2019 BOC Taxation Law Reviewer PDF
2019 BOC Taxation Law Reviewer PDF
2019 BOC Taxation Law Reviewer PDF
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9. Compromise and Tax Amnesty .......... 31
TAXATION I ...............................................1 10. Ta pa er S i ....................................... 31
I. GENERAL PRINCIPLES OF TAXATION .. 2 II. NATIONAL INTERNAL REVENUE CODE
(NIRC) OF 1997, AS AMENDED .................. 34
A. Definition, Concept and Purpose of
Taxation ........................................................... 2 A. Organization and Functions of the Bureau
B. Nature and Characteristics of Taxation ...... 3 of Internal Revenue ...................................... 34
C. Power of Taxation as Distinguished from 1. Rule-Making Authority of the Secretary
Police Power and Eminent Domain ........... 4 of Finance ............................................... 34
D. Theory and Basis of Taxation ...................... 5 2. Jurisdiction, Power and Functions of
E. Principles of a Sound Tax System ............... 6 the Commissioner of Internal Revenue
F. Scope and Limitations of Taxation ............. 6 35
1. Inherent Limitations .............................. 6 B. Income Taxation ........................................... 36
2. Constitutional Limitations .................... 9 1. Income Tax ............................................ 36
G. Situs of Taxation ........................................... 15 2. Gross Income ........................................ 45
H. Stages or Aspects of Taxation .................... 16 3. Deductions from Gross Income ........ 68
I. Definition, Nature and Characteristics of 4. Income Tax on Individuals ................. 81
Taxes ............................................................... 16 5. Income Tax on Corporations ............. 97
J. Requisites of a Valid Tax............................. 17 6. Filing of Returns and Payment of
K. Tax as Distinguished from Other Forms of Income Tax .......................................... 109
Exactions ....................................................... 17 7. Withholding of Taxes ......................... 113
L. Kinds of Taxes .............................................. 19
1. As to object............................................ 19 TAXATION II .......................................... 115
2. As to burden or incidence ................... 19 C. Transfer Taxes ............................................. 116
3. As to tax rates........................................ 20 1. Estate Tax............................................. 116
4. As to purpose ........................................ 20 2. Donor Ta ......................................... 133
5. As to scope (or authority imposing the D. Value-Added Tax (VAT) and Percentage
tax)........................................................... 20 Taxes ............................................................. 150
6. As to graduation ................................... 20 1. VAT....................................................... 150
M. Sources of Tax Laws .................................... 21 2. Percentage Taxes ................................. 189
1. Constitution of the Philippines .......... 21 3. Excise Tax and Documentary Stamp
2. Statutes ................................................... 21 Tax ......................................................... 190
3. Judicial Decisions.................................. 21 E. TAX REMEDIES UNDER THE NIRC
4. Executive Orders .................................. 21 192
5. Tax Treaties and Conventions ........... 21 1. General Concepts................................ 192
6. Revenue Regulations by the 2. Collection ............................................. 199
Department of Finance ....................... 21 F. Ta pa er Remedie .................................. 200
7. BIR Revenue Memorandum Circulars 1. Protesting the Assessment ................. 200
and Bureau of Customs Memorandum 2. Compromise and Abatement of Taxes
Orders ..................................................... 21 201
8. BIR Rulings ........................................... 22 3. Recovery of Tax Erroneously or Illegally
9. Local Tax Ordinances .......................... 22 Collected ............................................... 202
N. Construction and Interpretation ................ 22 G. Go ernmen Remedie ............................ 205
1. Tax Laws ................................................ 22 1. Administrative Remedies ................... 205
2. Tax Exemption and Exclusion........... 23 2. Judicial Remedies Civil or Criminal
3. Tax Rules and Regulations .................. 23 Action.................................................... 209
4. Penal Provisions of Tax Laws ............ 24
5. Non-Retroactive Application of Tax III. LOCAL GOVERNMENT CODE OF 1991,
Laws to Taxpayers ................................ 24 AS AMENDED ................................................. 211
O. Doctrines of Taxation.................................. 25 A. Local Government Taxation ..................... 211
1. Prospectivity of Tax Laws ................... 25 1. Fundamental Principles (UEPIP) ..... 211
2. Imprescriptibility of Taxes .................. 25 2. Nature and Source of Taxing Power211
3. Double Taxation ................................... 26 3. Local Taxing Authority ...................... 212
4. Power to Tax Involves Power to 4. Scope of Taxing Power ...................... 213
Destroy ................................................... 27 5. Specific Taxing Power of LGUs....... 213
5. Escape from Taxation ......................... 27 6. Common Limitations on the Taxing
6. Exemption from Taxation .................. 29 Powers of LGUs ................................. 222
7. Doctrine of Equitable Recoupment .. 30
7.
Collection of Business Tax ............... 223
8.
Ta pa er Remedie .......................... 224
9.
Civil Remedies by the LGU for
Collection of Revenues ...................... 225
B. Real Property Taxation .............................. 226
1. Fundamental Principles ..................... 226
2. Nature of Real Property Tax ............ 226
3. Imposition of Real Property Tax ..... 227
4. Appraisal and Assessment of Real
Property Tax ........................................ 228
5. Collection of Real Property Tax ...... 231
6. Refund or Credit of Real Property Tax
232
7. Ta pa er Remedie .......................... 233
IV. JUDICIAL REMEDIES .................................. 238
A. Jurisdiction of the Court of Tax Appeals238
1. Exclusive Appellate Jurisdiction over
Civil Tax Cases .................................... 238
2. Criminal Cases..................................... 239
B. Judicial Procedures ..................................... 240
1. Judicial Action for Collection of Taxes
240
2. Civil Cases ............................................ 241
3. Criminal Cases..................................... 243
TRAIN LAW ............................................. 245
TARIFF AND CUSTOMS CODE .......... 259
V. TARIFF AND CUSTOMS CODE OF THE
PHILIPPINES ................................................... 260
A. Tariff and Duties ........................................ 260
1. Definition ............................................. 260
2. Purpose for Imposition ..................... 260
3. Kinds or Classification of Duties ..... 260
4. Flexible Tariff Clause ......................... 265
B. Requirements of Importation................... 266
1. Beginning and Ending of Importation
266
2. Obligations of Importer .................... 267
C. Accrual and Payment of Tax and Duties 271
1. General Rule: All Imported Articles are
Subject to Duty ................................... 271
2. Goods Declaration ............................. 278
D. Unlawful Importation or Exportation .... 281
1. Technical Smuggling and Outright
Smuggling............................................. 281
2. Other Fraudulent Practices ............... 281
E. Remedies ...................................................... 282
1. Government ........................................ 282
2. Taxpayer ............................................... 285
UP LAW BOC TAXATION I TAXATION LAW
TAXATION I
Taxation Law
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3. Subject to constitutional and inherent 8. Levied for public purpose. Revenues derived
limitations The power to tax is said to be the from taxes cannot be used for purely private
strongest of all the powers of government. It is purposes or for the exclusive benefit of private
unlimited, plenary, comprehensive and persons. [Gaston v. Republic Planters Bank, G.R.
supreme, in the absence of constitutional No. 77194 (1988)]. The p blic p rpo e or
restrictions, the principal check on its abuse p rpo e of he impo i ion i implied in he le
resting in the responsibility of members of of tax. [Mendoza v. Municipality, G.R. No. L-7373
Congress to their constituents. However, the (1954)]. A tax levied for a private purpose
power of taxation is subject to constitutional and constitutes a taking of property without due
inherent limitations [Mamalateo]. These process of law; and
limitations are those provided in the fundamental 9. It is also an important characteristic of most taxes
law or implied therefrom, while the rest spring that they are commonly required to be paid at
from the nature of the taxing power itself regular periods or intervals [see 1 Cooley 64]
every year.
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Since Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation,
the distinction between police power and the power to tax, which could be significant if the exercising authority were
mere political subdivisions (since delegation by it to such political subdivisions of one power does not necessarily
include the other), would not be of any moment when, Congress itself exercises the power. [NTC v. CA, G.R. No.
127937 (1999)]
Taxation Eminent Domain Police Power
May be exercised by:
the government; May be exercised only by:
Authority (who May be exercised only by:
its political subdivisions; the government; or
exercises the the government; or
or may be granted to public its political subdivisions.
Power) its political subdivisions.
service companies or public
utilities.
The use of the property is
The property (generally in
reg la ed for he
the form of money) is Merely a power to take private
Purpose purpose of promoting
taken for the support of property for public use.
the general welfare; it is
the government.
not compensable.
Operates upon: Operates on: Operates upon:
Persons
a community; an individual as the owner of a a community;
Affected
or class of individuals. particular property. or a class of individuals.
There is no transfer of
The money contributed
There is a transfer of the right title. At most, there is
Effect becomes part of the public
to property. restraint on the injurious
funds.
use of property.
Protection and benefits Indirect benefits
he receives.
It is assumed that the Market value of the property The person affected
Benefits individual receives the receives indirect benefits
Received equivalent of the tax in the He receives the market value of as may arise from the
form of protection and the property taken from him. maintenance of a healthy
benefits he receives from economic standard of
the government. society.
Amount imposed should
Generally, there is no limit No amount imposed but rather just be commensurate to
Amount of
on the amount of tax that the owner is paid the market cover the cost of the
Imposition
may be imposed. value of property taken. license and necessary
expenses.
Inferior to the impairment
Subject to constitutional prohibition; government cannot Relatively free from
limitations, including the expropriate private property, constitutional limitations
Relationship to
prohibition against which under a contract had and is superior to the
Constitution
impairment of the previously bound itself to impairment of contract
obligation of contracts. purchase from the other provision.
contracting party.
[Mamalateo, Reviewer on Taxation 2nd Edition (2008), pp. 11-12]
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3. Theoretical justice or equality Test: Whether the statute is designed to promote the
The tax burden should be in proportion to the public interest, as opposed to the furtherance of the
a pa er abili o pa . Thi i he o-called advantage of individuals, although each advantage to
ability to pay principle. Taxation should be individuals might incidentally serve the public. [Pascual
uniform as well as equitable v. Sec. of Public Works, G.R. No. L-10405 (1960)]
Note: The non-observance of the above principles will The protection and promotion of the sugar industry
not necessarily render the tax imposed invalid except is a matter of public concern; the legislature may
to the extent those specific constitutional limitations determine within reasonable bounds what is necessary
are violated. [De Leon] for its protection and expedient for its promotion.
[Lutz v. Araneta, G.R. No. L-7859 (1955)]
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the manner, means, and agencies of useless to impose a tax which could not be
collection; and collected.
the prescribing of the necessary rules with c. Usage among states that when a foreign sovereign
respect thereto. enters the territorial jurisdiction of another, there
is an implied understanding that the former does
not intend to degrade its dignity by placing itself
TERRITORIAL under the jurisdiction of the other.
Rule: A state may not tax property lying outside its
borders or lay an excise or privilege tax upon the EXEMPTION OF GOVERNMENT
exercise or enjoyment of a right or privilege derived ENTITIES, AGENCIES, AND
from the laws of another state and therein exercise INSTRUMENTALITIES
and enjoyed. [51 Am.Jur. 87-88].
If the taxing authority is the National
Reasons: Government:
a. Tax laws (and this is true of all laws) do not
operate be ond a co n r erri orial limi . General Rule: Agencies and instrumentalities of the
b. Property which is wholly and exclusively within government are exempt from tax.
the jurisdiction of another state receives none of
the protection for which a tax is supposed to be Note: Unless otherwise provided by law, the
a compensation. exemption applies only to government entities
through which the government immediately and
Note: Where privity of relationship exists. It does directly exercises its sovereign powers. With respect
not mean, however, that a person outside of state is to government-owned or controlled corporations
no longer subject to its taxing powers. The performing proprietary (not governmental) functions,
fundamental basis of the right to tax is the capacity of they are generally subject to tax unless exempted
the government to provide benefits and protection to under Section 27(C) of the Tax Code or, in certain
the object of the tax. A person may be taxed where cases, if there is a tax exemption provisions in their
there is between him and the taxing state, a privity of charters or the law creating them in line with the rule
he rela ion hip j if ing he le . Th , he ci i en that a specific law overrides a general law.
income may be taxed even if he resides abroad as the
personal (as distinguished from territorial) jurisdiction Reasons for the exemption:
of his government over him remains. In this case, the a. To levy a tax upon public property would render
basis of the power to tax is not dependent on the necessary new taxes on other public property for
source of the income nor upon the location of the the payment of the tax so laid and thus, the
property nor upon the residence of the taxpayer but government would be taxing itself to raise money
upon his relation as a citizen to the state. As such to pay over for itself.
citizen, he is entitled, wherever he may be, inside or b. This immunity also rests upon fundamental
outside of his country, to the protection of his principles of government, being necessary in
government. order that the functions of government shall not
be unduly impeded. [1 Cooley 263.
INTERNATIONAL COMITY c. The practical effect of an exemption running to
Comity respect accorded by nations to each other the benefit of the government is merely to reduce
because they are sovereign equals. Thus, the property the amount of money that has to be handled by
or income of a foreign state or government may not the government in the course of its operations:
be the subject of taxation by another state. For these reasons, provisions granting
exemptions to government agencies may be
Reasons: construed liberally in favor of non-tax
a. In par in parem non habet imperium. As between liability of such agencies. [Maceda v. Macaraig,
equals there is no sovereign (Doctrine of Jr., G.R. No. 88291 (1991)].
Sovereign Equality among states under
international law). One state cannot exercise its Exception: There is no constitutional prohibition
sovereign powers over another.) against the government taxing itself. [Coll. v. Bisaya
b. In international law, a foreign government may Land Transportation, 105 Phil. 338 (1959)].
not be sued without its consent. Therefore, it is
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residents, such as athletic fields. purposes of commerce, it is only fair that half of the
[Abra Valley College v. Aquino, assessed tax be returned to the school involved.
G.R. No. L-39086 (1988)]
5. Prohibition against taxation of non-
TEST: Whether an enterprise is charitable or not: stock, non-profit educational
Whether it exists to carry out a purpose institutions
recognized in law as charitable; or
Whether it is maintained for gain, profit, or Art. XIV, Sec. 4, 1987 Constitution
private advantage. All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
A charitable institution does not lose its character as exclusively for educational purposes shall be
such and its exemption from taxes simply because it exempt from taxes and duties.
derives income from paying patients, whether out-
patient, or confined in the hospital, or receives Proprietary educational institutions, including
subsidies from the government, so long as the money those cooperatively owned, may likewise be
received is devoted or used altogether to the entitled to such exemptions subject to the
charitable object which it is intended to achieve; and limitations provided by law, including restrictions
no money inures to the private benefit of the persons on dividends and provisions for reinvestment.
managing or operating the institution (including
honoraria to members of the board of trustees; BIR Subject to conditions prescribed by law, all grants,
Ruling No. 558-18, among others). endowments, donations, or contributions used
actually, directly, and exclusively for educational
E " possessed and enjoyed to the purposes shall be exempt from tax.
exclusion of others; debarred from participation or
enjoyment; This provision covers only non-stock, non-profit
educational institutions.
"Exclusively" - in a manner to exclude; as enjoying
a pri ilege e cl i el . The exemption covers c e, e ,a dd a e,
custom duties, and other taxes imposed by either or both
If real property is used for one or more commercial the national government or political subdivisions on
purposes, it is not exclusively used for the exempted all revenues, assets, property or donations, used
purposes but is subject to taxation. The words actually, directly and exclusively for educational
"dominant use" or "principal use" cannot be purposes. (In the case of religious and charitable
substituted for the words "used exclusively" without entities and non-profit cemeteries, the exemption is
doing violence to the Constitution and the law. Solely limited to property tax.)
is synonymous with exclusively. [Lung Center of the
Philippines v. Quezon City, G.R. No. 144104 (2004)] The exemption does not cover revenues derived
from, or assets used in, unrelated activities or
Note: Lung Center did not necessarily overturn the enterprise.
case of Abra Valley College v. Aquino, G.R. No. L-39086
(1988). Lung Center just provided a stricter Similar tax exemptions may be extended to
interpretation. In Abra Valley, the Court held: The proprietary (for profit) educational institutions by law
primary use of the school lot and building is the basic subject to such limitations as it may provide, including
and controlling guide, norm and standard to restrictions on dividends and provisions for
determine tax exemption, and not the mere incidental reinvestment. The restrictions are designed to ensure
use thereof. Under the 1935 Constitution, the trial that the tax-exemption benefits are used for
court correctly held that the school building as well as educational purposes.
the lot where it is built, should be taxed, not because
the second floor of the same is being used by the Lands, buildings, and improvements actually, directly
Director and his family for residential purposes and exclusively used for educational purposes are
(incidental to its educational purpose), but because exempt from property tax [Sec. 28(3), Art. VI, 1987
the first floor thereof is being used for commercial Constitution], whether the educational institution is
purposes. However, since only a portion is used for proprietary or non-profit.
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c. Tax refunds
Art. XIV, Sec. 4,
Art. VI, Sec. 28, par. 3
par. 3 Note:
Charitable institutions, Non-stock, non-profit a. Local government units may, through ordinances
churches and educational duly approved, grant tax exemptions, incentives
parsonages or convents institutions. or reliefs under such terms and conditions as they
appurtenant thereto, may deem necessary. [Sec. 192, LGC]
mosques, non-profit b. The President of the Philippines may, when
cemeteries, and all lands, public interest so requires, condone or reduce the
buildings, and real property tax and interest for any year in any
improvements, actually, province or city or a municipality within the
directly, and exclusively Metropolitan Manila Area. [Sec. 277, LGC]
used for religious,
charitable, or 7. Prohibition on use of tax levied for
educational purposes. special purpose
Property taxes Income, property, and
donor a e and All money collected on any tax levied for a special
custom duties. purpose shall be treated as a special fund and paid out
for such purpose only.
6. Majority vote of Congress for grant of
tax exemption If the purpose for which a special fund was created
has been fulfilled or abandoned, the balance, if any,
Art. VI, Sec. 28, 1987 Constitution. No law shall be transferred to the general funds of the
granting any tax exemption shall be passed without Government. [Gaston v. Republic Planters Bank, G.R.
the concurrence of a majority of all the Members No. L-77194 (1988)].
of the Congress.
8. P on
Basis: The inherent power of the state to impose appropriation, revenue, tariff bills
taxes carries with it the power to grant tax
exemptions. Art. VI, Sec. 27(2), 1987 Constitution. The
President shall have the power to veto any
Exemptions may be created by: particular item or items in an appropriation,
a. The Constitution, or revenue, or tariff bill, but the veto shall not affect
b. Statutes, subject to constitutional limitations the item or times to which he does not object.
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(b) all cases involving the legality of any tax, used for religious, charitable, or educational
impost, assessment or toll or any penalty imposed purposes shall be exempt from taxation.
in relation thereto.
13. No appropriation or use of public
Even the legislative body cannot deprive the SC of its money for religious purposes
appellate jurisdiction over all cases coming from Art. VI, Sec. 29, 1987 Constitution
inferior courts where the constitutionality or validity 1. No money shall be paid out of the Treasury
of an ordinance or the legality of any tax, impost, except in pursuance of an appropriation
assessment, or toll is in question. [San Miguel Corp v. made by law.
Avelino, G.R. No. L-39699 (1979)] 2. No public money or property shall be
appropriated, applied, paid, or employed,
Art. VI, Sec. 30, 1987 Constitution. No law shall directly or indirectly, for the use, benefit, or
be passed increasing the appellate jurisdiction of the support of any sect, church, denomination,
Supreme Court without its advice and sectarian institution, or system of religion, or
concurrence. of any priest, preacher, minister, other
religious teacher, or dignitary as such, except
Scope of Judicial Review in taxation: limited only when such priest, preacher, minister, or
to the interpretation and application of tax laws. Its dignitary is assigned to the armed forces, or
power does not include inquiry into the policy of to any penal institution, or government
legislation. Neither can it legitimately question or orphanage or leprosarium.
refuse to sanction the provisions of any law consistent 3. All money collected on any tax levied for a
with the Constitution. [Coll. v. Bisaya Land special purpose shall be treated as a special
Transportation, 105 Phil. 338 (1959)]. fund and paid out for such purpose only. If
the purpose for which a special fund was
10. Grant of power to the local created has been fulfilled or abandoned, the
government units to create its own balance, if any, shall be transferred to the
sources of revenue general funds of the Government
Flexible tariff clause: the authority given to the Procedural Due Process An act is done after
President, upon the recommendation of NEDA, to compliance with fair and reasonable methods or
adjust the tariff rates under Sec. 1608 of the CMTA in procedure prescribed by law.
the interest of national economy, general welfare
and/or national security. Due Process in Taxation requirements:
a. Public purpose
12. Exemption from real property taxes b. Imposed i hin a ing a hori erri orial
jurisdiction
Art. VI, Sec. 28(3), 1987 Constitution.
c. Assessment or collection is not arbitrary or
Charitable institutions, churches and personages
oppressive
or convents appurtenant thereto, mosques, non-
profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively
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The due process clause may be invoked where a preference, shall forever be allowed. (Free exercise
taxing statute is so arbitrary that it finds no support in clause)
the Constitution, as where it can be shown to amount
to the confiscation of property. [Sison v. Ancheta, G.R. No religious test shall be required for the exercise
No. L-59431(1984)] of civil and political rights.
Instances of violations of the due process clause: The free exercise clause is the basis of tax exemptions.
a. If the tax amounts to confiscation of property;
b. If the subject of confiscation is outside the The imposition of license fees on the distribution and
jurisdiction of the taxing authority; sale of bibles and other religious literature by a non-
c. If the tax is imposed for a purpose other than a stock, non-profit missionary organization not for
public purpose; purposes of profit amounts to a condition or permit
d. If the law which is applied retroactively imposes for the exercise of their right, thus violating the
just and oppressive taxes. constitutional guarantee of the free exercise and
e. If the law violates the inherent limitations on enjoyment of religious profession and worship which
taxation. carries with it the right to disseminate religious beliefs
and information. [American Bible Society v. City of
2. Equal protection Manila, G.R. No. L-9637 (1957)] It is actually in the
Art. III, Sec. 1, 1987 Constitution. No person shall nature of a condition or permit for the exercise of the
be deprived of life, liberty, or property without due right. This is different from a tax in the income of one
process of law, nor shall any person be denied the who engages in religious activities or a tax on property
equal protection of the laws. used or employed in connection with those activities.
It is one thing to impose a tax on the income or
All persons subject to legislation shall be treated alike property of a preacher. It is quite another thing to
under similar circumstances and conditions both in exact a tax for the privilege of delivering a sermon.
the privileges conferred and liabilities imposed. [1
Cooley 824-825; See Sison v. Ancheta, supra]. The Constitution, however, does not prohibit
imposing a generally applicable tax on the sale of
The doctrine does not require that persons or religious materials by a religious organization.
properties different in fact be treated in laws as [Tolentino v. Secretary of Finance, G.R. No. 115455
though they were the same. Indeed, to treat them the (1994)]
same or alike may offend the Constitution. What the
Constitution prohibits is class legislation which 4. Non-impairment of obligations of
discriminates against some and favors others. As long contracts
as there are rational or reasonable grounds for so Art. III, Sec. 10, 1987 Constitution. No law
doing, Congress may, therefore, group the persons or impairing the obligation of contracts shall be
proper ie o be a ed and i i fficien if all of he passed.
same class are subject to the same rate and the tax is
admini ered impar iall pon hem. [1 Cooley 608]. The Contract Clause has never been thought as a
limitation on the exercise of the State's power of
The equal protection clause is subject to reasonable taxation save only where a tax exemption has been
classification (See requisites for valid classification, granted for a valid consideration. [Tolentino v. Secretary
supra). of Finance, supra]
3. Religious freedom
Art. III, Sec. 5, 1987 Constitution. No law shall
be made respecting an establishment of religion, or
prohibiting the free exercise thereof. (Non-
establishment clause)
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Toll
Taxes Toll
Paid for the support of Paid for the use of
the government ano her proper .
Demand of sovereignty Demand of
proprietorship
Generally, no limit on Amount paid depends
the amount collected as upon the cost of
long as it is not construction or
excessive, unreasonable maintenance of the
or confiscatory public improvement
used.
Imposed only by the Imposed by the
government government or by
private individuals or
entities.
A toll is a sum of money for the use of something,
generally applied to the consideration which is paid
for the use of a road, bridge or the like, of a public
nature. [1 Cooley 77]
License fee
License and
Taxes
Regulatory Fee
Imposed under the Levied under the police
taxing power of the power of the state.
state for purposes of
revenue.
Forced contributions Exacted primarily to
for the purpose of regulate certain
maintaining government businesses or
functions. occupations.
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Generally unlimited as Should not purpose, the fact that incidentally revenue is also
to amount unreasonably exceed the obtained does not make the imposition a tax.
expenses of issuing the [Progressive Development Corp. vs. Quezon City, supra]
license and of
supervision. Primary purpose test (as seen in Progressive
Imposed on persons, Imposed only on the Development Corp v. QC, supra):
property and the right to right to exercise a 1. Imposition must relate to an occupation or
exercise a privilege. privilege activity that so engages the public interest in
Failure to pay does not Failure to pay makes the health, morals, safety and development as to
necessarily make the act act or business illegal. require regulation for the protection and
or business illegal. promotion of such public interest;
Penalty for non- 2. Imposition must bear a reasonable relation to the
payment: probable expenses of regulation, taking into
Surcharges; or account not only the costs of direct regulation
Imprisonment (except but also its incidental consequences as well.
poll tax).
Note: Taxes may also be imposed for regulatory
License or permit fee is a charge imposed under the purposes. It is called regulatory tax.
police power for purposes of regulation.
Fees may be properly regarded as taxes even though
License is in the nature of a special privilege, of a they also served as an instrument of regulation. If the
permission or authority to do what is within its terms. purpose is primarily revenue, or if revenue is, at least,
It makes lawful an act which would otherwise be one of the real and substantial purposes, then the
unlawful. A license granted by the State is always exaction is properly called a tax. [PAL v. Edu, supra]
revocable. [Gonzalo Sy Trading vs. Central Bank of the
Phil., G.R. No. L-41480 (1976)] Special assessment
Taxes Special Assessment
Importance of the distinctions Levied not only on land Levied only on land
1. It is necessary to determine whether a particular Imposed regardless of Imposed because of an
imposition is a tax or a license fee because some public improvements increase in value of land
limitations apply only to one and not to the other, and for benefited by public
the reason that exemption from taxes may not improvement
include exemption from license fee. Contribution of a Contribution of a
2. The power to regulate as an exercise of police taxpayer for the support person for the
power does not include the power to impose fees of the government construction of a public
for revenue purposes. The amount of tax bears improvement
no relation at all to the probable cost of
It has general Exceptional both as to
regulating the activity, occupation, or property
application both as to time and locality
being taxed. [Progressive Development Corp. vs.
time and place
Quezon City, G.R. No. L-36081 (1989)]
3. An exaction, however, may be considered both a
A special assessment is not a personal liability of the
tax and a license fee. This is true in the case of car
person assessed, i.e., his liability is limited only to the
registration fees which may be regarded as taxes
land involved. It is based wholly on benefits (not
even as they also serve as an instrument of
necessity).
regulation. If the purpose is primarily revenue, or
if revenue, is, at least, one of the real and
A charge imposed only on property owners benefited
substantial purposes, then the exaction is
is a special assessment rather than a tax
properly called a tax. [Phil. Airlines, Inc. vs. Edu,
notwithstanding that the statute calls it a tax. The rule
G.R. No. L- 41383 (1988)]
is that an exemption from taxation does not include
4. But it is possible that a tax may only have a
exemption from special assessment. But the power to
regulatory purpose. The general rule, however, is
tax carries with it the power to levy a special
that the imposition is a tax if its primary purpose
assessment.
is to generate revenue, and regulation is merely
incidental; but if regulation is the primary
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consumers who ultimately pay for them not 5. As to scope (or authority
as taxes but as part of the purchase price.
Thus, the person who absorbs or bears the imposing the tax)
burden of the tax is other than the one on a. National taxes imposed by the national
whom it is imposed and required by law to government (e.g., national internal revenue
pay the tax. Practically all business taxes are taxes, customs duties, and national taxes
indirect (e.g., VAT, percentage tax, excise imposed by laws).
taxes on specified goods, customs duties). b. Municipal or Local taxes imposed by
local governments (e.g., business taxes that
3. As to tax rates may be imposed under the Local
a. Specific Tax a tax of a fixed amount Government Code, professional tax).
imposed by the head or number or by some
other standard of weight or measurement. It 6. As to graduation
requires no assessment (valuation) other than the a. Progressive The rate of tax increases as
listing or classification of the objects to be the tax base or bracket increases, e.g., income
taxed (e.g., taxes on distilled spirits, wines, a , e a e a , donor a .
and fermented liquors; cigars and cigarettes) b. Regressive The rate of tax decreases as
b. Ad Valorem Tax a tax of a fixed proportion the tax base or bracket increases. There is no
of the value of the property with respect to which regressive tax in the Philippines.
the tax is assessed. It requires the c. Proportionate The rate of tax is based on
intervention of assessors or appraisers to a fixed percentage of the amount of the
estimate the value of such property before property, receipts or other basis to be taxed,
the amount due from each taxpayer can be e.g., real estate tax, VAT, and other
de ermined. The phra e ad valorem mean percentage taxes.
li erall , according o al e. (e.g., real d. Digressive A fixed rate is imposed on a
estate tax, excise tax on automobiles, non- certain amount and diminishes gradually on
essential goods such as jewelry and sums below it. The tax rate in this case is
perfumes, customs duties (except on arbitrary because the increase in tax rate is
cinematographic films)). not proportionate to the increase of tax base.
c. Mixed
Regressive/Progressive system of taxation
4. As to purpose A regressive tax must not be confused with the
regressive system of taxation.
a. General or Fiscal Tax levied for the
general or ordinary purposes of the
In a society where the majority of the people have low
Government, i.e., to raise revenue for
incomes, regressive taxation system exists when
governmental needs (e.g., income tax, VAT,
there are more indirect taxes imposed than direct
and almost all taxes).
taxes. Since the low-income sector of the population
b. Special/Regulatory/Sumptuary Tax
as a whole buy more consumption goods on which
levied for special purposes, i.e., to achieve some
the indirect taxes are collected, the burden of indirect
social or economic ends irrespective of
taxes rests more on them than on the more affluent
whether revenue is actually raised or not
groups.
(e.g., protective tariffs or customs duties on
imported goods to enable similar products
A progressive tax is, therefore, also different from a
manufactured locally to compete with such
progressive system of taxation.
imports in the domestic market).
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Secretary of Finance upon the recommendation of of individuals and the object is to establish a certain
the Commissioner of Internal Revenue. rule by conformity to which mankind would be safe,
and the discretion of the court limited. [People v.
General rule: The Commissioner has the sole authority Purisima, G.R. No. L-42050-66 (1978)].
to issue rulings but he also has the power to delegate
said authority to his subordinates with the rank 5. Non-Retroactive Application
equivalent to a division chief or higher.
of Tax Laws to Taxpayers
Exceptions: The Commissioner may not delegate the
following: General rule: Tax laws are prospective in operation.
a. The power to recommend the promulgation of The reason is that the nature and amount of the tax
rules and regulations by the Secretary of Finance; could not be foreseen and understood by the taxpayer
b. The power to issue rulings of first impression or at the time the transaction which the law seeks to tax
to reverse, revoke, or modify any existing ruling was completed.
of the Bureau; and
c. The power to compromise or abate any tax Exception: Tax laws may be applied retroactively
liability as provided by Sec. 204 and 205 of the provided it is expressly declared or clearly the legislative
NIRC intent. [Lorenzo v. Posadas, supra].
Exception to the exception: BUT assessments issued by Exception to the exception: a tax law should not be given
RDOs involving (a) Php500,000 or less, and (b) minor retroactive application when it would be so harsh and
criminal violations as determined by the Secretary of oppressive for in such case, the constitutional limitation
Finance as recommended by the Commissioner, may of due process would be violated [Republic v. Fernandez,
be compromised by a Regional Evaluation Board supra].
