:
a) the employee received purely compensation income (regardless of amount) during the taxable
year
b) the employee received the income from only one employer in the
c) Philippines during the taxable year
d) the amount of tax due from the employee at the end of the year equals the amount of tax
withheld by the employer
e) the employee's spouse also complies with all 3 conditions stated above
f) the employer files the annual information return (BIR Form No. 1604- CF) the employer issues
BIR Form No. 2316 (Oct 2002 ENCS version) to each employee.
6. Income tax on corporations

a. Domestic corporations
(c) Taxation of passive income
(d) Taxation of capital gains
(e) Improperly accumulated earnings tax
ii. Proprietary educational institutions and non-profit hospitals
iii. Government-owned or controlled corporations, agencies, instrumentalities
iv. Foreign currency deposit units
b. Resident foreign corporations
(c) Branch Profits Remittance Tax (BPRT)
(d) Taxation of passive income
(e) Taxation of capital gains
ii. Resident foreign corporations subject to preferential tax rates
(a) International carriers
(b) Foreign currency deposit units and offshore banking units
(c) Regional or area headquarters and regional operating
headquarters
c. Non-resident foreign corporations (NRFC)
i. Taxation of NRFC in general
ii. NRFCs subject to preferential tax rates
d. Corporations exempt from income tax
e. Tax on other business entities: general partnerships, general professional
partnerships, co-ownerships, joint ventures, and consortia
7. Filing of returns and payment
a. Individual return
i. Who are required to file; exceptions
ii. Substituted filing
b. Corporate returns
i. Quarterly income tax
ii. Final adjustment return
iv. Return of corporations contemplating dissolution or reorganization
c. Return on capital gains realized from sale of shares of stock and real estate
INCOME TAX ON CORPORATIONS
CORPORATION, definition. The term corporation shall include partnerships, no matter how created or
organized, joint stock companies, joint accounts (cuentas en participacion), associations, or insurance
companies, but does not include general professional partnerships (GPPs) and a joint venture (JV) or
consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal,
geothermal and other energy operations pursuant to an operating or consortium agreement under a service
contract with the Government.
Classification of Corporations:
Domestic Corporations – means created or organized in the Philippines or under its laws.
Foreign Corporations – means a corporation organized, authorized, or existing under the laws of any
foreign country.
 Resident Foreign Corporation (RFC)- applies to a foreign corporation engaged in trade or

business within the Philippines.
 Non-Resident Foreign Corporation (NRFC)- applies to a foreign corporation NOT engaged in

trade or business in the Philippines.
A. DOMESTIC CORPORATIONS
i) TAXATION-IN GENERAL
Computation of Gross Income for Merchandising/Manufacturing Concerns:

Gross Sales XXXX
Less: Sales Returns xxxx
Sales Disc. & Allow. xxxx (xxxx)
Net sales XXXX
Less: Cost of Goods Sold/
Cost of Goods Manufactured & sold* (xxxx)
Gross Income XXXX
Computation of Gross Income for Service Concerns:
Gross Receipts/Revenues XXXX

Less: Direct Cost of Services** (xxxx)
Gross Income XXXX
*Cost of Goods Sold (Trading or Merchandising) – cost of the goods sold, plus import duties,
freight in transporting the goods to the place where the goods are actually sold, including insurance
while the goods are in transit.
*Cost of Goods Manufactured & Sold (Manufacturing) – cost of production of finished goods,
such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance
premiums and other costs incurred to bring the raw materials to the factory or warehouse.
**Direct Cost of Services – includes salaries of personnel rendering the services, expenses on the
facilities directly utilized, cost of supplies and the like. It shall only pertain to those costs exclusively
and directly incurred in relation the revenue realized by the sellers of services. These refer to costs
which are considered indispensable to the earning of the revenue such that without such costs, no
revenue can be generated.
a. NORMAL CORPORATE INCOME TAX OR REGULAR TAX
Imposition: Thirty percent (30%) of Taxable Income within and without. (Effective Jan. 1, 2009)
Computation of Corporate Income Tax:
Gross Income XXXX

Less: Allowable Deductions XXXX
Taxable Income XXXX
Multiply by the rate 30%
Normal Corporate Income Tax Due XXXX
b. MINIMUM CORPORATE INCOME TAX ON DOMESTIC CORPORATIONS (MCIT)
Imposition: Two percent (2%) of the Gross Income as of the end of the fourth taxable year in which
such corporation commenced its business operations, when the minimum income tax is greater
than the normal income tax due from such corporation. For purposes of the MCIT, the taxable year
in which business operations commenced shall be the year when the corporation registers with the
BIR.
Computation of MCIT:
Gross Sales XXXX

Less: Sales Returns XXXX
Sales Disc. & Allow. XXXX
Cost of Goods Sold XXXX XXXX
MCIT Gross Income XXXX
Multiply by MCIT Rate 2%
MCIT XXXX
Coverage. MCIT applies to domestic corporations (those created and organized in the
Philippines under its laws) and resident foreign corporations which are subject to the regular
income tax.
Special corporations which do NOT fall within the coverage of the MCIT:
 Corporations that are subject to ten percent (10%) preferential tax rate: Proprietary
educational institutions, nonprofit hospitals, Offshore Banking Units (OBUs) on their income
from foreign currency transactions which has been subjected to a final tax at 10% of such
income, and depositary banks under the expanded foreign currency deposit system on their
income from foreign currency transactions which has been subjected to final income tax at
10%; RFCs engaged in business as Regional Operating Headquarters.
 Firms under special income tax regime such as those under PEZA law (RA 7916), the
Bases Conversion Development Act (RA 7227) and firms enjoying Income Tax Holiday
(ITH) under EO 226;
 International carriers subject to tax at 2 ½% of their gross Philippine billings
Note:
For domestic corporations whose operations or activities are partly covered by the regular income
tax and partly covered under a special income tax system, the MCIT shall only apply on operations covered
by the regular corporate income tax system.
MCIT Gross Income differentiated from Normal Corporate Tax Gross Income. The latter would
include other incidental income items, such as rent income, interest, gain on sale of assets, certain
tax refunds, etc.
Amount of Corporate Income Tax to be paid to BIR. Whichever is higher between the normal
income tax and the minimum corporate income tax (MCIT).
Illustration:
ABCD Corp., a domestic trading corporation, in its fourth year of operations had a gross profit from
sales of P300,000.00 and the net taxable income of P100,000.00. How much income tax is to be
paid by the corporation for the year?
MCIT (P300,000.00 X 2%) P6,000.00

Normal Income Tax (P100,000.00 X 30%) P30,000.00
Income tax to be paid for the year (whichever is higher) P30,000.00
Quarterly MCIT. The computation and the payment of MCIT shall likewise apply at the time of filing
the quarterly corporate income tax. The tax due to be paid shall be whichever is higher between
MCIT and the regular tax.
Items allowed to be credited against quarterly MCIT:
1. Creditable Withholding tax;

2. Quarterly Income Tax Payments under the normal income tax;
3. MCIT paid in the previous taxable quarters
Note:
Excess MCIT from the previous taxable year/s shall not be allowed to be credited against the
quarterly MCIT tax due.
Annual Income Tax Computation. The final comparison between the normal income tax payable
and the MCIT shall be made at the end of the taxable year. The payable or excess payment in the
Annual Income Tax Return shall be computed taking into consideration corporate income tax
payment made at the time of filing of quarterly corporate income tax returns whether this be MCIT or
normal income tax.
In the computation of annual income tax due, if the normal income tax due is higher than the
computed annual MCIT, the following shall be allowed to be credited against the annual income tax:
(a) quarterly MCIT payments,

(b) quarterly normal income tax payments,
(c) excess MCIT in the prior year/s (subject to the prescriptive period allowed for its
creditability),
(d) CWTs in the current year,
(e) excess CWTs in the prior year.
If in the computation of annual income tax due, the computed annual MCIT due is higher than the
annual normal income tax due, the following may be credited against the annual income tax:
(a) quarterly MCIT payments of current taxable quarter,

(b) quarterly normal income tax payments in current year,
(c) CWTs in the current year,
(d) excess CWTs in the prior year.
Excess MCIT from the previous taxable year/s shall not be allowed to be credited against the
annual MCIT due as the same can only be applied against normal income tax.
Manner of Filing and Payment. The MCIT shall be paid in the same manner prescribed for the
payment of the normal corporate income tax which is on a quarterly and on a yearly basis.
Carry Forward of Excess Minimum Tax. Any excess of the minimum corporate income tax over
the normal income tax shall be carried forward and credited against the normal income tax for the
three (3) immediately succeeding taxable years.
Illustration presented on annualized basis:
Year Normal Income MCIT Excess of MCIT

Tax (NIT) over NIT
2017 50k 75k 25k
2017 Tax payable 75k
2018 60K 100K 40K
2018 Tax payable 100k
2019 100k 60k
Computation of Net Tax Payable in 2019:
Tax payable 100K

Less:
2017 excess MCIT (25K)
2018 excess MCIT (40K) 65K
Net Tax Payable 35K
Relief from the Minimum Corporate Income Tax Under Certain Conditions. - The Secretary of
Finance is hereby authorized to suspend the imposition of the minimum corporate income tax on
any corporation which suffers losses on account of the following (LMB):
 prolonged labor dispute (losses from a strike staged by employees that lasts for more than
6 months and caused the temporary shutdown of operations) or
 force majeure (acts of God and other calamity; includes armed conflicts like war and
insurgency) or
 legitimate business reverses (substantial losses due to fire, robbery, theft or other economic
reasons)
c. TAXATION OF PASSIVE INCOME
Rates of Tax on Certain Passive Income of Corporations Tax Rate

1. Interest from currency deposits, trust funds, deposit substitutes and similar 20%
arrangements received by domestic corporations
2. Royalties from sources within the Philippines 20%
3. Interest Income from a Depository Bank under Expanded Foreign Currency 15%
Deposit System
4. Cash and Property Dividends received by a domestic corporation from 0%
another domestic corporation
5. Capital gains from the sale, exchange or other disposition of lands and/or 6%
building
6. Net Capital gains from sale of shares of stock not traded in the stock 15%
exchange
Dividends received by a domestic corporation from another domestic corporation NOT subject
to Final Withholding Tax. The dividends received by a domestic corporation from another domestic
corporation are not subject to income tax, but dividends received by a domestic corporation from a
foreign corporation are subject to income tax and shall form part of the gross income because there is
no law exempting this type of dividend from income tax.
d. TAXATION OF CAPITAL GAINS
Income from sale of shares of stock.
Imposition: 15% on net capital gains from sale of shares of a domestic corporation NOT listed and
traded in the stock exchange. (Under the TRAIN Law)
Illustration:
On net capital gain of P150,000.00, the capital gains tax due is equal to P22,500.00
Net Capital Gain 150,000.00

Multiply by: 15%
Capital Gains Tax Due P22,500.00
Income from the sale, exchange or other disposition of real properties or other capital assets.
Imposition: 6% final tax based on the gross selling price or the current fair market value at the time of
the sale, whichever is higher.
Illustration:
Gross Selling Price of Land is P500,000.00
BIR zonal Value is P800,000.00
Market Value in the tax declaration is P 1,000,000.00
Current Fair market value (whichever is higher between BIR Zonal Value and the Market
value in the Tax Declaration) P1,000,000.00
Thus,
CFMV of P1,000,000.00
Multiply by 6%
Capital Gains Tax due P60,000.00
e. IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)
Imposition: In addition to other taxes, a 10% improperly accumulated earnings tax is imposed for each
taxable year on the improperly accumulated taxable income by closely-held domestic corporations
formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the
shareholders of any other corporation, by permitting to accumulate the earnings and profits of the
corporation to accumulate instead of dividing them among or distributing them to the shareholders.
Rationale. The rationale is that if the earnings and profits were distributed, the shareholders would then
be liable to income tax thereon, whereas if the distribution were not made to them, they would incur no
tax in respect to the undistributed earnings and profits of the corporation. Thus, IAET is being imposed
in the nature of a penalty to the corporation for the improper accumulation of its earnings, and as a form
of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the
earnings distributed to them by the corporation. The touchstone of the liability is the purpose behind the
accumulation and not the consequences of the accumulation.
Exception. The use of undistributed earnings and profits for the reasonable needs of the business
would not generally make the accumulated or undistributed earnings subject to the tax.
Reasonable Needs of the Business. This is determined by the “immediacy test”. The (1) immediate
needs of the business, including (2) reasonably anticipated needs. To prove the “reasonable needs of
the business”, the corporation should prove that there is
(1) an immediate need for the accumulation of the earnings and profits; or
(2) a direct correlation of anticipated needs to such accumulation of profits.
COMPOSITION
The following constitute accumulation of earnings for the reasonable needs of the business: (ILL ABE)
 Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of
the corporation as of Balance Sheet date, inclusive of accumulations taken from other years;
 Earnings reserved for definite corporate Expansion projects or programs requiring considerable
capital expenditure as approved by the Board of Directors or equivalent body;
 Earnings reserved for Building, Plant or Equipment Acquisition as approved by the Board of
Directors or equivalent body;
 Earnings reserved for compliance with any Loan Covenant or pre-existing obligation
established under a legitimate business agreement;
 Earnings required by Law or applicable regulations to be retained by the corporation or in

respect of which there is legal prohibition against its distribution;
 In the case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings
intended or reserved for Investments within the Philippines as can be proven by corporate
records and/or relevant documentary evidence.
COVERED CORPORATIONS
Closely-held Corporations. Those corporations at least 50% of the total combined voting power of all
classes of stock entitled to vote is owned directly or indirectly by or for more than 20 individuals.
Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held
corporations.
Rules to determine whether the corporation is closely held corporation, insofar as such determination is
based on stock ownership:
 Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a corporation,
partnership, estate or trust shall be considered as being owned proportionately by its
shareholders, partners or beneficiaries.
 Family and Partnership Ownership. - An individual shall be considered as owning the stock
owned, directly or indirectly, by or for his family, or by or for his partner.
For purposes of this paragraph, the ‘family of an individual’ includes his brothers or sisters (whether
by whole or half-blood), spouse, ancestors and lineal descendants.
 Option to Acquire Stocks. - If any person has an option to acquire stock, such stock shall be
considered as owned by such person.
For purposes of this paragraph, an option to acquire such an option and each one of a series of
option shall be considered as an option to acquire such stock.
 Constructive Ownership as Actual Ownership. - Stock constructively owned by reason of the

application of (a) or (c) shall, for purposes of applying (1) or (2), be treated as actually owned by
such person.
But stock constructively owned by the individual by reason of the application of (b) shall NOT be
treated as owned by him for purposes of again applying such paragraph in order to make another
the constructive owner of such stock.
BIR RULING 025-02. The ownership of a domestic corporation for purposes of determining whether
it is a closely held corporation or a publicly held corporation is ultimately traced to the individual
shareholders of the parent company.
Where at least 50% of the outstanding capital stock or at least 50% of the total combined voting
power of all classes of stock entitled to vote in a corporation is owned directly or indirectly by at
least 21 or more individuals, the corporation is considered as a publicly-held corporation, thus,
exempt from IAET.
The IAET shall NOT apply to the following (BIPTENG):

 Banks and other non-bank financial intermediaries;
 Insurance companies;
 Publicly-held corporations;
 Taxable partnerships;
 General professional partnerships;
 Non-taxable joint ventures; and
 Enterprises duly registered with PEZA, and enterprises registered pursuant to the
Bases Conversion and Development act of 1992, as well as other enterprises duly
registered under special economic zones declared by law which enjoy payment of
special tax rate on their registered operations or activities, in lieu of other taxes, national
or local.
Evidence of Purpose to Avoid Income Tax. The fact that any corporation is a mere holding
company or investment company shall be prima facie evidence of a purpose to avoid the tax upon
its shareholders or members.
Determination of the Improperly Accumulated Taxable Income. Improperly Accumulated

Taxable Income means taxable income adjusted by:
 Income exempt from tax;

 Income excluded from gross income;
 Income subject to final tax; and
 The amount of NOLCO deducted;
And reduced by the sum of:
 Dividends actually or constructively paid; and

 Income tax paid for the taxable year
Note:
For those adopting the calendar year basis, IAET shall not apply as of Dec. 31, 1997.
For those adopting the fiscal year basis, IAET shall be reckoned as of the end of the month
comprising the twelve (12)-month period of fiscal year 1997-1998.
Computation:
Taxable income for the year XXXX

Add:
a) Income subject to final tax XXXX
b) NOLCO XXXX
c) Income exempt from tax XXXX
d) Income excluded from gross income XXXX XXXX
XXXX
Less:
a) Income Tax paid XXXX
b) Dividends declared/paid XXXX (XXX)
Total XXXX
Add: Retained Earnings from
Prior Years XXXX
Accumulated Earnings, Dec. 31 XXXX
Less: Amount that may be retained
(100% of Paid-up Capital, Dec. 31) (XXX)
Improperly Accumulated Taxable Income XXXX
ii) PROPREITARY EDUCATIONAL INSTITUSIONS AND NON-PROFIT HOSPITALS
Imposition. 10% on net income (except on income subject to capital gains tax and passive income
subject to final tax) within and without the Philippines
Predominance Test. If gross income from unrelated trade or business or other activity exceeds
50%of total gross income derived from all sources, then the ENTIRE taxable income shall be
subject to the regular corporate income tax rate of 30%.
Unrelated Trade, Business or Other Activity. Any trade, business or other activity, the conduct of
which is not substantially related to the exercise or performance by such educational institution or
hospital of its primary purpose or function.
Proprietary Educational Institution. Any private school maintained and administered by private
individuals or groups with an issued permit to operate from the DECS (now DepEd), CHED or
TESDA. (Sec. 27(B), NIRC)
iii) GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS, AGENCIES,

INSTRUMENTALITIES
For GOCCs:
General rule. GOCCs are taxable as any other corporation engaged in similar business, industry or
activity, except:
(a) Government Service Insurance System (GSIS)
(b) Social Security System (SSS)
(c) Philippine Health Insurance Corporation (PHIC)
(d) Local water districts (LWDs)
For instrumentalities and agencies of government:
General Rule: The government is exempt from tax.
Exception: When it chooses to tax itself. Nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be subject
to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can
doubt its wisdom. (Mactan Cebu Airport v Marcos, 1996)
If the taxing authority is the LGU:
RA 7160 expressly prohibits LGUs from levying tax on the National Government, its agencies and
instrumentalities and other LGUs.
iv) FOREIGN CURRENCY DEPOSIT UNITS
Foreign Currency Deposit Unit. An FCDU shall refer to an accounting unit or department in a local
bank or in an existing local branch of foreign banks, which is authorized by the BSP to operate
under the expanded foreign currency deposit system, in accordance with the provisions of PD 1035,
as implemented by CB Circular No.547.
The FCDU authority shall be distinguished from the authority to accept foreign currency deposits
under RA 6426, as implemented by CB Circular No. 343.
Rate
Income derived under the expanded foreign currency exempt from all taxes, except net income
deposit system from certain foreign currency from such transactions as may be subject to
transactions the regular income tax payable
Income from foreign currency loans to residents other
than offshore units in the Philippines or other ten percent (10%) final tax
depository banks under the expanded system
B. RESIDENT FOREIGN CORPORATIONS

i. TAXATION-IN GENERAL
A resident foreign corporation is a corporation organized under the laws of a foreign country,
which is engaged in trade or business in the Philippines.
A Philippine branch of a foreign corporation duly licensed by the SEC is considered a resident
foreign corporation. Thus, only the income of the Philippine branch from sources within the
Philippines is subject to Philippine income tax.
Marubeni v. Commissioner: As general rule, the head office of a foreign corporation is the same
juridical entity as its branch in the Philippines following the single entity concept. Thus, the income
from sources within the Phils. of the foreign head office shall thus be taxable to the Philippine
branch.
But, when the head office of a foreign corporation independently and directly invested in a domestic
corporation without the funds passing through its Philippine branch, the taxpayer, with respect to
the tax on dividend income, would be the non-resident foreign corporation itself and the dividend
income shall be subject to the tax similarly imposed on nonresident foreign corporations.
Definition of “doing business” under the Foreign Investment Act of 1991. The phrase "doing
business" shall include soliciting orders, service contracts, opening offices, whether called "liaison"
offices or branches; appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totaling one hundred eighty [180] days
or more; participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in progressive prosecution
of commercial gain or of the purpose and object of the business organization: Provided, however,
That the phrase "doing business" shall not be deemed to include mere investment as a shareholder
by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of
rights as such investor; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account; (Sec. 3 (d))
Resident foreign corporations are subject to any or some of the following:

 Capital Gains Tax
 Final Tax on Passive Income
 Normal Tax [OR] Minimum Corporate Income Tax (MCIT) [OR] Gross Income Tax (GIT)
 Branch Profit Remittance Tax
a) REGULAR CORPORATE INCOME TAX (RCIT)
Imposition. 30% of the taxable income derived in the preceding taxable year from all sources
within the Philippines (effective Jan. 1, 2009)
Reason for Taxing Income of RFCs from Sources Within the Philippines. Taxability of a
foreign corporation’s income depends upon the locus of the activity, property or services giving
rise thereto. It is sufficient that income is derived from an activity within the Philippines. Place of
activity, not place of business, is controlling.
b) MINIMUM CORPORATE INCOME TAX (MCIT)
Imposition: 2% of MCIT Gross Income from sources within the Philippines. The MCIT is
imposed on RFCs under the same conditions as domestic corporations. (see computations
and/or illustrations under domestic corporations’ discussion)
Optional Gross Income Tax (OGIT). The President, upon the recommendation of the
Secretary of Finance, may allow resident foreign corporations the option to be taxed at fifteen
percent (15%) of gross income within the Philippines, under the same conditions as domestic
corporations.
c) BRANCH PROFIT REMITTANCE TAX
Imposition: Any profit remitted by a branch of a multinational corporation to its head office shall
be subject to a 15% final tax based on the total profits applied or earmarked for remittance
without any deduction for the tax component. The 15% final tax should exclude:
(a) profits on activities which are registered with the Philippine Economic Zone
Authority (PEZA) and
(b) passive income gains and profits received not directly connected with the
conduct of its trade or business in the Philippines.
Income not treated as branch profits unless effectively connected with the conduct of trade or
business in the Philippines:
1) Interests, dividends, rents, royalties, remuneration for technical services

2) salaries, wages premiums, annuities, emoluments
3) other fixed or determinable annual, periodic or casual gains, profits, income
4) capital gains received during each taxable year from all sources within the Philippines
Notes:
(a) imposed whether the head office of the foreign corporation is located in a tax treaty country, in a
tax haven or other non-treaty country.
(b) imposed only on the profits remitted by a Philippine branch to the head office of a foreign
corporation.
d) TAXATION OF PASSIVE INCOME
Rates
Interest in any currency bank deposit in regular banking units
Yield or any monetary benefit from deposit substitutes 20% final tax
Interest Income or Yield or any monetary benefit from trust fund and
other similar arrangements
Royalties derived from sources within the Philippines
Interest income derived from depository bank under the FCD System 15% final tax
Interest Income derived by a resident depository bank under the EFCD
system from foreign currency loans granted by such depository banks to
10% final tax
residents other than the OBUs in the Philippines or other depository
banks under the expanded depository system
On presumed capital gains from sale of lands and/or buildings located
in the Philippines classified as Capital assets 6%
Gross Income derived from contractors from service contractors engaged in 8% in lieu of any
petroleum operations as defined under PD 87, as imposed under PD 1354 and all taxes,
national & local
e) TAXATION OF CAPITAL GAINS
Income from Sale of Shares of Stock NOT Traded in the Stock Exchange.
Imposition: 15% on net capital gains from sale of shares of a domestic corporation NOT listed and
traded in the stock exchange. (Under the TRAIN Law)
Illustration:
On net capital gain of P150,000.00, the capital gains tax due is equal to P22,500.00
Net Capital Gain 150,000.00

Multiply by: 15%
Capital Gains Tax Due P22,500.00
Intercorporate Dividends. Dividends received by a RFC from a domestic corporation liable to tax
under the NIRC shall not be subject to tax.
ii. RESIDENT FOREIGN CORPORATIONS SUBJECT TO PREFERENTIAL TAX
a. INTERNATIONAL CARRIERS
Imposition. Carriers doing business in the Philippines shall pay a tax of 2.5% on its Gross
Philippine Billings.
Gross Philippine Billings (GPB) of International Air Carriers. This includes the following:
 gross revenue derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted flight, irrespective of the
place of sale or issue and the place of payment of the ticket or passage document
 gross revenue from tickets revalidated, exchanged and/or indorsed to another

international airline if the passenger boards a plane in a port or point in the Philippines
 for flights which originate from the Philippines, but transshipment of passenger takes
place at any port outside the Philippines on another airline, the gross revenue consisting
of only the aliquot portion of the cost of the ticket corresponding to the leg flown from the
Philippines to the point of transshipment (RR 15-2002)
Gross Philippine Billings (GPB) of International Shipping. Gross revenue whether for
passenger, cargo or mail originating from the Philippines up to final destination, regardless of the
place of sale or payments of the passage or freight documents.
Note:
International carriers may avail of preferential rate or exemption from the tax on carriage of persons
and their excess baggage on the basis of applicable tax treaty or international agreement to which the
Philippines is a signatory or on the basis of reciprocity.
b. FOREIGN CURRENCY DEPOSIT UNITS & OFFSHORE BANKING UNITS
Foreign Currency Deposit Unit. An FCDU shall refer to an accounting unit or department in a
local bank or in an existing local branch of foreign banks, which is authorized by the BSP to
operate under the expanded foreign currency deposit system, in accordance with the provisions of
PD 1035, as implemented by CB Circular No.547.
The FCDU authority shall be distinguished from the authority to accept foreign currency deposits
under RA 6426, as implemented by CB Circular No. 343.
Deposits- shall mean funds in foreign currencies which are accepted and held by an OBU in the
regular course of business, with the obligation to return an equivalent amount to the owner thereof,
with or without the interest.
Offshore Banking Unit (OBU). An OBU is a branch, subsidiary or affiliate of a foreign banking
corporation which is duly authorized by the BSP, as a separate accounting unit, to transact
offshore banking business in the Philippines.
Offshore Banking. Refer to the conduct of banking transactions in foreign currencies involving the
receipt of funds principally from external sources and the utilization of such funds.
Gross Offshore Income. This shall mean all income arising from transactions allowed by the BSP
conducted by and between-
 In the case of an OBU with another OBU or with an expanded FCDU or with a non-
resident;
 In the case of an expanded FCDU with another expanded FCDU or with and OBU or
with a nonresident.
Coverage. Only income derived by offshore banking units from foreign currency transactions with:
 non-residents,
 other offshore banking units
 local commercial banks including branches of foreign banks that may be authorized by
the BSP to transact business with OBUs
Rate
Income derived by OBUs authorized by the BSP from
foreign currency transactions with nonresidents,
other OBUs, local commercial banks, including
branches of foreign banks authorized by the BSP to EXEMPT from all taxes, EXCEPT net
income from such transactions as may be
transact business with OBUs subject to the regular income tax of 30%
Any income nonresidents, whether individuals or
corporations, from transactions with depository
banks under the expanded system
Interest income derived from foreign currency
loans to residents (other than OBUs or local
commercial banks, including local branches of foreign ten percent (10%) final withholding tax
banks authorized by the BSP to transact business with
OBUs)
c. REGIONAL OR AREA HEADQUARTERS & REGIONAL OPERATING HEADQUARTERS
Regional or area headquarters (RHQ). A branch established in the Philippines by multinational

companies and which headquarters do not earn or derive income from the Philippines and
which act as supervisory, communications and coordinating center for their affiliates, subsidiaries,
or branches in the Asia-Pacific Region and other foreign markets.
Imposition of Tax. RHQs are not subject to income tax.

Regional Operating Headquarters (ROHQs). Foreign business entity allowed to derive income
in the Philipiines by performing qualifying services to its affiliates, subsidiaries or branches in
the Philippines, in the Asia-Pacific Region and other foreign markets and may engage in the
following activities (SMART - BAD – PPL):
 Technical Support and maintenance

 Marketing control and sales promotion
 General Administration and planning
 Research and development services and product development
 Training and personnel management
 Business development.
 Corporate finance Advisory services
 Data processing and communications, and
 Business Planning and coordination
 Sourcing and Procurement of raw materials and components
 Logistic services
Imposition of Tax. ROHQs shall pay a tax of 10% of their taxable income.
SUMMARY:
1) a. In General – on taxable income derived from sources within the 30%
Philippines
b. Minimum Corporate Income Tax – on gross income 2%
c. Improperly Accumulated Earnings – on improperly accumulated taxable 10%
income
2) International Carriers – on gross Philippine billings 2½%
3) Regional Operating Headquarters of Multinational Companies– on taxable 10%
income
4.) Regional or Area Headquarters of Multinational Companies exempt
5) Corporation Covered by Special Laws Rate specified
under the
respective
special laws
6) Offshore Banking Units (OBUs) 10%
In general – Income derived by OBUs from foreign currency transactions with Exempt
non-residents, other OBUs, local commercial banks and branches of foreign
banks authorized by BSP
On interest income derived from foreign currency loans granted to residents 10%
other than offshore banking units or local commercial banks, local branches of
foreign banks authorized by BSP to transact business with OBUs
7) Income derived under the Expanded Foreign Currency Deposit System
Interest income derived by a depository bank under the expanded foreign 7½%
currency deposit system.
On Income derived by depository banks under the expanded foreign exempt
currency deposit systems from foreign currency transactions with non-
residents, OBUs in the Philippines, local commercial banks including branches
of foreign banks that may be authorized by BSP
On interest income derived from foreign currency loans granted by 10%
depository banks under the expanded foreign currency deposit systems to
residents other than offshore banking units in the Philippines or other
depository banks under the expanded system
8.) Branch Profit Remittances – on total profits applied or earmarked for 15%
remittance without any deduction for the tax component thereof (except those
activities which are registered with the Philippines Economic Zone Authority)
9.) Interest from currency deposits, trust funds, deposit substitutes and similar 20%
arrangements
10. Royalties derived from sources within the Philippines 20%
C. NON-RESIDENT FOREIGN CORPORATIONS
i. TAXATION OF NRFC IN GENERAL
Nonresident Foreign Corporation (NRFC). Foreign corporation NOT engaged in trade or

business within the Philippines.
Imposition of Tax. Generally, 30% of gross income from all sources within the Philippines
such as interests, dividends, rents royalties, salaries, premiums (except reinsurance
premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual
gains, profits and income and capital gains, except capital gains on the sale of shares of
stock (not listed and traded through a local stock exchange), of a domestic corporation
which are subject to the tax rates prescribed for individuals and resident foreign
corporations.
ii. NRFCs SUBJECT TO PREFERENTIAL TAX RATES
Rates
On gross income of nonresident cinematographic film owner, lessor, or
25%
distributor
On gross rental income or charter fees derived by nonresident owner or
lessor of vessels from the leases or charters to Filipino citizens or 4.5%
corporations as approved by the MARINA
On gross rental income of nonresident lessor of aircraft, machineries and
7.5%
other equipment.
On interest income on foreign loans derived by NRFC 20%
Intercorporate dividends from a domestic corporation- on the amount of

cash and/or property dividends received from a DOMESTIC CORPORATION,
which shall be collected and paid subject to the condition of the country in
which the NRFC is domiciled, shall allow a credit against the tax due from 15%
NRFC taxes deemed to have been paid in the Philippines equivalent to
15%, which represents the difference between the regular income tax of
30% and the 15% tax on dividends.
On Net Capital Gains from sale of shares of stock not traded in the local
stock exchange- On the net capital gains from sale, barter, exchange or other
disposition of shares of stock in a domestic corporation, except shares sold, 15%
or disposed of through the stock exchange:
D. CORPORATIONS EXEMPT FROM INCOME TAX
The following organizations shall not be taxed:
1. Labor, agricultural or horticultural organization not organized principally for profit.
2. Mutual savings bank not having a capital stock represented by shares, and cooperative
bank without capital stock organized and operated for mutual purposes and without
profit;
3. A beneficiary society, order, or association, operating for the exclusive benefit of the
members such as fraternal organization operating under the lodge system, or a mutual
aid association or a nonstock corporation organized by employees providing for the
payment of life, sickness, accident or other benefits exclusively to the members of such
society, order, or association, or nonstock corporation or their dependents;
4. Cemetery company owned and operated exclusively for the benefit of its members;
5. Nonstock corporation or association organized and operated exclusively for religious,

charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans,
no part of its net income shall belong to or inure to the benefit of its members;
6. Civic league, chamber of commerce, or board of trade, not organized for profit and no
part of the net income of which inures to the benefit of any private stockholders or
individual;
7. A nonstock and nonprofit educational institution;
8. Government educational institution;
9. Farmers or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely
local character, the net income of which consists solely of assessments, dues, and fees
collected from members for the sole purpose of meeting its expenses;
10. Farmers’, fruit growers’, or like association organized and operated as a sales agent for
the purpose of marketing the products of its members and turning back to them the
proceeds of sales, les the necessary selling expenses on the basis of the quantity of
produce furnished by them.
Note:
Income of whatever kind of the foregoing organizations conducted for profit shall be subject to
tax.
E. TAX ON OTHER BUSINESS ENTITIES: GENERAL PARTNERSHIPS, GENERAL

PROFESSIONAL PARTNERSHIPS, CO-OWNERSHIP, JOINT VENTURES &
CONSORTIA
TAXATION OF PARTNERSHIPS
CLASSIFICATION OF PARTNERSHIPS FOR TAX PURPOSES
1. General Professional Partnerships (GPP)– partnerships formed by persons for the sole
purpose of exercising their common profession, no part of the income of which is derived
from engaging in any trade or business. A GPP is exempt from income tax. It is, however,
required to file a tax return for its income for the purpose of furnishing information as to the
share in the
gains or profits that each partner shall include in his individual tax return.
2. Other Partnerships (or General Co-partnerships) – partnerships wherein all or part of

their income is derived from the conduct of trade or business. An ordinary business
partnership is considered as a corporation and is thus subject to corporate tax of 30%.
TAXATION OF GENERAL PROFESSIONAL PARTNERSHIPS
RULES
1. A GPP is a partnership formed by persons for the purpose of exercising their common
profession, no part of the income of which is derived from engaging in trade or business. A
GPP as such shall not be subject to the income tax. It is not a taxable entity for income tax
purposes.
2. The partners shall only be liable for income tax only in their separate and individual
capacities.
3. For purposes of computing the distributive share of the partners, the net income of the GPP
shall be computed in the same manner as a corporation.
4. Each partner shall report as gross income his distributive share, actually or constructively
received, in the net income of the partnership.
5. The distributive share of a partner (actual or constructive) shall be subject to a creditable
withholding income tax of 10% if the amount share is not more than P720,000 and 15% if
the amount of the share is more than P720,000. (RR 2- 1998)
6. If the partnership sustains a net operating loss, the partners shall be entitled to deduct their
respective shares in the net operating loss from their individual gross income.
Notes:
(a) GPP is not a taxable entity

(1) The GPP is deemed to be no more than a mere mechanism or a flow-through
entity in the generation of income by, and the ultimate mechanism distribution of
such income to the individual partners. (Tan v. Commissioner [Oct. 3, 1994])
(2) But the partnership itself is required to file income tax returns for the purpose of
furnishing information as to the share in the gains or profits which each partner shall
include in his individual return. (RR 2- 1998)
(b) The share of an individual partner in the net profit of a general professional partnership is
deemed to have been actually or constructively received by the partner in the same taxable year in
which such partnership net income was earned, and shall be taxed to them in their individual
capacities, whether actually distributed or not, at the graduated income tax ranging from 5% to 32%.
Thus, the principle of constructive receipt of income or profit is being applied to undistributed profits
of GPPs. The payment [to the partners] of such tax-paid profits in another year should no longer be
liable to income tax. (Mamalateo)
OTHER PARTNERSHIPS (OR GENERAL CO-PARTNERSHIPS)
RULES:
(1) The partnership is subject to the same rules on corporations (capital gains tax, final tax
on passive income, normal tax, minimum corporate income tax [MCIT] and gross income
tax [GIT]), but is not subject to the improperly accumulated earnings tax [IAET]. The
partnership must file quarterly and year-end income tax returns.
(2) The taxable income of the partnership, less the normal corporate income tax (30%)
thereon, is the distributable net income of the partnership.
The share of a partner in the partnership’s distributable net income of a year shall be
deemed to have been actually or constructively received by the partners in the same
taxable year and shall be taxed to them in their individual capacity, whether actually
distributed or not. [Sec. 73(D)] Such share will be subjected to a final tax of 10% to be
withheld by the partnership. [Sec. 24(B)(2)]
CO-OWNERSHIP
There is co-ownership
(1) When two or more heirs inherit and undivided property from a decedent.
(2) When a donor makes a gift of an undivided property in favor of two or more donees.
When Co-ownership is not subject to tax.When the co-ownership’s activities are limited merely to
the preservation of the co-owned property and to the collection of the income from the property. The
income derived by a co-owner from the property shall be reported in his individual tax return
regardless of whether such income is actually or constructively received.
When Co-ownership is subject to tax. The following circumstances would render a co-ownership
subject to a corporate income tax:
(a) When a co-ownership is formed or established voluntarily, or upon agreement of the
parties;
(b) When the individual co-owner reinvested his share in the co-ownership to produce
another income generating activity, and
(c) When the inherited property remained undivided for more than ten years, and no attempt
was ever made to divide the same among the co-heirs, nor was the property under
administration proceedings nor held in trust, the property should be considered as owned
by an unregistered partnership.
Automatically converted into an unregistered partnership the moment the said common properties
and/or the incomes derived from them are used as a common fund with intent to produce profits for
the heirs in proportion to their respective shares in the inheritance as determined in a project
partition either duly executed in an extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding. [Ona v. CIR, May, 25 1972]
JOINT VENTURE AND CONSORTIUM
To constitute a” joint venture,” certain factors are essential. Each party to the venture must make a
contribution, not necessarily of capital, but by way of services, skill, knowledge, material or money,
profits must be shared among the parties; there must be a joint proprietary interest and right of
mutual control over the subject matter of the enterprise; and usually, there is single business
transaction.
An unincorporated joint venture is taxed like a corporation. The share of the joint venture partners
will no longer be taxable to them because they partake of dividends if paid to a domestic or resident
corporation. However, an unincorporated joint venture formed for the purpose of undertaking a
construction project or engaging in petroleum operations pursuant to the consortium agreement with
the Philippine Government is not subject to the corporate income tax. Only the joint venture
partners will be taxed on their respective shares in the income of the joint ventures.
Two elements necessary to exempt a joint venture or consortium from tax

(a) The joint venture must be an unincorporated entity formed by two or more persons
(b) The joint venture was formed for the purpose of undertaking a construction project, or
engaging in the petroleum and other energy operations with operating contract with the
government.
FILING OF RETURNS AND PAYMENT
a) INDIVIDUAL RETURN
i. Who Are Required to File
The following are required to file an income tax return, in general:

 Resident Citizen
 Nonresident Citizen on his income derived from sources within the Philippines;
 Resident Alien on income derived from sources within the Philippines;
 Nonresident Alien engaged in trade or business or exercise of profession in the
Philippines
The following individuals shall not be required to file an income tax return:
 An individual whose taxable income does not exceed Two hundred fifty thousand
pesos (P250,000) Provided, that a citizen of the Philippines and any alien individual
engaged in business or practice of profession within the Philippine shall file an income
tax return, regardless of the amount of gross income;
 An individual with respect to pure compensation income, as defined in Section 32 (A)
(1), derived from sources within the Philippines, the income tax on which has been
correctly withheld: Provided, that an individual deriving compensation concurrently from
two or more employers at any time during the taxable year shall file an income tax
return.
 An individual whose sole income has been subjected to final withholding tax
 A minimum wage earner or an individual who is exempt from income tax pursuant to
the provisions of this Code and other laws, general or special.
The income tax return (ITR) shall consist of a maximum of four (4) pages in paper form or
electronic form, and shall only contain the following information:
 Personal profile and information;

 Total gross sales, receipts or income from compensation for services rendered, conduct
of trade or business or the exercise of profession, except income subject to final tax,
 Allowable deductions;
 Taxable income; and
 Income tax due and payable
Husband and Wife. - Married individuals, whether citizens, resident or nonresident aliens, who do
not derive income purely from compensation, shall file a return for the taxable year 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
Bureau 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.
Persons Under Disability. - If the taxpayer is unable to make his own return, the return may be
made by his duly authorized agent or representative or by the guardian or other person charged
with the care of his person or property, the principal and his representative or guardian assuming
the responsibility of making the return and incurring penalties provided for erroneous, false or
fraudulent returns.
Signature Presumed Correct. - The fact that an individual's name is signed to a filed return shall
be prima facie evidence for all purposes that the return was actually signed by him.
ii. Substituted Filing
Substituted Filing of Income Tax Returns by Employees Receiving Purely

Compensation Income
Substituted filing or ITRs is available for individual taxpayers:

 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 correctly withheld by the employer (i.e.,
tax due = tax withheld)
The Certificate of Withholding filed by the employers duly stamped “RECEIVED” by the BIR
shall be the substituted filing by such employers
iii. When & Where to File & Pay
When. In General, the total amount of tax imposed by this Title shall be paid by the person subject
thereto at the time the return is filed. The return shall be filed as follow:
1. Quarterly Tax Returns/Declarations (BIR Form No. 1701Q)

a. First Quarter : On or before May 15th
b. Second Quarter : On or before August 15th
c. Third Quarter : On or before November 15th
2. Annual Income Tax Return (BIR Form No. 1701)
On or before April 15th of the succeeding year
Installment of Payment. When a tax due is in excess of Two thousand pesos (P2,000), 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 15 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.
Where. Except in cases where the Commissioner otherwise permits, the return shall be filed with
 an authorized agent bank (AABs),

