132047518 Taxation Reviewer SAN BEDA

San Beda College of Law 1 MEMORY A AID IN TAXATION LAW

TAXATION LAW 8.

I.

General Principles

POWER OF TAXATION TAXATION – power by which the sovereign sovereign through through its law-a!ing law-a!ing bo"y raises revenue to "e#ray the necessary e$pens e$penses es o# govern governen entt #ro #ro aong aong those who in soe easure are privilege" to en%oy its bene#its an" ust bear its bur"ens. Two &ol" Nature o# the Power o# Ta$ation '. It i s an an in inherent attr attrib ibut ute e sovereignty (. It is legislative in character

o#

)$tent o# Ta$ing Power *ub%ect ect to constitutional an" inhe inhere rent nt rest restri rict ctio ions ns++ the the powe powerr o# ta$ation is regar"e" as coprehensive+ unliite"+ plenary an" supree. *,OP) O& L)GI*LATI) TAXING POW) 1. Aount or rate o# ta$ 2. Apportionent o# the ta$ 3. /in" o# ta$ 4. 0etho" o# collection 5. Purpose1s o# its levy+ provided levy+ provided it is #or public purpose 6. *ub%ec *ub%ectt to be ta$e"+ ta$e"+ provided it is within its %uris"iction 7. *itus o# ta$ation en#o en#orc rce" e" prop propor orti tion onal al TAXES – cont contri ribu buti tion onss #ro #ro the the pers person onss an" an" property levie" by the law-a!ing bo"y o# the *tate by virtue o# its sovereignty in support o# governent an" #or public nee"s.

CHARACTERISTICS OF TAXES '. #orce" charge2 (. pecuniary bur"en payable in oney2 3. levie" by the legislature2 4. assesse" with soe reasonable rule o# apportion apportionent2 ent2 5see theoretica theoreticall %ustice6 7. ipo ipose se" " by the the *tat *tate e with within in its its %uris"iction2

levie" #or a public purpose.

EQUISITES OF A VALID TAX R EQUISITES '. shoul" shoul" be #or a publ public ic purpos purpose e (. the rule rule o# o# ta$at ta$ation ion shall shall be uni# uni#or or 3. that that eithe eitherr the the pers person on or prop proper erty ty ta$e" be within within the %uris"ict %uris"iction ion o# the ta$ing authority 4. that that the asse assess sse ent nt an" colle collect ctio ion n o# certain !in"s o# ta$es guarantees agai agains nstt in%u in%ust stic ice e to in"i in"ivi vi"u "ual als+ s+ espe especi cial ally ly by way way o# noti notice ce an" an" opportunity #or hearing be be provi"e" 7. the ta$ ust not ipin pinge on the inherent an" ,onstitutional liitations on the power o# ta$ation

T9)OI)* AN: ;A*)* O& TAXATION '. Lif!"##$ T%#&' Ta$es are what we pay #or civili
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON : Rhohail Ca!ro Ca!ro EDP E DP : Rachel le Saya SUBJECT HEADS: Jemina Sy, Casiano Casiano Ilagan, J., J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es %o&!es A'&, E!i'e Eni(&e', Eni(&e', Chis$ian Ca)ea, Jh&n!ee *&illemo

San Beda College of Law 1 MEMORY A AID IN TAXATION LAW Note Whil While e ta$e ta$ess are are inte inten" n"e" e" #or #or gene genera rall bene#i bene#its ts++ spec specia iall bene bene#i #its ts to ta$p ta$pay ayer erss are are not not re>ui re>uire re". ". The The Gove Govern rne ent nt ren" ren"er erss no spec specia iall or coensurate bene#it to any particular person or property. I* T9) POW) TO TAX T9) POW) TO :)*TO?@ 0P#& & *# * * i) *% *% /# /#&& *# '. 0P# $)*&#' $)*&#' 5!arshall !arshall "ictum) "ictum) # re#ers to the unliite"ness an" the "egree or vigor with which the ta$ing power ay be eploye" to raise revenue. - the #inancial nee"s o# the *tate ay outru outrun n any huan huan calcul calculati ation+ on+ so the power to eet those nee"s by ta$ation ust ust not be liite" even though ta$es becoe bur"ensoe or con#iscatory. con#iscatory. (. 0P#& *# * i) ,#* *% /#& *# $)*&#' %i" *% S/& C#&* )i*) ($olmes ($olmes "ictum) "ictum)  the pow power to ta$ !nows !nows no liit liit e$cept e$cept those those e$pres e$pressly sly state" in the ,onstitution. 0arshall an" 9oles :ictu econcile" Although the power to ta$ is alost unliite"+ it ust not be e$ercise" in an arbitr arbitrary ary anner anner.. I# the the abus abuse e is so great so as to "estroy the natural an" #un"aental rights o# people+ it is the "uty o# the %u"iciary to hol" such an act unconstitutional. PBPO*)* AN: O;C),TI)* O& TAXATION '. eve evenu nue e  basica basically lly++ the the purp purpos ose e o# ta$ ta$atio ation n is to prov provii"e #un" #un"ss or pro proper perty with which hich the the *tate tate proot prootes es the genera generall wel#ar wel#are e an" protection o# its citiuality $. Encourage econoic growth . Protectionis POW) O& CB:I,IAL )I)W IN TAXATION As long as the legi egislatu laturre+ in iposing a ta$+ "oes not violat late applicable applicable constitu constitutiona tionall liitations liitations or restrictions+ it is not within the province o# the courts to in>uire into the wis"o or policy o# the e$action+ the otives behin" it+ the aount to be raise" or the

persons+ property or other privileges to be ta$e". The The cour courtE tEss powe powerr in ta$at ta$atio ion n is limited only only to the the appl applic icat atio ion n an" an" interpretation o# the law. Note Note Th The principle o% &udicial non' inter%erence e$ten"s to the a"inistrative real.

ASPECTS OF TAXATION '. Levy Levy or ipo iposi siti tion on o# the the ta$ ta$ 5ta$ 5ta$ legislation6 (. )n#o )n#orc rce een entt or ta$ ta$ a"i a"ini nist stra rati tion on 5ta$ a"inistration6 ;A*I, PIN,IPL)* O& A *OBN: TAX *?*T)0 5/)?D &AT6 i)("" A$ $ (' – su##i '. Fi)( su##icie ciency ncy to eet governent e$pen"itures an" other public nee"s. F)i!i"i*' (. A$i,i)*&*i8 C#,8 C#,8, ,i i,( ,(  – capabi capabilit lity y o# being being e##ectively en#orce". T%#&*i(" " 9)*i( 9)*i( – base" on the 3. T%#&*i( ta$pay ta$payerE erEss abilit ability y to pay2 pay2 ust ust be progressive. 5Ability to Pay Theory6 TAXATION To raise revenue

2. No liit

3. No special or "irect bene#it is receive" by the ta$payer2 erely general bene#it o# protection

POLICE POWER

E:INENT DO:AIN

1. Purpose To proote To #acilitate public the *tateEs purpose nee" o# through property #or regulations public use Amou Amount nt of Exac Exacti tion on Liite" to No e$action2 No e$action2 the cost o# but private regulation+ property is issuance o# ta!en by the the license or *tate #or surveillance public purpose

Bene Benefi fits ts Rece Receiv ived ed No "irect A "irect bene#it is bene#it results receive"2 a in the #or o# healthy %ust econoic copensation stan"ar" o# to the society is property attaine" owner

4. Non-impairment of Contracts Contracts


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW Note Whil While e ta$e ta$ess are are inte inten" n"e" e" #or #or gene genera rall bene#i bene#its ts++ spec specia iall bene bene#i #its ts to ta$p ta$pay ayer erss are are not not re>ui re>uire re". ". The The Gove Govern rne ent nt ren" ren"er erss no spec specia iall or coensurate bene#it to any particular person or property. I* T9) POW) TO TAX T9) POW) TO :)*TO?@ 0P#& & *# * * i) *% *% /# /#&& *# '. 0P# $)*&#' $)*&#' 5!arshall !arshall "ictum) "ictum) # re#ers to the unliite"ness an" the "egree or vigor with which the ta$ing power ay be eploye" to raise revenue. - the #inancial nee"s o# the *tate ay outru outrun n any huan huan calcul calculati ation+ on+ so the power to eet those nee"s by ta$ation ust ust not be liite" even though ta$es becoe bur"ensoe or con#iscatory. con#iscatory. (. 0P#& *# * i) ,#* *% /#& *# $)*&#' %i" *% S/& C#&* )i*) ($olmes ($olmes "ictum) "ictum)  the pow power to ta$ !nows !nows no liit liit e$cept e$cept those those e$pres e$pressly sly state" in the ,onstitution. 0arshall an" 9oles :ictu econcile" Although the power to ta$ is alost unliite"+ it ust not be e$ercise" in an arbitr arbitrary ary anner anner.. I# the the abus abuse e is so great so as to "estroy the natural an" #un"aental rights o# people+ it is the "uty o# the %u"iciary to hol" such an act unconstitutional. PBPO*)* AN: O;C),TI)* O& TAXATION '. eve evenu nue e  basica basically lly++ the the purp purpos ose e o# ta$ ta$atio ation n is to prov provii"e #un" #un"ss or pro proper perty with which hich the the *tate tate proot prootes es the genera generall wel#ar wel#are e an" protection o# its citiuality $. Encourage econoic growth . Protectionis POW) O& CB:I,IAL )I)W IN TAXATION As long as the legi egislatu laturre+ in iposing a ta$+ "oes not violat late applicable applicable constitu constitutiona tionall liitations liitations or restrictions+ it is not within the province o# the courts to in>uire into the wis"o or policy o# the e$action+ the otives behin" it+ the aount to be raise" or the

persons+ property or other privileges to be ta$e". The The cour courtE tEss powe powerr in ta$at ta$atio ion n is limited only only to the the appl applic icat atio ion n an" an" interpretation o# the law. Note Note Th The principle o% &udicial non' inter%erence e$ten"s to the a"inistrative real.

ASPECTS OF TAXATION '. Levy Levy or ipo iposi siti tion on o# the the ta$ ta$ 5ta$ 5ta$ legislation6 (. )n#o )n#orc rce een entt or ta$ ta$ a"i a"ini nist stra rati tion on 5ta$ a"inistration6 ;A*I, PIN,IPL)* O& A *OBN: TAX *?*T)0 5/)?D &AT6 i)("" A$ $ (' – su##i '. Fi)( su##icie ciency ncy to eet governent e$pen"itures an" other public nee"s. F)i!i"i*' (. A$i,i)*&*i8 C#,8 C#,8, ,i i,( ,(  – capabi capabilit lity y o# being being e##ectively en#orce". T%#&*i(" " 9)*i( 9)*i( – base" on the 3. T%#&*i( ta$pay ta$payerE erEss abilit ability y to pay2 pay2 ust ust be progressive. 5Ability to Pay Theory6 TAXATION To raise revenue

2. No liit

3. No special or "irect bene#it is receive" by the ta$payer2 erely general bene#it o# protection

POLICE POWER

E:INENT DO:AIN

1. Purpose To proote To #acilitate public the *tateEs purpose nee" o# through property #or regulations public use Amou Amount nt of Exac Exacti tion on Liite" to No e$action2 No e$action2 the cost o# but private regulation+ property is issuance o# ta!en by the the license or *tate #or surveillance public purpose

Bene Benefi fits ts Rece Receiv ived ed No "irect A "irect bene#it is bene#it results receive"2 a in the #or o# healthy %ust econoic copensation stan"ar" o# to the society is property attaine" owner

4. Non-impairment of Contracts Contracts


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW ,ontracts ay not be ipaire"

,ontracts ay be ipaire"

,ontracts ay be ipaire"

5. ransfer ransfer of Propert! Ri"#ts Ta$es pai" No trans#er Trans#er is becoe part but only e##ecte" in o# public restraint in #avor o# the #un"s its e$ercise *tate All person persons+ s+ property an" e$cises

$. %cope All All pers person ons+ s+ property+ rights an" privileges

nly upon upon a particular property

*?*T)0* O& TAXATION ;"# "#! !" S')* S(%$" "&& S')* *  A syste epl eploy oye" e" wher where e the the ta$ ta$ syste yste  views in"i## in"i##ere erentl ntly y the ta$ base an" generally treats in coon all categories o# ta$able ta$able incoe incoe o# the in"ivi"ual. A syst syste e whic which h ta$es all categories o# inco incoe e e$ce e$cept pt cert certai ain n pass passiv ive e incoes an" capita capitall gains. gains. It prescribes a unitary but prog progre ress ssiv ive e rate rate #or #or the the ta$a ta$abl ble e aggregate incoes an" #lat rates #or cert certai ain n pass passiv ive e inco incoe ess "eri "erive ve" " by in"ivi"uals.

A syst syste e epl eploy oye" e" where the incoe ta$ treat treatent ent varies varies an" is a"e to "epen" on the !in" or category o# ta$able incoe o# the ta$payer.

A syste which itei
)$a )$apl ples es O# Ta$es Levi Levie" e" With ith A egul egulat ator ory y Purp Purpos ose+ e+ Or ,ob ,obin ine" e" )$ercise O# Police Power An" The Power O# Ta$ation.

. 0otor vehicle registration #ees are are now now cons consi" i"er ere" e" reve revenu nue e or ta$ ta$ easures.(Pal easures.(Pal v. du, G.R No. *'+--, August /,0) This case reverse" the "octrine previously hel" in epublic v. Philippine abbit ;us Lines+ Inc.+ 3( *,A (''+ to the e##ect that otor vehicle regi egistration #ees are regu egulatory e$actions an" not revenue easures.

!. The ta$ ipose" on vi"eogra establishents is not only regulatory but a revenue easure because the earnings o# such such establ establish ishen ents ts have have not been sub%ect to ta$ "epriving the governent o# an a""itional a""itional source source o# incoe. incoe. (1io v. 2ideo 2ideogra gram m Regulat Regulatory ory 3oard, 3oard, / 4CRA 56) (. The Fcoconut levy #un"s were all raise" un"er the stateEs ta$ing an" police powers. The stateEs concern to a!e it a strong an" secure source not only in the livelihoo" o# the signi#icant segent o# the the popu popula lati tion on++ but but also also o# e$po e$port rt earnings+ the sustaine" growth o# which is one o# the ipera erativ tives o# the econo econoic ic growth growth. . Philippine Philippine Coconut Coconut Producers Producers 7ederation 7ederation,, Inc. Coco%ed Coco%ed v. Pres Presid iden enti tial al Commi ommisssion ion on Good ood Government (8 4CRA 5-9, 5/5) AW* ,ON*TB,TION O& TAX LAW* '. Public Public purpos purpose e is always always presu presue". e". (. I# the the law is is clea clearr+ app apply ly the the law in in accor" accor"anc ance e to its plain plain an" siple siple tenor. 3. A st statute wi will not be construe" as ipo ipossing ing a ta$ un&ess it "oes "oes so clearly+ e$pressly an" unabiguously. 4. In case case o# o# "oubt+ "oubt+ it it is cons constru true" e" ost ost strong strongly ly agains againstt the Govern Governen ent+ t+ an" "i!&""' in #avor o# the ta$payer. 7. Prov Provis isio ions ns o# o# a ta$in ta$ing g act act are are not to be e$ten"e" by iplication. 8. Ta$ law laws opera erate pro prospect ectively ely un&ess the purpose o# the legislature to give give retr retro ospec specttive ive e##e e##ect ct is e$p e$pressly "eclare" or ay be iplie" #ro the language use". H. Ta$ law lawss ar are )/(i" ") an" prevail over a general law. NATURE NATURE OF TAX LAWS AWS

'. Not Not polit politic ical al in in char charac acter ter (. ,iv ,ivil in natu nature re++ not sub% sub%ec ectt to e$ post #acto law prohibitions 3. Not Not pen penal al in char charac acter ter TAX)* A) P)*ONAL TO T9) TAXPA?) '. A cor corpor poratio ation nEs ta$ ta$ "eli "elin n>uen >uenc cy cannot be en#o en#orrce" ce" agai agains nstt its its


San Beda College of Law 1 MEMORY AID IN TAXATION LAW stoc!hol"ers.
)state ta$es are obligations that ust be pai" by the e$ecutor or a"inistrator out o# the net assets an" cannot be assesse" against the heirs. :ception I# prior to the payent o# the estate ta$ "ue+ the properties o# the "ecease" are "istribute" to the heirs+ then the latter is subsi"iary liable #or the payent o# such portion o# the estate ta$ as his "istributive share bears to the total value o# the net estate. (4ec. 0, Rev. Regs. No. 5'566-; see CIR vs. Pineda G.R. No. *'558-+. 4eptember /, 098))

,LA**I&I,ATION O& TAX)* '. As to sub%ect atterD a. P&)#," T – ta$es are o# #i$e" aount upon all persons o# a certain class within the %uris"iction without regar" to property+ occupation or business in which they ay be engage". b. P&#/&*' T – assesse" on property o# a certain class c. E(i) T – ipose" on the e$ercise o# a privilege ". C)*#) D*i) – "uties charge" upon the coo"ities on their being iporte" into or e$porte" #ro a country. (. As to bur"enD a. Di&(* T – both the inci"ence o# or liability #or the payent o# the ta$ as well as the ipact or bur"en o# the ta$ #alls on the sae person. b. I,$i&(* T - The inci"ence o# or liability #or the payent o# the ta$ #alls on one person but the bur"en thereo# can be shi#te" or passe" on to another.

3. As to purposeD a. ;,&" T – levie" #or the general or or"inary purposes o# the Governent b. S/(i" T – levie" #or special purposes 4. As to anner o# coputationD a. S/(ifi( T – the coputation o# the ta$ or the rates o# the ta$ is alrea"y provi"e" #or by law. b. Ad 'a&orem T – ta$ upon the value o# the article or thing sub%ect to ta$ation2 the intervention o# another party is nee"e" #or the coputation o# the ta$. 7. As to ta$ing authorityD a. N*i#," T – levie" by the National Governent b. L#(" T – levie" by the local governent 8. As to rateD a. P&#>&))i8 T – rate or aount o# ta$ increases as the aount o# the incoe or earning to be ta$e" increases. b. R>&))i8 T – ta$ rate "ecreases as the aount o# incoe to be ta$e" increases. c. P&#/#&*i#,* T – base" on a #i$e" proportion o# the value o# the property assesse". Ipositions Not *trictly ,onsi"ere" as Ta$es 1. T#"" – aount charge" #or the cost an" aintenance o# the property use". 2. P,"*' – punishent #or the coission o# a crie. 3. C#/&#i) P,"*' – aount collecte" in lieu o# criinal prosecution in cases o# ta$ violations. 4. S/(i" A)))),* – levie" only on lan" base" wholly on bene#it accruing thereon as a result o# iproveents or public wor!s un"erta!en by governent within the vicinity. 5. Li(,) #& F – regulatory iposition in the e$ercise o# the police power. 6. :&>i, F – e$action "esigne" to stabili
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON : Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee *&illemo

San Beda College of Law 1 MEMORY AID IN TAXATION LAW 7.

D!* – a su o# oney "ue upon contract or one which is evi"ence" by %u"gent. ?. S!)i$' – a legislative grant o# oney in ai" o# a private enterprise "eee" to proote the public wel#are. @. C)*#) $*i) ,$ f) – "uties charge" upon coo"ities on their being transporte" into or e$porte" #ro a country. 1. R8, – a broa" ter that inclu"es ta$es an" incoe #ro other sources as well. 11. I/#)* – in its general sense+ it signi#ies any ta$+ tribute or "uty. In its liite" sense+ it eans a "uty on iporte" goo"s an" erchan"ise. Ta$

*pecial Assessent

Ipose" on persons+ property an" e$cises

Levie" only on lan"

Personal liability attaches on the person assesse" in case o# non-payent

,annot be a"e a personal liability o# the person assesse"

Not base" on any special or "irect bene#it

;ase" wholly bene#it

Levie" an" annually

pai"

)$ceptional both as to tie an" locality

)$eption grante" is applicable (Art. 2I, 4ec. 5(-) 08 Constitution)

)$eption "oes not apply. N.;. I# property is e$ept #ro eal Property Ta$+ it is also e$ept #ro *pecial Assessent.

Ta$

License &ee

;ase" on the power o# ta$ation

)anates police power

To revenue

egulatory

generate

Aount is unliite"

Norally pai" a#ter

on

#ro

Aount is liite" to the cost o# 5'6 issuing the license+ an" 5(6 inspection an" surveillance Norally

the start business

o#

a

be#ore coenceent business

o#

Ta$es+ being the li#ebloo" o# the *tate+ cannot be surren"ere" e$cept #or law#ul consi"eration

License #ee ay be with or without consi"eration

Non-payent "oes not a!e the business illegal but aybe a groun" #or criinal prosecution

Non-payent a!es the business illegal

Test in "eterining i# the iposition is a ta$ or a license #ee I# the purpose is priarily revenue or i# revenue is+ at least+ one o# the real an" substantial purposes+ then the e$action is a ta$. I# the purpose is regulatory in nature+ it is a license. (PA* v. du) Ta$

:ebt

An obligation ipose" by law

,reate" by contract

:ue to the governent in its sovereign capacity

0ay be "ue to the governent but in its corporate capacity

Payable in oney

Payable in oney+ property or services

:oes not "raw interest e$cept in case o# "elin>uency

:raws interest stipulate" "elaye"

Not assignable

Assignable

Not sub%ect copensation set-o##

to or

*ub%ect copensation set-o##

i# or

to or

Non-payent is punishe" by iprisonent e:cept in poll ta$

No iprisonent in case o# non-payent (Art. III, 4ec. 56 08 Constitution)

Ipose" only by public authority

,an be ipose" by private in"ivi"ual

Test in "eterining i# the iposition is a ta$ or a license #ee

pai"


San Beda College of Law 1 MEMORY AID IN TAXATION LAW I# the purpose is priarily revenue or i# revenue is+ at least+ one o# the real an" substantial purposes+ then the e$action is a ta$. I# the purpose is regulatory in nature+ it is a license. (PA* v. du) Ta$

:ebt

An obligation ipose" by law

,reate" by contract

:ue to the governent in its sovereign capacity

0ay be "ue to the governent but in its corporate capacity

Payable in oney

Payable in oney+ property or services

:oes not "raw interest e$cept in case o# "elin>uency

:raws interest stipulate" "elaye"

Not assignable

Assignable

Not sub%ect copensation set-o##

to or

:octrine o# )>uitable ecoupent Not &ollowe" in the Philippines A ta$ presently being assesse" against a ta$payer which has prescribe" ay not be recoupe" or set-o## against an overpai" ta$ the re#un" o# which is also barre" by prescription. It is against public policy since both parties are guilty o# negligence. Ta$

*ub%ect copensation set-o##

i# or

Toll

)n#orce" proportional contributions #ro persons an" property

A "ean" sovereignty

A su o# oney #or the use o# soething+ a consi"eration which is pai" #or the use o# a property which is o# a public nature2 e.g. roa"+ bri"ge

o# A "ean" proprietorship

o#

No liit as to the aount o# ta$

Aount o# toll "epen"s upon the cost o# construction or aintenance o# the public iproveent use"

to or

Non-payent is punishe" by iprisonent e:cept in poll ta$

No iprisonent in case o# nonpayent (Art. III, 4ec. 56 08 Constitution)

Ipose" only by the *tate

0ay be ipose" byD 5'6 Governent 5(6 Private in"ivi"uals or entities

Ipose" only by public authority

,an be ipose" by private in"ivi"ual

Ta$

Penalty

,O0P)N*ATION O *)T-O&& General Rule Ta$es cannot be the sub%ect o# copensation or set-o##. Reasons . li#ebloo" theory 5. ta$es are not contractual obligation but arise out o# "uty to the governent -. the governent an" the ta$payer are not utually cre"itors an" "ebtors o# each other. (7rancia v. IAC) :ception When both obligations are "ue an" "ean"able as well as #ully li>ui"ate" an" all the re>uisites #or a vali" copensation are present+ copensation ta!es place by operation o# law. ("omingo v. Garlitos)

)n#orce" proportional contributions persons property

Inten"e" revenue

to

#ro an"

*anction ipose" as a punishent #or violation o# a law or acts "eee" in%urious2 violation o# ta$ laws ay give rise to iposition o# penalty

raise

:esigne" to regulate con"uct

0ay be ipose" only by the governent

0ay be ipose" byD 5'6 Governent 5(6 Private in"ivi"uals or entities

Ta$ All ebracing ter to inclu"e various

Tari## A !in" o# ta$ ipose" on articles


San Beda College of Law 1 MEMORY AID IN TAXATION LAW !in"s o# en#orce" contributions upon persons #or the attainent o# public purposes

which are tra"e" internationally

Ta$payersE *uit A case where the act coplaine" o# "irectly involves the illegal "isburseent o# public #un"s "erive #ro ta$ation (uisites #or Ta$payersE *uit a. The ta$ oney is being e$tracte" an" spent in violation o# speci#ic constitutional protections against abuses o# legislative power. b. That public oney is being "e#lecte" to any iproper purpose (Pascual vs 4ecretary o% Public >or?s) That the petitioner seeks to restrain c. respondents from wasting pubi! funds through the enfor!ement of an in"aid or un!onstitutiona aw

LI0ITATION* ON T9) TAXING POW) A. '. (. 3. 4. 7.

Inherent Liitations 5/eyD *PIN)6 Territoriality or *itus o# ta$ation Public purpose o# ta$es International coity Non-"elegability o# the ta$ing power Ta$ )$eption o# the governent

5'6 Tests in :eterining Public Purpose a. :uty Test  whether the thing to be #urthere" by the appropriation o# public revenue is soething+ which is the "uty o# the *tate+ as a governent+ to provi"e. b.

- re#ers to ta$ legislation :ceptions to Non'delegability . &le$ible Tari## ,lauseD Authority o# the Presi"ent to #i$ tari## rates+ iport an" e$port >uotas+ tonnage an" whar#age "ues+ an" other "uties or iposts. (Art. 2I, 4ec.5(5), 08 Constitution) 5. Power o# local governent units to levy ta$es+ #ees+ an" charges. (Art. @, 4ec. /, 08 Constitution) -. :elegation to a"inistrative agencies #or ipleentation an" collection. # erely re#ers to ta$ a"inistration or ipleentation 536 *itus or territoriality o# Ta$ation The power to ta$ is liite" only to persons+ property or businesses ithin the %uris"iction or territory o# the ta$ing power.

FACTORS THAT DETER:INE THE SITUSB a. /in" or classi#ication o# the ta$ being levie" b. *itus o# the thing or property ta$e" c. ,iti
esi"ence "oicile ta$payer

eal property ta$

Location o# property (*e: rei sitae)

Personal ta$

-tangibleD where it is physically locate" or peranently !ept (*e: rei sitae) -intangibleD sub%ect to 4ec. 6+ o% the NIRC an" the principle o# mobilia seBuuntur personam

property

Prootion o# General Wel#are Test  whether the procee"s o# the ta$ will "irectly proote the wel#are o# the counity in e>ual easure.

5(6 Non-:elegability o# the Ta$ing Power General Rule The power o# ta$ation is peculiarly an" e$clusively e$ercise" by the legislature. 5*ee *cope o# Legislative Ta$ing Power+ supra6

o#

;usiness ta$

Place o# business

)$cise or Privilege

Where

the

or the

act


is

San Beda College of Law 1 MEMORY AID IN TAXATION LAW ta$

per#ore" or where occupation is pursue"

*ales ta$

Where the sale is consuate"

Incoe Ta$

,onsi"er 5'6 citi
Trans#er ta$

esi"ence or citi
&ranchise Ta$

*tate which grante" the #ranchise

*itus o# Ta$ation o# Intangible Personal Property General Rule :oicile o# the owner pursuant to the principle o# the mobilia seBuuntur personam or ovables #ollow the person. :ceptions . When the property has ac>uire" a business situs in another %uris"iction2 5. When an e$press provision o# the statute provi"e #or another rule. Illustration &or purposes o# estate an" "onorEs ta$es+ the #ollowing intangible properties are "eee" with a situs in the PhilippinesD () #ranchise which ust be e$ercise" in the Philippines2 (5) shares+ obligations or bon"s issue" by any corporation organiuire" a business situs in the Philippines2 an" (/) shares or rights in any partnership+ business or in"ustry establishe" in the Philippines. (4ec. 6+, 008 NIRC).

546 )$eption o# the Governent As a atter o# public policy+ property o# the *tate an" o# its unicipal sub"ivisions "evote" to governent uses an" purposes is "eee" to be e$ept #ro ta$ation although no e$press provision in the law is a"e there#or. General Rule The Governent is ta$ e$ept. - 9owever+ it can also ta$ itsel#. ulesD '. A"inistrative Agencies a. Governental #unction - ta$ e$ept unless when the law e$pressly provi"es #or ta$. (4ec. -5 38) b. Proprietary #unction  ta$able unless e$epte" by law. (4ec. 58C) (. GO,,s General Rule Incoe is ta$able at the rate ipose" upon corporations or associations engage" in a siilar business+ in"ustry+ or activity. :ception G*I*+ ***+ P9I,+ P,*O an" PAG,O. 5*ec. (H5,6+ NI,6 3. Governent )"ucational Institutions a. Property or real estate ta$  property actually+ "irectly an" e$clusively use" #or e"ucational purposes  e$ept but incoe o# whatever !in" an" character #ro any o# their properties+ real or personal+ regar"less o# the "isposition+ is ta$able. (4ec. -6, last par., NIRC) b. Incoe receive" by the as such are e$ept #ro ta$es. 9owever+ their incoe #ro any o# their activities con"ucte" #or pro#it regar"less o# the "isposition+ is ta$able. (4ec. -6, last par., NIRC) 4. Incoe "erive" #ro any public utility or #ro the e$ercise o# any essential governental #unction accruing to the Governent o# the Philippines or to any political sub"ivision thereo# is not inclu"e" in gross incoe an" e$ept #ro ta$ation. (4ec. -5(3)(8)(b), NIRC) 7. :onations in #avor o# governental institutions are consi"ere" as incoe on the part o# the "onee. 9owever+


San Beda College of Law 1 MEMORY AID IN TAXATION LAW

8.

H.

.

K.

'.

it is not consi"ere" as ta$able incoe because it is an e:clusion #ro the coputation o# gross incoe. (4ec.-5 (3)(-), NIRC) The aount o# all be>uests+ legacies+ "evises or trans#ers to or #or the use o# the Governent or any political sub"ivision #or e$clusively public purposes is deductible #ro the gross estate. (4ec.9 (A)(-), NIRC) Gi#ts a"e to or #or the use o# the National Governent or any entity create" by any o# its agencies which is not con"ucte" #or pro#it+ or to any political sub"ivision o# the sai" Governent are e$ept #ro "onorEs ta$. (4ec. 6(A)(5), NIRC) Local governent units are e$pressly prohibite" by the LG, #ro levying ta$ upon National Governent+ its agencies+ an" instruentalities+ an" local governent units. 4ec. -(o), *GCD Bnless otherwise provi"e" in the Local Governent ,o"e 5LG,6+ ta$ e$eptions grante" to all persons+ whether natural or %uri"ical+ inclu"ing GO,,+ e$cept local water "istricts+ cooperatives "uly registere" un"er A No. 8K3+ nonstoc! an" non-pro#it institutions+ are with"rawn upon e##ectivity o# the LG,. (4ec. 0-, *GC) eal property owne" by the epublic o# the Philippines or any o# its political sub"ivisions e$cept when the bene#icial use thereo# has been grante"+ #or consi"eration or otherwise+ to a ta$able person shall be e$ept #ro payent o# real property ta$. (4ec. 5-+, *GC)

576 International ,oity These principles liit the authority o# the governent to e##ectively ipose ta$es on a sovereign state an" its instruentalities+ as well as on its property hel" an" activities un"erta!en in that capacity. )ven where one enters the territory o# another+ there is an iplie" un"erstan"ing that the #orer "oes not thereby subit itsel# to the authority an" %uris"iction o# the other. ;. ,onstitutional Liitations

A. G)N)AL O IN:I),T ,ON*TITBTIONAL LI0ITATION* . :ue Process ,lause (Art. III, 4ec. , 08 Constitution) e>uisitesD a. The interests o# the public as "istinguishe" #ro those o# a particular class re>uire the intervention o# the *tate. (4ubstantive limitation) b. The eans eploye" ust be reasonably necessary to the accoplishent o# the purpose an" not un"uly oppressive. (Procedural limitation) The constitutionality o# a legislative ta$ing act >uestione" on the groun" o# "enial o# "ue process re>uires the e$istence o# an actual case or controversy. 5. )>ual Protection ,lause 5 Art. III, 4ec. , 08 Constitution e>uisites o# a ali" ,lassi#icationD a. base" upon substantial "istinctions b. gerane to the purposes o# the law c. not liite" to e$isting con"itions only ". apply e>ually to all ebers o# the class -. &ree"o O# *peech An" O# The Press (Art. III, 4ec. +, 08 Constitution) There is curtailent o# press #ree"o an" #ree"o o# thought an" e$pression i# a ta$ is levie" in or"er to suppress this basic right an" ipose a prior restraint. (1olentino vs. 4ecretary o% 7inance, GR No. /+//, August 5/, 00+) +. Non-In#ringeent O# eligious &ree"o An" Worship 5 Art. III, 4ec. /, 08 Constitution) A license ta$ or #ee constitutes a curtailent o# religious #ree"o i# ipose" as a con"ition #or its e$ercise. (American 3ible 4ociety vs. City o% !anila, GR No. *'09-8, April -6, 0/8) /. Non-Ipairent O# ,ontracts 5 Art. III, 4ec. 6, 08 Constitution)


San Beda College of Law 1 MEMORY AID IN TAXATION LAW No law ipairing the obligation o# contract shall be passe". (4ec. 6, Art. III, 08 Constitution) The rule+ however+ "oes not apply to public utility #ranchises or right since they are sub%ect to aen"ent+ alteration or repeal by the ,ongress when the public interest so re>uires. (Cagayan lectric E *ight Co., Inc. v. Commissioner, GR No. 9659, 4eptember 5/, 0/)

R ULESB a. When the e$eption is bilaterally agree" upon between the governent an" the ta$payer  it cannot be with"rawn ithout violating the non-ipairent clause. b. When it is unilaterally grante" by law+ an" the sae is ithdran by virtue o# another law  no violation. c. When the e$eption is grante" un"er a #ranchise  it ay be ithdran at any tie thus+ not a violation o# the non-ipairent o# contracts 9. Presi"ential power to grant reprieves+ coutations an" par"ons an" reit #ines an" #or#eitures a#ter conviction 5 AR1. 2II, 4C. 0, 08 CN41I1F1IN) E" :ue U,if#&i*' P&#*(*i#, Process Ta$payer ay not be "eprive" o# li#e+ liberty or property without "ue process o# law. Notice ust+ there#ore + be given in case o# #ailure to pay ta$es

Ta$payers shall be treate" ali!e un"er li!e circustances an" con"itions both in the privileges con#erre" an" liabilities ipose".

Ta$able articles+ or !in"s o# property o# the sae class+ shall be ta$e" at the sae rate. There shoul" there#ore+ be no "irect "ouble ta$ation

;. *P),I&I, O :I),T ,ON*TITBTIONAL LI0ITATION*

'. Non-Iprisonent &or :ebt Or NonPayent O# Poll Ta$ 5 Art. III, 4ec. 56, 08 Constitution) (. ule e>uiring That Appropriations+ evenue An" Tari## ;ills *hall Originate )$clusively &ro The 9ouse O# epresentatives 5 Art. 2I, 4ec. 5+, 08 Constitution) -. Bni#ority+ )>uitability An" Progressivity O# Ta$ation (Art. 2I, 4ec. 5(), 08 Constitution) Bni#ority  all ta$able articles or !in"s o# property o# the sae class are ta$e" at the sae rate. )>uitability  the bur"en #alls to those who are ore capable to pay. Progressivity  rate increases as the ta$ base increases. MD Is a ta$ law a"opting a regressive syste o# ta$ation vali"@ AD ?es. The ,onstitution "oes not really prohibit the iposition o# in"irect ta$es which+ li!e the AT+ are regressive. The ,onstitutional provision eans siply that in"irect ta$es shall be inii

San Beda College of Law 1 MEMORY AID IN TAXATION LAW The present ,onstitution re>uire" that #or the e$eption o# Flan"s+ buil"ings an" iproveents+ they shoul" not only be Fe$clusively but also Factually an" F"irectly use" #or religious an" charitable purposes. (Province o% Abra vs. $ernando, GR No. *'+0--9, August -, 0) The test o# e$eption #ro ta$ation is the use o# the property #or the purposes entione" in the ,onstitution. (Abra 2alley College Inc. vs. ABuino, GR No. *'-069,
EXCLUSIVE +UT NOT A+SOLUTE USE The ter F e$clusively use" "oes not necessarily ean total or absolute use #or religious+ charitable an" e"ucational purposes. I# the property is inci"entally use" #or sai" purposes+ the ta$ e$eption ay still subsist. (Abra 2alley College Inc. vs. ABuino, Gr No. *' -069,
Grantee

Ta$es covere"

ART. XIV SEC 4<3=

ART. VI SEC 2?<3=

Non- stoc!+ non pro#it e"ucational institution Incoe ta$ ,usto :uties Property ta$ ("C4 rder No. -8'8)

eligious+ e"ucational+ charitable institutions Property ta$

9. oting e>uireent In ,onnection With The Legislative Grant O# Ta$ )$eption (Art. 2I, 4ec. 5(+), 08 Constitution) 8. Non-Ipairent O# The Curis"iction O# The *upree ,ourt In Ta$ ,ases (Art. 2III, 4ec. 5 And /(5)(3), 08 Constitution) . )$eption &ro Ta$es O# The evenues An" Assets O# )"ucational Institutions+ Inclu"ing Grants+ )n"owents+ :onations An"

,ontributions. (Art. @I2, 4ec. +(-) And (+), 08 Constitution)

OTHER SPECIFIC TAX PROVISIONS IN THE CONSTITUTION '. Power o# the Presi"ent to veto any particular ite or ites in an appropriation+ revenue+ or tari## bill. (Art 2I, 4ec. 58(5), 08 Constitution) (. Necessity o# an appropriation be#ore oney ay be pai" out o# the public treasury. (Art. 2I, 4ec. 50 (), 08 Constitution) 3. Non-appropriation o# public oney or property #or the use+ bene#it+ or support o# any sect+ church+ or syste o# religion. (Art. 2I, 4ec. 50 (5), 08 Constitution) 4. Treatent o# ta$es levie" #or a special purpose. (Art. 2I, 4ec. 50 (-), 08 Constitution) 7. Internal revenue allotents to local governent units. (Art. @, 4ec. 9, 08 Constitution)

:OB;L) TAXATION :ouble Ta$ation  ta$ing the sae property twice when it shoul" be ta$e" but once. Is "ouble ta$ation prohibite" in the Philippines@ No. There is no constitutional prohibition against "ouble ta$ation. It is not #avore" but perissible. (Pepsi Cola 3ottling Co. v. City o% 3utuan, 09). /in"s o# :ouble Ta$ation :uplicate Ta$ation 1 <1= :irect Obno$ious  "ouble ta$ation in the ob%ectionable or prohibite" sense. This constitutes a violation o# substantive "ue process. )leentsD a. the sae property or sub%ect atter is ta$e" twice when it shoul" be ta$e" only once. b. both ta$es are levie" #or the sae purpose c. ipose" by the sae ta$ing authority d. within the sae %uris"iction


San Beda College of Law 1 MEMORY AID IN TAXATION LAW e. %.

"uring the sae ta$ing perio" covering the sae !in" or character o# ta$. (2illanueva vs. City o% Iloilo)

<2= In"irect :uplicate Ta$ation  not legally ob%ectionable. The absence o# one or ore o# the aboveentione" eleents a!es the "ouble ta$ation in"irect. <3= D#)*i(- this arises when the ta$es are ipose" by the local or national governent 5within the sae state6 <4= I,*&,*i#,"- re#ers to the iposition o# coparable ta$es in two or ore states on the sae ta$payer in respect o# the sae sub%ect atter an" #or i"entical perio"s. ee"ies o# :ouble Ta$ation '. Ta$ *paring ule  sae "ivi"en" earne" by a N&, within the Phil. is re"uce" by iposing a lower rate o# '7J 5in lieu o# the 37J6+ on the con"ition that the country to which the N&, is "oilice" shall allow a cre"it against the ta$ "ue #ro the N&,+ ta$es "eee" to have been pai" in the Phil. 5*ec.( ; 7b6 5,I vs Procter  Gable6 (GR No. 99-, "ec. 5, 006 (. Ta$ "e"uctions :ampleD vanishing "e"uction un"er *ection 85A65(6+ NI, 3. Ta$ cre"its Instances under the NIRC &or 2A1 purposes+ the ta$ on inputs or ites that go into the anu#acture o# #inishe" pro"ucts 5which are eventually sol"6 ay be cre"ite" against or "e"ucte" #ro the output ta$ or ta$ on the #inishe" pro"uct. 7oreign income ta:es ay be cre"ite" against the Phil. Incoe ta$+ sub%ect to certain liitations+ by citi
•

•

the estate o# citi
0etho"s esorte" To ;y A Ta$ Treaty In Or"er To )liinate :ouble Ta$ation &I*T 0)T9O:D The ta$ treaty sets out the respective rights to ta$ by the state o# source or situs an" by the state o# resi"ence with regar" to certain classes o# incoe or capital. In soe cases+ an e$clusive right to ta$ is con#erre" in one o# the contracting states2 however+ #or other ites o# incoe or capital+ both states are given the right to ta$ although the aount o# ta$ that ay be ipose" by the state o# source is liite". *),ON: 0)T9O:D The state o# source is given a #ull or liite" right to ta$ together with the state o# resi"ence. In this case+ the treaty a!es it incubent upon the state o# resi"ence to allow relie# in or"er to avoi" "ouble ta$ation. Two etho"s o# relie# are use" un"er the secon" etho"D '. The e$eption etho"- the incoe or capital which is ta$able in the state o# source or situs is e$epte" in the state o# resi"ence+ although in soe instances it ay be ta!en into account in "eterining the rate o# ta$ applicable to the ta$ payerEs reaining incoe or capital.5This ay be "one using the ta$ "e"uction etho" which allows #oreign incoe ta$es to be "e"ucte" #ro gross incoe+ in e##ect e$epting the payent #ro being #urther ta$e".6 (. The cre"it etho"- although the incoe or capital which is ta$e" in the state o# source is still ta$able in the state o# resi"ence. The ta$ pai" in the #orer is cre"ite" against the ta$+ levie" in the latter. (Commissioner o% Internal Revenue


San Beda College of Law 1 MEMORY AID IN TAXATION LAW v. 4.C
,re"it 0etho" &ocus is on the ta$

N1 D ,oputational illustration between a ta$ "e"uction an" a ta$ cre"itD Ta$ "e"uction etho" Gross incoe LessD allowable "e"uctions inclu"ing #oreign ta$es pai" Incoe sub%ect to ta$ 0ultiplie" by rate Incoe ta$ "ue

(2) ,apitali
the value o# the property is not incoe but erely an unreali
Ta$ cre"it etho" Gross incoe LessD allowable "e"uctions e$clu"ing #oreign ta$es pai" Incoe sub%ect to ta$ 0ultiplie" by rate Incoe ta$ "ue LessD #oreign ta$es pai" Net incoe ta$ "ue

&O0* O& )*,AP) TAXATION

. &orwar" shi#ting- when bur"en o# ta$ is trans#erre" #ro a #actor o# pro"uction through the #actors o# "istribution until it #inally settles on the ultiate purchaser or consuer !. ;ac!war" shi#ting- when bur"en is trans#erre" #ro consuer through #actors o# "istribution to the #actors o# pro"uction (. Onwar" shi#ting- when the ta$ is shi#te" ( or ore ties either #orwar" or bac!war"

(3) Trans#oration  the anu#acturer

&O0

(1) *hi#ting  the process by which the

ta$ bur"en is trans#erre" #ro the statutory ta$payer (impact o% ta:ation) to another (incident o% ta:ation) without violating the law. Ipact o# Ta$ation  point on which ta$ is originally ipose". Inci"ence o# Ta$ation  point on which the ta$ bur"en #inally rests or settles "own. Illustration alue a""e" ta$. The seller is re>uire" by law to pay ta$+ but the bur"en is actually shi#te" or passe" on to the buyer.

or pro"ucer upon who the ta$ has been ipose"+ #earing the loss o# his ar!et i# he shoul" a"" the ta$ to the price+ pays the ta$ an" en"eavors to recoup hisel# by iproving his process o# pro"uction+ thereby turning out his units at a lower cost. (4) Ta$ Avoi"ance  the e$ploitation by

the ta$payer o# legally perissible alternative ta$ rates or etho"s o# assessing ta$able property or incoe+ in or"er to avoi" or re"uce ta$ liability. )$apleD Festate planning 5conveyance o# property to a #aily corporation #or shares6 ("elpher 1rades Corp. vs. IAC, /8 4CRA -+0) (5) Ta$ )vasion  use by the ta$payer o# illegal or #rau"ulent eans to "e#eat or lessen the payent o# the ta$.