(CHAIRMAN: Regional Director; MEMBERS:
Assistant Regional Director, heads of the Legal,
Assessment and Collection Divisions, and the
Revenue District Officer having jurisdiction over the
taxpayer.) [Sec. 7, NIRC].
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O. Doctrines of Taxation
2. Imprescriptibility of Taxes
1. Prospectivity of Tax Laws Unless otherwise provided by law, taxes are
imprescriptible. [CIR v. Ayala Securities Corporation
General rule: Tax laws are prospective in operation. G.R. No. L-29485 (1980)]
Reason: Nature and amount of the tax under tax laws The law on prescription, being a remedial measure,
enacted after the transaction could not have been should be liberally construed in order to afford such
foreseen and understood by the taxpayer at the time protection. As a corollary, the exceptions to the law
of the transaction. on prescription should perforce be strictly construed.
[Commissioner v. CA, G.R. No. 104171 (1999)]
Exception: Tax laws may be applied retroactively
provided it is expressly declared or it is clearly the
legislative intent (e.g., increase taxes on income
a. Prescriptions found in statutes
already earned) except when retroactive application
would be so harsh and oppressive. [Republic v. 1. National Internal Revenue Code
Fernandez, G.R. No. L-9141 (1956)] statute of limitations in the assessment and collection
of taxes therein imposed.
It is a cardinal rule that laws shall have no retroactive
effect, unless the contrary is provided (Art. 4, Civil Summary of prescription on assessment and
Code). [Hydro Resources v. CA, G.R. No. 80276 (1990)] collection:
Prescription of assessment AND
The language of the statute must clearly demand or collection from the:
press that it shall have a retroactive effect. [Lorenzo v. prescribed last day of filing of
Posadas, supra] returns (even if return was filed
3 YEARS earlier than the deadline); OR
Exception to the exception: the day when the return was actually
Collection of interest in tax cases is not penal in filed if filed later than the last day of
nature; it is but a just compensation to the State. The filing [Sec. 203, NIRC] whichever comes
constitutional prohibition against ex post facto laws is earlier.
not applicable to the collection of interest on back Prescription of assessment in cases
taxes. [Central Azucarera v. CTA, G.R. No. L-23236 of:
(1967)] false or fraudulent return with intent
to evade tax; OR
10 YEARS
Non-retroactivity of rulings [Sec. 246, NIRC] failure to file a return [Sec. 222,
General rule: Rulings do not have retroactive NIRC]
application if the revocation, modification, or reversal From the discovery of the fraud,
will be prejudicial to the taxpayer. falsity, or omission.
Prescription of collection of tax if:
Exceptions: assessed within the 3-year and 10-
a. Ta pa er delibera e mi a emen or omi ion year prescriptive periods
of facts assessed within the extended period
b. BIR ga hered fac i ma eriall differen from agreed upon by the Commissioner
5 YEARS
the facts from which the ruling was based on and taxpayer (waiver of the
c. Taxpayer acted in bad faith prescriptive period)
Collected by distraint, levy or by a
Note: The rule on non-retroactivity of rulings may be proceeding in court. [Sec. 222,
applied only if the parties in the ruling involve the NIRC]
taxpayer himself/itself. The taxpayer cannot invoke
the rulings granted in favor of the other taxpayers. Note: The prescriptive period from final liquidation is
three (3) years, except in cases of:
1. tentative liquidation;
2. payment under protest;
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resorts to several methods. [CIR v. SC Johnson & Sons, minimize injury to the proprietary rights of the
Inc., G.R. No. 127105 (1999)] taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kills the 'hen that lays
The purpose of these international agreements is to the golden eggs.' And in order to maintain the general
reconcile the national fiscal legislations of the public's trust and confidence in the government, this
contracting parties in order to help the taxpayer avoid power must be used justly and not treacherously."
simultaneous taxation in two different jurisdictions. [Roxas v. Court of Tax Appeals, G.R. No. L-25043
More precisely, the tax conventions are drafted with a (1968); Philex Mining Corp. vs. Comm. of Internal Revenue,
view towards the elimination of international G.R. No. 125704 (1998)]
juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states Note: J ice Holme once aid: The po er o a i
on the same taxpayer in respect of the same subject not the power to destroy while this Court (the
matter and for identical periods. Supreme Court) i . The o limi a ion on he
power of taxation are the inherent and constitutional
The apparent rationale for doing away with double limitations which are intended to prevent abuse on
taxation is to encourage the free flow of goods and the exercise of the otherwise plenary and unlimited
services and the movement of capital, technology po er. I i he Co r role o ee o i ha he
and persons between countries, conditions deemed exercise of the power does not transgress these
vital in creating robust and dynamic economies. limitations.
Foreign investments will only thrive in a fairly
predictable and reasonable international investment 5. Escape from Taxation
climate and the protection against double taxation is
crucial in creating such a climate. [CIR v. SC Johnson
& Sons, Inc., supra] a. Shifting of Tax Burden
Modes of eliminating double taxation Shifting - the transfer of the burden of a tax by the
1. Allowing reciprocal exemption either by law or original payer or the one on whom the tax was
by treaty; assessed or imposed to someone else. What is
2. Allowance of tax credit for foreign taxes paid; transferred is not the payment of the tax but the
3. Allowance of deductions such as for foreign burden of the tax. All indirect taxes may be shifted;
taxes paid, and vanishing deductions in estate tax; direct taxes cannot be shifted.
OR
4. Reduction of Philippine tax rate. Ways of shifting the tax burden
1. Forward shifting - When the burden of the tax
is transferred from a factor of production
4. Power to Tax Involves Power through the factors of distribution until it
to Destroy finally settles on the ultimate purchaser or
consumer. Examples: VAT, percentage tax.
According to Chief Justice John Marshall, "the power 2. Backward shifting - When the burden of the tax
to tax involves the power to destroy." [McCulloch v. is transferred from the consumer or purchaser
Maryland, 17 U.S. [4 Wheat.] 316-428, 4L. ed. 579.] To through the factors of distribution to the factor
say, however, that the power to tax is the power to of production. Example: Consumer or purchaser
destroy is to describe not the purposes for which the may shift tax imposed on him to retailer by
taxing power may be used but the extent to which it purchasing only after the price is reduced, and
may be employed in order to raise revenues [see 1 from the latter to the wholesaler, and finally to
Cooley 178]. Thus, even if a tax should destroy a the manufacturer or producer.
business, such fact alone could not invalidate the tax. 3. Onward shifting - When the tax is shifted two
[84 C.J.S. 46] or more times either forward or backward.
Incidentally, our Constitution mandates that "the rule Factors determining tax shifting
of taxation shall be uniform and equitable." In a 1. Elasticity of demand and supply - The more
case, our Supreme Court said: "The power of taxation the elasticity, the lower the incidence on the sales.
is sometimes called also the power to destroy. The higher the incidence on supply.
Therefore, it should be exercised with caution to
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is not a contractual obligation but arises out of a The State cannot strip itself of the most essential
duty to pay. [Republic v. Mambulao Lumber, supra] power of taxation by doubtful words. He who claims
an exemption (or an amnesty) from the common
Exception: If the claims against the government have burden must justify his claim by the clearest grant of
been recognized and an amount has already been organic or state law. It cannot be allowed to exist
appropriated for that purpose. Where both claims upon a vague implication. If a doubt arises as to the
have already become: intent of the legislature, that doubt must be resolved
a. due in favor of the state. [CIR v. Marubeni Corp., G.R. No.
b. demandable, and 137377 (2001)].
c. fully liquidated,
compensation takes place by operation of law under Amnesty distinguished from tax exemption
Art. 1200 in relation to Articles 1279 and 1290 of the Tax amnesty is immunity from all criminal and
NCC, and both debts are extinguished to the civil obligations arising from non-payment of taxes.
concurrent amount. [Domingo v. Garlitos, G.R. No. L- It is a general pardon given to all taxpayers. It applies
18994 (1963)] to past tax periods, hence of retroactive application.
[People v. Castañeda, G.R. No. L-46881 (1988)]
9. Compromise and Tax
Tax exemption is immunity from all civil liability
Amnesty only. It is an immunity or privilege, a freedom from a
charge or burden of which others are subjected.
COMPROMISE [Greenfield v. Meer, C.A. No. 156 (1946)]. It is generally
a. A contract whereby the parties, by making prospective in application [Dimaampao, 2005, p. 111].
reciprocal concessions avoid litigation or put an
end to one already commenced [Art. 2028, Civil Tax Amnesty v. Tax Exemption
Code]. It involves a reduction of he a pa er Tax
Tax Amnesty
liability. Exemption
b. Requisites of a tax compromise: Immunity from
i. The taxpayer must have a tax liability. civil, criminal,
ii. There must be an offer (by the taxpayer or Immunity from
administrative
Commissioner) of an amount to be paid by civil liability
Benefit liability arising
the taxpayer. (relief from
from non-
iii. There must be acceptance (by the paying taxes)
payment of
Commissioner or the taxpayer, as the case taxes
may be) of the offer in settlement of the Future tax
original claim. Coverage Past tax liability
liability
Actual
TAX AMNESTY Revenue Yes None
Loss
Definition
A tax amnesty partakes of an absolute forgiveness
or waiver by the Government of its right to collect 10. Ta a S
what otherwise would be due it, and in this sense,
prejudicial thereto, particularly to give tax evaders, NATURE AND CONCEPT
who wish to relent and are willing to reform a chance Ta a refers to a case where the act
to do so and become a part of the new society with a complained of directly involves the illegal
clean slate. [Republic v. IAC, G.R. No. L-69344 (1991)] disbursement of public funds derived from taxation.
[Kilosbayan v. Guingona, Jr. (1994)]
A tax amnesty, much like a tax exemption, is never
favored nor presumed in law. If granted, the terms of A a
the amnesty, like that of a tax exemption, must be The plaintiff in a taxpayer's suit is in a different
construed strictly against the taxpayer and category from the plaintiff in a citizen's suit. In the
liberally in favor of the taxing authority. former, the plaintiff is affected by the expenditure of
public funds, while in the latter, he is but the mere
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instrument of the public concern. [De Castro v. Judicial enjoined at the request of a taxpayer. [Pascual v.
and Bar Council, G.R. No. 191002 (2010)] Secretary of Public Works, G.R. No. L-10405 (1960)]
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taxes and the returns, papers and statements that the CIR, prescribing the place of filing of returns and
may be filed by the taxpayers in connection with payments of taxes by large taxpayers.
the payment of the tax:
RA 7646 An Act Authorizing the CIR to Prescribe
Provided, however, that notwithstanding the other the Place for Payment of Internal Revenue Taxes by
provisions of this Code prescribing the place of Large Taxpayers
filing of returns and payment of taxes, the CIR
may, by rules and regulations require that the tax 2. Jurisdiction, Power and
returns, papers and statements and taxes of large
taxpayers be filed and paid, respectively, through Functions of the
collection officers or through duly authorized
agent banks:
Commissioner of Internal
Revenue
Provided, further, That the CIR can exercise this
power within six (6) years from the approval of a. Powers and Duties of the Bureau
R.A. 7646 or the completion of its
comprehensive computerization program, of Internal Revenue (Sec. 2,
whichever comes earlier: NIRC)
Provided, finally, that separate venues for the 1. To assess and collect national internal taxes, fees,
Luzon, Visayas and Mindanao areas may be and charges;
designated for the filing of tax returns and 2. To enforce all forfeitures, penalties and fines
payment of taxes by said large taxpayers. connected therewith;
3. To execute judgment in all cases decided in its
For the purpose of this Section, 'large taxpayer' favor by the CTA and the ordinary courts; and
means a taxpayer who satisfies any of the 4. To effect and administer the supervisory and
following criteria: police powers conferred upon it by the Tax Code
a. Value-Added Tax (VAT) - Business or other special laws.
establishment with VAT paid or payable of
at least P100,000 for any quarter of the b. Power of the Commissioner to
preceding taxable year;
b. Excise tax - Business establishment with Interpret Tax Laws and to
excise tax paid or payable of at least Decide Tax Cases
P1,000,000 for the preceding taxable year;
c. Corporate Income Tax - Business Power to Interpret
establishment with annual income tax paid The power to interpret provisions of the NIRC and
or payable of at least P1,000,000 for the other tax laws shall be under the exclusive and original
preceding taxable year; and jurisdiction of the CIR, subject to review by the
d. Withholding tax - Business establishment Secretary of Finance. [Sec. 4, NIRC]
with withholding tax payment or remittance
of at least P1,000,000 for the preceding A ruling by the CIR that interpret provisions of the
taxable year. NIRC and other tax laws shall be presumed valid
unless modified, reversed or superseded by the
Provided, however, That the Secretary of Finance, Secretary of Finance. A taxpayer who receives an
upon recommendation of the CIR, may modify or adverse ruling from the CIR may, within thirty (30)
add to the above criteria for determining a large days from the date of receipt of such ruling, seek its
taxpayer after considering such factors as review by the Secretary of Finance. The Secretary of
inflation, volume of business, wage and Finance may also review the rulings motu proprio.
employment levels, and similar economic factors. [DOF Order 7-02]
The penalties prescribed under Section 248 shall be Power to Decide Tax Cases
imposed on any violation of the rules and regulations issued The power to decide (1) disputed assessments, (2)
by the Secretary of Finance, upon recommendation of refunds of internal revenue taxes, fees, charges and
penalties, or (3) other matters arising under the NIRC
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only on income derived from sources within the Global System Schedular System
Philippines. It is a personal tax
Tax on income
based on the income of
producing activities.
Taxpayer Within Without the taxpayer.
Resident Citizen Emphasizes the burden Emphasizes on revenue
Non-resident Citizen and X allocation aspects. and administrative
OCW aspects.
Resident and Non-resident X Because of its multiple
Most equitable system
Alien rates, the tax burden of
yet developed for
Domestic Corporation a person does not
distributing tax burden.
Foreign Corporation X correspond to his
The burden of an
income but rather fall
individual is closely
fortuitously on the type
1. Income Tax Systems related to his resources
of his income. It is
and his ability to pay.
fixed and final.
a. Global Tax System
It serves as a means for
Under a global tax system, it did not matter
redistributing income
whether the income received by the taxpayer is
and wealth. Big
classified as compensation income, business or
income earners are
professional income, passive investment income,
subject to higher taxes
capital gain, or other income. All items of gross This function is alien to
than small income
income, deductions, and personal and additional schedular system where
earners it serves as an
exemptions, if any, are reported in one income in times of plenty or in
automatic counter-
tax return, and one set of tax rates are applied on times of need, people
cyclical device to
the tax base. pay the same fixed tax
generate more revenues
on their income.
from people in times of
b. Schedular Tax System
expanding economies
Different types of incomes are subject to
and at the same time to
different sets of graduated or flat income tax
collect less from them
rates. The applicable tax rate(s) will depend on
in times of depression.
the classification of the taxable income and the
It serves as a
basis could be gross income or net income.
supplementary device
Separate income tax returns (or other types of
to accomplish non-
return applicable) are filed by the recipient of
fiscal goals of the
income for the particular types of income
government, such as, to
received. The schedular system
encourage desired
cannot perform any of
activities. By adjusting
these functions.
the rates, for instance,
it can promote saving
or consumer's demand,
or encourage donations
worthy causes.
Administration is not
quite as easy as The administration is
schedular because one simple, being confined
has to consider all to each transaction or
income from whatever activity.
source.
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and after deducting the sum of allowable is exempt from tax on his income from sources
deductions, the taxable income is subjected to outside the Philippines.
one set of graduated tax rates or normal
corporate income tax. With respect to such SOURCE OF INCOME PRINCIPLE
income the computation is global. An alien is subject to Philippine income tax because
he derives income from sources within the
For those other income not mentioned above, Philippines. Thus, a non-resident alien or non-
they remain subject to different sets of tax rates resident foreign corporation is liable to pay Philippine
and covered by different returns. income tax on income from sources within the
Philippines, such as dividend interest, rent, or royalty,
Note: The Philippines, under the NIRC, follows a despite the fact that he has not set foot in the
semi-schedular and semi-global tax system. Philippines.
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before the last month of the tax year (less than 12 the
months). Instances whereby short accounting Philippines
period arises:
d. When a corporation is newly organized. Special
e. When a corporation is dissolved. [Sec 52(c), Classes of Minimum Wage Earner
NIRC] Individuals
f. When a corporation changes accounting period.
[Sec 46, NIRC] Domestic Corporations
g. When the taxpayer dies. Resident
Corporations
Corporations
General rule: Taxable income shall be computed based Foreign Corporations Non-
on he a pa er ann al acco n ing period, hich resident
may be fiscal year or calendar year Corporations
Estates and
Exception: Taxable income shall be computed based Trusts
on the basis of calendar year only if: General Partnership
Partnerships
a. If the taxpayer's annual accounting period is General Professional Partnership
other than a fiscal year; or
b. If the taxpayer has no annual accounting period; a. INDIVIDUAL TAXPAYERS
or
c. If the taxpayer does not keep books of accounts; CITIZENS
or 1. Resident Citizens (RC)
d. If the taxpayer is an individual [Sec. 43, NIRC]. 2. Non-resident Citizens (NRC) [Sec. 22 (E)]
a. PH citizen who establishes to the satisfaction
6. Kinds of Taxpayers of the CIR the fact of his physical presence
abroad with a definite intention to reside
Taxpayer any person subject to tax imposed by therein.
Title II of the Tax Code [Sec. 22(N), NIRC]. b. PH citizen who leaves the Philippines during
the taxable year to reside abroad, either as an
Person means an individual, a trust, estate or immigrant or for employment on a
corporation [Sec. 22(A), NIRC]. permanent basis.
c. PH citizen who works and derives income
For income tax purposes, taxpayers are classified from abroad and whose employment thereat
generally as follows: requires him to be physically present abroad
a. Individuals most of the time during the taxable year (183
b. Corporations DAYS).
c. Estates and Trusts d. PH citizen previously considered as non-
d. Partnerships (General Partnership and General resident citizen and who arrives during the
Professional Partnerships) taxable year to reside permanently in the
Philippines Treated as NRC with respect
Primary to his income derived from sources abroad
Sub-Classification(s) until his arrival in the Philippines
Classification
Citizens of Residents citizens
the ALIENS
Non-resident citizens 1. Resident Alien An alien actually present in the
Philippines
Residents Philippines who is not a mere transient or
Engaged in sojourner is a resident for income tax purposes.
Trade or a. No/Indefinite Intention = RESIDENT:
Individuals If he lives in the Philippines and has no
Business in
Aliens Non- the definite intention as to his stay, he is a
residents Philippines resident. A mere floating intention indefinite
Not Engaged as to time, to return to another country is not
in Trade or sufficient to constitute him a transient.
Business in
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c. Recognition of Income
b. Realization of Income
Income realized pertains to the accrual basis of
Income is realized when there is a gain or profit accounting.
derived from a closed and completed transaction. The Recognition of income in the books is when it is
realization of gain may take the form of actual receipt realized and expenses are recognized when incurred.
of cash or may occur as a constructive receipt of It is the right to receive and not the actual receipt that
income. [Valencia and Roxas] determines the inclusion of the amount in gross
income
A mere increase in the value of property is not
income, but merely unrealized increase in capital. Examples:
Mere increase in the value of property without actual 1. Interest or rent income earned but not yet
realization, either through sale or other disposition, is received
not taxable. [De Leon] 2. Rent expense accrued but not yet paid
3. Wages due to workers but remaining unpaid
Actual v. Constructive receipt
1. Actual receipt Income is actually reduced to Generally, trade and manufacturing businesses use
possession. The realization of gain may take the accrual method while servicing businesses use cash
form of actual receipt of cash. method. If the service business opted to report on
2. Constructive receipt An income is considered accrual basis, such method can only be applied when
constructively received when it is credited to the it comes to reporting of expense. To prevent tax
account of, or segregated in favor of a person. evasion, individual taxpayers whose business consists
The person may withdraw the said account of the sale of inventories cannot use cash method.
credited in his favor anytime without any [Valencia and Roxas]
substantial limitations or conditions upon
which payment or enjoyment is to be made d. Cash Method of Accounting v. Accrual
or exercised. Method of Accounting
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Gross Income means all income derived from b. Concept of Income from
whatever source, including (but not limited to) the Whatever Source Derived
following items:
1. Compensation for services in whatever form Income deri ed from ha e er o rce means
paid, including, but not limited to fees, salaries, inclusion of all income not expressly exempted within
wages, commissions, and similar items; the class of taxable income under the laws irrespective
2. Gross income derived from the conduct of trade of the voluntary or involuntary action of the taxpayer
or business or the exercise of a profession; in producing the gains, and whether derived from
3. Gains derived from dealings in property; legal or illegal sources (i.e. gambling, extortion,
4. Interests; smuggling, etc.)
5. Rents;
6. Royalties; c. Gross Income vis-à-vis Net
7. Dividends;
8. Annuities; Income vis-à-vis Taxable Income
9. Prizes and winnings;
10. Pensions; and Gross income The total income of a taxpayer
11. Partner's distributive share from the net income subject to tax. It includes the gains, profits, and
of the general professional partnership. income derived from whatever source, whether legal
or illegal. (Sec. 32(A), NIRC) It does not include
The list here is NOT exclusive. income excluded by law, or which are exempt from
income tax. [Sec. 32(B), NIRC]
The definition of gross income is broad enough to
include all passive income subject to specific rates or
final taxes. However, since these passive incomes are
already subject to different rates and taxed finally at
source, they are no longer included in the
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Net income Means gross income less statutory e. gains, profits and income from sale of real
deductions and exemptions. [Sec. 31, NIRC1] property as well as from personal property
located outside the Philippines.
Taxable income means the pertinent items of
gross income specified in the Tax Code, less the As a rule, income earned from outside the Philippines
deductions and/or personal and additional are not taxable except for resident citizens and
exemptions, if any, authorized for such types of domestic corporations.
income by the Tax Code or other special laws [Sec.
31, NIRC2]. I i non mo o he erm ne 3. Derived from Sources Partly within
income. [Valencia and Roxas] and Partly without the Philippines
[Sec. 42(E), NIRC]
d. Sources of Income Subject to
Tax Examples:
a. gains, profits and income from transportation or
Source is ascribed to the place wherein the income is other services rendered partly within and partly
earned. It is governed by the situs of taxation. This outside, and dividend received by a resident
classification of income is necessary to determine citizen from a resident foreign corporation. (Sec.
whether such income is subject to tax or not. Income 43(E), NIRC).
may be: b. In general, when an income is earned partly from
within and partly from without, only income
1. Derived Entirely from Sources Within within is taxable in the Philippines, except if the
taxpayer is a resident citizen or a domestic
the Philippines [Sec. 42(A), NIRC]
corporation.
c. A Filipino citizen or a domestic corporation
Examples:
whose income is derived from within and
a. compensation for labor or service performed in
without the Philippines is generally subject to tax.
the Philippines;
b. interest on bonds, notes, deposits and the like
earned in the Philippines; e. Classification of Income Subject
c. dividends declared by domestic corporations; to Tax
d. rentals and royalties from property located within
the Philippines; and The following sources of income subject to tax are the
e. gains, profits and income from sale of real following.
property as well as from personal property in the 1. Compensation income;
Philippines. 2. Fringe benefits;
3. Professional income;
As a rule, incomes earned within the Philippines are 4. Income from business;
taxable. 5. Income from dealings in property;
6. Passive investment income;
2. Derived Entirely from Sources without 7. Annuities, proceeds from life insurance or other
the Philippines [Sec. 42(C), NIRC] types of insurance;
8. Prizes and awards;
Examples: 9. Pensions, retirement benefits, or separation pay.
a. compensation for labor or service rendered by
overseas contract workers; 1. Compensation Income
b. interest on bonds, notes, deposits and the like
earned abroad; All remunerations for services performed by an
c. dividends declared by non-resident foreign employee for his employer under an employer-
corporation; employee (ER-EE) relationship, unless excepted
d. rental and royalties from property located outside under the provisions of the NIRC are considered as
the Philippines; and compensation income. [RR No. 02-98, Sec 2.78.1]
1
SECTION 31. Taxable Income Defined. T taxable additional exemptions, if any, authorized for such types of
income a ome specified income by this Code or other special laws.
2
in this Code, less the deductions and/or personal and Id.
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3
Prior to TRAIN Law, threshold is P82,000. (e) 13th Month Pay and Other Benefits. Gross benefits
SECTION 32. Gross Income. received by officials and employees of public and private
(B) Exclusions from Gross Income. The following items entities: Provided, however, That the total exclusion under this
shall not be included in gross income and shall be exempt subparagraph shall not exceed eighty-two Ninety thousand
from taxation under this Title: pesos (P82,000) (P90,000) x x x
(7) Miscellaneous Items.
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MWEs receiving other income, such as income from If meals, living quarters, and other facilities and
the conduct of trade, business, or practice of privileges are furnished to an employee for the
profession, except income subject to final tax, in convenience of the employer, and incidental to the
addition to compensation income are not exempted requirement of he emplo ee ork or position, the
from income tax on their income earned during the value of that privilege need not be included as
taxable year. compensation [Henderson v. Collector, G.R. No. L-
12954 (1961)]
This rule, notwithstanding, the SMW, Holiday Pay,
overtime pay, night differential pay and hazard pay The amo n of de minimi benefi confirming o
shall still exempt from withholding tax. the ceiling prescribed shall not be considered in
determining the P90,000 [RA 10963] ceiling of o her
FORMS OF COMPENSATION AND HOW benefi e cl ded from gro income nder Sec ion
THEY ARE ASSESSED 32 (b)(7)(e) of the Tax Code, Provided, that the excess
1. Cash If compensation is paid in cash, the full of he de minimi benefi o er heir re pec i e
amount received is the measure of the income ceilings prescribed by these regulations shall be
subject to tax. considered a par of o her benefi and he
2. Medium other than money If services are employee receiving it will be subject to tax only on
paid for in a medium other than money (e.g., the excess over the P90,000 ceiling [Section 32 (7) (e)],
shares of stock, bonds, and other forms of Pro ided, f r her, ha MWE recei ing, o her
property), the fair market value (FMV) of the benefi e ceeding he P90,000 limi hall be taxable
thing taken in payment is the amount to be on the excess benefits, as well as on his salaries, wages,
included as compensation subject to tax. If the and allowances, just like an employee receiving
services are rendered at a stipulated price, in the compensation income beyond the SMW. Any amount
absence of evidence to the contrary, such price given by the employer as benefits to its employees,
will be presumed to be the FMV of the he her cla ified a de minimi benefits or fringe
remuneration received. benefits, shall constitute as deductible expense upon
such employer. Where compensation is paid in
Living quarters or meals property other than money, the employer shall make
General Rule: The value to the employee of the living necessary arrangements to ensure that the amount of
quarters and meals given by the employer shall be the tax required to be withheld is available for
added to his compensation subject to withholding. payment to the BIR.
Exception: If living quarters/meals are furnished to an
employee for the convenience of the employer, the CLASSIFICATION OF GROSS
value need NOT be included as part of compensation COMPENSATION INCOME
income.
Basic salary or wage
Facilities and privileges of a relatively small value Salary earnings received periodically for a regular
- Facilities and privileges (such an entertainment, work other than manual labor, e.g., monthly salary of
medical services, or o called co r e di co n on an employee
p rcha e ), o her i e kno n a de minimi
benefi f rni hed or offered b an emplo er o hi Wages earnings received usually according to
employees generally, are NOT considered as specified intervals of work, as by the hour, day, or
compensation subject to income tax and therefore eek, e.g., a carpen er age.
withholding tax if such facilities are offered or
furnished by the employer merely as means of Backwages are subject to income tax and withholding
promoting the health, goodwill, contentment, or tax on wages [BIR Ruling No. DA-073-2008]
efficiency of his employees.
Honoraria payments given in recognition for
Convenience of the Employer Rule services performed for which the established practice
Allowances in kind furnished to the employee for and discourages charging a fixed fee, e.g., honorarium of
as necessary incident to the performance of his duties a guest lecturer
are not taxable [Valencia and Roxas].
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Fixed or variable allowances, i.e. Transportation, Tips and Gratuities those paid directly to the
Representation, and other allowances such as Cost of employee (usually by a customer of the employer)
Living Allowances (COLA) which are not accounted for by the employee to the
employer (taxable income but not subject to
General Rule: Fixed or variable transportation, withholding tax) [RR NO. 2-98, Sec. 2.78.1]
representation or other allowances that are
received by a public officer or employee of a Hazard or Emergency Pay additional payment
private entity, in addition to the regular recei ed d e o he orker e po re o danger or
compensation fixed for his position or office is harm while working. It is normally added to the basic
COMPENSATION subject to withholding tax. salary together with the overtime pay and night
[Rev. Regs. 2-98] differential to arrive at gross salary.
Exception: Any amount paid specifically, either as Retirement Pay a lump sum payment received by
advances or reimbursements for travelling, an employee who has served a company for a
representation and other bona fide ordinary and considerable period of time and has decided to
necessary expenses incurred or reasonably withdraw from work into privacy. [RR 6-82, Sec. 2b]
expected to be incurred by the employee in the
performance of his duties are NOT In general, retirement pay is taxable except in the
COMPENSATION subject to withholding tax, following instances:
provided the following conditions are satisfied: 1. SSS or GSIS retirement pays.
1. It is for ordinary and necessary traveling and 2. Retirement pay (RA 7641) due to old age
representation or entertainment expenses provided the following requirements are met:
paid or incurred by the employee in the a. The retirement program is approved by the
pursuit of the emplo er rade, business or BIR Commissioner;
profession; and b. It must be a reasonable benefit plan. (Its
2. The employee is required to account or implementation must be fair and equitable
liquidate for the foregoing expenses. for the benefit of all employees)
c. The retiree should have been employed for
The excess of actual expenses over advances made 10 years in the said company;
shall constitute taxable income if such amount is not d. The retiree should have been 50 years old or
returned to the employer. The employee is required above at the time of retirement; and
to account/liquidate for the expenses in accordance e. It should have been availed of for the first
with the specific requirements of substantiation for time.
each category of expenses pursuant to Sec. 34 of the
Tax Code. Separation pay taxable if VOLUNTARILY availed
of. It shall not be taxable if involuntary, i.e., death,
Note: Reasonable amounts of reimbursements/ sickness, disability, reorganization/ merger of
advances for traveling and entertainment expenses company and company at the brink of bankruptcy or
which are pre-computed on a daily basis and are paid for any cause beyond the control of the said official
to an employee while he is on an assignment or duty or employee.
are NOT subject to withholding tax on wages and
substantiation requirements. F a a b . Connotes
involuntariness on the part of the official or
Commission usually a percentage of total sales or employee. The separation from the service of the
on certain quota of sales volume attained as part of official or employee must not be asked for or initiated
incentive such as sales commission. by him or it was not of his own making. Such fact
shall be duly established by the employer by
Fees received by an employee for the services competent evidence which should be attached to the
rendered o he emplo er incl ding a direc or fee of monthly return for the period in which the amount
the company, fees paid to the public officials such as paid due to the involuntary separation was made.
clerks of court or sheriffs for services rendered in the
performance of their official duty over and above Amounts received by reason of involuntary
their regular salaries. separation remain EXEMPT from income tax even if
the official or the employee, at the time of separation,
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had rendered less than ten (10) years of service and/or 10963] or less. Any amount exceeding P90,000 is
is below fifty (50) years of age. taxable. [Sec. 32(7)e, NIRC4]
Vacation and sick leave rules in determining Overtime Pay premium payment received for
whether money received for vacation and sick leave is working beyond regular hours of work which is
taxable or not: included in the computation of gross salary of
1. If paid or availed of as salary of an employee who employee. It constitutes compensation.
is on vacation or on sick leave notwithstanding
his absence from work, it constitutes TAXABLE Profit Sharing the proportionate share in the
compensation income. [RR 6-82, 2d] profits of the business received by the employee in
2. Monetized value of unutilized VACATION leave addition to his wages.
credits of ten (10) days or less which were paid to
private employees during the year, and the Awards for special services awards for past
monetized value of vacation and sick leave credits services or suggestions to employers resulting in the
paid to government officials and employees are prevention of theft or robbery, etc. are also
NOT subject to income tax and to the compensations.
i hholding a . The e are de minimi benefi .
