TAXATION

SUMMARY OF CODAL PROVISIONS

NATIONAL INTERNAL REVENUE CODE
Organization and Function of the BIR
Power and Duties of the BIR (Sec 2)
1. Under the supervision and control of the Department of Finance
2. Powers and duties are the ff:
a. Comprehend the assessment and collection of all national internal revenue taxes, fees and
charges
b. Enforcement of all forfeitures, penalties and fines, including the execution of judgments in all
cases decided by the Court of Tax Appeals and the ordinary courts
c. Give effect to and administer the supervisory and police powers conferred upon it

Chief Officials of the BIR (Sec 3)

1. Commissioner of the Internal Revenue
2. Deputy Commissioners (4)

Power of the Commissioner

1. Interpret laws and decide tax cases (Sec 4)
a. To interpret the provisions of this Code exclusive and original jurisdiction of the
Commissioner subject to review by the Secretary of Finance
b. To decide disputed assessments, refunds of internal revenue taxes, fees or others charges,
penalties imposed and other matters, subject to exclusive appellate jurisdiction of the
Court of Appeals
2. Obtain information and to summon, examine and take testimony of persons (Sec 5)
a. Purpose :
Acertain correctness of any return
Making return when none has been made
Determine the liability of any person for any internal revenue tax
Collect any such liability
Evaluate tax compliance
b. Commissioner is authorized to:
Examine any book, paper, record, other relevant or material data
Obtain informationon a regular basis from :
From whom :
o any person
o any office or officer of the national and local government, government agencies
and instrumentalities, including the BangkoSentral and government-owned and
controlled corporations, any information
What any information such as, but not limited to:
o Cost and volume of production
o Receipts or sales and gross income of taxpayers
o Names, addresses and financial statements of :
corporations,
mutual fund companies,
insurance companies,

regional operating headquarters of multinational companies,

joint accounts,
associations,
joint ventures of consortia and

registered partnerships and their members

 Summon the person liable for tax or required to file a return, or any officer or employee,
or any person having possession, custody or care of the books of accounts and other
accounting records or any other person, to appear before the Commissioner or his
representative at a time an place specified in the summons and to produce such books,
papers, records or other data or to give testimony
Take testimony of the person of the person concerned, under oath, as may be relevant
or material to such inquiry
Cause revenue officers and employeestomake a canvassand inquire concerning all
persons who may be liable to pay any internal revenue tax and all persons owning or
having care, management or possession of any object with respect to which a tax is
imposed.
***Note : The foregoing shall not be construed as granting the Commissioner the
authority to inquire into bank deposits other than provided in Sec 6(F) of
NIRC, to wit:
A decedent to determine his gross estate; and
Any taxpayer who has filed an application for compromise of his tax
liability under Sec 204(A)(2) of this Code by reason of financial
incapacity to pay his tax liability
3. Make assessments and prescribe additional requirements for tax administration and
enforcement (Sec 6)
a. Examination of Returns and Determination of Tax Due - After return has been filed, may
authorize the examination of any taxpayer and the assessment of the correct amount of tax,
subject to the following conditions:
Failure to return shall not prevent Commissioner from authorizing such examination
Any return filed shall not be withdrawn
However, a return may be amended within 3 years from the date of such filing provided
that no notice for audit or investigation has been actually served
b. Failure to Submit Required Returns, Statements, Reports and other Documents
Commissioner shall :
Assess the proper tax on the best evidence obtainable where:
A report shall not be forthcoming within the time fixed by laws/rules/regulations
There is reason to believe that such report is false, incomplete or erroneous
Make or amend the return from his knowledge from his own knowledge and
information obtained through testimony or otherwise, which shall be prima facie and
sufficient, where a person:
Fails to file a required return or other document prescribed by law
Files a false or fraudulent return or other document
c. Conduct Inventory-Taking, Surveillance and Prescribe Presumptive Gross Sales and
Receipts
At any time during the taxable year, as a basis for determining tax liabilities and where
there is reason to believe that a person is not declaring his correct income :
Order inventory taking of goods
Place the business operations under observation or surveillance
***Findings ma be used as basis for other months or quarters of the same or different
taxable years; such assessment shall be deemed prima facie correct.
After taking into account sales/receipt/income of similar businesses under similar
situations or circumstances, Commissioner may prescribe a minimum amount of
gross receipts/sales and taxable base considered as prima facie correct for
computing tax liabilities where :
A person has failed to issue receipts and invoices in violation of Sec 113 and 237

d.

e.

f.

g.

h.

There is reason to believe that the books of accounts or other records do not
correctly reflect the declarations made
Terminate Taxable Period Commissioner shall declare the tax period terminated at any
time and send notice to taxpayer together with the immediate payment of tax due subject to
penalties when it shall come to his knowledge that a taxpayer is:
Retiring from business subject to tax
Intending to leave the Philippines, to remove his property therefrom
Performing any act tending to obstruct the proceedings for collection of tax
Prescribe Real Property Taxes
Divide into different zones or areas and shall determine the fair market value of real
properties in each zone or area
For computation of internal revenue taxes, the value of the property shall be whichever is
higher of:
FMV as determined by the Commissioner; OR
FMV as shown in the schedule of values of the provincial and city assessors
Inquire into Bank Deposit Accounts - Commissioner, notwithstanding RA 1405,
Commissioner is authorized to inquire into bank deposits of:
Decedent to determine his gross estate
Taxpayer who filed for compromise under Sec 204(A)(2) by reason of financial incapacity;
his application to such will not be considered unless he waivesin writing his privilege
under RA 1405
Accredit and Register Tax Agents - the Commissioner shall:
Accredit and register individuals and general professional partnerships and their
representatives who prepare and file tax returns, statements, reports, protests and other
papers
Those who are denied by the Commissioner and/or the national or regional
accreditation boards may appeal such denial to the Secretary of Finance who shall
rule within 60 days from receipt of appeal;
Failure to rule within such period shall be deemed as approval of the application
Create national and regional accreditation boards, the members of which shall serve
for 3 years
Prescribe Additional Procedural or Documentary Requirements in connection with the
submission or preparation of financial statements accompanying tax retursn

4. Authority to delegate power (Sec 7) Commissioner may :

a. Delegate to any subordinate with a rank equivalent to a division chief or higher, subject to
limitations promulgated by the Secretary of Finance
b. Not delegate the following powers:
Recommend the promulgation of rules and regulations by the Secretary of Finance
Issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau
Compromise or abate, under Sec 204 (A) and (B), any tax liability, however basic
deficiency of P500,000 or less and minor criminal violations may be compromised by a
regional evaluation board composed of the :
o Regional Director - Chairman,
o Assistant Regional Director - member
o Heads of Legal, Assessment and Collection Divisions - member
o the Revenue District Officer having jurisdiction over the taxpayer - member
Assign or reassign internal revenue officers to establish where articles subject to excise
tax are produced or kept

5. Ensure the provision and distribution of forms, receipts, certificates and appliances and
the acknowledgement of payment of taxes (Sec 8)
a. Prescribe, provide and distribute to the proper officials the requisite licenses internal revenue
stamps, labels, all other forms, certificates, bonds records, invoices, books, receipts,
instruments, appliances and apparatus used in administering the laws
Internal revenue stamps and strip stamps and labels shall be printed with adequate
security features
Internal revenue stamps, by bar code or fusion design, shall be firmly and
conspicuously affixed on each pack of cigars adn cigarettes subject to excise tax
b. Acknowledge the payment of tax expressing the amount paid and particular account for which
payment was made (can also be done by his duly authorized representative or an authorized
agent)

Internal Revenue Districts (Sec 9) Commissioner, with approval of the Secretary of Finance, shall
divide the Phils into such number of revenue districts as may be required for administrative purposes;
each of the district shall be under the supervision of a Revenue District Officer

Revenue Regional Director (Sec 10) shall:

1. Implement laws, policies, plans, programs, rules and regulations of the department or agencies in
the regional area
2. Administer and enforce internal revenue laws and rules and regulations, including the
assessment and collection of all internal revenue taxes, charges and fees
3. Issue Letters of Authority for the examination of taxpayers within the region
4. Provide economical, efficient and effective service
5. Coordinate with regional offices or other departments, bureaus and offices in the area
6. Coordinate with local government units in the area
7. Exercise control and supervision over the officers and employees within the region
8. Perform such other function as may be provided by law and as may be delegated by the
Commissioner
Revenue District Officer and other Internal Revenue Officers
1. To ensure that all internal revenue laws, rules and regulations are faithfully executed and
complied with (Sec 11)
2. To aid in the prevention, detection and punishment of frauds or delinquencies (Sec 11)
Revenue District Officers
1. To examine the efficiency of all officers and employees of the BIR under his supervision (Sec 11)
2. To report in writing to the Commissioner, through the Regional Director, any neglect of duty,
incompetency, delinquency or malfeasance in office of any internal revenue officer (Sec 11
Agents and Deputies for Collection (Sec 12) :
1. Commissioner of Customs and his subordinates for the collection of national internal revenue
taxes on imported goods
2. Head of the appropriate government office and his subordinates for the collection of energy tax
3. Banks duly accredited by the Commissioner for internal revenue taxes authorized to be made
thru the bank
***Any authorized officer, employee or agent bank shall be subject to the same sanctions and
penalties prescribed in Sec 269 and Sec 270

Authority of Revenue Officers

1. Pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers
within the jurisdiction of the district(Sec 13)

2. Recommend the assessment of any deficiency tax due in the same manner as such acts have
been performed by the Revenue Regional Director himself(Sec 13)
3. The following shall have the power to administer oaths and to take testimony in any official matter
or investigation conducted by them(Sec 14) :
a. Commissioner
b. Deputy Commissioner
c. Service Chiefs
d. Assistant Service Chiefs
e. Revenue Regional Directors
f. Assistant Revenue Regional Directors
g. Chiefs and Assistant Chiefs of Divisions
h. Revenue District Officers
i. Special deputies of the Commissioner
j. Internal Revenue Officers
k. Any other employee especially deputized by the Commissioner
4. The following shall have authority to make arrests and seizures for the violation of any penal
law, rule or regulation administered by the BIR (person arrested shall be brought before a court to
be dealt with according to the law) (Sec 15)
a. Commissioner
b. Deputy Commissioners
c. Revenue Regional Directors
d. Revenue District Officers
e. Other Internal Revenue Officers

Internal Revenue Officers

1. Assignment
a. Excise tax functions (Sec 16); assigned to establishments or places where articles subject
to excise tax are produced or kept not more than 2 years
b. Other or special duties connected with enforcement and administration of the revenue laws
without change in their official rank and salary (Sec 17)
For assessment and collection function not more than 3 years
Special duties not more than 1 year
2. Shall immediately report any facts of violation of this Code or any law, rules or regulations of
the BIR that warrant institution of criminal proceedings to the Commissioner through his
immediate supervisor giving the name of the offender and the witnesses; in urgent cases,
Regional Direcotr or Revenue District Officer may send the report to the corresponding
prosecuting officer, with a copy of the report sent to the Commissioner(Sec 18)
Reports by the Commissioner
1. Annual Report (Sec 19)
Shall contain detailed statements of the collections of the Bureau with
sources of revenue by :
o type of tax,
o manner of payment,
o revenue region
o industry group
disbursements by classes of expenditures
If collection exceeds or falls short of target in annual budget by 15% or more, he shall explain
the reason for such excess or shortfall
2. To Congress (Sec20)
Furnish the appropriate Committee :
Upon request of Congress
In aid of legislation

 Pertinent information including but not limited to:

Industry audits
Collection performance data
Status reports in criminal actions against persons and taxpayers returns
However, any return or information associated with directly or indirectly with a particular
taxpayer shall be furnished in Executive Session unless taxpayer consents in writing to such
disclosure
Notwithstanding the provision of Section 270
3. To Oversight Committee (Sec 20)
Submit through the Chairmen of the Oversight Committee of Ways and Means of the Senate
and House of Representatives
A report on the exercise of his power pursuant to the said action every 6 months of each
calendar year
With reference to Section 204

National Internal Revenue Taxes (Sec 21)

1.
2.
3.
4.
5.
6.
7.