/IN:* O& *9I&TING

&actors in ta$ )vasion


San Beda College of Law 1 MEMORY AID IN TAXATION LAW the en" to be achieve"+ i.e. payent o# less than that !nown by the ta$payer to be legally "ue+ or paying no ta$ when it is shown that the ta$ is "ue2 (. an accopanying state o# in" which is "escribe" as being evil+ in ba" #aith+ will#ul+ or "eliberate an" not coinci"ental2 an" 3. a course o# action which is unlaw#ul. '.

In"icia O# &rau" In Ta$ )vasion . &ailure to "eclare #or ta$ation purposes true an" actual incoe "erive" #ro business #or ( consecutive years (Republic vs GonHales, *'8095) 5. *ubstantial un"er-"eclaration o# incoe ta$ returns o# the ta$payer #or 4 consecutive years couple" with intentional overstateent o# "e"uctions (CIR vs Reyes, 6+ P$I* 69)

TAX AVOIDANCE

TAX EVASION

ali"ity

Legal an" not sub%ect to criinal penalty

Illegal an" sub%ect to criinal penalty

)##ect

0inii
($)

Ta$ )$eption  a grant o# iunity to particular persons or corporations #ro the obligation to pay ta$es.

No law granting any ta$ e$eption shall be passe" without the concurrence o# a a%ority o# all the ebers o# ,ongress 5art vi. sec 5(+) o% the 08 constitution) L)GAL ;A*I*D

/in"s o# ta$ )$eption '. As to source . ,onstitutional  iunities #ro ta$ation that originate #ro the constitution. !. *tatutory  those which eanate #ro legislation )$aples o# *tatutory )$eptions

*ec. (H+ NI, *ec. '7 Tari## an" ,ustos ,o"e *ec. (34 Local Governent ,o"e *pecial Laws+ such as the Onibus Investent ,o"e o# 'KH 5)O ((86+ Philippine Overseas *hipping Act 5A '4H as aen"e"6+ &ertili

San Beda College of Law 1 MEMORY AID IN TAXATION LAW e.

#. g. h.

Ta$ e$eption ust be strictly construe" against the ta$payer an" liberally in #avor o# the ta$ing authority. Ta$ e$eptions are not presue". ,onstitutional grants o# ta$ e$eption are sel#-e$ecuting. Ta$ e$eptions are personal.

The &ollowing Parta!e The Nature O# Ta$ )$eption '. :e"uctions #or incoe ta$ purposes (. ,lais #or re#un" 3. Ta$ anesty 4. ,on"onation o# unpai" ta$ liabilities N1 ust be strictly construe" against the ta$payer When )$eptions are ,onstrue" Liberally in #avor o# Grantee '. When the law so provi"es #or such liberal construction. (. )$eptions #ro certain ta$es+ grante" un"er special circustances to special classes o# persons. 3. )$eptions in #avor o# the governent+ its political sub"ivisions or instruentalities. 4. )$eptions to tra"itional e$eptees+ such as those in #avor o# religious an" charitable institutions. 7. I# e$eptions re#er to the public property MD 0ay a ta$ e$eption be revo!e"@ AD ?es. It is an act o# liberality which coul" be ta!en bac! by the governent unless there are restrictions. *ince ta$ation is the rule an" e$eption there#ro is the e$ception+ the e$eption ay be with"rawn by the ta$ing authority. (!actan Cebu International Airport Authority vs. !arcos, 59 4CRA 998) estrictions On evocation O# Ta$ )$eptions a. Non ipairent clause. Where the e$eption was grante" to private parties base" on aterial consi"eration o# a utual nature+ which then becoes contractual an" is covere" by the non-ipairent clause o# the ,onstitution. b. A"herence to #or- i# the ta$ e$eption is grante" by the

,onstitution+ its revocation ay be e##ecte" through ,onstitutional aen"ent only c. Where the ta$ e$eption grant is in the #or o# a special law an" not by a general law even i# the ters o# the general act are broa" enough to inclu"e the co"es in the general law unless there is ani#est intent to repeal or alter the special law (Province o% !isamis riental vs Cagayan lectric Poer and *ight Co. Inc) Nature O# Ta$ Anesty '. General or intentional overloo!ing by the state o# its authority to ipose penalties on persons otherwise guilty o# evasion or violation o# a revenue or ta$ law. (. Parta!es o# an absolute #orgiveness o# waiver o# the governent o# its right to collect. 3. To give ta$ eva"ers+ who wish to relent an" are willing to re#or a chance to "o so. RULES ON TAX A:NEST

'. Ta$ anesty a6 li!e ta$ e$eption+ it is never #avore" nor presue" b6 construe" strictly against the ta$payer 5ust show coplete copliance with the law6 (.Governent not estoppe" #ro >uestioning the ta$ liability even i# anesty ta$ payents were alrea"y receive". ReasonD )rroneous application an" en#orceent o# the law by public o##icers "o not bloc! subse>uent correct application o# the statute. The governent is never estoppe" by ista!es or errors o# its agents. 3asisD Li#ebloo" Theory 3.:e#ense o# ta$ anesty+ li!e insanity+ is a personal "e#ense. ReasonD elates to the circustances o# a particular accuse" an" not the character o# the acts charge" in the in#oration. Ta$ anesty

Ta$ e$eption


San Beda College of Law 1 MEMORY AID IN TAXATION LAW Iunity #ro all criinal+ civil an" a"inistrative liabilities arising #ro non payent o# ta$es

Iunity #ro civil liability only

Applies only to past ta$ perio"s+ hence retroactive application

Prospective application

DOCTRINE OF I:PRESCRIPTI+ILT As a rule+ ta$es are iprescriptible as they are the li#ebloo" o# the governent. 9owever+ ta$ statutes ay provi"e #or statute o# liitations. The rules that have been a"opte" are as #ollowsD a.) Nationa& *nterna& Revenue Code The statute o# liitation #or assessent o# ta$ i# a return is #ile" is within *%& <3= '&) #ro the last "ay prescribe" by law #or the #illing o# the return or i# #ile" a#ter the last "ay+ within three years #ro "ate o# actual #illing. I# no return is #ile" or the return #ile" is #alse or #rau"ulent+ the perio" to assess is within *, '&) #ro "iscovery o# the oission+ #rau" or #alsity. The perio" to collect ta$ is within *%& '&) #ro "ate o# assessent. In the case+ however+ o# oission to #ile or i# the return #ile" is #alse or #rau"ulent+ the perio" to collect is within *, '&) #ro "iscovery without nee" o# an assessent.

+.) ariff and customs code It "oes not e$press any general statute o# liitation2 it provi"e"+ however+ that E hen articles have entered and passed %ree o% duty or %inal ad&ustment o% duties made, ith subseBuent delivery, such entry and passage %ree o% duty or settlement o% duties ill, a%ter the e:piration o% one (1) !ear , %rom the date o% the %inal payment o% duties, in the absence o% %raud or protest, be %inal and conclusive upon all parties, unless the liBuidation o% import entry as merely tentative. (4ec 96-,1CC) c.6 ,oca& overnment Code

*ocal 1a:es, %ees, or charges shall be assessed ithin five (5) !ears %rom the date they became due. In case o% %raud or intent to evade the pay ment o% ta:es, %ees or charges the same may be assessed ithin ten (1) !ears %rom discovery o% the %raud or intent to evade payment. 1hey shall also be collected either by administrative or &udicial action ithin five (5) !ears %rom date o% assessment (4ec. 0+. *GC)

TAX )N&O,)0)NT AN: A:0INI*TATION *ources o# Ta$ Laws 5/eyD *P), (TA ;LT6 '. *tatutes (. Presi"ential :ecrees 3. )$ecutive Or"ers 4. ,onstitution 7. ,ourt :ecisions 8. Ta$ ,o"es H. evenue egulations . A"inistrative Issuances K. ;I ulings '. Local Ta$ Or"inance ''. Ta$ Treaties an" ,onventions e>uisites o# Ta$ egulations '. easonable (. Within the authority con#erre" 3. Not contrary to law 4. 0ust be publishe" N1 A"inistrative regulations ust always be in harmony with the provisions o# the law. In case o# "iscrepancy between the basic law an" the ipleenting rule or regulation+ the #orer prevails. Non-etroactivity o# ;I ulings General RuleD ulings are not retroactive i# they are pre%u"icial to the ta$payer. (4ec. 5+9, NIRC) :ceptions '. Where the ta$payer "eliberately isstates or oits aterial #acts #ro his return or any "ocuent re>uire" o# hi by the ;I. (. Where the #acts subse>uently gathere" by the ;I is aterially "i##erent #ro the #acts on which the ruling is base".


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 3. Where the ta$payer acte" in ba" #aith. Principle o# Legislative Approval o# an A"inistrative Interpretation through eenactent Where a statute is susceptible o# the eaning place" upon it by a ruling o# the governent agency charge" with its en#orceent an" the legislature therea#ter reenacts the provision without substantial change+ such action is to soe e$tent con#iratory that the ruling carries out the legislative purpose. ule o# No )stoppel against the Governent General Rule The Governent is not estoppe" by the ista!es or errors o# its agents2 erroneous application an" en#orceent o# law by public o##icers "o not bar the subse>uent correct application o# statutes. (. RodrigueH, Inc. vs. Collector, *'5-6+,
Organi
POWERS

AND DUTIES OF THE +IR

A)))),* an" (#""(*i#, o# all national internal revenue ta$es+ #ees+ an" charges '. E,f#&(,* o# all #or#eitures+ penalties+ an" #ines connecte" therewith (. E(*i#, o# %u"gents in all cases "eci"e" in its #avor by the ,ourt o# Ta$ Appeals 5,TA6 an" the or"inary courts 3. Give e ##ect t o an" $i,i)*& the supervisory an" police powers con#erre" to it by the ,o"e or other laws ASSESS:ENT – a #in"ing by the ta$ing authority that the ta$payer has not pai" the correct ta$es. It is also a written notice to a ta$payer to the e##ect that the aount state" therein is "ue as a ta$ an" containing a "ean" #or the payent thereo#. ;,&" &"B Ta$es are sel#-assessing an" thus+ "o not re>uire the issuance o# an assessent notice in or"er to establish the ta$ liability o# a ta$payer. E(/*i#,)B

1. Ta$ perio" o# a ta$payer is terinate" 4ec. 9("), NIRCD 2. :e#iciency ta$ liability arising #ro a ta$ au"it con"ucte" by the ;I 4ec. /9(3), NIRCD 3. Ta$ lien 4ec. 50, NIRCD 4. :issolving corporation 4ec. /5(c), NIRCD SI;NIFICANCE OF ASSESS:ENT A. In the proper pursuit o#

%u"icial an" e$tra%u"icial ree"ies to en#orce ta$payer liabilities an" certain atters that relate to it+ such as the iposition o# surcharges an" interests+ B. In the application o# statute o# liitations+ C. In the establishent o# ta$ liens+ an" /. In estiating the revenues that ay be collecte" by governent in the coing year. (!amalateo, 2ictorino. Revieer on 1a:ation, 566+)

 INDS



SELF- ASSESS:ENT-

one in which the ta$ is assesse" by the ta$payer hisel# 2. DEFICIENC ASSESS:ENT- a"e by the ta$ assessor hisel# whereby the correct aount o# the ta$ is "eterine" a#ter an e$aination or investigation is con"ucte". The liability is "eterine" an" assesse" #or the #ollowing reasonD a. aount ascertaine" e$cee"s that which is shown as the ta$ by the ta$payer in his return b. no aount o# ta$ is shown in the return c. ta$payer "i" not #ile any return at all 3. ILLE;AL AND VOID ASSESS:ENT assessent wherein ta$ assessor has no power to assess at all 4. ERRONEOUS ASSESS:ENT- assessor has power to assess but errs in the e$ercise thereo#

4. The authority o# the ,oissioner to assess ta$es ay be "elegate"+ e$cept the power to a!e #inal assessents. 7. It ust be "irecte" to the right party.

+URDEN OF PROOF IN PRE-ASSESS:ENT PROCEEDIN;S There is a presumption o# correctness an" goo" #aith on the part o# the ,I2 thus+ the bur"en lies on the ta$payer. Otherwise+ the #in"ing o# the ,I will be conclusive an" he will assess the ta$payer. The sae is true even i# the ,I is wrong+ i# the ta$payer "oes not controvert. (Cagayan Robina 4ugar !illing Co. vs. Court o% Appeals, GR. No. 55+/, ctober 5, 5666) ReasonsB a. li#ebloo" theory b. presuption o# regularity in per#orance o# public #unctions N1 Assessents by the ;I ust have on its #ace the law an" #acts upon which the presuption is a"e.

'.

PRINCIPLES ;OVERNIN; TAX ASSESS:ENTS '. Assessents are pria #acie presue" correct an" a"e in goo" #aith. (. It shoul" be base" on actual #acts. 3. It is "iscretionary on the part o# the ,oissioner.

A*%#&i*' #f  R8, Offi(& pursuant to a Letter o# Authority issue" by the egional :irector a. To e$aine ta$payers within the %uris"iction o# the "istrict in or"er to collect the correct aount o# ta$2 b. To recoen" the assessent o# any "e#iciency ta$ "ue in the sae anner that the sai" acts coul" have been per#ore" by the evenue egional :irector. General Rule incoe ta$ returns are con#i"ential. :ception in>uiry into incoe ta$ returns ay be authori
(.

3.

4.

inspection is authori
N*#&*% :*%#$- inventory etho" o# incoe ta$ veri#ication. Applies the accounting principleD assets  liabilities  networth ,on"ition #or its useD '. ta$payerEs boo!s "o not clearly re#lect his incoe or the ta$payer has no boo!s+ or i# he has boo!s+ he re#uses to pro"uce the2 (. there is evi"ence o# possible source or sources o# incoe to account #or increases in networth2 3. there is a #i$e" starting point or opening networth2 an" 4. there ust be proper a"%ustents to con#or with the incoe ta$ laws. •


San Beda College of Law 1 MEMORY AID IN TAXATION LAW Powers an" :uties o# the ,oissioner I. SECTION 4 5power to interpret ta$ law an" "eci"e ta$ cases6 1. I,*&/&* /i)i#,) #f *%i) C#$ ,$ #*%& * ") )!(* *# &8i #f *% S(&*&' #f Fi,,( i)"*i8= 2. D(i$B
II. SECTION 5 5power to obtain in#oration+ suon+ e$aine an" ta!e testiony o# persons6 3. F#& *% C#i))i#,& *# )(&*i,B 5a6 correctness o# any return or in a!ing a return where none has been a"e 5b6 liability o# any person #or any internal revenue ta$ or in correcting such liability 5c6 ta$ copliance

The ,oissioner is authoriuire" to #ile a return or ii. any o##icer or eployee o# such person or

iii. any person having in his possession1custo"y1care -- the boo!s o# accounts+ -- accounting recor"s o# entries relating to the business o# the person liable #or ta$ or any other person -- to pro"uce such boo!s+ papers+ recor"s+ an" other "ata an" to give testiony 4. to ta!e the Testiony o# the person concerne"+ un"er oath as ay be relevant to the in>uiry 7. to cause revenue o##icers an" eployees to a!e a ,anvass o# any revenue "istrict or region Nothing in *ection 7 shall be construe" as granting the ,oissioner the authority to in>uire into ban! "eposits other than as provi"e" #or un"er sec. 8 5&6 o# the ,o"e. III. *ection 8 5power to a!e assessents+ prescribe a""itional re>uireents #or ta$ a"inistration an" en#orceent6 4.

Ei,*i#, #f &*&,) ,$ $*&i,*i#, #f * $ A. A#ter a return has been #ile" the ,oissioner or his representative ay authori

San Beda College of Law 1 MEMORY AID IN TAXATION LAW provi"e" that no notice #or au"it or investigation o# such return+ has in the eantie+ been actually serve" upon the ta$payer. 5.Fi"& *# )!i* &i&$ &*&,) ,$ #*%& $#(,*) I# a person i. #ails to #ile a re>uire" return or report at the tie prescribe" or ii. will#ully or otherwise #iles a #alse or #rau"ulent return+ The ,oissioner shall 0a!e or Aen" the return #ro i. his own !nowle"ge or ii. #ro such in#oration as he can obtain through testiony or otherwise which shall be pria #acie correct an" su##icient #or all legal purposes 6.I,8,*#&'-*Gi,> S&8i"",( P&)/*i8 ;&#)) S") A. ,oissioner ay+ at any tie "uring the ta$able year 5a6 or"er the inventory ta!ing o# goo"s o# any ta$payer or 5b6 ay place the business operations o# any person 5natural1%uri"ical6 un"er observation or *urveillance+ i# there is reason to believe that such is not "eclaring his correct incoe+ sales or receipts #or ta$ purposes. The #in"ings ay be use" as basis #or assessing the ta$es an" shall be "eee" pria #acie correct.

;. ,oissioner ay prescribe a 0iniu aount o# gross receipts+ sales an" ta$able base 5ta!ing into account the sales an" incoe o# other persons engage" in siilar business6D i. When a person has #aile" to issue receipts as re>uire" by sec.''3 5Invoice re>uireents #or AT-registere" persons6 an" *ec. (3H 5Issuance o# eceipts or ,oercial Invoices6 or

ii. When the boo!s o# accounts or recor"s "o not correctly re#lect the "eclarations a"e or re>uire" to be a"e in a return+ *uch iniu aount shall be consi"ere" correct. 7. T&i,* *!" /&i#$ ,oissioner shall "eclare the ta$ perio" o# a ta$payer Terinate" an" sen" notice to the ta$payer o# such "ecision with a re>uest #or ie"iate payent o# the ta$ when it has coe to the !nowle"ge o# the ,oissionerD a6 that a ta$payer is retiring #ro business sub%ect to ta$ or b6 is inten"ing to leave the Phils. or c6 to reove his property there#ro or "6 to hi"e or conceal his property or e6 is per#oring any act ten"ing to obstruct the procee"ings #or the collection o# ta$ ?. P&)(&i! R" P&#/&*' V") The ,oissioner is authori
7or ta: purposes, the value o% the property shall be hichever is higher o% a) 7air mar?et value as determined by the Commissioner; or b) 7air mar?et value as shon in the schedule o% values o% the provincial and city assessors. @. A*%#&i*' *# I,i& i,*# +,G D/#)i* Notwithstan"ing .A. '47 5;an! *ecrecy Law6 the ,oissioner is authoriuire into the ;an! "eposits o#D 5a6 a "ece"ent to "eterine his gross estate 5b6 a ta$payer who has #ile" an application to coproise payent o# ta$ liability by reason o# #inancial incapacity


San Beda College of Law 1 MEMORY AID IN TAXATION LAW c6 1he ta:payers application %or compromise shall not be considered unless he aives in riting his privilege under RA +6/ and other general or special las. 4uch aiver shall authoriHe the Commissioner to inBuire into his ban? deposits. 1. A*%#&i*' *# R>i)*& * >,*) 5a6 The ,oissioner shall accre"it an" egister+ in"ivi"uals an" general pro#essional partnerships an" their rep. who prepare an" #ile ta$ returns an" other papers or who appear be#ore the ;I 5b6The ,oissioner shall create national an" regional accre"itation boar"s. 1hose ho are denied accreditation may appeal the same to the 4ec. % 7inance ho shall rule on the appeal ithin 96 days %rom receipt o% such appeal. 7ailure to do so ithin the prescribed period shall be deemed as approval %or accreditation. 11. A*%#&i*' *# P&)(&i! A$$i*i#," Ri&,*) The ,oissioner ay prescribe the anner o# copliance with any "ocuentary or proce"ural e>uireent #or the subission or preparation o# #inancial stateents accopanying ta$ returns. IV. SECTION 7 5Authority to :elegate Power 6 12. T% C#i))i#,& ' $">* *% /#&) 8)*$ i, %i *# - subor"inate o##icials with ran! e>uivalent to :ivision ,hie# or higher+ sub%ect to liitations1restrictions ipose" un"er the rules an" regulations )X,)PT+ 5the #ollowing powers shall NOT be "elegate"6 a6 power to ecoen" the proulgation o# rules an" regulations by the *ec. o# &inance b6 power to Issue rulings o# #irst ipression or to everse+ revo!e o"i#y any e$isting rule o# the ;I

power to ,oproise or Abate any ta$ liability

provided hoever that the regional evaluation boar" ay coproiseD '. assessents issue" by regional o##ices involving "e#iciency ta$es o# P7+ or less an" (. inor criinal violations as ay be "eterine" by the rules an" regulations 3. "iscovere" by regional an" "istrict o##icials Regional valuation 3oard is composed o% D i. egional :irector as ,hairan ii. Asst. egional :irector iii. 9ea"s o# the Legal+ Assessent an" ,ollection :iv. iv. evenue :istrict O##icer having %uris"iction over the ta$payer "6 power to Assign or reassign internal revenue o##icers to establishents where articles sub%ect to e$cise ta$ are !ept. . *ections + '4+ '7+ '8+ 'H 5Other Powers6 13. :uty to ensure the provision an" "istribution o# #ors+ receipts+ certi#icates+ an" appliances+ an" the ac!nowle"gent o# payent o# ta$es (4ec. ) 14. Authority to a"inister oaths an" to ta!e testiony (4ec. +) 15. Authority to a!e sei
arrests

an"

16. Authority to eploy+ assign or reassign internal revenue o##icers involve" in e$cise ta$ #unctions to establishents where articles sub%ect to e$cise ta$ are pro"uce" or !ept (4ec. 9)



17. Authority to assign or reassign internal revenue o##icers an" eployees o# the ;I to other or special "uties connecte" with the en#orceent or a"inistration o# the revenue laws (4ec. 8)

Are Legal O##icers o# the ;I authori
SOURCES OF R EVENUE The #ollowing ta$es+ #ees an" charges are "eee" to be national internal revenue ta$es. (4ec. 5, NIRC) '. Incoe ta$ (. )state an" "onor=s ta$es 3. alue-a""e" ta$ 4. Other percentage ta$es 7. )$cise ta$es 8. :ocuentary stap ta$es H. *uch other ta$es as are or herea#ter ay be ipose" an" collecte" by the ;ureau o# Internal evenue.

II.

NATIONAL TAXATION A. INCO:E TAXATION

DEFINITIONS INCO:E TAX  ta$ on all yearly pro#its arising #ro property+ possessions+ tra"e or business+ or as a ta$ on a personEs incoe+ eoluents+ pro#its an" the li!e (9 C<4 //0)  ta$ on incoe+ whether gross or net. (58 Am.
INCO:E  all wealth+ which #lows into the ta$payer other than as a ere return o# capital. CAPITAL  resource o# person+ which can be use" in pro"ucing goo"s an" services. I,(# C/i*" All wealth+ which #lows into the ta$payer other than as a ere return o# capital.

&un" or property which can be use" in pro"ucing goo"s or services

&low o# Wealth

&un" or property

*ource o# wealth

Wealth

R EQUISITES FOR INCO:E TO +E TAXA+LE 1. There ust be a gain or pro#it. 2. The gain ust be realiuali#ies as nonresi"ent citi

San Beda College of Law 1 MEMORY AID IN TAXATION LAW "erives incoe #ro sources within the Philippines. Thus+ a nonresi"ent alien is liable to pay Philippine incoe ta$ on his incoe #ro sources within the Philippines such as "ivi"en"+ interest+ rent+ or royalty+ "espite the #act that he has not set #oot in the Philippines.

CLASSIFICATION OF TAXPAERS I,$i8i$") a. citiuires hi to be physically present

abroa" ost o# the tie "uring the ta$able year2 ". who is previously consi"ere" as a non-resi"ent an" who arrives in the Philippines at anytie "uring the ta$able year to resi"e thereat peranently shall be consi"ere" non-resi"ent #or the ta$able year in which he arrives in the Philippines with respect to his incoe "erive" #ro sources abroa" until the "ate o# his arrival 4ec.55 (), NIRCD N1 An #8&)) (#,*&(* #&G& uireents are etD '. receives copensation #or services ren"ere" abroa" as a eber o# the copleent o# a vessel2 an" (. such vessel is engage" e$clusively in international tra"e. ;ase" on the above provisions+ there are three 536 types o# nonresi"ent citiuali#y as nonresi"ent citi>$ i, *&$ #& !)i,)) i*%i, *% P%i"i//i,).

San Beda College of Law 1 MEMORY AID IN TAXATION LAW #unctions o# a public o##ice. 4ec. 55 (4)D The ter trade +usiness or profession shall not inclu"e per#orance o# services by the ta$payer as an eployee. 4ec. 55 (CC)D A non-resi"ent alien in"ivi"ual who shall coe to the Philippines an" stay therein #or an aggregate perio" o# ore than ' "ays "uring any calen"ar year shall be "eee" a non'resident alien doing business in the Philippines 4ection 55(G) notithstanding 4ec. 5/(A)()D 7. N#,-&)i$,* "i, ,#* ,>>$ i, *&$ #& !)i,)) i*%i, *% P%i"i//i,).
ONL RESIDENT CITIJENS are ta$able #or incoe "erive" #ro sources ithin and ithout the Philippines. All other in"ivi"ual incoe ta$payers are ta$able only #or incoe "erive" #ro sources ithin the Philippines. 

T R*)B Please re#er to A,, A. +. CORPORATIONS

WHO ARE TAXA+LE $% D#)*i( C#&/#&*i#,  create" or organi, C#&/#&*i#,  engage" in tra"e or business within the Philippines 4ec. 55($), NIRCD '% N#,-&)i$,* F#&i>, C#&/#&*i#,  not engage" in tra"e or business within the Philippines 4ec. 55(I), NIRCD A ,orporation Inclu"esD . Partnerships+ no atter how create" or organi
un"erta!ing construction pro%ects or engaging in petroleu+ coal+ geotheral an" other energy operations pursuant to an operating or consortiu agreeent un"er a service contract with the Governent.

CORPORATIONS EXE:PT FRO: INCO:E TAXATION i#," #& A& H$&*&) ,$& %ec. 22 (//)  not sub%ect to incoe ta$ egional operating hea">uarters un"er 4ec. 55() shall pay a ta$ o# 'J o# their ta$able incoe.

ONL DO:ESTIC CORPORATIONS are ta$able #or incoe "erive" #ro sources ithin and ithout the Philippines. All other corporate incoe ta$payers are ta$able only #or incoe "erive" #ro sources ithin the Philippines. 

Tax Rates(

)ease refer to

Annex B%

C. ESTATES AND TRUSTS ESTATE  re#ers to the ass o# properties le#t by a "ecease" person. R ULES ON TAXA+ILIT OF ESTATE When a person who owns property "ies+ the #ollowing ta$es are payable un"er the provisions o# the income ta: la D


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 1. Incoe ta$ #or in"ivi"ual un"er *ec. (4 an" (7 5to cover the perio" beginning Canuary to the tie o# "eath62 2. )state incoe ta$ un"er *ec. 8 i# the estate is un"er a"inistration or %u"icial settleent.

ESTATES UNDER 9UDICIAL SETTLE:ENT A. D&i,> *% P,$,(' #f *% S**",* ;,&" R"B An estate un"er %u"icial settleent is sub%ect to incoe ta$ in the sae anner as in"ivi"uals. Its status is the sae as the status o# the "ece"ent prior to his "eath. E(/*i#,)B '. The entitleent to personal e$eption is liite" only to P(+. (. No a""itional e$eption is allowe". 3. The "istribution to the heirs "uring the ta$able year o# estate incoe is "e"uctible #ro the ta$able incoe o# the estate. *uch "istribute" incoe shall #or part o# the respective heirsE ta$able incoe. Where no such "istribution to the heirs is a"e "uring the ta$able year that the incoe is earne"+ an" such incoe is sub%ecte" to incoe ta$ payent by the estate+ the subse>uent "istribution thereo# is no longer ta$able on the part o# the recipient. +. TER:INATION OF THE 9UDICIAL SETTLE:ENT
0/8; Ja vs. Commissioner, GR No. *'0-+5, !ay 5/, 085) (. I# the heirs+ without contributing oney+ property or in"ustry to iprove the estate+ siply "ivi"e the #ruits thereo# between1aong theselves+ a co-ownership is create"+ an" in"ivi"ual incoe ta$ is ipose" on the incoe receive" by each o# the heirs+ payable in their separate an" in"ivi"ual capacity. (Pascual vs. Commissioner, GR No. *'8--, ctober , 0; billos vs. Commissioner, GR No. *'9, ctober 50, 0/)

ESTATES N  UNDER 9UDICIAL SETTLE:ENT Pen"ing the e$tra%u"icial settleent+ either o# the #ollowing situations ay ariseD '. I# the heirs contribute oney+ property+ or in"ustry to the estate with the intention o# "ivi"ing the pro#its between1aong theselves+ an unregistere" partnership is create" an" the estate becoes liable #or the payent o# corporate incoe ta$2 or (. I# the heirs+ without contributing oney+ property or in"ustry to the estate+ siply "ivi"e the #ruits thereo# between1aong theselves+ a co-ownership is create" an" incoe ta$ is ipose" on the incoe receive" by each o# the heirs+ payable in their separate an" in"ivi"ual capacity. TRUST  A right to the property+ whether real or personal+ hel" by one person #or the bene#it o# another. WHEN TRUSTS ARE TAXA+LE ENTITIES '. A trust+ the incoe o# which is to be accuulate" (. A trust in which the #i"uciary ay+ at his "iscretion+ either "istribute or accuulate the incoe. R ULES ON TAXA+ILIT OF THE INCO:E OF A TRUST . The incoe o# the trust #or the ta$able year which is to be "istribute" to the bene#iciaries #


San Beda College of Law 1 MEMORY AID IN TAXATION LAW %iling and payment o% ta: lie on the bene%iciaries. 5. The incoe o# the trust which is to be accuulate" or hel" #or #uture "istribution whether consisting o# or"inary incoe or gain #ro the sale o# assets inclu"e" in the RcorpusR o# the estate  %iling o% return and payment o% ta: become the burden o% the trustee or %iduciary. :ceptionsD . In the case o# a revocable trust+ the incoe o# the trust will be returne" by the grantor. !. In a trust where the incoe is hel" #or the bene#it o# the grantor+ the incoe o# the trust becoes incoe to the grantor. (. In the case o# trust a"inistere" in a #oreign country+ the incoe o# the trust2 un"iinishe" by any aount "istribute" to the bene#iciaries shall be ta$e" to the trustee.

-. such contributions are a"e #or the purpose o# "istributing to such eployees both the earnings an" principal o# the #un" accuulate" by the trust+ an" +. that the trust instruent a!es it ipossible #or any part o# the trust corpus or incoe to be use" #or+ or "iverte" to+ purposes other than the e$clusive bene#it o# such eployees. (4ec. 963, NIRC)

IRREVOCA+LE TRUSTS 5irrevocable both as to corpus an" as to incoe6 

 INDS OF PARTNERSHIP FOR TAX PURPOSES UNDER THE NIRC '. ;,&" P&#f))i#," P&*,&)%i/) <;PP= - #ore" by persons #orD a. the sole purpose o# e$ercising a coon pro#ession an" b. no part o# the incoe o# which is "erive" #ro engaging in any tra"e or business. 4ec. 55(3), NIRCD. (. T!" #& +)i,)) P&*,&)%i/  All other partnerships e$cept general pro#essional partnerships no atter+ how create" or organi
Trust itsel#+ through the trustee or #i"uciary+ is liable #or the payent o# incoe ta$. Ta$e" e$actly in the sae way as estates un"er %u"icial settleent an" its status as an in"ivi"ual is that o# the trustor. It is entitle" to the iniu personal e$eption 5P(+6 an" "istribution o# trust incoe "uring the ta$able year to the bene#iciaries is "e"uctible #ro the trustEs ta$able incoe.

R EVOCA+LE TRUSTS  the trustor+ not the trust itsel#+ is sub%ect to the payent o# incoe ta$ on the trust incoe. EXE:PTION OF E:PLOEESK TRUST Provi"e"D . the eployeeEs trust ust be part o# a pension+ stoc! bonus or pro#it sharing plan o# the eployer #or the bene#it o# soe or all o# his eployees2 5. contributions are a"e to the trust by such eployer+ or such eployees+ or both2

Ta$ e$eption is li!ewise to be en%oye" by the i,(# #f *% /,)i#, *&)*2 otherwise+ ta$ation o# those earnings woul" result in a "iinution o# accuulate" incoe an" re"uce whatever the trust bene#iciaries woul" receive out o# the trust #un". (Commissioner vs. Court o% Appeals, Court o% 1a: Appeals and GC* Retirement Plans, GR No. 0/655, !arch 5-, 005)

D. PARTNERSHIPS


San Beda College of Law 1 MEMORY AID IN TAXATION LAW stoc!hol"ers an"+ there#ore+ pro#its "istribute" to the by the partnership are ta$able as "ivi"en"s. The ta$able incoe #or a ta$able year+ a#ter "e"ucting the corporate incoe ta$ ipose" therein+ shall be "eee" to have been actually or constructively received by the partners in the sae ta$able year an" shall be ta$e" to the in their in"ivi"ual capacity hether actually distributed or not. 4ec. 8-("), NIRCD

LIA+ILIT OF A PARTNERSHIP '. ;,&" P&#f))i#," P&*,&)%i/ .They are not sub&ect to income ta: + but are re>uire" to #ile returns o# their incoe #or the purpose o# #urnishing in#oration as to the share o# each partner in the net gain or pro#it+ which each partner shall inclu"e in his in"ivi"ual return. The partnership shall act as the withhol"ing agent. The net incoe 5incoe #or "istribution6 shall be copute" in the sae anner as a corporation. :ate o# #iling o# the return is April '7 o# each year. (. T!" #& +)i,)) P&*,&)%i/ The incoe ta$ o# this type o# Partnership is computed and ta:ed li?e that o% a corporation . This !in" o# partnership+ li!e a regular corporation+ is also re>uire" to #ile a >uarterly corporate incoe ta$ return. &iling an" payent o# >uarterly return is within 8 "ays a#ter the en" o# each >uarter while the annual return is on or be#ore April '7 o# the #ollowing year. LIA+ILIT OF A PARTNER R")B 1. S%& #f  /&*,& i, >,&" /&#f))i#," P&*,&)%i/ a. )ach p artner s hall report as gross income 5business incoe6 his "istribute" share actually or constructively receive" in the net incoe o# the partnership. (4ec. 59, NIRC) SThe sae share shall be sub%ect to cre"itable withhol"ing ta$ o# 'J. They

are liable in their separate and individual capacity . b.

*hare o# a partner in the loss o# a general pro#essional partnership ay be ta!en by the in"ivi"ual partner in his return o# incoe.

c.

)ach partner in a general pro#essional partnership shall+ report as gross incoe his "istribute" share in the net incoe o# the GPP+ base" on his agree" ratio+ whether he + avails o# itei
".

Payents a"e to a partner o# a GPP #or services ren"ere" shall be consi"ere" as ordinary business income sub%ect to *ec. (4A 5)##ective Canuary '+ 'K(6

2. S%& #f  /&*,& i, T!" #& +)i,)) /&*,&)%i/ . *hare o# a partner in the net incoe o# a ta$able or business partnership 5"ivi"en"6 shall be sub%ect to a #inal ta$ as #ollows. esi"ent ,iti
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INDS OF INCO:E TAXES UNDER THE NIRC



1. Net Incoe Ta$ 2. Optional ,orporate Incoe ta$ 3. 0iniu ,orporate Incoe Ta$ 4. Iproperly Accuulate" )arnings 5. 6. 7. ?. @.

Ta$ Pre#erential ates or *pecial ates o# Incoe Ta$ Gross Incoe Ta$ &inal Incoe Ta$ &ringe ;ene#its Ta$ ,apital Gains Ta$

<1= NET INCO:E TAX DEFINITIONB 0eans gross incoe less "e"uctions an"1or personal an" a""itional e$eptions (4ec. -, NIRC) NET INCO:E TAX FOR:ULA )ntire Incoe *ess )$clusions an" Incoe sub%ect to &inal Ta$ 5e.g. Passive Incoe6 Gross Incoe *ess :e"uctions 5an"1or a""itional e$eptions+ i# applicable6 Net Ta$able Incoe !ultiply by Ta$ ate 5J6 Net Incoe Ta$ :ue *ess Ta$ ,re"it+ i# any T S*i"" $ if ,'

;ROSS INCO:E DEFINITIONB 0eans all incoe "erive" #ro whatever source+ inclu"ing but not liite" to the #ollowing (%ec. 32) a. ,opensation2 b. Gross incoe #ro pro#ession+ tra"e or business2 c. Gains #or "ealings in property2 ". Interests2 e. ents2 #. oyalties2 g. :ivi"en"s2 h. Annuities2 i. Pri
*ee A,, D #or "etaile" "iscussion o# ites.

 INDS OF DIVIDENDS 1. C)% ,$ P&#/&*' Di8i$,$) In"ivi"ual Ta$payer a. &ro :oestic ,orporations ,+ N,+ A  1 (4ec. 5+A) NA)T;  2 (4ec. 5/A5) NAN)T;  25 on gross incoe (4ec. 5/3) b. &ro &oreign ,orporations ,+ N,+ A+ NA)T;  532 (4ec. 5+, 5/A) NAN)T;  25 on gross incoe (4ec. 5/3) •

• •

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,orporate Ta$payer a. &oreign to :oestic ,orp.  32 (4ec. -5A) b. :oestic to :oestic ,orp.  E/*2 intercorporate "ivi"en"s (4ec. 58") c. :oestic to &oreign ,orp. esi"ent &oreign ,orp.  E/* (4ec. 5 AD 8d) Nonresi"ent &oreign ,orp.  15 sub%ect to the con"ition state" in 4ec. 5 3D /. Otherwise+ it shall be ta$e" at 32. (4ee Commissioner vs. Procter and Gamble, GR No. 99-, "ecember 5, 00) •

•

2. S*#(G Di8i$,$) General ruleD Not sub%ect to ta$ because it "oes not constitute income2 it represents trans#er o# surplus to capital account. (4ec. 8-3, 008 NIRC) )$ceptionsD a. *ec. H3;+ 'KKH NI, () there is re"eption or cancellation (5) the transaction involves stoc! "ivi"en"s+ an" (-) the Ftie an" anner o# the transaction a!es it Fessentially e>uivalent to a "istribution o# ta$able "ivi"en"s. 5see Commissioner vs. Court o% Appeals, Court o% 1a: Appeals E AN4CR, GR No. 6/89,

San Beda College of Law 1 MEMORY AID IN TAXATION LAW b.

c.

the recipient is other than the sharehol"er (3achrach vs. 4ei%ert, GR No. *'59/0, ctober 5, 0/6) change in the stoc!hol"erEs e>uity results by virtue o# the stoc! "ivi"en" issuance.

-. Lii$*i,> Di8i$,$) – When a corporation "istributes all o# its assets in complete li>ui"ation or "issolution+ the gain realiui"ating "ivi"en" is not a dividend income. The transaction is consi"ere" a sale or e$change o# property between the corporation an" the stoc!hol"er.

EXCLUSIONS FRO: ;ROSS INCO:E Bn"er the 'KKH Ta$ ,o"e+ the N1  ter Fe$clusions re#ers to ites that are not inclu"e" in the "eterination o# gross incoe either becauseD 5a6 they represent return o# capital or are not incoe+ gain or pro#it2 or 5b6 they are sub%ect to another !in" o# internal revenue ta$2 or 5c6 they are incoe+ gain or pro#it that are e$pressly e$ept #or incoe ta$ un"er the constitution+ ta$ treaty+ Ta$ ,o"e+ or a general or special law.