 Revenue District Officer (RDOs),
 Collection Agent (RCOs) 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.
 For eFPS Filer, use the electronic Filing and Payment System (eFPS) and pay
electronically through the eFPS AABs.
b) CORPORATE RETURN
The following are required to file an income tax return, in general:

 Domestic Corporation
 Resident Foreign Corporation on income derived from sources within the Philippines
Requirements. Every corporation subject to the tax herein imposed, except foreign
corporations not engaged in trade or business in the Philippines, shall render, in duplicate, a
true and accurate quarterly income tax return and final or adjustment return. The income tax
return shall consist of a maximum of four (4) pages in paper form or electronic form, be filed by
the president, vice-president or other principal officer, and shall be sworn to by such officer and
by the treasurer or assistant treasurer, and shall only contain the following information:
 Corporate profile and information;

 Gross sales, receipts or income from services rendered, conduct of trade or business,
except income subject to final tax as provided under this Code,
 Allowable deductions under this Code;
 Taxable income as defined in Section 31 of this Code; and
 Income tax due and payable.
Provided, That the foregoing provisions shall not affect the implementation of Republic Act
10708 or TIMTA.
Taxable Year of Corporation. A corporation may employ either calendar year or fiscal year as
a basis for filing its annual income tax return: Provided, That the corporation shall not change
the accounting period employed without prior approval from the Commissioner in accordance
with the provisions of Section 47 of this Code.
Returns of Receivers, Trustees in Bankruptcy or Assignees. In cases wherein receivers,

trustees in bankruptcy or assignees are operating the property or business of a corporation,
subject to the tax imposed by this Title, such receivers, trustees or assignees shall make returns
of net income [56] as and for such corporation, in the same manner and form as such
organization is hereinbefore required to make returns, and any tax due on the income as
returned by receivers, trustees or assignees shall be assessed and collected in the same
manner as if assessed directly against the organizations of whose businesses or properties they
have custody or control.
Returns of General Professional Partnerships. Every general professional partnership shall

file, in duplicate, a return of its income, except income exempt under Section 32(B) of this Title,
setting forth the items of gross income and of deductions allowed by this Title, and the names,
Taxpayer Identification Numbers (TIN), addresses and shares of each of the partners.
i. Quarterly Income Tax Return
BIR Form 1702Q - Quarterly Income Tax Return (For Corporations and Partnerships)
Documentary Requirements
1. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable

2. Duly approved Tax Debit Memo, if applicable
3. Previously filed return, if an amended return is filed for the same quarter
ii. Final Adjusted Return
BIR Form 1702 - Annual Income Tax Return
Documentary Requirements
1. Certificate of Income Payments Not Subjected to Withholding Tax (BIR Form 2304),
if applicable
2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Proof of Foreign Tax Credits, if applicable
5. Income tax return previously filed and proof of payment, if amended return is filed
for the same taxable year
6. Account Information Form (AIF) or the Certificate of the independent CPA with
Audited Financial Statements, if the gross annual sales, earnings, receipts or output
exceed P3,000,000.
7. Proof of prior year’s excess tax credits, if applicable
iii. When & Where to File
When. In General, the total amount of tax imposed by this Title shall be paid by the person subject
thereto at the time the return is filed. The return shall be filed as follow:
1. Quarterly Tax Returns (BIR Form No. 1702Q)
On or before the 60th day following the close of the quarter
2. Annual Corporate Income Tax Return (BIR Form No. 1702)

On or before the 15th day of the month following the close of the taxable year
Extension of Time to File Returns. - The Commissioner may, in meritorious cases, grant a
reasonable extension of time for filing returns of income (or final and adjustment returns in case of
corporations), subject to the provisions of Section 56 of this Code.
Where. Except in cases where the Commissioner otherwise permits, the return shall be filed with
 an Authorized Agent Bank (AABs),

 Revenue District Officer (RDOs),
 Collection Agent (RCOs) 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.
 For eFPS Filer, use the electronic Filing and Payment System (eFPS) and pay
electronically through the eFPS AABs.
iv. Return of Corporations Contemplating Dissolution or Reorganization
Every corporation shall, within thirty (30) days after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of the whole or any part of its
capital stock, including a corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or for its reorganization, render a
correct return to the Commissioner, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Secretary of Finance, upon
recommendation of the commissioner, shall, by rules and regulations, prescribe.
The dissolving or reorganizing corporation shall, prior to the issuance by the Securities and
Exchange Commission of the Certificate of Dissolution or Reorganization, as may be
defined by rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, secure a certificate of tax clearance from the Bureau
of Internal Revenue which certificate shall be submitted to the Securities and Exchange
Commission.
c) RETURN ON CAPITAL GAINS REALIZED FROM SALE OF SHARES OF STOC AND REAL
ESTATE
Every corporation deriving capital gains from the sale or exchange of shares of stock not
traded thru a local stock exchange as prescribed under Sections 24(C), 25(A)(3), 27(E)(2),
28(A)(8)(c) and 28 (B)(5)(c) shall file a return within thirty (30) days after each
transactions and a final consolidated return of all transactions during the taxable
year on or before the fifteenth (15th) day of the fourth (4th) month following the close
of the taxable year.
Additional/Optional:
PROCEDURES IN THE FILING AND PAYMENT OF QUARTERLY AND ANNUAL CORPORATE

RETURNS
BIR Form 1702Q - Quarterly Income Tax Return (For Corporations and Partnerships)
Procedures
1. For eFPS Filer

a. Fill-up applicable fields in the BIR Form No. 1702Q
b. Pay electronically by clicking the “Proceed to Payment” button and fill-up the required fields in the
“eFPS Payment Form” then click “Submit” button.
c. Receive payment confirmation from eFPS-AABs for successful e-filing and e-payment.
2. For Non-eFPS Filer
a. Fill-up applicable fields in the BIR Form No. 1702Q in the downloaded Electronic Bureau of Internal
Revenue Form (eBIRForm) Package
b. Print the duly accomplished BIR Form No. 1702Q
c. Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District
Office where you are registered and present the duly accomplished BIR Form 1702Q, together with
the required attachments and your payment.
d. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized
City or Municipal Treasurer located within the Revenue District Office where you are registered and
present the duly accomplished BIR Form 1702Q, together with the required attachments and your
payment.
e. Receive your copy of the duly stamped and validated tax return and BIR prescribed deposit slip
from the teller of the AABs or Electronic Revenue Official Receipt (eROR) from the Revenue
Collection Officer/duly Authorized City or Municipal Treasurer.
3. For Manual Filer
a. Fill-up the BIR Form No. 1702Q in triplicate copies.
b. Proceed to the Revenue District Office where you are registered or to any Tax Filing Center
established by the BIR and present the duly accomplished BIR Form 1702Q, together with the
required attachments.
c. Receive your copy of the duly stamped and validated form from the RDO.
Annual Income Tax For Corporations And Partnerships
BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)
Procedures
1. For eFPS Filer

a. Fill-up applicable fields in the BIR Form No. 1702
b. Pay electronically by clicking the “Proceed to Payment” button and fill-up the required
fields in the “eFPS Payment Form” then click “Submit” button.
c. Receive payment confirmation from eFPS-AABs for successful e-filing and e-payment.
2. For Non-eFPS Filer
a. Fill-up fields in the BIR Form No. 1702 in the downloaded Electronic Bureau of Internal
Revenue Form (eBIRForm) Package
b. Print the duly accomplished BIR Form No. 1702
c. Proceed to the nearest Authorized Agent Bank (AAB) under the jurisdiction of the
Revenue District Office where you are registered and present the duly accomplished BIR
Form 1702, together with the required attachments and your payment.
d. In places where there are no AABs, proceed to the Revenue Collection Officer or duly
Authorized City or Municipal Treasurer located within the Revenue District Office where
you are registered and present the duly accomplished BIR Form 1702, together with the
required attachments and your payment.
e. Receive your copy of the duly stamped and validated form from the teller of the
AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.
3. For Manual Filer
a. Fill-up the BIR Form No. 1702 in triplicate copies.
b. Proceed to the Revenue District Office where you are registered or to any Tax Filing
Center established by the BIR and present the duly accomplished BIR Form 1702,
together with the required attachments.
c. Receive your copy of the duly stamped and validated form from the RDO/Tax Filing
Center representative.
8. Withholding tax
a. Concept
b. Final withholding tax
c. Creditable withholding tax
i. Expanded withholding tax
ii. Withholding tax on compensation
d. Fringe benefits tax
e. Duties of a withholding agent
II- B8 WITHHOLDING TAXES
A. CONCEPT
Taxes imposed or prescribed by the NIRC are to be deducted and withheld by the payor-
corporations and/or persons for the former to pay the same directly to the BIR. Hence, the taxes are
collected practically at the same time the transaction is made or when the taxable transaction occurs. It is
taxation at source (Domondon, 2013).
The withholding tax system is embedded in the income tax system in the Philippines to ease the
administration and collection of taxes. It is not a “separate” kind of tax as withholding tax is simply a way of
collecting tax from the source (Ingles, 2015).
Importance of Withholding
Taxes In the operation of the withholding tax system, the payee is the taxpayer– the person on
whom the tax is imposed, while the payor, a separate entity, acts no more than an agent of the government
for the collection of the tax in order to ensure its payment. The duty to withhold is different from the duty to
pay income tax. Indeed, the revenue officers generally disallow the expenses claimed as deductions from
gross income, if no withholding tax as required by law or regulations was withheld and remitted to the BIR
within the prescribed dates (Mamalateo, 2008).
Purpose of the Withholding Tax System

1. Provide the taxpayer a convenient manner to meet his probable income tax liability.
2. Ensure the collection of the income tax which would otherwise be lost or substantially
3. Reduced through the failure to file the corresponding returns.
4. Improve the government’s cash flow.
5. Minimize tax evasion, thus resulting in a more efficient tax collection system. (CREBA vs. Romulo, 9
March 2010)
When to withhold
It arises at the time an income payment is paid or payable or accrued or recorded as an expense or
asset, whichever is applicable in the payor’s books, whichever comes first (R.R. 2-98, Sec. 2.57.4, as
amended by R.R. 12-2001). The term “payable” refers to the date the obligation becomes due, demandable
or legally enforceable (R.R. 2-98, Sec. 2.57.4, as amended by R.R. 12-2001).
B. FINAL WITHHOLDING TAX (FWT)

The amount of tax withheld is full and final; - The liability for payment of the tax rests primarily on
the withholding agent as payor; - In case he fails to withhold, the withholding agent will be laible for the
deficiency; - The payee is not required to file any income tax return for the particular income; - The finality of
the withheld tax is limited on that particular income and will not extend to the payee’s other tax liability
(Ingles, 2015).
C. CREDITABLE WITHHOLDING TAX (CWT)

Taxes withheld on certain income payments are intended to equal or at least approximate the tax
due of the apyee on said income; - Creditable tax must be withheld at source, but shoud still be included in
the tax return of the recipient; - The liability to withhold arises upon the accrual, not upon the actual
remittance. The purpose of the withholding tax is to compel the agent to withhold under all circumstances
(Ingles, 2015).
Three types of CWTs:

1. Expanded withholding tax (EWT) - a kind of withholding tax which is prescribed only for certain
payors and is creditable against the income tax due of the payee for the taxable quarter year. The
Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding
of tax on the items of income payable to natural or juridical persons residing in the Philippines, by
payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%)but
not more than thirty-two percent (32%), which shall be credited against the income tax liability of the
taxpayer for the taxable year.
2. Withholding tax on compensation (WTC) – applies to all employed individuals whether citizens or
aliens deriving income from compensation for services rendered in the Philippines. The employer is
considered the withholding agent. Every employer making payments of wages shall deduct from
and withhold tax, except for MWEs. Employer shall be liable if he fails to withhold and remit.
3. Withholding Tax on Government Money Payments – withheld by government offices and

instrumentalities, including government-owned or controlled corporations and local government
units, before making any payments to private individuals, corporations, partnerships and/or
associations. (UST Golden Notes, 2019)
D. FRINGE BENEFITS
These refers to any good, services or other benefit furnished or granted in cash or kind by an
employer, in addition to basic salaries, to an individual employee (except rank and file employees) such as,
but not limited to the following:
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as maid, driver and others;
5. Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted;
6. Membership fees, dues, and other expenses borne by the employee in social and athletic clubs or
other similar organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his dependents; and
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what
the law allows.
Special Treatment of Fringe Benefit
Imposition of Tax – A final tax of thirty-four percent (34%) effective January 1, 1998; thirty-three
percent (33%) effective January 1, 1999; and thirty-two percent (32%) effective January 1, 2000 and
thereafter, is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the
employee (except rank and file employees as defined herein) by the employer, whether an individual or a
corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or
profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer).
The tax herein imposed is payable by the employer which tax shall be paid in the same manner as
provided for under Section 57 (A) of this Code. The grossed-up monetary value of the fringe benefit shall be
determined by dividing the actual monetary value of the fringe benefit by sixty-six percent (66%) effective
January 1, 1998; sixty-seven percent (67%) effective January 1, 1999; and sixty-eight percent (68%)
effective January 1, 2000 and thereafter: Provided, however, That fringe benefit furnished to employees and
taxable under Subsections (B), (C), (D) and (E) of Section 25 shall be taxed at the applicable rates imposed
thereat: Provided, further, That the grossed -Up value of the fringe benefit shall be determined by dividing
the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and
the applicable rates of income tax under Subsections (B), (C), (D), and (E) of Section 25.
Fringe Benefits Not Taxable
The following fringe benefits are not taxable:

1. Fringe benefits which are authorized and exempted from tax under special laws;
2. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
3. Benefits given to the rank and file employees, whether granted under a collective bargaining
agreement or not; and
4. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.
(Source: RA 8424, Tax Reform Act of 199)
E. DUTIES OF A WITHHOLDING AGENT

The withholding agent is a person who has control, receipt, custody, disposal, or payment of income
to the person entitled to it, that is designated by law or regulations to act as agent of the government in the
collection of taxes. Although it/he is not compensated by the government for doing the withholding and
remittance of taxes in behalf of the recipient of income, he may become liable to the tax required to be
withheld under the law or regulations plus the penalties attendant to the non-withholding or under-
withholding of such tax. Indeed, the withholding agent holds the amount withheld from the income of another
person in trust for the government until paid
The following persons are constituted as withholding agents:

1. In general, any juridical person (e.g., corporation, partnership, joint venture estate or trust), including
non-stock, non-profit associations, whether or not engaged in trade or business;
2. An individual, with respect to payments made in connection with his trade or business. However,
insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who
are not engaged in trade or business are also constituted as withholding agents;
3. All government offices, including government-owned or controlled corporations, as well as

provincial, city, and municipal governments and barangays.
A withholding agent is a separate entity acting no more than an agent of the government for the
collection of tax in order to ensure its payments. A withholding agent is explicitly made personally liable
under Sec. 251 of the NIRC for the payment of the tax required to be withheld, in order to compel the
withholding agent to withhold the tax under any and all circumstances. In effect, the responsibility for the
collection of the tax as well as the payment thereof is concentrated upon the person over whom the
Government has jurisdiction (Filipinas Synthetic Fiber Corporation v. CA, et al., G.R. Nos. 118498 &
124377, October 12, 1999).
In applications for refund, the withholding agent is considered a taxpayer because if he does not
pay, the tax shall be collected from him (CIR v. P&G, G.R. No. L-66838, December 2, 1991).
The withholding agent is liable for the correct amount of the tax that should be withheld. The
withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties
should the amount of the tax withheld be finally found to be less than the amount that should have been
withheld under the law. Given this responsibility, a withholding agent can validly claim for tax refund.
(Source: Philippine Income Tax, Mamalateo)
C. ESTATE TAX
a. Items to be included in determining gross estate
i. Decedent's interest
ii. Transfers in contemplation of death
iii. Revocable transfers
iv. Property passing under a general power of appointment
v. Proceeds of life insurance
vi. Prior interests
vii. Transfers for insufficient consideration
b. Allowable deductions from gross estate
c. Exclusions from gross estate and exemptions of certain acquisitions and
transmissions
NIRC – R.A. 8424 TRAIN LAW – R.A. 10963

(TAX REFORM ACT OF 1997) (AMENDING NIRC OF 1997)
I. AMENDMENT OF THE I. AMENDMENT OF THE

ESTATE TAX RATE Section 84. Rates of Estate Tax. There ESTATE TAX RATE
shall be levied, assessed, collected and
Section 22 of the TRAIN law paid upon the transfer of the net estate
amends Section 84 of the as determined in accordance with Section 22. Section 84 of the
Tax Code, which provides for Sections 85 and 86 of every decedent, NIRC, as amended, is hereby
the estate-tax rate. whether resident or nonresident of the further amended to read as
Previously, a tax based on Philippines, a tax based on the value of follows:
the value of the net estate of such net estate, as computed in
the decedent, whether accordance with the following schedule: "Sec. 84. Rate of Estate Tax. -
resident or nonresident of the If the net estate is: There shall be levied, assessed,
Philippines, was computed collected and paid upon the
based on a tax schedule Over But Not Over The Tax shall be transfer of the net estate as
where an estate worth of Plus Of the Excess Over P 200,000 determined in accordance with
P200,000 and over was Exempt P 200,000 550,000 0 5% P Sections 85 and 86 of every
taxed from 5% to 20%. Under 200,000 500,000 2,000,000 P 15,000 decedent, whether resident or
the TRAIN law, it will now be 8% 500,000 2,000,000 5,000,000 nonresident of the Philippines, a
subject to a FLAT RATE of 135,000 11% 2,000,000 5,000,000 tax at the rate of six percent (6%)
6%. 10,000,000 465,000 15% 5,000,000 based on the value of such net
10,000,000 And Over 1,215,000 20% estate."
10,000,000
II. AMENDMENTS ON ESTATE
TAX DEDUCTIONS SEC. 86. Computation of Net Section 23. Section 86
Estate. - For the purpose of of the NIRC, as
Section 23 of the TRAIN law the tax imposed in this amended, is hereby
amends Section 86 of the Chapter, the value of the net further amended to read
Tax Code, which provides for estate shall be determined: as follows:
the computation of the net
estate or, effectively, the (A) Deductions Allowed to the "Sec. 86. Computation of
deductions allowed to the Estate of Citizen or a Resident. - Net Estate.— For the
gross estate of an individual. In the case of a citizen or purpose of the tax
resident of the Philippines, by imposed in this Chapter,
The TRAIN law removes deducting from the value of the the value of the net estate
funeral expenses, judicial gross estate -. shall be determined:
expenses and medical
expenses as allowable "(A) Deductions Allowed
deductions. to the Estate of a Citizen
or a Resident - In the
Instead, the law increases the case of a citizen or
Standard Deduction to P5 resident of the
million, which previously only Philippines, by deducting
amounted to P1 million. Only (1) Expenses, Losses, from the value of the
available to citizens (resident Indebtedness, and taxes gross estate—
or nonresident) and resident (among others, funeral
aliens, TRAIN law now expenses not to exceed
provides that nonresident P200,000 and judicial (1) Removed the allowance
aliens can avail themselves expenses) for deductions of funeral
of a standard deduction, (2) Family Home not to exceed expenses, judicial
although only up to P1,000,000. expenses, and medical
P500,000. (3) Standard deduction of expenses.
P1,000,000. (2) Increased allowance for
Another TRAIN law (4) Medical expenses not to deduction of family home
significant change from the exceed P500,000. to P10,000,000.
old tax rule is that now, family (3) Increased the standard
homes that are worth up to (B) A non-resident citizen of the deduction to P5,000,000.
P10 million will be exempted Philippines is allowed the
from estate tax. Previously, following deductions, among (B) A non-resident citizen of the
only family homes worth P1 others: Philippines is allowed the
million are exempted. following deductions, among
(1) Expenses, Losses, others:
Indebtedness, and taxes
(among others, funeral (1) Removed allowance for
expenses not to exceed deduction of expenses,
P200,000 and judicial losses, indebtedness, and
expenses) taxes.
(2) Property previously taxed (2) Provides for a standard
(3) Transfers for public use deduction of P500,000.
(3) Provides that a proportion of
(C) xxx the claims against the estate,
claims against insolvent
persons, and unpaid
(D) An individual who is an non- mortgages may be claimed as
resident citizen of the a deduction from the estate.
Philippines shall not be allowed
to claim any deduction unless (D) Repealed.
the value of the non-resident’s
gross estate situated outside the
Philippines is included in the
return filed.
III. AMENDMENTS ON THE

PROCEDURE FOR ESTATE
TAX SETTLEMENT
1. Filing of Notice of Death 1. Filing of Notice of Death
A. Repeal of Filing of
Notice of Death provision Section 89. Notice of Death to be Section 24. Section 89 of the
Filed. – In all cases of transfers NIRC, as amended, is hereby
Section 24 of the TRAIN law subject to tax, or where, though repealed. (Filing of notice of
repeals Section 89 of the Tax exempt from tax, the gross value of death is no longer mandated)
Code. The repealed provision the estate exceeds Twenty
provides for when a notice of thousand pesos (P20,000), the
death should be filed and the executor, administrator or any of the
period to file the same. legal heirs, as the case may be,
within two (2) months after the 2. Filing of Estate Tax Returns
decedent’s death, or within a like
B. Amendment on Filing of period after qualifying as such Section 25. Section 90 of
Estate Tax Return executor or administrator, shall give the NIRC, as amended, is
a written notice thereof to the hereby further amended to
Section 25 of the TRAIN law Commissioner. read as follows:
amends Section 90 of the
Tax Code, which provides for 2. Filing of Estate Tax Returns "Sec. 90. Estate Tax Returns.
the procedural requirements -
for the estate-tax return.
Section 90. Estate Tax "(A) Requirements. - In all
The TRAIN law requires that Returns. cases of transfers subject to
estate-tax returns showing a the tax imposed herein, or
gross value exceeding P5 A. (A) Requirements. - In all regardless of the gross value
million must be certified by a cases of transfers subject to of the estate, shall file a return
certified public accountant. the tax imposed herein, or under oath in duplicate.
This is P3 million higher than where, though exempt from
the old tax rule, which only tax, the gross value of the "(1) x x x
required CPA certifications
for estate-tax returns that estate exceeds Two "(2) x x x
exceed a gross value of P2 hundred thousand pesos
million. The TRAIN law has (P200,000), or regardless of "(3)Estate tax returns showing
also increased the period for the gross value of the a gross value exceeding Five
filing of estate-tax returns estate, where the said million pesos (₱5,000,000)
from six months from the estate consists of registered shall be supported with a
decedent’s death to one year. statement duly certified to by
or registrable property shall
a Certified Public Accountant
file a return under oath in
(CPA).
duplicate.
"(B) Time for Filing - For the
(1) xxx purpose of determining the
estate tax provided for in
(2) xxx Section 84 of this Code, the
estate tax return required
(3) Estate tax returns under the preceding
showing a gross value Subsection (A) shall be filed
exceeding Two million within one (1) year from the
pesos (P2,000,000) shall be decedent’s death.
supported with a statement
duly certified to by a "x x x."
Certified Public Accountant
(CPA).
C. Amendment of Payment of
Estate Tax by Installment
(B) Time for Filing. - For the
Section 26 of the TRAIN law purpose of determining the
amends Section 91(c) of the estate tax provided for in
Tax Code, which provides for Section 84 of this Code, the Section 26. Section 91
the payment of estate tax by estate tax return required of the NIRC, as
installment. under the preceding amended, is hereby
Subsection (A) shall be filed further amended to read
Under the TRAIN law, within six (6) months from as follows:
payment by installment has the decedent's death.
been particularly simplified. "Sec. 91. Payment of Tax.
However, the law has -
provided for an implied
limitation of two years for the "(A) Time of Payment - x
payment of the full estate-tax xx
liability, which was previously
not contained in the old tax "(B) Extension of Time - x
rule. xx
"x x x
SEC. 91. Payment of Tax. "(C) Payment by
Installment - In case the
available cash of the
"(A) Time of Payment - x x x estate is insufficient to
pay the total estate tax
"(B) Extension of Time - x x x due, payment by
installment shall be
"x x x allowed within two (2)
years from the statutory
(C) Liability for Payment.- The date for its payment
estate tax imposed by Section without civil penalty and
84 shall be paid by the executor interest. (Additional
or administrator before delivery provision).
to any beneficiary of his
distributive share of the estate. "(D) Liability for Payment - x x x
Such beneficiary shall to the "x x x

extent of his distributive share of
the estate, be subsidiarily liable
for the payment of such portion
of the estate tax as his
distributive share bears to the
value of the total net estate.
cralaw
For the purpose of this Chapter,

the term "executor" or
"administrator" means the
executor or administrator of the
decedent, or if there is no
executor or administrator
appointed, qualified, and acting
within the Philippines, then any
person in actual or constructive
possession of any property of
the decedent.
IV. AMENDMENT ON
WITHDRAWALS FROM SEC. 97. Payment of Tax Section 27. Section 97
DECEASED’S BANK Antecedent to the Transfer of of the NIRC, as
ACCOUNT Shares, Bonds or Rights.- amended, is hereby
There shall not be transferred to further amended to read
Section 27 of TRAIN Law any new owner in the books of as follows:
amends Section 97 of the Tax any corporation, sociedad
Code, which concerns allowable anonima, partnership, business, "Sec. 97. Payment of Tax
withdrawals from the deceased or industry organized or Antecedent to the
person’s account. established in the Philippines Transfer of Shares,
any share, obligation, bond or Bonds or Rights - x x x.
Under the old Tax Rule, only right by way of gift inter vivos or
withdrawals up to P20,000 are mortis causa, legacy or "If a bank has knowledge
allowed. The administrator of the inheritance, unless a of the death of a person,
estate or any one of the heirs certification from the who maintained a bank
may, when authorized by the Commissioner that the taxes deposit account alone, or
commissioner, withdraw an fixed in this Title and due jointly with another, it
amount not exceeding P20,000. thereon have been paid is shall allow any withdrawal
However, the Train Law has shownIf a bank has knowledge from the said deposit
increased allowable withdrawals of the death of a person, who account, subject to a final
from the deceased person’s maintained a bank deposit withholding tax of six
account to any amount, subject to account alone, or jointly with percent (6%). For this
a 6-percent final withholding tax. another, it shall not allow any purpose, all withdrawal
withdrawal from the said deposit slips shall contain a
account, unless the statement to the effect
Commissioner has certified that that all of the joint
the taxes imposed thereon by depositors are still living
this Title have been paid: at the time of withdrawal
Provided, however, That the by any one of the joint
administrator of the estate or depositors and such
any one (1) of the heirs of the statement shall be under
decedent may, upon oath by the said
authorization by the depositors."
Commissioner, withdraw an
amount not exceeding Twenty
thousand pesos (P20,000)
without the said certification.
For this purpose, all withdrawal

slips shall contain a statement to
the effect that all of the joint
depositors are still living at the
time of withdrawal by any one of
the joint depositors and such
statement shall be under oath
by the said depositors.
Transfer Taxes
Taxes imposed upon the privilege of passing ownership of property without any valuable consideration.
(DOMONDON, TAXATION 2014)
Kinds of Transfer Taxes

 Estate Tax
 Donor’s Tax
Distinction between Estate Tax and Donor’s Tax
Estate Tax Donor’s Tax

As to nature of transfer
Tax on privilege to transfer property pon Tax on privilege to transfer property
one’s death during ones lifetime
As to persons liable
Individuals only Individuals or corporations
As to type of donation
Imposed on donations mortis causa Imposed on donations inter vivos
As to amount exempt
None. P.250,000
Donation Inter Vivos v. Donation Mortis Causa

Inter Vivos Mortis Causa
As to nature
Donation made between living persons to Donations which are to take effect upon the
take effect during the lifetime of the donor death of the donor and partake of a
testamentary disposition.
As to tax liablitity
Subject to Donor’s tax Subject to Estate Tax
ESTATE TAXATION
Definition
Estate tax is an excise tax imposed on the privilege of transferring a property upon the death of an
owner (CABANIERO, From Living for Leaving (2018), p. 36). It is a tax based on the value of the net
estate of the decedent (NIRC, Sec. 84).
Nature
1. A transfer tax imposed upon the gratuitous disposition of private property; and
2. A privilege or excise tax, not a property tax because their imposition does not rest upon general
ownership but rather imposed on the act of passing ownership of property (3 DOMONDON,
Taxation supra 1).
Purposes and objects of estate tax
The following are the generally accepted purposes for imposing estate tax:
1. To generate additional revenue for the government;
2. To reduce concentration of wealth;
3. To provide for equal distribution of wealth;
4. It is the most appropriate method for taxing the privilege which the decedent enjoys of controlling
the disposition at death of property accumulated during the lifetime of the decedent; and
5. It is the only method of collecting the share which is properly due to the State as a partner in the
accumulation of property which was made possible on account of the protection given by the State
(Report of the Tax Commission on National Internal Revenue Laws, Vol. I, pp. 55-57).
Time when the estate tax accrue
It accrues upon the death of the decedent. Upon the death of the decedent, succession takes place
and the right of the State to tax the privilege to transmit the estate vests instantly upon death (R.R.
No. 12-2018, Sec. 3). Note: The accrual of the tax is distinct from the obligation to pay the same,
which shall be paid at the time the return is filed by the executor, administrator or the heirs (R.R. No.
12-2018, Sec. 3).
Governing law
Estate taxation is governed by the statute in force at the time of the death of the decedent (R.R. No.
12-2018, Sec. 3).
*Note: The tax rates and procedures prescribed by R. A. No. 10963, otherwise known as the "Tax
Reform for Acceleration and Inclusion Law" (TRAIN Law) and R. R. No. 122018 shall govern the
estate of decedent who died on or after the effectivity date of the TRAIN Law which is January 1,
2018.
Who is liable for the payment of estate tax?
Estate tax is paid by the:

1. Executor or administrator before delivery to any beneficiary of his distributive share of the estate; or
2. Beneficiary to the extent of his distributive share of the estate - subsidiarily liable for the payment of
such portion of the estate tax as his distributive share bears to the value of the total net estate (NIRC
as amended by TRAIN Law, Sec. 91 (0)).
Estate Tax Rate
The net estate of every decedent, whether resident or non-resident of the Philippines, shall be subject
to an estate tax at the rate of six percent (6%) (NIRC, as amended by TRAIN Law, Sec. 84).
*Note: Upon the effectivity of TRAIN Law, the estate tax rate is now fixed at 6% and the graduated
schedule with a rate of 5-20% under the Tax Reform Act of 1997 is now repealed.)
Time when the properties and rights of the decedent transferred to his successors
The properties and rights are transferred to the successors at the time of death of the decedent
(CIVIL CODE, Art.777).
*Note: Despite the transfer of properties and rights at the time of death, no judge shall authorize the
executor or judicial administrator to deliver a distributive share to any party interested in the estate
unless there is a certification from the Commissioner that estate tax has been paid (NIRC, Sec 94).
Who are the taxpayers liable to pay estate tax?
The estate left by the following individuals are liable to pay estate tax:
1. Resident;
2. Resident Citizen (RC)
3. Resident Alien (RA)
4. Nonresident;
5. Nonresident Citizen (NRC)
6. Nonresident Alien (NRA) (NIRC, Sec. 84).

Gross Estate
Gross estate of decedent who is a resident or citizen refers to the value of all
the property, real or personal, tangible or intangible, of the decedent wherever situated, however for
a decedent who is a nonresident alien gross estate includes only properties situated within the
Philippines provided, that, with respect to intangible personal property, its inclusion in the gross
estate is subject to the rule of reciprocity provided for under Section 104 of the NIRC (R.R. No. 12-
2018, Sec. 4).
How is gross estate determined?

If the decedent is:
1. Residents and citizens - all properties, real or personal, tangible or intangible, wherever situated,
plus items includible in gross estate;
2. Nonresident aliens - only properties situated in the Philippines, provided that with respect to
intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity
under Section 104 of the NIRC (R.R. No. 122018, Sec. 4).
*Note: Amounts withdrawn from the deposit accounts of a decedent subjected to the 6% final
withholding tax imposed under Section 97 of the NIRC, shall be excluded from the gross estate for
purposes of computing estate tax.
Basis for valuation Gross Estate
1. As to real property, whichever is higher between FMV at the time of death:

a. As determined by the Commissioner (zonal value); or
b. As shown in the schedule of values fixed by the provincial and city assessors (NIRC, Sec.
88(B)).
2. As to personal property, the general rule is FMV at the time of death, except for:
a. Shares of stock, which if:
i. Listed - FMV is the arithmetic mean between the highest and lowest quotation at a date
nearest to the death, if none is available on the date of death itself;
ii. Unlisted - • Common shares are valued based on their book value; appraisal surplus shall not
be considered; • Preferred shares are valued at par value; value assigned, if there are any, shall
not be considered (R.R. No. 12-2018, Sec. 5);
b. As to units of participation in any association, recreation, or amusement club, shall be the bid
price nearest the date of death published in any newspaper or publication of general circulation
(R.R. No. 12-2018, Sec. 5);
c. As to the right to usufruct, use or habitation, and annuity, there shall be taken • into account the
probable life of the beneficiary in accordance • with the latest Basic Standard Mortality Table, to be
approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner (R.R.
No. 12-2018, Sec. 5).
*Note: Valuation of Gross Gifts (under Donor's Tax), shall also follow the rules under valuation of
gross estate, provided, that the reckoning point for valuation shall be the date when the donation
is made (R.R. No. 12-2018, Sec. 13).
a. Items to be included in determining gross estate (ITR-GP-PIC)

1. Decedent's Interest;
2. Transfer in contemplation of death;
3. Revocable Transfer;
4. Property passing under a General Power of Appointment;
5. Proceeds of life insurance;
6. Prior interests;
7. Transfers for Insufficient consideration; and
8. Capital of the surviving spouse,(N/RC as amended by TRAIN Law, Sec. 85).
What does the decedent interest include

It includes any interest having value or capable of being valued, transferred by the decedent
at the time of his death (e.g. Dividends declared by a corporation before the death of the
stockholder although paid after death).(MAMALATEO, Reviewer, supra at 359).
Transfer in contemplation of death

It is a transfer motivated by the death, although death may not be imminent (REYES,
Philippines Transfer and Business Taxes (2016), Chapter 12, p.11).
*Note: The concept of transfer in contemplation of death has a technical meaning. It is not
the mere transfer that constitutes a transfer in contemplation of death but the retention of
some type of control over the property transferred. (DOMONDON, Taxation supra at 42).
Where the donation was made concurrently with the execution of a will, or where the time
between the making of a gift and the death of the donor was relatively close, the transfer
were held to be contemplated, and the thought of death, as distinguished from purpose
associated with life must be the impelling cause of transfer (VITUG, Tax Law and
Jurisprudence (2014), p.212).
Revocable Transfer
A revocable transfer is a transfer by trust or otherwise, where the enjoyment thereof was
subject at the date of his death to any change, through the exercise of power (in whatever
capacity exercisable) by the decedent alone, or by the decedent in conjunction with any
other person, to alter, amend, revoke, or terminate, or where any such power is
relinquished in contemplation of the decedent's death (NIRC, Sec. 85 (C)(1)).
When is the power to alter, amend, or revoke considered to exist on the date of the
decedent's death?
The power of the decedent to alter, amend, or revoke shall be considered to exist on the
date of his death, even though:
1: The exercise of the power is subject to a precedent giving of notice; or
2. The alteration, amendment, or revocation takes effect only on the expiration of a stated
period after the exercise of the power.
*Note: Whether or not, on or before the decedent's death, notice has been given, or 'the
power has been exercised, proper adjustment shall be made representing the interest
which would have been excluded from the power if the decedent had lived. However, if
notice has not been given, or the power has not been exercised on or before the date of his
death, such notice shall be considered to have been given, or the power exercised, on the
date of his death (NIRC, Sec. 85 (C)(2))
.
General Power of Appointment (GPA)
General power of appointment is the right to designate the person who will succeed to the
decedent's property which may be exercised in favor of any person (CABANEIRO, supra at
131).
*Note: A power is specific, hence NOT general:

1. If it can be exercised only in favor of one or more designated persons or classes of
persons exclusive of the decedent, his estate, his creditors or creditors of his estate; or
2. If it is expressly not exercisable in favor of the decedent, his estate, his creditors or
creditors of his estate (34 Am. Jur. 2d, 791).
How is the power of appointment exercised by the decedent?

The power of appointment may be exercised by the decedent:
1. By will;
2. By deed executed in contemplation of, or intended to take effect in possession or
enjoyment at, or after his death; or
3. By deed under which he retained for his life or any period not ascertainable without
reference to his death or for any period which does not in fact end before his death:
a. The possession or enjoyment of, on the right to income from, the property; or
b. The right, either alone or in conjunction with any person, to designate the person,
who shall possess or enjoy the property or income therefrom (NIRC, Sec.85(D)).
When may a transfer in Contemplation of death, Revocable Transfer, or Property

passing under GPA be excluded from the gross estate?
Such transfers may be excluded from the gross estate only when they are in the nature of
bona fide sale for an adequate and full consideration in money or money’s worth (NIRC,
Sec. 85 (B, C, D)).
When do proceeds of life insurance from part of the gross estate of the decedent?
Proceeds of life insurance from part of the gross estate when:
1. The insurance policy is taken out by the decedent upon his own life; and
2. The proceeds are receivable by:
a. Estate of the deceased, his executor, or administrator, irrespective of designation; or
b. Any beneficiary designated in the policy of insurance as revocable beneficiary (NIRC,
Sec. 85 (E)).
*Note: Under the Insurance Code of the Philippines, a designation of beneficiary is
generally revocable, unless stated expressly in the policy that the designation is
irrevocable. In such cases, the proceeds are not considered as part of the decedent's
estate (INGLES, Tax Made Less Taxing, page 264).
When is the rule on prior interests applicable?

The rule on prior interest shall apply to the transfers, trusts, estates, interests, rights,
powers, and relinquishment of powers in:
2. Revocable transfer; and
3. Proceeds of life insurance, whether made, created, arising, existing, exercised, or
relinquished before or after the effectivity of this Code (NIRC, Sec. 85 (F)).
When is the rule on transfers for insufficient consideration applicable?

The rule is applicable only in the following cases, when it is made, created, exercised or
relinquished for a consideration in money, or money's worth, but is not a bona fide sale for
an adequate and full consideration in money of money's worth:
2. Revocable transfer; and
3. Property passing under general power of appointment (NIRC, Sec. 85 (G)).
What shall be included in the gross estate in cases of transfers for insufficient
consideration?
The value to be included in the gross estate is only the excess of the fair market value of
the property at the time of the decedent's death over the consideration received (NIRC,
Sec. 85 (G)).
Note: Based on the foregoing, the formula to be used is:

FMV of the property at the time of death
LESS: Actual value of consideration received
EQUALS Amount deductible in decedent’s gross estate
How is Net Estate determined?

Net estate refers to the value of the gross estate less the deductions and exemptions allowed under
Sections 86 and 87 of the NIRC, as amended by TRAIN Law (R.R. No. 12-2018, Sec. 6).
If the decedent is:
1. Citizen or Resident- net estate is determined by deducting from the value of the gross estate from
the following items: (SCC-UP-TraEAN)
a. Standard deduction;
b. Claims against the estate;
c. Claims against insolvent persons;
d. Unpaid mortgages, taxes, and casualty losses;
e. Property previously taxed;
f. Transfers for public use;
g. Family Home;
h. Amount received by heirs under RA 4917; and
i. Net share of surviving spouse in the conjugal partnership or community property (NIRC as
amended by TRAIN Law, Sec. 86).
2. Non-resident alien – is determined by deducting from the value of the part of his gross estate which
at the time of his death is situated in the Philippines in the following items of deduction: (S-ProPro-
TraN)
a. Standard deduction;
b. Proportion of the total losses and indebtedness;
i. Claims against the estate;
ii. Claims against insolvent persons;
iii. Unpaid mortgages, taxes, and casualty losses;
c. Property previously taxed;
d. Transfer for public use;
e. Net share of surviving spouse in the conjugal property or community property (NIRC, as
amended by TRAIN Law, Sec. 86(B)).
*Note: Prior to TRAIN Law net estate is equal to gross estate less ordinary and special deductions
and exclusions allowed by law (INGLES, Tax Made Less Taxing, page 267268). With the effectivity
of TRAIN Law, the concept of ordinary and special deductions is abandoned.
b. Allowable deductions from the gross estate
What may be deducted from the gross estate of citizens and resident aliens?
TRAIN Law (RA No. 10963) (SC2-UP-
TraFAN) Tax Reform Act (RA No. 8424)
Standard Deduction (Php 5 Million) Standard Deduction (Php 1 Million)
ELIT, Funeral Expenses and Judicial
(Removed) Expenses
Claims against the Estate Claims against the Estate
Claims against Insolvent Persons Claims against Insolvent Persons
Unpaid mortgages, taxes, and casualty
losses Unpaid mortgages, taxes, and casualty losses
Property previously taxed Property previously taxed
Transfer for public use Transfer for public use
Family Home (Php 10 Million) Family Home (Php 1 Million)
(Removed) Medical Expenses
Amount received by heirs under RA No.4917 Amount received by heirs under RA No. 4917
Net share of the surviving spouse Net share of the surviving spouse
What is meant by standard deduction?

It is a deduction without need of substantiation in the amount of:
1. Citizens and residents — five million pesos (P5,000,000); or
2. Nonresident aliens — five hundred thousand pesos (P500,000).
3. The full amount of either P5,000,000 or P500,000 shall be allowed as deduction for the benefit of
the decedent (R.R. No. 12-2018, Sec. 6 (1) and Sec. 7 (1)).
How are claims against the estate construed?