Income Tax
Estate and Donors Tax
Value-added Tax
Other Percentage Taxes
Excise Taxes
Documentary Stamp Taxes
Such other taxes as may be imposed and collected by the BIR

INCOME TAXATION
Income Tax on Individuals
Definition of Terms (Sec 22) refer to NIRC

General Principles of Income Taxation(Sec 23)

Taxpayer Type
Source of Taxable Income
Citizen of the Phils residing therein
All income derived from sources within and without the
Phils
Nonresident citizen

Income derived from sources within the Phils

Individual citizen of the Phils working

abroad as overseas contract
worker; includes a seaman who is a
citizen and who receives
compensation as member of the
complement of the vessel engaged in
international trade
Alien individual, whether resident or
not
Domestic Corporation

Income derived from sources within the Phils

Income derived from sources within the Phils

All income derived from sources within and without the
Phils

Foreign Corporation, whether

engaged or not in trade or business

Income derived from sources within the Phils.

Income Tax on Resident or Non-Resident Citizen / Resident Alien (Sec 24)

1. Application
a. Individual Citizen for all sources within and without the Phils
b. Individual Citizen residing outside of the Phils, including overseas contract worker for all
income within Phils
c. Resident Alien for all sources within the Phils
2. Married Individuals
a. Husband and wife, subject to Sec 51(D), shall compute separately income tax returns
b. If any income cannot be identified as exclusively earned by either, it shall be divided equally
between the spouses
3. Minimum Wage Earners
a. Definition (Sec 22 (HH)) a worker in the private sector or to an employee in the public
sector with compensation not more than the statutory minimum wage in the non-agricultural
sector where he/she is assigned
b. Shall be exempt from income tax for their taxable income, including:
Holiday pay,
Overtime pay,
Night shift differential pay and
Hazard pay
4. Type of Income and corresponding Tax Rates
NIRC Provision
Particulars
Taxable Income defined in Sec 31 except
income under Sec 24 (B), (C), (D)
Sec 31 taxable income means
Sec 24 (A)
gross income less deductions and/or
personal and additional exemptions
Sec 24(B)(1)
Passive Income:
Interest, Royalties,
Prizes and Other
Winnings

a. Interest from any currency bank

deposit from deposit substitutes and
from trust funds and similar
arrangements
b. Royalties, in general
c. Prizes
d. Other Winnings
Royalties on books, other literary works
and musical compositions
Prizes amounting to 10,000 or less
Winnings from Phil Charity Sweepstakes
and Lotto
Interest Income by individual taxpayer
(except non resident) from bank under
an expanded foreign currency deposit
system

Tax Rate
Refer to tax table Sec
24A(2) as amended by
RA 9504

Final tax rate of 20%

Final tax of 10%

Tax Table Sec 24(A)
exempt

Final tax of 7%

Interest income from long term deposit or

investment in the form of savings, trust
funds, deposit substitutes, investment
management accts & other investments
Cash/property dividend actually or
constructively received by an
individual from a :
o Domestic corporation
o Joint stock company
o Insurance or mutual fund co.
o Regional operating headquarters
Sec 24(B)(2)
of multinational companies
Passive
Share
of
individual in the distri-butable
Income:Cash or
net
income
after tax of a partnership
Property Dividends
of which he is a partner
**Except : General Prof Partnership
Share of an individual in the net income
after tax of an association, joint
account or joint venture or consortium
taxable as a corporation of which he is
a member or co-venturer
Net capital gains realized during the
taxable year from the sale, barter,
Sec 24(C) Capital
exchange or other disposition of shares of
Gains from Shares
stock in a domestic corp
of Stock not traded
Except:
in the Stock
a. Shares sold through stock exchange
Exchange
b. Sec 39(B) stock in trade included in
the inventory or in the ordinary course
of business
Capital gains from sale, exchange or
other disposition of real property located
in the Phils classified as capital assets,
Sec 24(D)
including pacto de retro and other forms
Capital Gains from
of conditional sales, by individuals,
Sale of Real
including estates or trusts
Property
Gains from sales or other dispositions of
real property to the govt or any political
subdivisions or agencies or to GOCCs
Gains from sale or disposition of
principal residence of natural persons,
subject to the following conditions:
Proceeds fully utilized in acquiring or
constructing new residence within 18
months from sale or disposition
The historical cost or adjusted basis
shall be carried over to the new
principal residence
Commissioner shall be notified within
30 days from date of sale or
disposition
Tax exemption can only be availed of
once every 10 years

5 yrs
4 to < 5 yrs
3 to < 4 yrs
< 3 yrs

- exempt
- 5%
- 12%
- 20%

Final tax:
6% - beg of Jan 1, 1998
8% - beg of Jan 1, 1999
10% - beg of Jan 1, 2000
Note :
Tax on dividends shall
apply on income earned
on or after Jan 1, 1998,
income forming part of
retained earnings as of
Dec 31, 1997 shall not be
subject to such tax, even
if declared or distributed
on or after Jan 1, 1998

100,000 - 5%
> 100,000 - 10%

Final tax of 6% on the

Gross Selling Price or
Current Fair Market
Value, whichever is higher
Rate under Sec 24(A) or
Sec 24(D), at the option
of the taxpayer
Exempt

If not fully utilized, capital gains tax

shall be based on the portion of gain
presumed to be realized , such
computed by multiplying GSP or FMV,
whichever is higher, multiplied by a
unutilized fraction
Income Tax on Non-Resident Alien (Sec 25)
1. Engaged in Trade or Business within the Philippines(Sec 25(A))
a. Definition one who come to the Philippines and stay therein for an aggregate period of
more than 180 days during any calendar year
b. Tax Rates
NIRC Provision

Sec 25(A)(1)

Sec 25(A)(2)

Particulars

In General

Cash/property dividend actually or

constructively received by an
individual from a :
o Domestic corporation
o Joint stock company
o Insurance or mutual fund co.
o Regional operating headquarters
of multinational companies
Share of individual in the distri-butable
net income after tax of a partnership
of which he is a partner
**Except : General Professional
Partnership
Share of an individual in the net income
after tax of an association, joint
account or joint venture or consortium
taxable as a corporation of which he is
a member or co-venturer
a. Interest from any currency bank
deposit from deposit substitutes and
from trust funds and similar
arrangements
b. Royalties, in general
c. Prizes
d. Other Winnings, except Phil Charity
Sweepstakes and Lotto
Interest income from long term deposit or
investment in the form of savings, trust
funds, deposit substitutes, investment
management accts & other investments
Royalties on books, other literary works,
musical compositions
Prizes amounting to 10,000 or less
Other winnings except Phil Charity
Sweepstakes and Lotto

Tax Rate
Same as individual citizen
and resident alien
On taxable income
received from all
sources within the
Phils

Final Tax of 20%

Final Tax of 20%

5 yrs
- exempt
4 to < 5 yrs 5%
3 to < 4 yrs - 12%
< 3 yrs
- 20%
Final Tax of 10%
Section 24(A)
Exempt

Capital gains from sale, barter or

exchange of shares of stock in domestic
Same as Sec 24(C)
corporations not traded through stock
Sec 25(A)(3)
exchange
Capital gains from sale, barter or
Same as Sec 24(D)
exchange of real property
2. Not Engaged in Trade or Business within the Philippines(Sec 25(B))
a. Coverage of Taxable Income all sources within the Philippines
b. Tax Rates
NIRC Provision

Sec 25(B)

Particulars
Interest
Cash/Property Dividends
Rents
Salaries
Wages
Premiums
Annuities
Compensation
Remuneration
Emoluments
Other fixed or determinable annual or
periodic or casual gains
Profits and income
Capital Gains

25% of gross income

Capital gains from sale of shares of stock

in domestic corporations

Same as Sec 24(C)

Capital gains from sale of real property

Same as Sec 24(D)

3. Special Aliens (Sec 25 (C), (D), (E))

NIRC Provision
Particulars
Employed by regional or area
headquarters and regional operating
headquarters established in the Phils
by multinational companies (salaries,
wages, annuities, compensation,
remuneration and other emoluments such
as honoraria and allowances)
Sec 25 (C)
***Multinational company foreign
entity engaged in international trade
with affiliates /subsidiaries / branch
office in the Asia-Pacific region and
other foreign markets
Sec 25 (D)

Tax Rate

Tax Rate
15% of gross income,
provided that the same
tax treatment shall apply
to Filipinos employed and
occupying
the
same
position as those aliens
employed
by
these
multinationals
(tax parity rule)

Employed by offshore banking units

established in the Phils (salaries,
wages, annuities, compensation,
remuneration and other emoluments such

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as honoraria and allowances)

Sec 25 (E)

Employed by Petroleum Service

Contractor and Subcontractor a
permanent resident of a foreign country
employed and assigned in the Phils

Members of General Professional Partnerships (Sec 26)

1. General Professional Partnership (GPP) shall not be subject to income tax
2. Partners of GPPs shall be liable for income tax on their separate and individual capacities.
3. Net income of GPPs shall be computed in the same manner as a corporation in order to compute
partners distributive shares.
4. Each partner shall report as gross income his distributive share, actually or constructively
received.
Income Tax on Corporations
Domestic Corporations (Sec 27)
1. Definition (Sec 22(B))
a. Shall include :
partnerships,

joint stock corporations,

joint accounts,
association or
insurance companies,
b. But does not include :
general professional partnerships and
joint venture or consortium formed for undertaking construction projects or engaging
in petroleum, coal, geothermal and other energy operations pursuant to an operating
consortium agreement under a service contract with the Government
2. Scope of Taxable Income (Sec 27(A)) from all sources within and without the Philippines
3. Tax Rates on Corporations in General
NIRC Provision

Particulars

Sec 27(A)

In General

Sec 27 (D)
-Passive Income

Interest on currency bank deposit and yield

or monetary benefit from deposit substitutes
and from trust funds and similar
arrangements
Royalties
Interest from a depositary bank under the
expanded foreign currency deposit
Net capital gains from sale, exchange or
disposition of shares of stock