1. P&#($) #f "if i,)&,( pai" by reason o# the "eath o# the insure" to his estate or to any bene#iciary 5in"ivi"ual+ partnership+ or corporation+ but not a trans#eree #or a valuable consi"eration6+ "irectly or in trust. N1 D i# the procee"s are retaine" by the insurer+ the interest thereon is ta$able2

2. R*&, #f i,)&,( /&iM N1 D i# such aounts 5when a""e" to aounts alrea"y receive" be#ore the ta$able year un"er such contracts6 e$cee" the aggregate preius or consi"erations pai" 5whether or not pai" "uring the

ta$able year6+ then the e$cess shall be inclu"e" in the gross incoe. 9owever+ in the case o# a trans#er #or a valuable consi"eration+ by assignent or otherwise+ o# a li#e insurance+ en"owent or annuity contract+ or any interest therein+ only the actual value o# such consi"eration an" the aount o# the preius an" other sus subse>uently pai" by the trans#eree are e$ept #ro ta$ation. No loss is reali
3. ;if* !)* #& $8i) Gi#ts+ be>uests+ an" "evises 5which are sub%ect to estate or gi#t ta$es6 are e$clu"e"+ but not the incoe #ro such property. I# the aount receive" is on account o# services ren"ere"+ whether constituting a "ean"able "ebt or not+ or the use o# the opportunity to use o# capital+ the receipt is incoe (Pirovano vs. Commissioner, + 4CRA -5)

4. C#/,)*i#, f#& /&)#," i,&i) #& )i(G,)) %*%& !' )i* #& >&,* N1 D The phrase Fpersonal in%uries shoul" be given a restrictive eaning to re#er only to physical in%uries. The theory #or this is that recoupent on account o# such losses is not incoe+ since it is not "erive" #ro capital+ #ro labor or #ro both cobine". An" the #act that the payent o# copensation #or such loss was voluntary "oes not change its e$ept status. It was in #act copensation #or a loss+ which ipaire" petitionerEs capital.

5. I,(# /* ,$& T&*'M 6. R*i&,*

!,fi*) /,)i#, >&*i*i) *(. a. those "erive" un"er .A. H84' 5pertains to private #irs without retireent trust #un"62 b. those receive" by o##icials an" eployees o# private eployers



c.

".

e.

#. g.

in accor"ance with a reasonable private bene#it plan2 ReBuisitesD 5'6 in the service o# the sae eployer #or at least ' years2 5(6 at least 7 years ol"2 536 ust be availe" o# only once 546 plan approve" by the ;I 5R.R.5'062 separation pay because o# "eath+ sic!ness+ or other physical "isability or #or any cause beyon" the control o# the o##icial or eployee 5e.g. retrenchent+ re"un"ancy or cessation o# business62 K%or any cause beyond the control o% said o%%icial or employee  connotes involuntariness on the part o# the o##icial or eployee2 separation ust not be as!e" or initiate" by the o##icial or eployee. social security bene#its+ retireent gratuities+ pensions an" other siilar bene#its receive" by citi
7. :i)("",#) i*) a. Passive incoe "erive" in the Philippines byD 5'6 &oreign governents2 5(6 &inancing institutions owne"+ controlle" or en%oying re#inancing #ro #oreign governents 536 International or regional #inancial institutions establishe" by #oreign governents b. Incoe "erive" #ro any public utility or #ro the e$ercise o# any governental #unction2

c.

".

e. #. g.

h.

Priuire" to ren"er substantial #uture services. Pri
E(")i#,) S(. 32<+=

D$(*i#,) S(. 34

e#er to #low o# wealth which are not treate" as part o# gross incoe becauseD 5'6 e$epte" by the #un"aental law2 5(6 e$epte" by statute2 536 "o not coe within the "e#inition o# incoe

e#er to the aounts which the law allows to be subtracte" #ro gross incoe in or"er to arrive at net incoe

Pertain to the coputation o# gross incoe

Pertain to the coputation o# the net incoe

*oething earne" or receive" by the ta$payer which "o not #or part o# gross incoe

*oething spent or pai" in earning o# gross incoe

DEDUCTIONS DEFINITIOND Ites or aounts which the law allows to be "e"ucte" #ro gross


San Beda College of Law 1 MEMORY AID IN TAXATION LAW incoe in or"er to arrive at the ta$able incoe.

+ASIC PRINCIPLES ;OVERNIN; DEDUCTIONS a. The ta$payer see!ing a "e"uction ust point to soe speci#ic provisions o# the statute authoriuire" to be "e"ucte" an" withhel" there#ro has been pai" to the ;I. 4ec. -+(=), NIRCD N1 :e"uctions #or incoe ta$ purposes parta!e o# the nature o# ta$ e$eptions2 hence+ i# ta$ e$eptions are to be strictly construe"+ then it #ollows that "e"uctions ust also be strictly construe".

TAXPAERS WHO CANNOT AVAIL OF DEDUCTIONS FRO: ;ROSS INCO:E '. ,iti
2.

<1= Optional *tan"ar" :e"uction 5O*:6 <2= Itei
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 INDS OF DEDUCTIONS a. O/*i#," )*,$&$ $$(*i#,) ual to that allowe" by the incoe ta$ law o# his country to a citi
I,$i8i$") not ,*i*"$ *# *%) /*i#,)B a. Non-resi"ent Alien not engage" in tra"e or business b. Alien in"ivi"ual eploye" by egional or Area 9ea">uarters o# 0ultinational ,opanies c. Alien in"ivi"ual eploye" by O##shore ;an!ing Bnits


San Beda College of Law 1 MEMORY AID IN TAXATION LAW ". Alien in"ivi"ual eploye" by Petroleu *ervice ,ontractor an" *ubcontractor c. I*i$ $$(*i#,) a. or"inary and necessary e$penses b. interests c. ta$es ". losses e. ba" "ebts #. "epreciation o# property2 g. "epletion o# oil an" gas wells an" ines2 h. charitable an" other contributions2 i. research an" "evelopent2 %. pension trust contributions o# eployees2 an" !. preiu payents on health an"1or hospitali
PERSONAL EXE:PTIONS A. A#,*) #f P&)#," E/*i#,) %ec. 35 N*RC '. P 2  *ingle in"ivi"ual or arrie" in"ivi"ual %u"icially "ecree" legally separate" without >uali#ie" "epen"ent chil"ren. (. P 25  9ea" o# the #aily or arrie" in"ivi"ual %u"icially "ecree" legally separate" with >uali#ie" "epen"ent chil"ren. 3. P 32  &or eac# legally arrie" in"ivi"ual. H$ #f *% Fi"' '. Bnarrie" or legally separate" person with one or both parents+ or one or ore brothers or sisters+ or one or ore legitiate+ recogni
with an" "epen"ent upon the ta$payer #or their chie# support2 an" KChie% support eans ore than one-hal# o# the re>uireents #or support. (. Where such brother 1 sister or chil"ren are not ore than (' years o# age+ unarrie" an" not gain#ully eploye"+ or where such "epen"ents regar"less o# age+ are incapable o# sel#  support because o# ental or physical "e#ect. Parents+ brothers+ sisters an" senior citiuali#y the ta$payer+ to the personal e$eption o# P(7+ as hea" o# the #aily but not to the additional e:emption o% P,666 .

+. A$$i*i#," E/*i#, f#& %ec. 35 N*RC D/,$,*) P +  &or each o# the >uali#ie" "epen"ent chil"ren not e$cee"ing #our 546 in nuber. The a""itional e$eption re#ers only to >uali#ie" "epen"ent chil"ren such as legitiate+ recogni

San Beda College of Law 1 MEMORY AID IN TAXATION LAW annu sub%ect to the review o# the National )conoic :evelopent Authority 5N):A6 every three years.

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(7 years ol" chil" becae incapacitate"  cannot clai a""itional e$eption

ITE:IJED DEDUCTIONS Parents an" "epen"ents >uali#y the ta$payer+ to the personal e$eption o# P(7+ as hea" o# the #aily but not to the additional e:emption o% P,666 . N1 NA)T; ay "e"uct personal e$eption 5not a""itional e$eption6+ but only to the e$tent allowe" by his country to &ilipinos not resi"ing therein+ an" shall not e$cee" the a#oreentione" aounts. NAN)T; cannot clai any personal or a""itional e$eptions.

C. C%,> #f S**) %ec. 35 N*RC '. I# the ta$payer shoul" arry or shoul" have a""itional "epen"ents "uring the ta$able year+ he ay clai the correspon"ing e$eptions in #ull #or such year. (. I# the ta$payer shoul" "ie "uring the ta$able year+ his estate ay clai the correspon"ing e$eptions as i# he "ie" at the close o# such year. 3. I# the spouse or any "epen"ent shoul" "ie or any "epen"ent shoul" arry or becoe twentyone years ol" "uring the year+ or shoul" becoe gain#ully eploye"+ the ta$payer ay clai the e$eptions as i# the spouse or "epen"ent "ie" or as i# such "epen"ent arrie"+ becae twenty one years ol" or becae gain#ully eploye" at the close o# such year. 4. &or any other event an" #or which there are no speci#ic rules applicable #ro the aboveentione"+ the status o# the ta$payer at the en" o# the year shall "eterine his e$eptions. (strictly construed against the ta:payer) )$aplesD becae legally separate"  can only clai P (+

A. ORDINAR AND NECESSAR EXPENSES NECESSAR EXPENSE  appropriate an" help#ul in the "evelopent o# ta$payer=s business an" are inten"e" to iniiuate recor"s. 7. i# sub%ect to withhol"ing ta$es proo# o# payent to the ;ureau o# Internal evenue ust be shown. 8. ust be reasonable 5when the e$pense is not lavish+ e$travagant or e$cessive un"er the circustances6 H. ust not be contrary to law+ public policy or orals. N1 While illegal incoe will #or part o# incoe o# the ta$payer+ e$penses which constitute bribe+ !ic!bac! an" other siilar payent+ being against law an" public policy are not "e"uctible #ro gross incoe. (4ubsec. A, , c)

CAPITAL EXPENDITURE  An e$pen"iture that bene#its not only the current perio" but also #uture perio"s. It is not "e"uctible but "epreciable+ e:cept+ i# the ta$payer is a non-pro#it proprietary e"ucational institution which ay elect either to "e"uct the capital e$pense or "epreciate it. 

*ee A,, E  ;usiness )$penses

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San Beda College of Law 1 MEMORY AID IN TAXATION LAW 

*ee A,, F  ,eiling on F)ntertainent+ Auseent an" ecreational )$penses

+. INTEREST INTEREST  shall re#er to the payent #or the use or #orbearance or "etention o# oney+ regar"less o# the nae it is calle" or "enoinate". It inclu"es the aount pai" #or the borrower=s use o#+ oney "uring the ter o# the loan+ as well as #or his "etention o# oney a#ter the "ue "ate #or its repayent. R EQUISITES FOR DEDUCTI+ILIT uire property use" in tra"e+ business or e$ercise o# pro#ession+ the sae+ was not treate" as a capital e$pen"iture. ''. The interest is not e$pressly "isallowe" by law to be "e"ucte" #ro gross incoe o# the ta$payer. R ULES ON DEDUCTI+ILIT OF INTEREST EXPENSE ;,&" R" - In general+ the aount o# interest e$pense pai" or incurre" within a ta$able year o# in"ebte"ness in connection with the ta$payer=s tra"e business or e$ercise o# pro#ession+ shall be allowe" as a "e"uction #ro the ta$payer=s gross incoe.

Lii**i#, - The aount o# interest e$pense pai" incurre" by a ta$payer in connection with his tra"e+ business or e$ercise o# a pro#ession #ro an e$isting in"ebte"ness shall be re"uce" by an aount e>ual the #ollowing percentages o# interest incoe earne" which ha" been sub%ecte" to #inal withhol"ing "epen"ing on the year when the interest incoe earne"+ vi  is a etho" o# borrowing without entering into a "ebtor1cre"itor relationship+ o#ten to resolve #inancing an" e$change control probles. In ta$ cases+ bac!-to-bac! loan is use" to ta!e a"vantage o# the lower o# ta$ on interest incoe an" a higher rate o# ta$ on interest e$pense "e"uction. I"")*&*i#,B On Cune '+ ( ,opany X hasD '. Obtaine" a loan #ro A;, &inancing ,orporation in connection with the operation o# its business an" its interest e$pense on the loan aounte" to P '(+. (. :eposit account in :)& ;an! an" "erive" interest incoe thereo# aounting to P(+ on which the #inal ta$ o# P4+ has been withhel". Assue that ,opany XEs net incoe be#ore the "e"uction o# interest e$pense is P7+. The "e"uctible e$pense shall be copute" as #ollowsD

& 2 Net Incoe be#ore interest e$pense P7+ *ess Interest )$pense P'(+


San Beda College of Law 1 MEMORY AID IN TAXATION LAW *ess 3J o# interest incoe #ro "eposit 53J $ P(+6 H8+ D$(*i!" I,*&)* E/,) 44 Ta$able Incoe P478+

7. 8.

H. -edu!tibe +nterest E.pense . Interest on ta$es+ such as those pai" #or "e#iciency or "elin>uency+ since ta$es are consi"ere" in"ebte"ness 5provi"e" that the ta$ is a "e"uctible ta$+ e$cept in the case o# incoe ta$6. 9owever+ #ines+ penalties+ an" surcharges on account o# ta$es are not "e"uctible. 1he interest on unpaid business ta: shall not be sub&ected to the limitation on deduction. 5. Interest pai" by a corporation on scrip "ivi"en"s -. Interest-on "eposits pai" by authoriuitable owner+ even though it is not "irectly liable #or the in"ebte"ness.

N N -DEDUCTI+LE INTEREST EXPENSE '. An in"ivi"ual ta$payer reporting incoe on the cash basis incurs an in"ebte"ness on which an interest is pai" in a"vance through "iscount or otherwiseD allowe" as a "e"uction in the year the in"ebte"ness is pai" i# the in"ebte"ness is payable periodic amortiHation on+ the aount o# interest which correspon"s to the aount o# the principal aorti
•

Interest on unpai" salaries an" bonuses Interest calculate" #or cost !eeping on account o# capital or surplus investe" in business which "oes not represent charges arising un"er interest-bearing obligation. Interest pai" when there is no stipulation #or the payent thereo#.

OPTIONAL TREAT:ENT OF INTEREST EXPENSE At the option o# the ta$payer+ interest incurred to acBuire property used in trade or business ay be allowe" as a "e"uction or treate" as capital e:penditure. 4ec -+ (3)(-), NIRCD

C. TAXES Ta$es ean TAXES PROPER an" there#ore no "e"uctions are allowe" #orD . interest 5. surcharges -. penalties or #ines inci"ent to "elin>uency (4ec. 6, Rev. Reg. 5)

R EQUISITES FOR DEDUCTI+ILIT 1. ust be in connection with ta$payerEs business2 2. ta$ ust be ipose" by law on+ an" payable by ta$payer 5"irect ta$62 an" 3. pai" or incurre" "uring the ta$able year. TAXES N  DEDUCTI+LE '. incoe ta$2 (. estate an" "onorEs ta$2 3. special assessents2 4. e$cess electric consuption ta$2 7. #oreign incoe ta$+ war pro#its an" e$cess pro#its ta$+ i# the ta$payer a!es use o# ta$ cre"it2 an" 8. #inal ta$es+ being in the nature o# incoe ta$. N1 Ta$es allowe" as "e"uctions+ when re#un"e" or cre"ite"+ shall be inclu"e" as part o# gross incoe in the year o# receipt to the e$tent o# the incoe ta$ bene#it o# sai" "e"uction. 51a: 3ene%it Rule6 &or NA)T; an" &,+ ta$es pai" or incurre" are allowe" as "e"uctions only


San Beda College of Law 1 MEMORY AID IN TAXATION LAW i# an" to the e$tent that they are connecte" #ro incoe within the Philippines.

EXCEPTIONS to re>uireent that only such persons on who the ta$ is ipose" by law can clai "e"uction thereo#D '. Ta$es o# sharehol"er upon his interest as such an" pai" by the corporation without reiburseent #ro hi+ can be claie" by the corporation as "e"uction. (. A corporation paying the ta$ #or the hol"er its bon"s or other obligation containing a ta$-#ree covenant clause cannot clai "e"uction #or such ta$es pai" by it pursuant to such covenant. TAX CREDIT :e#initionD right o# an incoe ta$payer to "e"uct #ro incoe ta$ payable the #oreign incoe ta$ he has pai" to his #oreign country sub%ect to liitation. Who ,an ,lai Ta$ ,re"it '. resi"ent citi
Phil.

 Ta$ ,re"it

Ta$able incoe incoe ta$ #ro all sources

Liit

2. O8&-"" "ii**i#, Ta$able incoe #ro outsi"e sources X Phil.  Ta$ ,re"it Ta$able incoe incoe ta$ Liit #ro all sources

1he alloable ta: credit is the Kloer amount beteen the ta: credit computed under No.  and No. 5. When cre"it #or ta$es ay be ta!en The cre"it #or ta$es provi"e" by *ection 35,6536 to 5K6 ay or"inarily be ta!en either in the return #or the year in which the ta$es accrue" or on which the ta$es were pai"+ "epen"ent upon whether the accounts o# the ta$payer are !ept an" his returns #ile" upon the accrual basis or upon cash receipts an" "isburseents basis. Liitations on cre"it #or #oreign ta$es '6 The aount o# cre"it in respect to the ta$es pai" or accrue" to any country shall not e$cee" the sae proportion o# the ta$ against which such cre"it is ta!en+ which the ta$payerEs net incoe #ro sources within such country ta$able un"er Title II 5incoe Ta$6 bears to his entire net incoe #or the sae ta$able year2 an" (6 The total aount o# the cre"it shall not e$cee" the sae proportion o# the ta$ against which such cre"it is ta!en+ which the ta$payerEs net incoe #ro sources without the Philippines ta$able un"er Title II 5Incoe Ta$6 bears to his entire net incoe #or the sae ta$able year.

D. LOSSES LOSSES – re#er to such losses which "o not coe un"er the category o# ba" "ebts+ inventory losses+ "epreciation+ etc.+ an" which arise in ta$payer=s pro#ession+ tra"e or business. R EQUISITES FOR DEDUCTI+ILIT '. Actually sustaine" "uring the ta$able year (. ,onnecte" with the tra"e+ business or pro#ession


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 3. )vi"ence" by a close an" coplete" transaction 4. Not copensate" #or by insurance or other #or o# in"enity 7. Not claie" as a "e"uction #or estate ta$ purposes 8. Notice o# loss ust be #ile" with the ;ureau o# Internal evenue ithin +/ days %rom the date o% discovery o# the casualty or robbery+ the#t or ebe<
ownership o# the business or enterprise. There is no substantial change in the ownership o# the business whenD (a) not less than H7J in noinal value o# the outstan"ing issue" shares is hel" by or on behal# o# the sae persons2 or (b) not less than H7J o# the pai" up capital is hel" by or on behal# o# the sae person.

N1 The ta$payerEs #ailure to recor" in his boo!s the allege" loss proves that the loss ha" not been su##ere"+ hence+ not "e"uctible. (City *umber vs. "omingo and Court o% 1a: Appeals, GR No. *'9,
CATE;OR AND TPES OF LOSSES 1. ORDINAR LOSSES . Incurre" in tra"e or business+ or practice o# pro#ession Net operating loss carry'over •

(N*C) 







e#ers to the e$cess o# allowable "e"uctions over gross incoe o# the business #or any ta$able year+ which ha" not been previously o##set as "e"uction #ro gross incoe. ,an be carrie" over as a "e"uction #ro gross incoe #or the ne$t 3 consecutive years ie"iately #ollowing the year o# such loss. &or ines+ other that oil an" gas well+ net operating loss incurre" in any o# the #irst ten years o# operation ay be carrie" over #or the ne$t 7 years.

ReBuirements 5'6 The ta$payer was not e$ept #ro incoe ta$ in the year o# such net operating loss2 5(6 The loss was not incurre" in a ta$able year "uring the ta$payer was e$ept #ro incoe ta$2 an" 536 There has been no substantial change in the

N1 The 3 year perio" shall continue to run notwithstan"ing that the corporation pai" its ta$es un"er 0,IT+ or that the in"ivi"ual availe" the 'J O*:. 

*ee A,, S #or illustration.

!. O# property connecte"+ with the tra"e+ business or pro#ession+ i# the loss arises #ro #ires+ stors+ shipwrec! or other casualties+ or #ro robbery+ the#t+ or ebe<

San Beda College of Law 1 MEMORY AID IN TAXATION LAW c. Losses #ro short sales o# property. ". Losses "ue to #ailure to e$ercise privilege or option to buy or sell property.

3. SPECIAL  INDS OF LOSSES . a"erin" &osses - "e"uctible only to the e$tent o# gain or winnings. 4ec. -+ (")(9)D; "eee" to apply only to in"ivi"uals !. ,osses on 6as# sa&es of stoc7s - not "e"uctible because these are consi"ere" to be arti#icial loss.

as# sa&es  a sale or other "isposition o# stoc! or securities where substantially i"entical securities are ac>uire" or purchase" within 8'-"ay perio"+ beginning 3 "ays be#ore the sale an" en"ing 3 "ays a#ter the sale. 4ec. -D ;,&" &"B Losses #ro wash sales are not "e"uctible. E(/*i#,B When the sale is a"e by a dealer in stoc! or securities an" with respect to a transaction a"e in the or"inary course o# the business o# such "ealer+ losses #ro such sale is "e"uctible. )leents o# Wash *alesD 5'6 The sale or other "isposition o# stoc! resulte" to a loss2 5(6 There was an ac>uisition or contract or option #or ac>uisition o# stoc! or securities within 3 "ays be#ore the sale or 3 "ays a#ter the sale2 an" 536 The stoc! or securities sol" were substantially the sae as those ac>uire" within the 8'-"ay perio". c.

A+andonment &osses in petroleu operation an" pro"ucing well. 5'6 In case a contract area where petroleu operations are un"erta!en is partially or wholly aban"one"+ all accuulate" e$ploration an" "evelopent e$pen"itures pertaining thereto shall be allowe" as a "e"uction. 5(6 In case a pro"ucing well is aban"one"+ the unaorti
thereo#+ as well as the un"epreciate" cost o# e>uipent "irectly use" therein+ shall be allowe" as "e"uction in the year the well+ e>uipent or #acility is aban"one". ". ,osses due to vo&untar! remova& of +ui&din" inci"ent to renewal or replaceents - "e"uctible e$pense #ro gross incoe. e. ,oss of usefu& va&ue of capita& assets "ue to charges in business con"itions - "e"uctible e$pense only to the e$tent o# actual loss sustaine" 5a#ter a"%ustent #or iproveent+ "epreciation an" salvage value6

#. ,osses from sa&es or exc#an"es of propert! +et6een re&ated taxpa!ers -losses o# this nature is not "e"uctible but gains are ta$able. g. ,osses of farmers - i# incurre" in the operation o# #ar business+ it is "e"uctible.

#. ,oss in s#rin7a"e in va&ue of stoc7  i# the stoc! o# the corporation becoes worthless+ the cost or other basis ay b e "e"ucte" by the owner in the ta$able year in which the stoc! o# its worthlessness is a"e. Any aount claie" as a loss on account o# shrin!age in value o# the stoc! through #luctuation in the ar!et or otherwise cannot be "e"ucte" #ro gross incoe.

E. +AD DE+TS +AD DE+TS – shall re#er to those "ebts resulting #ro the worthlessness or uncollectibility+ in whole or in part+ o# aounts "ue the ta$payer by others+ arising #ro oney lent or #ro uncollectible aounts o# incoe #ro goo"s sol" or services ren"ere". R EQUISITES FOR DEDUCTI+ILIT '. )$isting in"ebte"ness "ue to the ta$payer which ust be vali" an" legally "ean"able2


San Beda College of Law 1 MEMORY AID IN TAXATION LAW (.

3.

4.

7.

,onnecte" with the ta$payer=s tra"e+ business or practice o# pro#ession2 0ust not be sustaine" in a transaction entere" into between relate" parties2 Actually ascertaine" to be worthless an" uncollectible as o# the en" o# the ta$able year.2 an" Actually charge" o## in the boo!s o# accounts o# the ta$payer as o# the en" o# the ta$able year.

EQUITA+LE DOCTRINE OF TAX +ENEFIT A recovery o# ba" "ebts previously "e"ucte" #ro gross incoe constitutes ta$able incoe i# in the year the account was written o##+ the "e"uction resulte" in a ta$ bene#it. (1a: 3ene%it Rule)

Illustration Net incoe 5loss6 be#ore write o## #or ba" "ebts LessD Accounts written o## as ba" "ebts &inal Net Incoe 5Loss6 ;a" "ebts recovery in a subse>uent year TAXA+LE INCO:E /#, *% !$ $!* &(#8&'

,ase A

,ase ;

,ase ,

P'+

5P K+6

P 7+

3+

P H+

(+

5P''+6

3+

P3

(+ 

P

--

8+

5P'+6

8+ 

P5

ASCERTAIN:ENT OF WORTHLESSNESS Proo# o# Two &actsD . ta$payer "i" in #act ascertain the "ebt to be worthless+ in the year #or which "e"uction is sought+ 5. that in so "oing+ he acte" in goo" #aith. (Collector vs. Goodrich International Rubber, GR No. *' 5559/, "ec. 55, 098) :epen"s upon the particular #acts an" the circustances o# the case. •

•

•

Goo" #aith "oes not re>uire that the ta$payer be an Fincorrigible optiist but on the other han"+ he ay not be un"uly pessiistic.

F. DEPRECIATION DEPRECIATION  the gra"ual "iinution in the service or use#ul value o# tangible property "ue #ro e$haustion+ wear an" tear an" noral obsolescence. The ter also applies to aorti

San Beda College of Law 1 MEMORY AID IN TAXATION LAW &inance upon recoen"ation o# the ,oissioner o# Internal evenue.

un"er straight-line 5*L6 or "eclining balance 5:;6 etho" 0ay shi#t #ro :; to *L etho" Bse#ul li#eD ' years or shorter li#e as allowe" by the ,oissioner Bse#ul li#e o# property not "irectly relate" to pro"uctionD 7 years un"er straight line etho" (. 0ining Operations :epreciation on all properties in ining operations other than petroleu operations at the noral rate i# e$pecte" li#e is less than ' years. I# e$pecte" li#e is ore than ' years+ "epreciation shall be any nuber o# years between 7 years an" the e$pecte" li#e. • •

:ETHODS OF DEPRECIATION i,$ F#&" '6*traight-line (6:eclining balance 36*u o# the years "igits 5*?:6

cost- salvage value estiate" li#e cost  "epreciation $ ate estiate" li#e nth perio" $ cost- salvage *?:

Illustration A achine is use" in the anu#acturing "epartent o# ,orporation A+ copute the "epreciation per annu with the #ollowing #actsD ,ost  P'7+ *alvage alue P7+

'. 4traight *ine !ethod with estiate" li#e  7 years '7+  7+  P(+ 7 years (. "eclining balance with rate o# (J ?ear 'D '7+   $ (J  P8+ 7 ?ear (D'7+8+ $ (J P3+8 7 -. 4um o% the years digits *?: #or 7 years  7U4U3U(U' or '7 ?ear 'D 71'7 $ 5'7+  7+6  P3+333.33 ?ear (D 41'7 $ 5'7+  7+6  P(+888.8H

A;REE:ENT AS TO USEFUL LIFE ON WHICH DEPRECIATION R ATE IS +ASED The ;ureau o# Internal evenue an" the ta$payer ay agree in writing on the use#ul li#e o# the property to be "epreciate". The agree" rate ay be o"i#ie" i# %usti#ie" by #acts or circustances. The change shall not be e##ective be#ore the ta$able year on which notice in writing by certi#ie" ail or registere" ail is serve" by the party initiating. SPECIAL TPES OF DEPRECIATION '. Petroleu Operations :epreciation o# all properties "irectly relate" to pro"uction o# petroleu shall be allowe" •

•

•

•

3. :epreciation "e"uctible by nonresi"ent aliens engage" in tra"e1business or non-resi"ent corporation a. Only when such property is located in the Philippines.

;. DEPLETION OF OIL AND ;AS WELLS AND :INES DEPLETION - e$haustion o# natural resources as in ines+ oil+ an" gas wells. The natural resources are calle" Fwasting assets. As the physical units representing such resources are e$tracte" an" sol"+ such assets ove towar"s e$haustion. /nown as cost o# "epletion allowance #or ines+ oil gas wells an" other natural "eposits starting calen"ar year 'KH8 an" #iscal year beginning Culy '+'KH7

TO WHO: ALLOWED Only ining entities owning econoic interest in ineral "eposits. conomic interest eans interest in inerals in place investent therein or secure" by operating or contract agreeent #or which incoe is "erive"+ an" return o# capital e$pecte"+ #ro the e$traction o# ineral. 0ere econoic or pecuniary a"vantage to be "erive" by pro"uction


San Beda College of Law 1 MEMORY AID IN TAXATION LAW by one who has no capital investent in the ineral "eposit "oes not aount to econoic interest.

FEATURES '. Intangible )$ploration an" "evelopent "rilling cost in petroleu e$ploration shall be treate" either asD a. revenue e$pen"itures2 or b. capital e$pen"itures (. The total aount "e"uctible #or e$ploration an" "evelopent e$pen"itures shall not e$cee" 7J o# net incoe #ro ining operation. The e$cess shall be carrie" #orwar" to the succee"ing year until #ully "e"ucte".

organi
36 ecipient is an accre"ite" nongovernent organi
36 ecipient is an accre"ite" "oestic corporation or association organi
H. CHARITA+LE AND OTHER CONTRI+UTIONS TAX TREAT:ENT A. D$(*i!" In &ull '6 ecipient isD 5a6 Governent o# the Philippines2 5b6 Any o# its agencies or political sub"ivisions2 or 5c6 Any #ullyowne" governent corporation

+. D$(*i!" S!(* T# Lii**i#, '6 ecipient isD 5a6 Governent o# the Philippines2 5b6 Any o# its agencies or political sub"ivisions &or a non-priority activity in any o# the areas entione" in A+ an" e$clusively #or a public purpose.

F#& /&i#&i*' (*i8i*' i,B '. *cience2 (. )"ucation 3. ,ulture 4. 9ealth 7. )conoic :evelopent 8. 9uan *ettleent H. ?outh an" *ports :evelopent 2= ecipient is a #oreign or international

(6 Non-governent organi


5a6 5b6 5c6 5"6

5e6 5#6 5g6 5h6

*cienti#ic2 )"ucational2 ,ultural2 ,haracter buil"ing1you th an" sports "evelopent ,haritable *ocial wel#are 9ealth esearch

(a) (b) (c) (d)

(e) (%) (g) (h)

*cienti#ic )"ucational2 ,ultural2 ?outh an" sports "evelopent ,haritable *ocial wel#are Religious Rehabilitatio n o% 2eterans

A,$ )*i)f'i,> I# the con"itions *% f#""#i,> in Table A is not coplie" withD (#,$i*i#,)B '. The "onation ust be *ub%ect to liitationD utili
R EQUISITES FOR DEDUCTI+ILIT '. The contribution or gi#t ust be actually pai". (. It ust be given to the organiuisition cost o# sai" property.

I. RESEARCH AND DEVELOP:ENT uisitesD . Pai" or incurre" "uring the ta$able year !. Or"inary an" necessary e$penses in connection with tra"e business or pro#ession (. Not chargeable to capital account 2. Df&&$ E/,)) e>uisitesD a. Pai" or incurre" in connection with tra"e+ business+ or pro#ession b. Not treate" as e$pense c. ,hargeable to capital account but not chargeable to property sub%ect to "epreciation or "epletion. A#,* $$(*i!"B

Aount ratably "istribute" over a perio" o# 8 onths beginning with the onth ta$payer reali
EXCLUSION FRO: R ESEARCH AND DEVELOP:ENT EXPENDITURES '. Any e$pen"iture #or the ac>uisition or iproveent o# lan" or #or the iproveent o# property to be use" in connection with research an" "evelopent sub%ect to "epreciation an" "epletion. (. Any e$pen"iture pai" or incurre" #or the purpose o# ascertaining the e$istence+ location+ e$tent or >uality o# any "eposit o# ore or other ineral inclu"ing oil or gas.

9. PENSION TRUST CONTRI+UTIONS PENSION TRUST CONTRI+UTIONS  a "e"uction applicable only to the eployer on account o# its contribution to a private pension plan #or the bene#it o# its eployee. This "e"uction is purely business in character.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW R EQUISITES FOR DEDUCTI+ILIT '. The eployer ust have establishe" a pension or retireent plan to provi"e #or the payent o# reasonable pensions to his eployees2 (. The pension plan is reasonable an" actuarially soun"2 3. It ust be #un"e" by the eployer2 4. The aount contribute" ust be no longer sub%ect to the control an" "isposition o# the eployer2 7. The payent has not yet been allowe" as a "e"uction2 an" 8. The "e"uction is apportione" in e>ual parts over a perio" o# ' consecutive years beginning with the year in which the trans#er or payent is a"e. SU::AR OF R ULES ON R ETIRE:ENT +ENEFITS PLAN  PENSION TRUST 1. E/* f&# I,(# T – eployeesE trust un"er 4ec. 96(3) 2. E(")i#, f&# ;&#)) I,(# – aount receive" by the eployee #ro the #un" upon copliance o# certain con"itions un"er 4ec. -5(3) (9) 3. D$(*i#, f&# ;&#)) I,(# – A. Aounts contribute" by the eployer "uring the ta$able year into the pension plan to cover the pension liability accruing "uring the year  consi"ere" as or"inary an" necessary e$penses un"er 4ec. -+(A)() B. '1' o# the reasonable aount pai" by the eployer to cover pension liability applicable to the years prior to the ta$able year+ or so pai" to place the trust in a soun" #inancial basis  "e"uctible un"er 4ec. -+(<)

. PRE:IU: PA:ENTS ON HEALTH ANDOR HOSPITALIJATION INSURANCE DEFINITIONB It is an aount o# preiu on health an"1or hospitali
R EQUISITES FOR DEDUCTI+ILIT '. Insurance ust have actually been ta!en (. The aount o# preiu "e"uctible "oes not e$cee" P(+4 per #aily or P( per onth "uring the ta$able ear. 3. That sai" #aily has a gross incoe o# not ore than P(7+ #or the ta$able year. 4. In case o# arrie" in"ivi"ual+ only the spouse claiing a""itional e$eption shall be entitle" to this "e"uction. WHO :A AVAIL OF THE DEDUCTION 1. In"ivi"ual ta$payers earning purely copensation incoe "uring the year. 2. In"ivi"ual ta$payer earning business incoe or in practice o# h i s pro#ession whether availing o# itei

San Beda College of Law 1 MEMORY A AID IN TAXATION LAW 4. Preius pai" on any li#e insurance policy covering the li#e o# any o##icer or epl eploy oyee ee++ or o# any any pers person on #inancially intereste" in any tra"e or business carrie" on by the ta$payer+ in"ivi in"ivi"ua "uall or corpor corporate+ ate+ whe when n the ta$pay ta$payer er is "irect "irectly ly or in"ir in"irect ectly ly a bene#iciary un"er such policy. policy . 4ec. -9D 5. Losses Losses #ro #ro sales sales or e$chan e$changes ges o# property beteen related ta:payers. 4 ec. -9D Transactions ;etween elate" Parties '. ;etw ;etwee een n ebe ebers rs o# o# the the #ail #aily2 y2 K7amily inclu" inclu"es es only only the brothers+ sisters 5whether by the whol wh ole e or hal# hal# bloo bloo"6 "6++ spou spouse se++ ancestors+ an" lineal "escen"ants o# the ta$payer. ta$payer. (. )$cept )$cept in in the the case case o# "ist "istri ribut bution ionss in li>ui"ationD a. between een an in"iv "ivi"ual an" a corpor corporati ation on ore ore than than 7J in value o# the outstan"ing stoc! o# which ich is owne owne"+ "+ "ir "irect ectly or in"ir "irectly tly+ by or #or such in"ivi"ual2 b. betw between een two two corpo corpora rati tion onss ore ore than 7J in value o# the outs outsta tan" n"in ing g stoc stoc! ! o# each each o# which ich is owne owne"+ "+ "ir "irect ectly or in"ir in"irect ectly ly++ by or #or the sae sae in"ivi"ual+ i# either one o# such corporations+ with respect to the ta$able year o# the corporation prece"ing the "ate o# the sale o# e$change was a personal hol"ing copan copany y or a #oreign #oreign person personal al hol"ing copany2 or 3. ;etw ;etwee een n the grant grantor or an" an" a #i"u #i"uci ciar ary y o# any trust2 4. ;etwee ;etween n the the #i"uci #i"uciary ary o# o# a trust trust an" the #i"uciary o# another trust i# the sae ae pers person on is a gra granto ntor with ith respect to each trust2 7. ;etw ;etwee een n a #i"uc #i"ucia iary ry o# a trus trustt an" a bene#iciary o# such trust.

TAX CONSEQUENCES The #ollowing are not deductibleD deductibleD '. Inte Intere rest st e$pe e$pens nse e 4ec. -+ (3)(5)D (. ;a" "ebts 4ec. -+ ()()D 3. Loss Losses es #ro #ro sale saless or e$ch e$chan ange gess o# property 4ec -9 (3)D

<2= OPTIONAL CORPORATE INCO:E TAX SECTION 27
OTHER F FEATURES '. Avail Availabl able e only only to to #ir #irss whos whose e ratio o#D ,ost o# sales V77J Gross sales or receipts #ro all sources

(. The election shall be irrevocable #or three 536 consecutive years

:EANIN; OF ;ROSS INCO:E ;,&" ;,&" (#,(/* – Gross sales *ess 5'6 *ales *ales etur eturn2 n2 5(6 :iscount :iscount an" allowances allowances 536 536 ,ost ,ost o# goo" goo"ss sol" sol" - ean eanss all business e$penses "irectly incurre" to pro"uce the the erc ercha han" n"is ise e to brin bring g the to their present location an" use. <3= :INI:U: CORPORATE INCO:E TAX <:CIT= SECTION 27

San Beda College of Law 1 MEMORY A AID IN TAXATION LAW (.

Whenever the aount o# 0,IT 0,IT is grea greate terr than than the the nor noral al incoe ta$ "ue #ro such corp corpor orat atio ion n "ete "eterrine ine" " un"er n"er *ection (HSA.

LI:ITATIONS '. The 0,IT shall apply only to "oe "oesstic tic an" an" resi esi"en "ent #ore #oreig ign n corporati corporations ons sub%ect to the noral noral corpor corporate ate inco incoe e ta$ 5inco 5incoe e ta$ rates un"er *ec (HSA o# the ,TP6. (. In the case o# a "oestic corp corpor orat atio ion n wh whos ose e oper operat atio ions ns or activities are partly covere" by the regular incoe ta$ syste an" partly covere" un"er a special incoe ta$ syste+ the 0,IT shal shalll apply apply on operat operation ionss covere covered d by the regula regular r corporate income ta: system. system . 3. In cop coput utin ing g #or the the 0,IT 0,IT "ue "ue #ro #ro a resi"ent #oreign corporation+ only the gross incoe #ro sources within the Philippi Philippines nes shall shall be consi"ere consi"ere" " #or such purpose.

WHEN DOES A CORPORAT CORPORATION ION +ECO:E +ECO:E LIA+LE UNDER THE :CIT 0,IT 0,IT is ipo ipose se" " begi beginn nnin ing g on the the #our #ourth th ta$a ta$able ble year year ie ie"i "iat ately ely #ollo llowing the year in which such corpor corporati ation on coen coence" ce" its busine business. ss. The ta$able year in which the business operations coence" shall be the year when the corporation registers with the ;I. ,A? &OWA: 0INI0B0 TAX •

•

•

O&

T9)

)X,)**

Any e$cess o# 0,IT over the noral incoe ta$ can be carrie" #orwar" on an annual basis. The e$cess can be cre"ite" against the noral noral inco incoe e ta$ "ue in the ne$t ne$t 3 ie ie"i "iat atel ely y succ succee ee"i "ing ng ta$able years. Any Any aou aount nt o# the the e$ce e$cess ss 0,IT 0,IT which cannot be cre"ite" against the noral incoe ta$ "ue in the ne$t 3-year perio" shall be #or#eite".

RELIEF FRO: :CIT

The *ecretary o# &inance is authoriu earth>ua!e+ a!e+ stor+ stor+ #loo" an" an" the the li!e li!e.. This This ter ter shal shalll also also inclu inclu"e "e are" are" con#l con#lict ictss li!e li!e war an" insurgency. F*egitimate business reversesR reverses R shall inclu"e substantial losses sustaine" "ue to #ire+ robbery+ the#t+ or ebe<
TAX RAT RATEB 2 #f >&#) >&#))) i,(# i,(#  or ta$able base pertinent to a tra" tra"in ing1 g1er erch chan an"i "isi sing ng conc concer ern n or a service entity TAX +ASEB Gross Incoe :EANIN; OF ;ROSS INO:E ;,&" ;,&" (#,(/* - gross incoe eansD Gross sales *ess 5'6 *ales *ales etur eturn2 n2 5(6 :iscount :iscount an" allowances allowances 536 536 ,ost ,ost o# goo" goo"ss sol" sol" - ean eanss all business e$penses "irectly incurre" to pro"uce the the erc ercha han" n"is ise e to brin bring g the to their present location an" use. INDS OF +USINESS A. T&$i,> #& :&(%,$i)i,> C#,(&, ;&#) ;&#))) I,(# I,(#   C#)* #f S")  1. gross sales1 Invo Invoic ice e cost cost receip receipts ts less less sales sales o# the goo"s sol"2 2. return returns+ s+ "iscou "iscounts nts iport


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW an" allowances an" cost o% goods sold

+. :,f(*&i,> ;&#)) I,(# 5*ae6

C. S&8i() ;&#)) I,(#  Gross receipts less sales returns+ allowances+ "iscounts an" costs o% services

"uties2 3. #reight in tran transp spor orti ting ng the the goo"s to the place wher wh ere e the the goo" goo"ss are actually sol"2 4. insurance while ile the the goo" goo"ss are in transit. C#)* #f S") ")  All cost o# pro"uction o# #inish #inishe" e" goo"s+ goo"s+ such such as 1. raw aterials use"2 2. "irect labor2 3. anu#acturin g overhea"2 4. #reight cost2 5. insurance preius2 other ther cos costs 6. incu incurr rre" e" to brin bring g the raw ateri aterials als to the the #act #actor ory y or warehouse. C#)* #f S&8i()  All "irect costs an" e$penses necessarily incurre" to provi"e the services re>uire" by the custoers an" clients inclu"ingD a. *alari *alaries es an" an" eployee bene#its o# personnel+ consultants an" specialists "irectly ren"ering the service2 b. ,ost o# #acili #acilities ties "irectly utili
ban?s and other %inancial institutions. •

•

Gross incoe e:cludes e:cludes passive incoe sub%ect to #inal ta$. Othe Otherr inco incoe e an" an" )$tr )$trao aor" r"in inar ary y Inco Incoe e are included since  K-K prov provi" i"es es that that gros grosss sales sales incl inclu" u"e e

sales contributory to incoe ta$able un"er the regular corporate ta$. 