The word "claims" is generally construed to mean debts or demands of a pecuniary nature which
could have been enforced against the deceased in his lifetime and could have been reduced to
simple money judgments (R. R. No. 12-2018, Sec. 6 (2)).
*Note: Claims against the estate or indebtedness in respect of property may arise out of contract,
tort, or operation of law (id.).
What are the requisites for the claims against the estate to be allowed as deduction?
The following requisites should be present: (PGVC)
1. The liability represents a Personal obligation of the deceased existing at the time of his death;
2. The claims must be contracted in Good faith and for adequate and full consideration in money
or money's worth;
3. The claims must be a debt or claim which is Valid in law and enforceable in court; and
4. The indebtedness must not have been condoned by the creditor or the action to collect from the
decedent must not have prescribed (RR No. 12-2018, Sec. 6(2.1)).
*Note: The date-of-death valuation rule should be applied- the net value of the property transferred
should be ascertained, as nearly as possible, as of the instance of death. This means that post-
death development should NOT be considered in determining the net value of the estate (Dizon vs.
CA, GR No. 140944, April 30, 2008, agreeing with the US Supreme Court in Ithaca Trust Co vs.
US, 279 US 151, 49 S. Cte291, 73L.Ed. 647 (1929)).
What are the Substantiation Requirements for Claims Against the Estate?
If the unpaid obligation arose from a simple loan (including advances):
1. The debt instrument must be duly notarized at the time the indebtedness was incurred except
for loans granted by financial institutions where notarization is not a part of its business
practice/policy;
2. Duly notarized certification from the creditor as to the unpaid balance, including interest as of
the time of death;
*Note: The sworn certification should be signed by the President, or Vice President or other,
principal officer in case of a corporation, or by any of the general partners in case of a
partnership, or by the branch manager in case of a bank or other financial institutions.
3. Proof of financial capacity of the creditor to lend the amount at the time the loan was granted;
and
4. A statement under oath executed by the administrator or executor of the estate reflecting the
disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to
the death of the decedent (R.R. No. 12-2018, Sec. 6 (2.2.1)).
If the unpaid obligation arose from purchase of goods or services:

1. Pertinent documents evidencing the purchase of goods or services such as:
a. For sales of goods — invoice or delivery receipt;
b. For sale of service — contract for the services agreed to be rendered;
2. Duly notarized certification from the creditor as to the unpaid balance of the debt, including
interest as of the time of death;
3. Certified true copy of the latest audited balance 'sheer of the creditor with a detailed schedule of
its receivable showing the unpaid balance of the decedent-debtor (R.R. No. 12-2018, Sec. 6
(2.2.2)).
*Note: When the lender, or the President/Vice-President/principal officer of the credit or
corporation, or the general partner of the creditor-partnership is a relative of the debtor within
the fourth civil degree, either by consanguinity or affinity, a copy of the promissory note or other
evidence of the indebtedness must be filed with the RDO having jurisdiction over the borrower
within fifteen days from the execution thereof (R.R. No. 12-2018, Sec. 6 (2.2)).
What are the requisites for claims against insolvent persons to be deductible?
1. The amount thereof has been initially included as part of the gross estate of the decedent
(NIRC, Sec. 86 (A)(3)); and
2. The incapacity of the debtors to pay their obligation is proven (Monserrat v. Collector of
Internal Revenue, CTA Case No. 11, December 28, 1955).
*Note: The claims against insolvent persons are required to be included in the gross estate only
if the same are claimed as deductions in computing the amount of the gross estate (R.R. No.
12-2018, Sec. 6 (3))
What are the requisites for unpaid mortgages to be deductible?

1. The value of the decedent’s interest therein, undiminished by such mortgage or
indebtedness, is included in the value of the gross estate; and
2. Limited to the extent that they were contracted bona fide for an adequate and full
consideration in money or money’s worth (NIRC, Sec. 86 (A)(4)).
What are the requisites for unpaid taxes to be deductible?

1. Taxes which have accrued as of before the death of the decedent; and
2. Unpaid as of the time of his death regardless of whether or not it was incurred in connection
with trade or business (NIRC, Sec. 86(A) (4))
*Note: This will not include income tax upon income received after death, or property taxes not
accrued before his death or the estate tax due from the transmission of his estate (RR No. 12-
2018, Sec.6 (4)).
When are losses deductible from the gross estate?

1. Incurred during the settlement of the estate;
2. Arising from fires, storms, shipwreck, or other casualties, or from robbery, theft, or
embezzlement;
3. Not compensated for by insurance or otherwise;
4. At the filing of the estate tax return, such losses have not been claimed as a deduction for
income tax purposes in an income tax return; and
5. Incurred not later than the last day for the payment of the estate tax as prescribed by law
(NIRC, Sec. 86 (A)(4)).
*Note: Casualty losses can be allowed as deduction in one instance only, either for income tax
purposes or estate tax purposes (NIRC, Sec. 86 (A)(4)).
What is meant by property previously taxed?

A property previously taxed is a property forming part of the gross estate situated in the
Philippines of any person who died within five (5) years prior to the death of the decedent, or
transferred to the decedent by gift within five (5) years prior to his death (NIRC, Sec. 86 (A)(5)).
*Note: In case of property previously taxed, there are two (2) transfers of the property, in which
an estate tax or donor's tax is imposed upon the first transfer. The deduction is called a
vanishing deduction (VD) because the deduction allowed diminishes over a period of five (5)
years. This is considered as allowable deduction to prevent double taxation of property
(CABANEIRO, supra at 137).
When may a property previously taxed be claimed by a taxpayer as deduction?

Property previously taxed or vanishing deductions may be claimed when the following requisites
are present: (DIPIN)
1. Death — the present decedent died within five (5) years from the receipt of the property from
a prior decedent or donor;
2. Identity — the property sought to be deducted is the one received from a prior decedent or
donor;
3. Previously determined and paid — the donor's tax on the gift or estate tax on the prior
succession was finally determined and paid;
4. Inclusion — the property must have formed part of the gross estate situated in the Philippines
of the prior decedent, or the total amount of the gifts of the donor; and
5. No previous deduction — no vanishing deduction on the property was allowed to the estate of
the prior decedent NIRC, Sec. 86 (A)(5)).
Formula for computing the Vanishing Deduction
Step 1: Computation of Initial Basis:

Value of the Property subject to VD
LESS: Any mortgage paid on that property
EQUALS: Initial Basis
Step 2: Computation of 2nd Deduction:

Initial Basis/Value of the Gross Estate
MULTIPLY: (Pars. 2, 3, 4, and 6 of Sec. 86A)*
EQUALS: 2nd Deduction
*The sum of the following is the multiplier: (CCUTra)

1. Claims against the estate;
2. Claims against insolvent persons;
3. Unpaid mortgages, taxes, and casualty losses;
4. Transfer for public use;
(Note: Prior to TRAIN Law, the multiplier is ELITT which refers to Expenses, Losses,
Indebtedness, Taxes, and Transfer for Public Use)
Step 3: Computation of Final Basis:

Initial Basis
LESS: 2nd Deduction
EQUALS: Final Basis
Step 4: Computation of Vanishing Deduction

Final Basis
MULTIPLY: (Percentage provided under Section 86 (A) (5) of NIRC)
EQUALS: Vanishing Deduction
Note: The following are the percentages:
If prior decedent died within 1 year prior to the 100%
death of the decedent
If prior decedent died more than 1 year but not 80%
more than 2 years prior to the death of the decedent
If prior decedent died more than 2 years but not 60%
What are the requisites for transfers for public use to be deductible? (LAGPI)
1. The disposition is in a Last will and testament;
2. To take effect After death;
3. In favor of the Government of the Philippines or any political subdivision thereof;
4. For exclusive Public purpose; and
5. The value of the property given is Included in the gross estate (REYES, Transfer and
Business Taxes).
*Note: The inclusion in the gross estate and the deduction from gross estate shall result in a
net taxable estate from the property of Php 0.00 (REYES, Transfer and Business Taxes).
Up to what amount of transfers for public use may be deducted from the gross estate?
The amount deductible shall be the entire amount of all bequests, legacies, devisees, or
transfers to or for the use of the Government of the Republic of the Philippines or any political
subdivision thereof, exclusively for public purpose (NIRC, Sec. 86(A)(6)).
Family Home
Family Home is the dwelling house, including the land on which it is situated, where the
husband and wife or head of the family and members of their family reside, as certified to by the
Barangay Captain of the locality. The family home is deemed constituted on the house and lot
from the time it is actually occupied as a family residence and is considered as such for as long
as any of its beneficiaries actually resides therein (FAMILY CODE Arts. 152 and 153).
*Note: Family home is generally characterized by permanency, that is, the place to which,
whenever absent for business or pleasure, one still intends to return. (RR No. 12-2018, Sec.
6(7) (7.1)).
What are the conditions for the deductibility of family home from the gross estate?
1. The family home must be the actual residential home of the decedent and his family at the
time of his death, as certified by the barangay captain of the locality where the family home is
situated;
2. The total value of the family home must be included as part of the gross estate of the
decedent; and
3. Allowable deduction must be an amount equivalent to:
a. The current fair market value of the decedent's family home as declared or included in
the gross estate; or
b. The extent of the decedent's interest (whether conjugal/community or exclusive property),
whichever is lower, but not exceeding P10,000,000 (R.R. No. 12-2018, Sec. 6 (7) (7.2)).
*Note: The family home is deemed constituted on the house and lot from the time it is actually
occupied as a family residence and considered as such for as long as any of its beneficiaries
actually resides therein. Actual occupant of the house or house and lot as the family residence
shall not be considered interrupted or abandoned in such cases as the temporary absence from
the constituted family home due to travel or studies or work abroad, etc. (R.R. No. 12-2018,
Sec. 6 (7) (7.2)).
When may the amounts received by the heirs under R.A. No. 4917 be deductible from
gross estate?
Any amount received by the heirs from the decedent's employer as a consequence of the death
of the decedent-employee as retirement benefits under R.A. No. 4917 (An Act Providing that
Retirement Benefits of Employees of Private Firms shall not be Subject to Any Tax Whatsoever)
is allowed as deduction from gross estate, provided the amount of benefit is included as part of
the gross estate of the decedent (NIRC, Seca 86 (A)(8)).
*Note: The amount received by the heirs under R.A. No. 4917 is required to be included in the
gross estate only if the same is claimed as a deduction in computing the amount of the net
estate (R.R. No. 12-2018, Sec. 6 (8)).
How is the amount deductible as net share of the surviving spouse determined?
1. The conjugal property shall be first determined;
2. Then all obligations properly chargeable to it (ordinary deduction under Sec. 86(A)(1)) shall
be deducted therefrom; and
3. From the balance (net conjugal estate), the net share (1/2 thereof) of the surviving spouse
shall be deducted from the net conjugal estate for purposes of imposing the net estate tax
(DE LEON, NIRC Annotated, supra at 778).
c. Exclusions from the Gross Estate and Exemptions of certain acquisitions and
transmissions
1. The capital (exclusive property) of the surviving spouse is considered as exclusion in the
gross estate under Sec. 85(H) of the NIRC; Note: In Sec. 86 (C), the share of the surviving
spouse in the absolute community/conjugal partnership is considered as a deduction.
2. Other items which are excluded from the gross estate are the following:
a. GSIS proceeds/benefits;
b. Accruals from SSS;
c. Proceeds of life insurance where the beneficiary is irrevocably appointed;
d. Proceeds of life insurance under a group insurance taken by employer (not taken out
upon his life);
e. War damage payments;
f. Transfer by way of bona fide sales;
g. Transfer of property to the government or to any of its political subdivisions;
h. Merger of usufruct in the owner of the naked title;
i. Properties held in trust by the decedent;
j. Acquisition and/or transfer expressly declared as not taxable.
Exempt Transactions and Transmissions (MIFA)

1. Merger of usufruct in the owner of the naked title;
Illustration: A gave B the usufruct of a parcel of land for B to gather the fruits found on the
said land. If B dies and the usufruct reverts to A, the value of the usufruct does not form
part of the gross estate of B.
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary;
Rationale: There is one transmission of property from the decedent to the final heir through
the fiduciary heir or legatee, the transmission from the fiduciary heir or legatee to the
fideicommissary is not taxed. The fideicommissary heir merely holds the property for
transmission to the ultimate heir.
3. Transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and
4. All bequests, devises, legacies or transfers to social welfare, cultural and-charitable
institutions, no part of the net income of which inures to the benefit of any individual:
Provided, however, that not more than 30% of the said bequests, devises, legacies or
transfers shall be used by such institutions for administration purposes (NIRC, Sec. 87).
The estate tax imposed by the NIRC shall be credited with the amounts of any estate tax
imposed by the authority of a foreign country (NIRC, Sec. 86(D)(1)).
How is the amount allowable as estate tax credit be determined?

The amount of the credit taken shall be subject to each of the following limitations:
1. Per country basis- the amount of the credit in respect to the tax paid to any country shall
not exceed the same proportion of the tax against which such credit is taken which the
decedent’s net estate situated within such country taxable under the NIRC bears to his
entire net estate (NIRC, Sec 86(D)(2)(a));
*Note: The formula in computing this limitation is: (DE LEON, NIRC Annotated, supra at
779):
Decedent’s NE situated in foreign country / Entire Net Estate
MULTIPLY: Phil. Estate Tax
EQUALS: Tax Credit Limit
2. Overall basis — The total amount of the credit shall not exceed the same proportion of the
tax against which such credit is taken, which the decedent's net estate situated outside the
Philippines taxable under the NIRC bears to his entire net estate (NIRC, Sec. 86, (D)(2)(b)).
*Note: The formula in computing this limitation is: (1 DE LEON, NIRC Annotated, supra at
779).
Decedent's NE situated outside the Phil. / Entire net estate
MULTIPLY: Phil. Estate Tax
EQUALS: Tax Credit Limit
In what cases is estate tax return required?

1. In all cases of transfers subject to estate tax; or
2. Regardless of the value of the gross estate, where the estate consists of registered or
registrable properties such as real property, motor vehicle, shares of stock or other similar
properties for which a clearance frofri BIR is required as a condition precedent for the transfer
of ownership thereof in the name of the transferee (R.R. No. 12-2018, Sec. 9 (1)).
*Note: Prior to TRAIN Law, the filing of estate tax return is required only if the gross value of
the estate exceeds Php. 200, 000.00.
In what cases is filing of notice of death required?

Under the TRAIN Law, notice of death is no longer required (NIRC as amended by TRAIN
Law, Sec. 89).
*Note: Prior to TRAIN, notice of death is required to be filed: 1. When the transfer is subject to
estate tax; or 2. Although exempt, the gross value of the estate exceeds P20,000.
When must the estate tax return be filed?

The return must be filed within one (1) year from the decedent's death. But the period may be
extended by the Commissioner for another thirty (30) days on meritorious cases (NIRC, Sec.
90, pars. (B) and (C)).
*Note: Prior to the effectivity of the TRAIN Law the filing of tax return must be made within six
(6) months from the death of the decedent.
When must the estate tax be paid?

As a general rule, the estate tax imposed under the Code shall be paid at the time the return is
filed by the executor, administrator or the heirs (R.R. No. 12-2018, Sec. 9 (4)).
May the Commissioner grant extension for the payment of estate tax?
Yes. As an exception, the Commissioner may grant an extension of time if it would impose
undue hardship upon the estate or any of the heirs. He may extend the time for payment of
such tax or any part thereof:
1. Not to exceed five (5) years in case the estate is settled through the courts;
2. Not to exceed two (2) years in case the estate is settled extrajudicially (NIRC, as amended
by TRAIN Law, Sec.91(B)).
*Note: Where the extension is by reason of negligence, intentional disregard of rules and
regulations, or frauds on the part of the taxpayer, no extension will be granted by the
Commissioner. Any payment paid after the statutory due date of tax, but within the extension
period, shall be subject to interest but not to surcharge. (RR No. 12-2018, Sec.9 (5)).
When must the estate tax return be duly certified by a CPA?

The estate tax returns showing a gross value exceeding P5,000,000.00 shall be supported with
a statement duly certified by a Certified Public Accountant containing the following:
a. Itemized item of the decedent with their corresponding gross value at the time
of his death;
b. Itemized deductions from gross estate allowed in Sec. 86; and
c. The amount of tax due whether paid or still due and outstanding (NIRC, as amended by
TRAIN Law, Sec. 90 (A) (3)).
*Note: Prior to the effectivity of TRAIN Law, estate with gross value exceeding P2,000,000
must be duly certified by a CPA.
When is payment by installment allowed?

In case the available cash of the estate is insufficient to pay the total estate tax due, payment
by installment shall be allowed within two (2) years from the statutory date for its payment
without civil penalty and interest (NIRC, as amended by TRAIN Law, Sec. 91 (C)).
What are the requisites of payment by installment?

1. The cash installments shall be made within two (2) years from the date of filing of the estate
tax return;
2. The estate tax return shall be filed within one year from the date of decedent's death;
3. The frequency (i.e., monthly, quarterly, semi-annually or annually), deadline and amount of
each installment shall be indicated in the estate tax return, subject to the prior approval by the
BIR;
4. In case of lapse of two years without the payment of the entire tax due, the remaining
balance thereof shall be due and demandable subject to the applicable penalties and interest
reckoned from the prescribed deadline for filing the return and payment of the estate tax; and
5. No civil penalties or interest may be imposed on estates permitted to pay the estate tax due
by installment (R.R. No. 12-2018, Sec. 9 (6.1)).
May the bank allow withdrawal of deposits upon knowledge of the death of a person
who maintained a bank deposit account alone or jointly with another?
Yes. Upon the effectivity of TRAIN Law, banks shall now allow any withdrawal from the said
deposit account, subject to a final withholding tax of six percent (6%) (NIRC, as amended by
TRAIN Law, Sec. 97)
*Note: Prior to TRAIN Law, the bank shall not allow any withdrawal from the said deposit
account, unless the Commissioner has certified that the taxes imposed thereon have been
paid: Provided, however; that the administrator of the estate or any one(1) of the heirs of the
decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding
Twenty thousand pesos (P20,000) without the said certification (NIRC, Sec.97).
Bar Question
I. Mr. Agustin, 75 years old and suffering from an incurable disease, decided to sell for valuable
and sufficient consideration a house and lot to his son. He died one year later.
In the settlement of Mr. Agustin's estate, the BIR argued that the house and lot were transferred
in contemplation of death and should therefore form part of the gross estate for estate tax
purposes.
Is the BIR correct?
SUGGESTED ANSWER:
The BIR is not correct.
Pursuant to Section 85(B) of the NIRC, properties that are transferred in contemplation of death
form part of the gross estate of the decedent. An exception to this is a bona fide sale for an
adequate and full consideration in money.
Therefore, the house and lot which Mr. Agustin sold to his son for a valuable and sufficient
consideration should not be considered as forming part of Mr. Agustin’s gross estate
II. A, a resident Filipino citizen, died in December 2018. A’s only assets consist of a house and lot
in Alabang, where his heirs currently reside, as well as a house in Los Angeles, California, USA.
In computing A’s taxable net estate, his heirs only deducted:
a. P10,000,000.00 constituting the value of their house in Alabang as their family home;
b. P200,00.00 in funeral expenses because no other expenses can be substantiated.
Questions:
1. Are both deductions claimed by A’s heirs correct? Explain.

2. May a standard deduction be claimed by A’s heirs? If so, how much and what proof needs to be
presented for the same to be validly made?
3. In determining the gross estate of A, should the heirs include A’s house in Los Angeles,
California, USA? Explain.
Suggested Answers:
1. No, only the amount pertaining to the value of the decedent’s family home is deductible from the
gross estate, provide that the conditions for the deductibility of a family home are complie with.
Funeral expenses are not considered deductible items under R.A. No. 10963.
Estate taxation is governed by the statute in force at the time of the death of the decedent. The
tax rates and procedures prescribed by R.A. No. 10963, otherwise known as the Tax Reform for
Acceleration and Inclusion Law and R.R. No. 12-2018 shall govern the estate of decedent who
died on or after the effectivity date of the TRAIN Law which is January 1, 2018. Since the
decedent died on December 2018, the operative law in force at this time is the TRAIN Law. The
said law removed funeral expenses from the list of deductible items for purposes of estate
taxation.
The conditions for the deductibility of family home from the gross estate of the decedent are as
follows: (R.R. No. 12-2018, Section 6, (7) (7.2):
i. The family home must be the actual residential home of the decedent and his
family at the time of his death, as certified by the barangay captain of the
locality where the family home is located;
ii. The total value of the family home must be included as part of the gross estate
of the decedent; and
iii. Allowable deduction must be in an amount equivalent to the current fair market
value of the family home as declared or included in the gross estate, or the
extent of the decedent’s interest (whether conjugal/community or exclusive
property), whichever is lower, but not exceeding P10,000,000.00.
Considering that all the said requisites are complied with, the amount pertaining to the value of
the decedent’s family home amounting to P10,000,000.00, is deductible from the estate of A.
2. Yes, the heirs can claim a standard deduction in the amount of P5,000,000.00.
As provided under R.R. No. 12-2018, the value of the net estate of a citizen or resident alien of
the Philippines shall be subject to a standard deduction amounting to P5,000,000.00 without the
need of a substantiation. The full amount shall be allowed as deduction for the benefit of the
decedent (R.R. No. 12-2018, Sec. 6 (1). Since A is a resident Filipino citizen, the heirs of the
said decedent can claim SD amounting to P5,000,000.0.
3. Yes, for the estate tax purposes, and since A is a resident Filipino citizen of the Philippines, the
heirs should include the value of the A’s house in Los Angeles, California, USA.
III. Don Fortunato, a widower, died in May, 2011. In his will, he left his estate of P100 million to his
four children. He named his compadre, Don Epitacio, to be the administrator of the estate.
When the BIR sent a demand letter to Don Epitacio for the payment of the estate tax, he
refused to pay claiming that he did not benefit from the estate, he not being an heir. Forthwith,
he resigned as administrator. As a result of the resignation, who may be held liable for the
payment of the estate tax? (2011 Bar Question)
(A) Don Epitacio since the tax became due prior to his resignation.
(B) The eldest child who would be reimbursed by the others.
(C) All the four children, the tax to be divided equally among them.
(D) The person designated by the will as the one liable.
SUGGESTED ANSWER:
(C) All the four children, the tax to be divided equally among them.
D. DONOR'S TAX
2. Requisites of a valid donation
3. Transfers which may be considered as donation
a. Sale, exchange, or transfer of property for less than adequate and full
consideration; exception
b. Condonation or remission of debt
c. Renunciation of inheritance; exception
4. Classification of donor
5. Determination of gross gift
a. Composition of gross gift
b. Valuation of gifts made in property
c. Exemption of certain gifts
6. Tax credit for donor's taxes paid to a foreign country
7. Filing of return and payment
TRAIN UPDATE
The donor’s tax rate was also amended to a single rate of 6% regardless of the relationship
between the donor and the donee. In the old law, the rates of donor’s tax were 2% to 15% if the donor and
donee are related, and 30% if otherwise. However, the donation of real property is now subject to
Documentary Stamp Tax of P15 for every P1,000.
AMENDMENTS ON NIRC – R.A. 8424 TRAIN LAW – R.A. 10963 (AMENDING
DONOR’S TAX (TAX REFORM ACT OF 1997) NIRC OF 1997)
(NIRC vs. TRAIN Law)
I. DONOR’S Section 99. Rates of Tax Payable by Donor.
TAX (A) In General. - The tax for each calendar year shall Section 28. Section 99 of the NIRC, as
RATE be computed on the basis of the total net gifts made amended, is hereby further amended to
during the calendar year in accordance with the read as follows:
following schedule: If the net gift is:
"Sec. 99. Rate of Tax Payable by Donor -
Over But Not Over The Tax shall be Plus Of the Excess
Over P 100,000 Exempt P 100,000 200,000 0 2% "(A) In General. - The tax for each
P100,000 200,000 500,000 2,000 4% 200,000 500,000 calendar year shall be six percent (6%)
1,000,000 14,000 6% 500,000 1,000,000 3,000,000 computed on the basis of the total gifts in
44,000 8% 1,000,000 3,000,000 5,000,000 204,000 excess of Two hundred fifty thousand
10% 3,000,000 5,000,000 10,000,000 404,000 12% pesos (₱250,000) exempt gift made
5,000,000 during the calendar year.
10,000,000 1,004,000 15% 10,000,000
"(B) Any contribution in cash or in kind to
(B) Tax Payable by Donor if Donee is a Stranger. - any candidate, political party or coalition
When the donee or beneﬁciary is stranger, the tax of parties for campaign purposes shall be
payable by the donor shall be thirty percent (30%) of governed by the Election Code, as
the net gifts. For the purpose of this tax, a 'stranger,' is amended."
a person who is not a:
(1) Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line
within the fourth degree of relationship.
(C) Any contribution in cash or in kind to any
candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election
Code, as amended.
II. TRANSFE
R FOR SEC. 100. Transfer for Less Than Adequate and Full Section 29. Section 100 of the NIRC, as
LESS Consideration. - Where property, other than real amended, is hereby further amended to
THAN property referred to in Section 24(D), is transferred read as follows:
ADEQUAT for less than an adequate and full consideration in
E AND money or money's worth, then the amount by which "Sec. 100. Transfer for Less Than
FULL the fair market value of the property exceeded the Adequate and Full Consideration - Where
CONSIDE value of the consideration shall, for the purpose of the property, other than real property
RATION tax imposed by this Chapter, be deemed a gift, and referred to in Section 24(D), is transferred
shall be included in computing the amount of gifts for less than an adequate and full
made during the calendar year. consideration in money or money’s
worth, then the amount by which the fair
market value of the property exceeded
the value of the consideration shall, for
the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be
included in computing the amount of gifts
made during the calendar year: Provided,
however, That a sale, exchange, or other
transfer of property made in the ordinary
course of business (a transaction which is
a bona fide, at arm’s length, and free
from any donative intent), will be
considered as made for an adequate and
full consideration in money or money’s
worth."
III.EXEMPTI
ON OF SEC. 101. Exemption of Certain Gifts. - The Repealed. (Deletes the provision
CERTAIN following gifts or donations shall be exempt exempting from the donor’s tax dowries
GIFTS from the tax provided for in this Chapter: or gifts made by parents to each of their
legitimate, recognized natural, or
(A) In the Case of Gifts Made by a Resident.- adopted children on account of
marriage.)
(1) Dowries or gifts made on account of
marriage and before its celebration or within
one year thereafter by parents to each of their
legitimate, recognized natural, or adopted
children to the extent of the first Ten
thousand pesos (P10,000):
DONOR’S TAX
I. Basic Principles, Concept and Definition

Donor’s Tax
An excise tax imposed the privilege to transfer property by the way of gift inter vivos based on pure
act of liberality without any or less than adequate consideration and without any legal compulsion to
give.
Purpose
1. Donor's tax supplements the estate tax by preventing the avoidance of the latter through the
device of donating the property during the lifetime of the deceased (donor); and
2. It also prevents the avoidance of income taxes. Without the donor's tax, the donor may escape
the progressive rates of income taxation through the simple expedient of splitting his income
among numerous donees (1 DE LEON, NIRC Annotated, supra at 800).
Basic Principles
1. Donor’s tax shall be imposed upon transfer by any person resident or non-resident, of any
property by gift(NIRC Sec. 98 A)
2. Donor’s tax shall apply whether the transfer is by trust and otherwise and whether the gift is direct
or indirect, and whether the property is real or personal, tangible or intangible. (NIRC, Sec. 98 B)
NOTE: The term “transfer of property in trust or otherwise, direct or indirect” is used in the most
comprehensive sense. It includes not only the transfer or any right or interest in property or less than title. A
transfer becomes complete and taxable only when the donor has divested himself of all beneficial interest in
himself or his estate. The law contemplates the passage of control over the economic benefits of the
property rather than mere technical changes in the title. (Estate of Stanford v. Commissioner of Internal
Revenue, 308 U. S. 39)
3. The donor’s tax on donations inter vivos (Civil Code, Art. 729)
4. Donations mortis causa partake of a testamentary disposition. And are subject to estate tax. (Civil
Code, Art. 728)
5. Donor’s tax shall not apply unless and until there is a completed gift. (R.R. No. 2-2003. Sec. 11)
Nature of Donor’s Tax

1. It is an excise tax on the privilege of the donor to give or on the transfer of property by gift inter
vivos.
2. It is not a property tax. (R.R. No. 2-2003, Sec. 11)
Transfers subject to Donor’s Tax
The donor's tax is imposed on donations inter vivos or those made between living persons to take
effect during the lifetime of the donor (CIVIL CODE, Arts. 729 and 734). The tax shall apply whether the
transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible (NIRC, Sec. 98).
When imposed
Donor's tax is imposed upon the transfer by any person, resident or non-resident, of any property by
gift. The tax shall apply whether the transfer is by trust or otherwise and whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible (NIRC, Sec. 98).
Note: The donor's tax shall not apply unless and until there is a completed gift. The transfer of property by
gift is perfected from the moment the donor knows of the acceptance by the donee; it is completed by the
delivery, either actually or constructively, of the donated property to the donee (R.R. No. 12-2018, Sec. 12).
Donations made by husband and wife; who pays the donor’s tax
Husband and wife are considered as separate and distinct taxpayers for purposes of the donor’s
tax. However, if what was donated is a conjugal or community property and only the husband signed the
deed of donation, there is only one donor for donor’s tax purposes, without prejudice to the right of the wife
to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil
Code and the Family Code. (RR No. 12-2018, Sec 14)
Properties owned by the spouses whether under conjugal partnership of gains or absolute
community regime are treated as a separate donation. The husband and the wife are equally regarded
as a separate donor. The computation of the donor's tax due is likewise separate. The gross gift for each
spouse would be one half (1/2) of the conjugal or community property donated. In case of exclusive
property, the donor, either the husband or the wife, is the owner of the property.
Law that Governs the Imposition of Donor’s Tax
The transfer of property by gift is perfected from the moment the donor knows of the acceptance of
the donee; it is completed by delivery, either actual or constructive. (R.R. No. 2-2003, Sec. 11)
The law in force at the time of the completion of the donation. (R.R. No. 2-2003, Sec. 11)
Date of Donation Law Applicable Rate of Tax
On or After Jan. 1, 2018 TRAIN Law (RA 10963) Fixed Rate of 6%
On or After Jan. 1, 1998 until NIRC of 1997 (RA 8424) Graduated Rate of 2-15% and
Dec. 31, 2017 30% for strangers
Donations made Before Jan. 1, NIRC of 1997 (RA 8424) Graduated Rate of 1.5-20% and
1998 10% for strangers
When Donor’s Tax Applies
The donor’s tax shall not apply unless and until there is a completed gift. (R.R. No. 2-2003, Sec. 11)
A gift that is incomplete because of reserved powers becomes complete when:
1. The donor renounces the power

2. His right to exercise the reserved power ceases because of the happening of some event or
contingency or the fulfillment of some condition, other than because of the donor’s death. (R.R. No.
2-2003, Sec. 11)
Coverage of Donor’s tax

1. Gifts of real property and personal property wherever situated to the donor who is either a resident
or a citizen at the time of the donation
2. Gifts of real and tangible personal property situated in the Philippines, and intangible personal
property with situs in the Philippines unless exempted on basis of reciprocity, belonging to a donor
who is a non-resident alien at the time of the donation (1 De Leon, supra at 801)
II. Requisites of a Taxable/Valid Donation (CD2AF)
1. Donor’s tax supplement the estate tax by preventing the avoidance of the latter through the
device of donating the property during the lifetime of the deceased.
2. It also prevents the avoidance of income taxes, since a gratuitous transfer is an exclusion
from gross income under Sec. 32 of the NIRC. (1 De Leon, supra at 800)
3. Delivery, whether actual or constructive, of the subject gift – There is delivery when the
subject matter is within the dominion and control of the donee.
4. Acceptance by the donee – the acceptance is necessary, because nobody is obliged to

receive a gift against his will. Once the acceptance is made known to the donor, the will of
the donor and done concur, and the donation as a mode of transferring, ownership,
becomes perfect. (Osorio V. Osorio, G.R. No. L16544, March 30 1921)
Acceptance must be done during lifetime of the donor and of the donee. (Civil Cod.
Art. 746) If the donee dies before he learns of the acceptance, the donation does not take
effect. (Civil Code, Art. 1323)
5. Form prescribed by law – in order that the donation of an immovable may be valid, it must
be made in a public document specifying therein the property donated. The acceptance
may be made in the same Deed of Donation or in a separate public document, but it shall
not take effect unless it is done during the lifetime of the donor. If the acceptance is made in
separate instrument, the donor shall be notified thereof in an authentic form, and this step
shall be noted in both instrument. ( Civil Code Art. 749; R.R. No. 2-2003, sec. 11)
If the value of the personal property donated exceeds P500,000, the donation and
the acceptance shall be made in writing, otherwise, the donation is void. (Civil Code, Art.
748)
Who may donate

All persons who may contract and dispose of their property may make a donation (CIVIL CODE, Ad.
735). The donor's capacity shall be determined as of the time of the making of the donation (CIVIL CODE,
Art. 737).
Donative intent; When necessary

Donative intent is necessary only in cases of direct gift.
Note:
1. If the gift is indirectly taking place by way of sale, exchange or other transfer of property as
contemplated in cases of transfers for less than adequate and full consideration (NIRC, Sec. 100),
donative intent is not necessary to constitute a gift. Even if there is no actual donation, the difference in
price is considered a donation by fiction of law (Philippine American Life and General Insurance Co. v.
Secretary of Finance, G.R. No. 210987, November 24, 2014).
2. However, even if the sale, exchange, or other transfer of property is for an insufficient consideration, the
same will be considered as made for an adequate and full consideration in money or money's worth if
made in the ordinary course of business (NIRC as amended by TRAIN Law, Sec. 100).
Subject property; when considered delivered
There is delivery if the subject matter is within the dominion and control of the donee.
Why is acceptance of the gift necessary?
Acceptance is necessary because nobody is obliged to receive a gift against his will. The wills of the
donor and of the donee having concurred, the donation, as a mode of transferring ownership, becomes
perfect (Osorio V. Osorio, G.R. No. 16544, March 30, 1921).
Formal Requisites of a valid donation of Real Property
The donation of an immovable or real property shall be made in a public instrument, specifying
therein the property donated and the value of the charges which the donee must satisfy. The acceptance
may be made in the same deed of donation or in a separate public document but it shall not take effect
unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the
donor shall be notified thereof in an authentic form and this step shall be noted in both instruments. (CIVIL
CODE, Art. 749, RR No. 12-2018, Sec. 12)
III. Transfer which may be Considered as a Valid Donation
1. Transfer for less than adequate and full consideration

General Rule: if the property transferred is for less then adequate and full
consideration in money or money’s worth, the amount by which the FMV exceeds the
consideration shall be deemed a gift and be included in computing the amount of gifts made
during the year. (NIRC Sec. 100)
Reason: the NIRC considers the transfer a donation since what motivated the
transferor in transferring the property is his generosity.
In essence, the donor intended a donation but opted to transfer the property for inadequate
consideration so to avoid paying donor’s tax.
Exception: where the property transferred is real property located in Philippines

considered as capital asset, the donor’s tax is not applicable but the final capital gains tax of
6% of the fair market value or gross selling price, whichever is higher. (Sababan,)
Where the consideration is fictitious, the entire value of the property transferred shall be
subject to donor’s tax. (1 De Leon, supra at 814).
Up to what amount may the sale, exchange, or transfer for insufficient consideration be subject to
donor's tax?
A transfer for less than adequate and full consideration be deemed a gift, to the extent of the
amount by which the FMV of the property exceeds the value of the consideration (NIRC, Sec. 100).
Note: The rule does not apply to real property held as a capital asset, under Section 24 (D) of the NIRC,
since regardless of the amount paid for, the basis for determining the capital gains tax therein would be the
FMV or gross selling price, whichever is higher (NIRC, Section 24 (D) in relation to R.R. No.12-2018, Sec.
12).
What are the requisites in order that the excess of FMV over the value of consideration be
considered as donation? (PLI)
1. Property transferred is real or personal property, except real property referred to in Section
24D of NIRC;
2. Transfer is Less than an adequate and full consideration in money or money’s worth; and
3. Transfer is Inter Vivos (NIRC as amended by TRAIN Law Sec 100).
Note: Based on the ongoing, the formula to be used is:
Personal Property:
FMV of the property @ time of the gift
Less: Actual value of consideration received
EQUALS= Amount Constituted As DONATION
Real Property:
FMV (Higher of Zonal value or Assessor’s value)
Less: Actual value of consideration received
EQUALS= Amount Constituted As DONATION
C.ii. Transfers made in the ordinary course of the business and free from donative intent, even if the
consideration is inadequate in account is EXCLUDED.
They are not considered as donations (e.g., a Bad. ,Bargain). This is also provided in Section 100 of the
NIRC, as amended by TRAIN Law, which state that a sale, exchange, or other transfer of property made in
the ordinary course of business (a transaction which is a bona fide, at arm's length, and free from any
donative intent), will be considered as made for an adequate and full consideration in money or money's
worth.
When is a transaction considered done at arm's length?

1. The parties are unrelated (whether in the familial or business sense);
2. They have equal bargaining power; and
3. They are acting in their own self-interest (DASCIL, NIRC ANNOTATED, supra at 253).
2. Forgiveness of Indebtedness
If the creditor condones the indebtedness of the debtor the following rules will apply:
a. On account of debtor services to the creditor, the same is taxable income to the
debtor.
If an individual performs services for a creditor, who, in
consideration thereof cancels the debt, income to that amount is realized by
the debtor as compensation for his services.
b. If no services were rendered but the creditor simply condones the debt, it is taxable
gift and not the taxable income.
If a creditor merely desires to benefit the debtor and without any
consideration therefor cancels the debt, the amount of the debt is a gift from
the creditor
c. If a corporation forgives a stockholder’s debt the transaction has the effect of the
payment of dividend
If a corporation to which a stockholder is indebted forgives the debt,
the transaction has the effect of payment of dividend (1 De Leon, supra at
804)
3. Renunciation of inheritance
a. Renunciation of share in the conjugal partnership or community property by

surviving spouse; and
b. Renunciation of share in the hereditary estate by an heir in favor of specific heir/s.
Note:
1. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or
any other person/s is subject to donor's tax (R.R. No.12-2018, Sec. 12).
2. General renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the decedent is not subject to donor's tax, unless specifically and
categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-
heirs in the hereditary estate (R.R. No. 12-2018, Sec. 12).
IV. Classification of Donors

1. Resident citizens
2. Non-resident citizens
3. Resident aliens
4. Non-resident aliens
5. Domestic corporation
6. Foreign corporation
Note: A corporation, whether domestic or foreign, is included since it is capable of entering into a contract
of donation, through a Board of Resolution ( Corporation Code, Sec. 36)
Importance of knowing the classification of donors The classification of donors determines the manner
in which they are subject to donor’s taxes. Donors are classified in accordance with the situs of donor’s
taxation (Domondon, supra at 171)
V. Determination of Gross Gift
Gross Gift
If the gift is made in property, the fair market value thereof at the time of the gift shall be considered
the amount of the gift. In case of real property, the provisions of Sec. 88(B) of the Code shall apply to the
valuation thereof. (Sec. 102) The determination of gross gift, based on the formula, is the first step in
arriving at the donor's tax due.
Based on the foregoing there two factors affecting the composition of the gross gift, namely:
1. Citizenship and residence of the donor at the time of donation regardless where the gift is made
or where the property donated is located. In case of a juridical person, the citizenship is
determined in accordance with the law where it was organized and incorporated.
2. Location of the property whether within or without the Philippines.
Classifications of donor:
1. Resident citizen donor [RCD]
2. Resident alien donor [RAD]
3. Nonresident citizen donor [NRCD]
4. Nonresident alien donor without reciprocity clause [NRAD]
5. Nonresident alien donor with reciprocity clause [NRAD]
Real and Tangible Intangible
Personal Property Personal Property
Within Without Within Without
1. RCD Yes Yes Yes Yes

2. RAD Yes Yes Yes Yes
3. NRCD Yes Yes Yes Yes
4. NRAD w/o reciprocity Yes No Yes No
5. NRAD with reciprocity Yes No No No
1. Resident or Citizen Donor

Gross gift includes real properties, tangible and intangible personal properties wherever
located.
2. Non-Resident alien Donor
Gross gift includes real properties, tangible and intangible properties located in the
Philippines (Reyes, Transfer Taxes 133-134)
Note: if the donor is a non-resident alien, intangible properties belonging to him situated in
the Philippines shall be subject to rules of reciprocity (NIRC, Sec. 104)
Properties considered situated in the Philippines
a. Real properties, tangible and intangible personal properties, or mixed, located in the
Philippines or outside, depending on the kind of Donor.
b. Franchise which must be exercised in the Philippines.
c. Shares, obligations or bonds issued by any corporation or partnership, organized in the
Philippines in accordance with our laws.
d. Shares, obligations or bonds issued by any foreign corporation, 85% of which is located
in the Philippines
e. Shares, obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired business situs in the Philippines.
f. Shares or rights in any partnership, business or industry established in the Philippines.
(NIRC Se. 104)
Situs of Donor’s Taxation
The situs of donor’s taxation is where the transfer took place. Thus, only transfer that take place
within the Philippines are subject to donor’s taxes unless the donors are Filipino citizens who are residents
of a foreign country. This is so because donor’s taxes are in the nature of taxes imposed upon the privilege
to do something, which in this case is to transfer property (Domondon, 171)
Valuation of donation
1. Cash — value or face amount of the currency.
2. Personal property — FMV at the time of donation.