Tax Rate
30% of taxable income
(effective Jan 1, 2000)
Final tax of 20%

Final tax of 20%

Final tax of 7.5%
Not over 100,000 - 5%
Over 100,000
- 10%

Except : shares sold through stock exchange

Income by a depositary bank under the
expanded foreign currency deposit from
foreign currency transactions with

Exempt

11

Non-residents
Offshore banking units in the Phils
Local commercial banks including
foreign banks authorized by the BSP to
transact business with foreign currency
deposit system
Other depository banks under the
expanded foreign currency deposit
system
Income by a depositary bank from such
transactions as may be specified by the
Secretary of Finance, upon recommendation
of the Monetary Board
Interest income from foreign currency loans
granted by such depositary banks under
such expanded system to residents other
than offshore banking units in the Phils or
other depository banks under the expanded
system
Intercorporate Dividends received by a
domestic corp from another
Capital gains from sale, exchange or
disposition of lands and/or buildings, which
are not actually used in business

Regular income tax payable

by banks

Final tax of 10%

Exempt
Final tax of 6% of
ross selling price or fair
market value, whichever is
higher

4. President may, upon recommendation of the Secretary of Finance, allow corporations the
option to be taxed at 15% of gross income(Sec 27A):
a. Subject to the following conditions:
Tax effort ratio of 20% of Gross National Product (GNP)
Ratio of 40% of income tax collection to total tax revenues
VAT tax effort of 4% of GNP
0.9% of the Consolidated Public Sector Financial Position (CPSFP) to GNP
b. Conditions of availment:
Available only to firms whose ratio of cost to sales to gross sales or receipts from all
sources does not exceed 55%
Upon election, shall be irrevocable for 3 consecutive taxable years during which the
corporation is qualified under the scheme
5. Tax Rates of Certain Corporations
NIRC Provision
Sec 27 (B)
Proprietary
Educational
Institutions and
Hospitals

Particulars
Gross income from unrelated trade or
business does not exceed 50%
Terms defined :
o Unrelated trade or business means
any trade, business or other activity,
the conduct of which is not
substantially related to the exercise or
performance of its primary purpose or
function
o Proprietary educational institution
any private school maintained and

Tax Rate

10% of taxable income

Exceptions
1. Passive income taxable
under Sec 27(D)
2. When gross income
from unrelated trade or
activity exceeds 50%,
the entire taxable

12

administered by private individuals or

groups with an issued permit to
operate from the DECS or the CHED
or TESDA
All corporations, agencies or
instrumentalities owned or controlled by
the Govt
Subject to existing special or general
laws

income is subject to Sec

27(A) or 30%

Sec 27 (C)
30% of taxable income

Government
Except :
Owned /Con1. GSIS
trolled Corps,
2. SSS

Agencies or
3. PHIC
Instrumentalities
4. PCSO
6. Minimum Corporate Income Tax (Sec 27(E))
a. Requisites
2% of gross income as of end of taxable year
Imposed beginning of the 4th taxable year immediately following the year of
commencement of business operations
When minimum income tax is greater than the tax computed under Sec 27(A)
b. Carry Forward of Excess Minimum Tax excess of MCIT over the normal income tax shall
be carried forward and credited against the normal income tax for the 3 immediately
succeeding taxable years
c. Relief from MCIT
The Secretary of Finance is authorized to suspend imposition of MCIT on any corporation
which suffers losses on account of :
o Prolonged labor dispute
o Force majeure
o Legitimate business reverses
The Secretary of Finance is authorized to promulgate, upon recommendation of the
Commissioner, rules and regulations to define terms and conditions under which he may
suspend the imposition of MCIT.

Foreign Corporations (Sec 28)

1. Resident Foreign
a. Scope - income from all sources within the Philippines
b. Definition corporation organized, authorized or existing under the laws of any foreign
country, engaged in trade or business within the Philippines
c. Tax rates
NIRC Provision
Sec 28 (A)
Sec 28 (A) (7)

Particulars
In general

Tax Rate
30% of taxable income
(effective Jan 1, 2009)

Interest from any currency bank

deposit from deposit substitutes and
from trust funds and similar
arrangements

Final tax of 20%

Royalties

Final tax of 20%

Interest from a depository bank under

the expanded foreign currency deposit
system
Interest derived by a depository bank
under the expanded foreign currency
deposit system from foreign currency
transactions with
non-residents,

Final tax of 7 %
Exempt

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offshore banking units in the

Phils,
local commercial banks including
branches of foreign banks
authorized by BSP to transact
business with foreign currency
deposit system units and
other depository banks under the
expanded foreign currency
deposit system

Income by a depositary bank from

such transactions as may be specified
by the Secretary of Finance, upon
recommendation of the Monetary
Board
Interest income from foreign currency
loans granted by such depository
banks under said expanded system to
residents other than depository banks
under the expanded system
Any income of individual or corporation
non-residents from transactions under
the expanded system
Capital gains from sale, barter,
exchange or other disposition of
shares of stock in a domestic
corporation except shares sold through
the stock exchange
Dividends from a domestic corporation

Regular income tax payable

by banks

Final tax of 10%

Exempt

Not over 100,000 - 5%

Over 100,000
- 10%
Exempt

d. Option of 15% on gross income under Sec 27(A) applies

e. Minimum Corporate Income Tax same as Sec 27(E)
f.

Special resident foreign corporations

NIRC Provision
Sec 28 (A)(3)
International
Carrier
Sec 28 (A)(4)
Offshore Banking
Units

Particulars

International Air Carrier

International Shipping

Income derived by offshore banking

unit authorized by the BSP from
foreign currency transaction s with :
Non-residents
Other offshore banking units
Local commercial banks
Including branches of foreign
banks authorized by the BSP
Interest income derived from
foreign currency loans granted to
residents other than offshore banking

Tax Rate
2 % of Gross Philippine
Billings

Exempt

Final tax of 10%

14

units or local commercial banks

including local branches of foreign
banks authorized by BSP to transact
with offshore banking units
Income of non-resident individuals
or corporations from transactions
Exempt
with offshore bankingunits
any profit remitted by branch to its
head office
includes the following effectively
connected with the conduct of its
trade or business in the Phils:
o interests
15% of the total profits
o dividends
applied or earmarked
o rents
for remittance without
o royalties
any deduction for the
o renumeration for technical
Sec 28 (A) (5)
tax component
Branch Profits
services
Except : PEZA
Remittances
o salaries
registered activites
o wages
Tax shall be collected
o premiums
and paid as provided
o annuities
under Sec 57 and 58
o emoluments or other fixed or
determinable annual, period or
casual gains
o profits
o income
o capital gains
Regional or Area Headquarters as
Exempt
defined in Sec 22(DD)
Sec 28 (A) (6)
Regional Operating Headquarters as
10% of taxable income
defined in Sec 22(EE)
Philippine Gross Billings,defined:
o For International Air Carrier gross revenue derived from :
Carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place of
sale or issue and place of payment
Tickets revalidated, exchanged and/or indorsed to another international airline, if
the passenger boards a plane or point in the Phils
Aliquot portion of the cost of the ticket where a flight originates from the Phils but
transhipment of passenger takes place outside of the Phils on another airline
o For International Shipping gross revenue whether for passenger, cargo or mail
originating from the Phils up to final destination, regardless of the place of sale or
payments of the passage or freight documents
2. Nonresident Foreign
a. Scope all sources within the Philippines
b. Tax Rates
NIRC Provision
Sec 28(B)(1)

Particulars
Income received such as
Interests

Tax Rates
30% of gross income

15

Dividends
Rents
Royalties
Salaries
Premiums (except reinsurance
premiums)
Annuities
Emoluments
Other fixed or determinable
annual, periodic or casual gains
Profits and income
Capital gains

Interest on foreign loans contracted on

or after August 1, 1986

Final withholding tax of 20%

Final withholding tax of
15%

Sec 28 (B) (5)

Cash and/or property dividends

received from a domestic corporation

Net capital gains on sale, barter,

exchange or other disposition of
shares of stock in domestic corp
except shares sold through the stock
exchange

c. Special Nonresident Foreign corporations

NIRC Provision
Particulars
NonresidentCnematographic Film
Sec 28 (B)(2)
Owner, Lessor or Distributor

Sec 28 (B) (3)

Nonresident Owner or Lessor of

Vessels Chartered by Philippine
Nationals

subject to the condition that

the country in which the
non-resident foreign
corporation is domiciled,
shall allow a credit against
tax due to 20% which
represents the difference
between the regular income
tax of 35%; effective Jan 1,
2009, represents the
difference between regular
tax of 30% and 15% tax on
dividends
Not over 100,000
Over 100,000

- 5%
- 10%

Tax Rates
25% of gross income
4 % of gross rentals,
lease or charter fees from
leases or charters to
Filipino citizens or corp as
approved by Maritime
Industry Authority

16

Sec 28 (B) (3)

Nonresident Owner or Lessor of

Aircraft, Machineries and Other
Equipment

7 % of gross rentals or
fees

Improperly Accumulated Earnings (Sec 29)

1. Shall apply to every corporation formed or availed for the purpose of avoiding the income
tax with respect to its shareholders or the shareholders of other corporation, by permitting
earnings and profits to accumulate instead of being divided or distributed
2. Tax Rate 10% of improperly accumulated taxable income
3. Shall not apply to:
a. Publicly held corporation
b. Banks and other nonbank financial intermediaries
c. Insurance companies
4. Period not applicable :
a. If calendar year - as of December 31, 1997
b. If fiscal year - as of the end of the month comprising the 12 month period of 1997 - 1998
5. Conditions indicative of the purpose to avoid tax to shareholders:
a. Corporation that is a mere holding company or investment company prima facie evidence
b. Fact that earnings or profits are permitted to accumulate beyond the reasonable needs of
a business, unless contrary is proven by clear preponderance of evidence
***Reasonable needs includes anticipated needs of the business
6. Computation of improperly accumulated income :
Taxable income
Adjusted by:
o Income exempt from tax
o Income excluded from gross income
o Income subject to final tax
o Net operating loss carry over deducted
Reduced by :
o Dividends actually or constructively paid
o Income tax paid for the taxable year
Corporations Exempt from Income Tax (Sec 30)
1. Labor, agricultural or horticultural organization not organized principally for profit
2. Mutual savings bank not having a capital stock represented by shares, and cooperative bank
without capital stock organized and operated for mutual purposes and without profit;
3. A beneficiary society, order or association, operating for the exclusive benefit of the members
such as a fraternal organization operating under the lodge system, or mutual aid association or a
nonstock corporation organized by employees providing for the payment of life, sickness,
accident or other benefits exclusively to the members of such society, order, or association or
nonstock corporation or their dependents;
4. Cemetery company owned and operated exclusively for the benefit of its members;
5. Nonstock corporation or association organized and operated exclusively for religious, charitable,
scientific, athletic or cultural purposes, for the rehabilitation of veterans, no part of its net income
or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific
person
6. Business league, chamber of commerce or board of trade, not organized for profit and no part of
the net income of which inures to the benefit of any private stockholder, or individual;
7. Civil league or organization not organized for profit but operated exclusively for the promotion of
social welfare;
8. A nonstock and nonprofit educational institution;
9. Government educational institution