*ee A,, T #or interplay o# noral ta$+ optional corporate incoe ta$ an" 0,IT.

<4= I:PROPERL ACCU:ULATED EARNIN;S
0I:PROPERL 0I:PROPERL ACCU:ULAT ACCU:ULATED ED TAXA+LE TAXA+LE INCO:E Ta$able Ta$able incoe #or the year A""D Incoe e$ept #ro ta$2 Incoe e$clu"e" #ro gross incoe2 Incoe sub%ect to #inal ta$2 Net operating loss carry-over 5NOL,O6 T#*" LessD


San Beda College of Law 1 MEMORY AID IN TAXATION LAW Incoe ta$ pai"1payable #or the ta$able year :ivi"en"s actually or constructively pai"1issue" #ro the applicable yearEs ta$able incoe Aount reserve" #or the reasonable nee"s o# the business as "e#ine" in the egulations T !) #f i/&#/&"' (("*$ &,i,>) *

EXCLUSIONS •

•

&or corporations using the calen"ar basis the accuulate" earnings ta$ shall not apply on IA as o% "ec. -, 008. &or #iscal year basis+ the ta$ shall not apply to the '(-onth perio" o# #iscal year 'KKH-'KK.

IA) as o# the en" o# a calen"ar or #iscal year perio" on or a#ter :ec. 3'+ 'KK shall be sub%ect to the 'J ta$.

WHO ARE COVERED ;,&" R"B The IA) ta$ shall apply to every corporation #ore" or availe" #or the purpose o# avoi"ing the incoe ta$ with respect to its sharehol"ers or the sharehol"ers o# any other corporation+ by peritting earnings an" pro#its to accuulate instea" o# being "ivi"e" or "istribute". These areD '. "omestic corporations as "e#ine" un"er the Ta$ ,o"e2 (. ,orporations which are classi#ie" as closely'held corporations. / those corporations at least #i#ty percent 57J6 in value o# the outstan"ing capital stoc! or at least #i#ty percent 57J6 o# the total cobine" voting power o# all classes o# stoc! entitle" to vote is owne" "irectly or in"irectly by or #or not ore than twenty 5(6 in"ivi"uals. :oestic corporations not #alling un"er the a#oresai" "e#inition are+ there#ore+ publicly-hel" corporations. •

E(/*i#,B The sai" ta$ shall not apply toD . Publicly hel" corporations (4ec. 50) 5. ;an!s an" other non-ban!s &inancial intere"iaries (4ec. 50) -. Insurance copanies (4ec. 50) +. Ta$able partnerships (deemed to have actually or constructively received the ta:able income under 4ec. 8-") /. General pro#essional partnerships (e:empt; ta:able against the partners) 9. Non- ta$able %oint ventures an" 8. )nterprises "uly registere" with the Philippine )conoic one Authority 5P)A6 un"er .A. HK'8+ an" enterprises registere" pursuant to the ;ases ,onversion an" :evelopent Act o# 'KK( un"er .A. H((H+ as well as other enterprises "uly registere" un"er special econoic
PURPOSE

TO

AVOID

'. The #act that any corporation is a ere hol"ing copany or investent copany shall be prima %acie evi"ence o# a purpose to avoi" the ta$ upon its sharehol"ers or ebers.

I,)*,() i,$i(*i8 #f /&/#) *# 8#i$ i,(# * /#, )%&%#"$&)B '. Investent o# substantial earnings an" pro#its o# the corporation in unrelated business or in stoc! or securities o# unrelate" business2 (. Investent in bon"s an" other long-ter securities2 3. Accuulation o# earnings in e$cess o# 'J o# pai"-up capital+ not otherwise inten"e" #or the reasonable


San Beda College of Law 1 MEMORY AID IN TAXATION LAW nee"s o# the business as "e#ine" in these egulations. (. The #act that the earnings or pro#its o# a corporation are peritte" to accuulate beyon" the reasonable needs o% the business shall be "eterinative o# the purpose to avoi" the ta$ upon its sharehol"ers or ebers unless the corporation+ by the clear prepon"erance o# evi"ence+ shall prove the contrary.

0R)#,!" ,$) #f *% !)i,)) inclu"es the reasonably anticipate" nee"s o# the business such asD a. Allowance #or the increase in the accuulation o# earnings up to 'J o# the pai"-up capital o# the corporation as o# ;alance *heet "ate+ inclusive o# accuulations ta!en #ro other years2 b. )arnings reserve" #or "e#inite corporate e$pansion pro%ects or progras as approve" by the ;oar" o# :irectors or e>uivalent bo"y2 c. eserve" #or buil"ing+ plants or e>uipent ac>uisition as approve" by the ;oar" o# :irectors or e>uivalent bo"y2 ". eserve" #or copliance with any loan covenant or pree$isting obligation establishe" un"er a legitiate business agreeent2 e. )arnings re>uire" by law or applicable regulations to be retaine" by the corporation or in respect o# which there is legal prohibition against its "istribution2 #. In the case o# subsi"iaries o# #oreign corporations in the Philippines+ all un"istribute" earnings inten"e" or reserve" #or investents within the Philippines as can be proven by corporate recor"s an"1or relevant "ocuentary evi"ence. The controlling intention o% the ta:payer is that which is ani#este" at the time o% accumulation+ not

subse>uently "eclare" intentions+ which are erely the pro"uct o# a#terthought. A speculative an" in"e#inite purpose will not su##ice. :e#initeness o# plan1s couple" with action1s ta!en towar"s its consuation is essential.

PERIOD FOR PA:ENT OF DIVIDEND PA:ENT OF IAET :ivi"en"s ust be "eclare" an" pai" or issue" not later than one year #ollowing the close o# the ta$able year+ otherwise+ the IA)T+ i# any+ shoul" be pai" within #i#teen 5'76 "ays therea#ter.

< 5= INCO:E SU+9ECT TO PREFERENTIAL OR SPECIAL RATES Pertains to incoe "erive" by a particular in"ivi"ual or corporation belonging to a class o# incoe ta$payer that is sub%ect to either a pre#erential or special rate. 

T R*) D Please re#er to A,, C.

586 GO** IN,O0) TAX 5GIT6 ;ROSS INCO:E TAX <;IT= FOR:ULA )ntire Incoe *ess )$clusions an" Incoe sub%ect to &inal Ta$ 5e.g. Passive Incoe6 Gross Incoe !ultiply by Ta$ ates 5J6 Net Incoe Ta$ :ue

;IT APPLIES TO '. Non-resi"ent alien not engage" in tra"e or business 5(7J62 an" (. Non-resi"ent #oreign corporation. 53(J6 

T R*)B Please re#er to A,, A an" +. <7= FINAL INCO:E TAX

;ENERAL PRINCIPLES



1. It is constitute" as a #ull an" #inal payent o# the incoe ta$ "ue #ro the payee on a particular type o# incoe sub%ect to #inal withhol"ing ta$ uire" to #ile an incoe ta$ return #or the particular incoe sub%ecte" to &WT. It is the withhol"ing agent who #iles the return. 5. The rate o# the #inal ta$ is ultiplie" to the gross incoe. Thus+ "e"uctions an"1or personal an" a""itional e$eptions are not allowe".

56 &ING) ;)N)&IT TAX 5&;T6 FRIN;E +ENEFIT TAX is a fina& income tax on the eployee which shall be withhel" an" pai" by the eployer on a >uarterly basis. FRIN;E +ENEFIT eans any goo"+ service+ or other bene#it #urnishe" or grante" by an eployer+ in cash or in !in"+ in a""ition to basic salaries+ to an in"ivi"ual eployee 5e$cept ran! an" #ile eployees6 such as+ but not liite" to the #ollowingD 1. 9ousing 2. )$pense Account 3. ehicle o# any !in" 4. 9ousehol" personnel+ such as ai"+ "river an" others 5. Interest on loan at less than ar!et rate to the e$tent o# the "i##erence between the ar!et rate an" actual rate grante". 6. 0ebership #ees+ "ues an" other e$penses borne by the eployer #or

the eployee in social an" athletic clubs an" siilar organi
PERSONS LIA+LE The E:PLOER 5as a withhol"ing agent6+ whether in"ivi"ual+ pro#essional partnership or a corporation+ regar"less o# whether the corporation is ta$able or not+ or the governent an" its instruentalities

TAX RATEB 32 5#ro Canuary '+ ( onwar"s6 o# the Grossed up !onetary 2alue (G!2) o# #ringe bene#its. In the case o# aliens+ the ta$ rates to be applie" on #ringe bene#it shall be as #ollowsD '. NAN);T (7J (. Aliens eploye" by regional 9O '7 J 3. Aliens eploye" by O;B '7J 4. Aliens eploye" by Petroleu *ervice ,ontractors an" *ubcontractors '7J 0;:V OF REPRESENTS

THE

FRIN;E

+ENEFIT

'. The whole aount o# incoe reali
EAR

;ROSSED UP DIVISOR

RATE


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 'KK 'KKK ( onwar"s

88J 8HJ

34J &WT 33J &WT

8J

3(J &WT

FRIN;E +ENEFITS N SU+9ECT TO F+T '. &ringe bene#its not consi"ere" as gross income  a. i# it is re>uire" or necessary to the business o# eployer b. i# it is #or the convenience or a"vantage o# eployer (. &ringe ;ene#it that is not ta$able un"er *ec. 3( 5;6  )$clusions #ro Gross Incoe 3. &ringe bene#its not ta$able un"er *ec. 33 &ringe ;ene#it Ta$D a. &ringe ;ene#its which are authori
;,&" R"B The aount o# ta$able #ringe bene#it an" the #ringe bene#its ta$

shall constitute allowable "e"uctions #ro gross incoe o# the eployer. E(/*i#,B I# the basis #or coputation o# the #ringe bene#its ta$ is the "epreciation value+ the
EXA:PLE OF DE :INI:IS +ENEFITS NOT SU+9ECT TO F+T

San Beda College of Law 1 MEMORY AID IN TAXATION LAW "iscriinate in #avor pai" eployees2 . Gi#ts given "uring ,hristas an" a%or anniversary celebrations not e$cee"ing P3+  per eployee per annu2 K. &lowers+ #ruits+ boo!s or siilar ites given to eployees un"er special circustances '. :aily eal allowance #or overtie wor! not e$cee"ing (7J o# the basic iniu wage.

Ti f#& fi"i,> #f &*&"' &i**,( &*&, #f fi," i,(# *) i*%%"$ The ta$ ipose" un"er *ec. 33 shall be treate" as a #inal incoe ta$ on the eployee that shall be withhel" an" pai" by the eployer+ whether a large ta$payer or non-large ta$payer+ on or +efore t#e 1t# da! of t#e mont# #ollowing the calen"ar >uarter in which the #ringe bene#its were grante" 5 4((6. 

&or A""itional ules on ;ene#its+ re#er to A,, H.

&ringe

<@= CAPITAL ;AINS TAX

capital asset On the gross selling price, or the current %air mar?et value at the tie o# sale+ whichever is higher  &T o# 8J

(Reyes, 2irgilio. Income 1a: *a and Accounting # A Ne Approach, 5665)

CAPITAL ;AINS AND LOSSES – *N ENERA, CONCEPT OF CAPITAL ASSETS Bn"er the ta$ co"e+ there is no "e#inition #or the ter Rcapital assetsR. What it gives is the eaning o# or"inary assetsD a. O&$i,&' ))*) (%ec. 38 N*RC) a. *toc! in tra"e o# the ta$payer or other properties o# a !in" which woul" properly be inclu"e" in the inventory o# the ta$payer2 b. Property hel" by the ta$payer priarily #or sale to custoers in the or"inary course o# business2 c. Property use" in tra"e business an" sub%ect "epreciation2 an"

SU::AR OF TAX RATES 1. I,$i8i$") a. On sale o# shares o# stoc! o# a "oestic corporation not liste" an" tra"e" thru a local stoc! e$change+ hel" as capital asset n the Net Capital Gain Not over P'+  &T o# 7J Aount in e$cess o# P'+  &T o# 'J

b. On sale o# real property in the Philippines hel" as capital asset On the gross selling price, or the current %air mar?et value at the tie o# sale+ whichever is higher  &T o# 8J

2. C#&/#&*i#,) a. On sale o# shares o# stoc! o# a "oestic corporation not liste" an" tra"e" thru a local stoc! e$change+ hel" as capital asset n the Net Capital Gain # Not over P'+  7J Aount in e$cess

o# P'+  &T o# 'J b. On sale o# lan"1buil"ing hel" as

&T o#

or to

". eal property use" in tra"e or business. b. C/i*" A))*) inclu"e all property hel" by the ta$payer whether or not connecte" in tra"e or business but not inclu"ing those enuerate" above 5'6 as or"inary assets.

CAPITAL ;AIN

CAPITAL LOSS

The gain "erive" #ro the sale or e$change o# capital assets.

The loss incurre" #ro the sale or e$change o# capital assets.

NET CAPITAL ;AIN

NET CAPITAL LOSS



The e$cess o# the gains #ro sales1 e$changes o# capital assets over the gains #ro such sales1 e$changes.

The e$cess o# the losses #ro sales or e$changes o# capital assets over the gains #ro such sales or e$changes.

$$(*i!i"i*' #f N* C/i*" "#))) ,apital losses are allowe" only to e$tent o# the capital gains2 hence+ the net capital loss is not "e"uctible.

•

TRANSACTION R ESULTIN; IN TAXA+LE ;AINS +UT NON-R ECO;NITION OF LOSSES a. *ale or e$change between relate" parties2 b. Wash sales by non-"ealers o# securities an" when not sub%ect to the stoc! trans#er ta$2 c. )$changes not solely in !in" in erger an" consoli"ation2 an" ". *ales or e$changes that are not at ars length.



REQUISITES FOR RECO;NITION CAPITAL ;AINLOSS

OF

'. The transaction ust involve property classi#ie" as capital asset2 an" (. The transaction ust be a sale or e$change or one consi"ere" as e>uivalent to a sale or e$change. BL)* ON T9) ),OGNITION O& ,APITAL GAIN* O LO**)*

INDIVIDUAL

CORPORATION

H#"$i,> P&i#$ The percentages o# gain or loss to be ta!en into account shall be the #ollowingD a. 'J - i# the capital assets has been hel" #or '( os. or less2 an" b.7J - i# the capital asset has been hel" #or ore than '( os.

,apital gains an" losses are recogni
 



N#,-

•

,apital

N* C/i*" L#)) C&&' –O8& Allowe" The net capital loss 5in an aount not in e$cess o# the ta$able incoe be#ore personal e$eption #or such year6 shall be treate" in the succee"ing year 5but not beyon" '( onths6 as a "e"uction as short-ter capital loss 5at 'J6 #ro the net capital gains. 

are allowe" only to e$tent o# the capital gains2 hence+ the net capital loss is not "e"uctible. E(/*i#,D I# any "oestic ban! or trust copany+ a substantial part o# whose business is the receipt o# "eposits+ sells any bon"+ "ebenture+ note or certi#icate or other evi"ence o# in"ebte"ness issue" by any corporation 5inclu"ing one issue" by a governent or political sub"ivision6 •

Not allowe"

•



*ee A,, U #or illustration.

SALE

OR EXCHAN;E OF CAPITAL ASSETS

The #ollowing are consi"ere" as sale or e$change o# capital assetsD 1. etireent o# bon"s 2. *hort sales o# property 3. &ailure to e$ercise privilege or option to buy or sell property 4. *ecurities becoing worthless 5. :istribution in li>ui"ation o# corporations 6. ea"%ustent o# interest in a general pro#essional partnership. TAX FREE EXCHAN;ES

losses


San Beda College of Law 1 MEMORY AID IN TAXATION LAW *ales or e$changes resulting in nonrecognition o# gains or lossesD '. )$change solely in ?ind in legitiate &>&) ,$ (#,)#"i$*i#,2 inclu"esD a. ;etween the corporations which are parties to the erger or consoli"ation 5property #or stoc!s62 b. ;etween a stoc!hol"er o# a corporation party to a erger or consoli"ation an" the other party corporation 5stoc! #or stoc!62 c. ;etween a security hol"er o# a corporation party to a erger or consoli"ation an" the other party corporation 5securities #or securities6 (. Trans#er to a (#,*&#""$ (#&/#&*i#,  e$change o# property #or stoc!s resulting in ac>uisition o# corporate control by a person+ alone or together with others not e$cee"ing #our. 0C#,*&#" eans ownership o# stoc!s in a corporation aounting to at least 7'J o# the total voting power o# all classes o# stoc!s entitle" to vote.

SALE

OR EXCHAN;E OF ORDINAR ASSETS

General rules o# incoe ta$ation apply to both gain an" loss. 

*ee A,, D 5Gross Incoe  Gains #ro "ealings in property6

SU::AR OF TAX TREAT:ENT OF ;AINSLOSSES IN THE EXCHAN;E OF PROPERTIES ;,&" R"B Bpon the sale or e$change o# property+ the entire gain or loss+ as the case ay be+ shall be recogni
b. Trans#er to a controlle" corporation S*ec. 45,+ (6 '. Transactions where gain is recogni
I:PORTANT DISTINCTION I# it is an #&$i,&' ))*+ the or"inary gains an" losses are consi"ere" in "eterining incoe or loss #ro tra"e+ business or pro#ession. (4ee 4ecs. -5A, -+") I# it i s a (/i*" ))*+ "eterine #urther whether or not it is a real property locate" in the Philippines. I# it is+ then it is sub%ect to capital gains ta$. (4ee 4ecs. 5+", 58"/) (4ee also 4ec s. 5+C, 58"5) I# not+ the capital gains an" losses are consi"ere" in "eterining the ta$able incoe. (4ec. -0) CAPITAL ;AINS AND LOSSES – %9ARE% : %C; The ta$ation o# shares o# stoc! whether or not liste" an" tra"e" in the stoc! e$change is sub%ect to %inal ta: .

WHO ARE LIA+LE TO THE TAX '. In"ivi"ual ta$payer+ citi
OF TAX

1. S%&) #f )*#(G ,#* *&$$ *%&#>%  "#(" )*#(G (%,>  Net capital gains "erive" "uring the ta$able year #ro sale+ e$change+ or trans#er shall be ta$e" as #ollows 5on a per transaction basis6D Not over P '+ - 7J Over P '+ - 'J


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 2. S%&) #f )*#(G "i)*$ *%&#>%  "#(" )*#(G (%,>  Y o# 'J o# the gross selling price o# the stoc!. EXCEPTIONS TO THE TAX '. Gains "erive" by "ealers in securities. (. All other gains which are speci#ically e$ept #ro incoe ta$ un"er e$isting investent incentives an" other special laws. +ASIS FOR CO:PUTIN; R ULIN; 146-@?= •

•

•

;AIN OR LOSS <+IR

The #air ar!et value 5&06 o# the sale o# shares not tra"e" but liste" in the stoc! e$change is the highest closing price on the "ay the shares were sol"+ trans#erre" or e$change". When no sale is a"e in the stoc! e$change+ the &0 shall be the highest selling price on the "ay nearest to the "ay o# sale+ trans#er or e$change. &or shares not liste" in the e$change+ the &0 shall be the boo! value nearest the valuation "ate The above rules shall be use" in coputing #or the net capital gain1loss #or "isposition o# shares.

I:PORTANT FEATURES '. *ale o# shares o# stoc! o# a "oestic corporation liste" an" tra"e" in a local stoc! e$change an" that o# initial public o##ering shall be sub%ect to Percentage ta$ 5;usiness Ta$6 (. ,apital losses sustaine" "uring the year 5not liste" an" tra"e" in a local stoc! e$change6 shall be allowe" as a capital loss "e"uctible on the sae ta$able year only 5no carry-over6 3. The entire aount o# capital gain an" capital loss 5not liste" an" tra"e" in a local stoc! e$change6 shall be consi"ere" without ta!ing into account hol"ing perio" irrespective o# who is the ta$payer 5all 'J6 4. Non-"e"uctibility o# losses on wash sales.

FILIN;

AND PA:ENT OF TAX

1. Li)*$ ,$ T&$$ i, *% S*#(G E(%,> - The stoc!bro!er shall turn over the ta$ collecte" to the ;.I.. within %ive (/) ban!ing "ays #ro the "ate o# collection. 2. N#* *&$$ *%&#>% *% )*#(G (%,> - It shall be pai" by the seller on a per transaction basis upon #iling o# the re>uire" return within -6 days #ollowing each sale or other "isposition o# shares o# stoc!. CAPITAL ;AINS AND LOSSES (REA, PRPER<) PERSONS AFFECTED

LIA+LE

AND

TRANSACTIONS

1. I,$i8i$" */'&) )**) ,$ *&)*) *ale or e$change or other "isposition o# real property consi"ere" as capital assets. The sai" sale shall inclu"e Lpacto de retro saleR an" other con"itional sale. 2. D#)*i( C#&/#&*i#, *ale or e$change or "isposition o# lan"s an"1or buil"ing which are not actually use" in business an" are treate" as capital asset. EXCEPTIONS TO THE TAX '. Gains "erive" by "ealers in real estate 

R ATE AND +ASIS OF TAX A #inal ta$ o# 8J is base" on the gross selling price or %air mar?et value or Honal value whichever is higher . NoteB Gain or loss is iaterial+ there being a conclusive presuption o# gain. 

*ee A,, ;  Gui"elines in :eterining Whether a eal Property is a ,apital or an Or"inary Asset.

EXE:PTION

OF CERTAIN INDIVIDUALS FRO: THE CAPITAL ;AINS TAX ON THE SALE OR DISPOSITION OF A PRINCIPAL R ESIDENCE

C#,$i*i#,)B


San Beda College of Law 1 MEMORY AID IN TAXATION LAW a. *ale or "isposition o# the ol" principal resi"ence2 b. ;y natural persons - citiuiring or 5b6 constructing a new principal resi"ence within eighteen 5'6 calen"ar onths #ro "ate o# sale or "isposition2 ". Noti#y the ,oissioner within thirty 536 "ays #ro the "ate o# sale or "isposition through a prescribe" return o# his intention to avail the ta$ e$eption2 e. ,an only be availe" o# only once every ten 5'6 years2 #. The historical cost or a"%uste" basis o# his ol" principal resi"ence sol" + e$change" or "ispose" shall be carrie" over to the cost basis o# his new principal resi"ence g. I# there is no #ull utili
;ROSS INCO:E FRO: DIFFERENT SOURCES
OF

ACCOUNTIN;

I. ACCOUNTIN; PERIODS A. ;,&" &"
•

•

•

(. ta$payer has no accounting perio" 3. ta$payer "oes not !eep boo!s 4. ta$payer is an in"ivi"ual Fi)(" '&D accounting perio" o# '( onths en"ing on the last "ay o# any onth other than :eceber C",$& '&D accounting perio" #ro Canuary ' to :eceber 3'

+. P&i#$) i, %i(% i*) #f >&#)) i,(# i,("$$
•

C. P&i#$ f#& %i(% $$(*i#, ,$ (&$i*) *G,
•

D. C%,> #f
((#,*i,>

/&i#$


San Beda College of Law 1 MEMORY AID IN TAXATION LAW •

•

/in"s o# changesD - #ro #iscal year to calen"ar year # #ro calen"ar year to #iscal year # #ro one #iscal year to another )##ect o# changeD Net incoe+ shall+ with the approval o# the ,oissioner+ be copute" on the basis o# the new accounting perio"+ sub%ect to *ec. 4H.

E. Fi," #& $)*,* &*&,) f#&  /&i#$ #f ")) *%, 12 #,*%) 5'6 eturns #or short perio" resulting #ro change o# accounting perio" ta$payer is other than an in"ivi"ual with the approval o# the ,oissioner I# change is #ro #iscal year to calen"ar yearD # separate #inal or a"%ustent return be a"e #or the perio" between the close o# the last #iscal year #or which return was a"e an" the #ollowing :eceber 3' I# change is #ro calen"ar year to #iscal yearD # separate #inal or a"%ustent return be a"e #or the perio" between the close o# the last calen"ar #or which return was a"e an" the "ate "esignate" as the close o# the #iscal year I# change is #ro one #iscal year to anotherD # separate #inal or a"%ustent return be a"e #or the perio" between the close o# the #orer #iscal year an" the "ate "esignate" as the close o# the new #iscal year 5(6 Incoe copute" on basis o# short perio" In what cases@ a. Where a separate #inal or a"%ustent return is a"e on account o# a change in accounting perio"

•

•

b. In all other cases where a separate #inal or a"%ustent return is re>uire or peritte" by  prescribe" by *ec. o# &inance. upon recoen"ation o# ,oissioner ;oth shall be a"e #or a #ractional part o# a year. Then incoe is copute" on the basis o# the short perio" #or which separate #inal or a"%ustent return is a"e.

II. :ETHODS OF ACCOUNTIN;

•

A. C)% *%#$ ecognition o# incoe an" e$pense "epen"ent on in#low or out#low o# cash.

•

1.

•

•

•

•

•

A((&" *%#$ 0etho" un"er which incoe+ gains an" pro#its are inclu"e" in gross incoe when earne" whether receive" or not+ an" e$penses are allowe" as "e"uctions when incurre"D although not yet pai". It is the right to receive an" not the actual receipt that "eterines the inclusion o# the aount in gross incoe )$aples D '. interest or rent incoe earne" but not yet receive" (. rent e$pense accrue" but not yet pai" 3. wages "ue to wor!ers but reaining unpai"

2.

A((#,*i,> f#& "#,>-*& (#,*&(*) *ong'term contractsD buil"ing+ installation or construction contracts covering a perio" in e$cess o# ' yr Persons whose gross incoe is "erive" in whole or in part #ro such contracts shall report such incoe upon the •

•



•

•

•

3.

basis o# percentage o% completion The return is accopanie" by a return certi#icate o# architects or engineers showing the percentage o# copletion "uring the ta$able year o# the entire wor! per#ore" un"er the contract :e"uctions #ro gross incoeD all e$pen"itures a"e "uring the ta$able year on account o# the contractD account being ta!en o# the aterial an" supplies on han" at the beginning an" en" o# the ta$able perio" #or use in connection with the wor! un"er the contract but not yet so applie". Aen"e" return ay be peritte" 1re>uire" by the ,oissionerD i# upon copletion o# contract+ ta$able incoe has not been clearly re#lecte" #or any year5s6.

I,)*"",* !)i) () *ales o# "ealers in personal property Bn"er rules an" regulations prescribe" by the *ec. o# &inance+ a person who regularly sells or otherwise "isposes o# personal property on the installent plan ay return as incoe there #ro in any ta$able year that proportion o# the installent payents actually receive" in that year+ which the gross pro#it reali
Installents payable in ( e>ual annual installents GP1,P ratio  7+1(+  (7J ,ollections in (P'+ Incoe #or (  P'+ $ (7J  P(7+ (5) *ales o# realty an" casual sales o# Personalty In cases o% a. casual sale or other casual "isposition o# personal property 5other than inventory on han" o# the ta$payer at the close o# the ta$able year6 #or a price Z P'++ or b. sale or other "isposition o# real property+ i# in either case the initial payents "o not e$cee" (7J o# the selling price $o may income be returned D sae as in sales o# "ealer in personal property above Initial payments payents receive" in cash or property other than evi"ences o# in"ebte"ness o# the purchaser "uring the ta$able perio" in which the sale or other "isposition is a"e. •

•

•

536

*ales o# real property consi"ere" as capital asset by in"ivi"uals In"ivi"ual who sells o# "isposes o# real property+ consi"ere" as capital asset an" is otherwise >uali#ie" to report the gain un"er 5(6 above ay pay the capital gains ta$ in installents un"er rules an" regulations to be •


San Beda College of Law 1 MEMORY AID IN TAXATION LAW proulgate" by the *ec. o# &inance. 546 ,hange #ro accrual installent basis •

•

to

ta$payer ust be entitle" to bene#its un"er 5'6 hereo# sales o# "ealers in personal property in coputing incoe #or the year o# change or any subse>uent yearD aounts actually receive" "uring any such year on account o# sales or other "ispositions o# property a"e in any prior year shall not be e$clu"e".

4. A""#(*i#, #f i,(# ,$ $$(*i#,) Applicable toD cases o# ( or ore organi
•

FILIN;

the incoe ta$ withhel"+ i# any+ an" the incoe ta$ still to be pai" or re#un"able.

OF TAX R ETURN AND PA:ENT OF TAX

TAX R ETURN  This is a report a"e by the ta$payer to the ;I o# all gross incoe receive" "uring the ta$able year+ the allowable "e"uctions inclu"ing e$eptions+ the net ta$able incoe+ the incoe ta$ rate+ the incoe ta$ "ue+

PERSONS R EQUIRED R ETURN

TO

FILE INCO:E TAX

a. I,$i8i$" 1. esi"ent citi
INDIVIDUALS EXE:PT FRO: FILIN; INCO:E TAX R ETURN '. In"ivi"ual whose gross incoe "oes not e$cee" total personal an" a""itional e$eptions2 (. In"ivi"ual with respect to pure copensation incoe "erive" #ro sources within the Philippines+ the incoe ta$ on which has been correctly withhel"2 3. In"ivi"ual whose sole incoe has been sub%ecte" to #inal withhol"ing incoe ta$2 4. In"ivi"ual who is e$ept #ro incoe ta$.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW –

is when the eployerEs annual return ay be consi"ere" as the Fsubstitute Incoe Ta$ eturn 5IT6 o# eployee inasuch as the in#oration provi"e" in his incoe ta$ return woul" e$actly be the sae in#oration containe" in the eployerEs annual return. SU+STITUTED

FILIN;

HOW IS 0SU+STITUTED FILIN; DIFFERENT FRO: 0NON-FILIN;  •

•

S!)*i**$ Fi"i,>  an in"ivi"ual ta$payer although re>uire" un"er the law to #ile his incoe ta$ return+ will no longer have to personally #ile his own incoe ta$ return.  but instea" the employers annual in%ormation return #ile" is the consi"ere" Fsubstitute incoe ta$ return o# the eployee inasuch as the in#oration in the eployerEs return is e:actly the same in%ormation containe" in the eployeeEs return. N#,-fi"i,>  applicable to certain types o# in"ivi"ual ta$payers who are not re>uire" un"er the law to #ile an incoe ta$ return. )$apleD eployee whose pure copensation incoe "oes not e$cee" P8+ an" has only one eployer #or the ta$able year an" whose ta$ withhel" is e>uivalent to his ta$ "ue.

SU+STITUTED FILIN; OF INCO:E TAX R ETURNS + E:PLOEES R ECEIVIN; PUREL CO:PENSATION INCO:E. SECTION 4 RR 322M R:C 1-3 Ri)i*)B '. The eployee receives purely compensation income 5regar"less o# aount6 "uring the ta$able year. (. The eployee receives the incoe only #ro one employer "uring the ta$able year. 3. The amount o% ta: due #ro the eployee at the en" o# the year eBuals the aount o# ta$ withhel" by the employer .

4. The eployee=s spouse also coplies with all three 536 con"itions state" above. 7. The eployer #iles the annual in#oration return 5;I &or No. '84-,&6 8. The eployer issues ;I &or (3'8 5Oct (( )N,*6 version to each eployee In"ivi"uals Not Muali#ie" &or *ubstitute" &iling 5*till e>uire" To &ile6 . In"ivi"uals "eriving copensation #ro two or ore eployers concurrently or successively "uring the ta$able year. 5. )ployees "eriving copensation incoe+ regar"less o# the aount+ whether #ro a single or several eployers "uring the calen"ar year+ the incoe ta$ o# which has not been withhel" correctly 5i.e. ta$ "ue is not e>ual to the ta$ withhel"6 resulting to collectible or re#un"able return. -. )ployees whose onthly gross copensation incoe "oes not e$cee" P7+ or the statutory iniu wage+ whichever is higher+ an" opte" #or non-withhol"ing o# ta$ on sai" incoe. +. In"ivi"uals "eriving other nonbusiness+ non-pro#ession-relate" incoe in a""ition to copensation incoe not otherwise sub%ect to #inal ta$. /. In"ivi"uals receiving purely copensation incoe #ro a single eployer although the incoe ta$ o# which has been correctly withhel"+ but whose spouse #alls un"er ' to 4 above. 9. Non-resi"ent aliens engage" in tra"e or business in the Philippines "eriving purely copensation incoe+ or copensation incoe an" other non-business+ nonpro#ession-relate" incoe. N1 Non-#iling o# IT+ #or eployees who are >uali#ie" #or the substitute" #iling shall be P1INA* #or the ta$able year ('+ the returns #or which shall be #ile" on or be#ore April '7+ ((. Therea#ter+ substitute" #iling where


San Beda College of Law 1 MEMORY AID IN TAXATION LAW applicable shall be !AN"A1RM. 4ec / RR -'5665)

3. With the O##ice o# the ,oissioner

R EQUIRE:ENT OF +ANS FOR SU+:ISSION OF AN ITR FOR LOAN O R CREDIT CARD APPLICATIONS

Tie &or &iling 5Pay as you #ile syste6

;an!s ay re>uire the subission o# ;I &or No. 'H 5#or eployees not entitle" to substitute" #iling o# IT6. 9owever+ #or eployees entitle" to substitute" #iling o# IT+ the subission o# the Coint ,erti#ication will su##ice.

9OINT CERTIFICATION - It is a sworn stateent a"e by the eployer an" eployee+ which serve the #ollowing purposesD '. It contains the eployee=s consent that ;I &or No. '84,& ay be consi"ere" his substitute" return+ in lieu o# ;I &or No. 'H+ which the eployee no longer #ile". (. It contains the eployer=s certi#ication that he has reporte" the eployee=s incoe to the ;I an" that he has reitte" the ta$es on the eployee=s incoe+ as in"icate" in ;I &or No. '84-,&. 3. It serves as proo# o# #inancial capacity in case the eployee "eci"es to apply #or a ban! loan or a cre"it-car"+ or #or any other purpose+ as i# he ha" in #act #ile" a ;I &or No. 'H. In"ivi"uals e>uire" In#oration eturn

To

&ile

Apri& 15  #or those earning sole copensation incoe or solely business+ practice o# pro#ession or cobination o# business an" copensation. eturn an" Payent o# )stiate" Incoe Ta$ by In"ivi"ual 5*el#-)ploye" or Practice o# Pro#ession6 '. &irst >uarter - April '7 o# current year (. *econ" >uarter -August '7 o# current year 3. Thir" >uarter  Noveber '7 o# current year 4. &inal >uarter - April '7 o# the #ollowing year. NoteD When the ta$ "ue is in e$cess o# P(+  - the ta$payer ay elect to pay in two 5(6 e>ual installentsD 'st installent - April '7 (n" installent - on or be#ore Culy '7 )XT)N*ION O& TI0) TO &IL) )TBN The ,oissioner ay on eritorious cases grant a reasonable e$tension o# tie #or #iling incoe ta$ return an" ay sub%ect the iposition o# twenty 5(6 percent interest per annu #ro the original "ue "ate.

An

In"ivi"uals not re>uire" to #ile an incoe ta$ return ay nevertheless be re>uire" to #ile an in#oration return pursuant to rules an"+ regulations prescribe" by the *ecretary o# &inance upon recoen"ation o# the ,oissioner.

eturn O# 9usban" An" Wi#e •

•

PLA,) O& &ILING '. Legal resi"ence - authori
Fi" #, <1= &*&, #or the ta$payer year i# #ollowing re>uisites coplie"2 a. 0arrie" in"ivi"uals 5citi

San Beda College of Law 1 MEMORY AID IN TAXATION LAW BN0AI): 0INO •

Incoe o# unarrie" inors "erive" #ro property receive" by the living parent shall be inclu"e" in the return o# the parent+ e$ceptD a. when "onorEs ta$ has been pai" on such property+ or b. when trans#er o# such property is e$ept #ro "onorEs ta$

P)*ON* BN:) :I*A;ILIT? I# a ta$payer is unable to a!e his own return+ it ay be a"e by his '. "uly authori
3. Insurance copany "oing business in the Philippines or "eriving incoe therein 4. &oreign corporation having incoe #ro within the Philippines &iling o# return 5Pay as you #ile syste6 Muarterly returns #or the #irst three 536 >uarters on a strictly si$ty 586 "ay basis an" the #inal or a"%uste" return on the '7th "ay o# the #ourth 54th6 onth #ollowing the close o# either a -#iscal on calen"ar year. 

*ee A,, V #or Illustration.

Who shall #ile@ The return shall be #ile" by the presi"ent+ vice-presi"ent+ or other principal o##icer+ an" shall be sworn to by such o##icer an" by the treasurer or assistant treasurer.

WITHHOLDIN; TAXES Withhol"ing Ta$es

eturn o# estate+ Trust an" Partneship )state an" Trust with gross incoe o# P(+ or ore an" partnership 5whether pro#essional or business6 shall #ile their incoe ta$ return on or be#ore April '7. Ta$ eturns o# General Pro#essional Partnerships 5GPP6 )ach GPP shall #ile in "uplicate+ a return o# its incoe 5e$cept those incoe e$ept6 *hall set #orthD a. ites o# gross incoe an" "e"uctions allowe" b. naes o# partners c. TIN ". a""ress an" share o# each partner

i,$)B '. Withhol"ing Ta$ at *ourceD a. &inal Withhol"ing Ta$ b. ,re"itable Withhol"ing Ta$ 5)$pan"e" withhol"ing ta$6 (. Withhol"ing Ta$ on ,opensation 5Wages6 3. Withhol"ing Ta$ on ,re"itable alueA""e" Ta$ 4. Withhol"ing o# Percentage Ta$

•

•

Ta$ eturn o# a ,orporation Those re>uire" to #ileD '. ,orporation sub%ect to ta$ having e$iste" "uring the ta$able year+ whether with incoe or not. (. ,orporation in the process o# li>ui"ation or receivership.

&INAL WIT99OL:ING TAX *?*T)0

,):ITA;L) WIT99OL:ING TAX *?*T)0

The aount o# incoe ta$ withhel" by the withhol"ing agent is constitute" as a #ull an" #inal payent o# the incoe "ue #ro the payee on the sai" incoe. S*ec. (.7H 5a6+ ev. eg. (-K

Ta$es withhel" on certain incoe payents are inten"e" to e>ual or at least appro$iate the ta$ "ue #ro the payee on the sai" incoe.



The liability #or payent o# the ta$ rests priarily on the payor or the withhol"ing agent. The payee is not re>uire" to #ile an incoe ta$ return #or the particular incoe.

The incoe recipient is still re>uire" to #ile an incoe ta$ return an"1or pay the "i##erence between the ta$ withhel" an" the ta$ "ue on the incoe. S*ec. (.7H5;6+ ev. egs. (-K

Tie to Withhol" Ta$ at *ource - arises at the tie an incoe is pai" or payable+ whichever coes #irst. The ter Fpayable re#ers to the "ate the obligation becoes "ue+ "ean"able or legally en#orceable. (4ec. 5./+.+ Rev. Regs. 5.0) Nature o# Withhol"ing AgentEs Liability The withhol"ing agent is "irectly an" in"epen"ently liable #or the correct aount o# the ta$ that shoul" be withhel" #ro the "ivi"en" reittance. (Commissioner vs. Procter and Gamble, GR No. 99-, "ecember 5, 00)

CONSEQUENCES FOR FAILURE TO WITHHOLDB 1. liable #or surcharges an" penalties2 2. liable upon conviction to a penalty e>ual to the total aount o# the ta$ not withhel"+ or not accounte" #or an" reitte". (4ec. 5/, 008 NIRC) 3. any incoe payent which is otherwise "e"uctible #ro the payorEs gross incoe will not be allowe" as a "e"uction i# it is shown that the incoe ta$ re>uire" to be withhel" is not pai" to the ;I. (4ec. 5././, Rev. Reg. 5'0) Withhol"ing Ta$ On ,opensation )very eployer ust withhol" #ro copensation pai"+ an aount copute" in accor"ance with the regulations. )$ceptionD Where such incoe o# an in"ivi"ualD

copensation

'. :oes not e$cee" the statutory iniu wages2 or (. &ive thousan" 5P7+6 onthly 5P8+ a year6 6#ic#ever is #i"#er . •

)leents o# Withhol"ing on ,opensation '. There ust be an eployereployee relationship (. There ust be payent o# copensation or wages #or services ren"ere" 3. There must be a pa0ro period% ,O0P)N*ATION )X)0PT): '. eunerations receive" as an inci"ent o# eployent (. eunerations pai" #or agriculture labor 3. eunerations pai" #or "oestic services 4. eunerations #or casual not in the course o# an eployer=s tra"e or business. 7. ,opensation #or services o# a citi

San Beda College of Law 1 MEMORY AID IN TAXATION LAW obligor ay be re>uire"1peritte" to pay or to retain there#ro. Obligor shall "e"uct an" withhol" a ta$  3J o# the interest an" other payents whether interest or other payents are payable annually or at a shorter perio"2 whether bon"s+ securities+ obligations ha" been1will be issue"1 ar!ete" an" the interest an" other payents pai" within an" without the Philippines i# the interest or other payent is payable to a non-resi"ent alien or a citi
•

•

•

•

Incoe which any cre"itable ta$ is re>uire" to be withhel" at source shall be inclu"e" in the return o# its recipient. The e:cess o# the aount o# ta$ withhel" over the ta$ "ue on his return shall be re#un"e" to hi+ sub%ect to *ection (4 5abateent+ re#un"1cre"it ta$es6. I# aount withhel" at source is less than the ta$ "ue on his return+ the "i##erence is pai" in accor"ance with *ection 78 5payent an" assessent o# incoe ta$6. All ta$es withhel" shall be consi"ere" as trust #un"s an" aintaine" in a separate account an" not coingle" with any other #un"s o# the withhol"ing agent. ;. TAN*&) TAX)*

TAN*&) TAX

IN,O0) TAX

Ta$ on trans#er o# Ta$ on incoe property. ates are lower --7J to (J estate ta$ -- (J to '7 J or 3J - "onorEs ta$

ates are higher -- 7J to 3(J

Lesser e$eptions

0ore e$eptions

DEFINITIONB an e$cise ta$ on the right o# transitting property at the tie o# "eath an" on the privilege that a person is given in controlling to a certain e$tent the "isposition o# his property to ta!e e##ect upon "eath. )state Ta$ &orula Gross )state (4ec. /) *ess 5'6 :e"uctions (4ec. 9) 5(6Net share o# the ** in the ,PP Net Ta$able )state !ultiply by Ta$ rate (4ec. +) )state Ta$ "ue *ess Ta$ ,re"it Si# any (4ec. 9D or 63D )state Ta$ :ue+ i# any

;ROSS ESTATE A "ece"entEs gross estate inclu"es (4ec. /) )*I:)NT  NON)*I:)NT ,ITI)N+ )*I:)NT ALI)N :),):)NT

NON-)*I:)NT ALI)N :),):)NT

'. eal property herever situate"

'. eal property situate" in the Philippines.