3. Real property — FMV fixed by the Provincial and City Assessor or the FMV as determined by
the BIR Commissioner, whichever is higher.
Allowed deductions or exemptions from gross gift

1. Donor's tax due is computed on a cumulative basis; and
2. The donor's tax due is based on the net gifts.
The Code therefore allows deductions from gross gifts.
Exemption of Certain Gifts

A. In the Case of Gifts Made by a Resident
1. Encumbrances on the property donated, if assumed by the donee;

2. Athlete's Prizes and Awards; (R.A. No. 7549)
a. In local and international sports tournaments and competitions.
b. Held in the Philippines or abroad
c. Sanctioned by their respective National Sports Associations.
Note: In relation to Section 32 (B) (7) (d) of the NIRC; all awards are excluded.
3. Donations to entities exempted under Special Law including but not limited to:
a. Aquaculture Departffent of the Southeast Asian Fisheries Development Center (P.D. 292,
Sec. 2);
b. Aurora Pacific Economic Zone and Freeport Authority (R.A. No. 10083, Sec. 7);
c. Development Academy of the Philippines (P.D. 205, Sec. 12);
d. Girl Scouts of the Philippines (R.A. No. 10073, Sec. 11);
e. Integrated Bar of the Philippines (P.D. 181, Sec. 3);
f. International Rice Research Institute (P.D. 1620, Art. 5(2));
g. National Commission for Culture and the Arts (R.A. No. 10066, Sec. 35);
h. National Social Action Council (P.D. 294, Sec. 4);
i. National Water Quality Management Fund (R.A. No. 9275, Sec. 9);
j. People's Survival Fund (R.A. No. 10174, Sec. 13);
k. People's Television Network, Incorporated (R.A. No. 10390, Sec. 15);
l. Philippine Investors Commission (R.A. No. 3850, Sec. 9);
m. Philippine Normal University (R.A. No. 9647, Sec. 7);
n. Philippine Red Cross (R.A. No. 10072, Sec. 5);
o. Philippine-American Cultural Foundation (P.D. 3062, Sec. 4);
p. Ramon Magsaysay Award Foundation (R.A. 3676, Sec. 2);
q. Rural Farm School (R.A. No. 10618, Sec. 14);
r. Task Force on Human Settlements (E.O. 419, Sec. 3(b)(8));
s. Tubbataha Reefs Natural Park (R.A. No. 10067, Sec. 17);
t. University of the Philippines (R.A. No. 9500, Sec. 25).
4. Gifts made to or for the use of:

a. The National Government or any entity created by any of its agencies which is not
conducted for profit; or
b. To any political subdivision of the said Government.
5. Gifts in favor of:

a. Educational and/or
b. Charitable,
c. Religious,
d. Cultural, or
e. Social welfare corporation, institution, Accredited nongovernment organization, or
f. Trust or philanthropic organization or research institution or organization.
Requisites:
1. The entity or institution must either or any of those mentioned in a to e;
2. Not more than thirty percent (30%) of said gifts shall be used by such donee for administration
purposes;
3. Incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no
compensation, and 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.
B. In the Case of Gifts Made by a Nonresident, Not a Citizen of the Philippines

1. Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said
Government.
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or research institution or
organization: Provided, however, That not more than thirty percent
(30%) of said gifts shall be used by such donee for administration purposes. (Sec. 101[B])
Note that for an NRA, the third requirement for donors other than NRA does not apply.
C. Other allowed deductions

1.
Mortgage assumed by the donee
Imposing upon the donee the obligation to pay the mortgage liability, then the net gift is
measured by deducting from the fair market value of the property the amount of mortgage
assumed. (Sec. 11, RR 2-03)
2. Diminutions specifically provided by the donor.
E.g., If Bayani donated P500,000.00 to Tranquilino with the instruction that the latter shall
give P100,000.00 to San Sebastian College, the taxable net gift would only be P400,000.00.
Note: TRAIN law removed the exemption of dowries or gifts made on account of marriage.
RCD, RAD, NRCD NRAD
1. Dowry Yes No
2. Gifts to national govt. Yes Yes
3. Gifts to political subd. Yes Yes
TRANSFER TAXES ON DONATION
4. Gifts to educational, etc. Yes Yes
5. Mortgage assumed by
the donee Yes Yes
6. Diminutions Yes Yes

Donations to political party or coalition of parties (for election campaign)
Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election Code, as amended. (Sec. 99[C]) Congress approved
RA 7166 on November 25, 1991, providing in Sec. 13 thereof that political/electoral contributions, duly
reported to the Commission on Elections, are not subject to the payment of any gift tax.
Rate of Donor’s tax
The donor's tax for each calendar year shall be six percent (6%) computed on the basis of the total
gifts in excess of two hundred fifty thousand pesos (P250,000) exempt gifts made during the year,
regardless of whether the donation is made to a relative of to a stranger (NIRC, as amended by TRAIN Law,
Sec. 99).
Note: The application of the rate is imposed on donations made on or after the effectivity date of the TRAIN
Law which is January 1, 2018 (R.R. No. 12-2018, Sec. 11).
Rate of Donor’s tax for Strangers
Six percent (6%). The rate of donor's tax after the effectivity of TRAIN Law is fixed at six percent
(6%) regardless of whether the donation is made to a relative or to a stranger.
Note: Upon the effectivity of TRAIN Law the donor's tax rate is now fixed at 6% and the graduated schedule
with a rate of 2-15% under the Tax Reform Act of 1997 is now repealed.
Return; When filed and when paid
The return of the donor shall be filed within thirty (30) days after the date the gift is made and the tax
due thereon shall be paid at the time of filing (NIRC, Sec. 103 (B)).
Basis in computing Donor’s tax
The basis shall be the total net gifts made during the calendar year (NIRC, Sec. 99).
Net Gifts
It is the net economic benefit from the transfer that accrues to the done. (RR No. 12-2018, Sec. 12)
Note: Accordingly, if a mortgaged property is transferred as a gift, but imposing upon the donee the
obligation to pay the mortgage liability, then the gift is measured by deducting from the FMV of the property
the amount of mortgage assumed by the donee. (RR No. 12-2018, Sec. 12)
What is the cumulative method in computing the tax base
The computation of the donor’s tax on a cumulative basis over a period of one calendar year (RR
No. 2-2003, Sec. 12). A separate return should be filed for each donation made on different dates during the
year reflecting therein any previous gifts made on the same calendar year (CABANEIRO, supra 126)
Note:
1. Only one return shall be filed for several gifts made on the same date by the donor regardless of the
number of donees.
2. Under the cumulative method, the tax paid for the previous donation will be considered as tax credit
for succeeding donations. Hence, there is no double taxation.
VI. Tax Credit for Donor’s Taxes Paid to Foreign Country
The Donor’s tax imposed upon a citizen or resident at the time of the donation shall be credited
with the amount of any donor’s ta, of any character and description imposed by the authority of
a foreign country. (NIRC, Sec. 101 ( C ) (2) )
Limitation to the Tax Credit
1. Per Country Basis

The amount of the credit shall not exceed the same proportion of the tax against such
credit is taken, which is the net gift situated within such country taxable under donor’s tax
bears to entire net gifts.
2. Overall Basis
The amount of the tax credit shall not exceed the same proportion of the tax against such
credit is taken, which the donor’s net gift situated outside the Philippines taxable under
donor’stax bears to his entire net gifts. (NIRC, Sec. 101 ( C ) ( 2))
Note: This tax credit is allowed only for residents and citizens of the Philippines for the
donor’s taxes they paid in a foreign country. (NIRC, Sec. 101)
VII. Return, Filing and Payment
A. Filing of Return
Any individual who makes any transfer by gift and are required to pay tax due shall make a
return under oath and include the following:
1. Each gift made during the calendar year which is to e included in computing the net
gifts.
2. Deductions claimed and allowable
3. Any previous net gifts made during the same calendar year
4. The name of the donee
5. Relationship of the donor to the donee.
6. Such further information as commissioner may require. (NIRC, Sec. 103; R.R. No. 2-
2003)
Note: The donee, not being taxable, is not required to file the return unless he acts as agent of
the donor. ( Valencia & Roxas, 245)
B. Time of Filing
The return shall be filed within 30 days after the date the gift is made or completed (R.R.
No. 2-2003, Sec. 13 (b))
C. Place of Filing
Unless the commissioner otherwise permits, the return shall be filed and tax paid to an:
1. Authorized agent bank
2. Revenue district officer
3. Duly authorized treasurer of the city or municipality where the donor was domiciled at
the time of the transfer
4. If there is no legal residence in the Philippines, with the office of the commissioner.
(NIRC, Sec. 103)
Note: In case of gifts made by non-residents, the return may be filed with the Philippine Embassy
or Consulate in the country where he is domiciled at the time of the transfer , or directly eiht the Office of the
Commissioner. (NIRC, Sec. 1030
D. Payment of Gift Tax
The donor’s tax is paid upon filing of return. No extension is allowed as compared to estate
tax (NIRC, Sec 103)
Notice of Donation
Inasmuch as the gift tax is now payable within 30 days after the date the gift is made and
the return file within the same period, the filing of a notice of donation is no longer required.
In estate tax notice of death is required. ( De Leon, 823)
E. VALUE-ADDED TAX
1. Nature and characteristics of value-added tax
a. Tax on value added
b. Sales tax
c. Tax on consumption
d. Indirect tax: impact and incidence of tax
e. Tax credit method
f. Destination principle and cross-border doctrine
2. Persons liable to value-added tax
3. Imposition of value-added tax
a. On sale of goods or properties
i. Tax base: gross selling price
ii. Transactions deemed sale
iii. Change or cessation of status as value-added tax-registered person
b. On importation of goods
c. On sale of services and use or lease of properties
4. Zero-rated and effectively zero-rated sales of goods or properties, and services
5. Value-added tax-exempt transactions
6. Input and output tax
7. Refund or tax credit of excess input tax; procedure
8. Compliance requirements
a. Registration
b. Invoicing requirements
c. Filing of returns and payment
d. Withholding of final value-added tax on sales to government
e. Administrative and penal sanctions
TRAIN TAX UPDATES- VAT

There are also amendments to VAT which lessen the burden of taxpayers:
1. Increase of VAT threshold from P1,919,500 to P3,000,000
2. Starting 2019, the sale of drugs and medicines for diabetes, high cholesterol, and hypertension will
be exempt from VAT
3. Increase of VAT exemption for lease of a residential unit from P12,800 to P15,000
4. Association dues, membership fees, and other assessments and charges collected by homeowners
associations and condominium corporations are now expressly VAT exempt
VAT
CONCEPT
(a) VAT is a percentage tax imposed at every stage of the distribution process on the sale, barter, or
exchange, or lease of goods or properties, and on the performance of service in the course of trade or
business, or on the importation of goods, whether for business or non-business purposes. (CIR v.
Benguet Corp., 2005)
(b) The taxpayer (seller) determines his tax liability by computing the tax on the gross selling price or gross
receipt (output tax), and subtracting or crediting the earlier VAT on the purchase or importation of goods
or on the purchase of service (input tax) against the tax due on his own sale.
(c) VAT is a percentage tax imposed by law directly not on the thing or service but on the act (sale, barter,
exchange, lease, importation, rendering service)
(d) It is also an excise tax, or a tax on the privilege of engaging in the business of selling goods or services,
or in the importation of goods but unlike excise, it not applied only to a few selected goods
(e) It is an ad valorem tax the amount is based on the gross selling price or gross value in money of goods
and services
CHARACTERISTICS OF VAT
1. It is an indirect tax;
2. It is a tax imposed on the value added to goods, properties, or services of a taxpayer;
3. It is a transparent form of sales tax imposed on the taxable sale, barter, or exchange of goods, properties
or services;
4. It is a broad-based tax on consumption imposed on all stages of taxable sale but the tax burden rests
with the final consumer who consumes the goods, properties, or services;'
5. It is computed through "tax credit method" or "invoice method" wherein the input tax shifted by the sellers
to the buyer is credited against the buyer's output taxes .when he in turn sells the taxable goods, properties,
or services (NIRC, Sec. 105 and Sec. 110 (A));
6. It adopts the "tax inclusive method". Unless otherwise stated, any price charged by a VAT-registered
person shall be deemed to include the VAT charged (MAMALATEO, Reviewer, supra at 404);
7. It follows the "destination principle/cross-border doctrine" (MAMALATEO, Reviewer, supra at 402-403);
8. There is no tax cascading/tax pyramiding (tax on tax);
9. VAT foregone in a prior exempt transaction may be recovered from the succeeding customer liable to
VAT under the "catching-up principle" or "recoupment principle" (MAMALATEO, Reviewer, supra at 405);
and
10. It is a regressive tax. By its very nature, it is regressive. VAT paid eats the same portion of an income,
whether big or small. The disparity lies in the income earned by a person or profit margin marked by a
business, such that the higher the income or profit margin, the smaller the portion of the income or profit
that is eaten by VAT (ABAKADA Guro Party List v. Executive Secretary, G.R. No. 168056, September 1,
2005).
TRANSACTIONS SUBJECT TO VAT:

(1) Sale, barter, or exchange, lease of goods or properties
(2) Sale of services
(3) Importation of goods
CONSTITUTIONALITY OF VAT
ABAKADA Guro Party List, et. al. v Ermita (2005):
(a) Thevalidity of raising the VAT rate from 10% to 12% by the President was upheld by SC.
(b) With respect to Sec. 8, amending Sec. 110 (A), which provides for 60-month amortization of the input
tax on capital goods purchased: It is not oppressive, arbitrary, and confiscatory. The taxpayer is not
permanently deprived of his privilege to credit the input tax. For whatever is the purpose, it involves
executive economic policy and legislative wisdom in which the Court cannot intervene.
(c) The tax law is uniform: it provides a standard rate of 0% or 10% (or 12% now) on all goods or services.
The law does not make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax on purchase of capital goods, or
the 5% final withholding tax by the government.
(d) It is equitable: The law is equipped with a threshold margin (P1.5M). Also, basic marine and
agricultural products in their original state are still not subject to tax. Congress also provided for
mitigating measures to cushion the impact of the imposition of the tax on those previously exempt.
Excise taxes on petroleum products and natural gas were reduced. Percentage tax on domestic
carriers was removed. Power producers are now exempt from paying franchise tax.
(e) VAT, by its very nature, is regressive. BUT the Constitution does not really prohibit the imposition of
indirect taxes (which is essentially regressive).
(f) What it simply provides is that Congress shall “evolve a progressive system of taxation”.
(g) In Tolentino v. Sec. of Finance, the Court said that direct taxes are to be preferred, and as much as
possible, indirect taxes should be minimized… but not avoided entirely because it is difficult, if not
impossible, to avoid them.
Tolentino v. Guingona:
(a) Regressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to “evolve a progressive system of taxation. This provision is placed in the
Constitution as moral incentives to legislation, not as judicially enforceable rights.
(b) The regressive effects are corrected by the zero rating of certain transactions and through the
exemptions
IMPACT OF TAX
(a) The impact of taxation is on the statutory taxpayer, the one from whom the government collects.
(b) The impact of VAT is on the seller or importer upon whom the tax has been imposed. (Sec. 105,
NIRC)
INCIDENCE OF TAX
(a) The incidence of tax in on the one who bears the burden of taxation.
(b) The incidence of VAT is on the final consumer.
TAX CREDIT METHOD

The tax credit method refers to the manner by which the value added tax of a taxpayer is
computed. The input taxes shifted by the sellers to the buyer are credited against the buyer’s output taxes
when he in turn sells the taxable goods, properties or services.
DESTINATION PRINCIPLE
(a) It is the basis for the jurisdictional reach of the VAT.
(b) As a general rule, goods and services are taxed only in the country where they are consumed.
(Deoferio Jr. and Mamalateo. The Value Added Tax in the Philippines, p. 43; CIR v. American Express
International, 2005)
Corollarily, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost
of the goods destined for consumption outside the territorial border of the taxing authority.
Hence, actual export of goods and services from the Philippines to a foreign country must be free of
VAT, while those destined for use or consumption within the Philippines shall be imposed with 12% VAT.
[Deoferio Jr. and Mamalateo, p. 422; Atlas Consolidated Mining & Dev. Corp. v. CIR, 2007]
CIR v. American Express (2005):

The court enumerated the exceptions to the destination principle. As a general rule, the value-added tax
(VAT) system uses the destination principle.
However, our VAT law itself provides for a clear exception, under which the supply of service shall be
zero-rated when the following requirements are met:
(1) the service is performed in the Philippines;

(2) the service falls under any of the categories provided in Section 102(b) of the Tax Code; and
(3) it is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of
the Bangko Sentral ng Pilipinas.
APPLICABILITY OF ECOZONES
(a) The ECOZONES shall be managed and operated by the PEZA as separate customs territory. (Sec. 8,
RA 7916 “Special Economic Zone Act of 1995”) This means that in such zone is created the legal
fiction of foreign territory. (Deoferio Jr. and Mamalateo, p. 227; CIR v. Seagate Technology, 2005)
(b) Consequently, sales made by a person in the customs territory to a PEZA-registered entity are
considered exports to a foreign country and thus, zero-rated. Conversely, sales by a PEZAregistered
entity to a person in the customs territory are deemed imports from a foreign
country. (CIR v. Seagate Technology, 2005)
TAX TREATMENT OF SALES TO & BY PEZA-REGISTERED ENTERPRISE WITHIN & WITHOUT THE
ECOZONE [RMC 7499]:
(a) Any sale of goods, property or services made by a VAT registered supplier from the Customs
Territory* to any registered enterprise operating in the ecozone, REGARDLESS of the class or
type of the latter’s PEZA registration, is actually qualified and thus LEGALLY ENTITLED TO THE 0%
VAT.
“Customs Territory” shall mean the national territory of the Philippines outside of the proclaimed
boundaries of the ECOZONES except those areas specifically declared by other laws and/or
presidential proclamations to have the status of special economic zones and/or free ports. [Sec. 2(g),
Rule 1, Part I, RA 7916-IRR]
(b)By a VAT-Exempt Supplier from the Customs Territory to a PEZA registered enterprise
Sale of goods, property and services by VATExempt supplier from the Customs Territory to a PEZA
registered enterprise shall be treated EXEMPT FROM VAT, regardless of whether or not the PEZA
registered buyer is subject to taxes under the NIRC or enjoying the 5% special tax regime.
(c) By a PEZA Registered Enterprise

(1)Sale of Goods by a PEZA registered enterprise to a buyer from the Customs Territory (ie domestic
sales) -- this case shall be treated as a technical IMPORTATION made by the buyer. Such buyer
shall be treated as an IMPORTER thereof and shall be imposed with the corresponding VAT.
(2) Sale of Services by a PEZA registered enterprise to a buyer from the Customs Territory – this is NOT
embraced by the 5% special tax regime, hence, such seller shall be SUBJECT TO 12% VAT.
(3) Sale of Goods by a PEZA registered enterprise to Another PEZA registered enterprise (ie
Intra-ECOZONE Sales of Goods) – this shall be EXEMPT from VAT.
(4) Sale of Services by ECOZONE enterprise, to Another ECOZONE enterprise (Intra-

ECOZONE enterprise Sale of Service)
(a) if PEZA registered seller is subject to 5% special tax regime - EXEMPT from VAT
(b) if PEZA registered seller is subject to taxes under NIRC (ie not subject to 5% special tax regime) –
subject to 0% VAT pursuant to “cross border doctrine”
PERSONS LIABLE
Any person who, in the course of his trade or business, sells, barters, exchanges, leases goods or
properties, renders services and any person who imports goods shall be subject to VAT (NIRC, Sec. 105).
When is a person characterized as taxable person for VAT purposes?

1. He undertakes taxable transactions in goods, properties or services consumed or destined for
consumption within the Philippines;
2. Such transactions are entered into in the course of his trade or business; and
3. The amount of his gross sales or receipts is over the threshold fixed by law or regulation.
Note: A taxable person must register for VAT purposes. However, his failure as a VAT taxable
person does not exculpate him from his liability to pay the VAT on his taxable sales or services. Any person
required to register but failed to do so shall be liable for VAT but without the benefit of input tax credit for the
period he failed to register.
“In the course of his trade or business”

Means the regular conduct or pursuit of a commercial or an economic activity; including transactions
incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock,
nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests) or government entity (Rule of Regularity.)
What is meant by regular?

Regular means more than one isolated transaction. It requires repetition and continuity of action (INGLES,
Reviewer, supra at 277).
What is meant by "incidental"?

The term "incidental" means something necessary, appertaining to, or depending upon another,
which is termed the principal, something incident to the main purpose (Magsaysay Lines, Inc. v.
Commissioner of Internal Revenue, CTA Case No. 4353, April 27, 1992).
Note: The Rule of Regularity does not apply to the following transactions which means that they
shall be subject to VAT although not made in the course of trade or business:
1. Services rendered in the Philippines by non-resident foreign persons (NIRC, Sec. 105);
2. Importation of goods (NIRC, Sec. 105). There shall be levied, assessed and collected on every
importation of goods a VAT equivalent to 12%. The importation of goods herein contemplated refers to
importation by any person, who may or may not be engaged in trade or business in the Philippines (NIRC,
Sec. 107 (A)).
When is VAT imposed?

There is VAT imposed whenever there is:
1. Sale of Goods or Properties (NIRC, Sec. 106);
2. Importation of Goods (NIRC, Sec. 107);
3. Sale of Services and Use or Leases of Properties (NIRC, Sec. 108).
What goods or properties are subject to VAT?

The goods or properties subject to VAT are as follows: (RP-EMT)
1. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business;
2. The right or privilege to use Patent, copyright, design or model, plan, secret formula or process, goodwill,
trademark, trade brand, or other like property or right;
3. The right or privilege to use in the Philippines of any industrial, commercial, or scientific Equipment;
4. The right or privilege to use Motion pictures films, tapes, and discs; and
5. Radio, television, satellite Transmission and cable television time (NIRC, Sec. 106 (A)(1)).
VAT ON SALE OF GOODS OR PROPERTIES

Rate: 12% VAT beginning 1 February 2006 [RMC No. 7-06]
Transactions: Every sale, barter or exchange, or transactions “deemed sale” of taxable goods or
properties (RR 16-2005)
Basis: Gross selling price or gross value in money of the goods or properties sold, bartered or exchanged.
Who Pays: Paid by SELLER/TRANSFEROR. (Sec. 106, NIRC)
GOODS OR PROPERTIES – all tangible and intangible objects which are capable of pecuniary estimation,
including:
(1) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business;
(2) The right or the privilege to use patent, copyright, design, or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;
(3) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
(4) The right or the privilege to use motion picture films, films tapes and discs;
(5) Radio, television, satellite transmission and cable television time. (Sec. 106, NIRC)
REQUISITES OF TAXABILITY OF SALE OF GOODS OR

PROPERTIES
The sale of goods (tangible or intangible) must be:
(1) an actual or deemed sale of goods or properties for a valuable consideration;
(2) undertaken in the course of trade or business;
(3) for the use or consumption in the Philippines; and
(4) not exempt from value added tax under the Tax Code, special law, or international agreement
Gross Selling Price (GSP) – The total amount of money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties,
excluding the VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling
price. (Sec. 106, NIRC)
For real property, GSP means the higher of the ff values: (RR 16-2005)
(1) The consideration stated in the sales document, or
(2) The fair market value (FMV), whichever is the HIGHER of:
(a) FMV as determined by the Commissioner
(zonal value), or
(b) FMV as shown in schedule of values of the Provincial & City assessors (real property tax
declaration)
(c) If GSP is based on the zonal value or market value of the property, the zonal or market value shall
be deemed EXCLUSIVE of VAT.
(d) If the VAT is not billed separately, the selling price stated in the sales document shall be deemed to
be EXCLUSIVE of VAT.
SALE OF REAL PROPERTY[RR 16-2005]

Person Liable: gross sales/receipts > P1,919,500/year (per RR 16-2011)
(1) Any person (natural or juridical) engaged in sale or exchange of real properties
(2) Real estate lessors
(3) Non-resident lessors (property located in the Philippines)
(4) Non-stock, Non-profit organizations
(5) Government agencies, instrumentalities, GOCCs
Taxable:
(1) On installment plan
(2) Pre-selling by real estate dealers
(3) Sale of residential lot >P1,919,500 ; or house and lot/other residential dwelling>P3,199,200 (RR 16-
2011)
(4) Lease of residential units (rental per unit >12,800/month OR total rental from ALL
units>P1,919,500/year)
Not taxable:
(1) Not primarily held for sale
(2) Low cost or socialized housing
(3) Residential lot < P1,919,500
(4) house and lot/ other residential dwelling< P3,199,200
(5) Lease (rental per unit < 12,800/month and total rental from all units < P1,919,500/ year)
(6) Transmission to a trustee (Except: transmission is deemed sale transaction)
Transmission of property to a trustee shall NOT be subject to VAT IF the property is to be merely held
in trust for the trustor and/or beneficiary. However, IF the property transferred is originally intended for
sale, lease or use in the ordinary course of trade or business AND the transfer constitutes a completed
gift, the transfer is subject to VAT as a deemed sale transaction. The transfer is a completed gift if the
transferor divests himself absolutely of control over the property, i.e., irrevocable transfer of corpus
and/or irrevocable designation of beneficiary.
(7) Transfer to corporation in exchange of shares of stocks (see Sec. 40, NIRC for Tax-free exchange)
(8) Advance payment by the lessee
(9) Security deposits for lease agreements
The real estate dealer shall be subject to VAT on the installment payments, including interest and penalties,
actually and/or constructively received by the seller.
ON INSTALLMENT PLAN[RR 16-2005]

Scope [Sec. 4.106 – 3]
Installment Plan Deferred Payment
Initial payments in the Initial payment in the

year of sale do not year of sale exceeds
exceed 25% of the 25% of the gross
gross selling price selling price
Taxable only on the Treated as cash sale
payment actually or and the entire selling
constructively received price is taxable on the
month of sale
Initial payments – payment/payments which the seller receives before or upon execution of the
instrument of sale and payments which he expects or is scheduled to receive in cash or property during the
year when the sale or disposition of the real property was made.
(a) It includes down payment and all payments actually or constructively received during the year of sale.
(b) It does not include the amount of mortgage on the real property sold (except as to the excess when such
mortgage exceeds the cost or other basis of the property to the seller) and notes or other evidence of
indebtedness issued by the purchaser to the seller at the time of the sale.
ZERO-RATED SALES OF GOODS OR PROPERTIES, AND EFFECTIVELY ZERO-RATED SALES OF

GOODS OR PROPERTIES
(a) A zero-rated sale by a VAT-registered person is a taxable transaction for VAT purposes, but shall not
result in any output tax.
(b) However, input tax on purchases of goods, properties or services related to such zero-rated sale shall be
available as tax credit or refund. (RR 16-2005)
EXPORT SALES (IF-GONE) [Sec. 106(A)(2)(a), NIRC]

(1) The sale and actual shipment of goods from the Philippines to a Foreign country AND paid for in
acceptable foreign currency or its equivalent in goods or services, AND accounted for in accordance
with the rules and regulations of the BSP
(2) Sale of raw materials or packaging materials to a Nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods AND paid for in acceptable foreign currency AND accounted for in
accordance with the rules and regulations of the BSP
(3) Sale of raw materials or packaging materials to Export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production.
(4) Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable
year shall be considered an exportoriented enterprise upon accreditation under the rules & regulations
of Export Development Act, RA 7844 (RR 7-95)
(5) Sale of Gold to the Bangko Sentral ng Pilipinas (BSP)
(6) Those considered export sales under the Omnibus Investment Code of 1987, and other special laws
(ex. Bases Conversion & Development Act of 1992)
Under Omnibus Investment Code:
(a) Phil. port FOB value of export products exported directly by a registered export producer; OR
(b) Net selling price of export products sold by a registered export producer to another export producer, or
to an export trader that subsequently exports the same (only when actually exported by the latter).
Constructive Exports (without actual exportation):
(a) sales to bonded manufacturing warehouses of export-oriented manufacturers;

(b) sales to export processing zones;
(c) sales to registered export traders operating bonded trading warehouses supplying raw materials in the
manufacture of export products;
(d) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of
locally manufactured, assembled or repacked products, whether paid for in foreign currency or not.
Export sales of registered export traders shall include commission income, and that exportation of goods
on consignment shall not be deemed export sales until the export products consigned are in fact sold by
the consignee, and
Sales by a VAT-registered supplier to a manufacturer/producer whose products are 100% exported are
considered export sales. A certification to this effect must be issued by the Board of Investment which shall
be good for 1 year unless subsequently re-issued. (RR 16-2005)
(7) The sale of goods, supplies, equipment and fuel to persons engaged in International shipping or
international air transport operations. (added by RA 9337)
(a) Limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of goods
and passengers from a port in the Phil. directly to a foreign port without docking or stopping at any
other port in the Phil.
(b) If any portion of such fuel, goods, or supplies is used for purposes other than that mentioned, such
portion of fuel, goods, and supplies shall be subject to VAT. (RR 16-
2005)
FOREIGN CURRENCY DENOMINATED SALE (FCDS)

(1) Sale to a nonresident of goods, except those mentioned in Sections 149 and 150 (automobiles and non-
essential goods like jewelry, perfume, and yachts), assembled or manufactured in the Philippines for
delivery to a resident in thePhilippines paid for in acceptable foreign currency AND accounted for in
accordance with the rules and regulations of the BSP. (Sec. 106(A)(2)(b), NIRC)
(2) Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad
and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal
Export Program of the government paid for in convertible foreign currency AND accounted for in
accordance with the rules and regulations of the BSP shall also be considered export sales.
(RR 16-2005)
EFFECTIVELY ZERO-RATED SALES

Sales to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such sales to zero rate. (§ 106(A2c)); the local sale
of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax
exemption under special laws or international agreement. (RR 16-2005)
Examples:
(1) sales to enterprises duly registered & accredited with the
(a) Subic Bay Metropolitan Authority,
(b) Philippine Economic Zone Authority (PEZA),
(2) international agreements to which the Phil. is signatory, such as
(a) Asian Development Bank (ADB),
(b) International Rice Research Institute (IRRI)
Note: RR 4-2007 removed the distinction between automatic and effectively zero-rated transactions
found in prior Revenue Regulations (including RR 16-2005) with respect to prior application. The
paragraph requiring prior application has now been deleted.
CIR vs. Seagate Technology (Philippines) February 11, 2005:

(a) The BIR regulations additionally requiring an approved prior application for effective zero rating
cannot prevail over the clear VAT nature of Seagate’s transactions (subject to zero-rating, as an entity
registered with the PEZA).
(b) An effectively zero-rated transaction does not and cannot become exempt simply because an
application therefor was not made or, if made, was denied.
TRANSACTIONS DEEMED SALE [Sec. 106 (B), NIRC] [DRTC]

Rate: 12% VAT
Basis: Market value of the goods deemed sold as of the time of the occurrence of the transactionsor as the
Commissioner shall prescribe. In the case of retirement/cessation of business, the tax base shall be the
acquisition cost or the current market price of the goods or properties, whichever is lower. In the case of a
sale where the gross selling price is unreasonably lower than the fair market value, the actual market value
shall be the tax base. The gross selling price is unreasonably lower than the actual market value if it is
lower by more than 30% of the actual market value of the same goods of the same quantity and quality sold
in the immediate locality on or nearest the date of sale. (RR 16-2005)
TRANSFER, USE OR CONSUMPTION NOT IN THE COURSE OF BUSINESS OF GOODS OR
PROPERTIES ORIGINALLY INTENDED FOR SALE OR FOR USE IN THE COURSE OF BUSINESS(e.g.
when a VAT-registered person withdraws goods from his business for his personal use. (RR 16-2005)
DISTRIBUTION OR TRANSFER TO SHAREHOLDERS, INVESTORS OR CREDITORS

(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared
out of retained earnings on or after Jan. 1, 1996 and distributed by the company to its shareholders shall be
subject to VAT based on the zonal value or FMV at the time of the distribution, whichever is applicable. (RR
16-2005)
CONSIGNMENT OF GOODS IF ACTUAL SALE IS NOT MADE WITHIN 60 DAYS FOLLOWING THE
DATE SUCH GOODS WERE CONSIGNED
Consigned goods returned by the consignee within the 60-day period are not deemed sold. (RR 162005)
RETIREMENT FROM OR CESSATION OF BUSINESS, WITH RESPECT TO INVENTORIES OF

TAXABLE GOODS EXISTING AS OF SUCH RETIREMENT OR CESSATION.
With respect to ALL goods on hand, whether capital goods, stock-in-trade, supplies or materials, as
of the date of such retirement or cessation, whether or not the business is continued by the new owner or
successor.
Examples are change of ownership of the business (e.g. when a sole proprietorship incorporates, or
the proprietor sells his entire business) and dissolution of a partnership and creation of a new partnership
which takes over the business. (RR 16-2005)
CHANGE OR CESSATION OF STATUS AS VAT REGISTERED PERSON [Sec.106(C), NIRC]

Rate: 12%
Basis: the acquisition cost or the current market price of the goods or properties, whichever is LOWER.
VAT shall apply to goods disposed of or existing as of a certain date if under the circumstances to
be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is
terminated.
UNDER RR 16-2005 SEC. 4.106 (B):
Subject to Vat - applicable to goods/properties originally intended for sale or use in business and capital
goods which are existing as of the occurrence of the following:
Change of business activity from VAT taxable status to VAT-exempt status

Example: A VAT-registered person engaged in a taxable activity like wholesaler or retailer who
decides to discontinue such activity and engages instead in life insurance business or in any other business
not subject to VAT.
Approval of request for cancellation of a registration due to reversion to exempt status

Approval of request for cancellation of registration due to desire to revert to exempt status after
lapse of 3 consecutive years from the time of registration by a person who voluntarily registered despite
being exempt under Sec. 109 (2)
Approval of request for cancellation of registration of one who commenced business with the expectation
of gross sales/receipts exceeding P1,919,500 (per RR 16-2011) but who failed to exceed this amount
during the first 12 months of operation
Not Subject to VAT – goods or properties existing as of the occurrence of the following:
Change of control of a corporation by the acquisition of the controlling interest of such corporation
by another stockholder (individual or corporate) or group of stockholders.
Note: Exchange of goods or properties including the real estate properties used in business or
held for sale or for lease by the transferor, for shares of stocks, whether resulting in corporate control or
not, is SUBJECT TO VAT (RR 10-11)
Change in the trade or corporate name of the business
Merger or consolidation of corporations. The unused input tax of the dissolved corporation, as of
the date of merger or consolidation, shall be absorbed the surviving or new corporation.
VAT ON IMPORTATION OF GOODS

Rate: 12%
Basis: total value used by the Bureau of Customs in determining tariff and customs duties, plus customs
duties, excise taxes, if any, and other charges (such as postage, commission).
Where the customs duties are determined on the basis of the quantity or volume of the goods, the value-
added tax shall be based on the landed cost plus excise taxes, if any.
Landed Cost = invoice amount + customs duties + freight + insurance + other charges + excise tax (if any)
Who Pays: IMPORTER prior to the release of such goods from customs custody (Sec. 107 (A), NIRC)
Importer = any person who brings goods into the Philippines, whether or not made in the course of his trade
or business, including non-exempt persons or entities who acquire tax-free imported goods from exempt
persons, entities or agencies (RR 16-2005)
TRANSFER OF GOODS BY TAX EXEMPT PERSONS (Sec. 107 (B), NIRC)

(a) If importer is tax-exempt, the subsequent purchasers, transferees or recipients of such imported goods
shall be considered as importers who shall be liable for the tax on importation.
(b) The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on
the goods, irrespective of the possessor thereof. (as amended by RA 9337)
VAT ON SALE OF SERVICE AND USE OR LEASE OF PROPERTIES

Rate: 12%
Basis: Gross receipts derived from the sale or exchange of services, including the use or lease of
properties.
Gross Receipts: the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the
services and deposits and advanced payments actually or constructively received during the taxable
quarter for the services performed or to be performed for another person, excluding VAT. (Sec.108 (A),
NIRC)
“Constructive receipt” occurs when the money consideration or its equivalent is placed at the control of
the person who rendered the service without restrictions by the payor. Examples:
(1) deposit in banks which are made available to the seller of services without restrictions
(2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller
as payment for services rendered
(3) transfer of the amounts retained by the contractee to the account of the contractor. (RR 16-2005)
REQUISITES FOR TAXABILITY

(1) The service must be performed or is to be performed in the course of trade or business in the
Philippines;
(2) For a valuable consideration actually or constructively received; and
(3) The service is not exempt under the Tax Code, special law or international agreement
(4) Person selling or rendering service is liable to VAT
Lease of Properties:
Subject to the tax imposed irrespective of the place where the contract of lease or licensing
agreement was executed if the property is leased or used in the Philippines.
Meaning of “Sale/Exchange of Services” - the performance of all kind of services in the Philippines
for others for a fee, remuneration or consideration, whether in kind or in cash, including those performed
or rendered by the following: (unless otherwise indicated, from RR 16-2005) (1) Construction and service
contractors
(2) Stock, real estate, commercial, customs and immigration brokers

(3) Lessors of property, whether personal or real
In a lease contract, the advance payment by the lessee may be:
(a) a loan to the lessor from the lessee - NOT subject to VAT
(b) an option money for the property - NOT subject to VAT
(c) a security deposit to insure the faithful performance of certain obligations of the lessee to the lessor
- NOT subject to VAT BUT if the security deposit is applied to rental, it shall be subject to VAT at the
time of its application
(d) Pre-paid rental - subject to VAT when received, irrespective of the accounting
method employed by the lessor
(4) Persons engaged in warehousing services

(5) Lessors or distributors of cinematographic films
(6) Persons engaged in milling, processing, manufacturing or repacking goods for others are subject to
VAT, EXCEPT palay into rice, corn into corn grits, and sugarcane into raw sugar
(7) Proprietors, operators, or keepers of hotels, motels, rest houses, pension houses, inns, resorts,
theaters, and movie houses
(8) Proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers
(9) Dealers in securities
“Gross receipts” means gross selling price less cost of the securities sold. RR 7-95: Pre-need
companies are considered dealers in securities.
(10)Lending investors
All persons OTHER than banks, non-bank financial intermediaries, finance companies and other
financial intermediaries NOT performing quasi-banking functions who make a practice of lending money
for themselves or others at interest
(11)Transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land relative to
their transport of goods or cargoes
(12)Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Philippines
On transportation: All receipts from service, hire, or operating lease of transportation equipment
not subject to the percentage tax on domestic common carriers and keepers of garages shall be
subject to VAT.
Commo Transportin Kind of Tax Liability

n carrier g carrier
By land Persons Domestic 3%
percentage
tax (Sec.
117, NIRC)
Goods/ Domestic 12% VAT
cargo (Sec. 108,
NIRC)
By Domestic Domestic
sea/air Whether trip -
transportin
g 12% VAT
persons or
Internation
goods/
al trip –
cargo
zerorated
VAT
Internation Doing
al business
in
the
Philippines
-
3%
percentage
tax (Sec.
118,
NIRC)
Internation
al trip -
zerorated
VAT (Sec.
108
(B)(6),
NIRC)
(13)Sales of electricity by generation, transmission, and/or distribution companies

(a) EXCEPT sale of power or fuel generated through renewable sources of energy, such as, but not
limited to, biomass, solar, wind hydropower, geothermal, ocean energy, and other emerging energy
sources using technologies such as fuel cells and hydrogen fuels, which shall be subject to 0% rate
of VAT (zero-rated).
(b) The universal charge passed on and collected by distribution companies and electric cooperatives
shall be excluded from the computation of gross receipts.
(14)Franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting
and all other franchise grantees (including PAGCOR and its licensees/franchisees)
(a) EXCEPT franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00) (which shall
be subject to 3% franchise tax under Sec. 119, subject to optional registration), and franchise
grantees of gas and water utilities (under Sec. 109, subject to 2% franchise tax)
(b) With respect to franchise grantees of telephone and telegraph services, amounts received for
overseas dispatch, message, or conversation originating from the Philippines are subject to the
percentage tax under Sec. 120 and hence exempt from VAT
(15)Non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and
(a) Insurance and reinsurance commissions, as opposed to premiums, whether life or nonlife, are
subject to VAT.
(b) Non-life insurance premiums are subject to VAT.
(c) Life insurance premiums are NOT subject to VAT, for they are subject to percentage tax.
(16)Similar services regardless of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties
(17)The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan
secret formula or process, goodwill, trademark, trade brand or other like property or right
(18)The lease of the use of, or the right to use of any industrial, commercial or scientific equipment
(19)The supply of scientific, technical, industrial or commercial knowledge or information
(20)The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling
the application or enjoyment of any such property, or right as is mentioned in #18 or any such
knowledge or information as is mentioned in #19
(21)The supply of services by a nonresident person or his employee in connection with the use of property
or rights belonging to, or the installation or operation of any brand, machinery or other apparatus
purchased from such nonresident person
(22)The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture, project or
scheme
(23)The lease of motion picture films, films, tapes and discs
(24)The lease or the use of or the right to use radio, television, satellite transmission and cable television
time
ZERO-RATED SALE OF SERVICES [Sec. 108 (B), NIRC]
A zero-rated sale by a VAT-registered person is a taxable transaction for VAT purposes, but shall not result
in any output tax.
Input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund. (RR 16-2005)
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency AND accounted for in accordance with the rules and regulations of the
BSP
(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in
business conducted outside the PhilippinesOR a nonresident person not engaged in business who is
outside the Philippines when
the services are performed, the consideration for which is paid for in acceptable foreign currency AND
accounted for in accordance with the rules and regulations of the BSP
The services referring to ‘processing, manufacturing, repacking’ and ‘services other than those in (1)’
both require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND
(iv) that the service recipient is doing business outside the Philippines. If this is not the case, taxpayers
can circumvent just by stipulating payment in foreign currency. (CIR v. Burmeister)
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate (as amended by
RA 9337)
(4) Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof [as amended by RA 9337]; Provided, however,
that the services referred to herein shall not pertain to those made to common carriers by air and sea
relative to their transport of passengers, goods or cargoes from one place in the Phil. to another place
in the Phil. (the same being subject to 12% VAT under Sec. 108)
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing

goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.
(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country (as
added by RA 9337) and;
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels. (as added by RA 9337)
Zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of
energy, and shall not extend to the sale of services related to the maintenance or operation of plants
generating said power.
RR 4-2007 removed the distinction between automatic and effectively zero-rated transactions found in
prior Revenue Regulations (inc. RR 162005) with respect to prior application from the BIR.
VAT EXEMPT TRANSACTIONS