17

10. Farmers or other mutual typhoon or fire insurance company, mutual ditch or irrigation company,
mutual or cooperative telephone company, or like organization of a purely local character, teh
income of which consists solely of assessments, dues and fees collected from members for the
sole purpose of meeting its expenses; and
11. Farmers fruit growers, or like association organized and operated as a sales agent for the
purpose of marketing teh products of its members adn turning back to them the proceeds of
sales, less the necessary selling expenses on the basis of the quantity of produce finished by
them;
**Note : the income of whatever kind and character of the above conducted for profit
regardless of the disposition made of such income shall be subject to tax. (however,
this does not apply to #8 nonstocknonprofit educational institution which is exempt
as provided for in the Constitution)

Taxable Income(Sec 31)

Means the pertinent items of gross income less the deductions and/or personal and additional
exemptions, if any, authorized for such types of income by this Code or other special laws
Gross Income
Inclusions (Sec 32A) means all income derived from whatever source, including, but not limited to,
the following :
1. Compensation for services in whatever form paid, including but not limited to fees, salaries,
wages, commissions and similar items
2. Gross income derived from the conduct of trade and business or the exercise of a profession
3. Gains from dealings in property
4. Interests
5. Rents
6. Royalties
7. Dividends
8. Annuities
9. Prizes and winnings
10. Pensions; and
11. Partners distributive share from the net income of the general professional partnership

Exclusions from gross income (Sec 32B) the following shall be excluded from gross income and
shall be exempt:
1. Life Insurance Requisites:
a. Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the
insured
b. Whether in a single sum or otherwise
c. If held by insurer to be paid at an interest, such interest shall be included in the gross income
2. Amount Received by Insured as Return of Premium Requisites:
a. Amount received by the insured
b. As return of premium
c. Under life insurance, endowment or annuity contracts
d. Either during the term or at the maturity or surrender of the contract
3. Gifts, Bequests and Devises value of property acquired as mentioned, provided that income
from such, in case of transfers of divided interest, shall be included in the gross income
4. Compensation for Injuries or Sickness

18

a. Amounts received through :

Accident insurance
Health insurance
Workmens compensation acts
b. As compensation for personal injuries or sickness plus amounts of any damages received
c. Whether by suit or agreement
5. Income Exempt Under Treaty income of any kind to the extend required by any treaty
obligation binding upon the Govt of the Phils
6. Retirement Benefits, Pensions, Gratuities, etc
a. Retirement benefits under RA 7641 and by officials and employees of private firms:
In accordance with a reasonable private benefit plan maintained by the employer
Retiring official or employee :
o Has been in the service for at least 10 years
o Not less than 50 years of age at the time of retirement
Such benefits granted shall be availed f by an official or employee only once
b. Amount received by an official or employee or his heirs from the employeras a
consequence of separation due to death, sickness or physical disability or any cause
beyond the control of such official or employee
c. Social security benefits, retirement, gratuities, pensions and other similar benefits
received by resident or non-resident citizen or aliens who permanently reside in the Philsfrom
foreign government agencies and other institutions, private or public
d. Benefits due to any person residing in the Phils under the laws of the US administered by the
US Veterans Administration
e. Benefits received from or enjoyed under the SSS in accordance with RA 8282
f. Benefits received from the GSIS under RA 8291 including retirement gratuity received by
government officials and employees
7. Miscellaneous Items
a. Income derived from Foreign Government income from investments in Phil loans,
stocks, bonds, securities or bank deposits by a) foreign governments; b) financing institutions
owned, controlled or enjoying refinancing from foreign governments and c) international and
regional financial institutions
b. Income derived by the Government or its Political Subdivision income from any public
utility or from exercise of essential governmental function
c. Prizes and Awards
In recognition of :
o Religious
o Charitable
o Scientific
o Educational
o Artistic
o Literary
o Civic achievement
Provided further that recipient :
o Selected without any action on his part to enter
o Not required to render substantial future services as condition for award/prize
d. Prizes and Awards in Sports Competition granted to athletes:
local and international sports competitions and tournaments
whether held in the Phils or abroad

19

sanctioned by their national sports association (associated with Phil Olympic Association)

e. 13th Month Pay and Other Benefits shall not exceed P30,000 which shall cover benefits
received :
Pursuant to RA 6686
Pursuant to PD 851 as amended by Memo Order No 28 dated Aug 13, 1986
Not covered by PD 851
Such as productivity incentives and Christmas bonus; the ceiling of P30,000 may be
increased by issuance of Secretary of Finance, upon recommendation of the
Commissioner
f.

GSIS, SSS, Medicare and Other Contributions includes union dues

g. Gains from Sale of Bonds, Debentures or other Certificates of Indebtedness from the
sale or exchange or retirement of bonds, debentures, etc with maturity of more than 5 years

h. Gains from Redemption of Shares in Mutual Fund gains by investor upon redemption of
shares of stock in mutual fund per Sec 22(BB)
Fringe Benefits (Sec 33)
1. Definition means any good, service or other benefit furnished or granted in cash or in kind by
an employer to an employee such as but not limited to :
a. Housing
b. Expense account
c. Vehicle of any kind
d. Household personnel, such as maid, driver and others;
e. Interest on loan at less than market rate to the extent of the difference between the market
rate and actual rate granted
f. Membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations;
g. Expenses for foreign travel
h. Holiday and vacation expenses
i. Educational assistance to the employee or his dependents; and
j. Life or health insurance and other non-life insurance premium or similar accounts in excess of
what the law allows
2. Exception where :
a. It is given to rank and file; OR
b. It is required by the nature of, or necessary to the trade, business or profession of the
employer; OR
c. The fringe benefit is for the convenience or advantage of the employer
d. Fringe benefits not taxable :
Fringe benefits which are authorized and exempted from tax under special laws;
Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plans;
Benefits given to rank and file employees, whether granted under collective
bargaining agreement or not
De minimis benefit as defined in the rules and regulations promulgated by the
Secretary of Finance
3. Tax Rate
a. In general 32% of the grossed up monetary value of fringe benefit furnished or granted to
the employee, where:
Actual monetary value
Grossed up monetary value = -----------------------------------100% - 32%
b. Special rate where fringe benefit given and taxable under Sec 25 B, C, D, E, to wit:

20

NIRC Provision
Sec 25 B

Particulars
Non resident individual not
engaged in trade or business
in the Phils

Sec 25 C

Alien Employed by Regional

or Area Headquarters adn
Regional Operating of
Mutinational Companies

Sec 25 D

Alien Individual Employed by

Offshore Banking Units

Sec 25 E

Alien Individual Employed by

Petroleum Service Contractor
and Subcontractor

Tax Payable
Amount of fringe benefit
---------------------------------- x 25%
1 - 25%

Amount of fringe benefit

---------------------------------- x 15%
1 - 15%

4. Tax is payable by the employer; such tax to be paid under Sec 57(A)
Allowable Deductions
Deductions from Gross Income (Sec 34)
A. Itemized Deductions
1. Expenses
a. Requisites
Ordinary
Necessary
Paid during the taxable year
Attributable to the development, management, operation and/or conduct of the trade,
business or exercise of a profession
Reasonable
b. Includes :
Salaries, Wages and other forms of compensation
o For personal services actually rendered
o Includes grossed up monetary value of fringe benefit, provided that final tax
under Sec 33 has been paid

Travel Expenses
o Incurred in the Phils and abroad
o In the pursuit of trade, business or profession

Rentals and other payments required to continue use or possession

o For purposes of trade, business or profession
o Relates to property for which the taxpayer :
has not taken or
is not taking; or
in which he has no equity other than that of a lessee, user or possessor

Entertainment, Amusement and Recreation

o Incurred during the taxable year
o Directly connected to the development, management and operation of trade,
business or profession of the taxpayer
o Directly related to or in furtherance of the conduct of his or its trade, business
or exercise of profession

21

o
c.

Not to exceed such ceilings prescribed by the Secretary of Finance, upon

recommendation of the Commissioner, taking into account the needs as well as
the special circumstances, nature and character of the industry, trade, business
or profession of the taxpayer
Should not be contrary to law,morals, public policy or public order

Substantiation Requirements requires sufficient evidence such as official receipts or

other adequate records:
The amount of expense being deducted;
Direct connection or relation to the development, management, operation and/or
conduct of the trade, business or profession of the taxpayer

d. Bribes, Kickbacks and Other Similar Payments NOT ALLOWED

e. Private Educational Institutions(Proprietary Educational Institutions as referred to in
Sec 27B) in addition to allowable expenses as mentioned above, may at its option
deduct capital outlays of depreciable assets incurred during the year for the
expansion fo school facilities :
Deduct as expenses ; OR
Deduct allowance for depreciation
2. Interest
Requisites
Paid or incurred within a taxable year
On indebtedness connected with the taxpayers profession, trade or business
Allowable deduction shall be 33%(rate as of January 1, 2009, the previous rate
was 42%) of the interest income subjected to final tax
Exceptions - where :
Where individual taxpayer reports income on cash basis and the interest on
indebtedness is paid in advance through a discount or otherwise; such interest
only deductible in the year the indebtedness is paid
Where indebtedness is payable in periodic amortizations, the interest which
corresponds to the amount of the principal amortized or paid during the year is
allowed as deduction
If taxpayer and creditor are related parties as provided for under Sec 36B to wit:
o Between family members which refers to brothers and sisters (full
blood or half blood), spouse, ancestors and lineal descendants
o Between an individual and corporation more than 50% of the
outstanding stock is owned, directly or indirectly, by or for such individual,
except in case of liquidation
o Between 2 corporations more than 50% of outstanding stock of which is
owned, directly or indirectly, by or for the same individual if either one of
such corporations,
o Between grantor and a fiduciary of any trust
o Between a fiduciary of a trust and a fiduciary of another trust if the same
person is a grantor with respect to each trust
o Between a fiduciary of a trust and beneficiary of such trust
Optional Treatment Interest acquired to acquire property used in trade, business
or exercise of profession may be allowed as a) deduction or b) capital expenditure, at
the option of the taxpayer

22

3. Taxes
Requisites :
Incurred within taxable year
In connection with profession, trade or business
In case of non-resident alien individual engaged in trade or business and resident
foreign corporations, deductions for taxes shall be allowed only if and to the extend
that they are connected with income sources within the Philippines
The following taxes are not deductible:
Income tax
Income taxes imposed by authority of any foreign country, however, deduction shall
be allowed where a taxpayer does not signify in his return to have the benefits of
tax credit for taxes of foreign countries
Estate and donors taxes
Taxes assessed against local benefits of a kind tending to increase the value of the
property assessed
Refunded or credited taxes e included as part of gross income (Tax Benefit Rule)
In the year of receipt
To the extent of the income tax benefit of said deduction

Credit tax for Taxes paid in Foreign Countries if taxpayer desires to have these
benefits, the tax imposed shall be credited with :
Kind of Taxpayer
Availment (Amount) of Tax Credit
Citizen and Domestic Corporation
Income tax paid or incurred during the
taxable year to any foreign country
Individual member of a general
Proportionate share of the taxes of the
professional partnership or a beneficiary of general professional partnership, estate or
an estate or trust
trust paid or incurred during the taxable
year to a foreign country
Alien individual or foreign corporation
Tax credit not allowed