(. Personal property herever situate" a6 Tangible+ an" b6 Intangible

(. Personal property a6 Tangible property situate" in the Philippines b6 Intangible personal property with a situs in the Philippines unless e$epte" on the basis o# reciprocity.

The law that governs the iposition o# estate ta$

<1= ESTATE TAXES

The statute in #orce at the time o% death o% the decedent shall govern estate ta$ation.



Intangible personal properties with a situs in the Phil. (4ec. 6+, 008 NIRC) '. &ranchise which ust be e$ercise" in the Philippines2 (. *hares+ obligations or bon"s issue" by any corporation or sociedad anonima organiuire" a business situs in the Philippines2 7. *hares or rights in any partnership+ business or in"ustry establishe" in the Philippines.

Intangible personal property+ with a situs in the Philippines+ o# a "ece"ent who is a non-resi"ent alien shall not #or part o# the gross estate i# 5reciprocity clause6 (4ec. 6+) '. the "ece"ent at the tie o# his "eath was a citi
The properties coprising the gross estate shall be value" base" on their #air ar!et value as o# the tie o# "eath.

PROPERT '6 eal Property

VALUATION - #air ar!et value a6 as "eterine" by the ,oissioner or b6 as shown in the sche"ule o# values #i$e" by the provincial an" city assessors W9I,9)) I* 9IG9)

(6 *hares o# *toc! Bnliste" ,oon *hares Pre#erre" *hares Liste"

-boo! value -par value -arithetic ean between the highest an" lowest >uotation at a "ate nearest the "ate o# "eath+ i# none is available on the "ate o# "eath itsel#.

36ight to usu#ruct+ use or habitation+ as well as that o# annuity

- shall be ta!en into account the probable li#e o# the bene#iciary in accor"ance with the latest basic stan"ar" ortality table+ to be approve" by the *ecretary o# &inance+ upon recoen"ation o# the Insurance ,oissioner.

46 Personal property

- whether tangible or intangible+ appraise" at &0. F*entiental value is practically "isregar"e".

Inclusions in the Gross )state (4ec. /) '. :ece"entEs interest To the e$tent o# the interest in property o# the "ece"ent at the tie o# his "eath. (. Trans#er in conteplation o# "eath '. A trans#er otivate" by the thought o# ipen"ing "eath although "eath ay not be iinent2 or


San Beda College of Law 1 MEMORY AID IN TAXATION LAW (. A trans#er by which the "ece"ent retaine" #or his li#e or #or any perio" which "oes not in #act en" be#ore his "eathD a. the possession or en%oyent o#+ or the right to the incoe #ro the property+ or b. the right+ either alone or in con%unction with any person+ to "esignate the person who shall possess or en%oy the property or the incoe there#ro.

E(/*i#,B bona #i"e sale #or an a"e>uate an" #ull consi"eration in oney or oneyEs worth. 3. evocable trans#er A trans#er whereby the ters o# en%oyent o# the property may be altered, amended, revo?ed or terminated by the "ece"ent alone or in con%unction with any other person+ or where any such power is relin>uishe" in conteplation o# the "ece"entEs "eath. It is enough that the "ece"ent ha" the power to alter+ aen" or revo!e though he "i" not e$ercise such power.

E(/*i#,B bona #i"e sale #or an a"e>uate an" #ull consi"eration in oney or oneyEs worth. 4. Trans#er un"er general power o# appointent A power o# appointent is the right to "esignate the person or persons who will succee" to the property o# the prior "ece"ent. The general power o# appointent ay be e$ercise" by the "ece"entD '. by will2 or (. by "ee" e$ecute" in conteplation o# his "eath2 or 3. by "ee" un"er which he has retaine" #or his li#e or #or any perio" not ascertainable without re#erence to his "eath or #or any perio" which "oes not in #act en" be#ore his "eathD a. the possession or en%oyent o#+ or the right to the incoe #ro the property2 or b. the right+ either alone or in con%unction with any person+ to "esignate the persons who shall

possess or en%oy the property or the incoe there#ro.

E(/*i#,B bona #i"e sale #or an a"e>uate an" #ull consi"eration in oney or oneyEs worth. 7. Procee"s o# li#e insurance Procee"s o# li#e insurance ta!en by the "ece"ent on his own li#e shall be inclu"e" in the gross estate i# the bene#iciary isD a. the estate o# the "ece"ent+ his e:ecutor or administrator 5regar"less whether the "esignation is revocable or irrevocable62 or b. a thir" person other than the estate+ e$ecutor or a"inistrator where the "esignation o# the bene#iciary is revocable. 8. Trans#ers #or insu##icient consi"eration The value to be inclu"e" in the gross estate is the e:cess o# the #air ar!et value o# the property at the tie o# the "ece"entEs "eath over the consi"eration receive". This is applicable in cases o# trans#er in conteplation o# "eath+ revocable trans#er an" trans#er un"er general power o# appointent a"e #or a consi"eration but is not a bona #i"e sale #or an a"e>uate an" #ull consi"eration in oney or oneyEs worth. H. Prior interests All trans#ers+ trusts+ estates+ interests+ rights+ powers an" relin>uishent o# powers a"e+ create"+ arising+ e$isting+ e$ercise" or relin>uishe" be#ore or a#ter the e##ectivity o# the NI,. Property relations between 9usban" an" Wi#e The property relations between the spouses shall be governe" by contract 5arriage settleent6 e$ecute" be#ore the arriage. In the absence o# such contract+ or i# the contract is voi"D On arriages contracte" be#ore August 3+ 'K+ the syste o# con%ugal partnership o# gains shall govern2


San Beda College of Law 1 MEMORY AID IN TAXATION LAW On arriages contracte" on or a#ter August 3+ 'K 5e##ectivity o# the &aily ,o"e o# the Philippines6+ the syste o# absolute counity o# property shall govern. )$ept Transissions (4ec. 8) '. The erger o# usu#ruct in the owner o# the na!e" title2 (. &i"eicoisary substitution2 3. The transission #ro the #irst heir+ legatee or "onee in #avor o# another bene#iciary+ in accor"ance with the will o# the pre"ecessor2 an" All be>uests+ "evices+ legacies or trans#ers to social wel#are+ cultural an" charitable institutions no part o# the net incoe o# which inures to the bene#it o# any in"ivi"ual2 Provi"e"+ that not ore than 3J o# the sai" be>uests+ legacies or trans#ers shall be use" by such institutions #or a"inistration purposes.

DEDUCTIONS ON ;ROSS ESTATE APPLICA+LE TO RE%*/EN A,*EN% AND C**=EN% (RE'EN>E RE>,A*N% 2-23) The #ollowing are "e"uctible #ro the gross estate o# citiuivalent to one illion pesos 5P'++6 8. 0e"ical e$penses H. Aounts receive" by heirs un"er A 4K'H 5etireent ;ene#its6 . Net share o# the surviving spouse in the con%ugal or counity property

1. ORDINAR DEDUCTIONS A. &uneral )$penses The aount "e"uctible is the lowest aong the #ollowingD '. actual #uneral e$penses (. 7J o# the gross estate 3. P(+. It inclu"es the #ollowingD

'. 0ourning apparel o# the surviving spouse an" unarrie" inor chil"ren o# the "ecease"+ bought an" use" in the occasion o# the burial. (. )$penses o# the wa!e prece"ing the burial inclu"ing #oo" an" "rin!s. 3. Publication charges #or "eath notices. 4. Telecounication e$penses in in#oring relatives o# the "ecease". 7. ,ost o# burial plot. Tobstone onuent or ausoleu but not their up!eep. In case "ecease" owns a #aily estate or several burial lots+ only the value correspon"ing to the plot where he is burie" is "e"uctible. 8. Interent #ees an" charges. H. All other e$penses incurre" #or the per#orance o# the ritual an" cereonies inci"ent to the interent. )$penses incurre" a%ter the interent+ such as #or prayers+ asses+ entertainent+ or the li!e are not deductible. Any portion o# the #uneral an" burial e$penses borne or de%rayed by relatives and %riends o# the "ecease" are not deductible.

+.CB:I,IAL )XP)N*)* O& T9) T)*TA0)NTA? O INT)*TAT) PO,)):ING* )$penses allowe" as "e"uction un"er this category are thoseD '. incurre" in the inventory-ta!ing o# assets coprising the gross estate+ (. a"inistration+ 3. payent o# "ebts o# the estate+ as well as the "istribution o# the estate aong the heirs. In short+ these "e"uctible ites are e$penses incurre" "uring the settleent o# the estate but not beyon" the last "ay prescribe" by law+ or the e$tension thereo#+ #or the #iling o# the estate ta$ return. C.,LAI0* AGAIN*T T9) )*TAT) The wor" RclaisR is generally construe" to ean "ebts or "ean"s o# a pecuniary nature which coul" have been en#orce" against the "ecease" in his li#etie an" coul" have been re"uce" to siple oney %u"gents.



,lais against the estate or in"ebte"ness in respect o# property ay arise out o#D '. ,ontract2 (. Tort2 or 3. Operation o# Law.

e>uisitesD '. The liability represents a personal obligation o# the "ecease" e$isting at the tie o# his "eath e$cept unpai" obligations incurre" inci"ent to his "eath such as unpai" #uneral e$penses 5i.e.+ e$penses incurre" up to the tie o# interent6 an" unpai" e"ical e$penses which are classi#ie" un"er a "i##erent category o# "e"uctions2 (. The liability was contracte" in goo" #aith an" #or a"e>uate an" #ull consi"eration in oney or oney=s worth2 3. The clai ust be a "ebt or clai which is vali" in law an" en#orceable in court2 4. The in"ebte"ness ust not have been con"one" by the cre"itor or the action to collect #ro the "ece"ent ust not have prescribe".

D.,LAI0* AGAIN*T IN*OL)NT P)*ON* Ri)i*)B '. The aount thereo# has been initially inclu"e" as part o# his gross estate 5#or otherwise they woul" constitute "ouble "e"uctions i# they were to be "e"ucte"6 (. The incapacity o# the "ebtors to pay their obligation is proven. C.BNPAI: 0OTGAG) In case unpai" ortgage payable is being claie" by the estate+ veri#ication ust be a"e as to who was the bene#iciary o# the loan procee"s. I# the loan is #oun" to be erely an accoo"ation loan where the loan procee"s went to another person+

•

•

•

•

the value o# the unpai" loan ust be inclu"e" as a receivable o# the estate. I# there is a legal ipe"ient to recogni
F.TAX)* Ta$es which have accrue" as o# the "eath o# the "ece"ent which were unpai" as o# the tie o# "eath. T% f#""#i,> & ,#* $$(*i!"B '. incoe ta$ on incoe receive" a#ter "eath (. property ta$es not accrue" be#ore "eath 3. estate ta$ ;.LO**)* Ri)i*)B '. It shoul" arise #ro #ire+ stor+ shipwrec!+ or other casualty+ robbery+ the#t or ebe<
2. TRANSFER FOR PU+LIC USE Ri)i*)B '. The "isposition is in a last will an" testaent (. To ta!e e##ect a#ter "eath 3. In #avor o# the governent o# the Phil.+ or any political sub"ivision thereo# 4. &or e$clusive public purposes.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW Note This shoul" also inclu"e be>uests+ "evices+ or trans#ers to social wel#are+ cultural an" charitable institutions.

3. anishing :e"uction DEFINITIONB The "e"uction allowe" #ro the gross estate #or properties that were sub%ect to "onorEs or estate ta$es. It is calle" vanishing "e"uction because the "e"uction allowe" "iinishes over a perio" o# #ive years. The rate o# "e"uction "epen"s on the perio" #ro the "ate o# trans#er to the "eath o# the "ece"ent+ as #ollowsD

• • • • •

PERIOD

DEDUCTION

' year or less ' year  ( years

'J J

( years  3 years 3 years  4 years 4 years  7 years

8J 4J (J

3. Allowable "e"uction ust be in an aount e>uivalent to '. the current #air ar!et value o# the #aily hoe as "eclare" or inclu"e" in the gross estate+ or (. the e$tent o# the "ece"ent=s interest 5whether con%ugal1counity or e$clusive property6+ %i(%8& i) "#& + but not e$cee"ing P'++

5. STANDARD DEDUCTION A "e"uction in the aount o# One 0illion Pesos 5P'++6 shall be allowe" as an a""itional "e"uction ithout need o% substantiation. The #ull aount o# P'++ shall be allowe" as "e"uction #or the bene#it o# the "ece"ent.

6. :EDICAL EXPENSES •

e>uisitesD '. the present "ece"ent "ie" within 7 years #ro trans#er o# the property #ro a prior "ece"ent or "onor. (. The property ust be locate" in the Phils. 3. The property #ore" part o# the ta$able estate o# the prior "ece"ent+ or o# the ta$able gi#t o# the "onor. 4. The estate ta$ or "onorEs ta$ on the gi#t ust have been #inally "eterine" an" pai". 7. The property ust be i"enti#ie" as the one receive" #ro the prior "ece"ent+ or soething ac>uire" in e$change there#or. 8. No vanishing "e"uction on the property was allowable to the estate o# the prior "ece"ent.

4. FA:IL HO:E ,on"itionsD '. The #aily hoe ust be the actual resi"ential hoe o# the "ece"ent an" his #aily at the tie o# his "eath+ as certi%ied by the 3arangay Captain o# the locality where the #aily hoe is situate"2 (. The total value o# the #aily hoe ust be inclu"e" as part o# the gross estate o# the "ece"ent2 an"

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Any aount o# e"ical e$penses incurre" within one year #ro "eath in e$cess o# &ive 9un"re" Thousan" Pesos 5P7+6 shall no longer be alloed as a "e"uction un"er this subsection. Neither can any unpai" aount thereo# in e$cess o# the P7+ threshol" nor any unpai" aount #or e"ical e$penses incurre" prior to the one-year perio" #ro "ate o# "eath be allowe" to be "e"ucte" #ro the gross estate as clai against the estate.

7. A:OUNT RECEIVED + HEIRS UNDER REPU+LIC ACT NO. 4@17 Any aount receive" by the heirs #ro the "ece"ent=s eployer as a conseBuence o% the death o% the decedent'employee in accor"ance with epublic Act No. 4K'H is allowe" as a "e"uction provi"e" that the aount o# the separation bene#it is inclu"e" as part o# the gross estate o# the "ece"ent.



?. NET SHARE OF THE SURVIVIN; SPOUSE IN THE CON9U;AL PARTNERSHIP OR CO::UNIT PROPERT A#ter "e"ucting the allowable "e"uctions (only the ordinary deductions) appertaining to the con%ugal or counity properties inclu"e" in the gross estate+ the share o# the surviving spouse ust be reove" to ensure that only the "ece"ent=s interest in the estate is ta$e".

DEDUCTIONS ON ;ROSS ESTATE APPLICA+LE TO N N -RE%*/EN A,*EN%

2. :#& *%, #, f#&i>, (#,*&' The cre"it shall be that which is the lower aount between Liit A an" Liit ;. Lii* A. Whichever is lower betweenD )state ta$ pai" to a #oreign country Ta$ ,re"it Liit  NT)+ #oreign country X Phil. estate NT)+ worl" Ta$

•

•

Lii* +. Whichever is lower betweenD Total o# estate ta$es pai" to all #oreign countries Ta$ ,re"it Liit  NT) outsi"e Phil. X Phil. estate NTE1 word Ta$ •

•

The #ollowing are "e"uctible #ro the gross estate o# non-resi"ent aliensD

1. )$penses+ losses+ in"ebte"ness an" ta$es 5)LIT6 (ordinary deductions) F#&"B 1a: O Phil. Gross Credit )state X Worl" *imit Worl" Gross )LIT )state

2. Trans#er #or public use 3. anishing "e"uction on property in the Philippines. 4. ,on%ugal share spouse

o#

the

surviving

ESTATE TAX CREDIT A ta$ cre"it is grante" #or estate ta$es pai" to a #oreign country on the estate o# citi
1. O, f#&i>, (#,*&' #,"' The ta$ cre"it is whichever is lower betweenD 4. )state ta$ pai" to the #oreign country 5. Ta$ ,re"it Liit  NT)+ #oreign country X Phil. estate NT)+ worl" Ta$ ( NE ' Net 1a:able state)

SETTLE:ENT OF THE ESTATE TAX

A. FILIN; Notice O# :eath To ;e &ile" In all cases o# trans#ers sub%ect to ta$+ or where+ though e$ept #ro ta$+ the gross value o% the estate e:ceeds P56,666 + the e$ecutor+ a"inistrator or any o# the legal heirs+ ithin to months a#ter the "ece"entEs "eath+ or within a li!e perio" a#ter >uali#ying as such e$ecutor or a"inistrator+ shall give a written notice thereo# to the ,oissioner. (4ec. 0) An )state Ta$ eturn Is e>uire" To ;e &ile" 1. when the estate is sub%ect to estate ta$2 or 2. when the estate is not sub%ect to estate ta$ but the gross estate e$cee"s P (+2 or 3. regar"less o# the aount o# the gross estate+ where the gross estate consists o# registere" or registrable property such as otor vehicle or shares o# stoc! or other siilar property #or which clearance #ro the ;I is re>uire" as a con"ition prece"ent #or the trans#er o#


San Beda College of Law 1 MEMORY AID IN TAXATION LAW ownership thereo# in the nae o# the trans#eree. Tie #or &iling o# the estate ta$ return The estate ta$ return shall be fi"$ 6it#in six ($) mont#s a%ter the death o# the "ece"ent.

E*,)i#,B The ;I ay+ in eritorious cases+ grant an e$tension o# not e:ceeding thirty (-6) days #or the #iling o# the estate ta$ return. When The Gross )state )$cee"s P(+++ The )state Ta$ eturn *hall ;e Accopanie" ;y A *tateent Which Is ,erti#ie" ;y An In"epen"ent ,erti#ie" Public Accountant *tating 1. the itei
1. R)i$,* Ci*i, - with the Accre"ite" Agent ;an! 5AA;6+ evenue :istrict O##icer+ ,ollection O##icer or "uly authori
+. PA:ENT Payent o# the estate ta$ "ue The estate ta$ "ue shall pai" at the tie when the estate ta$ return is #ile". When the ,oissioner #in"s that the payent o# the estate ta$ on the "ue "ate woul" ipose un"ue har"ships upon the estate or any heirD a. the payent o# the estate ta$ ay be e$ten"e" #or a perio" not to e$cee" #ive 576 years i# there is a %u"icial settleent o# the estate2 or b. the payent o# the estate ta$ ay be e$ten"e" #or a perio" not to e$cee" two 5(6 years i# there is an e$tra-%u"icial settleent o# the estate. N1 In case the available cash is not su##icient to pay its total estate ta$ liability+ the estate ay be allowe" to pay ta: by installment. (4ec. 07, Rev. Reg. 5'566-) Liability #or Payent The estate ta. sha be paid b0 the e.e!utor or administrator before dei"er0 to an0 benefi!iar0 of his distributi"e share of the estate% *uch bene#iciary to the e$tent o# his "istributive share o# the estate shall be subsi"iarily liable #or the payent o# such portion o# the estate ta$ as his "istributive share bears to the value o# the total net estate. (4ec. 0G, Rev. Reg. 5'566-) No %u"ge shall authori

San Beda College of Law 1 MEMORY AID IN TAXATION LAW the "ece"ent ay+ upon authori
There is nothing in the Ta$ ,o"e an" in the pertinent ree"ial law that iplies the necessity o# the probate court or estate settleent o# courtEs approval o# the *tateEs clai #or estate ta$es be#ore the sae can be en#orce" an" collecte" by the ;I. On the contrary+ un"er *ection K4+ it is the probate or settleent court which is bi""en not to authori
COLLECTION OF TAX FRO: THE HEIRS An estate or inheritance ta$+ whether assesse" be#ore or a#ter the "eath o# the "ecease"+ can be collecte" #ro the heirs even a#ter the "istribution o# the properties o# the "ece"ent. (Palanca vs. Commissioner o% Internal Revenue, GR No. 999,
No. * #558-+, 4eptember /, 098)

<2= DONORKS TAXES DEFINITIONB A ta$ on the privilege o# transitting oneEs property or property rights to another or others without a"e>uate an" #ull valuable consi"eration. ,overage O# The Ta$ (4C. 6+) )*I:)NT  NON)*I:)NT ,ITI)N+ )*I:)NT ALI)N :ONO

NON-)*I:)NT ALI)N :ONO

'. eal property herever situate"

'. eal property situate" in the Philippines.

(. Personal property herever situate" a. Tangible+ an" Intangible

(. Personal property a. Tangible property situate" in the Philippines b. Intangible personal property with a situs in the Philippines unless e$epte" on the basis o# reciprocity.

e>uisites '. ,apacity o# the "onor (. :onative Intent 3. :elivery+ whether actual constructive+ o# the sub%ect gi#t 4. Acceptance by the "onee

or

Law that governs the iposition o# :onorEs Ta$ The "onorEs ta$ shall not apply unless an" until there is a coplete" gi#t. The trans#er is per%ected #ro the


San Beda College of Law 1 MEMORY AID IN TAXATION LAW oent the "onor !nows o# the acceptance by the "onee2 it is completed by the "eliver+ either actually or constructively+ o# the "onate" property to the "onee. Thus+ the law in #orce at the time o% the per%ectioncompletion o% the donation shall govern the iposition o# the "onorEs ta$. A gi#t that is incomplete because o# reserve" powers+ becoes coplete when eitherD '. the "onor renounces the power2 or (. his right to e$ercise the reserve" power ceases because o# the happening o# soe event or contingency or the #ul#illent o# soe con"ition+ other than because o# the "onor=s "eath. enunciation by the surviving spouse o# his1her share in the con%ugal partnership or absolute counity a%ter the dissolution o% the marriage in #avor o# the heirs o# the "ecease" spouse or any other person1s is sub%ect to "onor=s ta$. Whereas general renunciation by an heir+ inclu"ing the surviving spouse+ o# his1her share in the here"itary estate le#t by the "ece"ent is not sub%ect to "onor=s ta$+ unless speci#ically an" categorically "one in #avor o# i"enti#ie" heir1s to the e$clusion or "isa"vantage o# the other co-heirs in the here"itary estate. (4ec. , Rev. Reg. 5'566-) •

•

STRAN;ER - a person who is not a brother+ sister+ spouse+ ancestor an" lineal "escen"ant+ or o# a relative by consanguinity in the collateral within the 4th civil "egree. A legally a"opte" chil" is entitled to all the rights and obligations provided by la to legitimate children+ an" there#ore+ "onation to hi shall not be consi"ere" as "onation a"e to stranger. :onation a"e between business organi
•

organi
Intangible personal properties with a situs in the Phil. 5sae as in estate ta$ sub%ect to the reciprocity rule6 (4ec. 6+) 7ormula (n a cumulative basis over a period o% one calendar year)

1. O, *% 1)* $#,*i#, #f  '& Gross gi#ts *ess :e"uctions #ro gross gi#ts Net gi#ts !ultiply by Ta$ ate :onorEs ta$ on the net gi#ts

$$$ $$$ $$$ $$$ $$$

2. O, $#,*i#, #f  )!),* $* $&i,> *% '& Gross gi#ts a"e on this "ate *ess :e"uctions #ro gross gi#ts Net gi#ts Add D All prior net gi#ts within the year Aggregate net gi#ts !ultiply by D Ta$ ate :onorEs ta$ on aggregate net gi#ts *ess :onorEs ta$ on all prior net gi#ts :onorEs ta$ on the net gi#ts on this "ate

XX XX XX XX XX XX XX XX XX

)$eption o# certain gi#ts '. Gi#ts a"e by a resi"ent a. :owries or gi#ts a"e on account o# arriage an" be#ore its celebration or within one year therea#ter by parents to each o# their legitiate+ illegitiate or a"opte" chil"ren to the e$tent o# the #irst P'+ .


San Beda College of Law 1 MEMORY AID IN TAXATION LAW b. Gi#ts a"e to or #or the use o# the National Governent or any entity create" by any o# its agencies which is not con"ucte" #or pro#it+ or to any political sub"ivision o# the sai" governent. c. Gi#ts in #avor o# e"ucational+ charitable+ religious+ cultural or social wel#are corporation+ institutions+ #oun"ations+ trust or philanthropic organi
1. one incorporate" as a non-stoc! entity 2. paying no "ivi"en"s 3. governe" by trustees who receive no copensation+ an" 4. "evoting all its incoe whether stu"entsE #ees or gi#ts+ "onations+ subsi"ies or other #ors o# philantrophy to the accoplishent an" prootion o# the purposes enuerate" in its Articles o# Incorporation. Ta$ cre"it #or "onorEs ta$es pai" to a #oreign country '. :onor was a &ilipino citi
Liitations on ta$ cre"it

1.

The aount o# the cre"it in respect to the ta$ pai" to any country shall not e$cee" the sae proportion o# the ta$ against which such cre"it is ta!en+ which the "ece"entEs net gi#ts situate" within such country ta$able un"er the NI, bears to his entire net gi#t2 an" 2. The total aount o# the cre"it shall not e$cee" the sae proportion o# the ta$ against which such cre"it is ta!en+ which the "ece"entEs net gi#t situate" outsi"e the Philippines ta$able un"er the NI, bears to his entire net gi#t. &orula o# Ta$ ,re"it Liit

1. F#& $#,#&K) *) /i$ *# #, f#&i>, (#,*&' NG situate" Ta$ in a #oreign country X P:T  ,re"it )ntire net gi#t Liit

, (#,*&' NG outsi"e the Phil. )ntire net gi#ts

X P:T  Ta$ ,re"it Liit

The allowable ta$ cre"it is the loer aount between the ta$ cre"it liit un"er 5a6 an" 5b6.

*)TTL)0)NT O& T9) :ONOE* TAX Tie #or &iling o# eturn an" payent o# the :onorEs Ta$ The "onorEs ta$ return is #ile" an" the "onorEs ta$ "ue is pai" ithin thirty (-6) days a#ter the "ate the gi#t is a"e. The return shall be un"er oath in "uplicate setting #orthD '. )ach gi#t a"e "uring the calen"ar year which is to be inclu"e" in coputing net gi#ts2 (. The "e"uctions claie" an" allowable2


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 3. Any previous net gi#ts a"e "uring the sae calen"ar year2 4. The nae o# the "onee2 7. elationship o# the "onor to the "onee2 an" 8. *uch #urther in#oration as ay be re>uire" by rules an" regulations a"e pursuant to law. N1 The #iling o# a notice o# "onation is not reBuired, unli!e in estate ta$ where notice o# "eath is re>uire". Place #or &iling o# eturn an" payent o# the :onorEs Ta$

1. R)i$,* With an authori
•

Ta$ rate I# the "onee is  )*&,>&+ the rate o# ta$ shall be 3J o# the net gi#ts. I# the "onee is ,#*  )*&,>&+ the rate shall be #ro (J to '7J o# the net gi#ts.

 *ee A,, W - :onorEs Ta$

,.

TAX )0):I)* BN:) T9) nirc

*. TAX RE:EDIES OF THE ;OVERN:ENT

(. They are sa#eguar"s o# ta$payerEs rights against arbitrary action. Ta$ collection cannot be restraine" by court in%unction (4ec. 5, 008 NIRC)

9)*ifi(*i#,B Li#ebloo" Theory E(/*i#,B In%unction ay be issue" by the ,TA in ai" o# its appellate %uris"iction un"er A ''(7 5as aen"e" by A K((6. C#,$i*i#,) f#& *% I)),( #f , I,,(*i#, !' *% C#&* #f T A//") The ,TA ay en%oin collection o# ta$esD a. I# in its opinion the sae ay %eopar"iuire the ta$payer either to "eposit the aount claie" or #ile a surety bon" #or not ore than "ouble the aount with the court. Q ;e#ore en#orceent o# ree"ies+ assessent is necessary to trigger the process. I# no return is #ile"+ the ,oissioner is epowere" to obtain in#oration+ an" to suon1e$aine+ an" ta!e testiony o# persons to "eterine the aount o# ta$ "ue. (4ec. /, 008 NIRC)

TAX R E:EDIES UNDER THE 1@@7 TAX CODEB '. *uary  ree"ies at the a"inistrative level or regulation that are e$ecute" without cereony or "elay2 short or concise (. *ubstantive  ree"ies provi"e" #or by law or regulation2 an essential part or constituent or relating to what is essential 3. Proce"ural  ree"ies involving law o# plea"ing+ evi"ence+ %uris"iction+ etc. 4. A"inistrative  ree"ies available at the a"inistration 5;I6 level 7. Cu"icial  ree"ies that are en#orce" through %u"icial action+ which ay be civil or criinal

Iportance '. They enhance an" support governentEs ta$ collection.

the

ta$ ree"ies o# the governent to e##ect collection o# ta$es


San Beda College of Law 1 MEMORY AID IN TAXATION LAW . 5. -. +. /. 9.

,oproise (4ec. 56+) :istraint 5Actual an" ,onstructive) (4ecs. 56/'56) Levy (4ec. 5683) Ta$ Lien (4ec. 50) ,ivil Action (4ec. 55) ,riinal Action (4ecs. 55, and 555) 8. &or#eiture o# Property (4ec. 55+'55/) . *uspension o# business operations in violation o# AT (4ec. /) 0. )n#orceent o# A"inistrative &ine

The ree"ies o# "istraint an" levy as well as collection by civil an" criinal actions ay+ in the "iscretion o# the ,oissioner+ be pursue" singly or in"epen"ently o# each other+ or all o# the siultaneously.

<1= CO:PRO:ISE DEFINITIONB A contract whereby the parties+ by reciprocal concessions+ avoi" litigation or put an en" to one alrea"y coence" (Art. 565, Ne Civil Code). e>uisites '. The ta$payer ust have a ta$ liability. (. There ust be an o##er 5by the ta$payer o# an aount to be pai" by the ta$payer6 3. There ust be an acceptance 5by the ,oissioner or ta$payer as the case ay be6 o# the o##er in the settleent o# the original clai. O##icers authori
5. ;y the R>i#," E8"*i#, +#&$ copose" o#D a. the egional :irector as ,hairan+ b. Assistant egional :irector+ the hea"s o# the Legal+ Assessent an" ,ollection :ivisions+ an" (. the evenue :istrict O##icer having %uris"iction over the ta$payer+ as ebers2 on assessents issue" by the regional o##ices involving basic ta$es o# P7+ or less+ an" inor criinal violations. •

,ases which ay be coproise" . :elin>uent accounts 5. ,ases un"er a"inistrative protests -. ,ivil ta$ cases being "ispute" be#ore the courts +. ,ollection cases #ile" in courts /. ,riinal violations+ other than those alrea"y #ile" in court or those involving criinal ta$ #rau"2 an"+ 9. *ases !o"ered b0 pre#assessment noti!es but ta.pa0er is not agreeabe to the findings of the audit offi!e as !onfirmed b0 the re"iew offi!e% (Sec.2, Rev. Reg. 72001) )$ceptions '. Withhol"ing ta$ cases2 (. ,riinal ta$ #rau" cases2 3. ,riinal violations alrea"y #ile" in court2 4. :elin>uent accounts with "uly approve" sche"ule o# installent payents2 7. ,ases where #inal reports o# reinvestigation or reconsi"eration have been issue" resulting to re"uction in the original assessent an" the ta$payer is agreeable to such "ecision. 8. ,ases which becoe #inal an" e$ecutory a#ter #inal %u"gent o# a court+ where coproise is re>ueste" on the groun" o# "oubt#ul vali"ity o# the assessent (RR. -6# 5665)2 H. )state ta$ cases where coproise is re>ueste" on the groun" o#


San Beda College of Law 1 MEMORY AID IN TAXATION LAW #inancial incapacity o# the ta$payer. (RR. -6#5665) h. ,oissioner ay coproise the payent o# any internal revenue ta$ when . A &)#,!" $#!* ) *# *% 8"i$i*' #f *% ("i against the ta$payer e$ists2 or a. The "elin>uent account or "ispute" assessent is one resulting #ro a %eopar"y assessent. b. The assessent sees to be arbitrary in nature+ appearing to be base" on presuptions+ an" there is reason to believe that its is lac!ing in legal an"1or #actual basis2 or c. The ta$payer #aile" to #ile an a"inistrative protest on account o# the allege" #ailure to receive notice o# assessent or preliinary assessent an" there is reason to believe that its is lac!ing in legal an"1or #actual basis2 or ". The ta$payer #aile" to #ile a re>uest #or reinvestigation1reconsi"eration within 3 "ays #ro receipt o# #inal assessent notice an" there is reason to believe that its is lac!ing in legal an"1or #actual basis2 or e. The ta$payer #aile" to elevate to the ,TA an a"verse "ecision o# the ,oissioner+ or his authori
i.

"ispute" by su##icient an" copetent evi"ence. The assessent was issue" within the prescriptive perio" #or assessent as e$ten"e" by the ta$payer=s e$ecution o# Waiver o# the *tatute o# Liitations the vali"ity or authenticity o# which is being >uestione" or at issue an" there is strong reason to believe an" evi"ence to prove that it is not authentic. (RR. -6# 5665) The assessent is base" on an issue where a court o# copetent %uris"iction a"e an a"verse "ecision against the ;ureau+ but #or which the *upree ,ourt has not "eci"e" upon with #inality. (RR. 6' 566+).

5. The #inancial position o# the ta$payer "eonstrates a ("& i,!i"i*' *# /' the assesse" ta$ 4ec. 56+(A), 008 NIRC). In such case+ the ta$payer shoul" waive the con#i"entiality privilege on ban! "eposits un"er A No. '47 4ec. 9(7)(5), NIRCD. &inancial Incapacity. [ The o##er to coproise base" on #inancial incapacity ay be accepte" upon showing thatD a. The corporation cease" operation or is alrea"y "issolve". Provi"e"+ that ta$ liabilities correspon"ing to the *ubscription eceivable or Assets "istribute"1"istributable to the stoc!hol"ers representing return o# capital at the tie o# cessation o# operation or "issolution o# business shall not be consi"ere" #or coproise2 or b. The ta$payer+ as re#lecte" in its latest ;alance *heet suppose" to be #ile" with the ;ureau o# Internal evenue+ is su##ering #ro surplus or earnings "e#icit resulting to ipairent in the original capital by at least 7J+ provi"e" that aounts payable or "ue to stoc!hol"ers other than business-relate" transactions which are properly inclu"ible in


San Beda College of Law 1 MEMORY AID IN TAXATION LAW the regular Raccounts payableR are by #iction o# law consi"ere" as part o# capital an" not liability+ an" provi"e" #urther that the ta$payer has no su##icient li>ui" asset to satis#y the ta$ liability2 or

c. The ta$payer is su##ering #ro a networth "e#icit 5total liabilities e$cee" total assets6 copute" by "e"ucting total liabilities 5net o# "e#erre" cre"its an" aounts payable to stoc!hol"ers1owners re#lecte" as liabilities+ e$cept business-relate" transactions6 #ro total assets 5net o# prepai" e$penses+ "e#erre" charges+ preoperating e$penses+ as well as appraisal increases in #i$e" assets6+ ta!en #ro the latest au"ite" #inancial stateents+ provi"e" that in the case o# an in"ivi"ual ta$payer+ he has no other leviable properties un"er the law other than his #aily hoe2 (4ec. -, RR. -6#5665). c. The ta$payer is a copensation earner with no other source o# incoe an" the #ailyEs gross onthly copensation "oes not e$cee" 5P'+71onth i# single2 P('+1onth i# arrie"6+ an" that it appears that the ta$payer possesses no other leviable1 "istrainable assets+ other than his #aily hoe2 or d. The ta$payer has been grante" by the *), or by any copetent tribunal a oratoriu or suspension o# payents to cre"itors+ or otherwise "eclare" ban!rupt or insolvent. (4ec. -, RR. 68'566) The ,ongressional Oversight ,oittee+ un"er *ection (K o# the 'KKH NI, is epowere" to re>uire the ;ID 1. The subission o# all pertinent in#oration+ inclu"ing

2.

but not liite" to in"ustry au"its+ collection per#orance "ata+ status reports on criinal actions initiate" against persons2 an" The subission o# ta$payer returns.

0iniu ,oproise ates 50,6 o# any ta$ liability a. In case o# #inancial incapacityD 0,  'J o# the basic assesse" ta$ b. Other casesD 0,  4J o# the basic assesse" ta$ 4ec. 56+(A), 008 NIRCD Approval o# the coproise by the )valuation ;oar" is re>uire" when a. the basic ta$ involve" e$cee"s P'++.+ or b. the settleent o##ere" is less than the 0,. N1 The 0, ay be less than the prescribe" rates o# 'J or 4J+ as the case ay be+ provi"e" it is approve" by the )valuation ;oar" 5copose" o# the ;I ,oissioner an" the #our ;I :eputy ,oissioners6. ,oproise o# ,riinal iolations ;,&" R"B All criinal violations un"er the ,TP ay be coproise".

E(/*i#,)B . Those alrea"y #ile" in court 5. Those involving #rau" 4ec. 56+(3), 008 NIRCD. )$tent o# the ,oissionerEs :iscretion to ,oproise ,riinal iolations '. +f#& *% (#/"i,* i) fi"$ i*% *% P&#)(*#&K) Offi(B The ,I has #ull "iscretion to coproise e$cept those involving #rau". (. Af*& *% (#/"i,* i) fi"$ i*% *% P&#)(*#&K) Offi( !* !f#& *% i,f#&*i#, i) fi"$ i*% *% (#&* The ,I can still coproise provi"e" the prosecutor ust give consent.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 3. After information is fi&ed 6it# t#e courtB The ,I is no longer peritte" to coproise with or without the consent o# the Prosecutor. (People vs. !agdaluyo, GR No. *'95-/, April 56, 09) This is ore so+ when the court has ren"ere" a fi," $>,*. As a ere agent o# the Governent+ the ,oissioner is not authoriuire" a 8)*$ &i>%*.

copelle" to pay a coproise penalty. I# he "oes not want to pay+ the ,I ust institute a criinal action. ,oproise vs. Abateent Compromise involves a re"uction o# the ta$payerEs liability+ while abatement eans that the entire ta$ liability o# the ta$payer is cancelle".

A+ATE:ENT The ,oissioner ay abate or cancel a ta$ liability when

1. Nature o# a ,oproise in )$tra%u"icial *ettleent o# the Ta$payerEs ,riinal Liability #or his iolation It is consensual in character+ hence+ ay not be ipose" on the ta$payer without his consent. The ;I ay only suggest settleent o# his ta$ liability through a coproise. The e$tra%u"icial settleent an" the aount o# the suggeste" coproise penalty shoul" con#or with the sche"ule o# coproise penalties provi"e" un"er the relevant ;I regulations or or"ers. ee"y in case the ta$payer re#uses or #ails to abi"e the ta$ coproise '. )n#orce the coproise a. I# it is a %u"icial coproise+ it can be en#orce" by ere e$ecution. A %u"icial coproise is one where a "ecision base" on the coproise agreeent is ren"ere" by the court on re>uest o# the parties. b. Any other coproise is e$tra%u"icial an" li!e any other contract can only be en#orce" by court action. (. egar" it as rescin"e" an" insist upon original "ean" (Art. 56+, Civil Code). ,oproise Penalty It is an aount o# oney that the ta$payer pays to coproise a ta$ violation. This is pai" in lieu o# criinal prosecution. A ta$payer cannot be

The ta$ or any portion thereo# appears to be ,)*"' #& ())i8"' ))))$ 2 4ec. 56+(3), 008 NIRCD. a. When the #iling o# the return1payent is a"e at the wrong venue2 b. When the ta$payerEs ista!e in payent o# his ta$ is "ue to erroneous written o##icial a"vice o# a revenue o##icer2 c. When the ta$payer #ails to #ile the return an" pay the ta$ on tie "ue to substantial losses #ro prolonge" labor "ispute+ #orce a%eure+ legitiate business reverses+ provi"e"+ however+ the abateent shall only cover the surcharge an" the coproise penalty an" not the interest ipose" un"er *ec. (4K o# the ,o"e2 d. When the assessent is brought about or the result o# ta$payerEs non-copliance with the law "ue to a "i##icult interpretation o# sai" law. e. When the ta$payer #ails to #ile the return an" pay the correct ta$ on tie "ue to circustances beyon" his control+ provi"e"+ however+ the abateent shall only cover the surcharge an" the coproise penalty an" not the interest ipose" un"er *ec. (4K o# the ,o"e2 %. Late payent o# the ta$ un"er eritorious circustances 5e$. &ailure to beat ban! cut-o## tie+ surcharge erroneously ipose"+ etc.6 (4ec. 5, Rev. Reg. -'566)



2.

3.

The $i,i)*&*i#, ,$ (#""(*i#, (#)*) i,8#"8$ $# ,#* )*if' *% (#""(*i#, o# the aount "ue 4ec. 56+(3), 008 NIRCD. a. Abateent o# penalties on assessent con#ire" by the lower court but appeale" by the ta$payer to a higher court b. Abateent o# penalties on withhol"ing ta$ assessent un"er eritorious circustances c. Abateent o# penalties on "elaye" installent payent un"er eritorious circustances d. Abateent o# penalties on assessent re"uce" a#ter reinvestigation but ta$payer is still contesting re"uce" assessent2 an" e. *uch other circustances which the ,oissioner ay "ee analogous to the enueration above. (4ec. -, Rev. Reg. -'566) The Commissioner ay also+ even i*%#*  ("i there#or+ re#un" or cre"it any ta$ where on the #ace o# the return upon which payent was a"e such /',* //&) ("&"' *# %8 !, &&#,#)"' /i$ (4ec. 550, 008 NIRC)).