VAT EXEMPT TRANSACTIONS, IN GENERAL
(a) Sale of goods or properties and/or services and the use or lease of properties that is NOT subject to VAT
(output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases.
(b) The person making the exempt sale of goods, properties or services shall not bill any output tax to his
customers. (RR 16-2005)
(c) But, the VAT-registered person may elect that the exemption not apply to its sale of goods or properties
or services; provided that the election made shall be irrevocable for a period of three (3) years from the
quarter the election was made. (Sec. 109(2), NIRC)
EXEMPT TRANSACTION, ENUMERATED

(1) Sale/import of agricultural, marine food products in original state; of livestock and poultry
(a) Original state even if they have undergone the simple processes of preparation or preservation for
the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping.
(b) Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, AND COPRA
shall be considered in their original state
Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals
generally considered as pets. [RR 16-2005]
Original state – including preservation using advanced technological means of packaging, such as
shrink wrapping in plastics, vacuum packing, tetrapack, and other similar packaging methods. [RR 162005]
(2) Sale/ import of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds
(3) Import of personal and household effects of Phil resident returning from abroad and nonresident
citizens coming to resettle in the Philippines
(4) Import of professional instruments and implements, wearing apparel, domestic animals, and personal
household effects belonging to persons coming to settle in the Philippines, for their own use and not for
sale, barter or exchange
(5) Services subject to percentage tax
(6) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and
sugar cane into raw sugar
(7) Medical, dental, hospital and veterinary services except those rendered by professionals:
Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the
sale of drugs and medicine is subject to VAT. [RR 16-2005]
(8) Educational services rendered by private educational institutions, duly accredited by DEPED, CHED,
TESDA, and those rendered by government educational institutions;
“Educational services” does not include seminars, in-service training, review classes and other similar
services rendered by persons who are not accredited by the DepED, CHED, and/or TESDA. [RR 16-
2005]
(9) Services rendered by individuals pursuant to an employer-employee relationship
(10)Services rendered by regional or area headquarters established in the Philippines by multinational

corporations which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines
(11)Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under PD No. 529 [Petroleum
Exploration Concessionaires under the Petroleum Act of 1949]
(12)Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their
members as well as sale of their produce to non-members. Exemption includes importation of direct
farm inputs, machineries and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce.
Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer
of the agricultural products sold is the cooperative itself. If the cooperative is not the producer (e.g.
trader), then only those sales to its members shall be exempted from VAT. [RR 16-2005]
(13)Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with
the Cooperative Development Authority
(14)Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the Cooperative
Development Authority are exempt BUT their importation of machineries and equipment, including
spare parts thereof, to be used by them are SUBJECT to VAT.
(15)Export sales by persons who are not VAT registered
(16)Sale of real properties – the ff. sales are exempt:

(1) Sale of real properties NOT primarily held for sale to customers or held for lease in the ordinary
course of trade or business.
However, even if the real property is not primarily held for sale to customers or held for lease in the
ordinary course of trade or business but the same is used in the trade or business of the seller, the sale
thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business. [RR 4-2007]
(2) Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known as
the "Urban Development and Housing Act of 1992" and other related laws, such as RA No. 7835
and RA No. 8763.
“Low-cost housing" refers to housing projects intended for homeless low-income family beneficiaries,
undertaken by the Government or private developers, which may either be a subdivision or a
condominium registered and licensed by the Housing and Land Use Regulatory Board/Housing
(HLURB) under BP Blg. 220, PD No. 957 or any other similar law, wherein the unit selling price is within
the selling price ceiling per unit of P750,000.00 under RA No. 7279, and other laws, such as RA No.
7835 and RA No. 8763.
(3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other
related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is
P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other
related laws.
"Socialized housing" refers to housing programs and projects covering houses and lots or home lots
only undertaken by the Government or the private sector for the underprivileged and homeless citizens
which shall include sites and services development, long-term financing, liberated terms on interest
payments, and such other benefits in accordance with the provisions of RA No. 7279and RA No. 7835
and RA No. 8763.
"Socialized housing" shall also refer to projects intended for the underprivileged and homeless
wherein the housing package selling price is within the lowest interest rates under the Unified Home
Lending Program (UHLP) or any equivalent housing program of the Government, the private sector or
non-government organizations.
(4) Sale of residential lot valued at P1,919,500 and below, or house & lot and other residential dwellings
valued at P3,199,200 and below
(a) If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of
utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value
of the lots does not exceed P1,919,500. [RR 13-2012]
(b) Adjacent residential lots, although covered by separate titles and/or separate tax declarations, when
sold or disposed to one and the same buyer, whether covered by one or separate Deed of
Conveyance, shall be presumed as a sale of one residential lot. [RR 16-2005]
Sale, transfer or disposal within a 12-month period of 2/more adjacent residential lots, house and
lots or other residential dwellings to one buyer, whether from the same or from different sellers shall
be considered one single transaction. Hence, the sale of the adjacent lots shall be subject to VAT if
the aggregate value exceeds P1,919,500 for residential lots and P3,199,200 for residential house lots
or residential dwellings, notwithstanding that the value of the individual properties do not exceed the
VAT exemption thresholds. Sale/purchase of parking lots shall not be considered a sale of residential
lot/dwelling. Hence, it shall be subject to VAT regardless of its selling price. [RR 13-2012]
(17)Lease of residential units with a monthly rental per unit not exceeding P12,800, regardless of the
amount of aggregate rentals received by the lessor during the year.
Lease of residential units where the monthly rental per unit exceeds P12,800 but the aggregate of
such rentals of the lessor during the year do not exceed One Million Five Hundred Pesos
P1,919,500 shall likewise be exempt from VAT, however, the same shall be subjected to three
percent (3%) percentage tax.
In cases where a lessor has several residential units for lease, some are leased out for a
monthly rental per unit of not exceeding P12,800 while others are leased out for more than
P12,800 per unit, his tax liability will be as follows:
(a) The gross receipts from rentals not exceeding P12,800 per month per unit shall be exempt
from VAT regardless of the aggregate annual gross receipts.
(b) The gross receipts from rentals exceeding P12,800 per month per unit shall be subject to VAT
IF the aggregate annual gross receipts from said units only (not including the gross receipts
from units leased for not more than P12,800 ) exceeds P1,919,500 . Otherwise, the gross
receipts will be subject to the 3% tax imposed under Section 116 of the Tax Code.
The term 'residential units' shall refer to apartments and houses & lots used for residential
purposes, and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories,
rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms.
The term 'unit' shall mean an apartment unit in the case of apartments, house in the case of
residential houses; per person in the case of dormitories, boarding houses and bed spaces; and
per room in case of rooms for rent. [RR 16-2005]
(18)Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid
advertisements;
(19)Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international transport
operations [added by RA 9337];
The exemption from VAT on the importation and local purchase of passenger and/or
cargo vessels shall be limited to those of 150 tons and above, including engine and spare parts of
said vessels;
Provided, further, that the vessels to be imported shall comply with the age limit
requirement, at the time of acquisition counted from the date of the vessel's original
commissioning, as follows:
(i) for passenger and/or cargo vessels, the age limit is 15 years old,
(ii) for tankers, the age limit is 10 years old, and
(iii)for high-speed passenger crafts, the age limit is 5 years old [RR 16-2005]
(20)Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport
operations; [added by RA 9337]
The said fuel, goods and supplies shall be used exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines directly to a foreign port without
stopping at any other port in the Philippines;
If any portion of such fuel, goods or supplies is used for purposes other than that
mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to 12%
VAT starting Feb. 1, 2006. [RR 162005]
(21)Services of banks, non-bank financial intermediaries performing quasi-banking functions and other
non-bank financial intermediaries; and
(22)Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of P1,919,500
For purposes of the threshold of P1, 919,500, the husband and the wife shall be considered
separate taxpayers. However, the aggregation rule for each taxpayer shall apply.
For instance, if a professional, aside from the practice of his profession, also derives
revenue from other lines of business which are otherwise subject to VAT, the same shall be
combined for purposes of determining whether the threshold has been exceeded.
The VAT-exempt sales shall NOT be included in determining the threshold. [RR 16-2005]
INPUT TAX AND OUTPUT TAX, DEFINED

INPUT TAX – the VAT due on or paid by a VATregistered person on importation of goods or local
purchases of goods, properties, or services, including lease or use of properties, in the course of his trade
or business.
(a) It includes the transitional input tax and the presumptive input tax as determined in accordance with
Section 111 of the Code.
(b) It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable
portion of any input tax which cannot be directly attributed to either the taxable or exempt activity.
(c) Input tax must be evidenced by a VAT invoice or official receipt issued by a VAT-registered person in
accordance with Secs. 113 and 237 of the Code.
[RR 16-2005]
OUTPUT TAX – the VAT due on the sale or lease of taxable goods or properties or services by any
person registered or required to register under Section 236
of the Code. (Sec. 110 (A), NIRC)
SOURCES OF INPUT TAX
PURCHASE OR IMPORTATION OF GOODS

(a) For sale; or
(b) For conversion into or intended to form part of a finished product for sale including packaging materials;
or
(c) For use as supplies in the course of business; or (d) For use as materials supplied in the sale of service;
or
(e) For use in trade or business for which deduction for depreciation or amortization is allowed under the
Code.
PRESUMPTIVE INPUT TAX [Sec. 111(B), NIRC]

Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing
refined sugar and cooking oil and packed noodle based instant meals, shall be allowed a presumptive
input tax, creditable against the output tax, equivalent to FOUR PERCENT (4%) of the gross value in
money of their purchases of primary agricultural products which are used as inputs to their production.
TRANSITIONAL INPUT TAX

(a) 2% of the value of the beginning inventory on hand or actual VAT paid on such, goods, materials and
supplies, whichever is HIGHER, which amount shall be creditable against the output tax of VAT-
registered person.
(b) The value allowed for income tax purposes on inventories shall be the basis for the computation of the
2% transitional input tax, EXCLUDING goods that are exempt from VAT under Sec. 109 of the Tax
Code. (RR 16-2005)
(c) A real estate dealer is entitled to claim transitional input VAT based on the value of the entire real
property sold regardless of whether there was in fact actual payment of VAT on the purchase of the
real property. At the time the purchase was made, there was still no VAT imposed. (Fort Bonifacio
Development Corp. v. CIR)
Claiming of input VAT on motor vehicles subject to the ff conditions: (1) Purchase of vehicle must be
substantiated with official receipts and other records; (2) Taxpayer has to prove the direct connection of
the motor vehicle to the business; (3) Only one vehicle for land transport is allowed for the use of an
official/employee with value not exceeding P2.4 million; (4) No depreciation shall be allowed for yachts,
helicopters, airplanes or land vehicles over P2.4 million unless the vehicle is used in the company's
transport operations or lease of transport equipment. [RR 12-2012]
PERSONS WHO CAN AVAIL OF INPUT TAX CREDIT
CREDITABLE INPUT TAX (Sec. 110(A)(2), NIRC) - Input tax on domestic purchase or importation of
goods or properties shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or properties; and
(b) To the importer upon payment of the VAT prior to the release of the goods from the custody of the
Bureau of Customs.
(1) The input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under the Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos (P1,000,000)
(2) However, if the estimated useful life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a shorter period
(c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty
or fee.
TRANSITIONAL TAX [Sec. 111(A), NIRC] Any person liable for VAT or who elects to be a VATregistered
person shall be allowed INPUT TAX in his beginning inventory of goods, materials and supplies
(a) equivalent to TWO PERCENT (2%) of the value of such inventory; OR
(b) the actual VAT paid on such goods, materials and supplies, whichever is HIGHER, which shall be
creditable against the OUTPUT TAX.
PRESUMPTIVE INPUT TAX(Sec. 111(B), NIRC) — Persons or firms engaged in the processing of
sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil and packed noodle based
instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to 4%
of the gross value in money of their purchases of primary agricultural products which are used as inputs to
their production.
"Processing" shall mean pasteurization, canning and activities which through physical or chemical
process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for
special use to which it could not have been put in its original form or condition. [RR 16-05]
DETERMINATION OF OUTPUT/INPUT TAX; VAT PAYABLE; EXCESS INPUT TAX CREDITS
DETERMINATION OF OUTPUT TAX

If at the end of any taxable quarter, the output tax exceeds the input tax, the excess shall be paid by
the VAT-registered person. (Sec. 110(B), NIRC)
DETERMINATION OF INPUT TAX CREDITABLE (Sec. 110 , NIRC)

(a) The sum of the excess input tax carried over from the preceding month or quarter and the input tax
creditable to a VAT-registered person during the taxable month or quarter shall be reduced by the
amount of claim for refund or tax credit for value added tax and other adjustments, such as purchase
returns or allowances and input tax attributable to exempt sale.
(b) The claim for tax credit referred to includes not only those filed with the BIR but also those filed with
other government agencies, such as the Board of Investments the Bureau of Customs.
ALLOCATION OF INPUT TAX ON MIXED TRANSACTIONS – A VAT-registered person who is also

engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions
subject to VAT as follows:
(1) All the input taxes that can be directly attributed to transactions subject to VAT may be recognized
for input tax credit
Input taxes that can be directly attributable to VAT taxable sales of goods and services to the
Government or any of its political subdivisions, instrumentalities or agencies, including GOCCs shall
not be credited against output taxes arising from sales to non-Government entities
(2) If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction, the
input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and ONLY the ratable
portion pertaining to transactions subject to VAT may be recognized for input tax credit.
Illustration: ERA Corporation has the following sales during the month:
Sale to private entities subject to 12% 100,000.00
Sale to private entities subject to 0% 100,000.00
Sale of exempt goods 100,000.00
Sale to gov't. subjected to 5% final VAT 100,000.00

w/holding
Total sales for the month 400,000.00
The following were its input taxes (or passed on by its VAT suppliers):
Input tax on taxable goods (12%) 5,000.0

0
Input tax on zero-rated sales 3,000.0
0
Input tax on sale of exempt goods 2,000.0
0
Input tax on sale to government 4,000.0
0
Input tax on depreciable capital
good not attributable to any
specific activity
(monthly amortization for 60 20,000.
months) 00
Step 1: The creditable input tax for the month shall be computed as follows:
Input tax on sale subject to 12% P5,000.00

Input tax on zero-rated sale 3,000.00
Ratable portion of the input tax not directly attributable to any activity, computed below
Taxable sales Amount of input tax
(0% and 12%) x not directly
Attributable
Total Sales
P200,000.00
P400,000.00 x P20,000.00 = P10,000.00
Total creditable input tax for the month: P18,000.00

(P5,000+P3,000+P10,000)
Step 2: The input tax attributable to sales to government for the month shall be computed as follows:
Input tax on sale to gov't. P4,000.00
Ratable portion of the input tax not directly attributable to any activity, computed as follows:
Taxable sales Amount of input tax
not directly
Total Sales x attributable
P100,000.00
P400,000.00 x P20,000.00 = P5,000.00
Total input tax attributable to sales to government:

P9,000.00 (P4,000 + P5,000)
These amounts are not available for input tax credit but may be recognized as cost or expense.
That is because as far as sales to government are concerned, there is a VAT that is finally withheld (at
5%).
Step 3: The input tax attributable to VAT-exempt sales for the month shall be computed as follows:
Input tax on VAT-exempt sales P2,000.00
Ratable portion of the input tax not directly attributable to any activity, computed below:
VAT-exempt sales Amount of input tax
not directly
Total Sales x attributable
P100,000.00
P400,000.00 x P20,000.00 = P5,000.00
Total input tax attributable:P7,000.00

VAT-exempt sales (P2,000+ P5,000)
These amounts are not available for input tax credit but may be recognized as cost or expense.
DETERMINATION OF THE OUTPUT TAX AND VAT PAYABLE AND COMPUTATION OF VAT
PAYABLE OR EXCESS TAX CREDITS[Sec. 110 (B), NIRC]
How output tax computed: [RR 16-05]
In a sale of goods/properties
GROSS REGULA = OUTP

SELLING X R RATE OF UT
PRICE VAT TAX
For sellers of
services
GROSS REGULAR OUTP
X RATE OF UT
RECEIPTS VAT = TAX
Where VAT erroneously billed
Where the basis for computing the output tax is either the gross selling price/gross receipts, but
the amount of VAT is erroneously billed in the invoice, the total invoice amount shall be presumed to be
comprised of the gross selling price/gross receipts
plus the correct amount of VAT. Hence,
Rate of VAT Output

Total Invoice
X
Amount 100% + rate = Tax
of VAT
Accordingly, the input tax that can be claimed by the buyer shall be the corrected amount of VAT
computed in accordance with the formula prescribed.
VAT payable & excess input tax
(1) If at the end of any taxable month orquarter:

(a) the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person
(b) the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters
(2) Any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded
or applied for a tax credit certificate which may be used in the payment of internal revenue taxes.
SUBSTANTIATION OF INPUT TAX CREDITS
RR 16-2005:
(a) INPUT TAXES must be substantiated and supported by the following documents, and must be reported
in the information returns required to be submitted to the Bureau:
(1) For the importation of goods= Import entry or other equivalent document showing actual payment of
VAT on the imported goods.
(2) For the domestic purchase of goods and properties = Invoice showing the information required under
Secs. 113 (Invoicing and Accounting Requirements for VAT-Registered Persons) and 237 (Issuance
of Receipts or Sales or Commercial Invoices) of the Tax Code.
(3) For the purchase of real property = public instrument i.e., deed of absolute sale, deed of conditional
sale, contract/agreement to sell, etc., together with VAT invoice issued by the seller.
(4) For the purchase of services =official receipt showing the information required under Secs.
113 and 237 of the Tax Code.
A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation
of tax credit only if it shows the information required under Secs. 113 and 237 of the Tax Code.
(b) TRANSITIONAL INPUT TAX shall be supported by an inventory of goods as shown in a detailed list to
be submitted to the BIR.
(c) Input tax on "DEEMED SALE" TRANSACTIONS shall be substantiated with the invoice required.
(d) INPUT TAX FROM PAYMENTS MADE TO NONRESIDENTS (such as for services, rentals and
royalties) shall be supported by a copy of the Monthly Remittance Return of Value Added Tax Withheld
(BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT
due which was withheld by the payor.
(e) ADVANCE VAT ON SUGAR shall be supported by the Payment Order showing payment of the advance
VAT.
REFUND OR TAX CREDIT OF EXCESS INPUT TAX
WHO MAY CLAIM FOR REFUND/APPLY FOR ISSUANCE OF

TAX CREDIT CERTIFICATE (TCC)
(1) Zero-Rated Sales (Sec. 112(A), NIRC)
(a) Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may apply for the
issuance of a tax credit certificate/refund of creditable input tax due or paid attributable to such
sales, EXCEPT transitional input tax, to the extent that such input tax has not been applied against
output tax, within two (2) years after the close of the taxable quarter when the sales were made.
The input tax that may be subject of the claim shall exclude the portion of input tax that has been
applied against the output tax.
(b) The acceptable foreign currency exchange proceeds must have been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) in the case of
zero-rated transactions paid for in acceptable foreign currency and requiring that such be accounted
for in accordance with BSP rules & regulations (Secs. 106(A)(2)(a)(1) and (2), and Sec. 106(A)(2)
(b) and Sec. 108(B)(1) and (2), NIRC).
(c) Where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or
exempt sale of goods of properties or services, and the amount of creditable input tax due or paid
cannot be directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
(d) In the case of a person engaged in the transport of passenger and cargo by air or sea vessels from
the Philippines to a foreign country, the input taxes shall be allocated ratably between his zero-rated
sales and nonzero-rated sales (sales subject to regular rate, subject to final VAT withholding and
VATexempt sales). (RR 16-2005)
The absence of the word “zero-rated” on the invoices and receipts of a taxpayer will result in the
denial of the claim for tax refund. (Eastern Telecommunications Philippines, Inc. v. CIR)
(2) Cancellation of VAT Registration. (Sec. 112 (C), NIRC)

(a) A person whose registration has been cancelled due to retirement from or cessation of business, or
due to changes in or cessation of status under Section 106(C) of the Code may, within two (2) years
from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input
tax which may be used in payment of his other internal revenue taxes.
(b) He shall be entitled to a refund if he has no internal revenue tax liabilities against which the tax
credit certificate may be utilized.
PERIOD TO FILE CLAIM/APPLY FOR ISSUANCE OF TAX CREDIT CERTIFICATE (Sec. 112 (D), NIRC)
In proper cases, the Commissioner of Internal Revenue shall grant a tax credit certificate/refund for
creditable input taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application.
In case of full or partial denial of the claim for tax credit certificate/refund as decided by the Commissioner
of Internal Revenue:
(a) The taxpayer may appeal to the Court of Tax Appeals (CTA) within thirty (30) days from the receipt of
said denial, otherwise the decision shall become final.
(b) If no action on the claim for tax credit certificate/refund has been taken by the Commissioner of Internal
Revenue after the one hundred twenty (120) day period from the date of submission of the application
with complete documents, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120-
day period. [RR 16-2005]
MANNER OF GIVING REFUND

Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized
representative without the necessity of being countersigned by the Chairman, Commission on Audit, the
provisions of the Administrative Code of 1987 notwithstanding: provided that refunds shall be subject to
post audit by the Commission on Audit. (Sec. 112(D), NIRC)
DESTINATION PRINCIPLE OR CROSS-BORDER DOCTRINE

The destination of the goods determines taxation or exemption from tax. Export sales of goods are
subject to zero percent (0%) rate while imports of goods are subject to 12% VAT.
COMPLIANCE REQUIREMENTS
REGISTRATION
Kinds of Registration
In VAT, registration speaks of two (2) kinds, namely:
1. Optional registration
2. Mandatory registration
Optional registration
Persons engaged in trade or business, who sell, barter, exchange, lease goods or properties,
render services, and any person who imports goods but not subject to VAT or otherwise exempt from VAT
have the option or privilege to register and pay VAT.
Any person who is not required to register for VAT under Sec. 236(G) of the Code may elect to
register for VAT by registering with the Revenue District Office that has jurisdiction over the head office of
that person, and by paying the annual registration fee. Any person who elects to register shall not be
entitled to cancel his registration for the next three (3) years. (Sec. 236[H] [1] {21)
For this matter, any person who is VAT-registered and for which he is obligated to pay shall be
referred to as a VAT registered person who shall be assigned only one Taxpayer Identification Number
(TIN).
Mandatory registration
Persons engaged in the course of trade or business, who sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods not otherwise exempt by law are
mandated to register for VAT purposes.
Any person who, in the course of trade or business, sells, barters or exchanges good or properties,
or engages in the sale or exchange of services, shall be liable to register for VAT if:
1. His gross sales or receipts for the past twelve (12) months, other than those that are exempt
under Sec. 109(A) to (U), have exceeded Three million pesos (P3,000,000.00); or
2. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Sec. 109(A) to (U), will exceed Three million pesos
(P3,000,000.00).
Every person who becomes liable to be registered in the preceding paragraph (1) shall register with
the Revenue District Office which has jurisdiction over the head office or branch of that person, and shall
pay the annual registration fee. If he fails to register, he shall be liable to pay VAT as if he were a VAT-
registered person, but without the benefit of input tax credits for the period in which he was not properly
registered. (Sec. 236[G] 11U2J)
Persons mandated to register not otherwise exempt under Sec. 109(A) to (V), namely:
1. Where the annual gross sales or receipts exceeded P3, 000,000.00.
2. Where there are reasonable grounds to believe that the annual gross sales or receipts will
exceed P3, 000,000.00.
3. Persons becoming liable to VAT where the annual gross sales or receipts exceeded P3,
000,000.00
INVOICING REQUIREMENTS
INVOICING REQUIREMENTS IN GENERAL

A VAT-registered person shall issue:
(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of
services.
Only VAT-registered persons are required to print their TIN followed by the word “VAT” in their invoice
or ORs. Said documents shall be considered as a “VAT Invoice” or VAT official receipt. All purchases
covered by invoices/receipts other than VAT Invoice/VAT OR shall not give rise to any input tax.
[RR 16-05]
Information Contained in the VAT Invoice or VAT Official Receipt: (RR 16-2005)
(1) A statement that the seller is a VAT-registered person,followed by his taxpayer's identification number
(TIN);
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that
such amount includes the VAT:
(a) The amount of the tax shall be shown as a separate item in the invoice/receipt;
(b) If the sale is exempt from VAT, the term "VATexempt sale" shall be written or printed prominently
on the invoice or receipt;
(c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be
written or printed prominently on the invoice or receipt;
(d) If the sale involves goods, properties or services some of which are subject to and some of which
are VAT zero-rated or VATexempt, the invoice or receipt shall clearly indicate the breakdown of the
sale price between its taxable, exempt and zero-rated components, and the calculation of the
valueadded tax on each portion of the sale shall be shown on the invoice or receipt. The seller has
the option to issue separate invoices or receipts for the taxable, exempt, and zerorated components
of the sale.
(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the
service; and
(4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer
is made to a VAT-registered person, the name, business style, if any, address and taxpayer
identification number (TIN) of the purchaser, customer or client.
INVOICING AND RECORDING DEEMED SALE TRANSACTIONS

Transaction Invoicing Requirement
Transfer, use or consumption not in the course of

business of goods or properties originally Memorandum entry in the subsidiary sales journal to record
intended for sale or for use in the course of withdrawal of goods for personal use
business
Invoice, at the time of the transaction, which should include

Distribution or transfer to shareholders/investors
all the info prescribed above; data in the invoice shall be
or creditors
duly recorded in the subsidiary sales journal
Invoice, at the time of the transaction, which should include

Consignment of goods if actual sale is not made
all the info prescribed above; data in the invoice shall be
within 60 days
duly recorded in the subsidiary sales journal
An inventory shall be prepared and submitted to the RDO

who has jurisdiction over the taxpayer’s principal place of
business not later than
Retirement from or cessation of business with

30 days after retirement or cessation from business. An
respect to all goods on hand
invoice shall be prepared for the entire inventory, which
shall be the basis of the entry into the subsidiary sales
journal. The invoice need not enumerate the specific items
appearing in the inventory regarding the description of the
goods. If the business is to be continued by the new
owners or successors, the entire amount of output tax on
the amount deemed sold shall be allowed as input taxes.
CONSEQUENCES OF ISSUING ERRONEOUS VAT INVOICE OR VAT OFFICIAL RECEIPT(Sec. 113

(D), NIRC)
Issuance of a VAT Invoice or VAT Receipt by a nonVAT person

- If a person who is not a VAT-registered person issues an invoice or receipt showing his
Taxpayer Identification Number (TIN), followed by the word "VAT", the erroneous issuance shall result to
the ff:
(a) The non-VAT person shall be liable to:

(i) percentage taxes applicable to his transactions;
(ii) VAT due on transactions under Section 106 or 108 of the Code, without the benefit of any input tax
credit; and
(iii)a 50% surcharge under Section 248 (B) of the code;
(c) The VAT shall, if the other requisite information required is shown on the invoice/receipt, be
recognized as an input tax credit to the purchaser.
Issuance of a VAT Invoice or VAT Receipt on an Exempt Transaction by a VAT-registered Person

- If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt
transaction, but fails to display prominently on the invoice or receipt the term "VAT-exempt Sale", the
transaction shall become taxable and the issuer shall be liable to pay VAT thereon. The purchaser shall
be entitled to claim an input tax credit on his purchase. [RR 16-05]
FILING OF RETURN AND PAYMENT VAT RETURNS (Sec. 114, NIRC)

(a) Filed by person liable to pay the VAT
(b) Quarterly return of the amount of his gross sales or receipts within twenty-five (25) days after the close
of each taxable quarter prescribed for each taxpayer.
(c) The monthly VAT Declarations of taxpayers whether large or non-large shall be filed and the taxes paid
not later than the 20th day following the end of each month.
Note: VAT paid on a monthly basis. Payments in the monthly VAT declarations shall be credited in the
quarterly VAT return to arrive at the net VAT payable or excess input tax/over-payment as of the end of a
quarter.
FINAL WITHHOLDING TAX

As a general rule, withholding tax does not apply on transactions subject to VAT. The exceptions are:
(1) Gross payments by the government shall be subject to the 5% final withholding tax;
(2) Gross payments by resident VAT-taxpayers to non-resident foreign persons of rentals, royalties,
reinsurance premiums, and services done in the Philippines—12% (Sec. 114(c), NIRC)
* Beginning Nov. 1, 2005, when R.A. 9337 became effective, all sales of goods, properties, or
services to the government shall be subject to the 5% final withholding tax. The government shall, before
making payment on account of each purchase of goods and/or services taxed at 10% or 12% VAT (Sec.
106 and 108) deduct and withhold a final VAT due at the rate of 5% of the gross payment thereof.
(Mamalateo, Reviewer on Taxation, 2008)
RR 16-2005: ADMINISTRATIVE AND PENAL PROVISIONS.

(a) Suspension of business operations. In addition to other administrative and penal sanctions provided
for in the Tax Code and implementing regulations, the Commissioner of Internal Revenue or his duly
authorized representative may order suspension or closure of a business establishment for a period of
not less than five (5) days for any of the following violations:
(1) Failure to issue receipts and invoices.
(2) Failure to file VAT return as required under the provisions of Sec. 114 of the Tax Code.
(3) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or
receipt for the taxable quarter.
(4) Failure of any person to register as required under the provisions of Sec. 236 of the Tax Code.
(b) Surcharge, interest and other penalties. The interest on unpaid amount of tax, civil penalties and
criminal penalties imposed in Title XI of the Tax Code shall also apply to violations of the provisions of
Title IV of the Tax Code (VAT).
WITHHOLDING OF FINAL VAT ON SALES TO GOVERNMENT [Sec. 114 (C), NIRC]

(a) The Government or any of its political subdivisions, instrumentalities or agencies, including GOCCs
shall, before making payment on account of each purchase of goods and services which are subject to
the VAT (Secs. 106 and 108, NIRC), deduct and withhold a final VAT due at the rate of five percent
(5%) of the gross payment thereof.
(b) The payment for lease or use of properties or property rights to nonresident owners shall be subject to
12% withholding tax at the time of payment.
(1) The payor or person in control of the payment is considered as the withholding agent.
(2) The VAT withheld shall be remitted within ten (10) days following the end of the month the
withholding was made.
[NOTE: This 5% final VAT withheld by the government is an innovation of RA 9337.]
RR 16-2005: The 5% final VAT shall represent the net VAT payable of the seller. The remaining 7%
effectively accounts for the standard input VAT, in lieu of the actual input VAT directly attributable or
ratably apportioned to such sales.
(This means that where the 5% final VAT applies, the basic formula of output tax less input tax does not
apply.)
(1) Should actual input VAT exceed 7% of the gross payments, the excess may form part of the sellers’
expense or cost.
(2) On the other hand, if actual input VAT is less than 7% of gross payment, the difference must be closed
to expense or cost, in effect reducing it.
However, 12% final VAT shall be withheld with respect to the following:
(1) Lease or use of properties or property rights owned by non-residents;

(2) Services rendered to local insurance companies, with respect to reinsurance premiums payable to
non-residents; and;
(3) Other services rendered in the Philippines by nonresidents.
F. PERCENTAGE TAXES: CONCEPT AND NATURE

G. EXCISE TAX: CONCEPT AND NATURE
H. DOCUMENTARY STAMP TAX: CONCEPT AND NATURE
OTHER TAXES
Other Percentage Tax
It refers specifically to the business taxes covered by Title V of the NIRC of 1997, as amended,
payable by any person or entity whose sales of goods or services is not covered by VAT system.
Transactions covered by OPT

1. Sale of goods or services of persons who are exempt from VAT under Section109 (1) (BB) of the
Tax Code and who is not a VAT-registered person and whose gross annual sales or receipts do
not exceed P 3,000,000.00;
2. Other kinds of businesses subject to the percentage taxes under Title V of the NIRC of 1997, as
amended, regardless of whether or not the gross annual receipts exceed p 3,000,000.00, such
as:
a. Domestic carriers by land and keepers of garages (Sec. 117);
b. International carriers (Sec. 118);
c. Franchise grantees (Sec. 119);
d. Overseas dispatch, message or conversation originating from the Philippines (Sec.
120); e. Banks and non-bank financial intermediaries (Sec. 121);
f. Other non-banking financial intermediaries (Sec. 122);
g. Life insurance companies (Sec. 123);
h. Agents of foreign insurance companies (Sec. 124);
i. Proprietors of amusement places (Sec. 125);
j. Winnings (Sec. 126); and
k. Sale, barter or exchange of shares of stock listed and traded through the local stock
exchange or through initial public offerings (Sec. 127) (2 CASASOLA, NIRC, supra p.
936).
Nature of OPT
The nature of OPT is essentially a tax on the transaction and not on the articles sold, 1:.rtered or
exchanged. It is an indirect tax which can be passed on to the buyer (Philippine Acetylene v.
Commissioner of Internal Revenue, G.R. L-19707, August 17, 1967).
What is the tax rate for transactions subject to OPT?

Any person whose sales or receipts are exempt under Section 109(V) of this Code from the
payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three
percent (3%) of his gross quarterly sales or receipts (NIRC, 'Sec. 116).
Who are exempt from payment of OPT?

Cooperatives shall be exempt from the 3% gross receipts tax (NIRC, Sec. 116).
EXCISE TAX
It is a tax levied on a specific article rather than one upon the performance, carrying on, of the
exercise of an activity. Excise tax refers to taxes applicable to certain specified selected goods or articles
manufactured or produced in the Philippines for domestic sale or consumption or any other disposition to
things imported into the Philippines, which tax shall be in addition to the VAT.
Note: In computing the gross selling price, the excise tax shall be included in determining the
amount subject to VAT.
Nature of Excise Tax

Excise tax may be considered tax on production as they are collected only from manufacturers
and producers. Basically, an indirect tax, it is directly levied upon manufacturer or importer upon removal
of the taxable goods from its place of production or from the customs custody. These taxes, however,
may be actually passed on to the end consumer as part of the transfer value or selling price of goods
sold, bartered or exchanged.
Kinds of excise taxes

1. Specific tax— refers to the excise tax imposed which is based on weight or (volume capacity
or any other physical unit of measurement; and
2. Ad valorem tax — refers to the excise tax which is based on selling price or 'other specified
value of the goods (NIRC, Sec. 129).
Summary of Changes in OPT under the TRAIN Law

Topic NIRC TRAIN
Other Percentage Tax
1. Exemption from OPT Cooperatives are exempt from Cooperatives shall be exempt
the 3% gross receipts tax (NIRC, from the 3% gross receipts tax
Sec. 116). (R.A. No. 10963, Sec.. 38).
2. Sale of listed shares Subject to 1/2 of 1% OPT on the Subject to 6/10 of 1% OPT on
gross selling price or the gross the gross selling price or the
value in money of the shares gross value in money of the
sold (NIRC, Sec. 127(A)). shares sold (R.A. No. 10963,
Sec. 39).
DOCUMENTARY STAMP TAX

It is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale, or transfer of an obligation, right or property incident thereto (2 CASASOLA, NIRC,
supra at 1077).
Nature of DST
A DST is in the nature of an excise tax levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal relationships through the
execution of specific instruments such as leases of lands, mortgages, pledges, and trust and
conveyances of real property (Commissioner of Internal Revenue v. Frist Express Pawnshop Co., Inc.,
G.R. Nos. 172045-46, June 16, 2009). Hence, in imposing DST, the Court considers not only the
document but also the nature and character of the transaction (Philippine Banking Corp. v. Commissioner
of Internal Revenue, G.R. No. 170574, January 30, 2009).
Documents Subject to DST

It is applicable on all documents not otherwise expressly exempted notwithstanding the fact that
they are electronic in form.
When DST should be paid

Documentary stamp taxes are levied independently of the legal status of the transactions giving
rise thereto. They must be paid upon the issuance of the said instruments, without regard to whether the
contracts which give rise to them are rescissible, void, voidable, or unenforceable.
Who are liable for DST

The DST is a tax on certain transactions. It is imposed against “the person making, signing,
issuing, accepting, or transferring” the document or facility evidencing the transaction. Thus, in general, it
may be imposed on the transaction itself upon the document underlying such act.
What is the effect of failure to stamp a taxable document?

An instrument, document or paper which is required by law to be stamped and which has signed,
issued, accepted or transferred without being duly stamped, shall not be recorded, nor shall it or any copy
thereof or any record of transfer of the same be admitted or used in evidence in any court until the
requisite stamp or stamps are affixed thereto and cancelled (N/RC, Sec. 201).
No notary public or other office authorized to administer oaths shall add this jurat or
acknowledgment to any document subject to documentary stamp tax unless the proper documentary,
stamps are affixed thereto and cancelled (NIRC, Sec. 201).
Summary of Changes in DST under the TRAIN Law

Topic NIRC TRAIN
Documentary Stamp Tax
1. Documentary All transactions subject to DST shall have 100% increase in
Stamp Tax DST Rates
Except:
1. All debt instruments — 50% increase in DST rate; and
2. Deed of Sale and Conveyances of Real Property
— No increase in DST rate (R.A. No. 10963, Sec.69).
2. Donations of Not subject Subject to DST except the following donations made by a
Real Property to DST Resident or Non-resident not a Citizen of the Philippines:
1. Government
2. Educational and/or charitable, religious, cultural, or
social welfare, corporation, institution, accredited
nongovernment organization, trust or philanthropic
organization or research institution or organization.
UPDATES FROM TRAIN LAW

CHANGES ON EXCISE TAX ON AUTOMOBILES
RA 10963 restructures the tax schedule on the excise tax on automobiles by imposing ad
valorem tax rates that are directly applied to the net manufacturer’s price/Importer s selling price instead
of imposing marginal tax rates, as follows:
OLD TAX SCHEDULE

Net Manufacturer s Price] Importer s Selling
Price Tax Rate
Up to 600,000 2%
Over 600,000 to 1,100,000 12,000 + 20% of value in excess of 600,000
112,000 + 40% of value in excess of
Over 1,100,000 to 2,100,000 1,100,000
512,000 + 60% of value in excess of
Over 2,100,000 2,100,000
NEW TAX SCHEDULE

Net Manufacturer s Price/ Importer s Selling Price Tax Rate
Up to 600,000 4%
Over 600,000 to 1,000,000 10%
Over 1,000,000 to 4,000,000 20%
Over 4,000,000 50%
NOTES:
-Hybrid vehicles or vehicles powered by electric energy in combination with gasoline, diesel or any other
motive power shall be subject to 50% of the applicable excise tax rates on automobiles.
- Purely electric vehicles and pick-up trucks shalt be exempt from excise tax on automobiles.
-Pick-ups shalt be considered as trucks
-The term "jeep" was deleted from the definition of jeep/jeepney/jeepney substitutes which shall now read
as jeepney/jeepney substitutes.
CHANGES ON EXCISE TAX ON PETROLEUM PRODUCTS

RA 10963 increases the tax rates on petroleum products in three (3) tranches beginning January
1, 2018 to January 1, 2020, as follows:
New Tax Rates (per
Petroleum Product Tax Rates (per Liter/kg) Liter/kg)
2018 2019 2020
Lubricating oils and greases P 4.50 P 8.00 P 9.00 P 10.00
Processed gas P 0.05 P 8.00 P 9.00 P 10.00
Waxes and petrolatum P 3.50 P 8.00 P 9.00 P 10.00
Denatured alcohol used for motive power P 0.05 P 8.00 P 9.00 P 10.00
Naphtha and regular gasoline P 4.35 P 7.00 P 9.00 P 10.00
Leaded gasoline P 5.35 N/A N/A N/A
Unleaded gasoline P 4.35 P 7.00 P 9.00 P 10.00
Aviation turbo jet fuel P 3.67 P 4.00 P 4.00 P 4.00
Kerosene P 0.00 P 3.00 P 4.00 P 5.00
Diesel fuel oil P 0.00 P 2.50 P 4.50 P 6.00
Liquefied petroleum gas (LPG) 3 P 0.00 P 1.00 P 2.00 P 3.00
Asphalts P 0.56 P 8.00 P 9.00 P 10.00
Bunker fuel oil P 0.00 P 2.50 P 4.50 P 6.00
Petroleum coke N/A P 2.50 P 4.50 P 6.00
*For the period 2018 to 2020, the scheduled increase in the excise tax on fuel shall be
suspended for 3 months prior to the increase of the month when the average Dubai crude oil price based
on Mean of Platts Singapore (MOPS) reaches or exceeds USS 80 per barrel.
NOTES:
1. Phased out. Deleted under RA 10963.
2. Kerosene is used as aviation fuel. [I is subject to the some tax on aviation turbo jet fuel.
3. RA 10963, when LPG is used as raw material in the production of petrochemical products, the tax
is zero (P0. 00) per kilogram.
4. When petroleum coke is used as feedstock to any power generating facility, the tax is zero
(P0.00) per metric ton.
CHANGES ON EXCISE TAX ON SWEETENED BEVERAGES (NEW)
Tax on sweetened beverages

using purely caloric sweeteners,
6.00 Pesos per liter of volume capacity and purely non-caloric
sweeteners or a mix of caloric
and non-caloric sweeteners
Tax on sweetened beverages

using purely high fructose corn syrup or in combination
12.00 Pesos per liter of volume capacity
with any caloric or non
caloric sweetener
*Sweetened beverages using purely coconut sap sugar and purely steviol glycosides are exempt
from this tax.
Beverages:
- Sweetened Juice
-Sweetened Tea
-Flavored Water
-All Carbonated Drinks Tea
-Energy & Sports Drink
-Cereal & Grain Beverages
-Other Powdered Drink not classified as Milk, Juice Tea & Coffee
-Other non-alcoholic beverages as that contain added sugar
Beverages Excluded:
- All Milk Products including Plain Milk Infant Formula, Powdered Milk, etc.
- Meal Replacement & Medically Indicated Beverages
- Ground Coffee, Instant Soluble Coffee and Pre packaged Powdered Coffee Product
- 100% Natural Vegetable Juices
- 100% Natural Fruit Juices
CHANGES IN OTHER EXCISE TAXES
0N CIGARETTES:
RA 10963 increases the excise tax rates on cigarettes packed by hand and packed by machine, as
follows:
OLD TAX RATES

Per Pack
Tobacco Products Jan. 1, Jan. 1, Jan. 1, Jan. 1, Jan. 1, Jan. 1,
2013 2014 2015 2016 2017 2018
*To be
Cigarettes packed by hand 12.00 15.00 18.00 21.00 30.00 increased
Cigarettes packed by 4% every
machine: year
NRP 11.50 and below 12.00 11.00 21.00 25.00 30.00
thereafter
NRP More than 11.50 25.00 27.00 28.00 29.00 30.00
NEW TAX RATES

Per Pack
Tobacco Products Jan. 1, Jan. 1, Jan. 1,
2018 Jul. 1, 2018 2020 2022 Jan. 1, 2024
Cigarettes packed by hand 32.50 35.00 37.50 40.00 *To be increased

Cigarettes packed by 4% every year
machine: 32.50 35.00 37.50 40.00 thereafter
ON MINERAL PRODUCTS
OLD TAX
RATE
Mineral
Product Per Metric Ton
Coal and coke 10.00
NEW TAX RATE

Mineral Per Metric Ton
Product 2018 2019 2020
Coal and coke 50.00 100.00 150.00
RA 10963 also increases the excise tax rate on other mineral products as follows:
OLD TAX NEW TAX
Mineral Product RATE RATE
All metallic minerals and quarry resources* 2% 4%
Copper and other metallic minerals*
2% 4%
Gold and chromite* 2% 4%
Indigenous petroleum**
3% 6%
*Based on the actual market value of the gloss output at the time of removal in the case of those local y
extracted produced or the value used by the Bureau of Customs In determining tariff and customs duties
net of excise tax and VAT In the case of importation.
**Based on the fair International market price.
CHANGES IN DOCUMENTARY STAMP TAX

RA 10963 increases the DST rates by 100% except the DST on debt instruments (Section 179)
which only increases by 50% and the DST on policies of insurance upon property (Sec. 184), fidelity
bonds and other insurance (Sec. 185), indemnity bonds (Sec. 187), and deeds of sale, conveyances and
donation of real property (Sec. 196) which remained unchanged.
CHANGES IN OTHER TAXES
FOREIGN CURRENCY DEPOSIT UNIT (FCDU)

RA 10963 increases the final tax imposed on interest income derived by an individual (except a
nonresident Individual) and a domestic corporation from a depository bank under the expanded foreign
currency deposit system from 7.5% to 15%. The law, however, retains the 7.5% final tax on such Interest
income of a resident foreign corporation.
CAPITAL GAINS OF NON-TRADED STOCKS
RA 10963 increases the 595-1096 tax rates to a 15% single tax rate on net capital gains realized
by an individual and a domestic corporation from the sale, barter exchange or other disposition of shares
of stock In a domestic corporation that are not traded in the local stock exchange The law however
retains the 596-1096 capital gains tax of a resident foreign corporation and nonresident foreign
corporation.
STOCK TRANSACTIONS TAX (STT)

RA 10963 increases the STT from 0.5% to 0.6% of the gross selling price or gross value In
money of the shares of stock sold, bartered. exchanged, or otherwise disposed through the local stock
exchange.
COSMETIC PROCEDURES
RA 10963 levies a new excise tax equivalent to 5% of gross receipts, net of excise tax and VAT,
derived from performance of services on invasive cosmetic procedures surgeries, and body
enhancements directed solely towards Improving altering or enhancing the patient's appearance.