Limitations on Credit Sec 34 C(4)

Adjustments on Payment of Incurred taxes Sec 34 (5)
Year in which Credit taken Sec 34 C(6)
Proof of Credits Foreign tax credits shall allowed only if the taxpayer establishes the
following :
a. Total amount of income derived from sources without the Phils
b. Amount of income derived from each country, the tax paid or incurred to which is
claimed as a credit
c. All other information necessary for the verification and computation of such credits

4. Losses (Sec 34 D)
Requisites :
a. Losses actually sustained during the taxable year
b. Not compensated for by insurance or other forms of indemnity
c. Incurred in trade, profession or business
d. Of property connected with the trade business or profession
e. Loss arises from fires, storms, shipwreck, or other casualties or from robbery, theft or
embezzlement
f. Declaration of loss submitted within 45 days from date of discovery of casualty or
robbery (such period as prescribed by the Secretary of Finance which shall not be
less than 30 nor more than 90 days)
g. Such loss has not been deducted for estate tax purposes

23

 For non-resident alien individual or foreign corporation applies to losses sustained

related to trade or profession conducted within the Phils not compensated by insurance
or other indemnity
Other Losses:
a. Net Operating Loss Carry Over (NOLCO)
Refers to the excess of allowable deduction over gross income of the business in
a taxable year
Net operating loss for the taxable year immediately preceding the current taxable
year, which had not been previously offset as deduction from gross income shall
be carried over as a deduction from gross income for the next 3
consecutive taxable years immediate following the year of loss, provided that :
o Any net loss incurred in a taxable year which a taxpayer was exempt shall
not be allowed as a deduction
o There is no substantial change in ownership of the business or enterprise, in
that:
Not less than 75% in nominal value of outstanding issued shares is held
by or on behalf of the same persons; or
Not less than 75% of the paid up capital of the corporation, is held by or
on behalf of the same persons.
o Mines other oil and gas wells its NOLCO incurred in any of the first 10
years may be carried over as a deduction from the taxable income for the
next 5 years (read further Sec 34 D(3))
b. Capital Losses
Allowed up to the amount provided for in Sec 39
If securities which are capital assets become worthless during the taxable assets,
such loss shall be considered as a loss from the sale or exchange, on the last
day of such taxable year, of capital assets
c. Losses from Wash Sales of Stocks or Securities refer to Sec 38
d. Wagering Losses allowed only up to the extent of the gains from such transactions
e. Abandonment Losses read Sec 34D (7)
5. Bad Debts (Sec 34E)
Debts due actually ascertained to worthless and charged off within the taxable year
Exceptions :
o Debts not connected with profession, trade or business
o Those sustained between related parties as provided for in Sec 36(B)
Requisites:
o Valid debt
o Uncollectible after due diligence
o Actually written off; mere provision does not qualify
Recovery of bad debts shall be included as part of the gross income in the year of
recovery, provided,
o Such had been previously allowed as a deduction in the preceding years
o Recovery recognized up to the extent of the income tax benefit of said deduction
(TAX BENEFIT RULE)
Securities Becoming Worthless loss shall be considered as a loss from the sale or
exchange on the last day of such capital assets where:
o Securities ascertained to worthless and charged off within the taxable year

24

o
o

Such are capital assets

Shall not come from a bank or trust company incorporated under the laws of the Phils
a substantial part of its business is the receipt of deposits

6. Depreciation
Reasonable allowance for the exhaustion, wear and tear (obsolescence) of property used
in business
Allowable methods:
o Straight line
o Declining balance
o Sum of the years digit
o Any other method prescribed by the Secretary of Finance
Where the taxpayer and the Commissioner have entered into an agreement on the useful
life and the rate of depreciation, such shall be binding on both in the absence of facts and
circumstances not taken into consideration during the adoption of such agreement; any
change in the agreed rates shall not be effective for taxable years prior to the taxable
year in which notice by certified mail or registered mail is served
Where taxpayer has adopted such depreciate method without any written objection from
the Commissioner or his representative, such shall be considered binding.
Depreciation of properties related to Petroleum Production :
o Shall be allowed under the straight line or declining balance method at the option
of the service contractor;
o If declining balance is initially selected, it may shift to straight line at any subsequent
date
o Useful life of 10 years or shorter as may be permitted by the Commissioner while
properties not used directly in petroleum production shall be depreciated using
straight line method at an estimated useful life of 5 years
Depreciation of properties used in Mining Operations :
o At normal rate of depreciation is expected life is 10 years or less;
o Depreciation over any number of years between 5 yrs and the expected life if the
latter is more than 10 years, provided that the contractor notifies the Commissioner at
the beginning of the depreciation period
Depreciation by Nonresident Aliens Engaged in Trade or Business or Resident
Foreign Corporations :
o A reasonable allowance for the deterioration of property of property in the
business, trade or profession shall be permitted when such property is located in
the Philippines
7. Depletion of Oil and Gas Wells and Mines Sec 34G

8. Charitable and Other Contributions Sec 34H

Requisites :
o Contributions or gifts actually paid or made within the taxable year
o For use of :
Phil government or any of its agencies or political subdivision exclusively for
public purposes
Accredited domestic corporation or associations organized and operated for
religious, charitable, scientific, youth and sports development, cultural or
educational purposes or for the rehabilitation of veterans
Social welfare institutions

25

Non government associations

o No part of the income of which inures to the benefit of any private individual
Rates:
o 10% of taxable income - Individual
o 5% of taxable income Corporation
o Deductible in Full donations to:
a. Government for priority activities according to the National Priority Plan as
determined by NEDA for :
Education,
Health,
Youth and sports development,
Human settlements
Science and culture
Economic development
b. Foreign Institutions or International Organizations - those in compliance with
agreement, treaties or commitments entered into by the Govt of the Phils and the
foreign institutions or international organizations
c. Accredited Nongovernment Organizations means a non-profit domestic
corporation:
Organized exclusively for scientific, research, educational, character-building
and youth and sports development, health, social welfare, cultural or
charitable purposes
No part of net income which inures to the benefit of any private individual
Makes utilization for the active conduct of the activities not later than the 15 th
day of the 3rd month after the close of its taxable year ; utilization means:
Any amount in cash or in kind paid or utilized to accomplish one or more
purposes for which such was created
Any amount paid to acquire an asset used directly in carrying out one or
more purposes for which such is created
Its administrative expense should not exceed 30% of the total expenses
Assets, in case of dissolution, would be distributed to another non-profit
domestic corporation organized for similar purposes or the state for public
purposes
Valuation : Acquisition cost of property
Proof of Deductions : as provided for by the rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the Commissioner.

9. Research and Development

Requisites:
o Paid or incurred during the taxable year
o In connection with trade, business or profession
o Deducted as ordinary and necessary expenses not chargeable to capital
account
The following may be deferred expenses at the election of the taxpayer, those:
o Paid or incurred in connection with trade , business or profession
o Not treated as expenses
o Charged to capital account but not chargeable to property which is subject to
depreciation or depletion
***Such election shall not apply to any expenditure paid or incurred during any
taxable year for which the taxpayer makes the decision.
The following expenses do not apply:

26

o
o

Acquisition or improvement of land, or for the improvement of property to be used in

connection with research and development
Ascertaining the existence, location, extent or quality of any deposit of ore or other
mineral including oil or gas.

10. Pension Trusts consist of a reasonable amount transferred or paid into the pension trust
where such amount:
o Has not been allowed as a deduction
o Is apportioned in equal parts over a period of 10 years from the year which the transfer is
made
11. Changes in Itemized Deductions
Secretary of Finance may prescribe rules and regulations, limitations or ceilings for any of
the itemized deductions
Requires public hearing
Factors to be considered :
o Adequacy of the prescribed limits on the actual expenditure requirements of each
particular industry
o Effects of inflation
B. Income and Deductions of Insurance Companies, Whether Domestic or Foreign (Sec 37)
***read the provision

C. Losses from Wash Sales (Sec 38)

No deduction for loss sustained from any sale or disposition of shares of stock where :
o Such transaction occurred within a period beginning 30 days before the date and of such
sale and 30 days after such date
o Taxpayer has acquired or entered into a contract or option (even if not excercised) to so
acquire substantially identical stock or securities
o Exception : when claim is made by a dealer in stock or securities in the ordinary course
of business
D. Capital Gains and Losses (Sec 39/40)
Terms
o Capital Assets property held by the taxpayer but does not include :
Stock in trade of the taxpayer or
Inventory on hand at the close of the year
Property held primarily for sale to customers in the ordinary course of trade or
business
Property used in trade or business which is subject to depreciation
Real property used in trade or business
o Net Capital Gain excess of the gains from sale or exchange of capital assets over
losses
o Net Capital Loss excess of losses from sale or exchange of capital assets over the
gains
For individuals, the following percentages of the gain or loss recognized shall be taken into
account:
o 100% if capital asset has been held for not more than 12 months
o 50% if capital asset has been held for more than 12 months

27

Losses shall be allowed only to the extent of the gains from such sales or exchanges
Shall not cover same transactions of a bank or trust company incorporated in the Phils,
a substantial part its business is the receipt of deposits, sells any bond, debenture, note or
certificate or other evidence of indebtedness issued by an corporation
Net Capital Loss Carry-over an individual which sustains a net capital loss, such loss shall
be treated in the succeeding taxable year as a loss from the sale or exchange of a capital
asset held for not more than 12 months.
Retirement of Bonds amounts received by holder upon retirement of bonds, debentures,
notes or certificate or other evidences of indebtedness issued by any corporation with interest
coupons or in registered form shall be considered as amounts received in exchange therefor
Gains or losses from short sales of property shall be considered as gains or losses from sales
or exchanges of capital assets;
Gains or losses attributable to the failure to exercise privileges or options to buy or sell
property shall be considered as capital gains or losses

E. Inventories (Sec 41) a particular method of valuing inventory shall be used in all subsequent
years unless:
A change to different methods is authorized with the approval of the Commissioner
Commissioner finds that the nature of stock on hand is such that inventory gains should be
considered realized for tax purposes; provided that he shall not exercise his authority more
often than once every 3 years and that any change in valuation method must be subject to
approval by the Secretary of Finance.

Additional Requirements for Deductibility (Sec 34 (K)) any deductible amount shall be allowed
as a deduction only if the tax required to be deducted and withheld therefrom has been paid in
accordance with Sec 58 and 81.