<2= :istraint DEFINITIONB It is the sei
:uties o# the o##icer serving the warrant o# "istraintD '. 0a!e an account o# the personal properties "istraine"2 (. *ign the list o# personal properties "istraine" to which shall be a""e"+ a stateent o# the su "ean"e" an" note o# the tie an" place o# sale2 3. Leave either with the owner or person #ro whose possession such personal properties were ta!en+ or at the "welling or place o# business o# such person with soeone o# suitable age an" "iscretion 5*ec. (+ ,TP6 Two types o# :istraint '. A(*"B there is ta!ing o# possession o# the personal property #ro the ta$payer by the governent. Physical trans#er o# possession is not always re>uire". This is true in the case o# intangible property such as stoc!s an" cre"its. (. C#,)*&(*i8B the owner is erely prohibite" #ro "isposing o# his property. Actual vs. ,onstructive :istraint

ACTUAL DISTRAINT

CONSTRUCTIVE DISTRAINT

0a"e only on the property o# a "elin>uent ta$payer

0a"e on the property o# any ta$payer+ whether "elin>uent or not

There is ta!ing o# The ta$payer is possession erely prohibite" #ro "isposing o# his property )##ecte" by leaving a list o# "istraine" property or by service o# a warrant o# "istraint or garnishent

)##ecte" by re>uiring the ta$payer to sign a receipt o# the property or by the revenue o##icer preparing an" leaving a list o# such property

An ie"iate step Not necessarily so #or collection o# ta$es


San Beda College of Law 1 MEMORY AID IN TAXATION LAW ACTUAL DISTRAINT

CONSTRUCTIVE DISTRAINT

(. a ta$payer who waives his right by reason o# #inancial incapacity to pay his ta$ liability 5*ec.7+ NI,6

Proce"ures #or the Actual :istraint or Garnishent +#*% Are suary ree"ies #or the collection o# ta$es2 N1 D e#er only to personal property2 an" cannot be availe" o# where the aount o# the ta$ involve" is not ore than P'

e>uisites #or the ree"y o# "istraint

e$ercise

o# the

'. The ta$payer ust be "elin>uent 5e$cept in constructive "istraint6 in the payent o# ta$2 (. There ust be a subse>uent "ean" #or its payent 5assessent62 3. The ta$payer ust #ail to pay the ta$ at the tie re>uire"2 an" 4. The perio" within which to assess or collect the ta$ has not yet prescribe" . Persons who shall seiuent ta$ is ore than P'++  ,oissioner or his "uly authoriuent ta$ is P'++ or less  evenue :istrict O##icer. (4ec. 568(A), 008 NIRC)

AUTHORIT OF THE CO::ISSIONER TO INQUIRE INTO +AN DEPOSIT ACCOUNTS :istraint inclu"es garnishent o# oney even in ban! "eposits because A '47 5;an! *ecrecy Law6 covers only "ivulging o# in#oration o# "eposits. No in>uiry is a"e on garnishent #or it only earar!s a portion o# the "eposits. Notwithstan"ing any contrary provision o# A '47+ the ,oissioner is authoriuire into the ban! "eposits o#D '. a "ece"ent to "eterine his gross estate

I C#,(,* #f $i)*&i,* &#($i, )

)ither by the ,I or his "uly authori
II S&8i( #f W&&,* #f Di)*&i,*

San Beda College of Law 1 MEMORY AID IN TAXATION LAW 5b6 or un"er his control such cre"its2 or 5c6 upon his agent. Note The warrant o# "istraint shall be su##icient authority to the person owing the "ebts or having in his possession or un"er his control any cre"its belonging to the ta$payer to pay to the ,oissioner the aount o# such "ebts or cre"its.

T/'& )* )i>, &(i/*

III P#)*i,> #f N#*i( S(. 2@ NIRC Notice speci#ying the tie an" place o# sale an" the articles "istraine". The posting shall be a"e in not less than two 5(6 public places in the city or unicipality where the "istraint is a"e. One place #or posting o# such notice is at the O##ice o# the 0ayor o# such city or unicipality.

IV S" #f P&#/&*' Di)*&i,$

The ta$payerEs property ay be place" un"er constructive "istraint when he '. is retiring #ro any business sub%ect to ta$2 (. is inten"ing to  a. leave the Philippines+ b. reove his property there#ro+ c. hi"e or conceal his property+ 3. is per#oring any act ten"ing to obstruct the procee"ing #or collecting the ta$ "ue or which ay

be "ue #ro hi (4ec. 55-, 008 NIRC).

Proce"ure #or the ,onstructive :istraint o# Personal Property

T/'&K) #!"i>*i#, *# /&)&8

,I shall re>uire the ta$payer or any person having possession or control o# such property to 5a6 sign a receipt covering the property "istraine" an" 5b6 obligate hisel# to '. preserve the sae intact an" unaltere" an" (. not to "ispose o# the sae in any anner whatsoever without the e$press authority o# the ,oissioner o# Internal evenue.

R$' %, */'& $i$,K* )i>, &(i/* I# the ta$payer or person in possession o# the property re#uses or #ails to sign the receipt re#erre" to+ the revenue o##icer e##ecting the constructive "istraint shall 5a6 procee" to prepare a list o# such property an" 5b6 in the presence o# two 5(6 witnesses leave a copy thereo# in the preises where the property "istraine" is locate"+ a#ter which the sai" property shall be "eee" to have been place" un"er constructive "istraint.

<3= Levy DEFINITIONB It re#ers to the act o# sei
FOR THE EXERCISE OF THE R E:ED

OF LEV


San Beda College of Law 1 MEMORY AID IN TAXATION LAW *ae as in the ree"y o# "istraint.

When ay Levy be )##ecte"@ eal property ay be levie" upon be#ore+ siultaneously+ or a#ter the "istraint o# personal property belonging to the "elin>uent 4ec. 568(3), 008 NIRCD ; an" the ree"y by "istraint an" levy ay be repeate" i# necessary until the #ull aount+ inclu"ing all e$penses+ is collecte" (4ec. 58, 008 NIRC) . Proce"ure o# Levy on eal Property

I P& & C&*ifi(* #f L8 I Preparation o# a "uly authen-ticate" certi#icate containingD 5a6 "escription o# the property levie"2 5b6 nae o# the ta$payer+ an" 5c6 the aounts o# ta$ an" penalty "ue #ro hi. This certi#icate shall operate with the #orce o# a legal e$ecution throughout the Philippines (4ec. 5683, 008 NIRC).

'. the aount o# ta$ an" penalties "ue2 (. nae o# the ta$payer against who ta$es are levie"2 3. short "escription the property to be sol". The a"vertiseent shall be a"e within ( "ays a#ter the levy+ an" the sae shall be #or a perio" o# at least 3 "ays. It shall be e##ectuate" byD a. posting a notice at the ain entrance o# the unicipal buil"ing or city hall an" in a public an" conspicuous place in the barrio or "istrict in which the real property lies2 an" b. by publication once a wee! #or 3 wee!s in a newspaper o# general circulation in the unicipality or city where the property is locate" (4ec. 5-, C1RP).

IV *ale

:istraint vs. Levy

DISTRAINT II S&8i( #f N#*i(

*ervice o# written notice toD 5a6 the "elin>uent ta$payer2 or 5b6 i# he is absent #ro the Philippines+ to his agent or anager o# the business in respect to which the liability arose2 or c. to the occupant o# the property. ". the proper egister o# :ee"s shall also be noti#ie" o# the levy (4ec. 5683, 008 NIRC).

LEV

e#ers to personal property

e#ers to real property

&or#eiture by the governent is not provi"e"

&or#eiture is authori
The ta$payer is not given the right o# re"eption with respect to "istraine" personal property.

The right o# re"eption is grante" in case o# real property levie" upon an" sol"+ or #or#eite" to the governent.

+#*% Are suary ree"ies #or the collection o# ta$es2 an" ,annot be availe" o# where the aount o# the ta$ involve" is not ore than P' •

•

III A$8&*i),* #f *% Ti ,$ P"( #f S" The a"vertiseent shall containD

e"eption o# Property *ol" >ithin  year %rom the date o% sale, the property ay be re"eee" by the


San Beda College of Law 1 MEMORY AID IN TAXATION LAW "elin>uent ta$payer or anyone #ro hi+ upon payent o# the ta$es+ penalties an" interest thereon #ro the "ate o# "elin>uency to the "ate o# sale+ together with interest on purchase price at '7J per annu #ro the "ate o# sale to the "ate o# re"eption. (4ec. 5+, NIRC).

When "oes it Attach@ Not only #ro the service o# the warrant o# "istraint but #ro the tie ta$ becae "ue an" payable. Lien vs. :istraint

&or#eiture to the Governent

LIEN I# there is no bi""er in the public sale or i# the aount o# the highest bi" is insu##icient to pay the ta$es+ penalties an" costs+ the real property shall be #or#eite" to the Governent. &urther :istraint an" Levy The ree"y o# "istraint an" levy may be repeated i# necessary until the #ull aount o# the ta$ "elin>uency "ue inclu"ing all e$penses is collecte" #ro the ta$payer. Otherwise+ a clever ta$payer who is able to conceal ost o# the valuable part o# his property woul" escape payent o# his ta$ liability by sacri#icing an insigni#icant portion o# his hol"ings.

<4= Ta$ Lien

:irecte" against the property sub%ect to the ta$

Nee" not be "irecte" against the property sub%ect to ta$

egar"less o# the owner o# the property

Property sei
<5= ,ivil Actions DEFINITIONB &or ta$ ree"y purposes+ these are actions institute" by the governent to collect internal revenue ta$es. It inclu"es #iling by the governent with the probate court clais against the "ecease" ta$payer. When resorte" to@

DEFINITIOND It is a legal clai or charge on property+ either real or personal+ establishe" by law as a security in "e#ault o# the payent o# ta$es (/ Am
DISTRAINT

interests+ accrue in upon all property

The lien shall not be vali" against any ortgagee+ purchaser+ or %u"gent cre"itor until notice o# such lien shall be #ile" by the ,oissioner o# Internal evenue in the O##ice o# the egister o# :ee"s o# the province or city where the property o# the ta$payer is situate" or locate" (4ec. 50, 008 NIRC).

'. When a ta$ is assesse" but the assessent becoes #inal an" unappealable because the */'& fi") *# fi" , $i,i)*&*i8 /&#*)* i*% *% CIR i*%i, 3 $') f&# &(i/*M or (. When a protest against assessent is #ile" an" a "ecision o# the ,I was ren"ere" but the sai" "ecision becoes #inal+ e$ecutory+ an" "ean"able #or fi"& #f *% */'& *# //" *% $(i)i#, *# *% CTA i*%i, 3 $') f&# &(i/* #f *% $(i)i#,. N1 Cu"icial action ay be resorte" to even be%ore assessment although ipractical+ as state" in 4ec. 56-, 008 NIRC+ F\ an" no procee"ing in court without assessent #or the collection o# such ta$es shall be begun a%ter the e$piration o# such 53year6 perio".


San Beda College of Law 1 MEMORY AID IN TAXATION LAW It shoul" be note" that no civil or criinal action #or the recovery o# ta$es shall be #ile" in court without the approval o# the ,oissioner.

an" the ;O,+ where the principal aount o# ta$es an" #ees+ e$clusive o# charges an" penalties claie" is less than ne million pesos or here there is no speci%ied amount claimed. (4ec. 8, RA No. 055)

Where to #ile '. C#&* #f T A//")  where the principal aount o# ta$es an" #ees+ e$clusive o# charges an" penalties claie" is ne million pesos and above. (. R>i#," T&i" C#&* :,i(i/" T&i" C#&* :*&#/#"i*, T&i" C#&*  where the principal aount o# ta$es an" #ees+ e$clusive o# charges an" penalties claie" is less than ne million pesos. (4ec. 8, RA No. 055) APPROVAL OF THE CIR IS ESSENTIAL IN CIVIL CASES. 9owever+ un"er 4ec. 8, 008

Iportant ,onsi"erations .

No criinal action shall be begun without the approval o# the ,oissioner. (4ec. 556, 008 NIRC) 5. It shall be brought in the nae o# the Governent an" shall be con"ucte" by the legal o##icers o# the ;I. )##ect o# Ac>uittal o# the Ta$payer in a ,riinal Action

THE

NIRC+ the ,oissioner ay "elegate such power to a egional :irector. :e#enses which are preclu"e" by #inal an" e$ecutory assessents '. Invali"ity or illegality o# the assessent2 an" (. Prescription o# the governentEs right to assess.

It "oes not necessarily result in the e$oneration o# sai" ta$payer #ro his civil liability to pay ta$es. R*i#,"B The "uty to pay ta$ is ipose" by statute prior to an" in"epen"ent o# any attept on the part o# the ta$payer to eva"e payent. It is not a ere conse>uence o# the #elonious acts charge"+ nor is it a ere civil liability "erive" #ro a crie. (Republic vs. Patanao, GR No. *'++5, !ay -6, 09)

<6= ,riinal Actions The %u"gent in the criinal case shall not only ipose the penalty but shall also or"er the payent o# ta$es sub%ect o# the criinal case as #inally "eci"e" by the ,oissioner (4ec. 56/, NIRC).

)##ect o# *ubse>uent *atis#action o# ,ivil Liability The subse>uent satis#action o# civil liability by payent or prescription does not e:tinguish the ta$payerEs criinal liability.

Where to #ile

No *ubsi"iary Iprisonent

'. C#&* #f T A//")  on criinal o##enses arising #ro violations o# the NI, or T,, an" other laws a"inistere" by the ;I an" the ;O,+ where the principal aount o# ta$es an" #ees+ e$clusive o# charges an" penalties claie" is ne million pesos and above. (. R>i#," T&i" C#&* :,i(i/" T&i" C#&* :*&#/#"i*, T&i" C#&*  on criinal o##enses arising #ro violations o# the NI, or T,, an" other laws a"inistere" by the ;I

In case o# insolvency on the part o# the ta$payer+ subsi"iary iprisonent cannot be ipose" as regar"s the ta: hich he is sentenced to pay. 9owever+ it ay be ipose" in cases o# #ailure to pay the #ine ipose". (4ec. 56, 008 NIRC)


San Beda College of Law 1 MEMORY AID IN TAXATION LAW ,riinal Action ay be &ile" "uring the Pen"ency o# an A"inistrative Protest in the ;I It is not a re>uireent #or the #iling thereo# that there be a precise coputation an" assessent o# the ta$+ since what is involve" in the criinal action is not the collection o# ta$ but  (&ii," /&#)(*i#, f#& *% 8i#"*i#, #f *% NIRC. Provided, hoever, that there is a /&i f(i showing o# a i""f" **/* to eva"e ta$es. (4ee Fngab vs. Cusi, GR Nos. *'+00'5+, !ay -6, 06 in relation to Commissioner vs. Court o% Appeals, GR No. 0-55,
<7= &O&)ITB) DEFINITIONB "ivestiture o# property without copensation+ in conse>uence o# a "e#ault or o##ense. )n#orceent o# the ree"y o# #or#eiture a. I, () #f /&)#," /&#/&*' – The #or#eiture o# chattels an" reovable #i$tures o# any sort is en#orce" by )i& ,$ )" #& $)*&(*i#, o# the speci#ic #or#eite" property. b. I, () #f &" /&#/&*' – The #or#eiture o# real property is #f en#orce" by a $>,* (#,$,*i#, ,$ )" in a legal action or procee"ing+ civil or criinal+ as the case ay re>uire. c. I, () #f $i)*i""$ )/i&i*) "i#&) (i>&) (i>&**) ,f(*&$ /&#$(*) #f *#!((# ,$ //&*) )$ f#& *%i& /&#$(*i#, – Bpon #or#eiture+ ay be "estroye" by or"er o# the ,oissioner where the sale ay be in%urious to public health or pre%u"icial to law en#orceent.

d. O*%& &*i(") )!(* *# (i) * %i(% %8 !, ,f(*&$ #& &#8$ i, 8i#"*i#, #f *% C#$ $i) f#& /&i,*i,> #& Gi,> fG &8, )*/) ,$ "!") – Bpon #or#eiture ay be sol" or "estroye" at the "iscretion o# the ,oissioner. &or#eite" property shall not be "estroye" until at least ( "ays #ro sei
INFOR:ERKS REWARD
+. &or the "iscovery an" sei

San Beda College of Law 1 MEMORY AID IN TAXATION LAW lower+ shall be given to persons instruental in the "iscovery an" seiuire" the in#oration in the course o# per#orance o# their "uties "uring their incubency.

PRESCRIPTIVE PERIODS FOR THE ASSESS:ENT AND COLLECTION OF TAXES

. Fi"& *# fi"  &*&,B ten 5'6 years #ro the "ate o# the "iscovery o# the oission to #ile the return (4ec.555AD); 5. F") #& f&$",* &*&, i*% i,*,*i#, *# 8$ *% *B ten 5'6 years #ro the "ate o# the "iscovery o# the #alsity or #rau" (4ec.555 AD); Note Nothing in *ection (((5A6 shall be construe" to authoriuiry into any ta$ return #ile" in accor"ance with the provisions o# any ta$ anesty law or "ecree. •

ationale o# prescriptive perio"s *uch perio"s are "esignate" to secure the ta$payers against unreasonable investigation a#ter the lapse o# the perio" prescribe". They are also bene#icial to the governent because ta$ o##icers will be oblige" to act proptly. ules on Prescription '. When the ta$ law itsel# is silent on prescription+ the ta$ is iprescriptible2 (. When no return is re>uire"+ ta$ is iprescriptible2 Note ee"y o# ta$payer is to #ile a return. 3. :e#ense o# prescription is waivable2 What constitutes Assessent@ An assessent contains not only a coputation o# ta$ liabilities but also a "ean" #or payent within a prescribe" perio".

Prescriptive Perio" #or the assessent o# ta$es

;,&" R"B 1hree (-) years a#ter the "ate the return is "ue or #ile"+ whichever is later (4ec. 56-, 008 NIRC).

•

&rau" ust be alleged and proved as a %act. It ust be the pro"uct o# a "eliberate intent to eva"e ta$es. It ay be establishe" by theD a. Intentional an" substantial un"erstateent o# ta$ liability by the ta$payer2 b. Intentional an" substantial overstateent o# "e"uctions o# e$eptions2 an"1or c. ecurrence o# the above circustances &alsity constitutes a "eviation #ro the truth "ue to mista?e, carelessness or ignorance.

T%& i) f&$ i, *% f#""#i,> $(i$$ ())B '. &rau" ust be the pro"uct o# a "eliberate intent to eva"e ta$es 5
E(/*i#,)B


San Beda College of Law 1 MEMORY AID IN TAXATION LAW a.

b.

c.

d.

e.

0ere un"erstateent in the ta$ return will not necessarily iply #rau" (uestion o# #act an" the circustances constituting #rau" ust be allege" an" prove" in the trial court (Commissioner vs. Ayala 4ecurities) &rau" is never ipute" an" the courts never sustain #in"ings o# #rau" upon circustances that only create suspicion (Commissioner vs.
-. A>&,* i, &i*i,> to the e$tension o# the perio" to assess between the ,I an" the ta$payer be#ore the e$piration o# the 3-year perio". N;D The e$ten"e" perio" agree" upon can #urther be e$ten"e" by a subse>uent written agreeent a"e be#ore the e$piration o# the e$ten"e" perio" previously agree" upon (4ec. 555bD). +. W&i**, i8& #f &,,(i*i#, o# the original three 536 year liitation+ signe" by the ta:payer (4ambrano vs. Court o% 1a: Appeals, GR No. *'9/5, !arch -6, 0/8). Note Notice o# the assessent is release"+ aile" or sent to the ta$payer also within the 3 year perio". It is not reBuired that the notice be received by the ta:payer ithin the prescribed period. ;ut the sen"ing o# the notice ust clearly be proven. (3asilan state, Inc. vs. Commissioner, GR No. *'55+05, 4eptember /, 098) Aen"ent o# eturn I# the aen"e" return is substantially di%%erent #ro the original return+ the prescriptive perio" shall be

counte" %rom the %iling o% the amended return. ;ut the sai" perio" shall run #ro the %iling o% the original return i# the sae is su%%iciently complete to enable the ,oissioner to a!e a proper assessent. (Commissioner vs. Phoeni: Assurance Co., GR No. *'0858, !ay 56, 09/) When *ubstantiveD a. substantial un"er "eclaration (e:ceeding -6Q o% that declared) o# ta$able sales+ receipts or incoe+ b. or a substantial overstateent 5e:ceeding -6Q o# "e"uctions6 (4ec. 5+) Prescriptive Perio" #or the ,ollection o# Ta$es

;,&" P&i#$)B 7ive (/) years  #ro assessent or within perio" #or collection agree" upon in writing be#ore e$piration o# the 7-year perio" (4ec. 555, 008 NIRC). 1en (6) years  without assessent in case o# #alse or #rau"ulent return with intent to eva"e or #ailure to #ile return (4ec. 555, 008 NIRC). What is the Prescriptive Perio" where the GovernentEs action is on a ;ON: which the ta$payer e$ecutes in or"er to secure the payent o# his ta$ obligation@ 1en (6) years un"er Art. ''445'6 o# the ,ivil ,o"e an" not three 536 years un"er the NI,. In this case+ the Governent procee"s by court action to #or#eit a bon". The action is #or the en#orceent o# a contractual obligation. (Republic vs. Araneta, GR No. *'++5, !ay -6, 09) Groun"s #or suspension o# the running o# the statute o# liitations

. When the ,I is prohibite" #ro a!ing the assessent or beginning the "istraint or levy or a procee"ing in court+ an" #or si$ty 586 "ays therea#ter2 !. When the ta$payer re>uests #or a reconsi"eration which is grante" by the ,I2


San Beda College of Law 1 MEMORY AID IN TAXATION LAW (. When the ta$payer cannot be locate" in the a""ress given by hi in the return+ unless he in#ors the ,I o# any change in his a""ress. $. When the warrant o# "istraint or levy is "uly serve"+ an" no property is locate"2 an" . When the ta$payer is out o# the Philippines (4ec. 55-, 008 NIRC). A ta$ return is consi"ere" &IL): #or purposes o# starting the running o# the perio" o# liitations i# a. The return is vali"  it has coplie" substantially with the re>uireents o# the law2 an" b. The return is appropriate  it is a return #or the particular ta$ re>uire" by law. Note A "e#ective ta$ return is the sae as i# no return was #ile" at all.

Prescriptive Perio" #or the iolation o# any provision o# the ta$ co"e (4ec. 5, 008 nirc) . *houl" be #ile" within %ive (/) years #ro the 5a6 "ay o# the commission o% the violation o# the law+ an" i# the sae be not !nown+ #ro the 5b6 discovery thereo% and the institution o% the &udicial proceedings #or its investigation an" punishent. 5. Illustrative caseD (*im vs. Court o% Appeals GR Nos. +-+'-8, cober  , 006) a. charge is fi"& #& &f)" *# /' "e#iciency incoe ta$  coitte" only a#ter the #inality o# the assessent couple" with the ta$payerEs will#ul re#usal to pay the ta$es within the allotte" perio". 5i.e. cannot be coitte" upon #iling the return6 b. charge is fi"i,> #f f") #& f&$",* &*&, i*% i,*,* *# 8$ the assessent  in

a""ition to the #act o# "iscovery+ there ust be a %u"icial procee"ing #or the investigation an" punishent o# the ta$ o##ense be#ore the 7 year prescriptive perio" begins to run.

II. TAX RE:EDIES OF THE TAXPAER General ee"ies A. A"inistrative +f#& P',* a. P&#*)* – #iling a petition #or reconsi"eration or reinvestigation within 3 "ays #ro receipt o# assessent Within 8 "ays #ro #iling o# protest+ all relevant supporting "ocuents shoul" have been subitte"+ otherwise+ the assessent shall becoe %inal  cannot be appeale" (4ec. 55, 008 NIRC). Note *ubission o# "ocuents within the 8 "ay perio" is optional to the ta:payer . RThat the relevant supporting "ocuents entione" in the law re#ers to such "ocuents which the ta$payer #eels woul" be necessary to support his protest an" not what the ,oissioner #eels shoul" be subitte"+ otherwise+ ta$payer woul" always be at the ercy o# the ;I which ay re>uire pro"uction o# such "ocuents which ta$payer coul" not pro"uce.R (4tandard Chartered 3an? vs. CIR, C1A Case No. /909, August 9, 566) A protest is a vital "ocuent which is a #oral "eclaration o# resistance o# the ta$payer. It is a


San Beda College of Law 1 MEMORY AID IN TAXATION LAW repository o# all arguents. It can be use" in court in case a"inistrative ree"ies have been e$hauste". It is also the #oral act o# the ta$payer >uestioning the o##icial actuation o# the ,I. This is e>uivalent to a plea"ing. +. E,*&i,> i,*#  (#/&#i) (4ec. 56+, 008 NIRC). Af*& P',* &iling o# clai #or re#un" or ta$ cre"it within ( years #ro "ate o# payent regar"less o# any supervening cause (4ec. 550, 008 NIRC). ;. Cu"icial Ci8i" A(*i#, a. A//" *# *% C#&* #f T A//") – within 3 "ays #ro receipt o# "ecision on the protest or #ro the lapse o# ' "ays "ue to inaction o# the ,oissioner (4ec. 55, 008 NIRC). +. A(*i#, *# (#,*)* f#&fi*& #f (%**" at any tie !f#& *% )" #& $)*&(*i#, thereo#+ to recover the sae+ an" upon giving proper bon"+ en%oin the sale2 or f*& *% )" an" within 8 onths+ an action to recover the net procee"s reali) against a revenue o##icer by reason o# any act "one in the per#orance o# o##icial "uty (4ec. 558, 008 NIRC). C&ii," A(*i#, .Fi"i,> #f (&ii," (#/"i,* >i,)* &&i,> +IR #ffi(i") ,$ /"#'). !.I,,(*i#, – when the ,TA in its opinion+ the collection by the ;I ay %eopar"i
S!)*,*i8 R$i)

'. Muestioning the constitutionality or vali"ity o# ta$ statutes or regulations (. Non-retroactivity o# rulings (4ec.5+9, NIRC) 3. &ailure to in#or the ta$payer in writing o# the legal an" #actual bases o# assessent a!es it voi" (4ec. 55, NIRC) 4. Preservation o# boo!s o# accounts an" once a year e$aination 5*ec. (37+ NI,6

ASSESS:ENT AND PROTEST  Assessment General rule Ta$es are sel# assessing an" thus+ "o not re>uire the issuance o# an assessent notice in or"er to establish the ta$ liability o# a ta$payer. :ceptions '. Ta$ perio" o# a ta$payer is terinate" (4ec. 9("), NIRC) (. :e#iciency ta$ liability arising #ro a ta$ au"it con"ucte" by the ;I (4ec. /9(3), NIRC) 3. Ta$ lien (4ec. 50, NIRC) 4. :issolving ,orporation (4ec. /5(c), NIRC)

Protest 1. Di&(* $,i" #f /&#*)* Admnistrative decision on a disputed assessment ' The "ecision o# the ,oissioner or his "uly authori
2. I,$i&(* $,i" #f /&#*)* a. ,oissioner "i" not rule on the ta$payerEs otion #or reconsi"eration o# the assessent  it was only when respon"ent receive" the suons on the civil action #or the collection o# "e#iciency incoe ta$ that the perio" to appeal coence" to run


San Beda College of Law 1 MEMORY AID IN TAXATION LAW (Commissioner vs. Fnion 4hipping Corp.) b. e#erral by the ,oissioner o# re>uest #or reinvestigation to the *olicitor General (Republic vs *im 1ian 1eng 4ons) c. eiterating the "ean" #or ie"iate payent o# the "e#iciency ta$ "ue to ta$payerEs continue" re#usal to e$ecute waiver (Commissioner vs. Ayala 4ecurities Corp.) ". Preliinary collection letter ay serve as assessent notice (Fnited International Pictures vs. Commissioner) Acts o# ;I ,oissioner consi"ere" as :enial o# protest which serve as a basis #or appeal to the ,ourt o# Ta$ Appeals '. #iling by the ;I o# a civil suit #or collection o# the "e#iciency ta$ (Commissioner vs. Fnion 4hipping Corporation, GR No. 9996, !ay 5, 006) (. in"ication to the ta$payer by the ,oissioner Fin clear an" une>uivocal language o# his #inal "enial. (Commissioner vs. Fnion 4hipping Corporation, GR No. 9996, !ay 5, 006) 3. ;I "ean" letter reiterating his previous "ean" to pay+ sent to the ta$payer a#ter his protest o# the assessent. (4urigao lectric Co., Inc. vs. C1A, GR No. *'5/50,
FILIN; OF CLAI: FOR TAX REFUND OR TAX CREDIT Groun"s #or #iling a clai #or ta$ re#un" or ta$ cre"it

'. Ta$ is collecte" erroneously or illegally. (. Penalty is collecte" without authority. 3. *u collecte" is e$cessive. Ta$ e#un" vs. Ta$ ,re"it

TAX REFUND

TAX CREDIT

The ta$payer as!s #or restitution o# the oney pai" as ta$

The ta$payer as!s that the oney so pai" be applie" to his e$isting ta$ liability

Two-year perio" to #ile clai with the ,I starts a#ter the payent o# the ta$ or penalty

Two-year perio" starts #ro the "ate such cre"it was allowe" 5in case cre"it is wrongly a"e6.

e>uisites o# Ta$ e#un" or Ta$ ,re"it '. C"i )* ! i, &i*i,>M (. I* )* ! fi"$ i*% *% C#i))i#,& i*%i, *# <2= '&) f*& *% /',* #f *% * #& /,"*'. Note No suit or procee"ing shall be begun a#ter the e$piration o# the sai" two 5(6 years regar"less o# any supervening cause that ay arise a#ter payent. 3. S%# /&##f #f /',*. ,oenceent o# the TWO 5(6 year perio" 5Curispru"ence6

1. T )#>%* *# ! &f,$$ i) i"">""' #& &&#,#)"' (#""(*$ - #ro the "ate the ta$ was pai". (Commissioner vs. 2ictorias !illing, GR No. *'5+6,


4.

5.

$.

@.

.

Garment vs. Collector, C1A Case No. +9, November 8, 0/) - 0erely a!ing a "eposit is not e>uivalent to payent until the aount is actually applie" to the speci#ic purpose #or which it was "eposite". T %) !, i*%%"$ f&# )#&( <*%&#>% *% i*%%#"$i,> * )')*= - counte" #ro the "ate it #alls "ue at the en" o# the ta$able year - A ta$payer who contributes to the withhol"ing ta$ syste "oes not really "eposit an aount to the governent+ but in truth+ per#ors an" e$tinguishes his ta$ obligation #or the year concerne". (Gibbs vs. Commissioner, GR No. *'8+69, November 50, 09/) E,$ #f *!" '& 8). $* #f *% fi"i,> #f *% fi," $)*$ &*&, - #ro the "ate when the #inal a"%uste" return was #ile". - the rationale in coputing this perio" is the #act that it is only then the corporation can ascertain whether it a"e pro#its or incurre" losses in its business operations. (ACCRA Investments vs. Court o% Appeals, GR No. 09-55, "ecember 56, 00) D* %, &*&"' i,(# * ) /i$ 8). $* %, fi," $)*$ &*&, ) fi"$ - #ro the "ate when #inal a"%uste" return was #ile" - The #iling o# the >uarterly incoe ta$ return 5*ec. 86 an" payent o# >uarterly incoe ta$ shoul" only be consi"ere" ere installents o# the annual ta$ "ue. (Commissioner vs. 1!@ 4ales, GR No. -8-9, ""' /i$ !* *% */'& !(

,*i*"$ *# &f,$ !() #f )/&8,i,> (i&()*,() - #ro the "ate the ta$payer becoes entitle" to re#un" an" not #ro the "ate o# payent. (Commissioner vs. "on Pedro Central AHucarera, GR No. *'5+98, 7eb. 5, 08-) Payent un"er Protest is Not Necessary un"er NI, A suit or procee"ing #or ta$ re#un" ay be aintaine" Fwhether or not such ta$+ penalty or su has been pai" un"er protest or "uress (4ec. 550, NIRC). Note *iilarly+ payent un"er protest is not necessary in re#un" #or local ta$es. (4ee 4ec. 09, *GC). 9owever+ payent un"er protest is necessary in clai #or re#un" #or real property ta$es (4ec. 5/5, *GC) an" #or custos "uties (4ec. 5-6, 1CC). *uspension o# the Two-year Prescriptive Perio" '. There is a pen"ing litigation between the Governent an" the ta$payer2 an" (. ,I in that litigate" case agree" to abi"e by the "ecision o# the *, as to the collection o# ta$es relative thereto (Panay lectric Co. vs. Collector, GR No. *'6/8+, !ay 5, 0/). Interest on Ta$ e#un"s

;,&" R"B Governent cannot be reBuired to pay interest on ta$es re#un"e" to the ta$payer in the absence o# a statutory provision clearly or e$pressly "irecting or authori
E(/*i#,)B '. When the ,I acte" with patent arbitrariness. Arbitrariness presupposes ine$cusable or obstinate "isregar" o# legal provisions.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW (Commissioner vs. 2ictorias !illing, GR No. *'0998, Nov. 50, 099) (. Bn"er *ec. HK5,65(6 with respect to incoe ta$es withhel" on the wages o# the eployees. Ta$ ,re"it ,erti#icate '. 0ay be applie" against any internal revenue ta$ e:cept withhol"ing ta$es+ (. Original copy is surren"ere" to the revenue o##ice+ 3. No ta$ re#un" will be given resulting #ro availent o# incentives grante" by law where no actual payent was a"e 54ec. 56+C, 008 NIRC). &or#eiture o# ,ash e#un"1Ta$ ,re"it '. &or#eiture o# re#un" in #avor o# the governent when a re#un" chec! or warrant reains unclaie" or uncashe" within #ive 576 years #ro "ate o# ailing or "elivery. (. &or#eiture o# Ta$ ,re"it  a ta$ cre"it certi#icate which reains unutili
RE;LE:ENTAR PERIODS IN INCO:E TAX I:POSED + LAW UPON THE TAXPAER
 I# ta$payer is not satis#ie" with the assessent fi"  /&#*)* i*%i, 3 $') #ro receipt thereo#

 S!i* )//#&*i,> $#(,*) i*%i, 6 $') #ro "ate o# the #iling o# the protest

 I# protest is "enie"  "8* *% **& to the ,oissioner o# Internal evenue 5,I= i*%i, 3 $') #ro receipt o# the "ecision o# the ,IEs "uly authori
 A//" *# *% Di8i)i#, #f *% C#&* #f T A//")
 I# the ,I or his "uly authori
 The Party a"versely a##ecte" by the ,TA :ivisionEs "ecision ay #ile one otion #or reconsi"eration1new trial i*%i, 15 $') #ro receipt o# "ecision. I# the 0 is "enie" #ile a petition #or review with the ,TA en banc

 A//" *# *% S/& C#&* i*%i, 15 $') #ro receipt o# the ,TA en banc "ecision un"er ule 47 o# the ules o# ,ourt Pre-Assessent Notice+ e>uire" (4ec. 55, NIRC)

When

Not

1. When the #in"ing #or any "e#iciency ta$ is the result o# atheatical error in the coputation o# the ta$ as appearing on the #ace o# the return2 or 2. When a "iscrepancy has been "eterine" between the ta$ withhel" an" the aount actually reitte" by the withhol"ing agent2 or 3. When a ta$payer who opte" to clai a re#un" or ta$ cre"it o# e$cess cre"itable withhol"ing ta$ #or a ta$able perio" was "eterine" to have carrie" over an" autoatically applie" the sae aount claie" against the estiate" ta$ liabilities #or the ta$able >uarter or >uarters o# the succee"ing ta$able year2 or


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 4. When the e$cise ta$ "ue on e$cisable articles has not been pai"2 5. When an article locally purchase" or iporte" by an e$ept person+ such as+ but not liite" to+ vehicles+ capital e>uipent+ achineries an" spare parts+ has been sol"+ tra"e" or trans#erre" to none$ept persons. Notes •

•

As a general rule+ payent un"er protest is not re>uire" un"er the NI,+ e$cept when partial payent o# uncontroverte" ta$es is re>uire" un"er  '(-KK. The ,oissioner ay+ even without a written clai there#or+ re#un" or cre"it any ta$+ where on the #ace o# the return upon which payent was a"e+ such payent appears clearly to have been erroneously pai". In case o# the ,IEs #inal "enial o# the clai #or re#un"+ the 3-"ay perio" to appeal with the ,TA ust be within the (-year pereptory perio" #or instituting %u"icial action.

b. Bnless otherwise authoriuire" to be #ile"2 or c. &ailure to pay the "e#iciency ta$ within the tie prescribe" #or its payent in the notice o# assessent2 or d. &ailure to pay the #ull or part o# the aount o# ta$ shown on any return re>uire" to be #ile" un"er the provisions o# this ,o"e or rules an" regulations+ or the #ull aount o# ta$ "ue #or which no return is re>uire" to be #ile"+ on or be#ore the "ate prescribe" #or its payent. (4ec. 5+) (. 7J surcharge a. in case o# will#ul neglect to #ile the return within the perio" prescribe" by the ,o"e+ or will not apply in case a ta$payer+ without notice #ro the ,oissioner+ or his "uly authori
•



*ee A,, N – Assessent Process an" Appeal

A""itions to the Ta$ 5*ecs. (4H-(7( nirc6 DEFINITIONB increents to the basic ta$ inci"ent "ue to the ta$payerEs noncopliance with certain legal re>uireents. '. CIVIL PENALT  SURCHAR;E '. (7J surcharge a. &ailure to #ile any return an" pay the ta$ "ue thereon as re>uire" un"er the provisions o# this ,o"e or rules an" regulations on the "ate prescribe"2 or

b.

in case a #alse or #rau"ulent return is will#ully a"e Prima 7acie evidence substantial un"er"eclaration (e:ceeding -6Q o% that declared) o# ta$able sales+ receipts or incoe+

•



or a substantial overstateent (e:ceeding -6Q o% actual deductions) o# "e"uctions 5*ec. (46

(. INTEREST - (J per annu or such higher rate as ay be prescribe" by the rules an" regulations a. :e#iciency interest (4ec. 5+03) b. :elin>uency interest (4ec. 5+0C) c. Interest on )$ten"e" Payent (4ec. 5+0")

CIVIL PENALTIES 3. OTHER AD:INISTRATIVE FINES

OR

A. &ailure to #ile certain in#oration returns (4ec. 5/6) B. Faiure of a withhoding agent to !oe!t and remit ta. (Sec. 251)

C. Faiure of a withhoding agent of refund e.!ess withhoding ta. (Sec. 252)

III.

LOCAL TAXATION POWERS

AND LI:ITATIONS

Nature an" *ource o# Local Ta$ing Power 5*ee. *ec 7+ Art. X+ 'KH ,onstitution an" *ec. '(K+ LG,6 The Local Governent Bnit has the powerD a. to create its own sources o# revenue an" b. to levy ta$es+ #ees an" charges.

,ongress cannot enact laws "epriving LGB #ro e$ercising such power to ta$ but it ay set gui"elines an" liitations #or the e$ercise. %uc# taxes fees and c#ar"es s#a&& accrue exc&usive&! to t#e &oca& "overnment units.

Nature o# the Ta$ing Power a. Not inherent2 b. )$ercise" only i# "elegate" to the by law or ,onstitution2 c. Not absolute2 sub%ect to liitations provi"e" #or by law. Bn"er the present constitutional rule+ Fwhere there is neither a grant nor a prohibition by statute+ the ta$ power ust be "eee" to e$ist although ,ongress ay provi"e statutory liitations an" gui"elines. The basic rationale #or the current rule is to sa#eguar" the viability an" sel#su##iciency o# local governent units by "irectly granting the general an" broa" ta$ powers. 5!anila lectric Co. vs. Province o% *aguna, G.R. No. --/0 6 Aspects o# Local Ta$ing Power a. local ta$ation b. real property ta$ation &un"aental Principles governing Local Ta$ation 5*ec. '3+ lgc6 a. *hall be uni#or in each local sub-unit b. *hall be e>uitable an" base" as uch as possible on the ta$payerEs ability to pay c. Levie" #or public purposes ". *hall not be un%ust+ e$cessive+ oppressive+ or con#iscatory e. *hall not be contrary to law+ public policy+ national econoic policy+ or in restraint o# tra"e #. ,ollection o# local ta$es an" other ipositions shall not be let to any person g. The revenues collecte" un"er the ,o"e shall inure solely to the bene#it o#+ an" sub%ect to "isposition by+ the LGB levying the ta$ or other iposition unless otherwise speci#ically provi"e" therein h. )ach LGB shall+ as #ar as practicable+ evolve a progressive syste o# ta$ation. Local Ta$ing Authority 5*ec. '3(+ lgc6 *hall be e$ercise" by the *anggunian o# the LGB concerne" through an appropriate or"inance.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW Power to prescribe Penalties #or Ta$ iolations an" Liitations thereon 5*ec. 7'8+ lgc6 '. The *anggunian is authori
apply to regulatory %ees which are levie" un"er the police power o# the LGB. Ta$ e$eptions shall be con#erre" through the issuance o# a nontrans#erable ta$ e$eption certi#icate. Gui"elines #or the Granting o# Ta$ )$eptions+ Ta$ Incentives an" Ta$ elie#s (Art. 55bD, Rules and Regulations Implementing the *gc)

1. O, *% >&,* #f * /*i#,) #& * &"if)B a. the sae ay be grante" in cases o# natural calaities+ civil "isturbance+ general #ailure o# crops+ or a"verse econoic con"itions such as substantial "ecrease in prices o# agricultural or agri-base" pro"ucts. b. The grant shall be through an or"inance. c. Any e$eption or relie# grante" to a type or !in" o# business shall apply to all business siilarly situate". /. The sae shall ta!e e##ect only "uring the ne$t calen"ar year #or a perio" not e$cee"ing '( onths as ay be provi"e" in the or"inance. E. In the case o# share" revenues+ the e$eption or relie# shall only e$ten" to the LGB granting such e$eption or relie#. (. O, *% >&,* #f * i,(,*i8)B a. The sae shall be grante" only to new investents in the locality an" the or"inance shall prescribe the ters an" con"itions there#ore. b. The grant shall be #or a "e#inite perio" o# not e$cee"ing ' calen"ar year. c. The grant shall be by or"inance passe" prior to the ' st "ay o# Canuary o# any year. ". Any grant to a type or !in" o# business shall apply to all businesses siilarly situate". Levying o# Or"inance6 Ri)i*) D

Local

Ta$es

5Local


Ta$

San Beda College of Law 1 MEMORY AID IN TAXATION LAW '. The proce"ure applicable to local governent or"inances in general shoul" be observe" (4ec. 8, *GC) (. Proce"ural "etails (4ecs. /+, //, and /0, *GC) a. necessity o# a >uoru b. subission #or approval by the local chie# e$ecutive c. he atter o# veto an" overri"ing the sae ". the publication an" a##ectivity 3. Public hearings are re>uire" be#ore any local ta$ or"inance is enacte" (4ec.8, *GC) 4. Within ' "ays a#ter their approval+ publication in #ull #or 3 consecutive "ays in a newspaper o# general circulation. In absence o# such newspaper in the province+ city or unicipality+ then the or"inances ay be poste" in at least ( conspicuous an" publicly accessible places (4ec. 0, *GC) esi"ual Ta$ing Powers o# the Local governent units 5*ec. '8+ lgc6 To levy ta$es+ #ees or charges on any base or sub%ect NOTD '. *peci#ically enuerate" in LG, (. Ta$e" un"er the provisions o# the NI,+ as aen"e"+ an" 3. Other applicable laws

C#,$i*i#,)D '. That the ta$es+ #ees+ or charges shall not be un%ust+ e$cessive+ oppressive+ con#iscatory or contrary to "eclare" national policy (. The or"inance levying such ta$es+ #ees or charges shall not be enacte" without any prior public hearing con"ucte" #or the purpose.