[RR no. 11-2018/RR no. 05-2011, amending Sec Beneficial Payments such as where employer pays
2.78.1(A)(7) of RR no. 02-1998] Note: the income tax owed by an employee are additional
Monetization of sick leave credits of private compensation income.
employees even if not exceeding 10 days is not
exempt from income tax and withholding tax on Other forms of compensation other forms
wages. received due to services rendered are compensation
3. Terminal leave or money value of accumulated paid in kind, e.g., insurance premium paid by the
vacation and sick leave benefits received by heir employer for insurance coverage where the heirs of
upon death of employee is not taxable. he emplo ee are he beneficiarie i he emplo ee
income.
Thirteenth month pay and other benefits - Not
taxable if the total amount received is P90,000 [RA Note: Any amount which is required by law to be
deducted by the employer from the compensation of
4
SECTION 32. Gross Income. (ii) Benefits received by employees pursuant to Presidential
(B) Exclusions from Gross Income. The following items Decree No. 851, as amended by Memorandum Order
shall not be included in gross income and shall be exempt No. 28, dated August 13, 1986;
from taxation under this Title: (iii) Benefits received by officials and employees not covered
(7) Miscellaneous Items. by Presidential Decree No. 851, as amended by
(e). 13th Month Pay and Other Benefits. Gross benefits Memorandum Order No. 28, dated August 13, 1986; and
received by officials and employees of public and private (iv) Other benefits such as productivity incentives and
entities: Provided, however, That the total exclusion under this Christmas bonus: Provided, That every three (3) years
subparagraph shall not exceed eighty-two Ninety thousand after the effectivity of this Act, the President of the
pesos (P82,000) (P90,000) which shall cover: Philippines shall adjust the amount herein stated to its
(i) Benefits received by officials and employees of the present value using the Consumer Price Index (CPI), as
national and local government pursuant to Republic Act published by the National Statistics Office (NSO).
No. 6686;
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a. Special treatment of fringe benefits Fringe benefit means includes but not limited to the
following:
Persons liable: The Employer (as a withholding 1. Housing
agent), whether individual, professional partnership 2. Expense Account
or a corporation, regardless of whether the 3. Vehicle of any kind
corporation is taxable or not, or the government and 4. Household personnel, such as maid, driver and
its instrumentalities, is liable to remit the fringe others
benefit tax to the BIR once fringe benefit is given to 5. Interest on loan at less than market rate to the
a managerial AND supervisory employee. extent of the difference between the market rate
and actual rate granted.
The fringe benefit tax (FBT) is a final tax on the 6. Membership fees, dues and other expenses borne
emplo ee income o be i hheld b he emplo er. by the employer for the employee in social and
The withholding and remittance of FBT shall be made athletic clubs and similar organizations
on a calendar quarterly basis. 7. Expenses for foreign travel
8. Holiday and vacation expenses
Managerial employee: one who is vested with the 9. Educational assistance to the employee or his
powers or prerogatives to lay down and execute dependents; and
management policies and/or to hire, transfer, 10. Life or health insurance and other non-life
suspend, lay-off, recall, discharge, assign or discipline insurance premiums or similar amounts on
employees. excess of what the law allows.[Sec. 33(B)]
Supervisory employees: those who, in the interest Tax Rate and Tax Base
of the employer, effectively recommend such Tax base is based on the grossed-up monetary
managerial actions if the exercise of such authority is value (GMV) of fringe benefits.
not merely routinary or clerical in nature but requires
the use of independent judgment. Rate is generally 35%, since this is the headline or the
highest tax rate for individual income taxpayers.
All employees not falling within any of the above
definitions are considered rank-and-file employees. FBT is calculated using the GMV multiply by the
35%. [Sec. 33 (A), NIRC5]
5
SECTION 33. Special Treatment of Fringe Benefit. or profession of the employer, or when the fringe benefit is for
(A) Imposition of Tax. Effective January 1, 2018 and the convenience or advantage of the employer). The tax
onwards, A a final tax of thirty-four percent (34%) effective herein imposed is payable by the employer which tax shall be
January 1, 1998; thirty-three percent (33%) effective January paid in the same manner as provided for under Section 57(A)
1, 1999; and thirty-two percent (32%) effective January 1, of this Code. The grossed-up monetary value of the fringe
2000 and thereafter, thirty-five percent (35%) is hereby benefit shall be determined by dividing the actual monetary
imposed on the grossed-up monetary value of fringe benefit value of the fringe benefit by sixty-six percent (66%) effective
furnished or granted to the employee (except rank and file January 1, 1998; sixty-seven percent (67%) effective January
employees as defined herein) by the employer, whether an 1, 1999; and sixty-eight percent (68%) effective January 1,
individual or a corporation (unless the fringe benefit is 2000 and thereafter sixty-five percent (65%) effective
required by the nature of, or necessary to the trade, business January 1, 2018 and onwards: Provided, however, That
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fringe benefit furnished to employees and taxable under benefit by the difference between one hundred percent
Subsections (B), (C), (D), and (E) of Section 25 shall be taxed (100%) and the applicable rates of income tax under
at the applicable rates imposed thereat: Provided, further, Subsections (B), (C), (D), and (E) of Section 25.
6
That the grossed-up value of the fringe benefit shall be RR 11-2018 only changed the amount of de minimis benefit.
determined by dividing the actual monetary value of the fringe
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7
Prior to TRAIN, the rate was ½ of 1%. 5% if not over P100,000; and
8
Prior to TRAIN, the rates were: 10% on any amount in excess of P100,000.
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Presumed Gain: In the sale of real property located NET CAPITAL GAIN VIS-À-VIS NET
in the Philippines, classified as capital asset, the tax CAPITAL LOSS
base is the gross selling price or fair market value,
whichever is higher. The law presumes that the seller Net Capital Gain: Excess of the gains over the losses
makes a gain from such sale. Thus, whether or not on sales or exchange of capital assets during the
the seller makes a profit from the sale of real taxable year.
property, he has to pay 6% capital gains tax. In
fact, he has to pay the tax, even if he incurs an actual Net Capital Loss: Excess of the losses over the gains
loss from the sale thereof. (However, when the buyer on sales or exchanges of capital assets during the
is the government, the individual seller has the option taxable year. [Sec. 39 (A), NIRC]
whether to be taxed at the graduated income tax rates
or at 6% capital gains tax.) INCOME TAX TREATMENT OF CAPITAL
LOSS
Actual Gain: The tax base in the sale of real property
classified as an ordinary asset is the actual gain. If the Capital loss limitation rule (applicable to both
seller incurs a loss from the sale, such loss may be corporations and individuals)
deducted from his gross income during the taxable General Rule: Losses from sales or exchanges of capital
year. The ordinary gain shall be added to the operating assets shall be allowed only to the extent of the gains
income and the net taxable income shall be subject to from such sales or exchanges [Sec. 39(C), NIRC].
the graduated rates from 0% to 35% (if an individual)9
or to 30% corporate tax or to 2% minimum corporate Exception for Banks and Trust Companies: If a bank or
income tax (MCIT) (if a corporation). trust company incorporated under the laws of the
Philippines, a substantial part of whose business is the
Computation of the amount of gain or loss receipt of deposits, sells any bond, debenture, note,
certificate or other evidence of indebtedness issued by
Amount realized from sale or other any corporation (including one issued by a
disposition of property government or political subdivision thereof) with
Less: Basis or Adjusted Basis interest coupons or in registered form, any loss
NET GAIN (LOSS) resulting from such sale shall not be subject to the
foregoing limitation and shall not be included in
Note: Amount realized from sale or other disposition determining the applicability of such limitation to
of property = sum of money received + fair market other losses [Sec. 39(C), NIRC].
value of the property (other than money) received.
Note: When a taxpayer sells a real or personal Net loss carry-over rule (applicable only to
property, he should deduct its cost from its selling individuals)
price to measure the gain or loss from the sales If an individual sustains in any taxable year a net
transaction [Sec. 40, NIRC]. capital loss, such loss (in an amount not in excess of
the net income for the year) 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 [Sec. 39(D), NIRC].
9
Prior to TRAIN, graduated rates start from 5% to 32% for
individuals.
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Rate and Basis of Tax Shares not listed and traded through the stock
a. A final withholding tax of 6% is based on the exchange
b. gross selling price; or Net capital gains derived during the taxable year from
c. fair market value; or sale, exchange, or transfer shall be taxed at 15% of net
d. zonal value whichever is higher. capital gains (on a per transaction basis).11 (Note:
There is a different tax treatment for foreign
Note: Gain or loss is immaterial, there being a corporations as RA 10963 [TRAIN Law] did not
conclusive presumption of gain. amend such provisions so the old rate is used12)
10
Prior to TRAIN, the rate was ½ of 1%. 10% on any amount in excess of P100,000.
11 12
Prior to TRAIN, the rates were: Id.
5% if not over P100,000; and
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8. Portion of presumed gains subject to CGT: resident aliens. An income is considered passive if the
(Unutilized/GSP) x (higher of GSP or FMV) taxpayer merely waits for it to be realized.
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Stock dividends
Stock dividend is generally exempt from income tax,
EXCEPT:
1. If a corporation cancels or redeems stock issued
as a dividend at such time and in such manner as
to make the distribution and cancellation or
redemption, in whole or in part, essentially
equivalent to the distribution of a taxable
15%
dividend, the amount so distributed in or 30% if
redemption or cancellation of the stock shall be without
considered as taxable income to the extent that it
represents a distribution of earnings or profits
(Sec. 73(B), NIRC); or
2. Where there is an option that some stockholders
could take cash or property dividends instead of
stock dividends; some stockholders exercised the
option to take cash of property dividends; and
the exercise of option resulted in a change of the
ockholder propor iona e hare in he
outstanding share of the corporation. c. Royalty Income
Royalty is a valuable property that can be developed
Property dividends and sold on a regular basis for a consideration; in
Property dividends or dividends in the form of which case, any gain derived therefrom is considered
property are subject to tax at preferential rate under as an active business income subject to the normal
the NIRC. corporate tax.
Liquidating dividends Where a person pays royalty to another for the use of
Represents distribution of all the property or assets of its intellectual property, such royalty is generally a
a corporation in complete liquidation or dissolution. passive income of the owner thereof subject to
It is strictly not dividend income, but rather is treated withholding tax.
in effect, a return of capital to the extent of the
hareholder in e men . The difference be een he d. Rental Income
cost or other basis of the stock and the amount Refers to earnings derived from leasing real estate as
received in liquidation of the stock is a capital gain or well as personal property. Aside from the regular
a capital loss. Where property is distributed in amount of payment for using the property, it also
liquidation, the amount received is the FMV of such includes all other obligations assumed to be paid by
property. The income is subject to ordinary income the lessee to the third party in behalf of the lessor (e.g.,
tax rates. It is subject neither to the FWT on dividends interest, taxes, loans, insurance premiums, etc.) [RR
nor to the CGT on sale of shares. 19-86]
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If the lessee is not VAT-registered OR not liable to 3. The recipient is not required to render substantial
VAT, treat VAT paid as additional rent expense future services as a condition to receiving the
deductible from gross income. prize or award.
4. Prizes and awards granted to athletes in local and
c. Advance Rental/ Long Term Lease international sports competitions and
Pre-paid rent must be reported in full in the year of tournaments held in the Philippines and abroad
receipt, regardless of the accounting method used by and sanctioned by their national associations shall
the lessor. be EXEMPT from income tax.
It refers to periodic instalment payments of income Paid for past employment services rendered.
or pension by insurance companies during the life of A stated allowance paid regularly to a person on his
a person or for a guaranteed fixed period of time, retirement or to his dependents on his death, in
whichever is longer, in consideration of capital paid consideration of past services, meritorious work, age,
by him. It is paid annually, monthly, or periodically, loss or injury. It is generally taxable unless the law
computed upon the amount paid yearly, but states otherwise. [Valencia]
necessarily for life. [Peralta v. Auditor General, G.R. No.
L-8480 (1957)] 10. Income from Any Source Whatever
Annuities are installment payments received for life Inclusion of all income not expressly exempted within
insurance sold by insurance companies. the class of taxable income under the laws irrespective
of the voluntary or involuntary action of the taxpayer
The aleatory contract of life annuity binds the debtor in producing the gains, and whether derived from
to pay an annual pension or income during the life of legal or illegal sources
one or more determinate persons in consideration of
a capital consisting of money or other property, Forgiveness of indebtedness
whose ownership is transferred to him at once with
the burden of the income. [Art. 2021, New Civil The cancellation or forgiveness of indebtedness may
Code] have any of three possible consequences:
The annuity payments represent a part that is taxable It may amount to payment of income. If, for example,
and not taxable. If part of annuity payment represents an individual performs services to or for a creditor,
interest, then it is a taxable income. If the annuity is a who, in consideration thereof, cancels the debt,
return of premium, it is not taxable. income in that amount is realized by the debtor as
compensation for personal services.
8. Prizes and Awards
It may amount to a gift. If a creditor wishes merely to
A prize is a reward for a contest or a competition. It benefit the debtor, and without any consideration
represents rem nera ion for an effor reflec ing one therefore, cancels the debt, the amount of the debt is
superiority. a gift to the debtor and need not be included in the
la er repor of income.
Contest prizes and awards received are generally
taxable. Such payment constitutes gain derived from It may amount to a capital transaction. If a
labor. corporation to which a stockholder is indebted
forgives the debt, the transaction has the effect of a
The EXCEPTIONS are as follows: payment of dividend.
1. Prizes and awards made primarily in recognition
of religious, charitable, scientific, educational, Tax Benefit Rule
artistic, literary or civic achievements are
EXCLUSIONS from gross income if: This is a general principle in taxation which states that
2. The recipient was selected without any action on if a taxpayer deducted an item on his income tax
his part to enter a contest or proceedings; and return and enjoyed a tax benefit (reduced his income
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tax payments that are not deductible from gross 1. The use of or the right or privilege to use in
income. the Philippines any copyright, patent, design
or model, plan, secret formula or process,
If a tax is not an allowable deduction from gross goodwill, trademark, trade brand or other
income when paid (no reduction of taxable income, like property or right;
hence no tax benefit), the refund is not taxable. 2. The use of, or the right to use in the
Philippines any industrial, commercial or
SOURCE RULES IN DETERMINING scientific equipment;
INCOME FROM WITHIN AND WITHOUT 3. The supply of scientific, technical, industrial
or commercial knowledge or information;
The following items of gross income shall be treated 4. The supply of any assistance that is ancillary
as gross income from sources WITHIN the and subsidiary to, and is furnished as a means
Philippines: of enabling the application or enjoyment of,
any such property or right as is mentioned in
a. Interests (a), any such equipment as is mentioned in
Derived from sources within the Philippines, and (b) or any such knowledge or information as
interests on bonds, notes or other interest- is mentioned in (c);
bearing obligation of residents. 5. The supply of services by a nonresident
person or his employee in connection with
Ultimately, the situs of interest income is the the use of property or rights belonging to, or
residence of the debtor. the installation or operation of any brand,
machinery or other apparatus purchased
b. Dividends from such nonresident person;
Dividends received: 6. Technical advice, assistance or services
From a domestic corporation; and from a foreign rendered in connection with technical
corporation, UNLESS less than 50% of its gross management or administration of any
income for the previous 3-year period was scientific, industrial or commercial
derived from sources within the Philippines [in undertaking, venture, project or scheme; and
which case it will be treated as income partly from 7. The use of or the right to use:
within and partly from without]. 8. Motion picture films;
9. Films or video tapes for use in connection
The income which is considered as derived from with television; and
within the Philippines is obtained by using the 10. Tapes for use in connection with radio
following formula: broadcasting.
Philippine Gross Income* x Dividend = As a rule, the situs of rental income is the place
Income Within Worldwide Gross Income* where the property is located. The situs of royalty
*of the corporation giving the dividend income is where the rights are exercised.
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*in other words, the situs of the income from the sale sold from the gross selling price or consideration, or
of personal property is the place of sale. through the deduction from gross income of
depreciation relating to the property used in trade or
Exceptions: business before it is sold.
1. Gain from the sale of shares of stock in a
domestic corporation It may also relate to indemnities, such as proceeds of
2. Treated as derived entirely from sources life in rance paid o he in red beneficiarie and
within the Philippines regardless of where return of premiums paid by the insurance company to
the said shares are sold. the insured under a life insurance, endowment or
3. Gains from the sale of (manufactured) annuity contract.
personal property:
4. produced (in whole or in part) by the Damages, in certain instances, may also be exempt
taxpayer within and sold without the because they represent return of capital.
Philippines, or
5. produced (in whole or in part) by the Items of Exclusion because it is subject to
taxpayer without and sold within the another internal revenue tax
Philippines The value of property acquired by gift, bequest, devise
6. Treated as derived partly from sources or descent is exempt from income tax on the part of
within and partly from sources without the the recipient because the receipt of such property is
Philippines. alread bjec o ran fer a e (e a e a or donor
tax).
Place of Place of
Treatment
PRODUCTION SALE Items of Exclusions because they are expressly
Partly within, exempt from income tax
Philippines Abroad 1. Under the Constitution
partly without
Partly within, 2. Under a tax treaty
Abroad Philippines 3. Under special laws
partly without
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Exclusions from gross income refer to flow of General rule: The amount received by the insured as a
wealth to the taxpayer which are not treated as part of return of premiums paid by him under life insurance,
gross income for purposes of computing the endowment, or annuity contracts, either during the
a pa er a able income, d e o he follo ing term or at the maturity of the term mentioned in the
reasons: (1) it is exempted by the Constitution or a contract or upon surrender of the contract is a return
statute; or (2) it does not come within the definition of capital and not income.
of income.
This refers to the cash surrender value of the contract.
Deductions, on the other hand, are the amounts
which the law allows to be subtracted from gross Exception: If the amounts received by the insured
income in order to arrive at net income. (when added to the amounts already received before
the taxable year under such contract) exceed the
Exclusions pertain to the computation of gross aggregate premiums or considerations paid (whether
income, while deductions pertain to the computation or not paid during the taxable year), then the excess
of net income. shall be included in gross income.
Exclusions are something received or earned by the c. Amounts received under life insurance,
taxpayer which do not form part of gross income endowment or annuity contracts
while deductions are something spent or paid in
earning gross income. Amounts received (other than amounts paid by
reason of the death of the insured and interest
Tax Credit refers to amounts subtracted from the payments on such amounts) under a life insurance,
computed tax in order to arrive at taxes payable. endowment or annuity contracts are excluded from
gross income, but if such amounts (when added to
4. Exclusions Under the Constitution amounts already received before the taxable year
under such contract) exceed the aggregate premiums
a. Income derived by the government or its of considerations paid (whether or not paid during the
political subdivisions from the exercise of taxable year), then the excess shall be included in
any essential governmental function gross income. However, in the case of a transfer for
b. Also, all assets and revenues of a non-stock, valuable consideration, by assignment or otherwise,
non-profit private educational institution of a life insurance, endowment, or annuity contract,
used directly, actually and exclusively for or any interest therein, only the actual value of such
private educational purposes shall be exempt consideration and the amount of the premiums and
from taxation. other sums subsequently paid by the transferee are
exempt from taxation.
5. Exclusions Under the Tax Code (Sec. d. Value of property acquired by gift, bequest,
32(b), NIRC) devise or descent
a. Proceeds of life insurance policies Gifts, bequests and devises (which are subject to
estate or gift taxes) are excluded from gross income,
General rule: The proceeds of life insurance policies BUT not the income from such property. If the
paid to his estate or to any beneficiary (but not a amount received is on account of services rendered,
transferee for a valuable consideration), directly or in whether constituting a demandable debt or not, or the
trust, upon the death of the insured, are excluded use or opportunity to use of capital, the receipt is
from the gross income of the beneficiary. However, income [Pirovano v. Commissioner, G.R. No. L-19865,
if such amounts are held by the insurer under an July 31, 1965]
agreement to pay interest thereon, the interest
payments received by the insured shall be included in
gross income. The interest income shall be taxed at
the graduated income tax rates.
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Income of any kind, to the extent required by any A 'reasonable private benefit plan' means a pension,
treaty obligation binding upon the Government of the gratuity, stock bonus or profit-sharing plan
Philippines. maintained by an employer for the benefit of some or
all of his employees wherein contributions are made
g. Retirement benefits, pensions, gratuities, by such employer, or employees, or both for the
etc. purpose of distributing to such employees the
These are: earnings and principal of the fund thus accumulated
a. Retirement benefits under RA 7641, RA 4917, by the trust in accordance with such plan (trust fund)
and Section 60(B) of the NIRC
b. Terminal pay Further, it should be provided in the plan that at no
c. Retirement Benefits from foreign government time prior to the satisfaction of all liabilities with
agencies respect to employees under any trust, shall any part of
d. Veterans benefits the corpus or income of the fund be used for, or be
e. Benefits under the Social Security Act diverted to, any purpose other than for the exclusive
f. GSIS benefits benefit of his employees.
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Terminal pay/Separation pay GSIS benefits Benefits received from GSIS under
Any amount received by an employee or by his heirs the GSIS Act of 1937, as amended, and the retirement
from the employer as a consequence of separation of gratuity received by government officials and
such official or employee from the service of the employees are not taxable. [Sec. 32B6., NIRC; Sec.
employer because of death, sickness, other physical B1, RR 2-98]
disability or for any cause beyond the control of the
emplo ee. The phra e for an ca e be ond he h. Winnings, prizes and award, including those
con rol of he aid official or emplo ee mean ha in sports competitions
the separation of the employee must be involuntary
and not initiated by him. All prizes and awards granted to athletes in local and
international sports competitions and tournaments
The separation must not be of his own making. whether held in the Philippines or abroad, AND
sanctioned by their national sports associations shall
Notes: not be included in gross income and shall be tax
Sickness must be life-threatening or one which exempt. [Sec. 32 B7d, NIRC]
renders the employee incapable of working
Retrenchment of the employee due to Prizes and awards made primarily in recognition of
unfavorable business conditions or financial charitable, literary, educational, artistic, religious,
reverses is considered as involuntary. However, scientific, or civic achievement are not taxable, provided
resignation or availment of an optional early Recipient was selected without any action on his part
retirement plan is voluntary and bars a claim to enter the contest or proceeding; and Recipient is
under this provision. not required to render substantial future services as a
BIR Ruling 143-98: The erminal lea e pa condition to receiving the prize or award
(amount paid for the commutation of leave
credits) of retiring government employees is 6. Exclusions Under Special Laws
considered not part of the gross salary, and is
exempt from taxes. The government recognizes Personal Equity and Retirement Account
that for most public servants, retirement pay is
always less than generous if not meager and Under R.A. 6657 (Comprehensive Agrarian
scrimpy. Terminal leave payments are given not Reform Package Law), gain arising from the
only at the same time but also for the same policy transfer of agricultural property covered by the law
considerations governing retirement benefits. shall be exempt from capital gains tax.
[Commissioner v. CA and Castaneda, G.R. 96016
(1991)]. Under R.A. 6938 (Cooperative Code of the
Philippines), as amended by R.A. 9520, cooperatives
Retirement BENEFITS from foreign transacting business with both members and non-
government agencies The social security benefits, members shall not be subject to tax on their
retirement gratuities, pensions and other similar transactions with members. In relation to this, the
benefits received by resident or non-resident citizens transactions of members with the cooperative shall
or aliens who come to reside permanently in the not be subject to any taxes and fees, including but not
Philippines from foreign government agencies and limited to final taxes on members' deposits.
other institutions, private or public;
Under R.A. 7916 (PEZA Law), as amended, PEZA-
Payments of VETERANS benefits under U.S. registered enterprises are given income tax holidays of
Veterans Administration Payments of benefits six or four years from the date of commercial
due or to become due to any person residing in the operations, depending on whether their activities are
Philippines under the laws of the United States considered pioneer or non-pioneer.
administered by the United States Veterans
Administration Under R.A. 9178 (Barangay Micro Business
Enterprises Act of 2002), BMBEs shall be exempt
Social Security Act benefits Payments of benefits from income tax for income arising from the
received under the Social Security Act of 1954 (RA operation of the enterprise.
8282), as amended, e.g., Maternity Benefits
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However, if there is an express mention in the law or Sale of inventory of goods by manufacturers and
if the taxpayer falls within the purview of the dealers of properties: In sales of goods representing
exemption by clear legislative intent, the rule on strict inventory, the amount received by the seller consists
construction will not apply. [Commissioner v. Anoldus of return of capital and gain from sale of goods or
Caprentry Shop, G.R. No. 71122 (1988)] properties. That portion of the receipt representing
return of capital is not subject to income tax.
The purpose of deductions from gross income is to Accordingly, cost of goods manufactured and sold (in
provide the taxpayer a just and reasonable tax amount the case of manufacturers) and cost of sales (in the
as the basis of income tax. It is because many case of dealers) is deducted from gross sales and is
taxpayers spend adequate expenditures in order to reflected above the gross income line in a profit and
obtain a legitimate income. loss statement.
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sales. Rather they are required to deduct the total cost ORDINARY - normal and usual in relation to
specifically identifiable to the real property or shares the taxpayer's business and surrounding
of stock sold or exchanged. circumstances; need not be recurring
Sale of services: Their entire gross receipts are NECESSARY - appropriate and helpful in the
treated as part of gross income. development of taxpayer's business or are proper
for the purpose of realizing a profit or
c. Itemized Deductions minimizing a loss
These are enumerated in Section 34 of the NIRC. b. Paid or incurred during the taxable year;
Additional deductions are granted to insurance c. Paid or incurred in carrying on or which are
companies in Section 37, while losses from wash sales directly attributable to the development,
of stock or securities by a dealer in securities are management, operation and/or conduct of the
provided for in Section 38 of the NIRC. Other trade, business or exercise of profession;
itemized deductions could be granted under general d. Substantiated by adequate proof documented
or special laws, e.g. additional training expenses are by official receipts or adequate records, which
allowed to enterprises registered with PEZA, BOI, reflect the amount of expense deducted and the
and SBMA. connection or relation of the expense to the
business/trade of the taxpayer);
Timing of Claiming Deductions e. Legitimately paid (not a BRIBE, kickback, or
otherwise contrary to law, morals, public policy);
A taxpayer has the right to deduct all authorized f. If subject to withholding tax, the tax required to
allowances for the taxable year. As a rule, if he does be withheld on the expense paid or payable is
not within any year deduct certain of his expenses, shown to have been properly withheld and
losses, interest, taxes or other charges, he cannot remitted to the BIR on time;
deduct them from the income of the next of any g. Amount must be reasonable.
succeeding year [Sec. 76, Income Tax Regulations]
Note: The expenses allowable to a non-resident alien
1. Expenses or a foreign corporation consist of only such expenses
as are incurred in carrying on any business or trade
conducted within the Philippines exclusively. [Sec. 77
Business expenses deductible from gross income
RR 2]
include the ordinary and necessary expenditures
directly connected wi h or per aining o he a pa er
COHAN Rule: This relief will apply if the taxpayer
trade or business. The cost of goods purchased for
has shown that it is usual and necessary in the trade
resale, with proper adjustment for opening and
to entertain and to incur similar kinds of expenditures,
closing inventories, is deducted from gross sales in
there being evidence to show the amounts spent and
computing gross income.
the persons entertained, though not itemized. In such
a situation, deduction of a portion of the expenses
Includes:
incurred might be allowed even if there are no receipts
a. Salaries, wages, and other forms of compensation
or vouchers. Absence of invoices, receipts or
for personal services actually rendered, including
vouchers, particularly lack of proof of the items
the grossed-up monetary value of fringe benefits
constituting the expense is fatal to the allowance of
furnished or granted by the employer to the
the deduction [Gancayco v. Collector, G.R. No. L-13325,
employee
(1961)]
b. Travel expenses
c. Rentals
Substantiation requirement Sec. 34(A)(1)(b),
d. Entertainment, recreation and amusement
NIRC: No deduction from gross income shall be
expenses
allowed unless the taxpayer shall substantiate with
e. Other expenses such as repairs or those incurred
sufficient evidence, such as official receipts or other
by farmers and other persons in agribusiness
adequate records: (1) the AMOUNT of the expense
being deducted, and (2) the DIRECT
Requisites for deductibility of business expenses
CONNECTION or relation of the expense being
a. Ordinary AND necessary;
deducted to the development, management,
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operation and/or conduct of the trade, business or c. M be inc rred or paid hile a a from
profession of the taxpayer. home
d. Tax home is the principal place of business, when
When o ACCRUE e pen e : all e en e ae referring o a a from home
that under the accrual method of accounting, e. Incurred or paid in the conduct of trade or
expenses are deductible in the taxable year in which: business.
(1) all events have occurred which determine the
liability; and (2) the amount of liability can be Note: However, necessary transportation expenses of
determined with reasonable accuracy. the taxpayer (which are different from the
transportation expenses included in the term ra el
Kinds of business expenses e pen e ) in i a home are ded c ible. Th , a
These are: taxpayer operating its business in Manila is allowed
a. Salaries, wages and other forms of compensation transportation expenses from its office to its
for personal services actually rendered, including c omer place of b ine and back. B he
the grossed-up monetary value of the fringe transportation expenses of an employee from his
benefit subjected to fringe benefit tax which tax residence to its office and back are not deductible as
should have been paid they are considered personal expenses.
b. Travelling expenses
c. Cost of materials Cost of materials
d. Rentals and/or other payments for use or Deductible only to the amount that they are actually
possession of property consumed and used in operation during the year for
e. Repairs and maintenance which the return is made, provided that their cost has
f. Expenses under lease agreements not been deducted in determining the net income for
g. Expenses for professionals any previous year.
h. Entertainment expenses
i. Political campaign expenses Rentals and/or other payments for use or
j. Training expenses possession of property
k. Others Required as a condition for continued use or
possession of property.
Salaries, wages and other forms of compensation For purposes of trade business or profession.
for personal services actually rendered, including Taxpayer has not taken or is not taking title to the
the grossed-up monetary value of the fringe property or has no equity other than that of
benefit subjected to fringe benefit tax which tax lessee, user, or possessor.
should have been paid
On the accrual basis, rent is deductible as expense
when liability is incurred during the period of use.
Given for personal services must be actually rendered
On cash basis, rent is deductible when it is
and reasonable.
incurred and paid.
For income payment to be allowed as deduction, the If the advance payment is a prepaid rental, such
withholding tax must have been paid [RR No. 12- payment is taxable income to the lessor in the
2013]. year when it was received. However, an advance
payment is not deductible expense of the lessee
Bonuses are deductible when: until the period is used. [Valencia and Roxas]
a. made in good faith
b. given as additional compensation for personal Repairs and maintenance
services actually rendered Incidental or ordinary repairs are deductible. Repairs
c. such payments, when added to the stipulated which neither materially add to the value of the
salaries, do not exceed a reasonable property nor appreciably prolong its life, but keep it
compensation for the services rendered in an ordinarily efficient working condition, may be
deducted as expenses, provided the plant or property
Traveling expenses account is not increased by the amount of such
a. This include transportation expenses and meals expenditure. The life of the asset referred to is the
and lodging [Secs. 65 and 66, Rev. Reg. No. 2] probable, normal, useful life for the purpose of the
b. Expenses must be reasonable and necessary. allowance for the return of the capital investment
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not what the life that would have been if no repairs transportation equipment used in making
had been made after the property was damaged by a professional calls, dues to professional societies and
casualty. Since the repairs prolonged the lives of the subscriptions to professional journals. [Mamalateo]
said vessels of petitioners, the disallowance must be
sustained. [Visayan Transportation Co. v. CTA, CTA Entertainment/Representation expenses
Case No. 1119, (1964)] These are entertainment, amusement and recreation
(EAR) expenses incurred or paid during the year that
Extraordinary repairs are not deductible they are are directly connected to the development,
capital expenditures management and operation of the trade, business or
profession of the taxpayer.