Optional Standard Deduction (Sec 34(L))- in lieu of allowable itemized deductions, taxpayer may
chose optional standard deduction
Who may avail:
Individual other than a non-resident alien
40% of gross sales or gross receipts
Shall not be required to submit his tax return required in this Code
Corporation (Domestic and Resident Foreign) 40% of gross income
Unless taxpayer elects optional standard deduction, he is assumed to prefer itemized standard
deductions
Election of optional deduction shall be irrevocable of the taxable year for which the return is made

Other Deductions for Individual Taxpayers

A. Personal Exemption (Sec 35)
Basic Personal Exemption - P50,000
Additional Exemptions for Dependents P25,000 each, not exceeding 4
o To be claimed by only one spouse
o In case of legally separated spouses, exemption to be claimed by the spouse who has
custody of the chidren, provided total amount shall not exceed the maximum
o Dependent
legitimate, illegitimate, or legally adopted child
chiefly dependent upon and living with the taxpayer
if such dependent is :
not more than 21 years old
unmarried
not gainfully employed

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OR
regardless of age, incapable of self-support because of mental or physical defect
Personal and additional exemptions may be claimed in full regardless of the following
changes in status during the taxable year:
o Taxpayer marries or dies during the taxable year
o Additional dependent
o Spouse or dependent dies
o Dependent marries or becomes 21 yrs old or becomes gainfully employed
Allowed to a non-resident alien engaged in trade, business or profession for an amount :
o Equal to the exemptions allowed in the income tax law in the country of which he is
subject or citizen
o Not to exceed the amount provided herein
***Nonresident alien should file a true and accurate return of the total income from all
sources in the Philippines

B. Premium on Health and/or Hospitalization Insurance of an Individual Taxpayer (Sec 34 (M))

Not to exceed P2,400 per family per taxable year
Said family has gross income of not more than P250,000 for the taxable year
In case of married taxpayer, the spouse claiming the additional exemption shall be entitled to
this deduction

Items not deductible (Sec 36)

a. The following are not deductible in computing net income :
Personal, living or family expenses;
Any amount paid out for new buildings or for permanent improvements, or betterments
made to increase the value of any property or estate;
This Subsection shall not apply to intangible drilling and development costs incurred in
petroleum operations which are deductible under Subsection (G) (1) of Section 34 of
this Code.
Any amount expended in restoring property or in making good the exhaustion thereof
for which an allowance is or has been made; or
Premiums paid on any life insurance policy covering the life of any officer or employee, or
of any person financially interested in any trade or business carried on by the taxpayer,
individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such
policy.
b. Losses from sale or exchanges of property direct or indirectly are not allowed when such
transaction occurs :
Between members of a family. For purposes of this paragraph, the family of an individual
shall include only his brothers and sisters (whether by the whole or half-blood), spouse,
ancestors, and lineal descendants; OR
Between an individual and corporation more than fifty percent (50%) in value of the
outstanding stock of which is owned, directly or indirectly, by or for such individual, except
in the case of distributions in liquidationOR
Between two corporations more than fifty percent (50%) in value of the outstanding stock
of which is owned, directly or indirectly, by or for the same individual if either one of such
corporations, with respect to the taxable year of the corporation preceding the date of the
sale of exchange was under the law applicable to such taxable year, a personal holding
company or a foreign personal holding company, except in the case of distributions in
liquidation; OR
Between the grantor and a fiduciary of any trust; OR

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Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the
same person is a grantor with respect to each trust; OR
Between a fiduciary of a trust and beneficiary of such trust

Determinatin of Amount and Recognition of Gain or Loss (Sec 40)

Situs of Taxation (Sec 42)

ESTATE TAX

Scope of Estate Tax (Sec 84)

o Net Estate
o Of a decedent, whether resident or non-resident
o Tax rates per Sec 84

Gross Estate (Sec 85)

1. The value of the gross estate shall consist of :
a. Value at the time of death such value to be determined as follows (Sec 88) :
Usufruct in accordance with the latest Basic Standard Mortality Table, to be approved
by the Secretary of Finance, upon recommendation of the Insurance Commissioner
Properties appraised at its fair market value as of the time of death; such value shall be
the higher of the :
o Fair market value as determined by the Commissioner, or
o Fair market value in the schedule of values fixed by the Provincial and City Assessors
b. Of all property real or personal, tangible or intangible
c. Wherever situated
d. However, if non-resident decedent (not a citizen) property situated in the Phils
2. Inclusions (Exclusions)
a. Decedents Interest to the extent of the interest therein of the decedent at the time of his
death
b. Transfer in Contemplation of Death

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Includes transfer by the decedent, by trust or otherwise, :

o In contemplation of or intended to take effect in possession or enjoyment at or after
death
o Under which he has retained, for his life or for any period which does not end before
his death, any of the following :
Possession or enjoyment or right to income from the property
Right, either alone or with others, to designate the person who shall possess or
enjoy the property or income therein,
Exception : in case of a bonafide sale for an adequate and full consideration

c. Revocable Transfer
Transfer by trust or otherwise, where enjoyment thereof was subject to any change
through the exercise of a power, by the decedent alone or with others, to alter, amend,
revoke or terminate, or where any such power is relinquished in contemplation of the
decedents death.
Such power to alter, amend or revoke shall be considered to exist on the date of the
decedents death
Exception : in case of a bonafide sale for an adequate and full consideration
d. Property Passing Under General Power of Appointment
Any property passing under a general power of appointment exercised by the decedent :
o By will
o By deed executed in contemplation of or intended to take effect in possession or
enjoyment at or after his death
o By deed under which he has retained for his life or any period not ascertainable
without reference to his death or any period which does not end before his death
Property includes the following :
o The possession or enjoyment of, or the right to the income from the property
o The right, either alone or in conjunction with any person, to designate the persons
who shall possess or enjoy the property or the income therefrom
Exception : in case of a bona fide sale for an adequate and full consideration in money
or moneys worth
e. Proceeds of Life Insurance amounts receivable by :
The estate, the executor or administrator as taken out by the decedent upon his own
life, irrespective whether or not the insured retained the power of revocation
By any beneficiary, except when it is expressly stipulated that such beneficiary is
irrevocable
f.

Prior Interests
Refers to transfers, trusts, estates, interests, rights, powers and relinquishment of powers
related to :
o Transfers in contemplation of death
o Revocable transfer
o Proceeds of life insurance
Made, created, arising, existing, exercised or relinquished before or after the effectivity of
this Code

g. Transfers for Insufficient Consideration

Relates to those transfers, trust... under :
o Transfers in contemplation of death
o Revocable Transfers

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o Property passing under a General Power of Appointment

o That are not bonafide sale for an adequate and full consideration
The amount included in the gross estate shall be the excess of the fair market value at
the time of death

h. Capital of the Surviving Spouse not deemed part of the decedents gross estate

Net Estate (Sec 86)

A. Deductions Allowed to a Citizen or Resident Decedent
1. Expenses, Loses, Indebtedness and Taxes
a. Funeral Expenses an amount equal to 5% of the gross estate or P200,000 whichever is
lower
b. Judicial Expenses related to testamentary or intestate proceedings
c. Claims against Estate
Debt instrument was duly notarized at the time of indebtedness
If loan was contracted within 3 years before death, a statement showing
disposition of the proceeds is executed
d. Claims against Insolvent Persons where the value of decedents interest is included in
the value of the gross estate
e. Unpaid Mortgages
Value, undiminished by such mortgage, is included in the value of the gross
estate
Does not include any income tax upon income received after death
f. Losses
Incurred during the settlement of the estate
Arising from fires, storms, shipwreck or other casualties, from robbery, theft or
embezzlement
Not compensated by insurance or otherwise
Not claimed as a deduction for income tax purposes
Incurred not later than the last day for the payment of the estate tax
2. Property Previously Taxed (Vanishing Deductions)
a. Those property :
Forming part o the gross estate situated in the Philippines of any person who died
with 5 years prior to the death of the decedent; or
Transferred to the decedent within 5 years prior to his death
b. Amount of deduction to be deducted from the gross estate:
Deductible Value
Time of death of prior decedent to death of
present decedent
100% of value
Within 1 year
80% of value
More than 1 yr not more than 2 yrs
60% of value
More than 2 yrs not more than 3 yrs
40% of value
More than 3 yrs not more than 4 yrs
20% of value
More than 4 yrs not more than 5 yrs
c.

Deductions shall be allowed:

Where a donors tax or estate tax imposed was finally determined and paid
Such deduction shall be reduced by the same ratio as to the amounts allowed as
deductions
Where property consists of 2 or more items, the aggregate value of such items shall
be used

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3. Transfers for Public Use

a. All bequests, legacies, devises or transfers
b. To or for use of the Govt of the Phils or any political subdivision thereof
c. Exclusively for public purposes
4. Family Home
a. Fair market value of the decedents family home
b. Up to P1,000,000, the excess of which shall be subject to estate tax
c. Such family home must be certified as such by the barangay captain of the locality
5. Standard Deduction up to P1,000,000
6. Medical Expenses
a. Incurred by the decedent within 1 year prior to decedents death
b. Duly substantiated with receipts
c. Shall not exceed P500,000
7. Amount received by Heirs under RA 4917
a. Received by the heirs from the decedent-employee as a consequence of death of the
decedent-employee
b. In accordance with RA 4917
c. Such amount is included in the gross estate of the decedent
B. Deductions Allowed to a Nonresident Decedent
Allowable Deductions
o Expenses, Losses, Indebtedness and Taxes
o Property Previously Taxed same as that deductible from the estate of a resident or
citizen decedent
o Transfers for Public Use
No deduction shall be allowed unless the executor, administrator or any heir includes the
return required the value of the gross estate of the decedent at the time of his death not
situated in the Philippines.
C. Share in the Conjugal Property shall be deducted from the net estate of the decedent :
1. Net share of the surviving spouse in the conjugal partnership property
2. Diminished by the obligations chargeable to such property
D. Tax Credit for Estate Tax paid to a Foreign Country
1. The estate tax due shall be credited with the amounts of any estate tax imposed by a foreign
country
2. Limitations of Tax Credit the amount of credit shall not exceed:
a. The same proportion of the tax against which such credit is taken, which the decedents
net estate situated within such country taxable under this Title bears to his entire net
estate
b. The same proportion of the tax against which such credit is taken, which the decedents
net estate situated outside the Philippines taxable under this Title bears to his entire net
estate.