1. Assessment of internal revenue taxes
a. Procedural due process in tax assessments
i. Letter of authority and tax audit
ii. Informal conference
iii. Preliminary assessment notice
iv. Formal letter of demand and final assessment notice
v. Disputed assessment
vi. Administrative decision on a disputed assessment
vii. Appeal from an administrative decision on disputed assessment
b. Requisites of a valid assessment
c. Tax delinquency and tax deficiency
d. Prescriptive period for assessment
i. General rule
ii. Distinguish: false returns, fraudulent returns, and non-filing of returns
iii. Suspension of statute of limitations
a. Protesting an assessment
i. Period to file protest
ii. Kinds of protest - request for reconsideration or reinvestigation
iii. Submission of supporting documents
iv. Effect of failure to file protest
v. Action of the Commissioner on the protest filed
(a) Period to act upon or decide on protest filed
(b) Remedies of the taxpayer in case of denial or inaction of the
Commissioner
(c) Effect of failure to appeal
b. Recovery of tax erroneously or illegally collected
i. Grounds, requisites, and periods for filing a claim for refund or issuance
of a tax credit certificate
ii. Proper party to file claim for refund or tax credit
iii. Distinguish from input value-added tax refund
c. Power of Commissioner of Internal Revenue to compromise
d. Non-retroactivity of rulings f
3. Government remedies for collection of delinquent taxes
a. Requisites
b. Prescriptive periods; suspension of running of statute of limitations
c. Administrative remedies
i. Tax lien
ii. Distraint and levy
iii. Forfeiture of real property
iv. Suspension of business operation
v. Judicial remedies
d. No injunction rule; exceptions
4. Civil penalties
a. Delinquency interest and deficiency interest
b. Surcharge
c. Compromise penalty
d. Fraud penalty
TAX ADMINISTRATION AND ENFORCEMENT
Agencies Involved in Tax Administration

1. Bureau of Internal Revenue and the Bureau of Customs for internal revenue and customs law
enforcement. It is noteworthy to note that the BIR is largely decentralized in that a great extent
of tax enforcement duties are delegated to the Regional Directors and Revenue District
Officers.
2. Provincial, City and Municipal assessors and treasures for local and real property taxes.
Agents and Deputies for Collection of National Internal Revenue Taxes

Under Sec. 12 of the 1997 NIRC, the following are constituted as agents of the Commissioner:
a. The Commissioner of Customs and his subordinates with respect to the collection of national
internal revenue taxes on imported goods;
b. The head of the appropriate government office and his subordinates with respect to the
collection of energy tax; and
c. Banks duly accredited by the Commissioner with respect to receipt of payments of internal
revenue taxes authorized to be made through banks.
Bureau of Internal Revenue
 Powers and Duties
a. Exclusive and original power to interpret provisions of the NIRC and other tax laws, subject to
review by the
Secretary of Finance;
b. Assessment and Collection of all national internal revenue taxes, fees and charges;
c. Enforcement of all forfeitures, penalties and fines connected therewith;
d. Execution of judgment in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts.
e. Effecting and administering the supervisory and police powers conferred to it by the Tax
Code or other laws.
f. Obtaining information, summoning, examining and taking testimony of persons for purposes
of ascertaining the correctness of any return or in determining the liability of any person for
any internal revenue tax, or in collecting any such liability.
Rule of “No Estoppel Against the Government”
It is a settled rule of law that in the performance of its governmental functions, the state cannot be
estopped by the neglect of its agents and officers. Nowhere is it more true than in the field of taxation
(CIR vs. Abad, et. al., L-19627, June 27, 1968). Estoppel does not apply to preclude the subsequent
findings on taxability
The principle of tax law enforcement is: The Government is not estopped by the mistakes or
errors of its agents; erroneous application and enforcement of law by public officers do not block
the subsequent correct application of statutes (E. Rodriguez, Inc. vs. Collector of Internal Revenue,
L-23041, July 31,1969.)
Similarly, estoppel does not apply to deprive the government of its right to raise defenses even if
those defenses are being raised only for the first time on appeal (CIR vs Procter & Gamble Phil. G.R. No.
66838, 15 April 1988.)
Exceptions:
The Court ruled in Commissioner of Internal Revenue vs.C.A., et. al. G.R. No. 117982, 6 Feb
1997 that like other principles of law, the non-application of estoppel to the government admits of
exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer.
Estoppel against the Taxpayer

While the principle of estoppel may not be invoked against the government, this is not necessarily
true in case of the taxpayer. In CIR vs. Suyac, 104 Phil 819, the taxpayer made several requests for the
reinvestigation of its tax liabilities such that the government, acceding to the taxpayers request,
postponed the collection of its liability. The taxpayer cannot later on be permitted to raise the defense of
prescription inasmuch as his previous requests for reinvestigation have the effect of placing him in
estoppel.
Nature and Kinds of Assessments
An assessment is the official action of an administrative officer determining the amount of

tax due from a taxpayer, or it may be the notice to the effect that the amount therein stated is due
from the taxpayer that the payment of the tax or deficiency stated therein. (Bisaya Land
Transportation Co. vs CIR, 105 Phil 1338) Classifications:
a. Self-assessment- Tax is assessed by the taxpayer himself. The amount is reflected in the tax
return that is filed by him and the tax is paid at the time he files his return. (Sec. 56 [A] {1],
1997 NIRC)
b. Deficiency Assessment- This is an assessment made by the tax assessor whereby the
correct amount of the tax is determined after an examination or investigation is conducted.
The liability is determined and is; therefore, assessed for the following reasons:
1. The amount ascertained exceeds that which is shown as tax by the taxpayer in his
return; 2. No amount is shown in the return or;
3. The taxpayer did not file any return at all. (Sec. 56 [B] ]1] and [2] 1997 NIRC)
c. Illegal and Void Assessments- This is an assessment wherein the tax assessor has no
power to act at all (Victorias Milling vs. CTA, L-24213, 13 Mar
1968)
d. Erroneous Assessment – This is an assessment wherein the assessor has the power to
assess but errs in the exercise of that power (Ibid.)
Principles Governing Tax Assessments

1. Assessments are prima facie presumed correct and made in good faith.
 The taxpayer has the duty of proving otherwise

(Interprovincial Autobus vs. CIR, 98 Phil 290)
 In the absence of any proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. (Sy Po. Vs. CTA, G.R. No 81446, 8 Aug 1988)
 All presumptions are in favor of tax assessments

(Dayrit vs. Cruz, L-39910, 26 Sept. 1988)
 Failure to present proof of error in the assessment will justify judicial affirmation of said
assessments. (CIR vs C.C. G.R. No. 104151 and 105563, 10 Mar 1995)
 A party challenging an appraiser’s finding of value is required to prove not only that the
appraised value is erroneous but also what the proper value is (Caltex vs. C.C. G.R. No.
104781, 10 July 1998)
2. Assessments should not be based on presumptions no matter how logical the presumption might
be. In order to stand the test of judicial scrutiny it must be based on actual facts.
3. Assessment is discretionary on the part of the Commissioner. Mandamus will not lie to compel
him to assess a tax after investigation if he finds no ground to assess. Mandamus to compel the
Commissioner to assess will result in the encroachment on executive functions (Meralco Secuirities
Corp. vs. Savellano, L-36181 and L-36748, 23 Oct 1992).
Except: The BIR Commissioner may be compelled to assess by mandamus if in the exercise of his
discretion there is evidence of arbitrariness and grave abuse of discretion as to go beyond statutory
authority (Maceda vs. Macaraig, G.R. No. 8829, 8 June 1993).
4. The authority vested in the Commissioner to assess taxes may be delegated. An assessment
signed by an employee for and in behalf of the Commissioner of Internal Revenue is valid. However,
it is settled that the power to make final assessments cannot be delegated. The person to whom a
duty is delegated cannot lawfully delegate that duty to another. (City Lumber vs. Domingo, L-18611,
30 Jan 1964).
5. Assessments must be directed to the right party. Hence, if for example, the taxpayer being
assessed is an estate of a decedent, the administrator should be the party to whom the assessment
should be sent (Republic vs. dela Rama, L-21108, 29 Nov. 1966), and not the heirs of the decedent
Means Employed in the Assessment of Taxes

A. Examination of Returns: Confidentiality Rule
Although Sec. 71 of the 1997 NIRC provides that tax returns shall constitute public records, it is
necessary to know that these are confidential in nature and may not be inquired into in unauthorized
cases under pain of penalty of law provided for in Sec 270 of the 1997 NIRC.
The aforesaid rule, however, is subject to certain exceptions. In the following cases, inquiry into
the income tax returns of taxpayers may be authorized:
1. When the inspection of the return is authorized upon the written order of the President of the
Philippines.
2. When inspection is authorized under the Finance Regulation No. 33 of the Secretary of
Finance.
3. When the production of the tax return is material evidence in a criminal case wherein the
Government is interested in the result. (Cu Unjieng, et. al. vs. Posadas, etc, 58 Phil 360)
4. When the production or inspection thereof is authorized by the taxpayer himself (Vera vs Cusi
L33115, 29 June 1979).
B. Assessment Based on the Best Evidence Obtainable

The law authorizes the Commissioner to assess taxes on the basis of the best evidence
obtainable in the following cases:
1. if a person fails to file a return or other document at the time prescribed by law; or
2. He willfully or otherwise files a false or fraudulent return or other document.
When the method is used, the Commissioner makes or amends the return from his knowledge
and from such information as he can obtain through testimony or otherwise. Assessments made as such
are deemed prima facie correct and sufficient for all legal purposes. (Sec. 6 [B], 1997 NIRC)
Best Evidence Obtainable refers to any data, record, papers, documents, or any evidence
gathered by internal revenue officers from government offices or agencies, corporations, employers,
clients or patients, tenants, lessees, vendees and from all other sources, with whom the taxpayer had
previous transactions or from whom he received any income, after ascertaining that a report required by
law as basis for the assessment of any internal revenue tax has not been filed or when there is reason to
believe that any such report is false, incomplete or erroneous.
C. Inventory-Taking, Surveillance and Presumptive Gross Sales and Receipts

The Commissioner is authorized at any time during the taxable year to order the inventory-taking
of goods of any taxpayer as a basis for assessment.
If there is reason to believe that a person is not declaring his correct income, sales or receipts for
internal revenue tax purposes, his business operation may be placed under observation or surveillance.
The finding made in the surveillance may be used as a basis for assessing the taxes for the other months
or quarters of the same or different taxable years. (Sec. 6 [C], 1997 NIRC)
D. Termination of Taxable Period

The Commissioner shall declare the tax period of a taxpayer terminated at any time when it shall
come to his knowledge:
a. That the taxpayer is retiring from business subject to tax;

b. That he intends to leave the Philippines or remove his property therefrom;
c. That the taxpayer hides or conceals his property; or
d. That he performs any act tending to obstruct the proceedings for the collection of the tax for
the past or current quarter or year or to render the same totally or partly ineffective unless
such proceedings are begun immediately.
The written decision to terminate the tax period shall be accompanied with a request for the
immediate payment of the tax for the period so declared terminated and the tax for the preceding year or
quarter, or such portion thereof as may be unpaid. Said taxes shall be due and payable immediately and
shall be subject to all the penalties prescribed unless paid within the time fixed in the demand made by
the Commissioner (Sec. 6 [d], 1997 NIRC)
E. Fixing of Real Property Values
For purposes of computing any internal revenue tax, the value of the property shall be whichever
is the higher of : (1) the fair market value as determined by the Commissioner; or (2) the fair market value
as shown in the schedule of values of the Provincial and City Assessors for real tax purposes (Sec 6 [E],
1997 NIRC).
F. Inquiry into Bank Deposits
Examination of bank deposits enables the Commissioner to assess the correct tax liabilities of
taxpayers. However, bank deposits are confidential under R.A. 1405. Notwithstanding any contrary
provisions of R.A. 1405 and other general or special laws, the Commissioner is authorized to inquire into
the bank deposits of;
1. a decedent to determine his gross estate; and
2. any taxpayer who has filed an application for compromise of his tax liability under Sec. 204 (A)
(@) of the Tax Code by reason of his financial incapacity to pay his tax liability. In this case,
the application for compromise shall not be considered unless and until he waives in writing
his privilege under R.A. 1405, or under other general or special laws, and such waiver shall
constitute the authority of the Commissioner to inquire into bank deposits of the taxpayer
(Sec. 6[F], 1997 NIRC).
Net Worth Method in Investigation
The basis of using the Net Worth Method of investigation is Revenue Memorandum Circular
No. 43-72. This method of investigation, otherwise known as “inventory method of income tax verification”
is a very effective method of determining taxable income and deficiency income tax due from a taxpayer.
The method is an extension of the basic accounting principle: assets minus liabilities equals net
worth. The taxpayer’s net worth is determined both at the beginning and at the end of the same taxable
year. The increase or decrease in net worth is adjusted by adding all non-deductible items and
subtracting therefrom nontaxable receipts. The theory is that the unexplained increase in net worth of a
taxpayer is presumed to be derived from taxable sources.
1. ASSESSMENT OF INTERNAL REVENUE TAXES

 The term assessment refers to the determination of amounts due from a person
obligated to make payments. In the context of national internal revenue
collection, it refers to the determination of the taxes due from a taxpayer.
 It is an official action of an administrative officer in determining the amount of tax

due from a taxpayer, or it may be a notice to the effect that the amount therein
stated is due from a taxpayer as a tax, with a demand for payment of the tax or
any deficiency stated therein.
A. Procedural due process in tax assessment
1. Letter of Authority
 LOA must be served within 30 days from the date of issuance, otherwise, it
shall become null and void. The LOA shall be issued to a Revenue Officer
by the:
o Commissioner or his authorized representative after a return has
been filed or
o Revenue Regional Director of all audit cases within his regional
jurisdiction except:
 Cases involving civil or criminal tax fraud falling under the
jurisdiction of the Tax Fraud Division of the Enforcement of
Service; or
 Policy cases under the audit by Special Teams in the
National Office.
 RO shall conduct his audit:
o Within 120 days from the date of issuance and service of the LOA.
RO shall conduct his audit and submit his report of investigation.
o If the final report is not completed within the 120-day period, a
progress report must be submitted to the head of the audit office.
o If the RO finds:
 No deficiency, audit ends.
 Any deficiency, he will inform he taxpayer and writes in his
report whether the taxpayer is amenable with his findings. If
the taxpayer is:
 a. Amenable with his findings, the taxpayer pays the
tax;
 b. Not amenable with his findings, the RO shall state
in his audit report that the taxpayer does not agree
with his findings. Such report is submitted to the
Revenue District Officer or the Special Investigation
Division (in case of Revenue Regional Office) or to
the Chief of Division (in case of the BIR National
Office) for review (R.M.O. No. 36-99).
 Before a delegated revenue officer can conduct said examination or
assessment, there must be a clear grant of authority. This grant is embodied
in a Letter of Authority (CIR V. SONY PHILIPPINES, INC., GR. No. 17897,
November 17,2010)
 A LOA is the authority given to the appropriate revenue officer to examine
the books of account and other accounting records of the taxpayer in order to
determine the taxpayer's correct internal revenue liabilities and for the
purpose of collecting the correct amount of tax (Commissioner of Internal
Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 &
198941, November 9, 2016).
 The assessment by tax examiners are presumed correct and made in good
faith. The taxpayer has the duty to prove otherwise. (SY PO V. CTA, GR. No.
81446, August 18,1998)
2. Informal Conference
 The Revenue Officer who audited the taxpayer's records shall, among
others, state in his report whether or not the taxpayer agrees with his findings
that the taxpayer is liable for deficiency tax or taxes.
 If the taxpayer is not amenable, based on the said Officer's submitted report
of investigation, the taxpayer shall be informed, in writing, by the Revenue
District Office or by the Special Investigation Division, as the case may be (in
the case Revenue Regional Offices) or by the Chief of Division concerned (in
the case of the BIR National Office) of the discrepancy or discrepancies in
the taxpayer's payment of his internal revenue taxes, for the purpose of
"Informal Conference," in order to afford the taxpayer with an opportunity to
present his side of the case.
 On October 19, 2001, respondent sent a Notice for Informal Conference

which was received by the petitioner in November 2001; indicating the
allegedly income and withholding tax liabilities of petitioner for 1997 to 1999.
Attached to the letter is a summary of the report, with an explanation of the
findings of the investigators. (SAMAR-1 ELECTRONIC COOPERATIVE V.
CIR, GR. No. 193100, December 10,2014)
 A petition for review assailing the November 4, 2013 decision and the August
1, 2014 Resolution of the Court of Appeals En Banc in CTA EB Case No.
905. The CTA En Banc affirmed the February 16, 2012 Decision and the May
8, 2012 Resolution of the CTA First Division in CTA Case No. 7853 which
granted the petition for review filed by Philippine Daily Inquirer, Inc., (PDI)
and cancelled the Formal Letter of Denial dated March 11,2008 and
Assessment No. LN# 116-AS-0400-0038 issued by the Bureau of Internal
Revenue(BIR) for deficiency Value Added Tax(VAT) and income tax for the
taxable year 2004.(CIR V. PHILIPPINE DAILY INQUIRER, INC., GR. No.
213943, March 22,2017)
3. Preliminary Assessment Notice
 If after review and evaluation by the Assessment Division or by the

Commissioner or his duly authorized representative, as the case may be, it is
determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by
registered mail, a Preliminary Assessment Notice (PAN) for the proposed
assessment, showing in detail, the facts and the law, rules and regulations,
or jurisprudence on which the proposed assessment is based.
 If the taxpayer fails to respond within fifteen (15) days from date of receipt of
the PAN, he shall be considered in default, in which case, a formal letter of
demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive
of the applicable penalties.
 Estoppel applies against a taxpayer who did not only raise at the earliest
opportunity its representative’s lack of authority to execute two (2) waivers of
defense of prescription, but was also accorded, through these waivers, more
time to comply with the audit requirements of the Bureau of Internal
Revenue. A tax assessment served beyond the extended period is void. (CIR
V. TRANSITIONS OPTICAL PHILIPPINES, INC., GR. No. 227544,
November 22, 2017)
 Tax Assessment issued in violation of the due process rights of a taxpayer

are null and void. While the government has an interest in the swift collection
of taxes, the Bureau of Internal Revenue and its officers and agents cannot
be overreacting in their efforts, but must perform their duties in accordance
with the law, with their own rules of procedure, and always with regard to the
basic beliefs of due process. (CIR V. AVON PRODUCTS
MANUFACTURING, INC, GR. Nos. 201398-99, October 3,2018; (AVON
PRODUCTS MANUFACTURING IN., V. CIR, GR. Nos. 201418-19, October
3, 2018)
Exceptions to Prior Notice of the Assessment. — The notice for informal conference and the
preliminary assessment notice shall not be required in any of the following cases, in which case,
issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability
shall be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the
taxpayer; or
(ii) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt persons.
4. Formal Letter of Demand and Final Assessment Notice
 The formal letter of demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer's deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and
assessment notice shall be void.
 The same shall be sent to the taxpayer only by registered mail or by personal
delivery. If sent by personal delivery, the taxpayer or his duly authorized
representative shall acknowledge receipt thereof in the duplicate copy of the
letter of demand, showing the following:
o (a) His name;
o (b) signature;
o (c) designation and authority to act for and in behalf of the taxpayer,
if acknowledged received by a person other than the taxpayer
himself; and
o (d) date of receipt thereof.
 Notices may be served in the following modes:

1. Personal Service (delivery known to address)
2. Substituted service (leaving notice with someone at taxpayer’s address)
3. Service by mail
5. Disputed Assessment
 It is when the taxpayer indicates its protest against the delinquent

assessment of the Revenue Officer for reconsideration, through a letter. After
the request is filed and received by the BIR, the assessment becomes a
disputed assessment (CIR v. Isabela Cultural Corp., G.R. No. 135210, July
11, 2001).
 Section 7 of RA 9282 expressly provides that the CTA exercises exclusive
appellate jurisdiction to review by appeal decisions of the CIR in cases
involving disputed assessments. (ALLIED BANKING CORPORATION V.
CIR, GR. No. 175097, Feb. 5,2010)
 Whether or not the Final Assessment Notice issued against respondent is

valid assessment under Section 228 of the National Revenue Code and
Revenue Regulations No.12-99. (CIR V. FITNESS BY DESIGN, INC., GR.
No. 215957, November 9,2016)
6. Administrative Decision on a Disputed Assessment
 Liquigaz is a duly organized corporation and existing under Philippine Laws.

On July 11,2006, it received a copy of Letter of Authority (LOA) No. 0067824,
dated July 4, 2006, issued by the Commissioner of Internal Revenue(CIR),
authorizing the investigation of all internal revenue taxes for taxable year
2005. (CIR V. LIQUIGAZ PHILIPPINES CORPORATION, GR. No. 215534,
April 18, 2016; LIQUIGAZ PHILIPPINES CORPORATION V. CIR, GR. No.
215557, April 18, 2016)
7. Appeal from an Administrative Decision on Disputed Assessment
 The Court of appeals held that the petition filed by PSALM with DOJ was
really a protest against the assessment of deficiency VAT, which under
Section 204 of the NIRC of 1997 is within the authority of the Commissioner
of Internal Revenue(CIR) to resolve. (POWER SECTOR ASSETS AND
LIABILITIES MANAGEMENT CORPORATION V. CIR, GR. No.198146,
August 8,2017
 Petition for Review on Certiorari assailing the CTA decision dated May 11,
2004 and Resolution dated on September 22,2004. (LG ELECTRONICS
PHILIPPINES, INC. V. CIR, GR. No. 165451, December 3,2014)
ASSESSMENT AND COLLECTION
Letter of Authority
The letter of authority is an official document that empowers a Revenue Officer to examine and
scrutinize a taxpayer’s books of accounts and other accounting records, in order to determine the
taxpayer’s correct internal revenue tax liabilities
WHO ISSUES LOA:

o CIR – for those units reporting directly under him
o Regional Directors – for taxpayers covered by his particular region. If the CIR has already issued an LA
to investigate a particular taxpayer, the Regional Director shall desist from issuing another LA for the
same taxpayer.
WHERE NO LETTER OF AUTHORITY NEEDED:

- Cases involving civil/criminal tax fraud which fall under the jurisdiction of the tax fraud division of the
enforcement services, and
- policy cases under audit by the special teams in national offices
PRE-ASSESSMENT STAGE
STEP 1: Notice of Informal Conference
- - 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
- - If, after the culmination of an audit, a Revenue Officer recommends the imposition of
deficiency tax assessments, this recommendation is communicated by the Bureau to the taxpayer
concerned during an informal conference called for this purpose, the taxpayer shall have 15 days from
receipt of the notice of informal conference to explain his side.
STEP 2: Informal Conference

MATTERS TAKEN UP:
1. Discussion on the merits of the assessment
2. Attempt of taxpayer to convince the examiner to conduct a re-investigation and or re-examination
3. Evaluate if the submission of the waiver of the SOL is necessary – evaluation may extend beyond 3
years
4. Taxpayer to advise the examiner if position paper
JEOPARDY ASSESSMENT:
a tax assessment made by an authorized revenue officer without the benefit of a complete or
partial audit if the officer believes that the assessment and collection will be jeopardized by the delay
caused by the taxpayer’s failure to:
a. comply with audit and investigation requirements to present his books of accounts and or pertinent
records
b. substantiate all or any of the deductions, exemptions or credits claimed in his return.
- it is usually when statutory prescriptive periods for the assessment or collection of taxes are about to
lapse due to taxpayer’s fault.
STEP 3: Issuance of Pre-Assessment Notice (PAN)

- - Communication issued by the Regional Assessment Division or any other concerned BIR
office, informing a taxpayer who has been audited of the findings of the Revenue Officer, following the
review of these findings. The assessment shall be in writing, and should inform the taxpayer of the law
and the facts on which the assessment is made; otherwise, the assessment is void.
- - If the taxpayer disagrees with the findings in the PAN, he has 15 days to file a written reply
contesting the proposed assessment.
FORMAL ASSESSMENT STAGE

Notice of Assessment is a formal letter of demand where a declaration of deficiency taxes is
issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time,
or whose reply to the PAN was found to be without merit. This is commonly known as the Final
Assessment Notice. An assessment contains not only a computation of under declaration of taxable
sales, receipts or income, OR a substantial overstatement of deductions
- - Failure to report sales, receipts, or income in an amount exceeding 30% of that declared per return,
and a claim of deductions exceeding 30% of actual deductions constitute substantial under declaration or
over declaration.
- - The state cannot be estopped by the neglect of its agents and officers. The rule of estoppel cannot be
invoked by the taxpayer in order to preclude the collection of taxes that is rightfully due the government.
B. REQUISITES OF A VALID ASSESSMENT
 For a public purpose
 Rule of taxation should be uniform
 The person or property is within jurisdiction of the taxing authority
 The tax must not infringe on the inherent and constitutional limitations of the
power of taxation
C. TAX DELINQUENCY AND TAX DEFICIENCY
1. Tax Delinquency
 arises upon the failure of the taxpayer to pay the tax due as demanded by the
CIR in a formal letter of demand issued after an assessment and audit. It is only
upon such failure that a taxpayer is considered delinquent, and thus, should be
liable for delinquency interest.
2. Tax Deficiency
 it pertains to the amount of tax short of the full tax due that should be paid to the
government.
D. PRESCRIPTIVE PERIOD FOR ASSESSMENT
 Internal revenue taxes shall be assessed within three (3) years after the last day
prescribed by law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of
such period:
1. GENERAL RULE: Provided, that in a case where a return is filed beyond the period
prescribed by law, the three (3) year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by
law for the filing thereof shall be considered as filed on such last day.
EXCEPTION TO THE THREE (3) YEAR PERIOD: Where a false or fraudulent

return with intention to evade taxes, the prescriptive period shall be within ten (10)
years from date of discovery of the falsity of the fraud; or, where there is a failure to
file a return, at any time within ten (10) years after the discovery of the omission of
the return.
2. DISTINGUISH: FALSE RETURNS, FRAUDULENTS RETURNS, AND NON-FILING

OF RETURNS
What is false returns?
 implies deviation from the truth, whether intentional or not.
What is fraudulent returns?
 mean that there is an intention or deceitful entry with intent to evade the taxes
due.
What is Non-filing of returns?
 pertains to situations where the taxpayer did not file a return which is required to
be filed with the BIR.
3. SUSPENSION OF STATUTE OF LIMITATIONS
 For the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty
(60) days thereafter;
 When the taxpayer requests for a reinvestigation which is granted by the

Commissioner;
 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; except if the taxpayer
informs the Commissioner of any change in address;
 When the warrant of distraint or levy is duly served upon the taxpayer, his
authorized representative, or a member or his household with sufficient
discretion, and no property could be located; and,
 When the taxpayer is out of the Philippines.
2. TAXPAYER’S REMEDIES
A. Protesting an Assessment
 Petitioner received the PAN on May 18,2004 and filed a protest against it on May
27,2004. The BIR wrote a Formal Letter of Demand with Assessment Notices to
petitioner that the deficiency tax be paid immediately. (ALLIED BANKING
CORPORATION V. CIR, GR. No. 175097, Feb 5,2010
1. Period to File Protest
 Taxpayers may file a protest within sixty (60) days from the receipt of the
assessment notice. Otherwise, the assessment becomes final and executory. If,
the protest is DENIED, the taxpayer’s remedy is to elevate the case to the
appropriate courts.
2. Kinds of Protest (REQUEST FOR RECONSIDERATION OR REINVESTIGATION)
a. Request for Reconsideration
 refers to a plea of re-evaluation of an assessment on the basis of existing

records without need of additional evidence and it may involve both a question of
fact or of law or both.
b. Request for Reinvestigation
 refers to a plea of re-evaluation of an assessment on the basis of newly

discovered or additional evidence that a taxpayer intends to present in the
reinvestigation and it may also involve a question of fact or of law or both.
3. Submission of Supporting Documents
 The term "relevant supporting documents" refer to those documents necessary to

support the legal and factual bases in disputing a tax assessment as determined
by the taxpayer. The sixty (60)-day period for the submission of all relevant
supporting documents shall not apply to requests for reconsideration. For
requests for reinvestigation, the taxpayer shall submit all relevant supporting
documents in support of his protest within sixty (60) days from date of filing of his
letter of protest, otherwise, the assessment shall become final.
4. Effect of Failure to File Protest
 If the taxpayer fails to file a valid protest against the FLD/FAN within thirty (30)
days from date of receipt thereof, the assessment shall become final, executory
and demandable. No request for reconsideration or reinvestigation shall be
granted on tax assessments that have already become final, executory and
demandable.
5. Action of the Commissioner on the Protest Filed
 The SC held that the revenue regulation to which the CIR anchored its contention
is invalid. Section 228 of the NIRC provides that a taxpayer has two remedies if
the CIR failed to act on his protest within the 180-day period. (LASCONA LAND
CO, INC. V. CIR, GR. No. 171251, March 5,2012)
a. Period to Act Upon or Decide on Protest Filed
 180-day period from filing of the protest to the duly authorized representative
within which to decide. Thereafter, the protest shall be elevated to the CTA
within 30 days from the receipt of the decision.
 Whether or not PAGCOR’S Charter (P.D. 1869 as amended) is deemed repealed

or amended because of RA 9337. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION V. BIR, CIR AND REGIONAL DIRECTOR, REVENUE
REGION NO. 6, GR. No. 208731, January 27, 2106)
a. Remedies of the Taxpayer in case of Denial or Inaction of the

Commissioner
 In case of denial, the remedy is to appeal to the CTA(division)
 The Commissioner of Internal Revenue (CIR) issued an assessment

against LASCONA LAND CO., INC. informing the latter of its alleged
deficiency income tax for the year 1993 in the amount of Php
753,266.56. (LASCONA LAND CO, INC. V. CIR, GR. No. 171251,
March 5,2012)
b. Effect of Failure to Appeal
 The Court held that the right to collect has indeed prescribed since
there was no proof that the request for investigation was in fact
granted/acted upon by the CIR. Thus, the period to collect was never
suspended. (CIR V. HAMBRECHT AND QUIST, GR. No. 169225,
November 17,2010)
B. Recovery of Tax Erroneously or Illegally Collected
 Requirements for recovery of tax erroneously or illegally collected:
 A written claim for refund or tax credit must be filed by the taxpayer
with the Commissioner;
 The claim for refund must be a categorical demand for

reimbursement;
 The claim for refund or tax credit must be filed, or the suit or
proceeding therefor must be commenced in court within two (2)
years from date of payment of the tax or penalty regardless of any
supervening cause.
1. Grounds, Requisites and Periods for Filing a Claim for Refund or

Issuance of a Tax Credit Certificate
 RMC No. 17-2018 salient provisions
2. Proper Party to File Claim for Refund or Tax Credit
 The right of a withholding agent to claim a refund of erroneously or

illegally withheld taxes comes with the responsibility to return the
same to the principal taxpayer. (CIR V. SMART COMMUNICATION,
INC, GR. Nos. 179045-46, August 25,2010)
3. Distinguish from Input Value-Added Tax Refund
 Whether or not the CTA En Banc correctly ordered the outright

dismissal of CE Luzon’s claim for tax refund of unutilized input VAT
on the ground of prematurity. (CE LUZON GEOTHERMAL POWER
COMPANY, INC. V. CIR, GR No. 197526, July 26,2017;
REPUBLIC OF THE PHILIPPINES V. CE LUZON GEOTHERMAL
POWER COMPANY, INC. GR. Nos. 1999676-77, July 26,2017)
 SP claimed tax refund for issuance of TCC relating to its

excess/unutilized input valued-added tax (VAT) for the last three
quarters of 2001.Due to continuous inaction by the CIR on its claims
amounting to 25 million pesos, SP filed a petition for review before
the CTA Div. (SILICON PHILIPPINES, INC. (FORMERLY INTEL
PHILIPPINES MANUFACTURING, INC.) V. CIR, GR. No. 173241,
March 25,2015)
C. Power of Commissioner of Internal Revenue to Compromise
 The Commissioner may:
 Compromise the payment of any internal revenue tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists;
or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum
amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent
(10%) of the basic assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the
basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the
settlement offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.
 Abate or cancel a tax liability, when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the
amount due.
All criminal violations may be compromised except: (a) those already filed in court, or (b)
those involving fraud.
D. Non-retroactivity of Rulings
 RR No. 6-2018
 Whether or not Benguet’s sale of gold to the Central Bank during the period
when such was classified by the BIR issuances as zero rated could be taxed
validly at a 10% rate after the consummation of the transactions involved.
(CIR V. BENGUET CORPORATION, GR. Nos. 134587-88, Jan. 8,2005)
3. GOVERNMENT REMEDIES FOR COLLECTION OF DELINQUENT TAXES

 By distraint of goods, chattels, or effects, and other personal property of whatever character,
including stocks and other securities, debts, credits, bank accounts and interest in and rights
to personal property, and by levy upon real property and interest in rights to real property; and
 By civil or criminal action
a. Requisites:
- When collection may prejudice / jeopardize the interests of the government and the
taxpayer or when taxpayer is willing to deposit the amount claimed or to file a surety bond
for no more than double the amount to be fixed by the court – taxpayer’s motion for
suspension must be verified and must state clearly and distinctly the facts and the
grounds relied upon
b. Prescriptive Periods, Suspension of Running of Statute of Limitations
1. Prescriptive period for appeal -Thirty (30) days. Non-extendible
2. Prescriptive period for appeal to the CTA En Banc of the decision of the
CTA division - Fifteen (15) days from receipt of the CTA decision / ruling on
the MR or MNT
3. Prescriptive period for appeal to the CTA En Banc of the decision of the
CBAA or RTC exercising its appellate jurisdiction - Thirty (30) days from
receipt of the decision or ruling of the CBAA or R TC
4. Prescriptive period for appeal to the SC- Fifteen (15) days from receipt of
the decision or ruling of the CTA En Banc.
Suspension of Running of Statute of Limitations.
 The running of the Statute of Limitations provided in Sections 203 and 222 on the making
of assessment and the beginning of distraint or levy a proceeding in court for collection,
in respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint or levy or
a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; 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: Provided, that, if the taxpayer informs the Commissioner of any change in
address, the running of the Statute of Limitations will not be suspended; 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 when the taxpayer is out of the Philippines
c. Administrative Remedies
 Distraint of Personal Property
 Levy of Real Property
 Forfeiture
 Enforcement of Tax Lien
 Entering into a Compromise of Tax Cases
 Giving Informer’s Reward
 Arrest, Search and Seizure
 Power of the Commissioner to Obtain Information
 Power of the Commissioner to Make Assessments, etc
 Inspection of Books of Accounts

 Filing of Bonds
 Imposition of Statutory Offenses and Penalties
 Requiring of Proof of Filing Income Tax Returns
 Deportation of Aliens
1. Tax Lien - Local taxes, fees, charges and other revenues constitute a lien, superior
to all liens, charges or encumbrances in favor of any person, enforceable by
appropriate administrative or judicial action, not only upon any property or rights
therein which may be subject to the lien but also upon property used in business,
occupation, practice of profession or calling, or exercise of privilege with respect to
which the lien is imposed. The lien may only be extinguished upon full payment of the
delinquent local taxes fees and charges including related surcharges and interest.
2. Distraint and Levy
2.1 Process for the distraint of personal property
1. Seizure- Upon failure of the person owing any local tax, fee, or charge to
pay the same at the time required, the local treasurer or his deputy may,
upon written notice, seize or confiscate any personal property belonging
to that person or personal property subject to the lien in sufficient
quantity to satisfy the outstanding tax, fee, or charge, together with any
increment thereto incident to delinquency and the expenses of seizure.
2. Accounting of distrained goods – The officer executing the distraint

shall make or cause to be made an account of the goods, chattels or
effects distrained, a copy of which signed by himself shall be left either
with the owner or person from whose possession the goods, chattels or
effects are taken, or at the dwelling or place or business of that person
and with someone of suitable age and discretion, to which list shall be
added a statement of the sum demanded and a note of the time and
place of sale.
3. Publication - The officer shall cause a notification to be exhibited in not

less than three (3) public and conspicuous places in the territory of the
LGU where the distraint is made, specifying the time and place of sale,
and the articles distrained. The time of sale shall not be less than twenty
(20) days after the notice and the publication or posting of the notice.
One place for the posting of the notice shall be at the office of the chief
executive of the local government unit in which the property is distrained
4. Release of distrained property upon payment prior to sale - If at any

time prior to the consummation of the sale, all the proper charges are
paid to the officer conducting the sale, the goods or effects distrained
shall be restored to the owner.
5. Procedure of sale - At the time and place fixed in the notice, the officer
conducting the sale shall sell the goods or effects at public auction to the
highest bidder for cash. Within five (5) days after the sale, the local
treasurer shall make a report of the proceedings in writing to the local
chief executive concerned.
2.2 Process for the levy of real property
 After expiration of the time required to pay the delinquent tax, fee, or
charge, real property may be levied on before, simultaneously, or after
the distraint of personal property belonging to the delinquent taxpayer.
 To this end, a duly authenticated certificate showing the name of the

taxpayer, the amount of the delinquency due and the property upon
which levy is being made shall be prepared.
3. Forfeiture of Real Property

- The forfeiture of chattels and removable fixtures of any sort shall be enforced by the
seizure and sale, or destruction, of the specific forfeited property. The forfeiture of real
property shall be enforced by a judgment of condemnation and sale in a legal action
or proceeding, civil or criminal, as the case may require.
 Forfeiture proceedings are proceedings in rem. They are directed on the

property subject of the forfeiture.
 Like in customs, the defense of lack of knowledge that the vessel, motor
vehicle or the aircraft has been used for smuggling or the vessel, motor
vehicle or aircraft has been used to bring in untaxed items is not a valid
defense in forfeiture proceedings. That is a defense available in a criminal
action that may be separately instituted against the owner of the vessel,
motor vehicle or the aircraft.
 The purpose of forfeiture is to take control and custody of the seized items in
favor of the state
 Once the state has custody and control over the seized items, the personal
property may either be sold or destroyed. In case of real property, they will
be sold.
 In forfeiture proceedings, all the proceeds will go to the government. Nothing

will be returned to the taxpayer or the owner of the seized items or
properties.
 There is no such thing as to apply the proceeds to the delinquency. That is

only done in case there is a prior assessment and the assessment has
become final
 In forfeiture, there is a violation made and the item is seized.
4. Suspension of Business Operation
 The CTA held that it has jurisdiction over a denial of a taxpayer’s protest to
the five-day VCN. The CTA stressed that its jurisdiction is not limited to
decisions of the CIR on assessments or refunds. (CIR AND PERFECTO L.
ARANAS, REGIONAL DIRECTOR OF REVENUE REGION NO. 19,
DAVAO CITY V. ELRIC AUXILIARY SERVICES CORPORATION/SACRED
HEART GAS STATION, CTA EB NO.1174, March 3, 2016)
5. Judicial Remedies
 Civil Action
 Criminal Action
d. No Injunction; Exceptions:
- Injunction Not Available to Restrain Collection of Tax – 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 this Code.
 Courts have no authority to grant any injunction to restrain the collection of taxes
 Perhaps by way of exception or under meritorious cases (no example given )
 But the general rule is NO COURT SHALL ISSUE ANY INJUNCTION TO RESTRAIN
THE COLLECTION OF TAXES on the basis of the principle that taxes are the lifeblood of the
government.
4. CIVIL PENALTIES
 RMC No. 21-2018