Repairs which add material value to the property
or appreciably prolong its life Requisites for deductibility:
Repairs in the nature of replacement, to the extent a. Reasonable in amount.
that they arrest deterioration and appreciably prolong b. Paid or incurred during the taxable period.
the life of the property, should be charged against the c. Directly connected to the development,
depreciation reserves if such account is kept. [Sec. 68, management, and operation of the trade,
Rev. Regs. 2] business or profession of the taxpayer, or that are
directly related to or in furtherance of the
All maintenance expenses on account of non- conduct thereof.
depreciable vehicles for taxation purposes are d. Not to exceed such ceiling as the Secretary of
disallowed in its entirely. [RR No. 12-2012] Finance prescribe (under RR 10-02, in no case to
exceed 0.50% of net sales for sellers of goods or
Expenses under lease agreements properties or 1% of net revenues for sellers of
Requisites for deductibility: services, including taxpayers engaged in the
a. Required as a condition for continued use or exercise of profession and use or lease of
possession; properties)
b. For purposes of the trade, business or e. Not incurred for purposes contrary to law,
possession; morals, public policy or public order.
c. Taxpayer has not taken or is not taking title to the f. Must be substantiated with sufficient evidence
property or has no equity other than that of such as receipts and/or adequate records.
lessee, user, or possessor.
Exclusions from EAR expenses:
Expenses for professionals a. Expenses which are treated as compensation or
Deductible in the year the professional services are fringe benefits for services rendered under an
rendered, not in the year they are billed, provided that employer-employee relationship
the all e en i pre en . b. Expenses for charitable or fund raising events
c. Expenses for bona fide business meeting of
A : stockholders, partners or directors
a. Fixing a right to income or liability to pay; and d. Expenses for attending or sponsoring an
b. The availability of reasonably accurate employee to a business league or professional
determination of such income or liability. organization meeting
e. Expenses for events organized for promotion
The all-e en e doe no demand ha he marketing and advertising, including concerts,
amount of income or liability be known absolutely; it conferences, seminars, workshops, conventions
only requires that a taxpayer has at its disposal the and other similar events; and
information necessary to compute the amount with f. Other expenses of a similar nature.
reasonable accuracy, which implies something less
than an exact or completely accurate amount. Political campaign expenses
[Commissioner v. Isabela Cultural Corporation, G.R. No. Amount expended for political campaign purposes or
172231 (2007)] payments to campaign funds are NOT deductible
either as business expenses or as contribution [CTA
A professional may claim as deductions the cost of Case No. 695, April 30, 1969, citing Mertens]
supplies used by him in the practice of his profession,
expenses paid in the operation and repair of
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deduction from gross income of citizens and The following may claim tax credits:
domestic corporations subject to the limitations set a. Resident citizens
forth by law. b. Domestic corporations, which include all
partnerships except general professional
Treatments of surcharges/interests/fines for partnerships
delinquency c. Members of general professional partnerships
The amount of deductible taxes is limited to the basic d. Beneficiaries of estates or trusts
tax and shall not include the amount for any surcharge
or penalty on delinquent taxes. However, interest on The following may NOT claim tax credits:
delinquent taxes, although not deductible as tax, can a. Non-resident citizens
be deducted as interest expense at its full amount. b. Aliens, whether resident or non-resident
[CIR v. Palanca, G.R. No. L-16626 (1966)] c. Foreign corporations, whether resident on non-
resident
Although interest payment for delinquent taxes is not
deductible as tax, the taxpayer is not precluded Note: Tax credits for foreign taxes are allowed only for
thereby from claiming said interest payment as income derived from sources outside the Philippines.
deduction as such. [CIR v. Vda. de Prieto, G.R. No. L- The above taxpayers are not entitled to tax credit; they
13912 (1960)] are taxable only on income derived from Philippine
sources.
Treatment of special assessment
Special assessments and other taxes assessed against Limitations on Tax Credit.
local benefits of a kind tending to increase the value [Per Country Limit] The amount of tax credit shall not
of the property assessed are non-deductible from exceed the same proportion of the tax against which
gross income. such credit is taken, which the taxpayer's taxable
income from sources within such country bears to his
Tax credit vis-à-vis deduction entire taxable income for the same taxable year; and
Tax credit amount allowed by law to reduce the [Worldwide Limit] The total amount of the credit
Philippine income tax due, subject to limitations, on shall not exceed the same proportion of the tax
account of taxes paid or accrued to a foreign country against which such credit is taken, which the
taxpayer's taxable income from sources without the
Tax Credit Tax Deduction Philippines taxable bears to his entire taxable income
Taxes are deductible for the same taxable year.
Taxes are deductible
from gross income in
from the Phil. Income Formula:
computing the taxable
tax itself
income Limit #1 Per Country Limit
Effect: Reduces Effect: Reduces taxable Taxable
Philippine income tax income upon which the Income Per
liability tax liability is calculated Foreign
Sources: Only foreign Country Limit on
income taxes may be Sources: Deductible Phil. Income
x = amount of
claimed as credits taxes (e.g. business tax, Tax
Worldwide tax credit
against Philippine excise tax)
Taxable
income tax.
Income
An amount subtracted from an individual's or entity's
tax liability to arrive at the total tax liability. A tax
credit reduces the taxpayer's liability, compared to a
deduction which reduces taxable income upon which
the tax liability is calculated. A credit differs from
deduction to the extent that the former is subtracted
from the tax while the latter is subtracted from
income before the tax is computed. [CIR v. Bicolandia
Drug Corp., G.R. No. 148083 (2006)]
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Exception: If by a dealer in securities in the course of b. Domestic and resident foreign corporations
ordinary business, it is deductible. subject to the normal income tax (e.g.,
manufacturers and traders) or preferential tax
d. Wagering losses rates under the Code (e.g., private educational
Losses from wagering (gambling) are deductible only institutions, hospitals, and regional operating
to the extent of gains from such transactions. A wager headquarters) or under special laws (e.g., PEZA-
is made when the outcome depends upon CHANCE. registered companies)
Note: Domestic and resident foreign corporations
e. Net Operating Loss Carry Over (NOLCO) taxed during the taxable year with Minimum
Net operating loss (NOL) is the excess of allowable Corporate
deductions over gross income for any taxable year
immediately preceding the current taxable year. Income Tax cannot enjoy the benefit of NOLCO.
However, the three-year period for the expiry of the
NOLCO: The NOL of the business or enterprise NOLCO is not interrupted by the fact that the
which had not been previously offset as deduction corporation is subject to MCIT during such three-year
from gross income shall be carried over as a deduction period.
from gross income for the next three (3) consecutive
taxable years immediately following the year of such Other Losses
loss, provided however, that any net loss incurred in a. Abandonment losses in petroleum operation and
a taxable year during which the taxpayer was exempt producing well.
from income tax shall not be allowed as a deduction. b. Losses due to voluntary removal of building
[Sec. 34(3)(D), NIRC] incident to renewal or replacements are
deductible from gross income.
Exception: Mines other than oil and gas wells, where a c. Loss of useful value of capital assets due to
net operating loss without the benefit of incentives charges in business conditions is deductible only
provided for under EO No. 226 (Omnibus to the extent of actual loss sustained (after
Investments Code) incurred in any of the first ten (10) adjustment for improvement, depreciation and
years of operation may be carried over as a deduction salvage value)
from taxable income for the next five (5) years d. Losses from sales or exchanges of property
immediately following the year of such loss. between related taxpayers are not recognized, but
the gains are taxable.
Requisites for NOLCO e. Losses of farmers incurred in the operation of
a. The taxpayer was not exempt from income tax farm business are deductible.
the year the loss was incurred;
b. There has been no substantial change in the 5. Bad debts
ownership of the business or enterprise wherein:
c. AT LEAST 75% of nominal value of outstanding Debts resulting from the worthlessness or
issued shares is held by or on behalf of the same uncollectibility, in whole or in part, of amounts due
persons; or the taxpayer actually ascertained to be worthless and
d. AT LEAST 75% of the paid up capital of the the corresponding receivable should have been
corporation is held by or on behalf of the same written off or charged off within the taxable year.
persons.
A debt is worthless when after taking reasonable steps
Taxpayers Entitled to NOLCO to collect it, there is no likelihood of recovery at any
a. Individuals engaged in trade or business or in the time in the future.
exercise of his profession (including estates and
trusts); Requisites for deductibility
Note: An individual who avails of 40% OSD shall a. Valid and legally demandable debt due to the
not simultaneously claim deduction of NOLCO. taxpayer
However, the three-year reglementary period b. Debt is connected with the taxpayer's trade,
shall continue to run during such period business or practice of profession;
notwithstanding the fact that the aforesaid c. Debt was not sustained in a transaction entered
taxpayer availed of OSD during the said period. into between related parties;
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d. Actually ascertained to be worthless and b. collection through court action may be more
uncollectible as of the end of the taxable year costly to the taxpayer.
(taxpayer had determined with reasonably degree
of certainty that the claim could not be collected Ac ally charged off from the taxpa er book of
despite the fact that the creditor took reasonable acco n Receivable which has actually become
steps to collect); and worthless at the end of the taxable year has been
e. Actually charged off the books of accounts of the cancelled and written off. Mere recording in the
taxpayer as of the end of the taxable year books of account of estimated uncollectible accounts
does not constitute a write-off.
General rule: Taxpayer must ascertain and demonstrate
with reasonable certainty the uncollectibility of debt EFFECT OF RECOVERY OF BAD DEBTS
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The amount deductible is the actual contribution or 1. Individuals, except non-resident aliens
the statutory limit computed, whichever is lower
May be taken by an individual in lieu of itemized
deductions except those earning purely compensation
8. Contributions to pension trusts
income.
Contribution to a pension trust may be claimed as
If an individual opted to use OSD, he is no longer
deduction as follows:
allowed to deduct cost of sales or cost of services.
a. Amount contributed for the present/normal
Amount: 40% of gross sales or gross receipts (under
service cost 100% deductible
RA 9504, effective July 6, 2008)
b. Amount contributed for the past service cost
1/10 of the amount contributed is deductible in
Requisites:
year the contribution is made, the remaining
a. Taxpayer is a citizen or resident alien;
balance will be amortized equally over nine
b. Ta pa er income i no en irel from
consecutive years
compensation;
c. Taxpayer signifies in his return his intention to
General Rule: An employer establishing or maintaining
elect this deduction; otherwise he is considered as
a pension trust to provide for the payment of
having availed of the itemized deductions;
reasonable pensions to his employees shall be allowed
d. Election is irrevocable for the year in which
as a deduction, a reasonable amount transferred or
made; however, he can change to itemized
paid into such trust in excess of the contributions to
deductions in succeeding years.
such trust made during the taxable year.
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13
This provision was inserted by TRAIN amending Sec. 34 standard deduction only once, either by the general
(L): T a a a a a a a professional partnership or the partners comprising the
comprising such partnership may avail of the optional a .
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Exceptions: In computing taxable net income, no 4. Between the grantor and the fiduciary of a trust
deduction shall be allowed with respect to: 5. Between the fiduciary of a trust and the fiduciary
1. Personal, living or family expenses (note: they are of another trust if the same person is a grantor
not deductible from compensation and with respect to each trust
business/professional income 6. Between the fiduciary of a trust and a beneficiary
2. Any amount paid out for new buildings or for of such trust [Section 36(B), NIRC]
permanent improvements (capital expenditures),
or betterments made to increase the value of any Relevant points regarding related taxpayers
property or estate 1. Payment of interest is not deductible.
3. Any amount expended in restoring property 2. Bad debts are not deductible.
(major repairs) or in making good the exhaustion 3. Losses from sales or exchanges of property are
thereof for which an allowance [for depreciation not deductible.
or depletion] is or has been made
4. Premiums paid on any life insurance policy Summary Table for Taxation of Individuals (all
covering the life of any officer, employee, or any individual taxpayers, including non-resident aliens)
person financially interested in the trade or Tax
Classification Taxable Income
business carried on by the taxpayer, individual or Rates
corporate, when the taxpayer is directly or Income from
indirectly a beneficiary under such policy Resident sources within and
5. Interest expense and bad debts between related 0%-35%
Citizen outside the
parties [Sec. 36(B), NIRC)] Philippines
6. Losses from sales or exchanges of property Income from
between related taxpayers. Non-Resident
sources within the 0%-35%
7. Non-deductible interest should the taxpayer Citizen
Philippines
elect to deduct interest payments against its gross Income from
income, he cannot at the same time capitalize Resident Alien sources within the 0%-35%
such interest and claim depreciation on the Philippines
undepreciated cost which includes the interest. Non-resident
[PICOP v. Commissioner, G.R. No. 106949-50 Income from
Alien Engaged
(1995)] sources within the 0%-35%
in Trade or
8. Non deductible taxes Philippines
Business
9. Non-deductible losses Non-resident
10. Losses on Wash Sales (except if by dealer in Alien Not Income from
securities in ordinary course of exempt Engaged in sources within the 25%
corporations) These are: Trade or Philippines
a. Proprietary Educational Institutions and Business
hospitals
b. Government owned and controlled
corporations 4. Income Tax on Individuals
c. Others
a. Income Tax on Resident
Related Parties [Sec. 34(B)] Citizens, Non-Resident Citizens
1. Between members of a family (which shall
include only his brothers and sisters, spouse, and Resident Aliens
ancestors and lineal descendants)
2. Between an individual and a corporation more 1. Coverage Income from All Sources
than 50% in value of the outstanding stock of Within and Without the Philippines;
which is owned, directly or indirectly, by or for Exception
such individual except in the case of
distributions in liquidation a. Resident Citizens
3. Between two corporations more than 50% in
value of the outstanding stock of each of which A Filipino resident citizen is taxable on income from
is owned, directly or indirectly by or for the same all sources (within and without the Philippines)
individual
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A non-resident citizen is taxable only on income One who comes to the Philippines for a definite
derived from sources within the Philippines. purpose which, in its nature, may be promptly
accomplished is a transient. But if his purpose is of
A non-resident citizen is a Filipino citizen who: such a nature that an extended stay may be necessary
1. Establishes to the satisfaction of the CIR the fact for its accomplishment, and to that end the alien
of his physical presence abroad with a definite makes his home temporarily in the Philippines, he
intention to reside therein becomes a resident, though it may be his intention at
2. Leaves the Philippines during the taxable year to all times to return to his domicile abroad when the
reside abroad (as immigrant or for employment purpose of which he came has been consummated or
on a permanent basis) abandoned. [Sec. 5, RR No. 2]
3. Works and derives income from abroad and
whose employment requires him to be present 2. Taxation on Compensation Income
abroad most of the time during the taxable year
4. Has been previously considered as a non-resident Income arising from an ER-EE relationship. It means
and arrives in the Philippines at any time during all remuneration for services performed by an EE for
the taxable year to reside here permanently (only his ER, including the cash value of all remuneration
with respect to his income from sources abroad paid in any medium other than cash. [Sec. 78(A)] It
until the date of his arrival in the country) includes, but is not limited to salaries and wages,
commissions, tips, allowances, bonuses, Fringe
Other considerations: Benefits of rank and file EEs and other forms of
1. A Filipino citizen working and deriving abroad as compensation.
an Overseas Contract Worker is taxable only on
income from sources WITHIN the Philippines. a. Inclusions
2. OCW refers to Filipino citizens in foreign
countries, who are physically present in a foreign 1. Monetary compensation If
country as a consequence of their employment in compensation is paid in cash, the full amount
that country. Their salaries and wages are paid by received is the measure of the income
an employer abroad and is not borne by an entity subject to tax.
or person in the Philippines. They must be duly
registered with the Philippine Overseas a. Regular salary/wage
Employment Administration (POEA) with valid Salary earnings received periodically for a
Overseas Employment Certificate (OEC). regular work other than manual labor, such
3. An OCW income ari ing o of hi o er ea as monthly salary of an employee
employment is exempt from income tax.
Wages all remuneration (other than fees
c. Resident Aliens paid to a public official) for services
performed by an employee for his employer,
A resident alien is taxable only on income from including the cash value of all remuneration
sources WITHIN the Philippines. paid in any medium other than cash. [Sec.
78A, NIRC]
A resident alien is an individual whose residence is
in the Philippines and who is not a Filipino citizen. b. Separation pay/retirement benefit
not otherwise exempt
An alien actually present in the Philippine who is not
a mere transient or sojourner is a resident of the Retirement pay a lump sum payment
Philippines for purposes of the income tax. Whether received by an employee who has served a
he is a transient or not is determined by his intentions company for a considerable period of time
with regard to the length and nature of his stay. A and has decided to withdraw from work into
mere floating intention indefinite as to time, to return privacy. [RR 6-82, Sec. 2b]
to another country is not sufficient to constitute him
General rule: Retirement pay is taxable
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Minimum wage earners shall be exempt from the Individuals earning mixed income
payment of income tax on their taxable income per For mixed income earners, the income tax rates
RA 9504. applicable are:
a. The compensation income shall be subject to
MWEs receiving other income from the conduct of the tax rates prescribed under Section 24 (A) (2)
trade, business, or practice of profession, except (a) of the Tax Code, as amended; AND
income subject to final tax, in addition to b. The income from business or practice of
compensation income are not exempted from income profession shall be subject to the following:
tax from their entire income earned during the taxable 1. If the gross sales/receipts and other non-
year. This rule, notwithstanding, the statutory operating income do not exceed the VAT
minimum wage, holiday pay, overtime pay, night shift threshold, the individual has the option to be
differential pay, and hazard pay shall still be exempt taxed at:
from withholding tax [RR No. 10-2008]. a. Graduated income tax rates prescribed
under Section 24 (A) (2) (a) of
3. Taxation of Business Income/Income the Tax Code, as amended; OR
From Practice of Profession b. Eight percent (8%) income tax rate
based on gross sales/receipts and other
All income obtained from doing business and/or non-operating income in lieu of the
engaging in the practice of a profession shall be graduated income tax rates and
included in the computation of taxable income. (0- percentage tax under Section 116 of the
35% For citizens, resident aliens & NRA Engaged in Tax Code, as amended.
trade or business or the 8% tax on gross sales or 2. If the gross sales/receipts and other non-
receipts, on the option of the taxpayer; 25% in case of operating income exceeds the VAT
NRANETB) threshold, the individual shall be subject to
the graduated income tax rates prescribed
Individuals earning purely business or under Section 24 (A) (2) (a) of the Tax Code,
professional income as amended.
Individuals earning income purely from self- [RR No. 08-2018 implementing RA No. 10963
employment and/or practice of profession whose (TRAIN Law) specifically Sec. 24 (A)(2)(b) & (c)14]
14
SECTION 24. Income Tax Rates. Provided in Section 109(BB). Self-employed individuals
(A) Rates of Income Tax on Individual Citizen and Individual and/or professionals shall have the option to avail of an
Resident Alien of the Philippines. eight percent (8%) tax on gross sales or gross receipts
(2) Rates of Tax on Taxable Income of Individuals. The tax and other non-operating income in excess of Two
shall be computed in accordance with and at the rates hundred fifty thousand pesos (P250,000) in lieu of the
established in the following schedule: graduated income tax rates under Subsection (A)(2)(a) of
xxx this Section and the percentage tax under Section 116 of
(b) Rate of Tax on Income of Purely Self-employed this Code.
Individuals and/or Professionals Whose Gross Sales or (c) Rate of Tax for Mixed Income Earners. Taxpayers
Gross Receipts and Other Non-operating Income Does earning both compensation income and income from
Not Exceed the Value-added Tax (VAT) Threshold as
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Passive Income Subject to Final Tax 1. cash and/or property dividends actually or
Final a mean a i hheld from o rce, and he constructively received by an individual from
amount received by the income earner is net of the 2. a domestic corporation
tax already. The tax withheld by the income payor is 3. a joint stock company
remitted by him to the BIR. The income having been 4. insurance or mutual fund companies
tax-paid already, it need not be included in the income 5. regional operating headquarters of multinational
tax return at the end of the year. These passive income companies
items are as follows: 6. share of an individual in the distributable net
a. Interest income income after tax of a partnership (except a
b. Royalties general professional partnership) of which he is a
c. Dividends from domestic corporations partner
d. Prizes and other winnings 7. share of an individual member or co-venturer in
the net income after tax of an association, a joint
a. Interest income account, or a joint venture or consortium taxable
as a corporation
1. on any currency bank deposit, yield or any other
monetary benefit from deposit substitutes, trust Rate:
funds and similar arrangements - 20% final tax 1. 10% for residents (RC, RA) and non-resident
2. under the expanded foreign currency deposit citizens (NRC);
system (EFCDS) - 15% final tax for residents, 2. 20% for NRAETB (non-resident aliens engaged
exempt if non-residents15 in trade or business)
Treatment of income from long-term deposits A stock dividend representing the transfer of surplus
On long-term deposit or investment certificates to capital account shall not be subject to tax.
(LTDIC) in banks (e.g., savings, common or
individual trust funds, deposit substitutes, investment However, if a corporation cancels or redeems stock
management accounts and other investments, which issued as a dividend at such time and in such manner
have maturity of 5 years or more) exempt as to make the distribution and cancellation or
redemption, in whole or in part, essentially equivalent
Should LTDIC holder pre-terminate LTDIC before to the distribution of a taxable dividend, the amount
the 5th year, a final tax shall be imposed on the entire so distributed in redemption or cancellation of the
income based on the remaining maturity: stock shall be considered as taxable income to the
extent that it represents a distribution of earnings or
4 years to less than 5 years 5% profits. [Sec. 73B, NIRC]
3 years to less than 4 years 12%
less than 3 years 20% In other words, stock dividends are generally not
subject to tax as long as there are no options in lieu of
b. Royalties the shares of stock.
(See summary table, infra)
business or practice of profession shall be subject to the (b) If Total Gross Sales and/or Gross Receipts and Other
following taxes: Non-operating Income Exceeds the VAT Threshold as
(1) All Income from Compensation The rates prescribed Provided in Section 109(BB) of this Code. The rates
under Subsection (A)(2)(a) of this Section. prescribed under Subsection (A)(2)(a) of this Section.
15
(2) All Income from Business or Practice of Profession SECTION 24. Income Tax Rates.
(a) If Total Gross Sales and/or Gross Receipts and Other (B) Rate of Tax on Certain Passive Income:
Non-operating Income Do Not Exceed the VAT Threshold (1) Interests, Royalties, Prizes, and Other Winnings – x x x
as Provided in Section 109(BB) of this Code. The rates That interest income received by an individual taxpayer
prescribed under Subsection (A)(2)(a) of this Section on (except a nonresident individual) from a depository bank
taxable income, or eight percent (8%) income tax based under the expanded foreign currency deposit system shall be
on gross sales or gross receipts and other non-operating subject to a final income tax at the rate of seven and one-half
income in lieu of the graduated income tax rates under fifteen percent (7 1/2%) (15%) 11 of such interest income x x
Subsection (A)(2)(a) of this Section and the percentage x.
tax under Section 116 of this Code.
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On the other hand, a stock dividend constitutes the actual recovery or collection of revenues,
income if it gives the shareholder an interest different surcharges and fees and/or the conviction of the
from that which his former stockholdings guilty party or parties, and/or the imposition of any
represented. fine or penalty or the actual collection of a
compromise amount, in case of amicable settlement,
d. Prizes and other winnings shall be subject to income tax, collected as a final
withholding tax, at the rate of 10%, pursuant to Sec.
1. Winnings, except Philippine Charity sweepstakes 282 of the NIRC [RR 16-2010]
/ lotto winnings which does not exceed P10,000
20% Passive income not subject to tax
2. Winnings from PCSO not more than P10,000 Interest income from long-term deposit or
shall be exempt from tax.16 investment in the form of savings, common or
3. Prizes exceeding P10,000 20% individual trust funds, deposit substitutes, investment
4. Prizes not exceeding P10,000 shall be subjected management accounts and other investments
to the graduated income tax rates. evidenced by certificates in such form prescribed by
the BSP shall be exempt from tax
Prize, differentiated from winnings:
A prize is the result of an effort made (e.g., prize in a But should the holder of the certificate pre-terminate
beauty contest), while winnings are the result of a the deposit or investment before the 5th year, a final
transaction where the outcome depends upon chance tax shall be imposed on the entire income and shall
(e.g., betting). be deducted and withheld by the depository bank
from the proceeds of the long-term deposit or
For interest from foreign currency loans granted by investment certificate based on the remaining
FCDUs to residents other than Offshore Banking maturity thereof:
Units (OBUs) or other depository banks under the 1. Four (4) years to less than five (5) years - 5%;
expanded system tax rate is 10% if payors are 2. Three (3) years to less than four (4) years -
RESIDENTS, whether individuals or corporations. 12%; and
3. Less than three (3) years - 20%.
For interest from foreign currency loans granted by
OBUs to residents other than OBUs or local Any income of nonresidents, whether individuals or
commercial banks, including branches of foreign corporations, from transactions with depository
banks that may be authorized by the BSP to transact banks under the expanded system shall be exempt
business with OBUs - tax rate is 10% if payors are from income tax.
RESIDENTS, whether individuals or corporations.
5. Taxation of Capital Gains
Gross income from all sources within the Philippines
derived by non-resident cinematographic film a. Income from sale of shares of stock of a
owners, lessors or distributors tax rate is 25% if Philippine corporation
payee is: (a) non-resident alien individual, or (b) non-
resident foreign corporation. The term 1. Shares traded and listed in the stock
cinema ographic film incl de mo ion picture exchange exempt
films, films, tapes, discs and other such similar or
related products. The transaction is exempt from income tax regardless
of the nature of business of the seller or transferor.
Informer re ard gi en o per on ho ol n aril However, it is subject to the one-half of one percent
provide definite and sworn information that lead to (0.6 of 1%) stock transaction tax imposed under Sec.
or was instrumental in the discovery of fraud or 127(A) of the Tax Code based on the gross selling
violation of the provisions of the NIRC or special price or gross value in money of the shares of stock
laws being administered by the BIR and resulted in sold or transferred.
16
SECTION 24. Income Tax Rates. Subsection (A) of Section 24; and other winnings (except
(B) Rate of Tax on Certain Passive Income: winnings amounting to Ten thousand pesos (P10,000) or
(1) Interests, Royalties, Prizes, and Other Winnings – x x x less from Philippine Charity Sweepstakes and Lotto winnings
prizes (except prizes amounting to Ten thousand pesos which shall be exempt), derived from sources within the
(P10,000) or less which shall be subject to tax under Philippines x x x.
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Requirements:
2. Shares not listed and traded in the stock a. Sale or disposition by a natural person of his
exchange subject to final tax principal residence,
b. The proceeds of which is fully utilized in
On sale, barter, exchange or other disposition of acquiring/constructing a new principal
shares of stock of a domestic corporation not listed residence,
and traded through a local stock exchange, held as a c. Such acquisition/construction taking place
capital asset within 18 calendar months from the date of
sale or disposition,
On the net capital gain: Final Tax of 15% d. The taxpayer notifies the Commissioner
within 30 days from the sale/disposition
Tax on income derived from sale of shares through a prescribed return of his intention
not listed in the SE to avail of the exemption,
Rates before TRAIN Under TRAIN e. The tax exemption can only be availed of
5% on sale of stocks not once every 10 years.
over P100,000 plus 10%
Final Tax of 15% Tax treatment: Exempt from capital gains tax
on amount in excess of
P100,000 (CGT). If there is no full utilization of the proceeds
of sale or disposition, the portion of the gain
Net capital gain: selling price less cost presumed to have been realized from the sale or
Selling price: consideration on the sale OR fair disposition shall be subject to CGT.
market value of the shares of stock at the time of the
sale, whichever is higher How taxable portion and tax determined:
Cost: original purchase price 𝐻𝐼𝐺𝐻𝐸𝑅 𝑜𝑓 𝐺𝑟𝑜𝑠𝑠 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒
𝑜𝑟
b. Income from the sale of real property 𝐹𝑀𝑉 @ 𝑠𝑎𝑙𝑒
situated in the Philippines
The historical cost or adjusted basis of the real
What property covered property sold or disposed shall be carried over to the
Property located in the PH classified as capital assets new principal residence built or acquired.
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Ordinary assets shall refer to all real properties Cash and/or property dividends
specifically excluded from the definition of capital The following shall be subject to an income tax of
assets under Section 39(A)(1) of the NIRC, namely: twenty percent (20%) on the total amount thereof:
1. Stock in trade of a taxpayer or other real property 1. Cash and/or property dividends from:
of a kind which would properly be included in the a. A domestic corporation;
inventory of the taxpayer if on hand at the close b. A joint stock company;
of the taxable year; or c. An insurance or mutual fund company;
2. Real property held by the taxpayer primarily for d. A regional operating headquarters of
sale to customers in the ordinary course of his multinational company;
trade or business; or e. The share of a nonresident alien individual in
3. Real property used in trade or business (i.e., the distributable net income after tax of a
buildings and/or improvements) of a character partnership (except a general professional
which is subject to the allowance for depreciation partnership) of which he is a partner;
provided for under Sec. 34(F) of the Code; or f. The share of a nonresident alien individual in
4. Real property used in trade or business of the the net income after tax of an association, a
taxpayer joint account, or a joint venture taxable as a
corporation of which he is a member or a co-
b. Income Tax on Non-Resident venturer;
Aliens Engaged in Trade or 2. Interests
3. Royalties (in any form); and
Business 4. Prizes (except prizes amounting to Ten
thousand pesos (P10,000) or less which shall be
A non-resident alien is an individual whose
subject to graduated tax) and other winnings
residence and citizenship is not in the Philippines.
(except PCSO / lotto winnings which shall not
exceed P10,000)
One who comes to the Philippines for a definite
purpose which, in its nature, may be promptly
accomplished is a transient. But if his purpose is of
such a nature that an extended stay may be necessary
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c. Income Tax on Non-Resident Generally, Senior Citizens are still taxable individual.
However, if they are considered as MWEs, rules on
Aliens Not Engaged in Trade or MWE will apply.
Business [Sec. 25 (B)]
Who are covered: any resident citizen
There shall be levied, collected, and paid for each a. At least 60 years old, and
taxable year upon the entire income received from all b. Who are considered minimum wage earners
sources within the PH by every NRANETB within under RA 9504 (Sec. 4 (b) RA 7432, as amended
by RA 9994) and/or the aggregate amount of
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gross income earned by the senior citizen during Compensation income including overtime pay,
the taxable year does not exceed the amount of holiday pay and hazard pay, earned by minimum
his personal exemptions (BPE and APE). wage earners who has no other returnable
income are NOT taxable and not subject to
2. Minimum Wage Earners withholding tax on wages [RA 9504]
Rule: they shall be exempt from payment of income 3. Exemptions Granted Under
tax on their taxable income.
International Agreements
Limit: Ho e er, if he recei e o her benefi in See RMC No, 31-2013, April 12, 2013 taxation of
excess of the allowable statutory amount of P90,000, compensation income of Philippine nationals and
then he shall be taxable on the exceeds benefits as well alien individuals employed by foreign
as his salaries, wages, and allowances, just like an governments/embassies/diplomatic missions and
employee receiving compensation income beyond the international organizations situated in the Philippines.
statutory minimum wage.
The Government of the Philippines is a signatory of
[T]he treatment of bonuses and other benefits that [a certain international agreements and a party to
minimum wage earner] receives from the employer in different tax treaties which specifically provide for the
excess of the [ 90,000] ceiling cannot but be the same exemption of certain persons or entities from taxes
as the prevailing treatment prior to R.A. 9504 - imposed by the Philippines.
anything in excess of 30,000 is taxable; no more, no
less. The treatment of this excess cannot operate to Examples of these tax exemptions are those accorded
disenfranchise the MWE from enjoying the to diplomats or ambassadors of other countries here
exemption explicitly granted by R.A. 9504. [Soriano v. in the Philippines. The World Health Organization is
Secretary of Finance, G.R. No. 184450 (2017)] also tax exempt upon an international agreement [CIR
v. Gotamco, G.R. No. L-31092 (1987)]
TAXATION OF COMPENSATION INCOME
OF A MINIMUM WAGE EARNER
a. Statutory minimum wage earner shall refer to
rate fixed by the Regional Tripartite Wage and
Productivity Board, as defined by the Bureau of
Labor and Employment Statistics (BLES) of the
Department of Labor and Employment. [Sec.22
GG, as amended by RA 9504]
b. Minimum wage earner shall refer to a worker
in the private sector paid the statutory minimum
wage, or to an employee in the public sector with
compensation income of not more than the
statutory minimum wage in the non-agricultural
sector where he/she is assigned. [Sec.22 HH, as
amended by RA 9504]
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Sec. 24 (C). Capital Gains Tax from Sale of Shares of Stock of a Citizens,
NRAETB NRANETB
domestic corporation NOT TRADED in the Stock Exchange Residents
Tax base: Net Capital Gain 15% 15% 15%
Sec. 24 (D). Capital Gains Tax from Sale of Real Property Citizens,
NRAETB NRANETB
Classified as Capital Asset Residents
Tax base: Gross selling price or current fair market value, whichever
is higher
Tax Rate 6% 6% 6%
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Resident Non-Resident
Category of Citizen Alien Citizen NRAETB NRANETB
income Within the Within the Within the Within the
All sources
Philippines Philippines Philippines Philippines
Based on Taxable (i.e. Net) Income
Compensation/
Business/ Schedular Income Tax Rates (i.e. 0% to 35% (Sec. 24, NIRC) (See table
Profession below)
For those earning purely business or professional income or mixed
Prizes of income, the taxpayer can opt to avail of the 8% tax on gross sales/receipts
P10,000 or less in lieu of graduated rates for the business/professional income portion
upon the option of the taxpayer
Interest from
any currency
bank deposit,
etc.