Liitations o# the esi"ual power '. ,onstitutional liitations on ta$ing power (. ,oon liitations prescribe" in *ec. '33 o# the LG, 3. &un"aental principles governing the e$ercise o# the ta$ing power o# the LGBs prescribe" un"er *ec. '3 o# the LG,

4.

7.

The or"inance levying such resi"ual ta$es shall not be enacte" without any prior public hearing con"ucte" #or the purpose an" The principle o# preeption.

Principle o# Preeption or )$clusionary "octrine Where the National Governent elects to ta$ a particular area+ it iplie"ly withhol"s #ro the local governent the "elegate" power to ta$ the sae #iel". This "octrine principally rests on the intention o# the ,ongress.

E("$$ i/#)i*i#,) uisitions mortis causa e$cept as otherwise provi"e" 4. Custos "uties+ registration #ees o# vessels an" whar#age on wharves+ tonnage "ues an" all other !in"s o# custos #ees+ charges an" "ues e$cept whar#age on wharves constructe" an" aintaine" by the local governent unit concerne"2 7. Ta$es+ #ees+ charges an" other ipositions upon goo"s carrie" into or out o#+ or passing through+ the territorial %uris"ictions o# local governent



8.

H.

.

K.

'.

''. '(.

'3.

'4.

'7.

units in the guise o# charges #or whar#age+ tolls #or bri"ges or otherwise. Ta$es+ #ees or charges on agricultural an" a>uatic pro"ucts when sol" by arginal #arers or #isheren2 Ta$es on business enterprises certi#ie" by the ;oar" o# Investents as pioneer or non-pioneer #or a perio" o# 8 an" 4 years+ respectively+ #ro the "ate o# registration2 ta$es on articles E$cise enuerate" un"er the NI,+ as aen"e"+ an" ta$es+ #ees or charges on petroleu pro"ucts2 Percentage or value-a""e" ta$ 5AT6 on sales+ barters or e$changes or siilar transactions on goo"s or services e$cept as otherwise provi"e" herein2 Ta$es on the gross receipts o# transportation contractors an" persons engage" in the transportation o# passengers or #reight by hire an" coon carriers by air+ lan" or water+ e$cept as provi"e" in the ,o"e2 Ta$es on preius pai" by way o# einsurance or retrocession2 Ta$es+ #ees or charges #or the registration o# otor vehicles an" #or the issuance o# all !in"s o# licenses or perits #or the "riving thereo#+ e$cept tricycle2 Ta$es+ #ees or other charges on Philippine pro"ucts actually e$porte"+ e$cept as otherwise provi"e" in the ,o"e2 Ta$es+ #ees or charges on ,ountrysi"e an" barangay business enterprises an" cooperatives "uly registere" un"er .A. 8' an" .A. 8K3+ 5,ooperatives ,o"e o# the Philippines6 2 an" Ta$es+ #ees or charges o# any !in" on the National Governent+ its agencies an" instruentalities+ an" local governent units.

,lassi#ication o# ,oon Liitations

'. Ta$es which are levie" un"er the NI, unless otherwise provi"e" by the LG, Numbers 1 2 3  8 1 (. Ta$es+ #ees+ etc. which are ipose" un"er the Tari##s an" ,ustos ,o"e Number 4 3. Ta$es+ #ees an" charges where the iposition o# which contravenes e$isting governental policies or which are violative o# the #un"aental principles o# ta$ation Numbers 5 $ @ 11 13 14 15 4. Ta$es+ #ees+ an" charges ipose" un"er special laws. Number 12 •

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TAXES AND OTHER I:POSITIONS THAT THE LOCAL ;OVERN:ENT :A LEV

'. (. 3. 4.

7. 8. H.



(A)Provinces (4ecs. -+'+, lgc) Ta$ on Trans#er o# eal Property Ta$ on ;usiness o# Printing an" Publication &ranchise Ta$ Ta$ on *an"+ Gravel an" other Muarry esources e$tracte" #ro Public Lan" Pro#essional Ta$ Auseent Ta$ Annual &i$e" Ta$ #or every :elivery Truc! or an o# 0anu#acturers or Pro"ucers+ Wholesalers o#+ :ealers+ or etailers in+ certain pro"ucts *ee A,, 9 #or the rates an" "etails.

(3) 0unicipalities (4ec. +-, lgc)

1. :,i(i/" T)- ta$es on the businesses o# the #ollowingD a. On anu#acturers+ asseblers+ repac!ers+ processors+ brewers+ "istillers+ recti#iers+ an" copoun"ers o# li>uors+ "istille" spirits+ an" wines or



b.

c.

". e. #. g.

h.

anu#acturers o# any article o# coerce o# whatever !in" or On wholesalers+ "istributors+ or "ealers in any article o# coerce o# whatever !in" or On e$porters+ an" on anu#acturers+ illers+ pro"ucers+ wholesalers+ "istributors+ "ealers or retailers o# essential coo"ities On retailers On contractors an" other in"epen"ent On ban!s an" other #inancial On pe""lers engage" in the sale o# any erchan"ise or article o# coerce On any business+ not otherwise speci#ie" in the prece"ing paragraphs+ which the sanggunian concerne" ay "ee proper to ta$.

2. :,i(i/" ,#,-&8, f) ,$ (%&>) The unicipality ay ipose an" collect such reasonable #ees an" charges on business an" occupation e$cept pro#essional ta$es reserve" #or provinces. 5*ec. '4H. LG,6 ates o# Ta$ within the 0etropolitan 0anila Area 5sec. '44+ lgc6 - Not to e$cee" by 7J the a$iu rates prescribe" in the prece"ing *ection.

b. The ta$ on a business ust be pai" by the person con"ucting the sae. c. In cases where a person con"ucts or operates ( or ore o# the businesses entione" in *ection '43 o# LG, - which are sub%ect to the same rate o% ta: + the ta$ shall be copute" on the cobine" total gross sales or receipts o# the sai" ( or ore relate" businesses. - which are sub%ect to di%%erent rates o% ta: + the gross sales or receipts o# each business shall be separately reporte" #or the purpose o# coputing the ta$ "ue #ro each business. 

*ee A,,  #or the rates an" "etails. (C),ities (4ec. /, lgc)

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The city ay levy the ta$es+ #ees+ an" charges which the province or unicipality ay ipose. The ta$ rates that the city ay levy may e:ceed the a$iu rates allowe" #or the province or unicipality by not ore than 7J e$cept the rates o# pro#essional an" auseent ta$es. (") ;arangays (4ec. /5, lgc)

;arangays ay levy the #ollowing ta$es+ #ees+ an" charges which shall accrue e$clusively to theD

Payent o# ;usiness Ta$es a. It shall be payable #or every separate or "istinct establishent or place where business sub%ect to the ta$ is con"ucte" an" one line o# business "oes not becoe e$ept by being con"ucte" with soe other business #or which such ta$ has been pai".

a. T)  On stores or retailers with #i$e" business establishents with the gross sales or receipts #or the prece"ing calen"ar year o# P7+ or less 5#or barangays in the cities6 an" P3+ or less 5#or barangays in unicipalities6 b. R*  not e$cee"ing 'J o# such gross sales or receipts. c. S&8i( F) #& C%&>)  &or services ren"ere" in connection with the regulation or the use o#


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW barang barangay-o ay-own wne" e" proper propertie tiess or service service #acilities #acilities such as palay+ palay+ copra or tobacco "ryers ". +&,>' C"&,(  No city or un unicip icipal alit ity y ay ay iss issue any lice licens nse e or per perit it #ee #ee #or #or any any busi busine ness ss or acti activi vity ty unle unless ss a clearance is #irst obtaine" #ro the barangay where such business or activity is locate" or con"ucte". O*%& F) F) ,$ C%&>) C%&>)  The e. O*%& barang barangay ay ay levy reason reasonable able #ees an" chargesD '. On ,o ,oer erci cial al bree bree"i "ing ng o# #igh #ighti ting ng coc! coc!s+ s+ coc! coc!#i #igh ghts ts an" coc!pits2 (. On places o# ecreation which charge a"ission #ees2 an" 3. On ;ill ;illbo boa ar"s r"s+ signb ignboa oarr"s+ "s+ neon signs an" out"oor a"vertiseents. *itus o# local Ta$ation

A. Si*) A((#&$i,> *# *% C)) With respect to e$cise ta$+ the ta$ is upon the per#orance o# an act+ en%oyent o# a privilege or the engaging in an occupation. The power to levy such ta$ is not "epen"ent on the "oicile o# the ta$payer+ but on the place in which the act is per#ore" or the occupation is engage" in2 not upon the location o# the o##ice+ but the place where the sale is per#ecte". 5 Allied Allied 1hread Co., Inc. v. City !ayor o% !anila, *'+65096 *'+6509 6 With With resp respec ectt to sale+ sale+ it is the the place o# the consuation o# the sale+ asso associ ciat ate" e" with with the the "eli "elive very ry o# the the things which are the sub%ect atter o# the contract that "eterines the situs o# the contract contract #or purposes purposes o# ta$ation+ ta$ation+ an" not erely the plac lace o# the per#ection o# the contract. 5 4hell Co., Inc. v. !unicipal ipaliity o% 4ipo ipocot, Camarines 4ur 6/ Phil 59-6 59- 6

+. Si*) A((#&$i,> *# S(. 15 L;C +&,(% #& )") #ffi(  a #i$e" place in the loc locality lity which con"uc "ucts the operation o# the business as an e$tension o# the principal o##ice

P&i,(i/" #ffi(- the hea" or the ain o##ice o# the business2 the city or the unicipal unicipality ity speci#ically speci#ically entione" entione" in the Articles o# Incorporation or o##icial registration papers as being the o##icial a""ress o# sai" principal o##ice shall be consi"ere" the situs thereo#. '.

Place o# sale 5with branch or sales outlet therein6D 0unici 0un icipal pality ity or city city wh where ere the branch or outlet is locate". Place o# sale 5no branch or sales sales outlet6D 0unicipality or city o# principal o##ice 5not in the place o# sale6 I# anu#acturer+ asseb ebler ler+ contra contracto ctorr+ pro"uc pro"ucer er++ or e$port e$porter er 50A,P)6 with #actory+ pro%ect o##ice+ plant or plantation 5&PPP6 3J o# recor"e" recor"e" sales in the principal o##ice o##iceDD city city or unici unicipal pality ity wh where ere the principal o##ice is locate" HJ o# recor"e" sales in the principal o##iceD city or unicipality where the &PPP is locate" pro rata i# &PPP are locate" in "i##erent unicipalities or cities in proportion to their respective volues o# pro"uction. I# planta plantatio tion n is locat locate" e" in soe soe othe otherr place than where the #actory is locate"+ the #oregoing HJ shall be sub"ivi"e" as #ollowsD 8J to the city city or unici unicipal pality ity where the #actory is locate" 4J to the city city or unici unicipal pality ity where the plantation is locate". •

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3.

4.

7.

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8.

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CO::O CO::ON N REVENU REVENUE-R E-RAIS AISIN; IN; POWERS POWERS OF L;U) (%EC. 153  155) '. *ervic *ervice e #ees an" an" charge chargess #or serv service icess ren"ere" (. Public Btility ,harges #or the operation o# public utilities owne"+ operate operate" " an" ainta aintaine ine" " by LGBs LGBs within their %uris"iction. 3. Toll #ees #ees or char charge gess #or #or the the use use o# any any publ public ic roa" roa"++ pier pier or wh whar ar#+ #+ waterway+ bri"ge+ #erry or teleco telecoun unica icatio tion n syste syste #un"e" #un"e" an" constructe" by the local governent unit concerne" E(/*i#,)B


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW a. O##ice O##icers rs an" enlis enliste" te" en o# o# the A&P an" PNP2 b. Post Post o##ice o##ice personne personnell "elive "eliverin ring g ail2 an" c. Physically han"icappe" pe" an" "isable" citiuires+ the sanggunian concerne" ay "iscontinue the collection o# the tolls+ an" therea#ter the sai" #acility shall be #ree an" open #or public use. ,ounity Ta$ ,ities or unicipalities ay levy a counity ta$.

A.In"ivi"uals Liable (4ec. /8) a. every inhabitant o# the Philippines2 b. eigh eighte teen en 5' 5'66 years years o# o# age or or over2 c. un"er any o# the #ollowing instancesD ". who has been regularly eploye" on a wage or salary basi basiss #or at least thirty (-6) cons consec ecut utiv ive e or? or?in ing g days days "uring any calen"ar year2 or e. wh who o is enga engage ge" " in busi busine ness ss or or occupation2 or #. who owns owns real real pro proper perty with with an aggreg aggregate ate assess assesse" e" value value o# P'+ or ore2 or g. wh who o is re> re>u uire" ire" by law law to to #ile #ile an incoe ta$ return P7.  an" an" an annua annuall T R*  P7. a""i a""iti tion onal al ta$ ta$ o# P'. P'.  #or #or ever every y P'+ P'+  o# inco incoe e rega regar" r"le less ss o# whether whether #ro business+ business+ e$ercise e$ercise o# pro#ession or #ro property which in no case shall e$cee" P7+. In case o# husban" an" wi#e+ the a""iti a""itiona onall ta$ her herein ein ipose ipose" " shall be base" upon the total prop proper erty ty owne owne" " by the the an" an" the the tota totall gros grosss rece receip ipts ts or earn earnin ings gs "erive" by the.

B. 9&i$i(" P&)#,) (%ec. 15) )very corporation no atter how crea create te" " or orga organi ni
engage" in or "oing business in the Philip ilippi pine ness shal shalll pay pay an annu annual al counity ta$.

T R* R*  P7 an" an annual a""iti a""itiona onall ta$ wh which ich in no case case shall shall e$cee" P'+ in accor"ance with the #ollowing sche"uleD '. &or every P/,666 orth o% real property owne" owne" by it "uring the prec prece" e"in ing g year year base base" " on the the valuation use" #or the payent o# the real property ta$ - P(.2 an" (. &or every P/,666 o% gross receipts or earnings earnings "erive" by it #ro its business in the Philippines "uring the prece"ing year - P(.. The divi ividends received ved by a corporation shall+ corporation shall+ #or the purpose o# the a""itional ta$+ be considered as part o% the gross gross receip receiptts or earn earnin ings gs o# sai" sai" corporation. The The #oll #ollow owin ing g are are )$e )$ept pt #ro #ro the the counity ta$ (4ec. /0) '. :iploatic an" consular representatives2 an" (. Transien ansientt visitor visitorss when thei theirr stay in the the Philip ilippi pine ness "oes "oes not not e$ce e$cee" e" three 536 onths.

PLACE OF PA:ENTB place o# resi"ence o# the in"ivi"ual+ or in the place where the the prin princi cipa pall o##i o##ice ce o# the the %uri %uri"i "ica call entity is locate". TI:E OF PA:ENT PA:ENTBB accrues on the ' st "ay o# Canuary o# each year which shall be pai" not later than the last "ay o# &ebruary o# each year. year. PENAL PENALT TIES FOR FOR DELINQ DELINQUEN UENC CBB an interest o# (4J per annu #ro the "ue "ate until it is pai" shall be a""e" to the aount "ue. A co coun unit ity y ta$ ta$ cert certi# i#ic icat ate e ay ay also be issue" to any person or corporation not sub%ect to the counity ta$ upon payent o# P'. (4ec. 95, *GC).


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW Presen esenta tattion o# ,o ,ounity Ta$ ,erti#icate ,erti#icate on ,ertain Occasions Occasions  (4ec. 9-) A. I,$i8i$" '. When When an in"i in"ivi vi"u "ual al sub% sub%ec ectt to to the counity ta$ ac!nowle"ge ac!nowle"gess any "ocuent "ocuent be#ore a notary public2 (. ta!e ta!ess the the oat oath o# o## o##ic ice e upon upon elect electio ion n or appo appoin int ten entt to any position in the governent service2 3. receives any license+ certi#icate or perit #ro any public authority2 pays any ta$ or #ee2 4. recei eceive vess any any on oney #ro #ro  any any public #un"2 7. transacts other o##icial business2 or 8. recei eceiv ves any sala salarry or wag wage #ro any person or corporation. The presentation o# the counity ta$ cert certi# i#ic icat ate e shal shalll not not be re>u re>uir ire" e" in connec connectio tion n with with the regist registrat ration ion o# a voter.

+. C#&/# #&/#&&*i#, *i#, '. receives receives any license+ certi#icate certi#icate or per perit it #ro #ro any any publ public ic authority2 (. pays any ta$ or #ee2 3.rece 3.receiv ives es one oney y #ro #ro publ public ic #un"s2 or 4. transacts other o##icial o##icial business. The The city city o# uni unici cipa pall trea treasu sure rerr "epu "eputi ti
•

,ollection O# Local Ta$es

T P&i#$ P&i#$ ,$ :,,& #f P' P',* ,* – (%ec. 1$5 ,C) Bnless Bnless otherwise otherwise provi"e"+ provi"e"+ the ta$ ta$ per perio" io" shall hall be the the calendar year . *uch *uch ta$es+ ta$es+ #ees+ #ees+ an" charge chargess ay be pai" in >uarterly installents. A((&" #f T – (%ec. 1$$ ,C) Bnless otherwise provi"e"+ shall accrue on the #irst "ay o# Canuary o# each year. 9owe 9oweve verr+ new new ta$es ta$es++ #ees #ees or char charge ges+ s+ or chan change gess in the the rates rates ther thereo eo#+ #+ shal shalll accr accrue ue on the the %irst day o% the Buarte Buarterr ne:t ne:t %ollo %olloing ing the the e##ec e##ecti tivi vity ty o# the the or"i or"ina nanc nce e iposing such new levies or rates. Ti #f P',* – (%ec. 1$@ ,C) Bnless otherwise provi"e" shall be pai" ithin the %irst tenty (56) day days o% uent >uarter as the case ay be. 0ay+ #or a %usti#iable reason or cause+ be e$ten"e" without surcharges or penalties+ but only #or a perio" not not e:ce e:ceed edin ing g si: si: (9) (9) months. months. S&(% S&(%&> &>)) ,$ P, P,"*i "*i)) #, U,/i$ U,/i$ T) ) F) F) #& C%& C%&> >)) – (%ec. (%ec. 1$ ,C) *urcharge not e$cee"ing (7J o# the aount o# ta$es+ #ees or charges incl inclu" u"in ing g surc surcha harg rges es++ unti untill such such aount is #ully pai". ;ut ;ut in no case case shal shalll the the tota totall intere interest st on the unpai unpai" " aount aount or port portio ion n ther thereo# eo# e$cee" e$cee" thir thirtyty-si si$ $ 5386 onths. I,*&)*) #, O*%& U,/i$ R8,) – (%ec. 1$8 ,C) An interest thereon at the rate not e$cee"ing (J per onth #ro the "ate it is "ue until it is pai"+ but in no case case shall shall the total interest interest on the unpa unpai" i" aou aount nt or port portio ion n ther thereo eo# # e$cee" thirty-si$ 5386 onths.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW ,ollection o# Local evenues by the Treasurer  (4ec. 86 *GC) All local ta$es+ #ees an" charges shall be collecte" by the provincial+ city+ unicipal or barangay treasurer+ or their "uly authoriuire" #or the purpose+ the provincial+ city or unicipal governent shall pay the preius thereon in a""ition to the preius o# the bon" that ay be re>uire" un"er the ,o"e.

LOCAL TAX RE:EDIES UNDER THE L;C '. TAX )0):I)* O& T9) LO,AL GO)N0)NT BNIT* 5LGBs6 ,ivil ee"ies O# The Local Governent Bnits 5LGB6 To )##ect ,ollection O# Ta$es <1= L#(" ;#8&,,*K) Li,  Local ta$es+ #ees+ charges an" other revenues constitute a lien+ superior to all liens+ charges or encubrances in #avor o# any person+ en#orceable by any appropriate a"inistrative or %u"icial action.

<2= Ci8i" R$i) 5a6 by a"inistrative action through "istraint o# personal property an" by levy upon real property 5b6 by %u"icial action

)ither o# these ree"ies or all ay be pursue" concurrently or siultaneously at the "iscretion o# the LGB concerne". Curis"iction o# courts over local ta$ation cases

a. With the aen"ent brought by A No. K((+ the ,ourt o# Ta$

Appeals now has appellate %uris"iction over local ta$ation cases "eci"e" by the egional Trial ,ourt in the e$ercise o# its appellate or original %uris"iction. b. egular %u"icial courts are not prohibite" #ro en%oining the collection o# local ta$es+ sub%ect to ule 7 5Preliinary In%unction6 o# the ules o# ,ourt. Note Bnli!e the NI,+ the Local Ta$ ,o"e "oes not contain any speci#ic provision prohibiting courts #ro en%oining the collection o# local ta$es. *uch statutory lapse or intent ay have allowe" preliinary in%unction where local ta$es are involve". ;ut it cannot negate the proce"ural rules an" re>uireents un"er ule 7 o# the ules o# ,ourts. (2alley 1rading Co. vs. C7I o% Isabela, GR No. +0/50, !arch -, 00)

PRESCRIPTIVE PERIODS FOR THE ASSESS:ENT AND COLLECTION OF LOCAL TAXES Prescriptive Perio"s o# A**)**0)NT '. L#(" *) f) #& (%&>)  #ive 576 years #ro the "ate they becae "ue. (4ec. 0+, *GC). (. W%, *%& i) f&$ #& i,*,* *# 8$ *% /',* #f *) f) #& (%&>)  ten 5'6 years %rom discovery o# the #rau" or intent to eva"e the payent (4ec. 0++ *GC). PRESCRIPTIVE PERIOD OF COLLECTION Local ta$es+ #ees+ or charges ay be collecte" within #ive 576 years #ro the "ate o# assessent by a"inistrative or %u"icial action. No such action shall be institute" a#ter the e$piration o# such perio" (4ec. 0+, *GC). Groun"s &or The *uspension O# The unning O# The Prescriptive Perio"s a. The treasurer is legally prevente" #ro the assessent or collection o# the ta$2 b. The ta$payer re>uests #or a reinvestigation an" e$ecutes a waiver in writing be#ore the e$piration o# the perio" within which to assess or collect2 an"


San Beda College of Law 1 MEMORY AID IN TAXATION LAW c.

The ta$payer is out o# the country or otherwise cannot be locate" (4ec. 0+, *GC).

(. TAX

RE:EDIES OF THE TAXPAER

ee"ies O# The Ta$payer In Local Ta$ation

A.A:0INI*TATI) Before assessment a. A//"  any >uestion on constitutionality or legality o# ta$ or"inance within 3 "ays #ro e##ectivity thereo# to *ecretary o# Custice <4ec. 8 *GC) +. D("&*#&' whenever &"if applicable.

After assessment . P&#*)*  within 8 "ays #ro receipt o# assessent (4ec. 0/ *GC). Payent un"er protest is not necessary. !. P',*  )!),* &f,$ #& * (&$i* – within ( years #ro payent o# ta$ to local treasurer (4ec. 09 *GC). It is to be note" that+ unli!e in internal revenue ta$es+ the supervening cause applies in local ta$ation because the perio" #or the #iling o# clais #or re#un" or cre"it o# local ta$es is counte" not necessarily #ro the "ate o# payent but #ro the "ate the ta$payer is entitle" to a re#un" or cre"it. (. Ri>%* #f &$/*i#,  ' year #ro the "ate o# sale or #ro the "ate o# #or#eiture (4ec. 80, *GC). +. 9UDICIAL 1. C#&* (*i#, within 3 "ays a#ter receipt o# "ecision or lapse o# 8 "ays o# *ecretary o# CusticeEs inaction (4ec. 8 *GC) within 3 "ays #ro receipt when protest o# assessent is "enie" (4ec. 0/ *GC) i# no action is ta!en by the treasurer in re#un" cases an" the •

•

•

two year perio" is about to lapse (4ec. 0/ *GC) i# ree"ies available "oes not provi"e plain+ spee"y an" a"e>uate ree"y. 2. A(*i#, f#& $("&*#&' &"if 3. I,,(*i#,  i# irreparable "aage woul" be cause" to the ta$payer an" no a"e>uate ree"y is available. •

IV.REAL PROPERT TAXATION :e#initionsD REAL PROPERT TAXATION – A "irect ta$ on ownership o# lan"s an" buil"ings or other iproveents thereon payable regar"less o# whether the property is use" or not+ although the value ay vary in accor"ance with such #actor. Bn"er the LG,+ it covers the a"inistration+ appraisal+ assessent+ levy an" collection o# eal Property Ta$+ i.e. ta$ on lan" an" buil"ing an" other structures an" iproveents on it+ inclu"ing achineries.

REAL

PROPERT  sub%ect to the "e#inition given by Art. +/ o% the Civil Code.

I:PROVE:ENT  valuable a""ition a"e to a property or aelioration in its con"ition aounting to ore than a ere replaceent o# parts involving capital e$pen"itures an" labor.

NATURE AND CLASSES ,haracteristics o# eal Property Ta$ '. :irect ta$ on the Ownership o# real property (. Ad valorem ta$. The value is base" on the ta$ base. 3. Proportionate  the ta$ is calculate" on the basis o# a certain percentage o# the value assesse".


San Beda College of Law 1 MEMORY AID IN TAXATION LAW 4. In"ivisible single obligation 7. Local ta$ 

Ta$ing Authorities (4ec. 5--, *GC)

L;U

R* #f +)i( R" P&#/&*' T

'. Province

not e:ceeding 'J o # assesse" value

(. ,ity

not e:ceeding (J

3. 0unicipality within 0etro 0anila

not e:ceeding (J.

&un"aental Principles Governing eal Property Ta$ation (4ec. 0, *GC) '. eal property shall be appraise" at its current an" &air ar!et value2 (. eal property shall be classi#ie" #or assessent purposes on the basis o# actual Bse. 3. eal property shall be assesse" on the basis o# Bni#or classi#ication within each LGB 4. The appraisal+ assessent+ levy an" collection o# P Ta$ shall not be let to any Private person 7. The appraisal an" assessent o# real property shall be )>uitable. )$tent o# the power to levy ;asic real property ta$2 'J a""itional real estate ta$ to #inance the *pecial )"ucation &un"2 (4ec. 5-9) 7J a""itional a" valore ta$ on I"le lan"s2 (4ec. 5-9, *GC) an" *pecial levy or special assessents 5ay be ipose" even by unicipalities outsi"e 0etro 0anila6 on lan"s coprise" within its territorial %uris"iction specially bene#ite" by public wor!s+ pro%ects or iproveents #un"e" by the local governent unit concerne". Provided  *pecial levy shall not e$cee" 8J o# the actual cost o# such pro%ects an" iproveents+ inclu"ing the costs o# ac>uiring lan" an" • •

•

•

such other real property in connection therewith not apply to lan"s e$ept #ro basic real property ta$ an" the reain"er o# the lan" have been "onate" to the local governent unit concerne" #or the construction o# sai" pro%ects. (4ec. 5+6, *GC).

&or Purposes o# eal Property Ta$ation I"le Lan"s *hall Inclu"eD 54ec. 5-8, *GC) '. Agricultural lan"s #& *%, #, %(*& in area #,-%"f #f %i(% &i, ,("*i8*$ or uniprove" by the owner o# the property or person having legal interest therein. Agricultural lan"s plante" to peranent or perennial crops with at least 7 trees to a hectare shall not be consi"ere" i"le lan"s. Lan"s actually use" #or gra
owner o# the property or person having legal interest therein. I"le Lan"s )$ept &ro Ta$ 54ec. 5-, *GC) ;y reason o#D . %orce ma&eure '. civil "isturbance (. natural calaity 3. or any cause which physically or legally prevents the owner o# the property or person having legal interest therein #ro iproving+ utili
,oercial Agricultural esi"ential 0ineral In"ustrial Tiberlan"


San Beda College of Law 1 MEMORY AID IN TAXATION LAW g.

*pecial

*pecial ,lasses o# eal Property (4ec. 59, *GC) '. 9ospitals (. ,ultural an" *cienti#ic purposes 3. owne" an" use" by Local water "istricts 4. GO,,s ren"ering essential public services in the supply an" "istribution o# water an"1or generation or transission o# electric power.

Bnpai" realty ta$es attach to the property an" is chargeable against the person who ha" actual or bene#icial use an" possession o# it regar"less o# whether or not he is the owner. To ipose the real property ta$ on the subse>uent owner which was neither the owner nor the bene#icial user o# the property "uring the "esignate" perio"s woul" not only be contrary to law but also un%ust. (state o% *im vs. City o% !anila, GR No. 069-0, 7ebruary 5, 006)

PROCEDURE Properties )$ept #ro eal Property Ta$ 54ec. 5-+, *GC6 )$eption is liite" only to the #ollowingD . eal property #,$ by the governent e:cept when *% !,fi(i" ) thereo# has been grante" to a ta$able person2 5. ,haritable institutions+ churches+ personages or convents appurtenant thereto+ os>ues+ non-pro#it or religious ceeteries an" all lan"s+ buil"ings an" iproveents (*""' $i&(*"' ,$ (")i8"' )$ #or religious+ charitable or e"ucational purposes (Art. 2I, 4ec. 5, Constitution); -. 0achineries an" e>uipent that are (*""' $i&(*"' ,$ (")i8"' )$ by local water utilities an" GO,,Es engage" in the supply an" "istribution o# water an"1or electric power2 +. eal property #,$ by "uly registere" cooperatives as provi"e" #or in A 8K32 an" /. 0achinery an" e>uipent )$ #or pollution control an" environental protection. Actual Bse o# Property As ;asis #or Assessent 54ec. 58 *GC6 eal property shall be classi#ie"+ value" an" assesse" on the basis o# (*" ) regardless o% here located, hoever ons it, and hoever uses it.

STEP 1B DECLARATION OF REAL PROPERT DECLARATION + OWNER OR AD:INISTRATOR
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DECLARATION + PROVINCIAL  CIT  :UNICIPAL ASSESSOR (%EC. 24) WHEND Only when the person un"er *ec. (( re%uses or %ails to a!e a "eclaration within the prescribe" tie. No oath by the assessor is re>uire".

Notes? P&##f #f E/*i#, #f R" P&#/&*' f&# T*i#, - (%ec. 2$) WHOD ;y any person or #or who real property is "eclare".



WHENB within 3 "ays #ro the "ate o# "eclaration o# property. IF PROPERT IS DECLARED FOR THE FIRST TI:E –
STEP 2B LISTIN; OF REAL PROPERT IN THE ASSESS:ENT ROLLS
unicipal hall an" in two other conspicuous public places therein (4ec. 55, *GC)

,lai #or e$eption ust be #ile" with the assessor together with su##icient "ocuentary evi"ence to support clai

All "eclarations shall be !ept an" #ile" un"er a uni#or classi#ication syste to be establishe" by the provincial+ city or unicipal assessor.

STEP 3B APPRAISAL AND VALUATION OF REAL PROPERT
:or mac#iner! '. &or ;ran" new achineryD &0 is the ac>uisition cost (. In all other casesD &0  eaining eco. li#e )stiate" )co.Li#e

X eplaceent ,ost

STEP 4B DETER:INE ASSESSED VALUE
STEP 5B PA:ENT AND COLLECTION OF TAX <= A((&" #f TB Canuary o# every year an" such will constitute as a superior lien. (4ec. 5+9) ual installents 50arch 3'+ Cune 3+ *epteber 3+ :eceber 36 (. special levy  governe" by or"inance <(= I,*&)* f#& L* P',* (4ec. 5//) '. two percent <2= f#& (% #,*% on unpai" aount until the "elin>uent aount is pai" (. provi"e" in no case shall the total interest e$cee" thirty-si$ 5386 onths. <$= F#& A$8,( ,$ P&#/* P',* '.

(.

A"vance payent  "iscount not e$cee"ing (J o# annual ta$ 5*ec. (7'+ L,G6 Propt payent  "iscount not e$cee"ing 'J o# annual ta$ "ue 5Art 34( I6

,ollection o# Ta$ (4ec. 5+8) It shall be the responsibility o# the city or unicipal treasurer concerne".


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW The city or unicipal treasurer ay "epu "eputi ti""' /&8,*$ to collect ta$. (. the owner owner or property property re>uests re>uests #or &i,8)*i>*i#, an" &i*)  i8& be#or be#ore e e$pi e$pira rati tion on o# perio" to collect. 3. the owner owner o# proper property ty is out out o# the country or cannot be locate".

REAL PROPERT P ROPERT TAX RE:EDIES UNDER THE L;C '. TAX )0):I)* O& T9) LO,AL GO)N0)NT TO )&&),T ,OLL),TION O& TAX)*

.

5. -. +.

A. A"inistrative A"inistrative eal eal Prope Propert rty y ta$ ta$ lien lien (4ecs. (4ecs. 5/8, *GC)  *GC)  superior to all liens+ charges or encubrances2 :istraint (4ec. 5/+3D, *GC); Levy (4ec. 5/+AD, 5/ *GC); Pur Purchase o# propert erty by loc local treas treasur urer er #or #or want want o# bi""e bi""err (4ec. 59-, *GC). ;. CB:I CB:I,I ,IAL AL ,ivil Action ( 4ec. 599, 586 *GC)

PRESCRIPTIVE PERIODS FOR THE COLLECTION OF REAL PROPERT TAXES . +)i +)i( ( &" &" /&#/ /&#/&* &*' ' * * ,$ ,$ ,' ,' #*%& * "8i$ ,$& *% *i*" #, R" P&#/&*' P&#/&*' T*i#, *i#,  #ive 576 years years #ro #ro the "ate "ate they they becae becae "ue. (4ec. 586, *GC). 5. W%, *%& i) f&$ #& i,*,* *# 8$ 8$ *% /' /',* ,* #f *) *) – ten

5'6 5'6 year yearss #ro #ro "isc "iscov over ery y o# the the #rau" or intent to eva"e the payent (4ec. 586, *GC). Grou Groun" n"ss #or #or the the *usp *uspen ensi sion on o# the the unning o# the Prescriptive Prescriptive Perio"s

1. The treasu treasurer rer is legally legally prevent prevente" e" #ro the assessent or collection o# the ta$2 2. The ta$payer re>uests #or a rein reinve vest stig igat atio ion n an" an" e$ec e$ecut utes es a waiver in writing be#ore the e$pi e$pira rati tion on o# the the peri perio" o" with within in which to assess or collect2 an" 3. The ta$payer is out o# the country or otherw otherwise ise cannot cannot be locate locate" " (4ec. 586, *GC).

2. TAX TAX RE:EDIES OF OF THE TAX TAXPA PAER ER a. A"i A"ini nist stra rati tive ve

P&#* #*)*  pay payen entt un"e un"err re>uire" re>uire" within 3 "ays to city+ city+ or unicipal treasurer. shall be entertaine" unless #irst pai". (4ec. 5/5 *GC)

prot protes estt is provincia provincial+ l+ No protest the ta$ is

,re"it it (4ec. C"i C"i f#& T Rf, Rf,$ $ #& ,re" 5/-) a6 the the ta$pa ta$paye yerr ay #ile #ile a writ writte ten n clai #or re#un" or cre"it with the provincial provincial or city treasurer within two years #ro the "ate the ta$payer is entitle" to such re"uction or a"%ustent. b6 in cas case e o# "en "enial ial o# re# re#un" un" or cre" cre"it it++ appe appeal al to L;AA L;AA as in protest case.

R$/*i#, #f &" /&#/&*' (4ec. 59 *GC) R$' >i,)* *% A)))),*A//" st with ithin 8 "ays "ays #ro #ro notice tice o# asse assess sse ent nt o# prov provin inci cial al++ city city or unicipal assessor to L;AA (4ec. 559 *GC) 5nd  with within in 3 "ays "ays #ro #ro rece receip iptt o# "ecisi "ecision on o# L;AA L;AA to ,;AA ,;AA (4ec. 5-6 *GC) -rd  with within in 3 "ays "ays #ro #ro rece receip iptt o# "eci "ecisi sion on o# ,;AA ,;AA to ,our ,ourtt o# Ta$ Appeals en banc


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW +th with within in '7 "ays "ays #ro #ro rece receip iptt o# "ecision o# ,ourt o# Ta$ Appeals en banc to the *upree ,ourt

Appeals In eal Property Ta$ation

There is substantial "ecrease in the price o# agricultural or agribase" pro"ucts2 or !% There is calaity. (. ;y the Pre Presi" si"ent ent o# o# the Phi Philip lippin pines es when public interest so re>uires. b%

•

Provincial+ ,ity or 0unicipal Assessor

within 8 "ays Owner1Person Owner1Person with legal interest ust #ileD '6 Written Petition un"er Oath (6 With *upporting :ocuents

Local ;oar" O# Assessent Appeals 5L;AA shoul" "eci"e within '( "ays #ro recei recei t o# etitio etition n

within 3 "ays

,entral ;oar" O# Assessent Appeals

within 3 "ays

,ourt o# Ta$ Appeals 5)n ;anc6

within '7 "ays *upree ,ourt

1. 2. 3. 4.

b. Cu"icial appeal o# ,;AA ,;AAEs C#&* A(*i# *i#, – appeal "ecision to ,ourt o# Ta$ Appeals en banc. Si Si* ))i ))i"i "i,> ,> 8"i 8"i$i $i*' *' #f *M *M &(# &(#8 8&' &' #f &f &f,$ ,$ #f * *)) pai" (4ec. 9+ P" +9+) . Si* *# $("& i,8"i$i*' #f * $ *# i&&> i&&>"& "&i*' i*' i, ))) )))) ),* ,* ,$ (#""(*i#, (4ec. 9+ P" +9+) Si* ))i"i,> *% 8"i$i*' #f * )" (4ec. - P" +9+) (4ec. 598 *GC)

,on"onation o# eal Property Ta$es '. ;y the *anggunian eal eal prop proper erty ty ta$e ta$ess ay ay be con"on con"one" e" wh wholly olly or partia partially lly in a given local governent unit whenD a% There is general #ailure o# crops2

V. TARIFF AND CUSTO:S CODE :)&INITION* TARIFFB ARIFFB ,ustos "uties+ toll or tribute paya payabl ble e upon pon er erchan chan"i "isse to the the Governent.

CUST CUSTO O: DU DUTI TIES ESBB Ta$ asse assess sse" e" upon upon erc ercha han" n"is ise e #ro #ro or e$po e$port rte" e" to+ to+ a #ore #oreig ign n coun countr try y. (Garci (Garcia a v. :ecut :ecutive ive 4ec., GR No. 658-,
THE +UREAU OF CUSTO:S


San Beda College of Law 1 MEMORY A AID IN TAXATION LAW

&unctions o# the ;ureau o# ,ustos '. Assessent an" collection o# revenues #ro iporte" articles an" all other ipositions un"er the tari## an" custos laws2 (. ,ontrol suggling an" relate" #rau"s2 3. *upe *uperv rvis isiion an" an" cont contrrol over over the the entran entrance ce an" clear clearanc ance e o# vessel vesselss an" an" airc aircra ra#t #t enga engage ge" " in #ore #oreig ign n coerce2 4. )n#orcee eent o# T,, an" relat late" laws2 7. *upe *uperv rvis isiion an" an" cont contrrol over over the the han"ling o# #oreign ails arriving in the Philippines2 8. *uperv *upervise ise an" an" cont control rol all ipo iport rt an" an" e$port cargoes #or the protection o# governent revenue2 H. )$clu )$clusi sive ve orig origin inal al %uri %uris" s"ic icti tion on over over sei
CUSTO:S DUTIES When tari## an" custos applie" Only a#ter iportation has begun but be#ore iportation is terinate". Importation begins '6 when the the conve onveyi yin ng vess vessel el or aircra#t

(6 ente enters rs the the %ur %uris"i is"ict ctio ion n o# the Phil. 36 with with inte intenti ntion on to to unloa unloa" " there therein in Importation is deemed terminated 5a6 upon payent o# the "uties+ ta$es an" other charges "ue upon the articles. 5b6 5b6 an" an" lega legall per perit it #or with ith"raw "rawal al shall have been grante". In case the articles are #ree o# "uties "uties++ ta$es ta$es an" other other charg charges+ es+ until until they have legally le#t the %uris"iction o# the custos (4ec. 565, 1CC) •

Intention To Bnloa" )ven i# not yet unloa"e"+ an" there is unani#este" cargo+ #or#eiture ay ta!e place because iportati iportation on has alrea"y begun. Articles un"er T,, !ay either be '. S!(* *# $*'  a. Live anials an" anial pro"ucts2 b. egeta egetable ble pro pro"u "uct cts2 s2 c. Anial Anial or vegeta vegetable ble #ats2 #ats2 oils oils an" an" their their clea cleava vage ge pro" pro"uc ucts ts22 prepare" e"ible #ats2 anial or vegetable wa$es2 d. Prepare" #oo"stu##s2 beverages+ spirits an" vinegar2 tobacco an" anu#acture" tobacco substitutes2 e. 0ineral pro"ucts2 f. Pro"ucts Pro"ucts o# cheical or allie" in"ustries2 ". Plastics an" articles thereo#2 rubber an" articles thereo#2 #. aw hi"es an" s!ins2 leather+ etc.2 i. Woo" an" articles o# woo"+ etc.2 . Pulp o# woo"+ etc.2 7. Te$tiles Te$tiles an" te$tile articles2 &. Articles o# stone2 plaster+ ceent+ etc.2 m. &ootwear+ hea"gear+ etc.2 n. Natural or culture" pearls precious1sei-precious stones2 o. ;ase etals an" articles o# base etals2



p. 0achinery an" echanical appliances2 electric e>uipent2 soun" recor"ers+ etc2 . ehicles+ aircra#t+ vessels an" associate" transport e>uipent2 r. Optical+ photographic+ e"ical+ surgical instruents+ etc.2 s. Ars+ aunition+ parts an" accessories2 t. 0iscellaneous anu#acture" articles2 an" u. Wor!s o# art+ collector=s pieces ari" anti>ues (4ec. 6+, 1itle , 1CC). (. P&#%i!i*$ f&# !i,> i/#&*$ 5Prohibite" iportation6 a. Absolutely prohibited such asD weapons o# war2 gabling "evices2 narcotics or prohibite" "rugs2 ioral+ obscene or insi"ious articles2 an" those prohibite" un"er special laws (4ec.65, 1CC). b. uali%iedly prohibited Where such con"itions as to warrant a law#ul iportation "o not e$ist+ the legal e##ects o# the iportation o# >uali#ie"ly prohibite" articles are the sae as those o# absolutely prohibite" articles. (Auyong $ian vs. C1A, GR No. *'585, 4eptember 5, 08+)

consi"ere" as contraban" an" the iporter is liable #or suggling (4ee 4ec. 6, 1CC). All articles when iporte" #ro any country into the Philippines shall be sub%ect to "uty upon each iportation+ even though previously e$porte" #ro the Philippines+ e$cept as otherwise speci#ically provi"e" #or in the T,, or other laws. Liability #or ,ustos :uties ;,&" R"B All iportations 1 e$portations o# goo"s are sub%ect to custos "uties (4ec. 6/, 1CC).