 RA 7642, December 28,1992
A. Delinquency Interest and Deficiency Interest
 Deficiency Interest – Any deficiency in the tax due shall be subject to the interest
prescribed in Subsection (A) hereof. The rate shall be double the legal interest rate or
at twelve percent (12%) starting 1 January 2018. The interest shall be imposed on
any deficiency in the tax due.
 Delinquency Interest – In case of failure to pay:
a. The amount of the tax due on any return required to be filed, or
b. The amount of the tax due for which no return is required, or
c. A deficiency tax, or any surcharge or interest thereon on the due date appearing in
the notice and demand of the Commissioner.
B. Surcharge
 In addition to the tax required to be paid, the penalty of surcharge shall be imposed in the
following instances:
Twenty-five percent (25%) of the amount due:
1. Failure to file any return and pay the tax due thereon as required under the provisions of
the NIRC or rules and regulations on the date prescribed; or
2. Unless otherwise authorized by the Commissioner, filing a return with an internal revenue
officer other than those with whom the return is required to be filed; or
3. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
4. Failure to pay the full or part of the amount of tax shown on any return required to be filed
under the provisions of the NIRC or rules or regulations, or the full amount of tax due for
which no return is required to be filed, on or before the date prescribed for its payment.
 Fifty percent (50%) of the amount due:
1. There is willful neglect to file the return within the period prescribed by the NIRC; or
2. Willful filing of a false or fraudulent return.
Note: that substantial under declaration of taxable sales or income or substantial overstatement
of deductions shall constitute prima facie evidence of a false or fraudulent return. Failure to report
sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return
and a claim of deductions in an amount exceeding thirty percent (30%) of the actual deductions
shall render the taxpayer liable for substantial under declaration of sales, receipts, or income or
for overstatement of deductions.
C. Compromise Penalty
 These are amounts collected by the BIR in lieu of criminal prosecution for violations
committed by taxpayers, the payment of which is based on a compromise agreement validly
entered into between the taxpayer and the Commissioner.
D. Fraud Penalty
 On December 16,2010, respondent Asalus Corporation(Asalus) received a Notice of Informal

Conference from Revenue District Office No. 47 of the Bureau of Internal Revenue (BIR). It
was in connection with the investigation conducted by Revenue Officer Fidel M. Banares II on
the valued-added tax transactions of Asalus for the taxable year 2007. Asalus filed its Letter-
Reply, dated December 29, 2010, questioning the basis of Banares computation for its VAT
liability. (CIR V. ASALUS CORPORATION, GR. No. 221590, February 22, 2017)
 Whether or not L.M. CAMUS ENGINEERING CORPORATION and its corporate officers may
be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful
Failure to Supply Correct and Accurate Information and Pay Tax). (CIR V. HON. RAUL M.
GONZALEZ, Secretary of Justice, L. M. CAMUS ENGINEERING CORPORATION, GR.
No. 177279, October 13, 2010)
III. LOCAL TAXATION

A. LOCAL GOVERNMENT TAXATION
2. Nature and source of taxing power
a. Grant of local taxing power under the Local Government Code
b. Authority to prescribe penalties for tax violations
c. Authority to grant local tax exemptions
d. Withdrawal of exemptions
e. Authority to adjust local tax rates
f. Residual taxing power of local governments
3. Scope of taxing power
4. Specific taxing power of local government units
5. Common revenue raising powers
6. Community tax
7. Common limitations on the taxing powers of local government units
8. Requirements for a valid tax ordinance
a. Protest
b. Refund
c. Action before the Secretary of Justice
10. Assessment and collection of local taxes
a. Remedies of local government units
b. Prescriptive period
Basic Principles (UEPIP)
 Taxation shall be Uniform in each local government unit;

 Taxes, fees, charges and other impositions shall: (EPUC)
o be Equitable and based as far as practicable on the taxpayer's ability to pay;
o be levied and collected only for Public purposes;
o not be Unjust, excessive, oppressive, or confiscatory;
o not be Contrary to law, public policy, national economic policy, or in the restraint of
trade;
 The collection of local taxes, fees, charges and other impositions shall not be let to any Private
person;
 The revenue collected shall Inure solely to the benefit of, the local government unit levying the
tax, fee, charge or other imposition unless otherwise specifically provided herein; and,
 Each local government unit shall, as far as practicable, evolve a Progressive system of
 taxation. (SEC. 130, LGC)
Nature and Source of Taxing Power
1. Grant of local taxing power under the Local Government Code

(a) Each LGU shall exercise its power to
(1) create its own sources of revenue
(2) levy taxes, fees, and charges.
(a) Both are subject to the provisions in the LGC and consistent with local autonomy
(b) Taxes, fees and charges levied accrue exclusively to the local government units. (Sec. 129, LGC)
2. Authority to prescribe penalties for tax violations

The sanggunian may impose:
(1) a surcharge not exceeding twenty-five percent (25%) of the amount of taxes, fees or charges not
paid on time and
(2) an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or
charges including surcharges, until such amount is fully paid but in no case shall the total interest
on the unpaid amount or portion thereof exceed thirty-six (36) months.
(Sec. 168, LGC)
3. Authority to grant local tax exemptions

LGUs may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such
terms and conditions as they may deem necessary. (Sec. 192, LGC)
4. Withdrawal of exemptions
Unless otherwise provided, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or judicial, including government-owned or controlled corporations, except
local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and education institutions, are withdrawn upon the effectivity of the Code.
(Sec. 193, LGC)
5. Authority to adjust local tax rates

LGUs shall have the authority to adjust the tax rates as prescribed not oftener than once every five
(5) years, but in no case shall the adjustment exceed ten percent (10%) of the rates fixed by the
Code. (Sec. 191, LGC)
6. Residual taxing power of local governments

LGU may exercise the power to levy taxes or charges on ANY base or subject
Required:
- Not otherwise specifically enumerated in the LGC or taxed under NIRC or other applicable laws
- Not unjust, excessive, oppressive, confiscatory or contrary to declared national policy
- Pursuant to an ordinance enacted with public hearing conducted for the purpose. (Sec. 186,
LGC)
7. Authority to issue local tax ordinances

The power to impose a tax, fee, or charge, or to generate revenue under this Code shall be exercised
by the sanggunian of the local government unit concerned through an appropriate ordinance. (Sec.
132, LGC)
Local Taxing Authority
 Power to create revenues exercised thru LGUs

(a) Each LGU shall exercise its power to create its power to create its own sources of revenue and to
levy taxes, fees and charges. (Sec. 128, LGC)
(b) Exercised by the Sanggunian concerned through an appropriate ordinance. (Sec. 132, LGC)
(c) Ordinances may be vetoed by local chief executives of the LGUs, except the Punong Barangay, on
the ground that it is ultra vires or prejudicial to public welfare. His reasons shall be stated in writing.
(Sec. 55 (a) and (b), LGC)
 Procedure for approval and effectivity of tax ordinances

(1) A public hearing must be conducted prior to the enactment of a tax ordinance. (Sec. 187, LGC)
Within ten (10) days after the approval of the ordinance, certified true copies of all tax
Scope of the taxing power of LGUs
1. Each local government unit shall exercise its power to create its own sources of revenue and to
levy taxes, fees, and charges, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall exclusively accrue to it (Sec. 129, LGC).
2. All local government units are granted general powers to levy taxes, fees or charges on any base
or subject not otherwise specifically enumerated herein or taxed under the provisions of the NIRC,
as amended, or other applicable laws. The levy must not be unjust, excessive, oppressive,
confiscatory or contrary to a declared national economic policy (Sec. 186, LGC).
3. No such taxes, fees or charges shall be imposed without a public hearing having been held prior
to the enactment of the ordinance (Sec. 187, LGC).
4. Copies of the provincial, city, and municipal tax ordinances or revenue measures shall be
published in full for three consecutive days in a newspaper of local circulation or posted in at least
two conspicuous and publicly accessible places (Sec. 188, LGC).
Specific Taxing Power of Local Government Units
 Taxing powers of provinces
Taxes, fees and charges which a province or a city may levy

1. Tax on transfer of real property ownership (Sec. 135, LGC)
2. Tax on business of printing and publication (Sec. 136, LGC)
3. Franchise Tax (Sec. 137, LGC)
4. Tax on sand, gravel and other quarry resources (Sec. 138, LGC)
5. Professional tax (Sec. 139, LGC)
6. Amusement tax (Sec. 140, LGC)
7. Annual fixed tax for every delivery truck or van of manufacturers or producers, wholesalers of,
dealers, or retailer in certain products (Sec. 141, LGC)
8. Annual ad valorem tax on real property such as land, building, machinery, and other improvement
not specifically exempted at the rate not exceeding 1% of the assessed value of the real property
(Sec. 232, LGC)
9. Special levies on real property
10. Toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry, or
telecommunication system funded and constructed by the provincial government (Sec. 155, LGC)
11. Reasonable fees and charges for services rendered
(Sec. 153, LGC)
12. Charges for the operation of public utilities owned, operated, and maintained by the provincial
government (Sec. 154, LGC)
13. Slaughter fees, corral fees, market fees, charges for holding benefits
14. Tuition fees from the operation of the provincial high school, except in the public elementary
grades
15. Those that are allowed under the common taxing powers of the local government in addition to
the above enumeration.
Tax on transfer of real property ownership is due from:
It is due from the seller of the property. However, if the buyer is a foreign government, no such tax is due.
The word “franchise” in the phrase “tax on business enjoying a franchise under Sec. 137 of the Local
Government Code:
-The Congress defined it in the sense of a secondary or special franchise. It is not levied on the
corporation simply for existing as a corporation, upon its property or income, but on its exercise of the
rights or privileges granted to it by the government.
To be liable for local franchise tax, the following requisites should concur:
1. That one has a "franchise" in the sense of a secondary or special franchise; and
2. That it is exercising its rights or privileges under this franchise within the territory of the
pertinent local government unit.
There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA granted
CASURECO III a franchise to operate an electric light and power service for a period of fifty (50) years
from June 6, 1979, and it is undisputed that CASURECO III operates within Iriga City and the Rinconada
area. It is, therefore, liable to pay franchise tax notwithstanding its non-profit nature (City of Iriga v.
Camarines Sur III Electric Cooperative Inc. G.R. No. 192945, September 5, 2012).
Professionals who are subject to professional tax:
They are those who have passed the bar examinations, or any board or examinations conducted by
the Professional Regulation Commission (PRC).
NOTE! E.g. A lawyer who is also a Certified Public Accountant (CPA) must pay for professional tax
imposed on lawyer and that fixed for CPAs, if he is to practice both professions.
NOTE! Municipalities cannot impose professional tax since such power is reserved only to provinces and
cities.
 The province does not have authority to impose taxes on sand, gravel and other quarry
resources extracted on private lands.
 A province is not expressly authorized to do so. Such tax is a tax upon the performance,
carrying on, or exercises of an activity, hence an excise tax upon an activity already being taxed
under the NIRC (Province of Bulacan, et. al., v. CA, G.R.No. 126232, November 27, 1998).
Amusement and amusement places as defined under the LGC:
1. Amusement is a pleasurable diversion and entertainment. It is synonymous to relaxation,

avocation, pastime, or fun;
2. Amusement places include theaters, cinemas, concert halls, circuses and other places of
amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performances (Sec. 131[b] and [c], LGC).
The following are the amusement places upon which provinces or cities cannot impose
amusement taxes: (CoCaNBoPJaR)
1. Cockpits
2. Cabarets
3. Night or day clubs
4. Boxing exhibitions
5. Professional basketball games
6. Jai-Alai
7. Racetracks
NOTE! There can be no imposition of amusement taxes on the above amusement places since the NIRC
already imposes amusement taxes on them under Section 125 thereof.
 LGUs cannot collect amusement taxes on admission tickets to the Philippine Basketball
Association (PBA) games
 Professional basketball games are within the ambit of national taxation as it is presently being
taxed under the provisions of the NIRC. Furthermore, the income from cession of streamers and
advertising spaces is subject to amusement taxes under the NIRC because the definition under
the Tax Code is broad enough to include the cession of streamers and advertising spaces as the
same includes all the receipts of the proprietor, lessee or operator of the amusement place
(Philippine Basketball Association v. CA, G.R. No. 119122, Aug. 8, 2000).
 A golf course cannot be considered a place of amusement therefore beyond the power of
LGU to impose amusement tax
Section 42 of the Revised Omnibus Tax Ordinance, as amended, imposing amusement tax on golf
courses is null and void as it is beyond the authority of respondent Cebu City to enact under the Local
Government Code. A golf course cannot be considered a place of amusement. People do not enter a golf
course to see or view a show or performance. Proprietor or operators of the golf course, do not actively
display, stage, or present a show or performance. People go to a golf course to engage themselves in a
physical sport activity.
 A local government unit may exercise its residual power to tax when there is neither a grant
nor a prohibition by statute; or when such taxes, fees, or charges are not otherwise
specifically enumerated in the Local Government Code, NIRC, as amended, or other
applicable laws. In the present case, Section 140, in relation to Section 131(c), of the LGC
already explicitly and clearly cover amusement tax and respondent Cebu City must exercise
its authority to impose amusement tax within the limitations and guidelines as set forth in said
statutory provisions (Alta Vista Golf and Country Club v. The City of Cebu, G.R. No. 180235,
January 20, 2016).
Taxing Powers of Cities
Scope of the taxing power of a city
 The city, may levy the taxes, fees, and charges which the province or municipality may
impose, except as otherwise provided in the LGC. Those levied and collected by highly
urbanized and independent component cities shall accrue to them and distributed in
accordance with the provisions of LGC (Sec. 151, LGC).
NOTE! The rates of taxes that the city may levy may exceed the maximum rates allowed for the province
or municipality by not more than fifty percent (50%) except the rates of professional and amusement
taxes (Ibid.).
 Cities have the broadest taxing powers, embracing both specific and general powers as
provinces and municipalities may impose.
Under the LGC, there are three types of cities, Component Cities, Independent Component Cities and
Highly Urbanized Cities. ICCs and HUCs are independent of the province (Sec. 451-452, LGC). This
means that taxes, fees and charges levied and collected by ICCs and HUCs accrue solely to them (Sec.
151, LGC).
Specific limitations on the taxing power of cities
 Following Section 151, a city may impose a franchise tax of up to 0.75% of a business’ gross
annual receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.
 In the same manner, since a municipality may impose a business tax at a rate not exceeding
"two percent of gross sales or receipts" under section 143, a city may impose a business tax
of up to 0.03 (or 3%) of a business’ gross sales or receipts of the preceding calendar year
(May exceed by not more than 50% means it may impose up to 50% more than what a
province or municipality could impose).
CEPALCO also erred when it equates Section 137’s "gross annual receipts" with Ordinance No.
9503-2005’s "annual rental income." Section 2 of Ordinance No. 9503- 2005 imposes "a tax on the lease
or rental of electric and/or telecommunication posts, poles or towers by pole owners to other pole users at
the rate of ten percent (10 %) of the annual rental income derived therefrom," and not on CEPALCO’s
gross annual receipts. Thus, although the tax rate of 10% is definitely higher than that imposable by cities
as franchise or business tax, the tax base of annual rental income of "electric and/or telecommunication
posts, poles or towers by pole owners to other pole users" is definitely smaller than that used by cities in
the computation of franchise or business tax. In effect, Ordinance No. 9503-2005 wants a slice of a
smaller pie.
Except as otherwise provided, a city shall not levy the taxes and other impositions enumerated under
the common limitations on the taxing powers of local governments, which exceptions refer to:
1. Tax that may be levied by cities on the transfer of real property ownership; and
2. Wharfage on wharves constructed and maintained by the city
Section 143(h) states that "on any business subject to x x x value-added x x x tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or
receipts of the preceding calendar year" from the lease of goods or properties. Hence, the 10% tax rate
imposed by Ordinance No. 9503-2005 clearly violates Section 143(h) of the Local Government Code
(Cagayan Electric Power and Light Co., Inc. v. City of Cagayan de Oro, G.R. No. 191761, November 14,
2012).
Taxing Powers of Municipalities
Scope of the taxing power of a municipality:
 Municipalities may levy taxes, fees, and charges not otherwise levied by provinces, except as
otherwise provided in the LGC (Sec. 142, LGC).
Under the LGC, Municipality may impose the following taxes:
1. Tax on business (Sec. 143, LGC)
2. Fees and charges on business and occupation (Sec. 147, LGC)
3. Fees for sealing and licensing of weights and measures (Sec. 148, LGC)
4. Fishery rentals, fees and charges (Sec. 149, LGC).
 Under Section 143 of the Local Government Code, the businesses upon which municipalities may
impose business taxes are: [ManWhoRE-COP-B]
1. On Manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and

compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of
whatever kind or nature
2. On Wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature
3. On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or

retailers of Essential commodities such as:
a. Rice and corn
b. Wheat or cassava flour, meat, dairy products, locally manufactured, processed or

preserved food, sugar, salt and other agricultural, marine and fresh water products,
whether in their original state or not
c. Cooking oil and cooking gas
d. Laundry soap, detergents, and medicine
e. Agricultural implements, equipment and post- harvest facilities, fertilizers, pesticides,

insecticides, herbicides, and other farm inputs
f. Poultry feeds and other animal feeds
g. School supplies
h. Cement
4. On Retailers;
NOTE! Retailers who are at the same time wholsalers within the same tax period shall be taxed on both
activities but may avail of the concession or the reduced tax.
5. On Contractors;
6. Banks and other financial institutions;
NOTE! Bank income NOT subject to local taxation:
a. Interest earned under the expanded foreign currency deposit system
b. Interest accumulated by lending institutions on mortgages insured under Home Financing Act
(R.A. No. 480), as amended
c. Receipts form filing fees, service, and other administrative charges
7. Peddlers;
8. Other business not specified which the sanggunian concerned may deem proper to tax.
Definition of terms:
1. Wholesale - A sale where the purchaser buys or imports the commodities for resale to persons
other than the end user regardless of the quantity of the transaction.
2. Dealers - One whose business is to buy and sell merchandise, goods, and chattels as a
merchant. He stands immediately between the producer or manufacturer and the consumer and
depends for his profit not upon the labor he bestows upon his commodities but upon the skill and
foresight with.
3. Retail - A sale where the purchaser buys the commodity for his own consumption, irrespective of
the quantity of the commodity sold.
4. Contractor - Includes persons, natural or juridical, not subject to professional tax under Section
139 of the Code, whose activity consists essentially of the sale of all kinds of services for a fee,
regardless of whether or not the performance of the service calls for the exercise of the use of the
physical or mental faculties of such contractor or his employees.
5. Peddler - Any person who, either for himself or on commission, travels from place to place and
sells his goods or offers to sell and deliver the same (Sec. 131[t], LGC).
 Conditions to which other businesses not specified may the sanggunian concerned deem proper
to tax under Sec. 143 (h)
1. Business not subject to Vat or percentage tax under the NIRC; and
2. Tax rate not to exceed 2% of the gross sales/receipts of the preceding calendar year.
NOTE! “When a municipality or city has already imposed a business tax on manufacturers, etc. of liquors,
distilled spirits, wines, and any other article of commerce pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers, etc. to a business tax under section
143(h) of the same Code. Section 143(h) may be imposed only on businesses that are subject to excise
tax, VAT, or percentage tax under the NIRC, and that are not otherwise specified in preceding
paragraphs” (City of Manila v. Coca-Cola Bottlers Phils. Inc., G.R. No. 181845, August 4, 2009).
Common limitations on the Taxing Powers of Local Government Units
The fundamental law did not intent the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the Local government units are being
strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not
over-burdened or saddled with multiple and unreasonable impositions; (b) Each local government unit will
have its fair share of available resources; (c) The resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.
While the power to tax by local governments may be exercised by local legislative bodies, no
longer merely be virtue of a valid delegation as before, but pursuant to direct authority conferred by sec. 5
Art.X of the constitution, the basic doctrine on local taxation remains essentially the same, “the power to
tax is still primary vested in the Congress.
The exercise of the taxing powers of the provinces, cities, municipalities, and barangays shall not
extend to the levy of the following;
 Income tax, except when levied on banks and other financial institutions:
 Documentary stamp tax;
 Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
 Customs duties, registration fees of vessel and wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharf age on wharves constructed and maintained by
the local government unit concerned;
 Taxes, fees and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for wharves,
tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such
goods or merchandise;
 Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
 Taxes on business enterprises certified to by the Board of Investments as pioneer of a period of
six and four years, respectively from the date of registration;
 Excise taxes on articles enumerated under the National Internal Revenue Code, as amended,
and taxes fees or charges on petroleum products;
 Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
 Taxes on the gross receipts of transportation of passengers or freight by hire and common
carriers by air, land water, except as provided in this code;
 Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;
 Taxes fees or other charges on the Philippine products actually exported, except as otherwise
provided herein;
 Taxes, fees or charge of any kind on the National Government, its agencies and instrumentalities,
and local government units. (sec.133, LGC)
In Palma Development Corporation v. Municipality of Malangas Zamboanga Del Sur (413 SCRA
573 [2003]), it was held that by express language of Secs. 153 and 155 of RA prescribe the terms
and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf
funded and construct by them. A service fee imposed on vehicles using municipal roads leading to
the wharf is thus valid. However, sec. 133(e) or RA 7160 prohibits the imposition, in the guise of
wharf age, of fees as well as all other taxes or charges in any from whatsoever on good merchandise.
It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because
any other form of imposition on goods passing through the territorial jurisdiction of the municipality is
clearly prohibited by sec. 133(e).
Under Sec. 131 (y) of RA 7160, wharfege is defined as “a fee assessed against the cargo of a
vessel engaged in foreign or domestic trade based on quantity, weight, or measure received and/or
discharged by vessel.”
Common Revenue-Raising Powers
1. Service Fees and Charge
Local government units may impose and collect such reasonable fees and charges for
services rendered. (Sec.153, LGC)
2. Public Utility Charges
Local government units may fix the rates for the operation of public utilities owned, operated
and maintained by them within their jurisdiction. (Sec.154, LGC)
3. Toll Fees or Charges
The Sanggunian concerned may prescribe the terms and conditions and fix the rates for
the imposition of toll fees or charges for the use of any public road , pier, waterway, bridge,
ferry or telecommunication system funded and constructed by the local government unit
concerned: Provided that no such toll fees or charges shall be collected from the officers and
enlisted men of the Armed Forces of the Philippines and members of the Philippine National
Police on mission, post office personnel delivering mail, physically-handicapped, and disable
citizens who are 65 years old or older. When public safety so requires, the sanggunian
concerned may discontinue the collection of the tolls, and thereafter the said facility shall be
free and open for public use.(Sec.155 LGC)
Community Tax
Cities or municipalities may levy a community tax. (Sec.156, LGC
Persons Liable
1. Individuals
Every inhabitant of the Philippines eighteen (18) years of age or over who has been:
a. Regularly employed on a wage or salary basis for at least thirty (30) consecutive working days
during any calendar year; or
b. Engaged in business or occupation;
c. Owns real property with an aggregate assessed value of one thousand pesos (P1,000.00) or
more; or
d. Required by law to file an income tax return.
The foregoing are required to pay an annual community tax of five pesos (P5.00) and an annual
additional tax of one peso (PI.00) for every one thousand pesos (P1,000.00) of income regardless of
whether from business, exercise of profession or from property which in no case shall exceed five
thousand pesos (P5,000.00). In the case of husband and wife, the additional tax herein imposed shall be
based upon the total property owned by them and the total gross receipts or earnings derived by them.
(Sec. 157, LGC)
2. Juridical Persons
Every corporation no matter how created or organized:
1. Domestic Corporation
2. Resident foreign, engaged in or doing business in the Philippines
These two (2) corporations are required to pay an annual community tax of five hundred pesos
(P500.00) and an annual additional tax, which, in no case, shall exceed ten thousand pesos (P10,000.00)
in accordance with the following schedule:
1. For every five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it
during the preceding year based on the valuation used for the payment of the real property tax under
existing laws, found in the assessment rolls of the city or municipality where the real property is situated -
two pesos (P2.00); and
2. For every five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its
business in the Philippines during the preceding year - two pesos (P2.00). The dividends received by a
corporation from another corporation however shall, for the purpose of the additional tax, be considered
as part of the gross receipts or earnings of said corporation. (Sec. 158, LGC)
The following are exempt from the community tax:

1. Diplomatic and consular representatives; and
2. Transient visitors when their stay in the Philippines does not exceed three (3) months. (Sec.
159, LGC)
Place of Payment
The community tax shall be paid in:
1. The place of residence of the individual; or
2. In the place where the principal office of the juridical entity is located. (Sec. 160, LGC)
Local Tax Ordinance: Requirements

1. Satisfy the requirements of procedural and substantive due process;
2. Public hearing is required with quorum, voting and approval and/or veto requirements complied with;
3. Publication of ordinance within 10 days from approval for 3 consecutive days in a newspaper of general
circulation and/or posting in at least 2 conspicuous and publicly accessible places.
Taxpayer’s remedies
As a general precept, a taxpayer may file a complaint assailing the validity of the ordinance and
praying for a refund of its perceived overpayments without first filling a protest to the payment of taxes
due under the ordinance.
 Local taxes, fees, or charges shall be assessed within five (5) years from the date they become
due. No action for the collection of such taxes, fees, or charges, whether administrative or
judicial, shall be instituted after the expiration of such period.
 In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be
assessed within ten (10) years from discovery of the fraud of intent to evade payment.
 Local taxes, fees, or charges may be collected within (5) years from the date of assessment by
administrative or judicial action. No such action shall be instituted after the expiration of said
period.
Protest of assessment
When the local treasurer or his duly authorized representative finds that correct taxes, fees, or
charges have not been paid. He shall;
1. Issue a notice of assessment stating the nature of the tax, fee or charge, the amount of
deficiency, the surcharges, interests and penalties.
2. Within sixty (60) days from the receipt of the notice of assessment, the taxpayers may be
file a written protest with the local treasurer contesting the assessment otherwise, the
assessment shall become final and executor. [NOTE: it must be a payment under protest]
3. The local treasurer shall decide the protest within 60 days from the time of filling. If the
local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice
cancelling wholly or partially the assessment. However, if the local treasurer finds the
assessment to be wholly or partly correct, he shall deny the protest wholly or partly with
notice to the taxpayer.
4. The taxpayer shall have 30 days from the receipt of the denial of the protest or from the
lapse of the 60 day period prescribed herein within which to appeal with the court of
competent jurisdiction otherwise the assessment becomes conclusive and unappeasable.
(sec.195 LGC)
Payment under Protest
1. No protest shall be entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words “paid under protest.” The protest in writing must
be filed within 30 days from payment of the tax to the provincial, city treasurer, in the
case of a municipality within Metropolitan Manila Area, who shall decide the protest within
60 days from the receipt.
2. The tax or a portion thereof paid under protest shall be held in trust by the treasurer
concerned.
3. In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax credit against his existing or future tax liability.
4. In the event that the protest is denied or upon the lapse of 60 day period prescribed in
subparagraph 1, the taxpayer may avail of the remedies as provided for in Chapter 3 Title
II of the LGC. (sec. 252, LGC)
Remedy when Payment under Protest is denied
In case of denial of the protest of lapse of the 60 day period within which the local treasurer
should decide the protest, any owner or the personal having legal interest in the property who is not
satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may
within 60 days from the date of receipt of the written notice of assessment, appeal to the Board of
Assessment appeals of the province or city by filing a petition under oath in the form prescribed for the
purpose, together with copies of the tax declarations and such affidavits or documents submitted in
support of the appeal. (Sec. 236, LGC)
The Local Board of Assessment Appeals shall decide the appeal within one hundred twenty 120
days from the date of receipt of such appeal. The Board, after hearing, shall render its decision based on
substantial evidence or such relevant evidence on record as a reasonable mind might accept as adequate
to support the conclusion.
The owner of the property or the person having legal interest therein or the assessor who is not
satisfied with the decision of the Board, May within 30 days after receipt of the decision of said Board,
appeal to the Central Board of Assessment appeals, as herein provided. The decision of the Central
Board shall be final and executory.
In the case of denial by the CBAA, an appeal to the CTA can be filed within 15 days from the
receipt of notice of denial and finally, in case of denial by CTA, the taxpayer may file an appeal to the
Supreme Court within the same number of days.
Claim for refund
No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or charge
erroneously of illegally collected until written claim for refund or credit has been filed with the local
treasurer. No case or proceeding shall be entertained in any court after the expiration of two years from
the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitle to a refund or
credit.(sec.196. LGC)
Two-fold purpose of tax refund
The law clearly stipulates that after paying the tax, the taxpayers must submit a claim for refund
before resorting to the courts. The idea probably, is first, to afford the collector an opportunity to correct
the action of subordinate officers; second, to notify the Government that such taxes have been
questioned, and the notice should then be borne in mind in estimating the revenue available for
expenditure. Anyway the strict compliance with the conditions imposed for the return of revenue collected
is a doctrine consistently applied here and in the United States.
Tax Remedies
Remedies have been allowed, in every age and country, for the collection by the government of
its revenues. They have been considered a matter of state necessity. The existence of the government
depending on the regular collection of revenue must, as an object of primary importance, be insured. With
this objective in mind, promptness in collection is always desirable if not imperative.
Action before the Secretary of Justice
The procedure for approval of local tax ordinances and revenue measures shall be in accordance
with the provisions the Code.
1. Public hearings shall be conducted for the purpose prior to the enactment thereof.
2. Any question on the constitutionality or legality of tax ordinances or revenue measures may
be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from the date of receipt of the
appeal.
3. Such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein.
4. Within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without
the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction. (Sec. 187, LGC)
Publication of Tax ordinances and Revenue Measures
Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal
tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a
newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there
are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and
publicly accessible places. (Sec. 188, LGC) (Emphasis supplied)
What is the procedure to be followed in questioning the constitutionality of an ordinance?

The procedure in questioning the constitutionality or legality of a tax ordinance may be outlined as
follows:
1. Appeal to the Secretary of Justice within 30 days from the effectivity of such ordinance or
revenue measure;
2. The Secretary of Justice shall render a decision within 60 days from the date of the receipt of
the appeal;
3. Within thirty (30) days after the receipt of the decision or after the lapse of the 60-day period
without the Secretary of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.
Note: Court of competent jurisdiction refers to the Regional Trial Court (RTC) when case is
resolved to determine any question or construction or validity of a tax law and for the declaration of the
taxpayer's liability thereunder (V/TUG & ACOSTA, Tax Law and Juri4pruclence (2014 Edition), p. 490;
Rules of Court, Rule 63, Sec. 1). The method of judicial recourse has not been specified in the LGC,
although it might be said that such proceedings could include, but certainly will not exclude, the special
civil actions of certiorari, mandamus, or prohibition (VITUG & ACOSTA, supra at 489).
May the appeal made to the Secretary of Justice suspend the effectivity of the ordinance in
question?
No. The appeal made to the Secretary of Justice shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the tax, fee, charge levied therein (Sec. 187,
LGC).
Assessment and Collection
Assessment precedes collection except when the unpaid tax is a tax due per return as in the case
of a self-assessed income tax under the pay-as-you-file system in which case collection may be instituted
without need of assessment pursuant to Section 56 of the NIRC.
Sec 56. Payment and Assessment of Income tax for Individuals and Corporations.
(A) Payment of Tax,
(1) In General -- The total amount of tax imposed by this Title shall be paid by the person
subject thereto at the time the return is filed. In the case of stamp vessels, the shipping
agents and/or the husbanding agents, and in their absence, the captains thereof are required
to file the return herein provided and pay the tax due thereon before their departure. Upon
failure of the said agents or captain to file the return and pay the tax, the Bureau of Custom is
hereby authorized to hold vessel and prevent its departure until proof of payment of the tax is
presented or a sufficient bond is file to answer for the tax due.
(2) Installment Payment – When the tax due is in excess of 2,000.00 the tax payer 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
July 25 following the close of the calendar year. If any installment is not paid on or before the
date fixed for its 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.
In cases where assessment is necessary, the primordial consideration is its final and
unappealable nature. Collectability of the tax liability attaches only when the assessment
becomes final and unappealable.
An assessment contains not only a computation of tax liability but also a demand for payment
within the prescribe period. It also signals the time when penalties and interest begin to accrue
against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process
requires that it must be served on and received by taxpayer. Commissioner’s recommendation
letter cannot be considered as formal assessment of tax liability.
Suspension of Prescriptive Periods
 If before the expiration of the time prescribed for the assessment of the tax, both the
Commissioner and the taxpayer has agreed in writing to its assessment after such time,
tax maybe assessed within the period agreed upon. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period
previously agreed upon.(Section 222[b]) Note that waiver must be executed within the
three 3 year prescriptive period prescribed under Section 203, otherwise said waver shall
be ineffectual. (Republic v. Felix Acebedo, L-204207, March 29, 1968)
A taxpayer’s renunciation of the right to invoke prescription as a defense, although executed

beyond the prescriptive period, is binding upon the taxpayers.
2. Nature
3. Imposition
a. Power to levy
b. Exemption from real property tax
4. Appraisal and assessment
a. Classes of real property
b. Assessment based on actual use
5. Collection
a. Date of accrual
b. Periods to collect
c. Remedies of local government units
a. Contesting an assessment
i. Payment under protest; exceptions
ii. File protest with Treasurer
iii. Refunds or credits of real property taxes
b. Contesting a valuation of real property
i. Appeal to the Local Board of Assessment Appeals (LBAA)
ii. Appeal to the Central Board of Assessment Appeals (CBAA)
iii. Effect of payment of taxes
c. Compromising real property tax assessment
Q: Define real property taxes.

ANS: A real estate tax is a direct tax on the ownership of lands and buildings or other improvements
thereon, not especially exempted, and is payable regardless of whether the property is used or not,
although the value may vary in accordance with such factor. it is a fixed proportion of the assessed value
of the property taxed, and requires, therefore, the intervention of assessors. It is collected or payable at
appointed times, and it constitutes a superior lien on, and is enforceable against the property subject to
such taxation, and not by imprisonment by the owner (Villanueva v. City of Iloilo, G. R. No. L-26521,
December 28, 1968).
Q: What are the kinds of real property tax?

ANS: Real property tax may be classified into:
1. Basic Real Property Tax (LGC, Sec. 232); and
2. Special Levies
a. for Special Education Fund (LGC, Sec. 235);
b. on Idle Lands (LGC, Sec. 236); and
c. by LGUs (LGC, Sec. 240).
Q: What is real property?

ANS: The LGC does not carry a definition of "real property". The Supreme Court, however, in several
decisions, suggested that in understanding what "real property" is, reference may be made to Art. 415 of
the Civil Code (ABAN, Law of Basic Taxation in the Philippines (Revised 2001 Edition), pages 444-445).
Art. 415 of the Civil Code provides:
The following are immovable property:
1. Land, buildings, roads and constructions of all kinds adhered to the soil;
2. Trees, plants, and growing fruits, while they are attached to the land or form an integral part
of an immovable;
1. Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of the Object
2. Statues, reliefs, paintings or other objects for use or ornamentation, placed in
building's or on lands by the owner of the immovable in such a manner that it
reveals the intention to attach them permanently to the tenements;
3. Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried on in a building or
on a piece of land, and which tend directly to meet the needs of the said
industry or works;
4. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of
similar nature, in case their owner has placed them or preserves them with the
intention to have them permanently attached to the land, and forming a permanent part of it, the
animals in these places are included;
5. Fertilizer actually used on a piece of land;
6. Mines, quarries, and slag dumps while the matter thereof forms part of the bed, and waters
either running or stagnant;
7. Docks and structures which through floating, are intended by their nature and object to
remain at a fixed place or a river, lake or coast.
8. Contracts for public works and servitudes and other real rights over immovable property.
Q: May personal properties be classified as real property for purposes of taxation?

ANS: Yes. It is a familiar phenomenon to see things classed as real property for purposes of taxation
which on general principle might be considered personal property (Standard Oil Co. of New York v.
Jamarillo, G. R. No. 20329, March 16, 1923).
Q: What LGUs are responsible for the administration of real property tax?
ANS: The LGUs primarily responsible for the proper, efficient, and effective administration of real property
tax are:
1. Provinces;
2. Cities; and
3. Municipalities within Metro Manila (LGC, Sec. 200).
1. Fundamental Principles
Q: What are the fundamental principles of real property taxation?

ANS: The appraisal, assessment, levy, and, collection of real property tax shall be guided by the following
fundamental principles (ACUPE):
1. Real property shall be Appraised at its current and fair market value;
2. Real property shall be Classified for assessment purposes on the basis of its actual fuse;
3. Real property shall be assessed on the basis of a Uniform classification within each local
government unit;
4. The appraisal, assessment, levy and collection of real property tax shall not be let to any
Private person; and
5. The appraisal and assessment of real property shall be Equitable (LGC, Sec. 198).
2. Nature of Real Property Taxes
Q: What are the characteristics of real property tax?

ANS: Real property tax is a(n):
1. Direct tax on the ownership of real property where the impact and incidence of taxation
devolves on the same person;
2. It creates a single, indivisible obligation;
3. Ad valorem tax where the value of the property is the tax base;
4. Local tax (With respect to LGUs, it is levied thru a delegated power);
5. It attaches on the property (i.e., a lien) and is enforceable against it;
6. It Is proportionate because the tax is calculated on the basis of a certain percentage of the
value assessed (ABAN, Law of Basic Taxation in the Philippines, supra at 436-437);
3. Imposition of Real Property Taxes
Q: What covers the imposition of real property tax?

ANS: For a Province, or a City or Municipality within Metro Manila:
(a) Land
(b) Building
(c) Machinery
(d) Other improvements not specifically exempted (Sec. 232, LGC)
Q: What are the rates of basic real property tax?

ANS: The rates for basic real property tax are the following:
1. Province - Not exceeding 1% of assessed value;
2. City - Not exceeding 2% of assessed value; and
3. Municipality within Metro Manila - Not exceeding 2% of assessed value (LGC, Sec. 233).
A. Power to Levy
Q: What are special levies on real property?

ANS: The following are special levies:
1. Special Education Fund (SEF) - 1% on assessed value in addition to the basic RPT to finance
the special education fund (LGC, Sec. 235);
2. Additional Ad Valorem on Idle Lands - not exceeding 5% of the assessed value of the property
which shall be in addition to the basic RPT (LGC, Sec. 236);
3. Special Assessments (for public works) — on lands specially benefited by public works,
projects or improvements funded by the local government unit (LGC, Sec. 240).
Note: Special levy by LGUs shall not exceed 60% of the actual cost of such projects and improvements,
including the costs of acquiring land and such other real property in connection therewith (LGC, Sec.
240).
Q: What real properties are exempt from special levy by LGUs?

ANS: The special levy shall not apply to lands exempt from basic real property tax and the remainder of
the land portions donated to the local government unit concerned for the construction of said projects
(LGC, Sec. 240).
Q: What are the conditions for the validity of a tax ordinance imposing special
levy for public works?
ANS: The following are the conditions:
1. The ordinance shall describe the nature, extent, and location of the project, state estimated
cost, and specify metes and bounds by monuments and lines (LGC, Sec. 241);
2. It Must state the number of annual instalments, not less than five (5) years nor more than ten
(10) years (LGC, Sec. 241); and
3. Notice to the owners and public hearing (LGC, Sec. 242).
Note: The owner of real property affected by a special levy or any person having a legal interest therein
may, upon receipt of the written notice of assessment of the special levy, appeal to the Local Board of
Assessment Appeals and the Central Board of Assessment Appeals (LGC. Sec. 244)
B. Exemption from Real Property Tax
Q. What properties are exempt from real property tax? (RCW- CP)
ANS: The following are exempt from payment of the real property tax:
1. Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for considerations or otherwise to a taxable
person.
2. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly and
exclusively used for religious, charitable or educational purposes.
3. All machineries and equipment that actually, directly and exclusively used by local Water
utilities and government-owned or controlled corporations engages in the supply and distribution of water
and/ or generation and transmission of electric power
4. All real property owned by duly registered Cooperatives as provided under RA No. 6938
5. Machinery and equipment used for Pollution control and environment protection (LGC, Sec.
234)
Note: The justification for this restricted exemption in Section 234 (a) seems obvious; to limit further tax
exemption privileges, especially in light of the general provision on withdrawal of tax exemption privileges
in Section 193 and the special provision on withdrawal of exemption from payment of real property taxes
in the last paragraph of Section 234. These policy considerations are consistent with the State policy to
ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self0 reliant communities
and make them effective partners in the attainment of national goals (Mactan Cebu Int’l Airport Authority
v. Marcos, supra)
Q: May the local government impose taxes on the national government?

ANS: No, Local governments have no power to tax the national government, its agencies, and
instrumentalities, except as otherwise provided in the LGC pursuant to the saving clause in Sec. 133 of
the LGC stating “unless otherwise provided in this Code”. Section 234 (a) of the Local Gvernment Code
states that real property owned by the Republic loses its tax exemption only if the “beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person (Manila International Airport
Authority v. CA, GR No. 155650, July 20, 2006).
4. Appraisal and Assessment
Q: How is real property appraised?