Royalties, in Gross Income Within the Philippines (GIW) 20% Final Withholding
general Tax
Winnings/
Prizes (except
prizes P10,000
and below)
Royalties from
books, literary GIW 25%
GIW 10% Final Withholding Tax
works, musical
compositions
Interest from
long-term
EXEMPT; However:
deposit or
In case of pre-termination, with remaining maturity of:
investment
4 years to less than 5 years -5% on entire income
certificates,
3 years to less than 4 years 12% on entire income
which have a
less than 3 years 20% on entire income
maturity of 5
years or more
Cash/ Property
Dividends from
a domestic
corporation, etc.,
OR share in the
distribute net GIW 10% Final Withholding Tax GIW 20%
income after tax
of a partnership
(except a general
professional
partnership), etc.
Interest
(Expanding
Foreign GIW 15% Final Withholding Tax Exempt
Currency
Deposit System)
Prizes Subject to schedular rates if not exceeding P10,000
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U.P. LAW BOC TAXATION I TAXATION LAW
Winnings on
Philippine
Exempt if P10,000 and below
Sweepstakes/
Lotto
Capital Gains on
Sale of Shares of
Domestic Corp Net capital gains: 15% Final Tax
(not traded in a
domestic stock
exchange
Capital Gains on
Sale of Real
Gross Selling Price or FMV, whichever is higher 6% Final Withholding Tax
Property in the
Philippines
Sale of Shares of
Domestic Corp. 0.6 of 1% of the Selling Price (Stock Transaction Tax)
(traded in a
domestic stock Note: Stock Transaction Tax is not an income tax, but a business (percentage) tax
exchange)
Sale of Real
Property located
Schedular Income Tax Rates (i.e. 0% to 35%) (Sec. 24, NIRC)
Abroad
For those earning purely business or professional income or mixed income, the taxpayer can
Sale of Shares of
opt to avail of the 8% tax on gross sales/receipts in lieu of graduated rates for the
Foreign Corp.
business/professional income portion upon the option of the taxpayer
Passive Income
from Abroad
RANGE OF
TAX DUE (a+b)
TAXABLE INCOME
Basic Amount (a) Additional Rate (b)
0 to 250,000 - -
Over 250,000 but not 20% of excess over
-
more than 400,000 250,000
Over 400,000 but not 25% of excess over
30,000
more than 800,000 400,000
Over 800,000 but not 30% of excess over
130,000
over 2,000,000 800,000
Over 2,000,000 but not 32% of excess over
490,000
over 8,000,000 2,000,000
35% of excess over
Over 8,000,000 2,410,000
8,000,000
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U.P. LAW BOC TAXATION I TAXATION LAW
Illustration: Mr. CSO earned, aside from his basic wage, additional pay of P140,000.00 which consists of the overtime
pay P80,000.00, night shift differential P30,000.00, hazard pay P15,000.00, and holiday pay P15,000.00.
He has P5,000 mandatory contributions (SSS, Pag-Ibig, Phil-health, etc.) and P11,000 non-taxable benefits.
Mixed-income (i.e. compensation income and business income/income from the practice of profession
opted to avail of 8% tax on business/professional income)
Illustration: Mr. MAG, a Financial Comptroller of JAB Company, earned annual compensation in 2018 of
P1,500,000.00, inclusive of 13th month and other benefits in the amount of P120,000.00 but net of mandatory
contributions to SSS and Philhealth. Aside from employment income, he owns a convenience store, with gross sales
of P2,400,000. His cost of sales and operating expenses are P1,000,000.00 and P600,000.00, respectively, and with
non-operating income of P100,000.00.
a. His tax due for 2018 shall be computed as follows if he opted to be taxed at eight percent (8%) income tax rate
on his gross sales for his income from business:
Tax due:
1. On Compensation:
On P800,000.00 P130,000.00
On excess (P1,410,000 - P800,000) x 30% 183,000.00
2. On Business Income:
Gross Sales P2,400,000.00
Add: Non-operating Income 100,000.00
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U.P. LAW BOC TAXATION I TAXATION LAW
* The option of 8% income tax rate is applicable only to taxpayer's income from
business, and the same is in lieu of the income tax under the
graduated income tax rates and the percentage tax under Section 116 of
the Tax Code, as amended.
* The amount of P250,000.00 allowed as deduction under the law for taxpayers
earning solely from self-employment/practice of profession, is not applicable for
mixed income earner under the 8% income tax rate option.
* The P250,000.00 mentioned above is already incorporated in the first tier of the
graduated income tax rates applicable to compensation income.
|||
Mixed-income (i.e. compensation income and business income/income from the practice of profession)
Illustration: Same facts for Mr. MAG. His tax due for 2018 shall be computed as follows if he did not opt for the
eight percent (8%) income tax based on gross sales/receipts and other non-operating income:
Tax Due:
On P2,000,000.00 P490,000.00
On excess (P2,310,000 - 2,000,000) x 32% 99,200.00
* The taxable income from both compensation and business shall be combined for
purposes of computing the income tax due if the taxpayer chose to be subject under the
graduated income tax rates.
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U.P. LAW BOC TAXATION I TAXATION LAW
Illustration: Ms. EBQ operates a convenience store while she offers bookkeeping services to her clients. In 2018, her
gross sales amounted to P800,000.00, in addition to her receipts from bookkeeping services of P300,000.00. She
already signified her intention to be taxed at 8% income tax rate in her 1st quarter return.
Her income tax liability for the year will be computed as follows:
Tax Due:
8% of P850,000.00 P68,000.00
* The total of gross sales and gross receipts is below the VAT threshold of
P3,000,000.00.
* Taxpayer's source of income is purely from self-employment, thus she is entitled
to the amount allowed as deduction of P250,000.00 under Sec. 24 (A) (2) (b) of
the Tax Code, as amended.
* Income tax imposed herein is based on the total of gross sales and gross receipts.
* Income tax payment is in lieu of the graduated income tax rates under
subsection (A) hereof and percentage tax due, by express provision of law.
Tax Due:
On excess (P300,000 - P250,000) x 20% P10,000.00
Page 96 of 290
U.P. LAW BOC TAXATION I TAXATION LAW
Page 97 of 290
U.P. LAW BOC TAXATION I TAXATION LAW
Page 98 of 290
U.P. LAW BOC TAXATION I TAXATION LAW
Yr 4 Yr 5 Yr 6 Yr 7 Yr 8
MCIT 80K 50K 30K 40K 35K
NT 20K 30K 40K 20K 70K
(a) 60k excess MCIT from year 4 is credited against the normal tax to be paid in year 6 and 8.
(b) 20k excess MCIT from year 5 is credited against the normal tax to be paid in year 8.
(c) 20k excess MCIT from year 7 will be credited against future normal tax to be paid.
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Relief from MCIT [Sec. 27 (E)(3), NIRC] against the annual income tax: (a) quarterly MCIT
The Secretary of Finance may suspend imposition of payments of current taxable quarter, (b) quarterly
MCIT on any corporation which sustained substantial normal income tax payments in current year, (c)
losses on account of (LMB): CWTs in the current year, (d) excess CWTs in the
a. Prolonged labor dispute (losses from a strike prior year.
staged by employees that lasts for more than 6
months and caused the temporary shutdown of Excess MCIT from the previous taxable year/s shall
operations), or not be allowed to be credited against the annual
b. Force majeure (acts of God and other calamity; MCIT due as the same can only be applied against
includes armed conflicts like war or insurgency), normal income tax.
or
c. Legitimate business reverses (substantial Manner of Filing and Payment.
losses due to fire, robbery, theft or other The MCIT shall be paid in the same manner
economic reasons). prescribed for the payment of the normal corporate
income tax which is on a quarterly and on a yearly
Quarterly MCIT Computation basis.
The computation and the payment of MCIT shall
likewise apply at the time of filing the quarterly 3. Branch Profit Remittance Tax [Sec. 28
corporate income tax. In the computation of the tax (A) (5), NIRC]
due for the taxable quarter, if the quarterly MCIT is
higher than the quarterly normal income tax, the tax a. Applies to non-resident foreign corporations.
due to be paid for such taxable quarter at the time of Imposed on profits remitted by the Philippine
filing the quarterly corporate income tax return shall branch to the head office.
be the MCIT. b. Collected as Final Withholding Tax [Sec.57,
NIRC]
Items allowed to be credited against quarterly MCIT
due: (a) CWT, (b) Quarterly income tax payments Taxable transaction any profit remitted by a
under the normal income tax; and (c) MCIT paid in branch to its head office
the previous taxable quarter(s).
Tax Rate and Base 15% final tax based on the
Excess MCIT from the previous taxable year/s shall total profits applied or earmarked for remittance
not be allowed to be credited against the quarterly without any deduction for the tax component (except
MCIT tax due. those activities registered with PEZA).
Annual Income Tax Computation. a. The following are not treated as branch profits
The final comparison between the normal income tax unless effectively connected with the conduct of
payable and the MCIT shall be made at the end of the trade or business in the Philippines:
taxable year. The payable or excess payment in the b. Interests, dividends, rents, royalties (including
Annual Income Tax Return shall be computed taking remuneration for technical services),
into consideration corporate income tax payment c. salaries, wages,
made at the time of filing of quarterly corporate d. premiums, annuities, emoluments, or
income tax returns whether this be MCIT or normal e. other fixed or determinable annual, periodic or
income tax. casual gains, profits, income and capital gains
received during each taxable year from all sources
In the computation of annual income tax due, if the within the Philippines
normal income tax due is higher than the computed
annual MCIT, the following shall be allowed to be 4. Allowable Deductions
credited against the annual income tax: (a) quarterly
MCIT payments, (b) quarterly normal income tax a. Itemized Deductions
payments, (c) excess MCIT in the prior year/s 1. Expenses
(subject to the prescriptive period allowed for its 2. Interest
creditability), (d) CWTs in the current year, (d) excess 3. Taxes
CWTs in the prior year. 4. Losses
5. Bad debts
If in the computation of annual income tax due, the 6. Depreciation
computed annual MCIT due is higher than the annual 7. Depletion of oil and gas wells and mines
normal income tax due, the following may be credited
17
SECTION 27. Rates of Income Tax on Domestic to a final income tax at the rate of seven and one-half fifteen
Corporations. percent (7 1/2%) (15%) of such interest income.
1. A corporation organized under the laws of a Tax on Capital gain from sale of shares of stock
foreign country, which is not engaged in trade or not traded in the stock exchange
business in the Philippines. [See D g B e 1. Final tax on net capital gains realized during the
definition under the FIA in B.7.2. Corporations] taxable year from the sale, barter, exchange or
2. Taxable only on income derived from sources other disposition of shares of stock in a domestic
within the Philippines. corporation not listed and traded through a local
3. Income taxes on nonresident foreign stock exchange:
corporations are collected as Final Withholding a. First P100k 5%
Tax under Sec.57, NIRC. b. Amount in excess of P100k 10%
2. same for Nonresident Foreign Corporations
General rule
1. Except as otherwise provided, the tax is 30% of c. Income Tax on Special
gross income received during each taxable year from
all sources within the Philippines Corporations
2. This includes: interests, dividends, rents,
royalties, salaries, premiums (except reinsurance 1. Domestic Corporations
premiums), annuities, emoluments or other fixed
or determinable annual, periodic or casual gains, a. Proprietary Educational Institutions and
profits and income, and capital gains (except Non-profit Hospitals [Sec. 27 (B), NIRC]
capital gains on the sale of shares not traded in
the stock exchange) Tax Rate and Base 10% tax on taxable income
(except on income subject to capital gains tax and
Tax on certain Nonresident Owners, Lessors or passive income subject to final tax) within and
Distributors: without the Philippines
1. Non-resident cinematographic film owner, lessor or
distributor 25% of gross income from all Caveat: If gross income from unrelated trade or
sources within the Philippines business or other activity exceeds 50% of total gross
2. Non-resident owner or lessor of vessels chartered income derived from all sources, the tax rate of 30%
by Philippine nationals 4.5% of gross rentals, shall be imposed on the entire taxable income.
lease or charter fees from leases or charters to
Filipino citizens or corporations, as approved by Unrelated trade, business or other activity any
the Maritime Authority trade, business or other activity, the conduct of which
3. Non-resident owner or lessor of aircraft, is not substantially related to the exercise or
machineries and other equipment 7.5% of gross performance by such educational institution or
rentals, charters or other fees hospital of its primary purpose or function.
Tax on Interest on foreign loans: contracted on or Proprietary educational institution any private
after August 1, 1986 20% [Sec. 28 (B) (5) (a), NIRC] school maintained and administered by private
individuals or groups with an issued permit to operate
Tax on Intercorporate dividends from the DECS, CHED or TESDA. [Sec. 27(B),
1. Intercorporate Dividend 15% on dividends NIRC]
received from domestic corporations, if the
country in which the nonresident foreign b. Government-owned or Controlled
corporation is domiciled allows a tax credit of at Corporations, Agencies or
lea 15% for a e deemed paid in he Instrumentalities [Sec. 27 (C), NIRC]
Philippines
2. 15% foreign tax credit represents the difference GOCCs
between the regular income tax of 30% on General rule: GOCCs are taxable as any other
corporations and the 15% tax on dividends ( a corporation engaged in similar business, industry or
paring credi ) activity
3. If the country within which the NRFC is
domiciled does NOT allow a tax credit, the tax is Exceptions:
30% on dividends received from a domestic Government Service Insurance System (GSIS)
corporation. Social Security System (SSS)
Philippine Health Insurance Corporation (PHIC)
Local water districts (LWDs)
19
SECTION 27. Rates of Income Tax on Domestic (PHIC), and the local water districts (LWD) and the
Corporations. Philippine Charity Sweepstakes Office (PCSO), shall pay
such rate of tax upon their taxable income as are imposed
(C) Government-owned or -Controlled Corporations, by this Section upon corporations or associations engaged in
Agencies or Instrumentalities.19 The provisions of existing a similar business, industry, or activity.
special or general laws to the contrary notwithstanding, all
corporations, agencies, or instrumentalities owned or
controlled by the Government, except the Government
Service and Insurance System (GSIS), the Social Security
System (SSS), the Philippine Health Insurance Corporation
2. except net income from transactions specified by the 4. same for Domestic Corporations and Resident
Secretary of Finance upon recommendation by Foreign Corporations
the Monetary Board subject to regular income 5. similar treatment to OBUs
tax payable by banks
3. foreign currency loans granted to residents (other d. Regional or Area Headquarters and
than offshore banking units in the Philippines) Regional Operating Headquarters of
interest income subject to a final tax of 10% Multinational Companies [Sec. 28 (A) (6),
4. income of nonresidents, individuals or corporations, NIRC]
from transactions with OBUs exempt from
income tax Regional or area headquarters
5. similar treatment to FCDUs 1. branch established in the Philippines by
multinational companies and which headquarters
c. Resident Depositary Banks (Foreign do not earn or derive income from the Philippines and
Currency Deposit Units) which act as supervisory, communications and
coordinating center for their affiliates, subsidiaries,
Income derived by a depository bank under the or branches in the Asia-Pacific Region and other
expanded foreign currency deposit system from: foreign markets [Sec. 22 (DD), NIRC]
1. foreign currency transactions with nonresidents, 2. not subject to income tax
offshore banking units in the Philippines, local
commercial banks, including branches of foreign Regional operating headquarters
banks authorized by the BSP to transact business 1. branch established in the Philippines by
with foreign currency depository system units multinational companies which are engaged in any
and other depository banks under the EFCDS of the following services: (i) general administration and
exempt from income tax planning; (ii) business planning and coordination;
(iii) sourcing and procurement of raw materials
except net income from transactions specified by the and components; (iv) corporate finance advisory
Secretary of Finance upon recommendation by services; (v) marketing control and sales
the Monetary Board subject to regular income promotion; (vi) training and personnel
tax payable by banks management; (vii) logistic services; (viii) research
2. foreign currency loans granted to residents (other and development services and product
than offshore banking units in the Philippines) development; (ix) technical support and
interest income subject to a final tax of 10% maintenance; (x) data processing and
3. income of nonresidents, individuals or corporations, communications; and (xi) business development.
from transactions with depository banks under [Sec. 22 (EE), NIRC]
the EFCDS exempt from income tax 2. tax of 10% of their taxable income
5. Enterprises registered with PEZA (RA 7916), Where at least 50% of the outstanding capital stock or
BCDA (RA 7227), and other special economic zones at least 50% of the total combined voting power of all
declared by law which enjoy a special tax rate in classes of stock entitled to vote in a corporation is
lieu of other taxes. owned directly or indirectly by at least 21 or more
individuals, the corporation is considered as a
Closely-held corporations are those: publicly-held corporation, thus, exempt from IAET.
1. at least 50% in value of the outstanding capital
stock; or Determination of Purpose to Avoid Income Tax
2. at least 50% of the total combined voting power 1. Being a holding or investment company is
of all classes of stock entitled to vote prima facie evidence of purpose to avoid
3. is owned directly or indirectly by or for not more dividend tax. Holding or investment company
than 20 individuals. Domestic corporations not corporation having practically no activities except
falling under the aforesaid definition are, holding property, and collecting the income
therefore, publicly- held corporations. therefrom or investing the same;
2. Accumulation in excess of reasonable needs
N.B. the same definition and rules as in Tax on IPO is determinative of the purpose to avoid dividend
in Sec. 127 (B), NIRC; not the same as close tax. Prima facie instances of this include: (i)
corporation under The Corporation Code] investment of substantial earnings and profits in
unrelated business or in stock or securities of
Rules in determining if a corporation is closely- unrelated business; (ii) investment in
held: bonds and other long-term securities; (iii)
1. Stock Not Owned by Individuals. - Stock accumulation of earnings in excess of 100%
owned directly or indirectly by or for a of paid-up capital
corporation, partnership, estate or trust shall be 3. The controlling intention of the taxpayer is that
considered as being owned proportionately by its which is manifested at the time of accumulation,
shareholders, partners or beneficiaries. not subsequently declared intentions which are
2. Family and Partnership Ownership. - An merely the product of afterthought.
individual shall be considered as owning the 4. A speculative and indefinite purpose will not
stock owned, directly or indirectly, by or for his suffice. Definiteness of plan/s coupled with
famil , or b or for hi par ner. Famil of an action/s taken towards its consummation are
indi id al incl de hi ibling ( he her b essential.
whole or half-blood), spouse, ancestors and lineal
descendants. e. Exemption from Tax on
3. Option to Acquire Stocks. - If any person has
an option to acquire stock, such stock shall be Corporations
considered as owned by such person. An option
to acquire such an option and each one of a series Tax exempt corporations [Sec. 30, NIRC]
of option shall be considered as an option to 1. Labor, agricultural or horticultural organization
acquire such stock. non-profit
4. Constructive Ownership as Actual 2. mutual savings bank or cooperative bank non-
Ownership. - Stock constructively owned by stock, non-profit, operated for mutual purposes
reason of the application of (a) or (c) shall, for 3. Beneficiary society, order, or association
purposes of applying (1) or (2), be treated as operating for the exclusive benefits of their
actually owned by such person. But stock members; includes: fraternal organization
constructively owned by the individual by reason operating under the lodge system; or mutual aid
of the application of (b) shall NOT be treated as association or a nonstock corporation organized
owned by him for purposes of again applying by employees providing life, sickness, accident,
such paragraph in order to make another the or other benefits exclusively to the members
constructive owner of such stock. 4. Cemetery company owned and operated
exclusively for the benefit of its members
BIR Ruling 025-02 5. Non-stock corporation or association organized
The ownership of a domestic corporation for and operated exclusively for religious, charitable,
purposes of determining whether it is a closely held scientific, athletic, or cultural purposes or for the
corporation or a publicly held corporation is rehabilitation of veterans, provided that no part
ultimately traced to the individual shareholders of the of its income or asset belong to or inure to the
parent company. benefit of any individual
6. Business league, chamber of commerce, or board 2001 provides that IAET does not apply to
of trade Non-profit; no part of net income taxable partnerships.
inures to the benefit of an individual
7. Civic league or organization Non-profit; Distributable net income of the partnership is its
operating exclusively for the promotion of social taxable income less the normal corporate income tax
welfare (30%).
8. Non-stock and non-profit educational
institutions A Pa b to the general partnership
9. Government educational institutions fund is a capital investment and is not taxable income
10. Organizations of a purely local character whose of the partnership.
income consists solely of assessment, duties and
fees collected from their members to meet 2. General Professional Partnerships
e pen e ; incl de : farmer or o her m al
typhoon or fire insurance company, mutual ditch Partnerships formed by persons for the sole purpose
or irrigation company and mutual or cooperative of exercising their common profession, no part of the
telephone company income of which is derived from engaging in any trade
11. Farmer , fr i gro er , and like association or business. [Sec 22 (B), NIRC]
whose primary function is to market the product
of their members Rules
a. A GPP as such shall not be subject to the income
Notwithstanding the provisions in the preceding tax. It is not a taxable entity for income tax
paragraphs, the income of the foregoing purposes.
organizations from (1) their properties, real or b. The partners shall be liable for income tax only
personal, or from (2) their activities conducted for in their separate and individual capacities.
profit regardless of the disposition made of such c. Each partner shall report as gross income his
income, shall be subject to tax imposed under the distributive share in the net income of the GPP,
NIRC. actually or constructively received.
d. In computing the distributive share of the
N.B. this means capital gains tax, tax on passive partners, the net income of the GPP shall be
income, etc. applies to these otherwise exempt computed in the same manner as a corporation.
organizations. [Sec. 26, NIRC]
e. If the partnership sustains a net operating loss,
f. Tax on General Partnerships, the partners shall be entitled to deduct their
respective shares in the net operating loss from
General Professional their individual gross income.
Partnerships, Co-Ownerships,
Joint Ventures and Consortiums GPP is not a taxable entity
The GPP is deemed to be no more than a mere
1. General Partnerships mechanism or a flow-through entity in the generation
of income by, and the ultimate mechanism
Partnerships where all or part of their income is distribution of such income to the individual partners.
derived from the conduct of trade or business. It is [Tan v. Commissioner, G.R. No. 109289 (1994)]
treated as a corporation. [Sec.22 (B), NIRC].
But the partnership itself is required to file income tax
General rule: The partnership is subject to the same returns for the purpose of furnishing information as
rules and rates as corporations. to the share in the gains or profits which each partner
shall include in his individual return. [RR 2- 1998]
Exceptions: A par ner hare in he par ner hip
distributable net income is deemed actually or The share of an individual partner in the net profit of
constructively received by the partners in the same a general professional partnership is deemed to have
taxable year. [Sec. 73(D), NIRC]. Consequently: been actually or constructively received by the partner
a. such share will be subjected to dividend tax in the same taxable year in which such partnership net
(10%) whether actually distributed or not. income was earned, and shall be taxed to them in their
b. there can never be an instance of improperly individual capacities, whether actually distributed or
accumulated taxable income; note that RR 2- not, at the graduated income tax ranging from 5% to
32%.
Every withholding agent required to deduct and b. Sale of real property file a return within 30
withhold taxes under Section 57 shall submit to the days from each sale
Commissioner an annual information return
containing the list of payees and income payments, Individuals deriving self-employment income (as
amount of taxes withheld from each payee and such sole source of income or mixed) must file quarterly
other pertinent information as may be required by the return of summary declaration of gross income and
Commissioner. [Sec. 58(C), NIRC] deductions, and a final or adjustment [Sec. 74 (A),
NIRC21].
Every employer required to deduct and withhold the
taxes in respect of the wages of his employees shall, Period Due Date for Filing
on or before January thirty-first (31st) of the Return
succeeding year, submit to the Commissioner an Q1 Return May 15 of the same year
annual information return containing a list of Q2 Return August 15 of the same year
employees, the total amount of compensation income November 15 of the same
of each employee, the total amount of taxes withheld Q3 Return
year
therefrom during the year, accompanied by copies of April 15 of the following
the statement referred to in the preceding paragraph, Annual Return
year
and such other information as may be deemed
necessary. [Sec. 83(B), NIRC] Self-employment income consists of earnings derived
by the individual from the practice of profession or
b. Period to File Income Tax conduct of trade or business, as a sole proprietor or
Return of Individuals and as a member in a general professional partnership.
[Sec. 74 (A), NIRC]
Corporations
Filing of these returns shall be in lieu of filing of a
1. Individuals declaration of estimated income under Sec. 74, NIRC,
Income tax return of an individual who is not on a primarily for the reason that the procedure prescribed
substituted basis shall be filed on or before April 15 in Sec. 74 may not reasonably approximate the correct
of each year covering income of the preceding taxable amount of tax to be paid. [De Leon citing Rev. Regs. No.
year. [Sec. 51 (C)(1), NIRC] 2-93]
20 21
SECTION 51. Individual Return SECTION 74. Declaration of Income Tax for Individuals.
(A) Requirements.
(2) The following individuals shall not be required to file an
income tax return: (A) In General. Except as otherwise provided in this
(a) An individual whose gross taxable income does not Section, every individual subject to income tax under Sections
exceed Two hundred fifty thousand pesos (P250,000) his 24 and 25(A) of this Title, who is receiving self-employment
total personal and additional exemptions for dependents income, whether it constitutes the sole source of his income
under Section 35 24(A)(2)(a): Provided, That a citizen of the or in combination with salaries, wages and other fixed or
Philippines and any alien individual engaged in business or determinable income, shall make and file a declaration of his
practice of profession within the Philippines shall file an estimated income for the current taxable year on or before
income tax return, regardless of the amount of gross income. April May 15 of the same taxable year.
The filing of the tax returns by a corporation using c. Persons Liable to File Income
the calendar year:
Tax Returns
Period Due Date for Filing
Return 1. Individual Taxpayers
Q1 Return May 31 of the same year
Q2 Return August 31 of the same year a. General Rule and Exceptions (Sec. 51(A),
Q3 Return November 30 of the same NIRC)
year
Annual Return April 15 of the following General Rule: The following are required to file income
year tax return:
1. Resident citizen
Return of Corporation Contemplating 2. Non-resident citizen, on income from sources
Dissolution or Reorganization. within 30 days within the Philippines
after the adoption of the plan for dissolution or 3. Resident alien, on income from sources within
reorganization (including corporations notified of the Philippines
possible involuntary dissolution by the SEC), render 4. Non-resident alien engaged in trade or business
a correct return to the CIR, verified under oath, or in the exercise of profession in the Philippines,
setting forth the terms of such plan and such other on income from sources within the Philippines
information required by rules and regulations. Prior
to the issuance by the SEC of the Certificate of Exceptions: The following shall not be required to file
Dissolution or Reorganization, the corporation shall income tax return:
secure a certificate of tax clearance from the BIR which 1. Individuals whose gross income does not exceed
shall be submitted to the SEC. [Sec. 52 (C), NIRC] P250,000 except citizen and alien individuals
engaged in business or practice of profession
Return on Capital Gains Realized from Sale of within the Philippines who shall file income tax
Shares of Stock not Traded in the Local Stock returns regardless of the amount of gross income.
Exchange file a return within 30 days from the 2. Individuals with respect to pure compensation income
transaction, and a final consolidated return on or from sources within the Philippines, the income
before the 15th day of the fourth month following the tax on which has been withheld; except when such
close of the taxable year [Sec. 52 (D), NIRC] compensation has been derived from more than
one employer.
PAYMENT OF INCOME TAX 3. Individuals whose sole income has been subjected to
General rule: The total amount of tax imposed by this final withholding tax (pursuant to Sec. 57(A),
Title (Tax on Income) shall be paid by the person NIRC).
subject thereto at the time the return is filed. 4. Minimum wage earner (as defined in Sec. 22(HH),
Exception: When the tax due is in excess of P2,000, the NIRC)
taxpayer other than a corporation may elect to pay the 5. Individuals who are exempt from income tax
tax in 2 equal installments: the first installment paid at pursuant to the provisions of the Tax Code and
the time the return is filed and the second installment, other laws.
on or before October 15 following the close of the
calendar year. [Sec. 56 (A)(2), NIRC22] SPECIAL PROVISIONS
be consolidated by the BIR for verification. [Sec. 51 d. Where to File Income Tax
(D), NIRC]
Returns
The income of unmarried minors is a tax liability of
the minor but where such income is derived from 1. Individuals
property received from a living parent, the income
shall be included in the return of the parent except Except in cases where the CIR otherwise permits, the
(a) hen he donor a ha been paid on ch return shall be filed with an authorized agent bank,
property, or (b) when the transfer of such property is Revenue District Officer, Collection Agent or duly
e emp from he donor a . [Sec. 51 (E), NIRC] authorized Treasurer of the city or municipality in
which such person has his legal residence or principal place
If the taxpayer is unable to make his return, such as of business in the Philippines, or if there be no legal
when he suffers from disability, the return may be residence or place of business in the Philippines, with
made by his duly authorized agent or representative the Office of the Commissioner [Sec. 51(B), NIRC]
or by the guardian or other person charged with the
care of the taxpayer or his property; the principal and 2. Corporations
his representative or guardian assuming responsibility
for penalties for erroneous, false or fraudulent Except in cases where the CIR otherwise permits, the
returns. [Sec. 51 (F), NIRC] return shall be filed with an authorized agent bank,
Revenue District Officer, Collection Agent or duly
b. Substituted Filing authorized Treasurer of the city or municipality
having jurisdiction over the place where the corpo a
Applicable to individual taxpayers: principal office is located and where its books of accounts
1. receiving purely compensation income, and other data are kept; otherwise, the returns shall be
regardless of amount filed and the tax paid thereon with the Office of the
2. from only one employer in the Philippines for the Commissioner of Internal Revenue. [Sec. 77(A),
calendar year, and NIRC]
3. the income tax of which has been withheld
correctly by the employer e. Penalties for Non-Filing of
The certificate of withholding filed by their respective
Returns
emplo er , d l amped recei ed b he BIR, shall
be tantamount to the substituted filing of income tax Failure to file any return and pay the tax due: a
returns by the employee. [Sec. 51-A, NIRC23 (new penalty equivalent to 25% of the amount due.
provision added by TRAIN)] [Sec. 248(A)(1), NIRC]
Willful neglect to file the return: a penalty
equivalent to 50% of the tax or deficiency tax.
c. Corporate Taxpayers [Sec. 52(A), NIR] [Sec. 248(B), NIRC]
Failure to file information returns: P1,000 for
All corporations subject to income tax shall render each failure upon notice and demand by the CIR
quarterly income tax returns and a final or adjustment unless due to reasonable cause not willful neglect
return, except foreign corporations not engaged provided the aggregate amount for all such failures
in trade or business in the Philippines. during the calendar year shall not exceed P25,000.
[Sec. 250, NIRC]
The return shall be filed by the President, Vice-
President or other principal officer, and shall be
sworn to by such officer and by the treasurer or
assistant treasurer.