Exemptions (Sec 87) The following shall not be taxed :

1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary
3. Transmission from the first heir, legatee or done in favor of another beneficiary, in accordance
with the desire of the predecessor; and

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4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions
provided that :
No part of the net income of which inures to the benefit of any individual; and
Not more than 30% shall be used by such institutions for administration purposes

Procedure
1. Notice of Death (Sec 89) executor, administrator or legal heir of decedent is required when
Gross value of the estate exceeds P20,000
Within 2 months after decedents death or within a like period after qualifying as executor or
administrator
2. Estate Tax Return (Sec 90)
Gross estate exceeds P200,000 or regardless of value, estate consists of registered or
registrable property (i.e. real property, motor vehicle, shares of stock)
A return under oath must be filed stating:
o Value of the gross estate
o Deductions allowed
o Other supplemental data
o However, when gross value exceeds P2,000,000, it shall be supported by certified
statement by a CPA containing:
Itemized assets of decedent with corresponding value at time of deat
Itemized deductions from gross estate
Amount of tax due whether paid or still due and outstanding
Within 6 months from the decedents death
A certified copy of the schedule of partition and the order of the court shall be furnished the
Commissioner within 30 days such partition or order
Extension not exceeding 30 days from filing of return for meritorious cases
Place of Filing
o Authorized agent bank or RDO, Collection Officer or duly authorized Treasurer of the city
of municipality where the decedent was domiciled; OR
o Office of the Commissioner, if there be no legal residence
3. Payment of Estate Tax (Sec 91)
Payment shall be made at the time the return is filed
Extension when payment would impose undue hardship upon the estate or heirs,
Commissioner may extend time for payment
o 5 years if estate is settled through the courts
o 2 years if estate is settled extrajudicially
o By such extension, the running of the Statute of Limitations for assessment per Sec
203 shall be suspended for the period of such extension
o In addition, may be required to furnish a bond or sureties for an amount not
exceeding double the amount of tax
o No extension shall be granted by reason of negligence, intentional disregard of rules
and regulations or fraud
Estate tax imposed shall be paid before distribution of the estate; the beneficiary shall be
subsidiarily liable for the payment of the portion of his estate tax as his share bears to the
value of the total assets

Accountabilities / Rights of Certain Persons

1. Executor or Administrator (Sec 92)
May make a written application to the Commissioner for the determination of the amount of
estate tax due and discharge from personal liability therefore; shall be notified within 1 year
from making such application or from the filing of the return
Shall be discharged from personal liability for any deficiency and shall be entitled to a receipt
or writing showing such discharge

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2. Judge (Sec 94) shall not authorize delivery of distributive shares unless there is a certification
from the Commissioner that the estate tax has been paid
3. Register of Deeds (Sec 95) shall not register any document transferring real property or real
rights therein by way of gifts inter vivos or mortis causa unless there is a certification from the
Commissioner that the tax due thereon has been paid
4. Lawyers, Notary Public or any Government Officer (Sec 96) shall have the duty of
furnishing the Commissioner, Regional Director or appropriate officer of the place where he has
his principal office with copies of such documents and any information which may facilitate the
collection of said taxes
5. Debtor of a Deceased (Sec 96) shall not pay his debts to the heir, legatee, devisee, executor
or administrator unless :
There is a certification from the Commissioner that tax thereon has been paid; OR
Such credit is included in the inventory of the estate of the deceased
6. Corporations, Sociedad Anonima, Partnership, Business or Industry organized in the Phils
(Sec 97) no transfer to any new owner in the books of corporations or organizations upon any
share, obligation, bond or right by way of gift inter vivos or mortis causa unless there is a
certification from the Commissioner that the taxes thereon have been paid.
7. Banks (Sec 97)
Bank that has knowledge of the death of the person who has a bank deposit account alone or
jointly with another shll not allow withdrawal unless the Commissioner has certified that the
taxes imposed have been paid
An authorized withdrawal not exceeding P20,000 may be made without authorization; hence,
all withdrawal slips shall contain a statement that all the joint depositors are still living at the
time of withdrawal by one of the joint depositors and shall be under oath by said depositors
8. New Obligations of Decedent after Payment of Estate Tax (Sec 96)- if after payment of estate
tax, new obligations of the decedent shall appear and have been satisfied, a right to the
restitution of the proportional part of the tax paid shall accrue

DONORS TAX

Imposition of Donors Tax

Requisites (Sec 98)
o Transfer of any person, resident or non-resident of property by gift
o Whether the gift is in trust or otherwise
o Whether such gift is direct or indirect
o Whether property is real or personal, tangible or intangible
Transfer for Less than Adequate and Full Consideration (Sec 100)
o General Rule : The excess of the fair market value of the property over the value of the
consideration shall be deemed a gift and shall be included in computing the amount of gifts
made during the taxable year
o Exception : Real property per Sec 24(D)

Valuation (Sec 102) fair market value at the time of the gift; for real property refer to Sec 88(B)
Rates (Sec 99)
Basis : Total Net Gift

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Donors Tax Table applicable to relatives, to wit:

o Brother, sister (whether whole or half-blood), spouse, ancestor and lineal descendant
o Relative by consanguinity in the collateral line within the fourth degree
Donation to a Stranger 30% of total net gift
Contribution to Candidate, Political Party or Coalition of Parties for campaign purposes;
governed by the Election Code

Exemption (Sec 101)

Exempted gifts
Gift

Resident

Non-resident; NonCitzen

Dowries or gifts:
On account of marriage and before its
celebration; OR
Given within 1 year from marriage
Exempted
Not Exempted
To legitimate, recognized natural or
adopted children
Not exceeding P10,000
Made to and for the use of National
Government or any entity created by any of its
Exempted
Exempted
agencies which is not conducted for profit, or to
any of its political subdivision
Gifts in favor of :
The following corporations, institutions,
accredited NGO, trust or philanthropic or
research organization dedicated to
Educational, Charitable, Religious,
Cultural, Social Welfare purposes
Provided that:
Not more than 30% of such gifts shall be
Exempted
Exempted
used for administration purposes
Non-stock entity, not paying dividends
Governed by trustees who do not receive
compensation
Devoting all its income to the
accomplishment and promotin of its
purposes
Tax Credit for Donors Tax Paid to Foreign Country
o Requisites:
Donors tax imposed by a foreign country
Paid by a donor who was a citizen or resident at the time of donation
o Limitations
1. The amount of credit in respect to tax paid to any country shall not exceed the same
proportion of tax against which such credit is take, which the net gifts situated within such
country bears to the entire net gift
2. The total amount of credit shall not exceed the same proportion of tax against which such
credits is taken, which the donors net gifts situated outside the Phils bears to his entire
net gifts

Filing of Return and Payment of Tax (Sec 103)

Filing of Return
o Shall be under oath
o In duplicate

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Return shall contain:

Each gift made during the calendar year
Deductions claimed and allowable
Previous net gifts during the same calendar year
Name of the done
Other information as required by the rules and regulations
Time and Place of Payment
o Time : within 30 days after the date the gift is made; tax must be paid therein
o Place :
Authorized agent bank
Revenue District Officer
Collection Officer
Duly authorized Treasurer of the city or municipality where the donor was domiciled at the
time of transfer
Office of the Commissioner , if no legal residence in the Phils
If non-resident, the return may be filed with :
the Philippine Embassy or Consulate in the country where he is domiciled at the time
of transfer; OR
direct with the Office of the Commissioner

Gross Estate and Gifts (Sec 104) include:

1.
Real and Personal Property
Whether tangible or intangible or mixed
Wherever situated
Where decedent or donor is a non-resident alien at the time of death or donation, real or
personal property outside the Philippines is not included
2.
Franchise, shares, obligations or bonds, shares or
rights in business are situated in the Philippines when:
Issued by any corporation organized and constituted in the Philippines; OR
Issued by foreign corporations where 85% of its business is located in the Phils; OR
Issued by foreign corporations acquiring business situs in the Philippines
3.
Intangible Assets however, no tax shall be imposed
where:
Decedent or donor was a citizen and resident of a foreign country which did not impose a
transfer tax for intangible property of citizens of the Philippines not residing in that foreign
country; OR
The laws of the foreign country of the decedent or donor allows a similar exemption from
transfer or death taxes in respect to intangibles owned by citizens of the Philippines not
residing in that foreign country

REMEDIES

Remedies in General
1. Conveyance to Purchaser (Sec 202) where taxpayer fails to redeem property, the RDO shall
execute a deed conveying to purchaser so much of the property sold, free from all liens; such
deed shall recite all the proceedings upon which the validity of the sale depends
2. Assessment and Collection (Sec 203)
General Rule : Internal Revenue taxes shall be assessed within 3 years :
o If filed within the period prescribed by law - after the last day prescribed by law for filing,
provided that a return filed before the last day prescribed shall be considered filed
on the last day
o If return is filed beyond the period prescribed by law from the day the return was filed

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Exception : Sec 222

3. Compromise (Sec 204)

May be entered into when there is :
Ground
Minimum Compromise Rate
Reasonable doubt as to the validity of the claim
10% of basic assessed tax
against the taxpayer
Taxpayers clear inability to pay as shown by his
40% of basic assessed tax
financial capacity
Shall be subject to approval of the Evaluation Board composed of the Commissioner and
his 4 Deputies when:
o Basic tax exceeds P1,000,000; OR
o Settlement offered is less than the prescribed minimum compromise rate
All criminal violations may be compromised except:
o Those already filed in court; OR
o Those involving fraud
4. Abatement (Sec 204) where:
Tax appears to be unjustly or excessively assessed; OR
Administration and collection costs do not justify the collection of the amount due

5. Credit or Refund Taxes (Sec 204)

Allowed when taxpayer files in writing with the Commissioner a claim within 2 years after
the payment thereof
A return showing an overpayment shall be considered a written claim for credit or refund
Tax Credit Certificate validly issued :
o May be applied against any revenue tax, excluding withholding taxes
o Subject to Sec 230 of the NIRC
o Certificate showing creditable balance must be surrendered for cancellation
No tax refund shall be given resulting from availment of incentives granted for which no actual
payment was made
Commissioner shall submit to every six months a report on the exercise of his powers under
Sec 204 :
o To the Chairmen of the Committee on Ways and Means of both the Senate and the
House of Representatives
o Stating the following facts:
Names and addresses of taxpayers subject of compromise or abatement
Amount involved
Amount compromised or abated
Reasons for the exercise of such power
o Such report shall be presented to the Oversight Committeee in Congress to determine
whether such powers were reasonably exercised and that the government was not
unduly deprived of revenues
Civil Remedies (Government)
The following remedies for collection of internal revenue taxes, fees or charges, alternatively or ll
simultaneously (Sec 205) :
1. Distraint of goods, chattels or effects and other personal property, including stocks and
other securities, debts, credits, bank accounts and interest in and rights to personal property
o Shall not be availed of where the amount of tax involved is not more than P100.00
o Constructive Distraint (Sec 206)
May be done by Commissioner to the property of a taxpayer who is:
Delinquent
Retiring from any business subject to tax

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Intending to :
- leave the Philippines
- remove his property
- hide or conceal his property
- any act tending to obstruct the proceedings for collecting the tax
Shall be effected by requiring the taxpayer or any person having possession thereof
to :
Sign a receipt covering the distrained property
Preserve the same intact and unaltered
Not dispose of the same without express authority of Commissioner
In case the taxpayer or person in possession refuses or fails to sign, the revenue
officer shall proceed to :
Prepare a list of such property and
Leave a copy in the premises in the presence of two (2) witnesses
Summary Remedies (Sec 207)
a. Upon delinquency of taxpayer, the Commissioner or his representative (if tax due
is in excess of P1,000,000) or the RDO (if tax due is P1,000,000 or less) shall
distraint any goods, chattels and personal property sufficient to satisfy the
tax, its increment due to delinquency and expenses of distraint and subsequent
sale
b. Within 10 days from receipt of the warrant, a report on the distraint shall be of
submitted to the RDO and Revenue Regional Director; Secretary of Finance
upon recommendation of Commissioner shall have the power to lift distraint
Procedure
a. Distraint and Garnishment (Sec 208)
Officer serving the warrant shall make an account of the property distrained,
a copy shall be left with the owner or person in possession
Manner of Distraint
o Stocks and other securities - by serving a copy of the warrant upon :
- Taxpayer; AND
- President, manager, treasurer or responsible officer of the
corporation, company or association
o Debts and Credits leaving with the person owing the debts or having
possession or control over the credits a copy of the warrant of distraint;
such shall be sufficient authority to pay the Commissioner the amount of
such
o Bank Accounts serving a warrant of garnishment upon the taxpayer
and upon president, manager, treasurer or responsible officer of the bank
which shall turn over to Commissioner the amount sufficient to satisfy the
claim

b. Sale of Property and Disposition (Sec 209)