E(/*i#,)B <1= )$eptions un"er the T,,2 <2= )$eptions grante" to governent agencies+ instruentalities or GO,,s with e$isting contracts+ coitents+ agreeents+ or obligations with #oreign countries2 international <3= )$eptions o# organi
3. C#,$i*i#,""'-f& f&# *&iff ,$ ()*#) $*i) 5con"itionally-#ree iportation6 Those provi"e" in *ec. '7+ T,,2 Those grante" to governent agencies+ GO,,s with agreeents with #oreign countries2 Those given to international institutions entitle" to e$eption by agreeent or special laws2 an" Those that ay be grante" by the Presi"ent upon N):AEs recoen"ation. • •

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•

4. F& f&# TC $*i) 5"uty-#ree6 Iporte" goo"s ust be entere" in a custohouse at their port o# entry otherwise they shall be

•

)$tent O# IporterEs Liability The liability o# an iporter is liite" to the value o# the iporte" erchan"ise. In case o# #or#eiture o# the sei


been ta$e" at all. (Fy Chaco 4ons vs. Collector o% Customs, GR No. 89, !arch 58, 0-)

A"*&,*i,> $*i)B This is a "uty which alternates a" valore an" speci#ic. C#/#,$ D*'B This is a "uty consisting o# a" valore an" speci#ic "uties.

4. Iport )ntry It is a "eclaration to the ;O, showing particulars o# the iporte" article that will enable the custos authorities to "eterine the correct "uties. An iporter is re>uire" to #ile an iport entry. It ust be accoplishe" #ro "isebar!ing o# last cargo #ro vessel. Transaction value un"er A NO. '' It is the invoice value o# the goo"s plus #reight+ insurance+ costs+ e$penses an" other necessary e$penses. This replaces the 9oe ,onsuption alue as basis o# valuation o# goo"s. ,lassi#ication o# ,usto :uties A.R>"& D*i)  those which are ipose" an" collecte" erely as a source o# revenue. 1. A$ 8"#& $*'B This is a "uty base" on the value o# the iporte" article. 2. S/(ifi( $*'B This is a "uty base" on the "utiable weight o# goo"s 5either the gross weight+ legal weight+ or net weight6.

+. S/(i" $*i) – those which are ipose" an" collecte" in a""ition to the or"inary custos "uties usually to protect local in"ustries against #oreign copetition. 1. 2. 3. 4.

D/i,> $*' C#,*&8i"i,> $*' :&Gi,> $*' Di)(&ii,*#&' $*'

Nature o# *pecial ,ustos :uties *pecial custos "uties are a""itional iport "uties ipose" on speci#ic !in"s o# iporte" articles un"er certain con"itions. Purpose o# *pecial ,ustos :uties The special custos "uties are ipose" #or the protection o# consuers an" anu#acturers+ as well as Phil. pro"ucts #ro un"ue copetition pose" by #oreign-a"e pro"ucts.

SPECIAL DUTIES CO:PARED DU:PIN; DUT 1.

COUNTERVAILIN; DUT

Nature Ipose" upon #oreign pro"ucts with value lower than their #air ar!et value to the "etrient o# local pro"ucts.

5. AmountDRate :i##erence between the actual price an" the noral value o# the article.

:ARIN; DUT

DISCRI:INATOR DUT

Ipose" upon #oreign goo"s en%oying subsi"y thus allowing the to sell at lower prices to the "etrient o# local pro"ucts siilarly situate".

Ipose" upon those not properly ar!e" as to place o# origin o# the goo"s.

Ipose" upon goo"s coing #ro countries that "iscriinate against Philippine pro"ucts.

)>uivalent to bounty+ subsi"y+ subvention.

7J a" valore o# articles

Any aount not e$cee"ing 'J a" valore o# the sub%ect articles

the or



DU:PIN; DUT 3.

COUNTERVAILIN; DUT

*mposin" Aut#orit! *pecial coittee on Anti-:uping 5copose" o# the *ecretary o# &inance as ,hairan2 0ebersD the *ecretary o# :TI+ an" either the *ecretary o# Agriculture i# article in >uestion is agricultural pro"uct or the *ecretary o# labor i# nonagricultural pro"uct

:ARIN; DUT

*ecretary o# &inance

,oissioner o# ,ustos

DISCRI:INATOR DUT Presi"ent o# the Philippines

&le$ible Tari## ,lause The Presi"ent ay #i$ tari## rates+ iport an" e$port >uotas+ etc. un"er T,, (4ee 4ec. 5, Art. 2I, Constitution and 4ec. +6, 1CC) '. to increase+ re"uce or reove e$isting protective rates o# iport "uty 5inclu"ing any necessary change in classi#ication6. The e$isting rates ay be increase" or "ecrease" to any level+ on one or several stages but in no case shall the increase" rate o# iport "uty be higher than a a$iu o# one hun"re" 5'J6 per cent a" valore (. to establish iport >uota or to ban iports o# any coo"ity+ as ay be necessary2 an" 3. to ipose an a""itional "uty on all iports not e$cee"ing ten 5'J6 per cent a" valore whenever necessaryD Liitations ipose" regar"ing the #le$ible tari## clause a. ,on"uct by the Tari## ,oission o# an investigation in a public hearing. The ,oission shall also hear the views an" recoen"ations o# any governent o##ice+ agency or instruentality concerne". The ,oission shall subit their #in"ings an" recoen"ations to the N):A within thirty 536 "ays a#ter the t erination o# the public hearings. The N):A therea#ter subits its recoen"ation to the Presi"ent. '. The power o# the Presi"ent to increase or "ecrease the rates o# iport "uty within the aboveentione" liits #i$e" in the ,o"e shall include the modi%ication in the %orm o% duty . In such a case the correspon"ing a" valore or speci#ic e>uivalents o# the "uty with respect to the iports #ro the principal copeting #oreign country #or the ost recent representative perio" shall be use" as bases (4ec. +6, 1CC).

THE TARIFF CO::ISSION

San Beda College of Law 1 MEMORY AID IN TAXATION LAW &unctions o# the Tari## ,oission '. Investigative Powers 5*ec. 77+ T,,6 a. the a"inistration o# an" the #iscal an" in"ustrial e##ects o# the tari## an" custos laws o# this country now in #orce or which ay herea#ter be enacte"2 b. the relations between the rates o# "uty on raw aterials an" the #inishe" or partly #inishe" pro"ucts2 c. the e##ects o# a" valore an" speci#ic "uties an" o# copoun" speci#ic an" a" valore "uties2 d. all >uestions relative to the arrangeent o# sche"ules an" classi#ication o# articles in the several sche"ules o# the tari## law2 e. the tari## relations between the Philippines an" %oreign countries+ coercial treaties+ pre#erential provisions+ econoic alliances+ the e##ect o# e$port bounties an" pre#erential transportation rates2 %. the volue o# iportations+ copare" with "oestic pro"uction an" consuption2 g. con"itions+ causes+ an" e##ects relating to copetition o# #oreign in"ustries with those o# the Philippines+ inclu"ing "uping an" cost o# pro"uction2 an" h. in general+ to investigate the operation o# custos an" tari## laws+ inclu"ing their relation to the national revenues+ their e##ect upon the in"ustries an" labor o# the country an" to subit reports o# its investigation as p rovi"e".

2. A$i,i)*&*i8 A))i)*,( *# *% P&)i$,* ,$ C#,>&))
TAX RE:EDIES UNDER THE TARIFF AND CUSTO:S CODE
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4. Sei2ure1 Sear!h1 Arrest (Sec. 2205, 2210, 2211 TC *3 +. 9UDICIAL '. *%i) &$' i) ,#&""' 8i"$ #f %, *% * "i, i) "#)* !' *% &") #f *% >##$) TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON : Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee *&illemo

San Beda College of Law 1 MEMORY AID IN TAXATION LAW • •

,ivil Action 5*ec. '(4+ T,,6 ,riinal Action

TAX ee"ies o# the ta$payer A. A:0INI*TATI) '. P&#*)* a. Any iporter or intereste" party i# "issatis#ie" with publishe" value within '7 "ays #ro "ate o# publication+ or within 7 "ays #ro the "ate the iporter is entitle" to re#un" i# payent is ren"ere" erroneous or illegal by events occurring a#ter the payent. +. Ta$payer  within '7 "ays #ro assessent. Payent un"er protest is necessary. (4ec. 5-6, 556 1CC) (. Rf,$ . A written clai #or re#un" ay be subitte" by the iporter in abateent cases on issing pac!ages+ "e#iciencies in the contents o# pac!ages or shortages be#ore arrival o# the goo"s in the Philippines+ articles lost or "estroye" a#ter such arrival+ "ea" or in%ure" anials+ an" #or ani#est clerical errors2 an" !. :rawbac! cases where the goo"s are re-e$porte" (4ec. 86'86 1CC). 3. S**",* #f ,' )i& !' /',* #f fi, #& &$/*i#, ;ut this shall not be allowe" in any case where iportation is absolutely prohibite"+ or the release woul" be contrary to law+ or when there is an actual an" intentional #rau" (4ec. 5-68 1CC). •

4. A//" Within '7 "ays to the ,oissioner a#ter noti#ication by ,ollector o# his "ecision (4ec. 5-- 1CC). •

+. 9UDICIAL 1. A//" Within 3 "ays #ro receipt o# "ecision o# the ,oissioner or *ecretary o# &inance to the "ivision o# the ,TA (4ec. 5+6- 1CC, 4ec. 8 RA 5/, as amended by 4ec. 0 RA 055) *ince *ec.'' o# A ''(7 as aen"e" by A K(( epowers the Ta$ ,ourt to issue in%unctions+ it woul" appear that an iporter ay appeal without #irst paying the "uties+ such as in sei"i*' #f )i& 3. A!,$#,,* (%ec. 11 CC) a. e$pressly (4ec. 6 1CC) b. iplie"ly  c. #ailure to #ile an iport entry within 3 "ays #ro the "ischarge o# goo"s or d. having #ile" an entry #ails to clai within '7 "ays but it shall not be so e##ective until so "eclare" by the collector. (4ec. 6, as amended by RA 89/) •

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Two !in"s o# procee"ings in the ;ureau o# ,ustos 5;O,6 A. ,ustos Protest ,ases

DEFINITIONB These are cases which "eal solely with liability #or custos "uties+ #ees+ an" other charges. Note ;e#ore #iling a protest+ there ust #irst be a payent un"er protest.



When custos protest applicable The custos protest is re>uire" to be #ile" only in case the liability o# the ta$payer #or "uties+ ta$es+ #ees an" other charges is "eterine" an" the ta$payer "isputes sai" liability. When ,ustos protest N1 re>uire" Where there is no "ispute+ but the clai #or re#un" arises by reason o# the happening o# supervening events such as when the raw aterial iporte" is utiliuently e$porte" an" a "uty "rawbac! is claie". e>uireents #or a!ing a protest '. 0ust be in writing (. 0ust point out the particular "ecision or ruling o# the ,ollector o# ,ustos to which e$ception is ta!en or ob%ection a"e2 3. 0ust state the groun"s relie" upon #or relie#2 4. 0ust be liite" to the sub%ect atter o# a single a"%ustent2 7. 0ust be #ile" when the aount claie" is pai" or within '7 "ays a#ter the payent2 8. Protestant ust #urnish saples o# goo"s un"er protest when re>uire". Proce"ure In ,ustos Protest ,ases The ,ollector acting within his %uris"iction shall cause the iporte" goo"s to be entere" at the custohouse

 The ,ollector shall assess+ li>ui"ate+ an" collect the "uties thereon+ or "etain the sai" goo"s i# the party liable "oes not pay the sae

 The party a"versely a##ecte" 5the protestant6 ay #ile a written protest on his #oregoing liability with the ,ollector within '7 "ays a#ter paying the li>ui"ate" aount 5the payent un"er protest rule applies6

 9earing within '7 "ays #ro receipt o# the "uly presente" protest. Bpon terination o# the hearing+ the ,ollector shall "eci"e on the sae within 3 "ays

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I# "ecision is a"verse to the protestant

I# "ecision is a"verse to the governent





Appeal with the ,oissioner within '7 "ays #ro notice

Autoatic eview by the ,oissioner



Autoatic review by the *ecretary o# &inance

Appeal with the ,ourt o# Ta$ Appeals :ivision within 3 "ays #ro notice







 Appeal with the ,TA en banc

 Appeal by certiorari with the *upree ,ourt within '7 "ays #ro notice

I# "ecision o# ,oissioner or *ecretary o# &inance is a"verse to the protestant+ he ay appeal to the ,TA an" *, un"er the sae proce"ure on the le#t.

easons #or the autoatic review o# "ecisions a"verse to the G overnent '. To protect the interest o# the Governent (. A #avorable "ecision will not be appeale" by the ta$payer an" certainly a ,ollector will not appeal his own "ecision. 3. Li#ebloo" Theory

+. SEIJURE AND FORFEITURE CASES DEFINITIONB These re#er to atters involving smuggling. It is a"inistrative an" civil in nature an" is directed against the res or iporte" articles an" entails a "eterination o# the legality o# their iportation. These are actions in rem. Thus+ It is o# no "e#ense that the owner o# the vessel sought to be #or#eite" ha" no actual !nowle"ge that his property was use" illegally. The absence or lac! o# actual !nowle"ge o# such use is a "e#ense personal to the owner hisel#+ which cannot in any way absolve the vessel #ro the liability o# #or#eiture. (Commissioner o% Customs vs. !anila 4tar 7erry, Inc., GR Nos. -889'8, ctober 5, 00-) *uggling '. An act o# any person who shallD a. &rau"ulently iport any article contrary to law+ or b. Assist in so "oing+ or c. eceive+ conceal+ buy+ sell+ #acilitate+ transport+ conceal or !nowing its illegal iportation (4ec. -96, 1CC) d. )$port contrary to law. (4ec. -/+, 1CC) (.

sell

such article

The Philippines is "ivi"e" into various ports o# entry  entry other than port o# entry+ will be *0BGGLING.

Port O# )ntry A "oestic port open to both #oreign an" coastwise tra"e inclu"ing Fairport o# entry. (4ec. -/+, 1CC) ALL articles iporte" into the Philippines whether sub%ect to "uty or not shall be entere" through a custoshouse at a port o# entry. )NT?D in ,ustos law eans'. the "ocuents #ile" at the ,ustos house (. the subission an" acceptance o# the "ocuents 3. the proce"ure o# passing goo"s through the custos house (RodrigueH vs. Court o% Appeals, GR No. /5, 4eptember , 00/)

CONTRA+ANDB Articles o# prohibite" iportations or e$portations. (4ec. -/+, 1CC)



)vi"ence #or conviction in suggling cases 0ere possession o# the article in >uestion - unless "e#en"ant coul" e$plain that his possession is law#ul to the satis#action o# the court (4ec. -96, 1CC). Payent o# the ta$ "ue a#ter apprehension is not a vali" "e#ense (RodrigueH vs. Court o% Appeals, GR No. /5, 4eptember , 00/) Things sub%ect to con#iscation in suggling cases Anything that was use" #or suggling is sub%ect to con#iscation+ li!e the vessel+ plane+ etc. (*lamado vs. Commissioner o% Customs, GR No. *'560, !ay 9, 0-).

E(/*i#,B ,oon carriers that are not privately chartere" cannot be con#iscate". ight o# custos o##icers to e##ect sei
2. O8& I/#&*$ A&*i(") a. There is a violation o# the tari## an" custos laws b. As a conse>uence they ay be pursue" in the Phil. c. With %uris"iction over the at any place therein #or the en#orceent o# the law. (5nd par. 4ec. 96-, 1CC)

egional trial courts 5T,6 vs. ;ureau o# custos 5;O,6



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The T,s "o not have %uris"iction over seiuestions touching on the sei
Goo"s in ,ustoEs ,usto"y ;eyon" each o# Attachent Goo"s in the custoEs custo"y pen"ing payent o# custos "uties are beyon" the reach o# attachent. As long as the iportation has not been terinate"+ the iporte" goo"s reain un"er the %uris"iction o# the ;ureau o# ,ustos. (2iduya vs. 3erdiago, GR No. *'505, ctober 50, 089) A"inistrative an" Cu"icial Proce"ures relative to ,ustos *ei
 Actual sei
 Listing o# "escription+ appraisal an" classi#ication o# sei
 eport o# sei
 Issuance by the ,ollector o# a warrant o# "etention

 Noti#ication to owner or iporter

 &oral hearing

 :istrict collector ren"ers his "ecisions

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

I# "ecision is not #avorable to the aggrieve" owner or iporter

I# "ecision is not #avorable to the governent



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Appeal by the aggrieve" owner or iporter

Autoatic eview by the ,oissioner

Persons having police authority to en#orce the Tari##  ,ustos Laws an" e##ect searches+ sei

San Beda College of Law 1 MEMORY AID IN TAXATION LAW '6 o##icials o# the ;O,+ "istrict collectors+ police o##icers+ agents+ inspectors+ an" guests o# the ;O,2 (6 o##icers o# the Phil. Navy an" other ebers o# the A&P an" national law en#orceent agencies when authoriuireents #or custos #or#eiture . The wrong#ul a!ing by the owner+ iporter+ e$porter or consignee o# any "eclaration or a##i"avit+ or the wrong#ul a!ing or "elivery by the sae persons o# any invoice+ letter or paper - all touching on the iportation or e$portation o# e rchan"ise.2 an" 5. That such "eclaration+ a##i"avit+ invoice+ letter or paper is #alse. (7arolan,
Note? ;ur"en o# proo# in seiuireents #or ani#est A ani#est in coastwise tra"e #or cargo an" passengers transporte" #ro one place or port in the Philippines to another is re>uire" when one or both o# such places is a port o# entry (4ec. 069, 1CC). 0ani#ests are also re>uire" o# vessel #ro a #oreign port (4ec. 66/, 1CC). Is ani#est re>uire" only #or iporte" goo"s@ NO. Articles sub%ect to seiuire" #or articles #oun" on vessels or aircra#t engage" in coastwise tra"e. (Rigor vs. Rosales, GR No. *'--8/9, ctober 5-, 05)

UN:ANIFESTED CAR;O IS SU+9ECT TO FORFEITURE whether the act o# suggling is establishe" or not un"er the principle o% res ipsa loBuitur . It is enough that the cargo was unani#este" an" that there was no showing that payent o# "uties thereon ha" been a"e #or it to be sub%ect to #or#eiture. *ettleent o# &or#eiture ,ases ;,&" R"B *ettleent o# cases by payent o# #ine or re"eption o# #or#eite" property is alloed. )$ceptionsD '. the iportation is absolutely prohibite" or (. the surren"er o# the property to the person o##ering to re"ee woul" be contrary to law+ or 3. when there is #rau". (4ec. 5-68, 1CC)

Ac>uittal in ,riinal ,harge NOT es Cu"icata in *ei

San Beda College of Law 1 MEMORY AID IN TAXATION LAW R)#,)B '6 ,riinal procee"ings are actions in personam while sei
Note? At any tie prior to the sale+ the "elin>uent iporter ' )**" %i) #!"i>*i#,) with the ;ureau o# ,ustos+ in which case the a#oresai" articles ay be "elivere" upon payent o# the correspon"ing "uties an" ta$es an" copliance with all other legal re>uireents (4ec. /6, 1CC) Abateent The re"uction or non-iposition o# custos "uties on certain iporte" aterials as a result o#D 1= :aage incurre" "uring voyage2 2= :e#iciency in contents pac!ages 3= Loss or "estruction o# articles a#ter arrival 4= :eath or in%ury o# anials &rau"ulent Practices consi"ere" as ,riinal O##enses against ,ustos evenue Laws 1) Bnlaw#ul iportation2 2) )ntry o# iporte" or e$porte" article by eans o# any #alse or #rau"ulent practices+ invoice+ "eclaration+ a##i"avit+ or other "ocuents2 3) )ntry o# goo"s at less than their true weights or easures or upon a classi#ication as to >uality or value2 4) Payent o# less than the aount "ue2 5) &iling any #alse or #rau"ulent clai #or the payent o# "rawbac! or re#un" o# "uties upon the e$portation o# erchan"ise2 or $) &iling any a##i"avit+ certi#icate or other "ocuent to secure to hisel# or others the payent o# any "rawbac!+ allowance or re#un" o# "uties on the e$portation o# "se. greater than that legally "ue thereon. (4ec. -965, 1CC)

VI. COURT OF TAX APPEALS
*ee ANNEX O #or coparison o# ,TA as create" by A No. ''(7 an" the aen"ents a"e by A No. K((.

NATURE AND POWERS )levation o# an! shall be o# the sae level as the ,ourt o# Appeals+ possessing all the inherent powers o# a ,ourt o# Custice ,oposition ,onsists o# a Presi"ing Custice an" #ive 576 Associate Custices 0ay sit en banc or in two 5(6 :ivisions+ each :ivision consisting o# three 536 Custices. The Presi"ing Custice an" the ost *enior Associate Custice shall serve as chairen o# the two "ivisions • •


San Beda College of Law 1 MEMORY AID IN TAXATION LAW QUORU: &our 546 Custices shall constitute a >uoru #or sessions N 3ANC. Two 5(6 Custices #or sessions o# a "I2I4IN . PR2I"" in case the reBuired Buorum cannot be had due to any vacancy, disBuali%ication, inhibition, disability, or any other la%ul cause, the Presiding
Powers '. (. 3. 4. 7. 8. H.

to a"inister oaths2 to receive evi"ence2 to suon witnesses by subpoena2 to re>uire pro"uction or papers or "ocuents by subpoena duces tecum2 to punish contept2 to proulgate rules an" regulations #or the con"uct o# its business2 to assess "aage against appellant i# appeal to ,TA is #oun" to be #rivolous or "ilatory2 . to suspen" the collection o# the ta$ pen"ing appeal2 an" K. to ren"er "ecisions on cases brought be#ore it '. to issue or"er authori
:istraint o# Personal Property an" Levy o# eal Property Bpon the issuance o# any ruling+ or"er or "ecision by the ,TA #avorable to the national governent+ the ,TA shall issue an or"er authoriuantity to satis#y the ta$ or charge together with any increent thereto inci"ent to "el in>uency. This ree"y shall not be e$clusive an" shall not preclu"e the ,ourt #ro availing o# other eans un"er the ules o# ,ourt.

9URISDICTION I. EXCLUSIVE APPELLATE 9URISDICTION TO REVIEW + APPEAL <= :ecisions o# the Commissioner of *nterna& Revenue '. in cases involving "ispute" assessents+ re#un"s o# internal revenue ta$es+ #ees or other charges+ penalties in relation thereto+ (. or other atters arising un"er the NI, or other laws a"inistere" by the ;I2
San Beda College of Law 1 MEMORY AID IN TAXATION LAW <= :ecisions o# the Centra& Board of Assessment Appea&s  in the e$ercise o# its appellate %uris"iction over cases involving the assessent an" ta$ation o# real property originally "eci"e" by the provincial or city boar" o# assessent appeals2 = :ecisions o# the %ecretar! of rade and *ndustr! in the case o# nonagricultural pro"uct+ coo"ity or article+ an" the 4ecretary o% Agriculture in the case o# agricultural pro"uct+ coo"ity or article+  involving "uping an" countervailing "uties un"er *ecs. 3'an" 3(+ respectively+ o# the Tari## an" ,ustos ,o"e+ an" sa#eguar" easures un"er A No+ + where either party ay appeal the "ecision to ipose or not to ipose sai" "uties. II. 9URISDICTION OVER CASES INVOLVIN; CRI:INAL CASES

(a) Exc&usive ori"ina& urisdiction over all criinal cases arising #ro violations o# the NI, or Tari## an" ,ustos ,o"e an" other laws a"inistere" by the ;I or the ;ureau o# ,ustos Provided hoever,  here the principal aount o# ta$es an" #ees+ e$clusive o# charges an" penalties claie" is less than one illion pesos 5P'+ + . 6 or where there is no speci#ie" aount claie" - the o##enses or penalties shall be trie" by the regular courts an" the %uris"iction o# the ,TA shall be appellate. Any provision o# law or the ules o# ,ourt to the contrary notwithstan"ing+ the criinal action an" the correspon"ing civil action #or the recovery o# civil liability #or ta$es an" penalties shall at all ties be siultaneously institute" with+ an" %ointly "eterine" in the sae procee"ing by the ,TA+ the #iling o# the criinal action being "eee" to necessarily carry with it the #iling o# the civil action+ an" no right to reserve the #iling o# such civil action separately #ro the criinal action will be recogni
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(+) Exc&usive appe&&ate urisdiction in criinal o##enses Over appeals #ro the %u"gents+ resolutions or or"ers o# the T, in ta$ cases originally "eci"e" by the+ in their respective territorial %uris"iction. Over petitions #or review o# the %u"gents+ resolutions+ or or"ers o# the T, in the e$ercise o# their appellate %uris"iction over ta$ cases originally "eci"e" by the 0etropolitan Trial ,ourts+ 0unicipal Trial ,ourts+ an" 0unicipal ,ircuit Trial ,ourts in their respective %uris"iction. •

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III. 9URISDICTION OVER TAX COLLECTION CASES (a) Exc&usive ori"ina& urisdiction in ta$ collection cases involving #inal an" e$ecutory assessents #or ta$es+ #ees+ charges an" penalties. In collection cases where the principal aount o# ta$es an" #ees+ e$clusive o# charges an" penalties+ claie" is less than one illion pesos 5P '+ + . 6  shall be trie" by the proper !unicipal 1rial Court+ !etropolitan 1rial Court+ an" Regional 1rial Court. •

(+) Exc&usive appe&&ate urisdiction in ta$ collection cases Over appeals #ro the %u"gents+ resolutions or or"ers o# T, in ta$ collection cases originally "eci"e" by the+ in their respective territorial %uris"iction. Over petitions #or review o# the %u"geents+ resolutions or or"ers o# the T, in the e$ercise o# their appellate %uris"iction over ta$ collection cases originally •

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San Beda College of Law 1 MEMORY AID IN TAXATION LAW "eci"e" by the 0etropolitan Trial ,ourts+ 0unicipal Trial ,ourts an" 0unicipal ,ircuit Trial ,ourts+ in their respective %uris"iction. 

In criinal an" collection cases+ the Governent ay "irectly #ile the sai" cases with the ,TA covering aounts within its e$clusive an" original %uris"iction.

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*ee ANNEX P  ,oparative :iagras on ,TA %uris"iction.

FOther 0atters Those controversies which can be consi"ere" within the scope o# the #unction o# the ;I 1 ;O, un"er e%us"e generis rule 5e.g. action #or the nullity o# "istraint an" levy2 >uestioning the propriety o# the assessent2 collection o# coproise penalties6.

APPEAL When Within 3 "ays a#ter the receipt o# such "ecision or ruling or a#ter the e$piration o# the perio" #i$e" by law #or action. 0o"es o# Appeal 5'6 ;y #iling a petition #or review un"er a proce"ure analogous to that provi"e" #or un"er ule 4( o# 'KKH ules on ,ivil Proce"ure "ecision+ ruling+ or inaction o# the Commissioner o% Internal Revenue+ Commissioner o% Customs+ the 4ecretary o% 7inance+ the 4ecretary o% 1rade and Industry or the 4ecretary o% Agriculture or the Regional 1rial Courts this appeal shall be hear" by a :ivision o# the ,TA 5(6 ;y #iling a petition #or review un"er a proce"ure analogous to that provi"e" #or un"er ule 43 o# 'KKH ules on ,ivil Proce"ure "ecisions or rulings o# the Central 3oard o% Assessments Appeals an" the Regional 1rial Courts in the e$ercise o# its a ppellate %uris"iction this appeal shall be hear" by the ,TA en banc. •

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Proce"ure A. Any party a"versely a##ecte" by a ruling+ or"er or "ecision o# a :ivision o# the ,TA ay #ile a otion #or reconsi"eration or new trial be#ore the sae :ivision within '7 "ays #ro notice

;. Any party a"versely a##ecte" by a resolution o# a :ivision o# the ,TA on a otion #or reconsi"eration or new trial ay #ile a petition #or review with the ,TA en banc. ,. Any party a"versely a##ecte" by a "ecision or ruling o# the ,TA en banc ay #ile with the *upree ,ourt a veri#ie" petition #or review on certiorari pursuant to ule 47 o# the 'KKH ules on ,ivil Proce"ure. Thirty 536 "ay Prescriptive Perio" #or Appeal *tarts to run #ro the date the ta:payer receives the appealable decision . I# the ta$payerEs re>uest #or reconsi"eration 5i.e.+ the protest is "enie" or the original assessent is aintaine"+ the appealable "ecision is the "ecision "enying the re>uest #or reconsi"eration.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW The sai" perio" is &urisdictional and non'e:tendible. e>uests or otions #or reconsi"eration+ however+ operate to suspen" the running o# the perio" to appeal. A pro #ora re>uest #or reconsi"eration or one which is "irecte" to the *ecretary o# &inance "oes not suspen" the running o# the 3-"ay regleentary perio". Only A &inal :ecision Is Appealable To The ,ourt O# Ta$ Appeals Preliinary collection letters+ post reporting notices an" pre-assessent notices are not appealable+ because they are not the #inal "ecision o# the ,oissioner. An assessent can be appeale" i# ta$payer "oes not see! a reconsi"eration. At ties there is an e$change o# counications between ta$payer an" ,oissioner states that his action is #inal+ then+ perio" #or appeal begins to run. ,oissioner ust state that his "ecision is #inal+ #or p erio" o# appeal to run. &inal "ecision cannot be iplie" #ro issuance o# warrant o# "istraint an" levy+ unless it is issue" a#ter a re>uest #or reconsi"eration. ;ENERAL RULEB New issues cannot be raise" #or the #irst tie on appeal. )X,)PTION*D a. :e#ense o# prescription easonD This is a statutory right. (2isayan *and 1ransportation vs. Collector) b. )rrors o# a"inistrative o##icials easonD *tate can never be in estoppel an" li#ebloo" theory. (Commissioner vs. Procter and Gamble Phils. !%g. Corp, GR No. 99-, April /, 0) N1 9owever+ this was reverse" in *upree ,ourtEs subse>uent resolution wherein it was hel" that Fin the absence o# e$plicit statutory provisions to the contrary+ the Governent ust #ollow the sae rules o# proce"ure which bin" private parties. (Commissioner vs. Procter and Gamble, GR No. 99-, "ecember 5, 00, Resolution) Ta$ collection Not *uspen"e" "uring Appeal

;,&" R"B No appeal ta!en to the ,TA shall suspen" the payent+ levy or "istraint+ an"1or sale o# any property o# the ta$payer. E(/*i#,B The ,TA is epowere" to suspen" the collection o# internal revenue ta$es an" custo "uties only when there was a  c6 showing that collection o# the ta$ ay %eopar"iuire"2 an" e6 showing by ta$payer that appeal is not #rivolous nor "ilatory. ,an The ,TA )n%oin ,ollection o# Ta$es@ •

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*ec. '' o# A No. ''(7 as aen"e" by *ec. K o# A No. K(( grants ,TA power to suspen" collection o# ta$ i# such collection wor!s to serious pre%u"ice o# either ta$payer or governent. 9owever+ *ec. (' o# the Ta$ ,o"e provi"es no court ay grant in%unction to restrain collection o# any ta$+ #ee or charge ipose" by Ta$ ,o"e. The provision in Ta$ ,o"e re#ers to courts other than the ,TA. (3laBuera vs. RodrigueH, GR No. *'50/, !arch 50, 0/) Appeal to the ,TA "oes not autoatically suspen" collection unless ,TA issues suspension or"er at any stage o# procee"ings.


San Beda College of Law 1 MEMORY AID IN TAXATION LAW *iultaneous #iling o# an application #or re#un" or cre"it an" institution o# a case be#ore the ,TA allowe" The law #i$es the sae perio" o# two 5(6 years #or #iling a clai #or re#un" with the ,oissioner an" #or #iling a case with the ,TA. The two-year perio" #or both starts #ro the "ate a#ter the payent o# the ta$ or penalty+ or #ro the approval o# the application #or cre"it.

+servation? I# we are not going to allow the ta$payer to #ile a re#un" be#ore the ,TA an" let hi wait #or the ,IEs "ecision+ an" the latter #aile" to ren"er a "ecision within the (-year perio"+ the sai" ta$payer can no longer #ile a re#un" be#ore the ,TA because his right to appeal has prescribe". Weight o# :ecision o# ,TA •

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:ecisions o# Ta$ ,ourt have persuasive e##ect an" ay serve as %u"icial gui"es. They have ore persuasive value than ;I ulings. ,TAEs #in"ings o# #act are entitle" to the highest respect. (Raymundo vs. de
VII.VALUE–ADDED TAX
HISTORB a. )$ecutive Or"er No. (H3 b. epublic Act No. HH'8 c. epublic Act No. (4' ". epublic Act No. 4(4 5too! e##ect on ' Canuary 'KK6 TRANSACTIONS COVERED + VATB 1. *ale o# ,oo"ities or Goo"s 5in the course o# tra"e or business only6 2. *ale o# *ervices 5in the course o# tra"e or business only6 3. )$portation 5in the course o# tra"e or business only6 4. Iportation 5 6#et#er or not in the course o# tra"e or business6 PERSONS LIA+LE FOR VAT Any person who+ in the course o# tra"e or business+ sells barters+ e$changes+ leases goo"s or properties+ ren"ers services+ an" any person who iports goo"s shall be sub%ect to the value-a""e" ta$ 5AT6 ipose" in *ections '8 to ' o# the National Internal evenue ,o"e.

*N 9E C>R%E : RA/E R B>%*NE%%F


San Beda College of Law 1 MEMORY AID IN TAXATION LAW The regular con"uct or pursuit o# a coercial or an econoic activity+ inclu"ing transactions inci"ental thereto+ by any person regar"less o# whether or not the person engage" therein is a non-stoc!+ nonpro#it private organi
I/#&**i#, i) )!(* *# VAT &>&$")) #f %*%& #& ,#* i* i) i, *% (#&) #f *&$ #& !)i,)) The reason #or the rule is to protect our local or "oestic goo"s or articles an" to regulate the entry or intro"uction o# #oreign articles to our local ar!et. egulation is one o# the purposes o# Ta$ation.

T R*)B '. 'J - the rate use" in sale o# coo"ities an" goo"s+ sale o# services+ an" iportation. (. ero-rate" 5J6 - the rate use" in e$portation.

:ANNER OF CO:PUTIN; THE VATB A. 1G rate of ax '. In sale o# coo"ities an" goo"s+ 'J is ultiplie" with the Gross *elling Price. (. In sale o# services+ 'J is ultiplie" with the Gross eceipts. 3. In iportation+ 'J is ultiplie" with the rates use" by the ;ureau o# ,ustos in iposing tari## an" custos "uties plus custos "uties+ e$cise ta$es+ i# any+ an" other charges+ such ta$ to be pai" by the iporter prior to the release o# such goo"s #ro custos custo"yD Provi"e"+ That where the custos "uties are "eterine" on the basis o# the >uantity or volue o# the goo"s+ the value-a""e" ta$ shall be base" on the lan"e" cost plus e$cise ta$es+ I# any. custos "uties.

B. =ero-rated (G) rate of tax '. )$port *ales as provi"e" in *ection '85A65(65a6 (. &oreign ,urrency :enoinate" *ale as provi"e" in *ection '8 5A65(65b6 3. *ale to persons or entities which is AT e$ept un"er special laws or international agreeents to which the Philippines is a signatory as provi"e" in *ection '8 5A65(65c6 4. Transactions sub%ect to
RE;ISTRATION UNDER THE VAT SSTE:

enera& Ru&e? &ailure to register is sub%ect to teporary closure o# the establishent #or 7 "ays as provi"e" in *ection ''75b6. E(/*i#,B It "oes not apply to an e$porter who #ails to register. The e##ect is+ instea" o# treating the transaction as

San Beda College of Law 1 MEMORY AID IN TAXATION LAW EXE:PT TRANSACTIONS
uire". •

3.

Transactions in the #iel" o# Arts are AT-e$ept only+ as provi"e" in *ection 'K5n6+ i# the seller is the artist hisel# or the artistEs services per#ore" #or the pro"uction o# such wor!s.

4.

*ection 'K5p6 a!es egional or Area 9ea">uarters e$ept #ro AT.

7. Bn"er *ection 'K5w6 in or"er #or the sale or lease o# real property to be e$epte" #ro AT+ the transaction ust NOT be con"ucte" in the or"inary course o# tra"e or business. It copleents *ection '85A65'65a6 where it states that in or"er #or the sale or lease o# real property to be covere" by AT+ it ust be a"e in the or"inary course o# tra"e or business. 8.

evenue egulations No. 8-KH a""s a re>uireent in or"er #or the lease o# resi"ential units with a onthly rental o# not ore than P+.+ as provi"e" in *ection 'K5$6+ to be AT e$ept+ that the annual gross receipts ust not e$cee" P77+..

H. *ection 'K5<6 provi"es that the sale or lease o# goo"s or per#orances o# services other than those entione" in the prece"ing paragraphs are AT e$ept i# the Gross Annual eceipts "o not e$cee" P77+.. 9owever+ the liitation o# P77+. "oes apply #or those transactions #ro *ection 'K5a6 to 5y6+ e$cept 5$6 because evenue egulations No. 8-KH iposes a P77+. liitation. •

In cases o# ta$-#ree iportation o# goo"s into the Philippines by persons+ entities or agencies e$ept #ro ta$ where such goo"s are subse>uently sol"+ trans#erre" or e$change" in the Philippines to non-e$ept persons or entities+ the purchasers+ trans#erees or recipients shall be consi"ere" the iporters thereo#+ who shall be liable #or any internal revenue ta$ on such iportation. The ta$ "ue on such iportation shall constitute a lien on the goo"s superior to all charges or liens on the goo"s+ irrespective o# the possessor thereo#.

TRANSACTIONS DEE:ED SALEB The #ollowing transactions shall be "eee" sale there#ore a!ing the covere" by ATD

<1= Trans#er+ use or consuption not in the course o# business o# goo"s or properties originally inten"e" #or sale or #or use in the course o# business2 <26 :istribution or trans#er toD <= *harehol"ers or investors as share in the pro#its o# the AT-registere" persons2 or

San Beda College of Law 1 MEMORY AID IN TAXATION LAW <4= etireent #ro or cessation o# business+ with respect to inventories o# ta$able goo"s e$isting as o# such retireent or cessation.

9o6 to determine t#e 'A? The ta$ shall be copute" by ultiplying the total aount in"icate" in the invoice by one-eleventh 5'1''6. E/"B the total aount in"icate" in the invoice is P''. P''1''  P'. P' is the aount o# AT. TAX CREDIT AND REFUND

:ormu&a for ax Credit? Output LessD Input AT "ue. •

I# Input is greater than Output+ Ta$ ,re"it is available.

H*NP> AIH eans the value-a""e" ta$ "ue #ro or pai" by a AT-registere" person in the course o# his tra"e or business on iportation o# goo"s or local purchase o# goo"s or services+ inclu"ing lease or use o# property+ #ro a AT-registere" person. It shall also inclu"e the transitional input ta$ "eterine" in accor"ance with *ection ''' o# the NI,. H>P> AIH eans the value-a""e" ta$ "ue on the sale or lease o# ta$able goo"s or properties or services by any person registere" or re>uire" to register un"er *ection (38 o# the NI,. •

I# at the en" o# any ta$able >uarter the output ta$ e$cee"s the input ta$+ the e$cess shall be pai" by the AT-registere" person. I# the input ta$ e$cee"s the output ta$+ the e$cess shall be carrie" over to the succee"ing >uarter or >uarters. Any input ta$ attributable to the purchase o# capital goo"s or to
P*N% : A AIPAuarter when the sales were a"e #orD a6 the issuance o# a ta$ cre"it certi#icate2 b6 re#un" o# cre"itable input ta$ "ue or pai" attributable to such sales.

HOW TO DETER:INE CREDITA+LE INPUT TAX The su o# the e$cess input ta$ carrie" over #ro the prece"ing onth or >uarter an" the input ta$ cre"itable to a AT-registere" person "uring the ta$able onth or >uarter shall be re"uce"

re"uce" by the aount o# clai #or re#un" or ta$ cre"it #or value-a""e" ta$ an" other a"%ustents+ such as purchase returns or allowances an" input ta$ attributable to e$ept sale.


132047518 Taxation Reviewer SAN BEDA

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