23
SECTION. 51-A. Substituted Filing of Income Tax be required to file an annual income tax return. The
Returns by Employees Receiving Purely Compensation certificate of withholding filed by the respective
Income. Individual taxpayers receiving purely emplo ers, dul stamped recei ed b the BIR, shall be
compensation income, regardless of amount, from only tantamount to the substituted filing of income tax
one employer in the Philippines for the calendar year, returns by said employees.
the income tax of which has been withheld correctly by
the said employer (tax due equals tax withheld) shall not
The withholding tax system was devised for three N.B. Sec. 57 contains an extensive list of taxes. This
primary reasons: first, to provide the taxpayer a items of income include taxes on certain passive
convenient manner to meet his probable income tax incomes (interest, dividends), capital gains tax (shares
liability; second, to ensure the collection of income not traded, real property), branch profit remittance
tax which can otherwise be lost or substantially tax, and certain payments to nonresident aliens
reduced through failure to file the corresponding /foreign corporations.]
returns and third, to improve the governments cash
flow. This results in administrative savings, prompt Withholding of creditable tax at source The
and efficient collection of taxes, prevention of Secretary of Finance may, upon the recommendation
delinquencies and reduction of governmental effort of the CIR, require the withholding of a tax on the
to collect taxes through more complicated means and items of income payable to natural or juridical
remedies. [C a be f Rea E a e a d B de A c., persons, residing in the Philippines, by payor-
Inc. v. Romulo, G.R. No. 160756 (2010)] corporation/persons as provided for by law, at the
rate of not less than 1% but not more than 32%,
b. Kinds of Withholding Taxes which shall be credited against the income tax liability
of the taxpayer for the taxable year. Provided, That,
IN GENERAL beginning January 1, 2019, the rate of withholding
1. Final Withholding tax The amount of income shall not be less than one percent (1%) but not
tax withheld by the withholding agent is
constituted as a full and final payment of the
24
As amended by TRAIN
TAXATION II
Taxation Law
Taxable objects/subjects:
C. Transfer Taxes 1. Right/privilege of the deceased person to
transmit his/her estate to his/her lawful heirs and
1. Estate Tax beneficiaries at the time of death;
2. Certain transfers, during his lifetime, which are
made by law as equivalent to testamentary
a. Basic Principles, Concept, and disposition.
Definition
Justification Theories for the Imposition of
Death is the source of the taxing power. It is the Estate Tax
power to transmit or the transmission from the dead 1. Benefits-received theory The State collects
to the living on which the tax is based. The tax accrues the tax because of the services it renders in the
as of the death of the decedent by operation of law. distribution of the estate of the decedent, either
[Lorenzo v. Posadas, G.R. No. L-43082 (1937)] by law or in accordance with his will.
2. Privilege theory or state partnership theory
1. E a e a accr e a he ime of he deceden Succession to the property of a deceased person
death, but the obligation to pay the same is is not a right but a privilege granted by the State
different and is fixed by law. The tax is measured and consequently, the legislature can
by the value of the property AT THE TIME OF constitutionally burden such succession with a
DEATH. tax. The State collects the tax because of the
2. Estate tax is measured (i.e., tax base) by the value protection it provides in the acquisition of large
at that time of such property as passes to him (i.e., e a e . Hence, he S a e i a ilen or pa i e
death). Subsequent appreciation or depreciation par ner in he acc m la ion of aid large
is immaterial; property.
3. Estate taxation is governed by the statute in force 3. Ability-to-pay theory Receipt of inheritance,
at the time of the death of the decedent. Tax laws which is in the nature of unearned wealth or
cannot be given retroactive effect unless they windfall, places assets into the hands of the heirs
explicitly provide for it. [Sec. 5, RR-2-2003] and beneficiaries. This creates an ability to pay
the tax and thus contributes to government
Inheritance taxes, which were imposed on the right of income.
the heirs to receive property upon the death of the 4. Redistribution of wealth theory The
decedent (Act No. 2601 effective on July 1, 1916), imposition of estate tax reduces the property
were repealed by PD 69 on January 1, 1973 and were received by the successor, which helps promote
integrated into the estate tax. They are no longer a more equitable distribution of wealth in society.
imposed under the current NIRC. The taxes paid by the rich are programmed for
disbursement by Congress for the benefit of the
Estate tax is an excise tax on the right of transmitting poor in terms on social services, education,
property at the time of death and on the privilege that health, etc.
a person is given in controlling to a certain extent the
disposition of his property to take effect upon death. c. Time and Transfer of Properties
[Vitug and Acosta at 211]
The rights to the succession are transmitted from the
b. Nature, Purpose, and Object moment of the death of the decedent. [Art. 777, Civil
Code]
It is a transfer tax (i.e. an excise tax on the right of
transmitting property), not a property tax. Compared The deceden e a e incl de proper o he e en
to old inheritance, it is a tax on the right to transfer of the interest therein of the decedent at the time of
and not the right to inherit property. his death. [Sec. 85(A)]
Purpose: To tax the shift of economic benefits and Estate taxation is governed by the statute in force at
enjoyment of property from the dead to the living. the time of death of the decedent. Estate tax accrues
as of the death of the decedent and the accrual of the
tax is distinct from the obligation to pay the same.
Upon the death of the decedent, succession takes
place and the right of the State to tax the privilege to c. That the transfer should be void if the
transmit the estate vests instantly upon death. [Sec. 3, transferor should survive the transferee.
RR 2-2003] [Maglasang v Heirs of Cabatingan, supra.]
N.B. Note that in transfers for insufficient 2. Transfers Inter Vivos. Gratuitous transfers that
consideration, the value to be included in the estate is take effect during the lifetime of the donor. (See
the excess of the FMV at time of death over the value Donor Ta for req i i e )
of the consideration received at the time of transfer.
General Rule: Donation Inter Vivos are subject to
The executor or administrator shall not deliver a Don Ta .
distributive share to any party interested in the estate
despite the transfer of properties and rights at the Exceptions: Donation Inter Vivos are subject to
time of death, unless there is a certification from CIR Estate Tax when it is treated by law as substitutes
that estate tax has been paid. [Sec.94, NIRC] for testamentary dispositions (i.e., transfers
which are inter vivos in form but mortis causa in
Time of death governs: substance)
1. The determination of he e en of he deceden a. Transfers in Contemplation of Death [Sec.
interest for computing his gross estate. 85(B), NIRC]
2. The statute that governs estate taxation. b. Revocable transfers [Sec. 85(C), NIRC]
3. The accrual of the estate tax. c. Transfers of property arising under general
power of appointment [Sec. 85(D), NIRC]
TAXABLE TRANSFERS d. Transfers for insufficient consideration [Sec.
Taxable transfers are complete when the transferor 85(G), NIRC]
divests himself of all economic beneficial interest in
himself or his estate. Note: These transfers would be included in the
computation of the gross value of estate. See
1. Transfers Mortis Causa. These are gratuitous further discussion in the valuation of Gross
transfers that take effect after death, either testate Estate.
or intestate. These transfers are subject to estate
tax. d. Classification of Decedent
A donation which purports to be one inter Estate Tax applies only to individuals. The decedent
vivos but withholds from the donee the right to may be classified into:
dispose of the donated property during the 1. Citizen (RC/NRC)
donor's lifetime is in truth one mortis causa. In a 2. Resident alien (RA); or
donation mortis causa, the right of disposition is 3. Non-resident alien (NRA).
not transferred to the donee while the donor is
still alive. The requisites of a testamentary Concept of residence
disposition should be fulfilled. [Maglasang v Heirs For p rpo e of e a e a a ion, re idence refer o
of Cabatingan, G.R. No. 131953 (2002)] domicile, the permanent home or the place to which
whenever absent, one intends to return (animus
Characteristics: revertendi), and depends on facts and circumstances, in
a. It conveys no title or ownership to the the sense that they disclose intent. It is therefore, not
transferee before the death of the transferor; necessarily the actual place of residence. [Corre v Tan
or what amounts to the same thing, that the Corre, G.R. No. L-10128 (1956)]
transferor should retain the ownership (full
or naked) and control of the property while Situs of Intangible Personal Properties
alive; General Rule: Mobilia Sequuntur Personam
b. That before his death, the transfer should be
revocable by the transferor at will, ad nutum; Principle: Taxation of intangible personal properties
but revocability may be provided for (such as credits, bills, bank deposits promissory notes,
indirectly by means of a reserved power in and corporate stocks) follows the residence/domicile
the donor to dispose of the properties of owner thereof. Situs is the domicile or residence of
conveyed; the owner. [Collector v Fisher, G.R. No. L-11622 (1961)]
25
No deduction shall be allowed for NRA, if the executor, administrator, or anyone of the heirs, DID NOT include in the return required to
be filed under Section 90 of the Code the value at t a a a a NOT a
Philippines. [Sec. 86 (D), NIRC; Sec 7, RR 2-2003]
26
Formula for Proportionate Deductions of NRA: Allowable Deduction = 𝑥 𝐸𝐿𝐼𝑇
VALUATION OF GROSS ESTATE [Sec. 88, 1. Property owned by the decedent actually and
NIRC] physically present in his estate at the time of his
General Rule: Gross Estate = FMV at the time of the death;
deceden dea h 2. Deceden in ere ;
3. Properties not physically in the estate, such as:
Real Property 4. Transfers in contemplation of death [Sec. 85(B),
1. Appraised value, whichever is higher between: NIRC];
a. FMV, as determined by the Commissioner 5. Transfers with retention or reservation of certain
of Internal Revenue (CIR) (zonal value) or rights [Sec. 85(B), NIRC];
b. FMV, as shown in the schedule of values 6. Revocable transfers [Sec. 85(C), NIRC];
fixed by the Provincial or City Assessor. 7. Property passing under general power of
appointment [Sec. 85(D), NIRC];
2. If there is an improvement, the value of 8. Transfers for insufficient consideration [Sec.
improvement is the construction cost per 85(G), NIRC];
building permit or the fair market value per latest 9. Proceeds of life insurance [Sec. 85(E), NIRC];
tax declaration. 10. Claims against insolvent persons [Sec.
86(A)(3)27]; and
Personal Property
1. FMV at the time of death. DECEDENT S INTEREST [S . 85(A), NIRC]
2. If none, acquisition cost for recently acquired This includes any interest having value or capable of
properties or the current market price for the being valued which is owned by the decedent
previously acquired properties. [Sec. 40(B), existing at the time of death, such as dividend
NIRC] declared on or before death, but is received by the
3. Stocks, bonds, and other securities. estate after death, partnership profits which have
a. If listed and traded stocks = value is the accrued before his death, but received after death.
mean between the highest and lowest quoted This also includes those transferred by the decedent
selling prices at the date of death; if none, at the time of his death.
nearest the date of death [Sec. 5, RR 02-
2003] Note: When decedent had relinquished his interest
b. If unlisted stocks = book value at time of BEFORE his death, he could not be deemed to have
death (ordinary common shares) or par transmitted interest in such property at his death.
value (preferred shares)
TRANSFERS IN CONTEMPLATION OF
N.B: Bonds, mortgages, and Certificates of DEATH [Sec. 85(B), NIRC]
Stocks are taxable at the place where they are The erm in con empla ion of dea h , a ed in
physically located. estate taxation, does not refer to the general
4. Proceeds of Life Insurance with Revocable expectation of death. The words mean that it is the
Beneficiary: face value of policy (not cash thought of death, as a controlling motive, which
surrender value) induces the disposition of the property for the
p rpo e of a oiding he a . The deceden mo i e i
Right to Usufruct use or habitation, and annuity a question of fact. Thus, the imminence of death
Probable life of the beneficiary in accordance with the may afford convincing evidence of the impelling
latest basic standard mortality table shall be taken into cause of transfer. However, it is a contemplation of
account. death and not necessarily contemplation of imminent
death to which the statute refers. These transfers
g. Items to be Included in Gross should be without or with insufficient considerations.
Estate The law does not specify the number of years prior to
a deceden dea h within which a transfer can be
Items to be included in the Gross Estate considered in contemplation of death. [De leon]
[Sec. 85, NIRC]
27
Renumbered by TRAIN Law.
Case B: If not a bona fide sale - the excess of the fair change the beneficiary he designated in the
market value at the time of death over the value of the polic (i.e., i re ocable), nle he ha
consideration received by the decedent shall form part expressly waived this right in said policy.
of his gross estate. Notwithstanding the foregoing, in the event
Case C: If inter vivos transfer is proven the insured does not change the
fictitious/simulated total value of the property at beneficiary during his lifetime, the
the time of death included in the gross estate. designation shall be deemed irrevocable.
2. Accident insurance proceeds as the Tax Code
Case Case Case specifically mentions only life insurance policies
Over 3. Proceeds of a group insurance policy taken out
A B C
by a company for its employees.
FMV, transfer 2,000 1,500 2,500 4. Amount receivable by any beneficiary irrevocably
FMV, death 2,500 2,000 2,000 designated in the policy of insurance by the
Consideration received 2,000 800 0 insured. The transfer is absolute and the insured
did not retain any legal interest in the insurance
Value included in the 0 1,200 2,000 5. Amount receivable by any beneficiary irrevocably
Gross Estate designated in the policy of insurance by the
insured. The transfer is absolute and the insured
The transfer for insufficient consideration must fall did not retain any legal interest in the insurance
under any of the following: 6. Proceeds of insurance policies issued by the GSIS
1. Transfer in contemplation of death; to government officials and employees, which are
2. Revocable transfer, or exempt from all taxes; [PD 1146]
3. Property passing under a GPA. 7. Benefits accruing under the SSS law [RA 1161]
8. Proceeds of life insurance payable to heirs of
Otherwise, the tax imposed is donor a . deceased members of military personnel [RA
360]
PROCEEDS OF LIFE INSURANCE [Sec.
85(E), NIRC] CAPITAL OF THE SURVIVING SPOUSE
Inclusion of proceeds of life insurance to the gross [Sec.85(H), NIRC]
estate depends on i) designated beneficiary; ii) It is NOT part of the gross estate of the deceased
revocability of the insurance; iii) period and source of spouse.
funds used in premiums.
To determine the conjugal or separate character
When included in the gross estate of proceeds, the following factors are considered:
Proceeds of life insurance taken out by the decedent 1. Policy was taken before marriage Source of
on his own life shall be included in the gross estate funds determines ownership of the proceeds of
in the following cases: life insurance
1. Beneficiary is the estate of the deceased, his 2. Policy was taken during marriage
executor or administrator, irrespective of 3. Beneficiary is estate of the insured Proceeds are
whether or not the insured retained the power of presumed conjugal; hence, one-half share of the
revocation; or surviving spouse is not taxable
2. Beneficiar i o her han he deceden e a e, 4. Beneficiary is third person Proceeds are payable
executor or administrator, when designation of to beneficiary even in premiums were paid out of
beneficiary is not expressly made irrevocable. the conjugal
The portion of the claim which is not collectible and medical expenses are no longer allowed
should be allowed as a deduction from the gross as deductions under the TRAIN ACT.)
estate. b. The liability was contracted in good faith and for
adequate and full consideration in money or
h. Deductions and Exclusions from mone or h
c. The claim must be a debt or claim which is valid
Estate in law and enforceable in court;
d. The indebtedness must not have been condoned
Deductions and/or losses already deducted from by the creditor or the action to collect from the
gross income can no longer be deducted from gross decedent must not have prescribed.
estate. Further, deductions should not be e. They must be reasonably certain in amount, and
compensated for by any insurance or extrajudicial substantiated.
settlement. Otherwise, they are not valid deductions.
Substantiation Requirements [Sec. 86 (A)(2)(ii),
1. Ordinary Deductions RR 2-2003].
Judicial expenses are no longer allowed as deductions CORPORATION: sworn certification should be
under the TRAIN LAW. signed by the President, or Vice-President, or
other principal officer of the corporation.
3. CLAIMS AGAINST THE ESTATE [Sec. 86
(A)(2)28] PARTNERSHIP: sworn certification should be
signed by any of the general partners.
Claim generall mean: (i) deb or demand of a
pecuniary nature (ii) which could have been enforced BANK/FINANCIAL INSTITUTIONS:
against the deceased in his lifetime and could have Certification shall be executed by the branch
been reduced to simple money judgements. These are manager of the bank/financial institution which
liabilities of the estate or indebtedness of such (iii) monitors and manages the loan of the decedent-
arising out of: contract, tort, or operation of law. debtor.
[Dizon v CTA, G.R. No. 140944 (2008)]
INDIVIDUAL: sworn certification should be
Requisites for Deductibility of Claims Against signed by him.
the Estate: [Sec. 86 (A)(3)(i), RR 2-2003].
a. The liability represents a personal obligation of In any of these cases, the one who should certify
the deceased existing at the time of his death must not be a relative of the borrower within
except unpaid obligations incurred incident to the 4th civil degree, either by consanguinity or
his death such as unpaid funeral expenses (i.e., affinity, except when a copy of the promissory
expenses incurred up to the time of internment) note or other evidence of the indebtedness must
and unpaid medical expenses which are classified is filed with the RDO having jurisdiction over the
under a different category of deductions. borrower within 15 days from the execution
(NOTE: Funeral expenses, judicial expenses, thereof.
28
Renumbered by TRAIN Law.
c. Proof of financial capacity of the creditor to claims against the estate, and the Court Order
lend the amount at the time the loan was granted, approving the said claims, if already issued, in
as well as its latest audited balance sheet with addition to the documents mentioned in the
a detailed schedule of its receivable showing the preceding paragraphs.
unpaid balance of the decedent-debtor
4. CLAIMS AGAINST INSOLVENT
In case the creditor is an individual who is no PERSONS [Sec. 86 (A)(3)29, NIRC]
longer required to file ITRs with the Bureau, a
duly notarized declaration by the creditor of his These are claims of the estate (i) against insolvent
capacity to lend at the time when the loan was persons (ii) which are not collectible. To be deductible
granted without prejudice to verification that may from the gross estate:
be made by the BIR to substantiate such
declaration of the creditor. Additional Requirements:
1. The incapacity of the debtor to pay his obligation
If the creditor is a non-resident, the executor/ should be proven, although a judicial declaration
administrator or any of the legal heirs must of insolvency is not required;
submit a duly notarized declaration by the 2. The full amount owed by the insolvent must first
creditor of his capacity to lend at the time when be incl ded in he deceden gro e a e; and
the loan was granted, authenticated or certified to 3. If the insolvent could only pay a partial amount,
as such by the tax authority of the country where the full amount owed shall be included in the
the non-resident creditor is a resident gross estate, and the amount uncollectible shall
be allowed as a deduction.
d. A statement under oath executed by the
administrator or executor of the estate reflecting
the disposition of the proceeds of the loan if it 5. UNPAID MORTGAGES, LOSSES AND
was contracted within 3 years prior to the TAXES [Sec. 86(A)(4), NIRC30]
death of the decedent.
Unpaid Mortgages
If the unpaid obligation arose from purchase of Requisites for Deductibility [Sec. 6(A)(5)(a), RR 2-2003]
goods or services: a. The al e of he deceden in ere herein,
a. Pertinent documents evidencing the purchase of undiminished by such mortgage or indebtedness,
goods or service, such as sales invoice/delivery is included in the value of the gross estates.
receipt (for sale of goods), or contract for the b. The mortgages were contracted bona fide and for
services agreed to be rendered (for sale of an adequate and full consideration in money or
services), as duly acknowledged, executed and mone or h.
signed by decedent-debtor and creditor, and
statement of account given by the creditor as duly In case the loan of the decedent is only an
received by the decedent-debtor accommodation loan where the loan proceeds went
b. Duly notarized certification from the creditor as to another person, the value of the unpaid loan must
to the unpaid balance of the debt, including be included as a receivable of the estate. If there is a
interest as of the time of death. legal impediment to recognize the same as a
c. Certified true copy of the latest audited balance receivable of the estate, the said unpaid obligation
sheet of the creditor with a detailed schedule of shall not be allowed as a deduction. In all instances,
its receivable showing the unpaid balance of the the mortgaged property, to the extent of the
decedent-debtor. Moreover, a certified true copy deceden in ere herein, ho ld al a form par
of the updated latest subsidiary ledger/records of of the taxable gross estate. [Sec. 6(5), RR 2-2003]
the debtor-decedent, should likewise be
submitted. Unpaid Taxes
Requisites for Deductibility
Where the settlement is made through the Court a. Taxes which have accrued as of or before the
in a testate or intestate proceeding, pertinent death of the decedent (if it was incurred after, it
documents filed with the Court evidencing the is chargeable to the income of the estate), and
29 30
Renumbered by TRAIN Law. Id.
31
Renumbered by TRAIN Law.
a. Expenses, losses, indebtedness, and taxes the share of surviving spouse. It is deducted from the
(ordinary deductions), and exclusive property of the decedent.
b. Transfers for public use as the amount
otherwise deductible for property previously c. Transfers for Public Purpose [Sec.
a ed bear o he al e of he deceden 86(A)(6)32]
gross estate; and
4. Percentage of deductions The vanishing These are:
deduction shall be the value (final basis) in #3 1. dispositions in a last will and testament or
multiplied by the ff. percentages: transfers to take effect after death
2. in favor of the Government of the Republic of
the Philippines, or any political subdivision
VD thereof, for exclusively public purposes. The
If received by inheritance or gift
Rate whole amount of all the bequests, legacies,
Within 1 year prior to the death of the devises, or transfers to or for the use of shall be
100%
present decedent deductible from gross estate,
More than 1 year but not more than 2 3. provided such amount or value had been
80%
years prior to the death of the decedent included in the computation of the gross estate.
More than 2 years but not more than 3 Thus, there is no limitation for the amount to be
60%
years prior to the death of the decedent deducted.
More than 3 years but not more than 4
40%
years prior to the death of the decedent d. Amounts Received by Heirs Under RA
More than 4 years but not more than 5 491733 [Sec. 86(A)(8), NIRC34]
20%
years prior to the death of the decedent
An amo n recei ed b he heir from he deceden
FORMULA FOR VANISHING employer as a consequence of the death of the
DEDUCTIONS: decedent-employee in accordance with RA 4917,
(please take note of the limitations above) provided that such amount is included in the gross
estate of the decedent. These include:
Value Taken of Property 1. Retirement benefits from private firms with
Less: Mortgage debt paid, if any private benefit plan, if the retiring employee is 50
years old or older. This can only be availed once.
= Initial Basis 2. Benefits granted in case of separation beyond the
Less: Proportionate Deduction** control of the employee.
32
Renumbered by TRAIN Law. Philippines, by deducting from the value of the gross estate
33
An Act Providing that Retirement Benefits of
Employees of Private Firms shall not be subject to (4)(7) The Family Home. An amount equivalent to the
attachment, levy, execution or any tax whatsoever current fair market value of the decedent's family home:
34
Renumbered by TRAIN Law. Provided, however, That if the said current fair market value
35
SECTION 86. Computation of Net Estate. For the exceeds One Ten million pesos (P1,000,000) (P10,000,000),
purpose of the tax imposed in this Chapter, the value of the the excess shall be subject to estate tax. As a sine qua non
net estate shall be determined: condition for the exemption or deduction, said family home
(A) Deductions Allowed to the Estate of a Citizen or a a a a
Resident. In the case of a citizen or resident of the the barangay captain of the locality.
To each spouse shall belong all earnings from his or her profession, business or industry, and all fruits, natural,
industrial, or civil, due or received during the marriage from his or her separate property. [Art. 145, Family Code]
Exemptions:
Where net estate does not exceed P200,000. [Sec. 84, NIRC] [THIS IS NO LONGER APPLICABLE UNDER THE
TRAIN ACT.]
is taken, which the decedent's net estate situated The lower of the two amounts for each foreign
outside the Philippines taxable under the tax code country will be added to get the total tax credit
bears to his entire net estate. allowed under Limitation a.
39
SECTION 90. Estate Tax Returns. registrable property such as real property, motor vehicle,
(A) Requirements. In all cases of transfers subject to the shares of stock or other similar property for which a clearance
tax imposed herein, or where, though exempt from tax, the from the Bureau of Internal Revenue is required as a condition
gross value of the estate exceeds Two hundred thousand precedent for the transfer of ownership thereof in the name of
pesos (P200,000), or regardless of the gross value of the the transferee x x x
estate, where the said estate consists of registered or
40
SECTION 90. Estate Tax Returns. certified to by a Certified Public Accountant containing the
(A) Requirements. x x x the executor, or the administrator, following:
or any of the legal heirs, as the case may be, shall file a return
under oath in duplicate, setting forth: (a) Itemized assets of the decedent with their corresponding
(1) The value of the gross estate of the decedent at the time gross value at the time of his death, or in the case of a
of his death, or in case of a nonresident, not a citizen of the nonresident, not a citizen of the Philippines, of that part of his
Philippines, of that part of his gross estate situated in the gross estate situated in the Philippines;
Philippines;
(b) Itemized deductions from gross estate allowed in Section
(2) The deductions allowed from gross estate in determining 86; and
the estate as defined in Section 86; and
(c) The amount of tax due whether paid or still due and
(3) Such part of such information as may at the time be outstanding.
41
ascertainable and such supplemental data as may be SECTION 90. Estate Tax Returns.
necessary to establish the correct taxes. (B) Time for Filing. For the purpose of determining the
estate tax provided for in Section 84 of this Code, the estate
Provided, however, That estate tax returns showing a gross tax return required under the preceding Subsection (A) shall
value exceeding Two Five million pesos (P2,000,000) be filed within six (6) months one (1) year from the
(P5,000,000) shall be supported with a statement duly death.
from the estate to the payment of estate tax. Such the estate or any one (1) of the heirs of the
heir may go against the other heirs. decedent may, upon authorization by the
Commissioner, withdraw an amount not
Tax Rate exceeding Twenty thousand pesos (P20,000)
FLAT RATE OF 6% ON AN AMOUNT IN without the said certification. For this purpose, all
EXCESS OF P5,000,000. [Sec. 84, NIRC42] withdrawal slips shall contain a statement to the
Exempt: If ne a able e a e P5,000,000. effect that all of the joint depositors are still living
at the time of withdrawal by any one of the joint
ADDITIONAL AMENDMENTS BY TRAIN: depositors and such statement shall be under oath
Sec. 91(C) Payment by Installment. In case by the said depositors.
the available cash of the estate is insufficient to pay
the total estate tax due, payment by installment
shall be allowed within two (2) years from the
statutory date for its payment without civil penalty
2. D Ta
and interest.
a. Basic Principles, Concept, and
Sec 97. Payment of Tax Antecedent to the Definition
Transfer of Shares, Bonds or Rights. There
shall not be transferred to any new owner in the A donor a i le ied, a e ed, collec ed and paid
books of any corporation, sociedad anonima, upon the transfer by any person, resident or
partnership, business, or industry organized or nonresident, of the property by gift. [Sec. 98(A),
established in the Philippines any share, obligation, NIRC]. It shall apply whether the transfer is in trust
bond or right by way of gift inter vivos or mortis or otherwise, whether the gift is direct or indirect, and
causa, legacy or inheritance, unless a certification whether the property is real or personal, tangible or
from the Commissioner that the taxes fixed in this intangible. [Sec. 98(B), NIRC]
Title and due thereon have been paid is shown.
It is the tax on donations. Thus, it is a tax on
If a bank has knowledge of the death of a person, 1. An act of the donor disposing gratuitously of a
who maintained a bank deposit account alone, or thing/right in favor of a donee; and
jointly with another, it shall not allow any 2. Sales, exchanges or other transfers of properties,
withdrawal from the said deposit account, other than real property (defined in Sec. 24D)
subject to a final withholding tax of six percent classified as capital asset within the Philippines,
(6%) unless the Commissioner has certified that for less than an adequate and full consideration
the taxes imposed thereon by this Title have been in mone or mone or h. [Sec. 100, NIRC4344]
paid: Provided, however, That the administrator of
42
SECTION 84. Rates of Estate Tax.38 There shall be 10,000,00 And Over 1,215,000 20% 10,000,00
levied, assessed, collected and paid upon the transfer of the 0 0
net estate as determined in accordance with Sections 85 and
86 of every decedent, whether resident or nonresident of the
Philippines, a tax at the rate of six percent (6%) based on 43
SECTION 100. Transfer for Less Than Adequate and Full
the value of such net estate., as computed in accordance with Consideration. Where property, other than real property
the following schedule: referred to in Section 24(D), is transferred for less than an
If the net estate is: adequate and full consideration in money or money's worth,
then the amount by which the fair market value of the property
Over But Not The Tax Plus Of the exceeded the value of the consideration shall, for the purpose
Over Shall Be Over Excess of the tax imposed by this Chapter, be deemed a gift, and shall
be included in computing the amount of gifts made during the
P200,000 Exempt calendar year.: Provided, however, That a sale, exchange,
or other transfer of property made in the ordinary course
P200,000 500,000 0 5% P200,000 of business (a transaction which is a bona fide, at arm s
length, and free from any donative intent), will be
500,000 2,000,000 P15,000 8% 500,000 considered as made for an adequate and full
consideration in mone or mone s orth.
2,000,000 5,000,000 135,000 11% 2,000,000 44
Note: In the RR for Train Law, there is added provision:
Provided, that the sale, exchange or other transfer of
5,000,000 10,000,00 465,000 15% 5,000,000 property is not made in the ordinary course of business
0 (i.e. at arm s length and free of donati e intent). [Sec. 16,
RR 12-2018]
45
Note: The transfers which may be constituted as donation or other transfer of property made in the ordinary course
is exempt from the donative intent requirement. of business (a transaction which is a bona fide, at arm s
length, and free from any donative intent), will be
46
SECTION 100. Transfer for Less Than Adequate and Full considered as made for an adequate and full
Consideration. Where property, other than real property consideration in mone or mone s orth.
47
referred to in Section 24(D), is transferred for less than an N.B. Provided, that the sale, exchange or other transfer of
adequate and full consideration in money or money's worth, property is not made in the ordinary course of business (i.e.
then the amount by which the fair market value of the property a a a a ). O ,
exceeded the value of the consideration shall, for the purpose be considered as made for an adequate and full consideration
of the tax imposed by this Chapter, be deemed a gift, and shall . [S . 16, RR 12-2018]
be included in computing the amount of gifts made during the
calendar year.: Provided, however, That a sale, exchange,
48
Supra note 24.
For the purpose of this exemption, a 'non-profit educational and/or charitable corporation, institution,
accredited nongovernment organization, trust or philanthropic organization and/or research institution
or organization' is a:
1. school, college or university and/or charitable corporation,
2. accredited nongovernment organization, or;
3. trust or philanthropic organization and/or research institution or organization, that is:
a. incorporated as a non-stock entity,
b. paying no dividends,
c. governed by trustees who receive no compensation, and
d. devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy,
to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. [Sec.
101 (A)(2), NIRC]
Common Exemptions
1. Encumbrances on the property donated if assumed by the donee in the deed of donation.
2. Donations made to entities exempted under special laws
49
As renumbered by TRAIN.
2. Non-resident citizen
3. Resident alien DONOR S TAX RETURN
Separate return is filed for each gift made on different
Per Country Limit dates during the year reflecting therein any previous
net gifts made in the same calendar year. If the gift
𝑁𝑒𝑡 𝐺𝑖𝑓𝑡 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦
𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟′𝑠 𝑇𝑎𝑥 involves CPG, each spouse shall file separate return
𝐸𝑛𝑡𝑖𝑟𝑒 𝑁𝑒𝑡 𝐺𝑖𝑓𝑡 with respect to his/her respective share in the CPG.
Contents
1. Each gift made during the calendar year which is
Worldwide Limit to be included in computing net gifts;
2. The deductions claimed and allowable;
𝑁𝑒𝑡 𝐺𝑖𝑓𝑡 𝐴𝑙𝑙 𝐶𝑜𝑢𝑛𝑡𝑟𝑖𝑒𝑠 3. Any previous net gifts made during the same
𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟′𝑠 𝑇𝑎𝑥
𝐸𝑛𝑡𝑖𝑟𝑒 𝑁𝑒𝑡 𝐺𝑖𝑓𝑡 calendar year;
4. The name of the donee;
5. Relationship of the donor to the done;
6. Such further information as the CIR may require.
k. Exemptions of Gifts from
D Ta Period for Filing
General Rule: The return must be filed within 30
1. Encumbrances on the property donated if days after the date when the gift was made or
assumed by the donee in the deed of donation. completed. The tax due thereon shall be paid at the
2. Donations made to entities exempted under same time that the return is filed.
special laws.
a. Aquaculture Department of the Southeast Who will file: Any person who made a gift, such
Asian Fisheries Development Center of the must be filed under oath.