ANS: All real property, whether taxable or exempt, shall be appraised at the current and fair market value
prevailing in the locality where the property is situated (LGC, Sec. 201)
Q: What is fair market value in relation to real property tax?

ANS: Fair market value is the price at which a property may be sold by a seller who is not compelled to
sell and bought by a buyer who is not compelled to buy (LGC, Sec. 199 (I)).
Q: Who has the duty to declare real property?

ANS: It shall be the duty of all persons, natural or juridical, owning or administering real property,
including the improvements therein, within a city or municipality, or their duly authorized representative, to
prepare, or cause to be prepared, and file with the provincial, city or municipal assessor, a sworn
statement declaring the true value of their property, whether previously declared or undeclared, taxable or
exempt, which shall be the current and fair market value of the property, as determined by the declarant
(LGC, Sec. 202).
Note: The sworn declaration shall be filed once every three years from January 1 to June 30 commencing
with the calendar year 1992 (LGC, Sec. 202).
Q: Discuss; how real property is listed in the assessment rolls.

ANS: The listing of real property in the assessment rolls may be outlined as follows:
1.Real property shall be listed, valued and assessed in the name of the owner, administrator, or
anyone having legal interest in the property. The exceptions are:
a. Undivided real property of a deceased person— in the name of the estate or heirs or
devisees without designating them individually;
b. In case of undivided real property other than that owned by a deceased — in the name
of one or more co-owners;
c. Corporation, partnership, and association — same as individuals; and
d. Owned by Republic of the Philippines, its instrumentalities, political subdivision,
beneficial use is transferred to a taxable person — in the name of the possessor, grantee or of
the public entity if such property has been acquired or held for resale or lease (LGC, Sec. 205).
2. All declarations shall be kept and filed under a uniform classification system to be established
by the provincial, city or municipal assessor (LGC, Sec. 207).
Q: When is the schedule of fair market values prepared?

ANS: A schedule of fair market value shall be prepared before any general revision of property
assessment is made (LGC, Sec. 212).
Q: Who prepares the schedule of fair market values?

ANS: The, provincial, city and the municipal assessors of the municipalities within Metro Manila area
prepares the schedule of FMV for the different classes of real property situated in their respective local
government units for enactment by ordinance of the Sanggunian concerned (LGC, Sec. 212).
Note: The said schedule shall be published in a newspaper of general circulation in the province, city or
municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or
municipal hall and in two other conspicuous public places therein (LGC, Sec. 212).
A. Classes of Real Property
Q: What are classified as special classes of real property?

ANS: All lands, buildings, and other improvements thereon
1. Actually, directly and exclusively used for hospitals, cultural, or scientific purposes, and
2. Those owned and used by local water districts, and GOCCs rendering essential public services
in the supply and distribution of water and/or generation and transmission of electric power (LGC, Sec.
216).
Q: How is the assessed value determined?

ANS: The following are the steps in determining the assessed value:
1. Take the schedule of FMV; and then
2. Multiply the FMV by the assessment level to get the assessed value (LGC, Sec. 199(h)).
Assessment Levels
On Lands:
Class Assessment Levels
Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
Example: Residential Land with FMV of P100,000
P100,000 (FMV) x 20% (Assessment Level) = P20,000 (Assessed Value)
B. Assessment based on Actual Use
Q: What is meant by actual use?

ANS: Actual use refers to the purpose for which the property is principally or predominantly utilized by the
person in possession thereof (LGC, Sec. 199 (b)).
Note: Real property shall be classified, valued and assessed on the basis of its actual use regardless of
where located, whoever owns it, and whoever uses it (LGC, Sec. 217).
Q: How are lands located in areas of mixed land uses classified?

ANS: For lands located in areas of mixed land uses, such as residential with commercial or industrial, the
predominant use of the lands in that area shall govern the classification, valuation, and assessment
thereof. If the predominant use is residential, all lands in that area shall be assessed as residential; if the
predominant use is commercial, or industrial, all lands in that area shall be assessed as such (Manual on
Real Property Appraisal and Assessment Operations by the DOF Bureau of Local Government Finance,
January 2006, p. 138).
Q: Give the assessment levels for all lands, buildings, machineries, and other improvements
(based on actual use).
ANS: Assessment levels based on actual use are the following:
ACTUAL USE ASSESSMENT LEVEL

(a) Cultural 15%
(b) Scientific 15%
(c) Hospital 15%
(d) Local Water Districts 10%
(e) Government-owned or controlled corporations engaged 10%
in the supply and distribution of water and/or generation
and transmission of electric power
Q: What are the instances where the assessor shall make a valuation of real
property?
ANS: The provincial, city or municipal assessor or his duly authorized deputy shall make a classification,
appraisal and assessment of the real property listed and described in the declaration irrespective of any
previous assessment or taxpayer's valuation thereon in cases where:
1. The real property is declared and listed for taxation purposes for the first time;
2. There is an ongoing general revision of property classification and
assessment; or
3. A request is made by the person in whose name the property is declared
(LGC, Sec. 220).
Q: When shall general revision of real property assessment takes place?

ANS: The provincial, city or municipal assessor shall undertake a general revision of real property
assessments within two (2) years after the effectivity of the LGC and every three ,(3) years thereafter
(LGC, Sec. 219)
Q: When shall assessments or reassessments take effect?

ANS: All assessments or reassessments made after the first day of January of any year shall take effect
on the first day of January of the succeeding year. Reassessments shall take effect at the beginning of
the quarter next following the reassessment if made due to:
1. Its partial or total destruction;
2. Major change in its actual use;
3. Great and sudden inflation or deflation of real property values;
4. Gross illegality of the assessment; and
5. Any other abnormal cause (LGC, Sec. 221).
Note: Section 221 of the LGC merely lays down the general rule that assessments are to be given
prospective application. It cannot be construed in such a manner as to eliminate the imposition of back
taxes (Sesbrelio v. Central Board of Assessment Appeals, GR. No. 106588, March 24, 1997).
Q: When the assessment of property subject to back taxes made?

ANS: Real property declared for the first time shall be assessed for taxes (back taxes) for the period
during which it would have been liable but in no case of more than ten 10 years prior to the date of initial
assessment: Provided, however, that such taxes shall be computed on the basis of the applicable
schedule of values in force during the corresponding period (LGC, Sec. 222).
Note: If such taxes are paid on or before the end of the quarter following the date the notice of
assessment was received by the owner, no interest for delinquency shall be imposed thereon; otherwise,
taxes shall be subject to interest at the rate of two percent (2%) per month or a fraction thereof from the
date of the receipt of the assessment until such taxes are fully paid (LGC, Sec. 222).
Q: When should the assessor give notice of new or revised assessment?

ANS: When real property is assessed for the first time or when an existing assessment is increased or
decreased, the provincial, city or municipal assessor shall within thirty (30) days give written notice of
such newsy revised assessment to the person in whose name the property is declared (LC, Sec. 223).
Q: Who has the obligation to pay real property taxes?

ANS: For purposes of real property taxation, the registered owner of the property is deemed the taxpayer
(Spouses Hu v. Spouses Unico, G.R. No. 146534, September 18, 2009).
Q: Who submits the assessment rolls to the local treasurer?

ANS: The provincial, city or municipal assessor shall prepare and submit to the treasurer of the local
government unit, on or before the thirty-first (31st) day of December each year, an assessment roll
containing a list of all persons whose real properties have been newly assessed or reassessed and the
values of such properties (LGC, Sec. 248).
5. Collection of Real Property Taxes
A. Date of Accrual of Real Property Tax and Special Levies
Q: When does real property tax accrue?

ANS: The real property tax for ant year shall accrue on the 1st day of January of every year and from that
date it shall constitute a lien on the property which shall be superior to any other lien, mortgage or
encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent
tax (LGC, Sec. 246)
Q: When does special levy accrue?

ANS: The special day shall accrue on the first day of the quarter next following the effectivity of the
ordinance imposing such levy (LGC, Sec. 245)
B. Periods to Collect
Q: How is notice of time for collection of real property taxes made?

ANS: The notice of the dates when the tax may be paid without interest shall:
1. Be posted by the city or municipal treasurer in conspicuous and publicly accessible place at the
city of municipal hall
a. On or before the thirty-first (31st) day of January each year, in the case of the basic
real property tax and the additional tax for the SEF, or
b. On any other date to be prescribed by the Sanggunian concerned in the case of any
other tax levied upon; and
2. Published in a newspaper of general circulation in the locality for once a week for two(2)
consecutive weeks (LGC, Sec. 249).
Q: May real property taxes be paid in installment?

ANS: Yes. Basic real property tax and additional tax for SEF due may be paid in four equal installments
(on or before March 31/June 30/September 30/December 31) without interest thereon (LGC, Sec. 250).
Note: Other special levies and any other real property tax are governed by ordinance passed by the
Sanggunian concerned (LGC, Sec. 250).
Q: How is payment of real property taxes applied?

ANS: Payments of real property taxes shall first be applied to prior years' delinquencies, interests, and
penalties, if any, and only after said delinquencies are settled may tax payments be credited for the
current period (LGC, Sec. 250).
C. Remedies of LGUs for Collection of Real Property Tax
Q: What are the remedies available to LGUs in collecting real property tax?
ANS: The following are the remedies available to LGUs:
A. Administrative Remedies
1. Local Government’s Lien— The basic real property tax shall constitute a lien on the property
subject to tax, superior to all liens, charges or encumbrances in favour of any person, irrespective of the
owner or possessor thereof, enforceable by administrative or judicial action and may only be extinguished
upon payment of the tax and the related interests and expenses. (Sec. 257, LGC)
2. Levy - Upon the failure to pay the tax when due, the local treasurer shall issue a warrant
levying the real property subject to tax. The warrant shall include a duly authenticated certificate showing
the name of the owner or person having legal interest therein, description of the property, amount of the
tax due and interest thereon.
(a) Warrant must be mailed or served to owner or person having legal interest in the property
(b) Written notice of levy must be mailed or served to the assessor and the Register of Deeds
where the property is located (c) The Register of Deeds must annotate the levy on the tax declaration and
certificate of title (Sec. 258, LGC)
NOTE: Failure to issue or execute the warrant of levy within one year from the time the tax
becomes delinquent or within thirty days from the date of the issuance thereof shall be dismissed from
service (Sec. 259, LGC)
B. Judicial
1. The LGU may enforce the collection by civil action in any court of competent jurisdiction.
It must be filed by local treasurer within five (5) to ten (10) years. (Sec. 266 in relation to Sec. 270, LGC)
Q: Discuss the remedy of civil action for collection of real property tax.
ANS: The civil action for the collection of basic real property tax and any other tax levied under LGC on
real property shall be filed by the local treasurer in any court of competent jurisdiction within 5 years or 10
years in case of fraud wherein real property taxes may be collected (LGC, Sec. 266 in relation to Sec.
270).
6. Taxpayer’s Remedies
A. Contesting an assessment
File Protest with Local Treasurer
Q: When is protest made?

ANS: The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial,
city treasurer or municipal treasurer, in the case of a municipality within Metro Manila Area, who shall
decide the protest within sixty (60) days from receipt (LGC, Sec. 252).
Note: Protest is required where there is a question of reasonableness of the amount assessed, not when
the question raised is on the very authority and power of the assessor to impose the assessment and of
the treasurer to collect the tax (Ty v. Trampe, G.R. No. 117577, December 1, 1995).
Q: Is the taxpayer required to pay the tax first before protest is entertained?
ANS: Yes. Sec. 252 of the LGC requires that the taxpayer first pays the tax. This is referred to as
"payment under protest". The protest may only be filed within 30 days from the payment of the tax.
Thereafter, the words "paid under protest" shall be annotated on the tax receipt. The tax or a portion
thereof paid under protest, shall be held in trust by the treasurer concerned.
Q: What happens when the protest is decided in favor of the taxpayer?

ANS: In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the
tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax
liability (LGC, Sec. 252).
Q: When may the taxpayer appeal to the LBAA?

ANS: In case of denial of the protest, or upon the lapse of the 60-day period for the treasurer to decide,
the taxpayer may appeal to the LBAA within sixty (60) days from receipt, who shall decide the appeal
within one hundred twenty (120) days from receipt (LGC, Sec. 252(d)).
B. Contesting the Assessment / Collection of Real Property Tax
Q: Outline the steps in protest cases involving assessment or collection of real property tax.
ANS: The protest on assessment/collection of real property tax may involve the following steps .
1. The local assessor submits an assessment roll to the local treasurer;
2. The local treasurer informs the public when the tax shall be paid by posting of notice at
conspicuous place and publication in a newspaper of general circulation in the locality once a week for
two (2) consecutive weeks;
3. The local treasurer assesses and collects the real property tax starting January 1;
4. The aggrieved taxpayer pays the tax under protest;
5. The aggrieved taxpayer may file a written protest within 30 days from the date of payment
before the local treasurer
6. The local treasurer decides the case within 60 days from filing of the protest;
7. In the even the local treasurer denies the protest of fails to act within 60-day period, the
aggrieved taxpayer may appeal the denial within 60 days from the receipt thereof or from the lapse of the
60-day period in case or inaction to the Local Board of Assessment Appeals (LBAA);
8. The LBAA decides the case 120 days from the filing thereof;
9. If LBAA's decision is adverse; the real property owner may appeal to the Central Board of
Assessment Appeals (CBAA) within 30 days from the receipt of the adverse decision;
10. If CBAA decision is adverse, the real property owner may file a petition for review before the
Court of Tax Appeals (CTA) en banc within 30 days from the receipt thereof;
11. If the CTA en banc decision is adverse, the real property owner may file a motion for
reconsideration or new trial within 15 days from the receipt thereof; and
12. Thei real property owner adversely affected by the decision or resolution, as the case may be,
of the CTA en banc may file a petition for review on certiorari before the Supreme Court within 15 days
from the receipt thereof (LGC, Sec. 252 in relation to Secs. 226, 229, 230, 246, 247,248, 249; R.A. No.
9282, Sec.7 and 11; Revised Rules of CTA, Rules 4 and 16; Rules of Court, Rules 43 and 45).
Note: Remember that there are two different procedures for contesting the assessment or collection of the
real property tax and for contesting the assessment of the VALUE of the property for real property tax
purposes.
Q: X made a sworn declaration that the value of his real property is P5000 per square meter. The
City Assessor assessed the said property at P2000 per square meter. What is the remedy of X if
we would like to maintain his declared value? Explain.
ANS: X may protest the assessment within 60 days from the receipt of the written notice to the Local
Board of Assessment Appeals (LBAA), which is given 120 days to decide on the protest. If LBAA's
decision is adverse, X may appeal to the Central Board of Assessment Appeals (CBAA) within 30 days
from the receipt of the notice of denial. If CBAA decision is adverse, X may file a petition for review before
the Court of Tax Appeals (CTA) en banc within 30 days from the receipt thereof. If the CTA en banc
decision is adverse, the real property owner may file a motion for reconsideration or new trial within 15
days from the receipt thereof, or X may file a petition for review on certiorari before the Supreme Court
within 15 days from the receipt thereof (LGC, Secs. 226 and 230; Revised Rules CTA, Rules 4 and 16).
C. Compromising Real Property Tax Assessment
Q: Is there any discount for advanced or prompt payment?

ANS: Yes. If the basic real property tax and the additional tax accruing to the SEF are paid in advance,
the Sanggunian may grant a discount not exceeding twenty percent (20%) of the annual tax due (LGC,
Sec. 251).
Note: For prompt payment, a discount not exceeding 10% of annual tax due may be granted (IRR of the
LGC, Art. 342).
Q: What is the interest rate on unpaid real property tax?

ANS: In case of failure to pay the basic real property tax or any other tax levied upon the expiration of the
periods provided, or when due, as the case may be, shall subject the taxpayer to the payment of interest
at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent
tax shall have been fully paid.
Note: In no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months
(LGC, Sec. 255).
Q: When is notice of delinquency issued?

ANS: When the real property tax or any _other tax becomes delinquent, the provincial, city or municipal
treasurer shall immediately cause a notice of delinquency (LGC, Sec. 254).
Q: How is notice of delinquency given?

ANS: The treasurer concerned will cause a notice of delinquency:
1. Posted at the main entrance of the provincial capitol, or city or municipal hall and in a publicly
accessible and conspicuous place in each barangay of the local government unit concerned; and
2 Published once a week for two (2) consecutive weeks, in a newspaper of general circulation in
the province, city, or municipality (LGC, Sec. 254).
Note: Formal demand for the payment of the delinquent taxes and penalties due is not a pre-requisite to
avail of administrative and judicial remedies. The notice of delinquency shall be sufficient for the purpose
(IRR of LGC, Art. 347).
Q: What should be contained in the notice of delinquency?

ANS: The notice of delinquency shall specify:
1. The date upon which the tax became delinquent;
2. That personal property may be distrained to effect payment;
3. That at any time before the distraint of personal property, payment of the tax with surcharges,
interests and penalties may be made; and
4. Unless the tax, surcharges and penalties are paid before the expiration of the year for which
the tax is due (except when the notice of assessment or special levy is contested administratively or
judicially), the delinquent real property will be sold at public auction, and the title to the property will be
vested in the purchaser subject, however, to the right of redemption within one year from the date of sale
(LGC, Sec. 254).
Note: The owner shall not be deprived of possession and to rentals/income thereof until the expiration of
the time allowed for its redemption (LGC, Sec. 261).
Q: To whom should the notice of sale be sent?

ANS: In determining to whom the notice of sale should have been sent, settled is the rule that, for
purposes of real property taxation, the registered owner of the property is deemed the taxpayer. Thus, in
identifying the real delinquent taxpayer, a local treasurer cannot rely solely on the tax declaration but must
verify with the Register of Deeds who the registered owner of the particular property is (Spouses Hu v.
Spouses Unico, G.R. No. 146534, September 18, 2009).
Q: Is notice and publication of sale mandatory?

ANS: Yes. Notices and publication for sale, as well as the legal requirements for a tax delinquency sale,
are mandatory, and the failure to comply therewith can invalidate the sale. The prescribed notices must
be sent to comply with the requirements of due process (De Knecht v. Court of Appeals, G.R. No.
108015, May 20, 1998; De Knecht v. Sayo, G.R. No. 109234, May 20, 1998).
Q: May levy be repeated?

ANS: Yes. Levy may be repeated if necessary, until the full amount due, including all expenses, is
collected (LGC, Sec. 265).
Q: When may the Sanggunian dispose of the real property acquired?

ANS: The Sanggunian concerned may sell and dispose of the real property acquired by the LGU at public
auction provided it is made by ordinance duly approved, and upon notice of not less than twenty (20)
days.
Note: The proceeds of the sale shall accrue to the general fund of the local government unit concerned
(LGC, Sec. 264).
IV. JUDICIAL REMEDIES

A. JURISDICTION OF THE COURT OF TAX APPEALS
1. Exclusive original and appellate jurisdiction over civil cases
2. Exclusive original and appellate jurisdiction over criminal cases
B. PROCEDURE
1. Filing of an action for collection of taxes
a. Internal revenue taxes
b. Local taxes
2. Civil cases
a. Who may appeal, mode of appeal, and effect of appeal
b. Suspension of collection of taxes
c. Injunction not available to restrain collection
3. Criminal cases
a. Institution and prosecution of criminal action
b. Institution of civil action in criminal action
c. Period to appeal
4. Appeal to the Court of Tax Appeals en bane
5. Petition for review on certiorari to the Supreme Court
JUDICIAL REMEDIES
JURISDICTION OF THE COURT OF TAX APPEALS Civil Tax Cases

Exclusive Original Jurisdiction Tax collection cases involving final and executory assessments for
taxes, fees, charges and penalties, where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is one million pesos or more.
Exclusive Appellate Jurisdiction
CTA Division
(1) Decisions and Inaction of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or
other matters arising under the National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
(a) Inaction of the Commissioner shall be deemed a denial in which the taxpayer may appeal.
(b) Inaction does not necessarily constitute a formal decision and the taxpayer may opt to await the
final decision of the Commissioner by constitute a formal decision and the taxpayer may opt to await the
final decision of the Commissioner beyond the 180 days and may appeal such final decision.
(c) For claim for refund, the taxpayer must file a petition for review with the CTA prior to the
expiration of the two year prescriptive period.
(2) Decisions, orders or resolutions of the RTC in local tax cases and in tax collection cases originally
decided or resolved by them in their ORIGINAL jurisdiction.
(3) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the
Bureau of Customs;
(4) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;
(5) Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs
Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision
to impose or not to impose said duties. (Sec. 7, RA No. 1125 as amended)
CTA en Banc
(1) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the
exercise of its exclusive appellate jurisdiction over:
(a) Cases arising from administrative agencies – Bureau of Internal Revenue, Bureau of Customs,
Department of Finance, Department of Trade and Industry, Department of Agriculture;
(b) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction;
and
(c) Tax collection cases decided by the Regional Trial Courts in the exercise of their original
jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where the
principal amount of taxes and penalties claimed is less than one million pesos;
(2) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases and in tax collection
cases decided or resolved by them in the exercise of their APPELLATE jurisdiction;
(3) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in
the exercise of its exclusive original jurisdiction over tax collection cases;
(4) Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals;
Criminal cases (Sec. 7, RA 1125 as amended)
Exclusive Original Jurisdiction
All criminal offenses arising from violations of the National Internal Revenue Code or Tariff and
Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of
Customs. Principal amount of taxes and fees, exclusive of charges and penalties, claimed is more than or
equal to One million pesos (P1,000,000.00).
The filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and
no right to reserve the filling of such civil action separately from the criminal action will be recognized.
Exclusive Appellate Jurisdiction in Criminal Cases
CTA Division
(1) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases
originally decided by them, in their respected territorial jurisdiction.
(2) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction.
CTA En Banc
(1) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division
in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from
violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or Bureau of Customs;
(2) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division
in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding
subparagraph; and (3) Decisions, resolutions or orders of the Regional trial Courts in the exercise of their
appellate jurisdiction over criminal offenses mentioned in subparagraph (f).
JUDICIAL PROCEDURES
Judicial Action for Collection of Taxes
Internal Revenue Taxes
The remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto
resulting from delinquency can be through the institution of a civil or criminal action. (Sec. 205, NIRC)
NOTE: Please refer to Taxpayer’s Remedies (B. Collection))
When this remedy is resorted to:
(1) The tax assessment becomes final and executory because of the failure to appeal.
(2) Even pending decision of the administrative protest (CIR v. Union Shipping, 1990)
Local Taxes
The LGU concerned may enforce the collection of delinquent taxes, fees, charges or other revenues by
civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer. (Sec.
183, LGC)
MTC/RTC depending on jurisdictional threshold amount.
Prescriptive Period
Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by
administrative or judicial action.
No judicial or administrative action for collection can be instituted after lapse of the period for
assessment except when there is fraud or intent to evade tax. (Sec. 194 LGC)
The running of the periods of prescription shall be suspended for the time during which:
(1) The treasurer is legally prevented from making the assessment of collection;
(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of
the period within which to assess or collect; and
(3) The taxpayer is out of the country or otherwise cannot be located. (Sec. 194, LGC)
Civil Cases
Who May Appeal, Mode of Appeal, Effect of Appeal
I- Appeal to CTA Division
A party aggrieved or adversely affected by the decision or ruling or inaction of
(1) The Commissioner of Internal Revenue;
(2) The Commissioner of Customs;
(3) The Secretary of Finance;
(4) The Secretary of Trade and Industry;
(5) The Secretary of Agriculture; or
(6) The RTC exercising original jurisdiction
may appeal within 30 days from the receipt of the copy of the decision or ruling, or the expiration of the
period fixed by law for the Commissioner to decide, to the Court of Tax Appeals Division.
Mode of Appeal: Rule 42
Aggrieved party may file a motion for reconsideration or new trial within 15 days from receipt of the
copy of the decision.
Appeal to CTA en Banc
A party adversely affected by a decision or resolution of a Division of the Court on a motion for
reconsideration or new trial may appeal within 15 days from receipt of the copy of the decision.

A party adversely affected by a decision or ruling of the Central Board of Assessment Appeals and
the Regional Trial Court in the exercise of their appellate jurisdiction may appeal within 30 days from the
receipt of the copy of the decision.
(1) Suspension of collection of tax
General Rule: No appeal taken to the Court shall suspend the payment, levy, distraint, or sale of
any property of the taxpayer for the satisfaction of his tax liability as provided under existing laws.
Exception: Where the collection of the amount of the taxpayer’s liability, sought by means of a demand
for payment, by levy, distraint or sale of any property of the taxpayer, or by whatever means, as provided
under existing laws, may jeopardize the interest of the Government or the taxpayer, an interested party
may file a motion for the suspension of the collection of the tax liability.
(a) Injunction not available to restrain collection
No court shall have authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by the Code. (Sec. 217, NIRC)
Note: The Local Government Code does not have a provision prohibiting injunction in the collection of
tax.
(2) Taking of evidence
(i) The Court may receive evidence in the following cases:
(a) In all cases falling within the original jurisdiction of the Court in Division pursuant to Section 3,
Rule 4 of these Rules; and
(b) In appeals in both civil and criminal cases where the Court grants a new trial pursuant to
Section 2, Rule 53 and Section 12, Rule 124 of the Rules of Court. (Sec. 2, Rule 12, A.M. No. 05-11-07)
(ii) Taking of evidence by:
(a) Justice—
The Court may, motu proprio or upon proper motion, direct that a case, or any issue
therein, be assigned to one of its members for the taking of evidence, when the determination of a
question of fact arises at any stage of the proceedings, or when the taking of an account is necessary, or
when the determination of an issue of fact requires the examination of a long account. The hearing before
such justice shall proceed in all respects as though the same had been made before the Court.
Upon the completion of such hearing, the justice concerned shall promptly submit to the Court a written
report thereon, stating therein his findings and conclusions. Thereafter, the Court shall render its decision
on the case, adopting, modifying, or rejecting the report in whole or in part, or, the Court may, in its
discretion, recommit it to the justice with instructions, or receive further evidence. (Sec. 12, RA No. 1125,
as amended; also Sec. 3, Rule 12, A.M. No. 0511-07)
(b) Court Official –
In default or ex parte hearings, or in any case where the parties agree in writing, the Court
may delegate the reception of evidence to the Clerk of Court, the Division Clerks of Court,
their assistants who are members of the Philippine bar, or any Court attorney. The reception
of documentary evidence by a Court official shall be for the sole purpose of marking,
comparison with the original, and identification by witnesses of such documentary evidence.
The Court official shall have no power to rule on objections to any question or to the admission
of exhibits, which objections shall be resolved by the Court upon submission of his report and
the transcripts within ten days from termination of the hearing. (Sec. 4, Rule 12, A.M. No. 05-
11-07)
(3) Motion for reconsideration or new trial (Rule 15, A.M. No. 05-11-07)
Who:
Any aggrieved party may seek a reconsideration or new trial of any decision, resolution or order of
the Court.
Maybe opposed by:
The adverse party may file an opposition to the motion for reconsideration or new trial within ten
days after his receipt of a copy of the motion for reconsideration or new trial of a decision, resolution or
order of the Court.
When:
He shall file a motion for reconsideration or new trial within fifteen days from the date he received
notice of the decision, resolution or order of the Court in question.
The Court shall resolve the motion for reconsideration or new trial within three months from the time it is
deemed submitted for resolution.
How:
The motion shall be in writing stating its grounds, a written notice of which shall be served by the
movant on the adverse party.
A motion for new trial shall be proved in the manner provided for proof of motions. A motion for the
cause mentioned in subparagraph (a) of the preceding section shall be supported by affidavits of merits
which may be rebutted by counter affidavits. A motion for the cause mentioned in subparagraph (b) of the
preceding section shall be supported by affidavits of the witnesses by whom such evidence is expected to
be given, or by duly authenticated documents which are proposed to be introduced in evidence.
A motion for reconsideration or new trial that does not comply with the foregoing provisions shall be
deemed pro forma, which shall not toll the reglementary period for appeal.
Effect:
The filing of a motion for reconsideration or new trial shall suspend the running of the period within
which an appeal may be perfected.
Grounds:
A motion for new trial may be based on one or more of the following causes materially affecting the
substantial rights of the movant:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded
against and by reason of which such aggrieved party has probably been impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and
produced at the trial and, which, if presented, would probably alter the result.
A motion for new trial shall include all grounds then available and those not included shall be
deemed waived.
Restrictions:
No party shall be allowed to file a second motion for reconsideration of a decision, final resolution or
order; or for new trial.
II- Appeal to the CTA, en banc
No civil proceeding involving matter 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.
A party adversely affected by a resolution of a Division of the CTA on a motion for

reconsideration or new trial, may file a petition for review with the CTA en banc. (Sec. 18, RA No. 1125 as
amended)
Petition for review on certiorari to the Supreme Court (Rule 16, A.M. No. 05-11-07)
A party adversely affected by a decision or ruling of the Court en banc may appeal by filing with the
Supreme Court a verified petition for review on certiorari within fifteen days from receipt of a copy of the
decision or resolution, as provided in Rule 45 of the Rules of Court. If such party has filed a motion for
reconsideration or for new trial, the period herein fixed shall run from the party’s receipt of a copy of the
resolution denying the motion for reconsideration or for new trial.
The motion for reconsideration or for new trial filed before the Court shall be deemed abandoned if,
during its pendency, the movant shall appeal to the Supreme Court.
Criminal Cases Institution and Prosecution of Criminal Actions
6. Institution of criminal action

Instituted by the filing an information in the name of the People of the Philippines
(a) Those involving violations of the NIRC and other laws enforced by the BIR - Must be
approved by the Commissioner of Internal Revenue
(b) Those involving violations of the tariff and Customs Code and other laws enforced by the
Bureau of Customs
- Must be approved by the Commissioner of Customs
Shall interrupt the running of the period of prescription
(2) Prosecution of criminal action

(a) Conducted and prosecuted under the direction and control of the public prosecutor
(b) Those involving violations of the NIRC and other laws enforced by the BIR or violations of the
tariff and Customs Code and other laws enforced by the Bureau of Customs - The prosecution may be
conducted by their respective duly deputized legal officers.
(1) Institution on civil action in criminal action

In cases within the jurisdiction of the Court, the criminal action and the corresponding civil
action for the recovery of civil liability for taxes and penalties shall be deemed jointly
instituted in the same proceeding. The filing of the criminal action shall necessarily carry
with it the filing of the civil action. No right to reserve the filing of such civil action separately
from the criminal action shall be allowed or recognized.
Solicitor General as counsel for the People and government officials sued in their official capacity
The Solicitor General shall represent the People of the Philippines and government officials sued in
their official capacity in all cases brought to the Court in the exercise of its appellate jurisdiction. He may
deputize the legal officers of the Bureau of Internal Revenue in cases brought under the National Internal
Revenue Code or other laws enforced by the Bureau of Internal Revenue, or the legal officers of the
Bureau of Customs in cases brought under the Tariff and Customs Code of the Philippines or other laws
enforced by the Bureau of Customs, to appear in behalf of the officials of said agencies sued in their
official capacity: Provided, however, such duly deputized legal officers shall remain at all times under the
direct control and supervision of the Solicitor General.
Petition for review on certiorari to the Supreme Court
A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme
Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
(Sec. 19, R.A. No. 1125 as amended)
JUDICIAL REMENDIES – PART II
Procedures
Filling of an Action for collection of taxes
A. Internal Revenue Taxes:
The government may enforce collection of internal revenue taxes by:
1. Civil Action
1.1 By filing a civil case for collection of sum of money with the proper regular court.
1.2 By filing an answer to the petition for review filed by taxpayer with Court of Tax Appeals.
2. Criminal Action
The judgment in the criminal case shall only impose the penalty but shall also order the payment
of taxes subject of the criminal case as finally decided by the commissioner.
Prescriptive period for the assessment of national tax
General Rule: the period for assessment prescribes within three (3) years:
1. After the last day prescribed by law for the filing of the return
2. After the day the return was filed, if the return was filed beyond the period prescribed by law,
whichever is later.
Exceptions:
1. False, fraudulent return with intent to evade taxes: within 10 years from date of discovery of
the falsity or fraud
2. Failure to file a return, at any time within ten (10) years after the discovery of the omission of
the return .A return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
Before the expiration of the 3-year prescriptive period, both the Commissioner and the taxpayer may
agree in writing to extend the period of assessment. The period so agreed upon may be further extended
by subsequent written agreement made before the expiration of the period previously agreed upon.
B. Local Taxes:
The LGU concerned may enforce the collection of delinquent taxes, fees, charges or other revenues by
civil action in any court of competent jurisdiction within five years from the date taxes, fees or charges
become due. The local government may file an ordinary suit for the collection of sum of money before the
MTC, RTC, or CA depending upon the jurisdictional amount. Either of the remedies through
administrative action or judicial action or all may be pursued simultaneously at the discretion of the local
government unit concerned.
Prescriptive period for the assessment of local tax
The assessment of local tax shall prescribe within five (5) years from the date taxes, fees, or
charges become due, however, in fraud or intent to evade the payment of taxes, fees, or charges, the
same maybe assessed within ten (10) years from the date of the discovery thereof.
Prescriptive period for the collection of local tax
The collection of local tax shall prescribe within five (5) years from the date of assessment.
CRIMINAL CASES
Institution of Criminal Action
All criminal actions before the Court in Division in the exercise of its original jurisdiction shall be
instituted by the filing of an information in the name of the People of the Philippines. The institution of the
criminal action shall interrupt the running of the period of prescription. In criminal actions involving
violations of the NIRC and other laws enforced by the BIR, the CIR must approve their filing. Those that
involve violations of the Tariff Code and other laws enforced by the BOC, the Commissioner of Customs
must approve their filing.
Rule on inclusion of civil action in criminal action
The criminal action and the corresponding civil action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall be deemed jointly instituted in the same proceeding.
The filling of the criminal action shall necessarily carry with it the filling of the civil action shall be allowed
or recognized.
Rules on appeal of Criminal cases
An appeal may be made by filling a:
1. Notice of appeal within fifteen (15) days from the receipt of a copy of decision on final order.
Appeal in criminal cases decided by the RTC in the exercise of its original jurisdiction.
2. Petition for review, within fifteen (15) days from the receipt of a copy of the decision appealed
from with respect to criminal cases decided by the Court in Division and criminal cases decided
by the RTC in the exercise of the appellate jurisdiction.
Civil Cases
The following may appeal to the CTA in Division
1. Any party adversely affected by a decision ruling or inaction of:
1.1 The Commissioner of internal revenue on disputes, assessments, or claims for refund of internal
revenue taxes erroneously or illegally collected
1.2 The Commissioner of Customs
1.3 The Secretary of Finance
1.4 The Secretary of Trade and Industry
1.5 The Secretary of Agriculture
1.6 The Regional Trial Courts, in the exercise of their original jurisdiction within thirty (30) days after
receipt of such decision or ruling or after the expiration of the period fixed by law for action referred to.
2. Any party adversely affected by a decision or ruling of:
a. The CTA in Division in a motion for reconsideration or new trial;
b. Central Board of Assessment Appeals (CBAA).
c. Regional Trial Court, in the exercise of their appellate jurisdiction within thirty (30) days
from receipt of a copy of the questioned decision or ruling
An appeal may be made by:
1. Filing a petition for review under Rule 42 of the 1997 Rules of Court, with respect to a decision,
ruling, or inaction of the:
1.1 Commissioner of Internal Revenue

1.2 Commissioner of Customs
1.3 Secretary of Finance
1.4 Secretary of Trade and industry
2. Filling a petition for review under Rule 43 of the Rules of Court with respect to the decision or
ruling of:
2.1 The CTA in division in a motion for reconsideration or new trial.
2.2 CBAA
2.3 RTC’s in the exercise of their appellate jurisdiction.
3. Filling a petition for review on certiorari under rule 45 of Rules of Court with respect to a
decision on ruling of the CTA en banc.
Suspension of Collection of Tax
As a General Rule, tax collection is not suspended during appeal. However, the CTA is
empowered to suspend the collection of internal revenue taxes and custom duties or grant injunction.
Enjoin collection of taxes
As a general rule, no court shall have the authority to grant injunction to restrain the collection of
any national internal revenue tax, fee, or charge. However, the no injunction rule does not apply to the
CTA when in its opinion the collection of tax by the BIR may jeopardize the interest of the government
and/or the taxpayer.
Requisites for the suspension of collection of taxes
1. When there is an appeal to the CTA from a decision of the CIR
2. In the opinion of the CTA, the collection may jeopardize the interest of the Government
and/or the taxpayer.
3. The taxpayer may be required to deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court.
Motion for Reconsideration or New Trial
Any aggrieved party may seek a reconsideration or new trial of any decision, resolution or order of the
court. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a motion
for reconsideration or new trial before the same Division of the CTA. A motion for reconsideration or new
trial can also be filed before the CTA en banc.
Grounds for filing a motion for reconsideration or new trial

1. Fraud, Accident, Mistake, or Excusable negligence (FAME) which ordinary prudence could not have
guarded against and by reason of which such aggrieved party has probably been impaired in his
rights.
2. Newly discovered evidence, which he could not, with reasonable diligence, have discovered and
produced at the trial and which, if presented, would probably alter the result
Period in filling a motion
The aggrieved party shall file a motion for reconsideration or new trial within fifteen (15) days from
the date he received notice of the decision, resolution or order of the court in question. The filing of a
motion for reconsideration or new trial shall suspend the running of the period within which an appeal may
be perfected.
Appeal to the CTA En Banc
Filling an appeal to the CTA en banc and it’s the mode of appeal
A party, adversely affected by a decision or resolution of a Division of the Court on a motion for
reconsideration or new trial may appeal to the CTA en banc by filing before it a petition for review within
fifteen days from receipt of a copy of the questioned decision or resolution. The petition for review of a
decision or resolution of the court in division must be preceded by the filling of a timely motion for
reconsideration or new trial before the CTA En banc. Failure to file such motion for reconsideration or new
trial is cause for dismissal of the appeal before the CTA En banc.
Representative of the people and the government
The Solicitor General shall represent the People of the Philippines and government officials sued
in their official capacity in all cases brought to the Court in the exercise of its appellate jurisdiction.
Petition for Review on Certiorari to the SC
Any party adversely affected by a decision or ruling of the CTA en banc may file with the
Supreme Court a verified petition for review on certiorari within fifteen (15) days from receipt thereof
pursuant to Rule 45 of the 1997 Rules of Court.
A party adversely affected by a decision or ruling of the Court en banc may appeal therefrom by
filing with the Supreme Court a verified petition for review on certiorari within fifteen (15) days from receipt
of a copy of the decision or resolution, as provided in Rule 45 of the Rules of Court. If such party has filed
a motion for reconsideration or for new trial, the period herein fixed shall run from the party's receipt of a
copy of the resolution denying the motion for reconsideration or for new trial.

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2020 UEP BAROPS REVIEWER IN TAXATION

SYLLABUS FOR THE

LIST OF RELEVANT MATERIALS

Rep. Act No. 8424 as amended by Rep. Act No.

Rep. Act No. 7160 Rep. Act No. 9505

The National Internal Revenue Code of the

Local Government Code

An Act Expanding the Jurisdiction of the Court of

Known as the Special Economic Zone Act of

Personal Equity and Retirement Account Act of

Omnibus Investments Code of 1987, as

Bases Conversion and Development

Essential Characteristic of Taxes [LEMP3S]

B. Secondary or non-revenue purposes

(1) Promotion of General Welfare

(2) Reduction of Social Inequality

(3) Encourage the Growth of Local Industries

(4) Protect our Local Industry Against Unfair Competition

(5) As an Implement of the Police Power of the State (Regulatory Measure)

3. Distinguish: tax and other forms of exactions

B. POWER OF TAXATION AS DISTINGUISHED FROM POLICE POWER AND EMINENT DOMAIN

Inherent Powers of the State

Distinctions among the Three Powers

C, THEORY AND BASIS OF TAXATION

2. The Benefits-Protection Theory

Qualifications of the Benefit-Protection Theory:

Nature of Taxing Power

D. JURISDICTION OVER SUBJECTS AND OBJECTS

Scope of Legislative Taxing Power [S2APKAM]

Is the Power to Tax the Power to Destroy?

Constitutional Restraints Re: Taxation is the Power to Destroy

Power of Judicial Review in Taxation

E. BASIC PRINCIPLES OF A SOUND TAX SYSTEM [FAT]

F. Inherent and constitutional limitations of taxation

A. Public Purpose of Taxes

B. Non-delegability of Taxing Power

4. Tax Legislation vis-à-vis Tax Administration

C. Territoriality or Situs of Taxation

1. Important Points to Consider:

2. Factors to Consider in determining Situs of Taxation

D. Exemption of the Government from Taxes

1. Due Process of Law

2. Equal Protection of the Law

3. Uniformity, Equitability and Progressivity of Taxation

4. Freedom of Speech and of the Press

5. Non-infringement of Religious Freedom

7. Non-imprisonment for non-payment of poll tax

8. Origin or Revenue, Appropriation and Tariff Bills

12. Non-impairment of the Supreme Courts’ jurisdiction in Tax Cases

c. Department of Finance Order No. 13787, dated Dec. 16, 1987

Other Constitutional Provisions related to Taxation

1. Subject and Title of Bills (Sec. 26(1) 1987 Constitution)

6. Allotment to Local Governments →Basis: Sec. 6, Art. X of the 1987 Constitution

G. STAGES OR ASPECTS OF TAXATION

H. REQUISITES OF A VALID TAX (JAPUL)

1. PROSPECTIVITY OF TAX LAWS

1. Important Points to Consider:

SITUS RULES OF TAXATION OF VARIOUS TAXES APPLIED AS FOLLOWS:

Theories re: situs of income tax