Revenue officer shall cause a notice to be exhibited in not less than 2 public
places in the municipality or city where the distraint is made; one place for
posting shall be the Office of the Mayor of the city or municipality where
property is distrained
Notice shall specify the time and place of sale
The time of sale shall not be less than 20 days after notice
At the time and place fixed in such notice, the properties shall be sold at
public auction to the highest bidder for cash with the approval of the
Commissioner
For sale of stocks and securities, the officer making the sale shall execute a
bill of sale and furnish a copy to the issuing corporation or association which
shall make the corresponding entry in its books

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Any residue over the claim and other expenses shall be returned to the
owner of the property sold; no charges shall be imposed upon services of the
local internal revenue officer or his deputy

c. Release of Distrained Property (Sec 210) the properties shall be restored by

to the owner if all proper charges are paid to the officer conducting the sale prior
to its consummation
d. Report of Sale to BIR (Sec 211) a report on the proceedings shall be
submitted in writing within 2 days after sale
e. Purchase by Government (Sec 212)
Commissioner or his deputy may purchase the property in behalf of the
national government when the amount bid for the property is :
- Not equal to the amount of the tax
- Very much less than the actual market value of the articles offered for
sale
Such property may be resold by the Commissioner or his deputy, its net
proceeds shall be remitted to the National Treasury
The forfeiture of chattels and removable fixtures shall be enforced by the
seizure and sale or destruction of the specific forfeited property (Sec 224)
2. Levy upon real property and interest in rights to real property
Summary Remedies (Sec 207)
Real property may be levied upon before, simultaneously or after the distraint of
personal property; if levy done after distraint,the revenue officer shall proceed with
levy within 30 days after the execution of the distraint
Internal revenue officer designated shall prepare a duly authenticated certificate
showing the name of the taxpayer and the amounts of the tax and penalty; such
certificate shall operate as a legal execution throughout the Philippines
Written notice shall be given to the:
a) Register of Deeds of the province or city where the property is located
b) Delinquent taxpayer
c) If taxpayer absent from the Phils, notice is given to :
His agent or manager of the business; OR
The occupant of the property in question
Within 10 days after receipt of warrant, a report on the levy shall be submitted to the
Commissioner or his representative; consolidated report may be required as
necessary; Commissioner shall have the authority to lift warrants of levy issued
Procedure :
a. Advertisement and Sale (Sec 213)
Within 20 days after levy, the officer shall proceed to advertise the property for a
period of at least 30 days
Advertisement shall be done by posting a notice at the main entrance of the
municipal building or city hall and in public and conspicuous place in the barrio or
district in which the real estate lies
Publication shall be done once a week for 3 weeks in a newspaper of general
circulation
The advertisement shall contain a statement of the:
amount of taxes and penalties
place of sale
name of taxpayer

40

 Taxpayer may discontinue the proceedings anytime before the date of sale by
paying the taxes, interest and penalties
Sale shall be held at the main entrance of the municipal building or city hall or on
the premises to be sold
Within 5 days after sale, a return shall be entered upon the records of the BIR
The excess of the proceeds over the claims shall be turned over to the owner of
the property
b. Redemption (Sec 214)
Within 1 year from the date of sale, the delinquent taxpayer shall have the right to
redeem the property by paying the :
taxes,
penalties
interest thereon from the date of delinquency,
interest on said purchase price at 15% per annum from the date of purchase
to the date of redemption
RDO shall pay over to the purchaser the amount of such property redeemed and
said property shall be free from the lien of such taxes and penalties
The owner shall not be deprived of the possession of such and shall be entitled
to rents and other income during the redemption period.
c. Forfeiture to Government (Sec 215)
In case there is no bidder or if highest bidder is for an insufficient amount, the
revenue officer shall declare the property forfeited to the government
Within 2 days, he shall make a return of his proceedings and the forfeiture shall
be recorded
Register of Deeds shall register the transfer of the property forfeited to the
Government without the necessity of an order from a competent court
Within 1 year from the forfeiture, the taxpayer may redeem said property by
paying the Commissioner the full amount of taxes and penalties together with
interests;
If property is not redeemed, the forfeiture shall become absolute
The forfeiture of real property shall be enforced by a judgment of condemnation
and sale in a legal action or proceeding, civil or criminal, as the case may require
(Sec 224)
d. Resale of Real Estate (Sec 216)
Commissioner shall have charge of any real estate obtained by the government
Upon giving of not less than 20 days notice, may sell and dispose of the same of
public auction or with prior approval of the Secretary of Finance
May dispose the same at private sale
Proceeds shall be deposited with the National Treasury

3. Civil or Criminal Action

o shall be (Sec 220) :
brought in the name of the Government
conducted by legal officers of the BIR
approved by the Commissioner before any action or enforcement is made

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The remedy for enforcement of statutory penalties shall be by criminal or civil action
subject to the approval by the Commissioner (Sec 221)

Further Distraint or Levy (Sec 217) may be repeated if necessary until the full amount due,
including expenses, is collected

No court shall have the authority to grant an injunction to restrain the collection of any
internal revenue tax, fee or charges (Sec 218)

When a taxpayer is liable for taxes and neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of Government from the time when assessment was made until
paid; the lien shall not be valid against any mortgagee purchaser or judgment creditor until
notice of such lien shall be filed by the Commissioner with the Register of Deeds (Sec 219)

Prescription of Action
o Period to Prescribe (Sec 222)
Condition
Prescription Period
Other Discussions
Assessment or filing of
a) False or fraudulent
In a fraud assessment which has
action for collection without
return with intent to
become final and executor, the
assessment may be made
evade tax or failure to
fact of fraud shall be judicially
within 10 years after
file a return
taken cognizance
discovery
b) Before period has
prescribed,
Period so agreed upon may be
Commissioner and
extended by subsequent written
taxpayer has agreed
Within the time agreed upon agreement before the expiration
in writing to its
of the period previously agreed
assessment after
upon
such time
Distraint or levy by a
c) Internal revenue tax
competent court within 5
assessed within the
years following the
period per par (a)
assessment
Tax may be collected by
Period so agreed may be
d) Internal revenue tax
distraint or levy within the
extended by subsequent written
assessed per par (b)
period agreed upon before
agreements
the expiration of 5 years
*** No examination and investigation or inquiry shall be made into any tax return filed
in accordance with the provisions of any tax amnesty, law or decree.
o

Suspension of Running of Statute of Limitation (Sec 223) the prescription period per
Sec 203 and Sec 222 shall be suspended :
During the period when the Commissioner is prohibited from making the assessment or
beginning distraint or levy and for 60 days thereafter
When taxpayer requests for reinvestigation granted by the Commissioner
When taxpayer cannot be located in the address given by him, except when the taxpayer
had informed the Commissioner of any change in address
When the warrant of distraint or levy is duly served, no property could be located
When the taxpayer is out of the Philippines

Sale or Destruction of Property (Sec 225)

o Sales of forfeited chattels and removable fixtures shall be effected in the same manner and
under the same conditions as the public notice and manner of sale as are prescribed for
sales of personal property distsrained for non-payment of taxes.

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o
o
o

Distilled spirits, liquors, cigars, cigarettes, tobacco products and apparatus, upon forfeiture,
lmay be destroyed by order of the Commissioner when the sale for consumption would be
injurious to public health or prejudicial to the enforcement of the law
All other articles subject to excise tax, which were manufactured or removed in violation of
the NIRC, as well as dies for printing of internal revenue stamps may be sold or destroyed in
the discretion of the Commissioner.
Forfeited property shall not be destroyed until at least 20 days after seizure.

Judgment Recovered Against any Internal Revenue Officer (Sec 227)

o When an action is brought against any Internal Revenue Officer to recover damages, the
judgment, damages or costs shall be paid by the Commissioner upon the following
conditions:
Such action was brought in relation to the performance of his official duty
The Commissioner is notified of such action in time to make defense through the
Solicitor General
Approval of the Secretary of Finance
o No such judgment, damages or costs shall be paid or reimbursed in behalf of a person who
has acted negligently or in bad faith or with wilful oppression.

Remedies (Taxpayer)
Protesting of Assessment (Sec 228)
o Preassessment
Pre-assessment notice shall not be required in the following:
When the finding is the result of mathematical error in the computation of the tax
appearing on the face of the return; or
When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
When a taxpayer who opted to claim a refund or tax credit of excess of creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
When the excise tax due on exciseable articles has not been paid; or
When the article locally purchased or imported by an exempt person, such as, but not
limited to vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons
Commissioner shall be informed in writing of the law and the facts on which the
assessment is made, otherwise the assessment is void.
The taxpayer is required to respond to such notice within a period provided in the
implementing rules and regulations; upon failure to respond, Commissioner shall issue an
assessment based on his findings.
o Assessment
Assessment may be protested administratively by filing within 30 days from receipt
thereof of :
Request for reconsideration; OR
Request for reinvestigation, provided all relevant supporting documents shall
be submitted within 60 days from filing of such, otherwise, the assessment shall
be final
Appeal to the CTA may be made within 30 days from :
The receipt of the denial, in whole or in part, of the protest
The lapse of 180 days from the submission of documents
***Otherwise, the decision shall become final, executor and demandable.
Recovery of Tax Erroneously or Illegally Collected (Sec 229)

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o
o
o
o

No suit for recovery shall be filed until a claim for refund or credit has been duly filed with the
Commissioner
Such suit may be maintained, whether or not such has been paid under protest or duress
No suit or proceeding shall be filed after the expiration of 2 years from the date of payment of
the tax or penalty regardless of supervening cause that may arise
Commissioner may refund or credit without a written claim when such appears to be on the
face of the return filed.

Prescription for Cash Refund and of Tax Credit (Sec 230)

Action
Prescription Period
Other Discussions
Refund (refund check Within 5 years from the
If unclaimed, it shall be forfeited in
or warrant)
date such was mailed or
favour of Government and such amount
delivered
will revert to the general fund
Tax Credit (tax credit
Utilize within 5 years from
Tax credit certificate unutilized as of
certificate)
the date of issue, unless
January 1, 1998 shall be presented for
revalidated
revalidation on or before June 30, 1998

Action to Contest Forfeiture of Chattel (Sec 231) In case of seizure of personal property
under forfeiture, the owner desiring to contest the validity of the forfeiture may, bring an action
against the person seizing the property or having possession thereof to recover the same :
o At any time before sale or destruction
o Upon giving of proper bond
o Enjoin the sale or within 6 months after sale, bring an action to recover the proceeds at
the sale

Read Statutory Offenses and Penalties (Sec 247 to Sec 252)

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