Philippines
b. Development Academy of the Philippines W F T D Ta R A Pa
c. Integrated Bar of the Philippines The Tax Due
d. International Rice Research Institute
e. National Museum 1. Resident
f. National Library Unless the CIR permits otherwise, the return shall be
g. National Social Action Council filed and tax paid to:
h. Ramon Magsaysay Foundation a. To Authorized Agent Bank (AAB) or the
i. Philippine In en or Commission Revenue District Officer having jurisdiction over
j. Philippine American Cultural Foundation the place of the domicile of the donor at the time
k. Task Force on Human Settlement on the of the transfer.
donation of equipment, materials and b. If no AAB = to the Revenue Collection Officer
services or duly Authorized City or Municipal Treasurer
where the donor was domiciled at the time of the
l. Person liable transfer,
c. if no legal residence in Phil or NRA = with
Every person, whether natural or juridical, resident or Revenue District No. 39 - South Quezon City or
non-resident, who transfers or causes to transfer with the Philippine Embassy or Consulate in the
property by gift, whether in trust or otherwise, country where donor is domiciled at the time of
whether the gift is direct or indirect and whether the the transfer.
property is real or personal, tangible or intangible.
[Sec. 98, NIRC] 2. Non-residents
The Philippine Embassy or Consulate in the country
where he is domiciled at the time of the transfer, or
Directly with the Office of the Commissioner.50
50
N : OFFICE OF THE COMMISSIONER a of the Commissioner, or presently, to the Revenue District
refer to the Revenue District Office (RDO) having jurisdiction Office No. 39 South Quezon City
over the BIR-National Office Building which houses the Office
51
SECTION 99. Rates of Tax Payable by Donor. 5,000,000 10,000,00 404,000 12% 5,000,000
(A) In General. The tax for each calendar year shall be six 0
percent (6%) computed on the basis of the total net gifts in 10,000,00 1,004,00 15% 10,000,00
excess of Two hundred fifty thousand pesos (P250,000) 0 0 0
exempt gift made during the calendar year. in accordance (B) Tax Payable by Donor if Donee is a Stranger. When the
with the following schedule: donee or beneficiary is a stranger, the tax payable by the
donor shall be thirty percent (30%) of the net gifts. For the
If the net gift is: purpose of this tax, a 'stranger' is a person who is not a:
Over But Not The Tax Plus Of the
Over Shall Be Ove Excess (1) Brother, sister (whether by whole or half-blood), spouse,
r ancestor and lineal descendant; or
P100,000 Exempt
P100,000 200,000 0 2% P100,000 (2) Relative by consanguinity in the collateral line within the
200,000 500,000 2,000 4% 200,000 fourth degree of relationship.
500,000 1,000,000 14,000 6% 500,000 (C)(B) Any contribution in cash or in kind to any candidate,
1,000,000 3,000,000 44,000 8% 1,000,000 political party or coalition of parties for campaign purposes
shall be governed by the Election Code, as amended.
3,000,000 5,000,000 204,000 10% 3,000,000
PAID: before the delivery of the distributive share in FILED: within thirty (30) days after the gift (donation)
the inheritance to any heir or beneficiary; upon filing is made
of return.
If the gift involves CPG, each spouse shall file separate
Extension: (when payment on the due date would return with regard to his/her respective share in the
impose undue hardship) not to exceed: CPG.
15 years, in case the estate is settled through the
courts; or
2 years in case the estate is settled extra-judicially.
N.B. when extension is granted, a bond may be
required by CIR 2x amount of tax
Where to file and to whom paid
General Rule: to the Authorized Agent Bank (AAB), Resident
Revenue Collection Officer (RCO) or duly authorized General Rule: to AAB of the RDO having jurisdiction
Treasurer of the city or municipality in the Revenue over the place of the domicile of the donor at the time
District Office having jurisdiction over the place of of the transfer.
domicile of the decedent at the time of his death
Non-resident
The Philippine Embassy or Consulate in the
country where he is domiciled at the time of the
transfer, or
Directly with the Office of the Commissioner.
Who should file
The Eor/Aor or any of the legal heirs of the Any person, natural or juridical, resident or non-
decedent, whether resident or non-resident of the resident, who transfers or causes to transfer property
Philippines, under any of the following situations: by gift, whether in trust or otherwise, whether the gift
is direct or indirect and whether the property is real or
Regardless of the gross value of the estate, where personal, tangible or intangible.
the said estate consists of registered or registrable
property such as real property, motor vehicle,
shares of stock or other similar property for
which a clearance from the BIR is required as a
ESTATE TAX
Net Estate
Less: (Special Deductions57)
Standard Deduction
Family Home
Amounts received by heirs If only 1 country is involved: (whichever is lower)
OR
Estate Tax Due 𝑁𝑒𝑡 𝐸𝑠𝑡𝑎𝑡𝑒 𝑜𝑓 𝐴𝐿𝐿 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦
Less: Tax Credit58, if any 𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐸𝑠𝑡𝑎𝑡𝑒 𝑇𝑎𝑥
𝐸𝑛𝑡𝑖𝑟𝑒 𝑁𝑒𝑡 𝐸𝑠𝑡𝑎𝑡𝑒
ESTATE TAX DUE
OR actual estate tax paid to foreign country
52
DO NOT INCLUDE: Exemptions
53
Amount included in the GE = FMV at the time of death consideration amount
54
Accrued before his death but only received after his death, e.g., dividends declared on/before, and received after death; par ne hip p ofi
earned on/before and received after, accrued interest and rents on/before and collected after death
55
Beneficiary must be the estate of the decedent, E/Aor or a third person. If premiums are paid using conjugal funds, part of conjugal funds.
56
Full amount of the receivable. However, the uncollectible amount may be deducted from GE under ELIT.
57
These are not allowable deductions when TP is NRA.
58
Applies only to RC/NRC/RA
Less: Deductions
Ordinary Deductions
Unpaid real estate tax (2,000,000)
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
(2) Decedent is married, the family home is conjugal property, more than P10,000,000:
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 42,000,000
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
(3) Decedent is married, the family home exclusive property, more than P10,000,000:
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 12,000,000
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
Less: Deductions
Ordinary Deductions (2,000,000)
Special Deductions (14,000,000)
Family Home (9,000,000)
Standard Deduction (5,000,000)
Total Deductions (16,000,000)
(5) Decedent is married, the family home is conjugal property and is below P10,000,000:
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 21,000,000
Special Deductions
Family Home (4,500,000)
Standard Deduction (5,000,000)
Total Deductions (11,500,000)
(6) Decedent is married, the family home exclusive property and below P10,000,000:
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 12,000,000
Special Deductions
Family Home (9,000,000)
Standard Deduction (5,000,000)
Total Deductions (16,000,000)
DONOR S TAX
ON FIRST DONATION
Donor Ta D e xxx
Less: Tax Credit59, if any xxx
DONOR S TAX DUE xxx
Tax Credit =
Net Taxable Gift xxx 𝑁𝑒𝑡 𝐷𝑜𝑛𝑎𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦
𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟′𝑠 𝑇𝑎𝑥
Add: All previous net gifts during the year xxx 𝑁𝑒𝑡 𝐷𝑜𝑛𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝑤/𝑖𝑛 𝑎𝑛𝑑 𝑤/𝑜
Aggregate Net Gifts xxx
OR
Multiply by Tax Rate xxx /
𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟 𝑠 𝑇𝑎𝑥
/ /
Donor Ta on Aggrega e Ne Gif xxx
OR ac al donor s a paid o foreign co n r
Le : Donor a on pre io ne gif d ring he ear xxx
Donor Ta D e xxx
Less: Tax Credit60, if any xxx
DONOR S TAX DUE xxx
59
Applies only to RC/NRC/RA
60
Applies only to RC/NRC/RA
Solution/computation:
ESTATE TAX
CANCEL
ESTATE TAX TIN
RETURN +
PAYMENT
Prepare the LIST of assets Transfer
and liabilities and their properties to
supporting documents the heirs
Get TIN for ESTATE
DONOR S TAX
and services in the Philippines and on importation of of services is not regular [Section 4.105-3, RR No. 16-
goods into the Philippines. 2005]
This rule shall likewise apply to existing contracts of b. Impact and Incidence of Tax
sale or lease of goods, properties or services at the Impact Incidence
time of the effectivity of RA No. 9337. However, in The statutory taxpayer,
the case of importation, the importer is the one liable the one from whom One who bears the
for the VAT. [Sec. 4.105.2, RR 16-2005] the government burden of taxation
collects.
General Features:
Seller/Importer
1. VAT uses the Tax Credit Method Buyer/Final Consumer
Seller/Importer is the
2. All goods, properties and services (except exempt the buyer is the one
one who collects the
transactions) including goods subject to excise who bears the burden
tax and pays to the
taxes, and use or lease of properties, whether real of the taxation.
government
or personal, are subject to tax at all levels of
distribution.
3. Although tax is levied at all stages, the cumulative c. Tax Credit Method
effect is that the final value of the goods sold to
the ultimate consumers is taxed only once. A a pa er a pa able i he e ce of o p a
4. VAT, as a general rule, follow the destination over input tax:
principle (goods and services are taxed only in the
country where they are consumed). Therefore, no OUTPUT VAT INPUT VAT = VAT
VAT shall be imposed to form part of the cost of PAYABLE
goods destined for consumption outside the
territorial border of the taxing authority. Under the VAT method of taxation, which is invoice-
based, an entity can subtract from the VAT charged
Elements of a VAT-taxable transaction in general on its sales or outputs the VAT it paid on its
1. There must be a sale, barter, exchange, or lease in purchases, inputs and imports. [CIR v. Seagate, G.R.
the Philippines No. 153866 (2005)].
2. The subject matter must be taxable goods or
properties or services
d. Destination Principle/ Cross
General rule: The sale must be made by a taxable Border Doctrine
person in the course of trade or business or in the
furtherance of their profession.
As a general rule, the VAT system uses the destination
principle as a basis for the jurisdictional reach of the
Exception: In the case of importation of goods,
tax. Goods and services are taxed only in the country
the transaction is taxable whether or not done in
where they are consumed. Thus, exports are zero-
the course of business.
rated, while imports are taxed. [CIR v. American
Express International, G.R. No. 152609 (2005)]
Mea g f e c e f ade b e
Means the regular conduct of pursuit of a commercial
N.B. Cross Border Doctrine mandates that no
or an economic activity, including transactions
VAT shall be imposed to form part of the cost of the
incidental thereto, by any person regardless of
goods destined for consumption outside the
whether or not the person engaged therein is a
territorial border of the taxing authority.
nonstock, nonprofit private organization (irrespective
of the disposition of its net income and whether or
Atlas Consolidated Mining & Dev. Corp. v. CIR,
not it sells exclusively to members or their guests), or
G.R. Nos. 141104 and 148763 (2007): Actual export
government entity.
of goods and services from the Philippines to a
foreign country must be free of VAT, while those
N.B. Services rendered by non-resident foreign
destined for use or consumption within the
persons shall be considered as being rendered in the
Philippines shall be imposed with 12% VAT.
course of trade or business, even if the performance
The law neither makes a qualification nor adds a General Rule: VAT and Percentage Tax cannot be
condition in determining the tax situs of a zero-rated charged together. I ei her he ran ac ion i nder
service. Under this criterion, the place where the VAT or Other Percentage Tax.
service is rendered determines the jurisdiction to
impose the VAT. Performed in the Philippines, such Exception: When one erroneously declares himself to
service is necessarily subject to its jurisdiction, for the VAT registered.
S a e nece aril ha o ha e a b an ial
connec ion o i , in order o enforce a ero ra e. The f. Imposition of VAT
place of payment is immaterial; much less is the
place where the output of the service will be 1. On Sale of Goods or Properties
further or ultimately used. [CIR v. American Express
International, G.R. No. 152609 (2005)]
Sale of goods or properties in general
Rate: 12% VAT beginning 1 February 2006 [RMC
e. Persons Liable No. 7-06] [Sec. 106, as amended by TRAIN]
61
Services other than those mentioned in the preceding franchises on radio and/or television broadcasting companies
paragraph rendered to a person engaged in business whose annual gross receipts of the preceding year do not
conducted outside the Philippines or a nonresident person not exceed Ten million pesos (P10,000,000), subject to Section
engaged in business who is outside the Philippines when the 236 of this Code, a tax of three percent (3%) and on gas and
services were performed, the consideration for which is paid water utilities, a tax of two percent (2%) on the gross receipts
for in acceptable foreign currency and accounted for in derived from the business covered by the law granting the
accordance with the rules and regulations of the BSP. franchise: Provided, however, That radio and television
broadcasting companies referred to in this Section shall have
63
SECTION 119. Tax on Franchises. Any provision of an option to be registered as a value-added taxpayer and pay
general or special law to the contrary notwithstanding, there the tax due thereon: Provided, further, That once the option is
shall be levied, assessed and collected in respect to all exercised, said option shall be irrevocable.
Basis: Gross selling price or gross value in money of the If SP P1.5M = VAT-exempt
goods or properties sold, bartered or exchanged. If SP > P2.5M =
Residential House subject to VAT
Who Pays: Paid by SELLER/TRANSFEROR. and Lot If SP P2.5M =
[Sec. 106, NIRC]; N.B. the end-user is the one VAT-exempt
who is actually burdened with the tax since the tax
is passed on to him. Sales of real properties subject to VAT Sale of
real properties held primarily for sale to customers or
Meaning of goods or properties held for lease in the ordinary course of trade or
Goods or properties all tangible and intangible business of the seller shall be subject to VAT. [Sec.
objects which are capable of pecuniary estimation, 4.106-3, RR 16-2005]
including:
a. Real properties held primarily for sale to TYPES OF SALES OF REAL ESTATE;
customers or held for lease in the ordinary course EFFECTS
of trade or business;
b. The right or the privilege to use patent, copyright, a. Cash sale entire selling price taxable in the
design, or model, plan, secret formula or process, month of the sale.
goodwill, trademark, trade brand or other like Note: Ini ial pa men mean pa men or
property or right; payments which the seller receives before or
c. The right or the privilege to use in the Philippines upon execution of the instrument of sale and
of any industrial, commercial or scientific payments which he expects or is scheduled to
equipment; receive in cash or property (other than evidence
d. The right or the privilege to use motion picture of indebtedness of the purchaser) during the
films, films tapes and discs; taxable year when the sale or disposition of the
e. Radio, television, satellite transmission and cable real property was made. It covers any down
television time. payment made and includes all payments actually
or constructively received during the year of sale,
Goods/Personal Properties the aggregate of which determines the limit set by
a. Actual/deemed sale for a valuable consideration law.
b. For use or consumption in the Phil (regardless of
the payment arrangements) b. Installment sales
c. Not exempt from VAT (NIRC, special law, 1. Meaning of installment sale initial
special agreement) payments of which in the year of sale 25%
Gross Selling Price (GSP)
Special rules 2. Effect VAT is recognized based on
Sale of Real Properties (RP) collection, including interest and penalties,
Casual sale actually and/or constructively received by
Subject to CGT (6%)
(Capital Assets) the seller.
Regular sales c. Deferred sales
(Ordinary Assets): 1. Meaning initial payments exceed 25% of
Commercial the GSP
Property Subject to 12% VAT 2. Effect VAT will be recognized outright in
(Sale/Lease) full at the time of sale as though the sale was
If monthly rental P15,000 = a cash sale.
VAT and OPT-exempt
If monthly rental > P15,000
b aggrega e ann al ren al
Residential Units
P3M = subject to OPT
(Lease)
If monthly rental > P15,000
and aggregate annual rentals >
P3M =
subject to VAT
If SP > P1.5M =
Residential Lot
subject to VAT
In the case of sale, barter or exchange of real property N.B. in retirement/cessation, inventory (raw
subject to VAT, GSP shall mean: materials, finished goods, machinery, equipment,
a. The consideration stated in the sales document furniture, fixture), tax base = whichever is lower,
or acquisition cost
b. The fair market value (FMV) whichever is higher. current market price of goods
Meaning of FMV Whichever is higher of the N.B.: CIR has the power to determine the appropriate
following: tax base in 1) SBE in deemed sales and 2) when GSP
a. The fair market value as determined by the CIR is unreasonably lower than AMV66
(zonal value) or
b. The fair market value as shown in schedule of Not taxable: [Sec. 109 (P)67(Q)68]
values of the Provincial and City Assessors (real a. Not primarily held for sale or lease in the course
property tax declaration). of trade or business
b. Low cost or socialized housing
c. Residential lot when value does not exceed
General Rule: GSP is the total amount of money paid P1.5M
in consideration of sale, barter, exchange, or lease. d. House and lot/other residential dwelling <
P2.5M
Excludes: VAT, sales discounts and, allowances and e. Lease (rental per unit < 15,000/month
returns (See Section on Allowable Discounts)
64
(a) A corporation, which is a party to a merger or (P) Sale of real properties not primarily held for sale to
consolidation, exchanges property solely for stock in a customers or held for lease in the ordinary course of trade or
corporation, which is a party to the merger or consolidation; or business, or real property utilized for low-cost and socialized
(b) A shareholder exchanges stock in a corporation, which is housing as defined by Republic Act No. 7279, otherwise
a party to the merger or consolidation, solely for the stock of known as the Urban Development and Housing Act of 1992,
another corporation also a party to the merger or and other related laws, residential lot valued at One million
consolidation; or five hundred thousand pesos (P1,500,000)77 and below,
(c) A security holder of a corporation, which is a party to the house and lot, and other residential dwellings valued at Two
merger or consolidation, exchanges his securities in such million five hundred thousand pesos (P2,500,000)78 and
corporation, solely for stock or securities in such corporation, below: Provided, That, beginning January 1, 2021, the VAT
a party to the merger or consolidation. exemption shall only apply to sale of real properties not
primarily held for sale to customers or held for lease in
No gain or loss shall also be recognized if property is the ordinary course of trade or business, sale of real
transferred to a corporation by a person in exchange for stock property utilized for socialized housing as defined by
or unit of participation in such a corporation of which as a Republic Act No. 7279, sale of house and lot, and other
result of such exchange said person, alone or together with residential dwellings with selling price of not more than
others, not exceeding four (4) persons, gains control of said Two million pesos (P2,000,000): Provided, further, That
corporation: Provided, That stocks issued for services shall not later than January 31, 2009 and every three (3) years
not be considered as issued in return for property. thereafter, the amount herein stated shall be adjusted to their
65
Initial payments does not include the amount of mortgage its present values using the Consumer Price Index, as
on RP sold (except excess when mortgage exceeds the cost published by the National Statistics Office (NSO) Philippine
of the property), notes and other evidence of indebtedness Statistics Authority (PSA);
68
issued by the purchaser at the time of the sale (Q) Lease of a residential unit with a monthly rental not
66
GSP is unreasonably lower than the actual market value if exceeding Ten Fifteen thousand pesos (P10,000) (P15,000);
it is lower than 30% of AMV of the same goods of the same Provided, That not later than January 31, 2009 and every
quantity or quality sold in the immediate locality or the nearest three (3) years thereafter, the amount herein stated shall be
date of sale. adjusted to its present value using the Consumer Price Index,
67
SECTION 109. Exempt Transactions. as published by the National Statistics Office (NSO);
f. Transmission to a trustee (Except: transmission 2. The value of goods or properties sold and
is deemed sale transaction) subsequently returned or for which
allowances were granted by a VAT-
Note: That, beginning January 1, 2021, the VAT registered person may be deducted from the
exemption shall only apply to sale of real gross sales or receipts for the quarter in
properties not primarily held for sale to which a refund is made or a credit
customers or held for lease in the ordinary course memorandum is issued.
of trade or business, sale of real property utilized
for socialized housing as defined by Republic Act b. Sales Discounts bona fide or regular discounts
No. 7279, sale of house and lot, and other given to purchasers, which are ascertainable and
residential dwellings with selling price of not definitely agreed upon between the vendor and
more than Two million pesos (P2,000,000). the vendee at the time of sale are deductible from
the GSP.
General Rule: Transmission of property to a 1. If given after the sale or are in the nature of
trustee shall NOT be subject to VAT if the a rebate or partial remission of indebtedness,
property is to be merely held in trust for the they will not be allowed as a deduction from
trustor and/or beneficiary. the GSP.
2. Furthermore, the discount must be expressly
Exception: However, if the property transferred is indicated in the sales invoice and the amount
originally intended for sale, lease or use in the forming part of the gross sales duly recorded
ordinary course of trade or business AND the in the books of accounts.
transfer constitutes a completed gift, the transfer 3. Credits for allowances to cover roll back in
is subject to VAT as a deemed sale transaction. prices and other adjustments are not
The transfer is a completed gift if the transferor deductible.
divests himself absolutely of control over the
property, i.e., irrevocable transfer of corpus 2. On Importation of Goods
and/or irrevocable designation of beneficiary. Rate: 12% VAT
g. Transfer to corporation in exchange of shares of
stocks [see Sec. 40, NIRC for Tax-free exchange] Basis: total value used by the Bureau of Customs
h. Security deposits for lease agreements provided it in determining tariff and customs duties, plus
does not form part of Gross Receipt or Official customs duties, excise taxes, if any, and other
Receipt.69 [See RMC 16-2013] charges (such as postage, commission).
Where the customs duties are determined on the
Allowable Deductions from GSP basis of the quantity or volume of the goods, VAT
The following are deductible from the gross selling shall be based on the landed cost plus excise taxes,
price: if any.
a. Sales returns and allowances the selling price of
the goods or properties returned and not sold Who Pays: IMPORTER prior to the release of
necessarily reduces the gross sales on which the such goods from customs custody (Sec. 107 (A),
rate is applied. NIRC)
1. Sales returns and allowances for which a Importer: any person who brings goods into the
proper credit/refund was made during the Philippines, whether or not made in the course of
month or quarter to the buyer for sales his trade or business, including non-exempt
previously recorded as table sales are allowed persons or entities who acquire tax-free imported
as a deduction in the period when they are goods from exempt persons, entities or agencies
made. Excess may be carried over to the (RR 16-2005)
succeeding period.
69
Security deposit Security deposit to
SUBJECT TO VAT NOT SUBJECT TO when applied to the insure the faithful
VAT rental performance of certain
Loan to the lessor from obligations of the
the lessee lessee to the lessor, if
Pre-Paid Rental not part of Gross
Receipt.
h. Proprietors or operators of restaurants, percentage tax under Sec. 120 and hence exempt
refreshment parlors, cafes and other eating from VAT
places, including clubs and caterers o. Non-life insurance companies including surety,
i. Dealers in securities including pre-need fidelity, indemnity and bonding companies;
companies
Gro receip mean gro elling price le EXCEPT crop insurance, life and disability
cost of the securities sold. insurance, and health and accident insurance
j. Lending investors: All persons OTHER than
banks, non-bank financial intermediaries, finance Insurance and reinsurance commissions, as
companies and other financial intermediaries opposed to premiums, whether life or non-life,
NOT performing quasi-banking functions who are subject to VAT while non-life insurance
make a practice of lending money for themselves premiums are subject to VAT.
or others at interest. p. Similar services regardless of whether or not the
k. Transportation contractors on their transport of performance thereof calls for the exercise or use
goods or cargoes, including persons who of the physical or mental faculties
transport goods or cargoes for hire and other
domestic common carriers by land relative to Lease of Properties : subject to the VAT imposed
their transport of goods or cargoes irrespective of the place where the contract of lease or
l. Common carriers by air and sea relative to their licensing agreement was executed if the property is
transport of passengers, goods or cargoes from leased or used in the Philippines.
one place in the Philippines to another place in a. The lease or the use of or the right or privilege to
the Philippines use any copyright, patent, design or model, plan
m. Sales of electricity by generation, transmission by secret
any entity, and/or distribution companies, b. formula or process, goodwill, trademark, trade
including electric cooperatives (as amended by brand or other like property or right
Train Law) c. The lease of the use of, or the right to use of any
industrial, commercial or scientific equipment
EXCEPT sale of power or fuel generated d. The supply of scientific, technical, industrial or
through renewable sources of energy, such as, commercial knowledge or information
but not limited to, biomass, solar, wind e. The supply of any assistance that is ancillary and
hydropower, geothermal, ocean energy, and subsidiary to and is furnished as a means of
other emerging energy sources using enabling the application or enjoyment of any
technologies such as fuel cells and hydrogen such property, or right as is mentioned in #2 or
fuels, which shall be subject to 0% rate of VAT any such knowledge or information as is
(zero-rated). mentioned in #3
n. Franchise grantees of electric utilities, telephone f. The supply of services by a nonresident person
and telegraph, radio and/or television or his employee in connection with the use of
broadcasting and all other franchise grantees property or rights belonging to, or the installation
(including PAGCOR and its or operation of any brand, machinery or other
licensees/franchisees) apparatus purchased from such nonresident
person
EXCEPT franchise grantees of radio and/or g. The supply of technical advice, assistance or
television broadcasting whose annual gross services rendered in connection with technical
receipts of the preceding year do not exceed Ten management or administration of any scientific,
Million Pesos (P10,000,000.00) (which shall be industrial or commercial undertaking, venture,
subject to 3% franchise tax under Sec. 119, project or scheme
subject to optional registration), and franchise h. The lease of motion picture films, films, tapes
grantees of gas and water utilities (under Sec. 109, and discs
subject to 2% franchise tax) i. The lease or the use of or the right to use radio,
television, satellite transmission and cable
With respect to franchise grantees of telephone television time
and telegraph services, amounts received for
overseas dispatch, message, or conversation
originating from the Philippines are subject to the
2. Distribution or Transfer to
Additional services subject to VAT: Shareholders, Investors or Creditors
a. Services performed in the exercise or practice of
profession or calling by individuals subject to As regards distribution to shareholders or investors as
professional tax under the LGC, and professional share in the profits of the VAT-registered persons,
services rendered by general professional property dividends which constitute stocks in trade
partnerships (GPPs); or properties primarily held for sale or lease declared
b. Services performed by actors/actresses, talents, out of retained earnings on or after Jan. 1, 1996 and
singers, emcees, radio/television broadcasters, distributed by the company to its shareholders shall
choreographers, be subject to VAT based on the zonal value or FMV
musical/radio/movie/television/stage directors, at the time of the distribution, whichever is applicable.
and professional athletes; [RR 16-2005]
c. Services rendered by customs, real estate, stock,
immigration and commercial brokers; 3. Consignment of Goods
d. Services rendered by doctors, and lawyers.
e. Lease/use of sports facilities and equipment [RA Consigned goods returned by the consignee within
6847] the 60-day period are not deemed sold. [RR 16-2005]
The performance of the services should not be in
pursuit of an employer-employee relationship
4. Retirement from or Cessation of
between the service-provider and the service- Business with Respect to Inventories
recipient. on Hand
g. Transactions Deemed Sale With respect to ALL goods on hand, whether capital
goods, stock-in-trade, supplies or materials, as of the
date of such retirement or cessation, whether or not
[Sec 106 (B)]
the business is continued by the new owner or
Rate: 12% VAT
successor ARE CONSIDERED DEEMED SALES
Basis: Market value of the goods deemed sold as
Examples: change of ownership of the business (e.g.,
of the time of the occurrence of the transactions or
when a sole proprietorship incorporates, or the
as the CIR shall prescribe. In the case of
proprietor sells his entire business) and dissolution of
retirement/cessation of business, the tax base shall
a partnership and creation of a new partnership which
be the acquisition cost or the current market price
takes over the business. [RR 16-2005]
of the goods or properties, whichever is lower. In
the case of a sale where the gross selling price is
unreasonably lower than the fair market value, the 5. Transmission of Property to a Trustee
actual market value shall be the tax base. The gross
selling price is unreasonably lower than the actual IF:
market value if it is lower by more than 30% of the Property is for sale, lease or use in the ordinary course
actual market value of the same goods of the same of business
quantity and quality sold in the immediate locality The transfer is a completed gift (transferor divested
on or nearest the date of sale. [RR 16-2005] from himself absolute control of property)
VAT shall apply to goods disposed of or existing as of the date of merger or consolidation, shall be
of a certain date if under the circumstances to be absorbed by the surviving or new corporation.
prescribed in rules and regulations to be promulgated
by the Secretary of Finance, upon recommendation of Note: The INPUT VAT of the dissolved
the CIR, the status of a person as a VAT-registered corporation will be absorbed by the surviving
person changes or is terminated. corporation
3. Sale of raw materials or packaging materials to be deemed export sales until the export products
export-oriented enterprise whose export sales consigned are in fact sold by the consignee. [RR
exceed seventy percent (70%) of total annual 16-2005; RR 13-2018]
production. 5. The sale of goods, supplies, equipment and fuel
to persons engaged in international shipping or
Any enterprise whose export sales exceed 70% of international air transport operations: Provided,
the total annual production of the preceding That the goods, supplies, equipment and fuel
taxable year shall be considered an export- shall be used for international shipping or air
oriented enterprise [RR 13-2018] transport operations. (as amended by Train
Law)
4. Those considered export sales under the a. Limited to goods, supplies, equipment and
Omnibus Investment Code of 1987, and other fuel pertaining to or attributable to the
special laws (e.g. Bases Conversion & transport of goods and passengers from a
Development Act of 1992) port in the Phil. directly to a foreign port
without docking or stopping at any other
Under Omnibus Investment Code (EO 226): port in the Phil.
Considered Export Sales b. If any portion of such fuel, goods, or
a. Philippine port F.O.B. value determined supplies is used for purposes other than that
from invoices, bills of lading, inward letters mentioned, such portion of fuel, goods, and
of credit, landing certificates, and other supplies shall be subject to 12% VAT. [RR
commercial documents, of export products 16-2005; RR 13-2018]
exported directly by a registered export
producer; OR Note: items (c), (d), and (e) above shall be subject to
b. Net selling price of export products sold by the twelve percent (12%) value-added tax and no
a registered export producer to another longer be considered export sales subject to zero
export producer, or to an export trader that percent (0%) VAT rate upon satisfaction of the
subsequently exports the same (only when following conditions:
actually exported by the latter) evidenced by 1. The successful establishment and
landing certificates. implementation of an enhanced VAT refund
system that grants refunds of creditable input tax
Constructive Exports (without actual exportation): within ninety (90) days from the filing of the VAT
a. Sales to bonded manufacturing warehouses refund application with the Bureau: Provided,
of export-oriented manufacturers; That, to determine the effectivity of item no. 1,
b. Sales to export processing zones [RA 7916]; all applications filed from January 1, 2018 shall be
c. Sales to registered export traders operating processed and must be decided within ninety (90)
bonded trading warehouses supplying raw days from the filing of the VAT refund
materials in the manufacture of export application; and
products [RA 7227] 2. All pending VAT refund claims as of December
d. Sales to diplomatic missions and other 31, 2017 shall be fully paid in cash by December
agencies and/or instrumentalities granted 31, 2019.
tax immunities, of locally manufactured,
assembled or repacked products, whether Provided, That the Department of Finance shall
paid for in foreign currency or not. establish a VAT refund center in the Bureau of
e. Sales by a VAT-registered supplier to a Internal Revenue (BIR) and in the Bureau of Customs
manufacturer/producer whose products are (BOC) that will handle the processing and granting of
100% exported are considered export sales. cash refunds of creditable input tax.
A certification to this effect must be issued
by the Board of Investment which shall be An amount equivalent to five percent (5%) of the
good for 1 year unless subsequently re- total VAT collection of the BIR and the BOC from
issued. the immediately preceding year shall be automatically
appropriated annually and shall be treated as a special
Export sales of registered export traders shall account in the General Fund or as trust receipts for
include commission income, and that the purpose of funding claims for VAT refund:
exportation of goods on consignment shall not
Provided, That any unused fund, at the end of the year 2. By a VAT-Exempt Supplier from the Customs
shall revert to the General Fund. Territory to a PEZA registered enterprise
Provided, further, That the BIR and the BOC shall be Sale of goods, property and services by VAT-
required to submit to the Congressional Oversight Exempt supplier from the Customs Territory to
Committee on the Comprehensive Tax Reform a PEZA registered enterprise shall be treated
Program (COCCTRP) a quarterly report of all EXEMPT FROM VAT, regardless of whether or
pending claims for refund and any unused fund. [last not the PEZA registered buyer is subject to taxes
paragraphs of Sec. 106 (A)(2)(a), NIRC (such under the NIRC or enjoying the 5% special tax
provisions were added by TRAIN Law)] regime.
consideration for which is paid for in acceptable (BOC) that will handle the processing and granting of
foreign currency and accounted for in accordance cash refunds of creditable input tax.
with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP); An amount equivalent to five percent (5%) of the
3. Services rendered to persons or entities whose total VAT collection of the BIR and the BOC from
exemption under special laws or international the immediately preceding year shall be automatically
agreements to which the Philippines is a signatory appropriated annually and shall be treated as a special
effectively subjects the supply of such services to account in the General Fund or as trust receipts for
zero percent (0%) rate; the purpose of funding claims for VAT refund:
4. Services rendered to persons engaged in Provided, That any unused fund, at the end of the year
international shipping or international air shall revert to the General Fund.
transport operations, including leases of property
for use thereof: Provided, That these services Provided, further, That the BIR and the BOC shall be
shall be exclusively for international shipping required to submit to the Congressional Oversight
or air transport operations (as amended by Committee on the Comprehensive Tax Reform
TRAIN Law); Program (COCCTRP) a quarterly report of all
5. Services performed by subcontractors and/or pending claims for refund and any unused fund. [last
contractors in processing, converting, or paragraphs of Sec. 108 (B), NIRC (such provisions
manufacturing goods for an enterprise whose were added by TRAIN Law)]
export sales exceed seventy percent (70%) of
total annual production; Difference between Zero-rated and VAT-exempt
6. Transport of passengers and cargo by domestic Zero-rated VAT-exempt
air or sea vessels from the Philippines to a foreign It is a taxable transaction Not subject to output tax
country (as amended by TRAIN Law); and but does not result in an
7. Sale of power or fuel generated through output tax
renewable sources of energy such as, but not The input VAT on the The seller in an exempt
limited to, biomass, solar, wind, hydropower, purchases of a VAT- transaction is not entitled
geothermal, ocean energy, and other emerging registered person with to any input tax on his
energy sources using technologies such as fuel zero-rated sales may be purchases despite the
cells and hydrogen fuels. allowed as tax credits or issuance of a VAT
refunded invoice or receipt;
Note: items (a) and (e) above shall be subject to the Persons engaged in Registration is optional
twelve percent (12%) value-added tax and no longer transactions which are for VAT-exempt
be considered export sales subject to zero percent zero-rated, being subject persons.
(0%) VAT rate upon satisfaction of the following to VAT, are required to
conditions: register
1. The successful establishment and
implementation of an enhanced VAT refund
system that grants refunds of creditable input tax
j. VAT-Exempt Transactions
within ninety (90) days from the filing of the VAT
refund application with the Bureau: Provided, 1. Vat-Exempt Transactions, in General
That, to determine the effectivity of item no. 1,
all applications filed from January 1, 2018 shall be a. Sale of goods or properties and/or services and
processed and must be decided within ninety (90) the use or lease of properties that is NOT subject
days from the filing of the VAT refund to VAT (output tax) and the seller is not allowed
application; and any tax credit of VAT (input tax) on purchases.
2. All pending VAT refund claims as of December b. The person making the exempt sale of goods,
31, 2017 shall be fully paid in cash by December properties or services shall not bill any output tax
31, 2019. to his customers. [RR 16-2005]
c. But, the VAT-registered person may elect that
Provided, That the Department of Finance shall the exemption not apply to its sale of goods or
establish a VAT refund center in the Bureau of properties or services; provided that the election
Internal Revenue (BIR) and in the Bureau of Customs made shall be irrevocable for a period of three
(3) years from the quarter the election was made use and not for sale, barter or exchange,
[Sec. 109(2), NIRC]. accompanying such persons, or arriving within
90 days before or after their arrival a reasonable
2. Exempt Transactions, Enumerated time: Provided, That the Bureau of Customs
may, upon production of satisfactory evidence
[4.109-1 of RR 16-2005 as amended by RR 13-2018] that such persons are actually coming to settle in
the Philippines and that the change of residence
a. Sale/import of agricultural and marine food is bona fide the goods are brought from their
products in their original state, livestock and former place of abode, exempt such goods
poultry of a kind generally used as or yielding or from payment of duties and taxes (as amended
producing foods for human consumption and by Train Law);
breeding stock and genetic materials therefor; EXCEPT vehicles, vessels, aircrafts,
Original state even if they have undergone machineries, and other goods for use in
the simple processes of preparation or manufacturing and merchandise of any kind
preservation for the market, such as in commercial quantity)
freezing, drying, salting, broiling, roasting, e. Services subject to percentage tax under the
smoking or stripping. Also includes NIRC;
preservation using advanced technological Sale of services of non-VAT-registered
means of packaging, such as shrink persons (other than the other VAT-Exempt
wrapping in plastics, vacuum packing, tetra- transactions) where the gross annual sales
pack, and other similar packaging methods and/or receipts of which does not exceed
[RR 16-2005] P3M.
Polished and/or husked rice, corn grits, raw f. Services by agricultural contract growers and
cane sugar and molasses, ordinary salt, milling for others of palay into rice, corn into
AND COPRA shall be considered in their grits, and sugar cane into raw sugar;
original state Note: RMC 10-2010: Toll processing that are
Livestock or poultry do not include fighting VAT exempt pertain only to services to
cocks, race horses, zoo animals and other clients from which growing of animals were
animals generally considered as pets. contracted.
b. Sale/ importation of fertilizers, seeds, seedlings g. Medical, dental, hospital and veterinary services,
and fingerlings, fish, prawn, livestock and poultry except those rendered by professionals:
feeds including ingredients, whether locally Laboratory services are exempted. If the
produced or imported, used in the manufacture hospital or clinic operates a pharmacy or
of finished feeds (EXCEPT specialty feeds for drug store, the sale of drugs and medicine is
race horses, fighting cocks, aquarium fish, zoo subject to VAT. [RR 16-2005]
animals, and other animals generally considered Note: RR-2004 granting VAT-exemption to
pets); doctors registered with the PRC and lawyers
c. Importation of personal and household effects registered with the IBP was superseded by
belonging to Philippine residents returning from RA 9337 and RR 16-2005.
abroad and non-resident citizens coming to h. Educational services rendered by private
resettle in the Philippines; provided, that such educational institutions, duly accredited by
goods are also exempt from customs duties DepED, CHED, TESDA, and those rendered by
under the TCC (now CMTA); government educational institutions;
d. Importation of professional instruments and Ed ca ional er ice doe no incl de
implements, tools of trade, occupation or seminars, in-service training, review classes
employment, wearing apparel, domestic and other similar services rendered by
animals, and personal household effects persons who are not accredited by the
belonging to persons coming to settle in the DepED, CHED, and/or TESDA. [RR 16-
Philippines, or Filipinos or their families and 2005]
descendants who are now residents or citizens of i. Services rendered by individuals pursuant to an
other countries, such parties hereinafter referred employer-employee relationship;
to as overseas Filipinos, in quantities and of the j. Services rendered by regional or area
class suitable to the profession, rank or position headquarters established in the Philippines by
of the persons importing said items for their own
multinational corporations which act as 2. Sale of real properties utilized for low-cost
supervisory, communications and coordinating housing as defined by RA 7279, ("Urban
centers for their affiliates, subsidiaries or Development and Housing Act of 1992")
branches in the Asia-Pacific Region and do not and other related laws, such as RA 7835 and
earn or derive income from the Philippines; RA 8763;
k. Transactions which are exempt under Lo -cost housing" refers to housing
international agreements to which the Philippines projects intended for homeless low-
is a signatory or under special laws, except those income family beneficiaries, undertaken
under PD No. 529 (Petroleum Exploration by the Government or private
Concessionaires under the Petroleum Act of developers, which may either be a
1949); subdivision or a condominium
l. Sales by agricultural cooperatives duly registered registered and licensed by the Housing
with the Cooperative Development Authority and Land Use Regulatory
(CDA) to their members, as well as sale of their Board/Housing (HLURB) under BP
produce, whether it is original state or processed 220, PD 957 or any other similar law,
form, to non-members; their importation of wherein the unit selling price is within
direct farm inputs, machineries and equipment, the selling price ceiling per unit of as set
including spare parts thereof, to be used directly by the Housing and Urban
and exclusively in the production and/or Development Coordinating Council
processing of their produce; (HUDCC) pursuant to RA 7279, and
Sale by agricultural cooperatives to non- other laws, such as RA 7835 and RA
members can only be exempted from VAT 8763.
if the producer of the agricultural products 3. Sale of real properties utilized for socialized
sold is the cooperative itself. If the housing as defined under RA 7279, and
cooperative is not the producer (e.g., trader), other related laws, such as RA 7835 and RA
then only those sales to its members shall be 8763, wherein the price ceiling per unit is
exempted from VAT. [RR 16-2005] P225,000 or as may from time to time be
m. Gross receipts from lending activities by credit or determined by the HUDCC and the NEDA
multi-purpose cooperatives duly registered with and other related laws.
the CDA; "Socialized housing" refers to housing
n. Sales by non-agricultural, non- electric and non- programs and projects covering houses
credit cooperatives duly registered and in good and lots or home lots only undertaken
standing with the CDA; Provided, that the share by the Government or the private sector
capital contribution of each member does not for the underprivileged and homeless
exceed P15,000 and regardless of the aggregate citizens which shall include sites and
capital and net surplus ratably distributed among services development, long-term
the members. BUT their importation of financing, liberated terms on interest
machineries and equipment, including spare parts payments, and such other benefits in
thereof, to be used by them are SUBJECT to accordance with the provisions of RA
VAT; 7279 and RA 7835 and RA 8763.
o. Export sales by persons who are not VAT- "Socialized housing" shall also refer to
registered; projects intended for the
p. Sale of real properties as follows: underprivileged and homeless wherein
1. Sale of real properties NOT primarily held the housing package selling price is
for sale to customers or held for lease in the within the lowest interest rates under the
ordinary course of trade or business. Unified Home Lending Program
However, even if the real property is not (UHLP) or any equivalent housing
primarily held for sale to customers or held program of the Government, the private
for lease in the ordinary course of trade or sector or non-government
business but the same is used in the trade or organizations.
business of the seller, the sale thereof shall 4. Sale of residential lot valued at P1.5M and
be subject to VAT being a transaction below, or house & lot and other residential
inciden al o he a pa er main b ine . dwellings valued at P2.5M and below, as
[RR 4-2007; RR 13-2018]
adjusted in 2011 using the 2010 Consumer Lease of residential units where the monthly
Price Index values. rental per unit exceeds P15,000 but the
If two or more adjacent residential lots aggregate of such rentals of the lessor during
are sold or disposed in favor of one the year do not exceed P3M shall likewise be
buyer, for the purpose of utilizing the exempt from VAT, however, the same shall
lots as one residential lot, the sale shall be subjected to 3% percentage tax.
be exempt from VAT only if the In cases where a lessor has several residential
aggregate value of the lots does not units for lease, some are leased out for a
exceed P1.5M. [RR 13-2012] monthly rental per unit of not exceeding
Adjacent residential lots, although P15,000 while others are leased out for more
covered by separate titles and/or than P15,000 per unit, his tax liability will be
separate tax declarations, when sold or as follows:
disposed to one and the same buyer, o The gross receipts from rentals not
whether covered by one or separate exceeding P15,000 per month per unit
Deed of Conveyance, shall be presumed shall be exempt from VAT regardless of
as a sale of one residential lot. [RR 13- the aggregate annual gross receipts.
2018] o The gross receipts from rentals exceeding
Sale, transfer or disposal within a 12- P15,000 per month per unit shall be
month period of 2 or more adjacent subject to VAT IF the aggregate annual
residential lots, house and lots or other gross receipts from said units only (not
residential dwellings to one buyer, including the gross receipts from units
whether from the same or from leased for not more than P15,000)
different sellers shall be considered one exceeds P3M. Otherwise, the gross
single transaction. Hence, the sale of the receipts will be subject to the 3% tax
adjacent lots shall be subject to VAT if imposed under Sec. 116 of the Tax Code.
the aggregate value exceeds P1.5M for The term 'residential units' shall refer to
residential lots and P2.5M for residential apartments and houses & lots used for
house lots or residential dwellings, residential purposes, and buildings or parts
notwithstanding that the value of the or units thereof used solely as dwelling places
individual properties do not exceed the (e.g., dormitories, rooms and bed spaces)
VAT exemption thresholds. except motels, motel rooms, hotels and hotel
Sale/purchase of parking lots shall not rooms, lodging houses, inns and pension
be considered a sale of residential houses.
lot/dwelling. Hence, it shall be subject The term 'unit' shall mean an apartment unit
to VAT regardless of its selling price. in the case of apartments, house in the case
[RR 13-2012] of residential houses; per person in the case
of dormitories, boarding houses and bed
5. Note: That beginning January 1, 2021, the spaces; and per room in case of rooms for
VAT exemption shall only apply to sale of rent. [RR 13-2018]
real properties not primarily held for sale to r. Sale, importation, printing or publication of
customers or held for lease in the ordinary books and any newspaper, magazine review or
course of trade or business, sale of real bulletin which appears at regular intervals with
property utilized for socialized housing as fixed prices for subscription and sale and which
defined by Republic Act No. 7279, sale of is not devoted principally to the publication of
house and lot, and other residential dwellings paid advertisements;
with selling price of not more than Two s. Transport of passengers by international carriers
Million Pesos (P2,000,000.00) [provision t. Sale, importation or lease of passenger or cargo
added by TRAIN Law amending Sec. 109 vessels and aircraft, including engine, equipment
(1)(P), NIRC] and spare parts thereof for domestic or
q. Lease of residential units with a monthly rental international transport operations;
per unit not exceeding P15,000, regardless of The exemption from VAT on the
the amount of aggregate rentals received by the importation and local purchase of passenger
lessor during the year. and/or cargo vessels shall be subject to the
k. Input and Output Tax 4. For use as materials supplied in the sale of
service; or
1. Definition 5. For use in trade or business for which
deduction for depreciation or amortization is
allowed under the Code.
Input tax the VAT due on or paid by a VAT-
b. Purchase of real properties for which VAT
registered person on importation of goods or local
has actually been paid
purchases of goods, properties, or services, including
c. Purchase of services in which VAT has
lease or use of properties, in the course of his trade or
actually been paid
business.
d. Transactions deemed sale
a. It includes the transitional input tax and the
e. Presumptive Input Tax [Sec. 111(B), NIRC]
presumptive input tax as determined in
accordance with Section 111 of the Code.
Persons or firms engaged in the processing of
b. It includes input taxes which can be directly
(1) sardines, (2) mackerel and (3) milk, and in
attributed to transactions subject to the VAT plus
manufacturing (1) refined sugar, (2) cooking oil
a ratable portion of any input tax which cannot
and (3) packed noodle based instant meals, shall
be directly attributed to either the taxable or
be allowed a presumptive input tax, creditable
exempt activity.
against the output tax, equivalent to FOUR
c. Input tax must be evidenced by a VAT invoice or
PERCENT (4%) of the gross value in money
official receipt issued by a VAT-registered person
of their purchases of primary agricultural
in accordance with Secs. 113 and 237 of the
products which are used as inputs to their
Code. [RR 16-2005]
production.
Output tax the VAT due on the sale or lease of
Proce ing mean pa e ri a ion, canning and
taxable goods or properties or services by any person
activities which through physical or chemical
registered or required to register under Section 236 of
process alter the exterior texture or form or inner
the Code.
substance of a product in such manner as to
prepare it for special use to which it could not
If at the end of any taxable month or quarter:
have been put in its original form or condition.
a. The output tax exceeds the input tax, the excess
shall be paid by the VAT-registered person
f. Transitional Input Tax [Sec 111(A), NIRC]
b. The input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or
quarters [Sec. 110(B), NIRC] Who may avail: (i) By a person who becomes
VAT-liable for the 1st time, or (ii) any person who
elects to be a VAT-registered person
2. Sources of Input Tax
Rate: 2% Input VAT of the value of the beginning
a. Purchase or importation of goods (evidenced inventory on hand or actual VAT paid on such,
by VAT invoice/receipt) goods, materials and supplies, whichever is
1. For sale; or HIGHER, which amount shall be creditable
2. For conversion into or intended to form part against the output tax of VAT-registered person.
of a finished product for sale including
packaging materials; or Tax base: The value allowed for income tax
3. For use as supplies in the course of business; purposes on inventories shall be the basis for the
or computation of the 2% transitional input tax,
EXCLUDING goods that are exempt from VAT creditable to the purchaser, lessee or licensee
under Sec. 109 of the Tax Code. [RR 16-2005] upon payment of the compensation, rental,
royalty or fee. 70 [RR 13-2018]
Note: A real estate dealer is entitled to claim c. To the purchaser of services or the lessee or
transitional input VAT based on the value of the licensee upon payment of the compensation,
entire (including the value of the land and the rental, royalty or fee.
improvements thereon) real property sold
regardless of whether there was in fact actual Input tax on purchase of services, lease or use of
payment of VAT on the purchase of the real properties shall be creditable:
property. At the time the purchase was made, there a. To the purchaser upon payment of the
was still no VAT imposed. [Fort Bonifacio compensation, royalty or fee
Development Corp. v. CIR, G.R. Nos. 158885 and b. To lessee or licensee upon payment of the
170680 (2009)] compensation, royalty or fee
c.
3. Persons Who Can Avail of Input Tax Claiming of input Tax on motor vehicles subject
Credit to the following conditions:
a. Purchase of vehicle must be substantiated with
Input tax on domestic purchase or importation of official receipts and other records;
goods or properties shall be creditable: b. Taxpayer has to prove the direct connection of
a. To the importer upon payment of the VAT prior the motor vehicle to the business;
to the release of the goods from the custody of c. Only one vehicle for land transport is allowed for
the Bureau of Customs. the use of an official/employee with value not
b. To the purchaser upon consummation of sale and exceeding P2.4 million;
on importation of goods or properties; d. No depreciation shall be allowed for yachts,
Claims for Input Tax on Depreciable Goods helicopters, airplanes
1. The input tax on capital goods purchased or
imported in a calendar month for use in 4. Determination of Output/Input Tax;
trade or business for which deduction for VAT Payable; Excess Input Tax
depreciation is allowed under the Code, shall Credits
be spread evenly over the month of acquisition
and the fifty-nine (59) succeeding months (60 month
period) if the aggregate acquisition cost for Output VAT Input VAT = VAT Payable
such goods, excluding the VAT component
thereof, exceeds One million pesos
(P1,000,000). If the aggregate acquisition Determination of output tax
cost does not exceed P1,000,000, the total [RR 16-2005]
input taxes will be allowable as credit against
output tax in the month of acquisition. Output VAT in a sale of goods/properties shall be
2. However, if the estimated useful life of the computed by multiplying the total amount indicated
capital good is less than five (5) years, as used in the invoice or receipt by 12%.
for depreciation purposes, then the input
VAT shall be spread over such a shorter 𝑂𝑈𝑇𝑃𝑈𝑇 𝑉𝐴𝑇
period
3. The amortization of the input VAT shall 𝐺𝑟𝑜𝑠𝑠 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑥 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑉𝐴𝑇 𝑜𝑟 12%
only be allowed until December 31, 2021
after which taxpayers with unutilized input
VAT on capital goods purchased or
imported shall be allowed to apply the same
as scheduled until fully utilized: Provided,
That in the case of purchase of services, lease
or use of properties, the input tax shall be
70
P a Ca I Ta D a
G I a .
71
P a A a a
transactions Illus a .
Accounting:
SELLER BUYER
October 1, 2017 October 1, 2017
Cash P1,120,000 Asset P5,000,000
Installment Receivable 4,480,000 Input Tax 500,000
Accumulated Depreciation 1,000,000
Output Tax 600,000 Cash 1,120,000
Asset 3,000,000 Installment Payable 4,480,000
Gain on sale of set 3,000,000
* The input tax of P600,000.00 shall be spread evenly over a period of 60 months starting on October 2018 of
purchase.
If the depreciable capital good is sold/transferred within a period of five (5) years or prior to the exhaustion of the
amortizable input tax thereon, the entire unamortized input tax on the capital goods sold/transferred can be claimed
as input tax credit during the month/quarter when the sale or transfer was made.
a. For purchase made on January 2018, the amortization shall be for the shorter period of 5 years only or up to
December 2022 although the useful life is 6 years.
b. For purchase made on February 2018, the amortization shall be for period of 4 years only or up to January 2022
since the useful life of the asset is shorter than 5 years.
c. For purchase made on December 2021, the amortization shall be for the period of 5 years or up to November
2026.
d. For purchase made on January 2022, no amortization shall be made and the input VAT shall be claimed on the
month of purchase or January 2022.
The creditable input tax for the month shall be computed as follows:
Input tax on sale subject to 12% - 5,000.00
Input tax on zero-rated sale 3,000.00
Ratable portion of the input tax not directly attributable to any activity:
The input tax attributable to sales to government for the month shall be computed as follows:
Inp a on ale o go . - P 4,000.00
Ratable portion of the input tax not directly attributable to any activity:
The input tax attributable to VAT-exempt sales for the month shall be computed as follows:
Input tax on VAT-exempt sales - 2,000.00
Ratable portion of the input tax not directly attributable to any activity:
e. The claimed input tax are directly attributable to a. Application for issuance of tax credit certificate
0%-rated transactions. or refund of creditable input tax (except
f. Acceptable foreign currency exchange proceeds transitional input tax)
must have been duly accounted for b. WITHIN 2 YEARS after the close of the taxable
g. Claimed input tax must be duly supported by quarter when the sales were made, to apply for
VAT invoices/receipts. the issuance of a Tax Credit Certificate or refund
h. VAT returns for the succeeding quarters must of creditable input tax due or paid attributable to
have been submitted. such sales. [Sec. 112 (A), NIRC]
c. If the VAT registration has been cancelled due to
Cancellation of VAT Registration retirement or cessation of business, or change of
a. A person whose registration has been status, the 2 year period shall be after the date of
cancelled due to (i) retirement from or cessation cancellation [Sec. 112 (B), NIRC]
of business, or due to changes in or (ii) cessation d. Administrative Claim [Sec 112 (C), ¶1, NIRC72]
of status under Section 106(C) of the Code may, e. The CIR shall grant the refund within 90 days
within two (2) years from the date of cancellation, from the date of submission of the official
apply for the issuance of a tax credit certificate receipts or invoices and other documents in
for any unused input tax which may be used in support of the application filed in accordance
payment of his other internal revenue taxes. with Sec. 112 (A) and (B).
b. He shall be entitled to a refund if he has no f. Should the CIR find that the grant of refund is
internal revenue tax liabilities against which the not proper, the CIR must state in writing the
tax credit certificate may be utilized. legal and factual basis for the denial
c. That the date of cancellation being referred g. The 90-day period to process and decide,
hereto is the date of issuance of tax clearance by pending the establishment of the enhanced VAT
the BIR, after full settlement of all tax liabilities Refund System shall only be up to the date of
relative to cessation of business or change of approval of the Recommendation Report on
status of the concerned taxpayer. such application for VAT refund by the
d. The filing of the claim shall be made only after Commissioner or his duly authorized
completion of the mandatory audit of all internal representative
revenue tax liabilities covering the immediately h. Judicial Claim [Sec 112 (C), ¶2, NIRC73]
preceding year and the short period return and i. In case of full or partial denial of the claim for tax
the issuance of the applicable tax clearance/s by refund or the expiry of the 90 days, the taxpayer
the appropriate BIR Office which has jurisdiction affected may appeal to the CTA within 30 days
over the taxpayer. [RR 13-2018] from the receipt of decision.
j. failure on the part of any official, agent, or
2. Period to File Claim/Apply for employee of the BIR to act on the application
Issuance of Tax Credit Certificate within the ninety (90)-day period shall be
punishable under Section 269 of this Code
This period must be distinguished from normal tax (Violations Committed by Government
refunds for erroneous payments where an Enforcement Officers).
administrative claim and judicial claim may be made
together, and the reckoning point of the 2 years is 3. Manner of Refund
from the date of the erroneous payment.
72
SECTION 112. Refunds or Tax Credits of Input Tax. (C) Period within which Refund or Tax Credit of Input Taxes
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. xxx
shall be Made. In proper cases, the Commissioner shall case of full or partial denial of the claim for tax refund or tax
grant a refund or issue the tax credit certificate for creditable credit, or the failure on the part of the Commissioner to act on
input taxes within one hundred twenty (120) ninety (90) days the application within the period prescribed above, the
from the date of submission of complete documents the taxpayer affected may, within thirty (30) days from the receipt
official receipts or invoices and other documents in of the decision denying the claim or after the expiration of the
support of the application filed in accordance with one hundred twenty day-period, appeal the decision or the
Subsections (A) and (B) hereof: Provided, That should the unacted claim with the Court of Tax Appeals.: Provided,
Commissioner find that the grant of refund is not proper, however, That failure on the part of any official, agent, or
the Commissioner must state in writing the legal and employee of the BIR to act on the application within the
factual basis for the denial. x x x ninety (90)-day period shall be punishable under Section
73
SECTION 112. Refunds or Tax Credits of Input Tax. 269 of this Code.
74
SECTION 114. Return and Payment of Value-added Tax. twelve percent (10%) (12%) withholding tax at the time of
(C) Withholding of Value-added Tax. The Government or payment.: Provided, finally, That payments for purchases
any of its political subdivisions, instrumentalities or agencies, of goods and services arising from projects funded by
including government-owned or -controlled corporations Official Development Assistance (ODA) as defined under
(GOCCs) shall, before making payment on account of each Republic Act No. 8182, other ise kno n as the Official
purchase of goods and services which are subject to the De elopment Assistance Act of 1996 , as amended, shall
value-added tax imposed in Sections 106 and 108 of this not be subject to the final withholding tax system as
Code, deduct and withhold the value-added tax imposed imposed in this Subsection. For purposes of this Section,
in Sections 106 and 108 of this Code, deduct and withhold the payor or person in control of the payment shall be
a final value-added tax at the rate of five percent (5%) of the considered as the withholding agent.
gross payment thereof: Provided, That beginning January 1,
2021, the VAT withholding system under this Subsection The value-added tax withheld under this Section shall be
shall shift from final to a creditable system: Provided, remitted within ten (10) days following the end of the month
further, That the payment for lease or use of properties or the withholding was made.
property rights to nonresident owners shall be subject to ten
MONTHLY RETURN
Gross Sales/Receipts for the Month xxx
Multiplied by VAT rate 12%
Output VAT xxx
Less Input Taxes:
Transitional/Presumptive Input Tax xxx
On taxable goods/services xxx xxx
Net VAT Payable xxx
Add Penalties:
Surcharge xxx
Interest xxx
Compromise xxx xxx
Total Amount Payable xxx
INVOLVING GOVERNMENT
When Actual Input VAT > Standard Input VAT: e ce form par of eller e pen e/co
When Actual Input VAT < Standard Input VAT: difference is treated as taxable other income
Sales xxx
Output VAT (Sales x 12%) xxx
Purchases xxx
Input VAT (Purchases x 12%) xxx
75
Sec 106 If SP > P1.5M = subject to
76
VAT
Residential Lot
Casual sale (Capital I SP P1.5M = VAT-
Subject to CGT (6%)
Assets) exempt
Regular sales If SP > P2.5, = subject to
(Ordinary Assets): Residential VAT
Commercial House and Lot I SP P2.5M= VAT-
Property Subject to 12% VAT exempt
(Sale/Lease)
I a 15,000 77
Sec 108
= VAT and OPT-exempt 78
It should be determined at the time of the sale, indicated in
If monthly rental > 15,000 the invoice and granting does not depend on the happening
but aggregate annual of a future event
Residential Units a P3M = 79
Initial payments does not include the amount of mortgage
(Lease) subject to OPT on RP sold (except excess when mortgage exceeds the cost
If monthly rental > 15,000 of the property), notes and other evidence on=f indebtedness
and aggregate annual issued by the purchaser at the time of the sale
rentals > P3M subject to
VAT
N.B. Creditable Input VAT is b. input tax attributable to exempt sales and
1. increased by any input VAT carried over from unauthorized input tax attributable of
the preceding month or quarter depreciable capital goods
2. decreased by c. amount of input VAT with regard to
a. amount of the claim for refund or tax credit uncollected portion of instalment receivable
for VAT filed during the same period in instalment sales
VAT-Exempt 0% VAT
Non-VAT taxable transaction Taxable transaction
Taxpayer is relieved from payment of VAT for w/c
he is directly liable
NO output and input VAT No output VAT, but input VAT is available as tax
Optional VAT Registration credit or refund
Partial relief Total relief
Only removes VAT at the exempt stage All VAT is removed at whatever stage
On Sales: On Sales:
No VAT No VAT
Not within the VAT system Still within the VAT system
Not subject to VAT Subject to 0% VAT
On Purchases: On Purchases:
VAT passed is on cost VAT passed on is input tax
Input tax is a cost component thus item of Input tax is creditable against output tax thus
deduction reducing only taxable income reducing VAT liability
SALE OF SERVICES
VAT-Exempt 0% VAT
1. For lease of property =exempt
if advance payment = loan, security deposit
NB: if security deposit is applied to rental =
VAT
2. For persons engaged in milling, processing,
manufacturing or repacking goods = exempt 1. Processing, manufacturing, repacking goods to
if palay rice; corn corn grits; sugar cane non-resident
2. Processing, manufacturing, repacking goods to
raw sugar
export-oriented
3. For franchise grantees of electric utilities,
3. Services other than processing, manufacturing,
telephone and telegraph, radio and/or television
repacking
broadcasting = exempt
4. Services to exempted persons: effectively 0-rate
if annual gross receipts <= 10M; 5. Sale of power/fuel-generated through renewable
franchise grantees of gas and water utilities; of resources
telephone & telegraph services, amounts 6. Ser ice rendered o in l hipping/air ran por
received for overseas dispatch from Phil. 7. Transport of passengers and cargo by air from Phil
4. For PREMIUMS of insurance companies = to Foreign
exempt IF 8. Transactions of VAT-reg person to foreign
life and disability insurance; embassies
crop insurance; health and accident insurance
(included are only those with exceptions) Exceptions to the Exemptions (Subject to VAT)
1. Sale/import of agricultural & marine food 1. Livestock and poultry DOES NOT INCLUDE
products in their original state; livestock and fighting cocks, race horses, zoo animals and pets
poultry (used/yield for human consumption); 2. DOES NOT INCLUDE vehicles, vessels,
breeding stock and genetic materials aircrafts, machineries, and other goods for use in
2. Import of professional instruments, implements, manufacturing in commercial quantities
wearing apparel, domestic animals, and personal 3. DOES NOT INCLUDE those under Petroleum
household effects Exploration Concessionaires under Petroleum Act
3. Transactions exempt pursuant to special laws of 1949
4. Cooperatives 4. For sales by agricultural coops to non-members, if
5. Residential lots P1.5M & lot & dwellings seller is the member = VAT
P2.5M
6. lease of residential units, 5. For sales by non-agri, non-electric and non-credit,
if 15,000/unit/month (regardless of importation of machineries and equipment = VAT
aggregate amount); 6. DOES NOT INCLUDE parking lot
if 15,000/unit/month (AND aggregate If any portion of such goods are used for purposes
amount is P3M) other than those stated = VAT
7. importation of fuels, goods, supplies by
international shipping or air transport
SALE OF GOODS
VAT-Exempt 0% VAT
Real Property Actual Export Sales
1. Not primarily held in connection with Trade
or Business (ICT/B) Deemed Export Sales
2. Low-cost or socialized housing 1. Internal or constructive export sales
3. Residential lot <= P1.5M Raw/Packaging materials to non-resident buyer
4. House and/or other residential dwellings <= Raw/Packaging materials to export-oriented
P2.5M Phil. Port FOB value of export products80
5. Lease (15,000/unit/year or total P3M/year)
Net selling price of export products81
6. Transmission to a trustee
7. Except: if transmission is deemed sale sales to bonded manufacturing warehouses82
8. Transfer to corporation in exchange of SoS sales to export processing zones83
9. Advance payments/Security Deposits in lease sales to enterprises duly accredited by Subic Bay
10. Except: if applied to the rent Metropolitan Authority
sales to registered export traders
As regards ecozones and PEZA-registered sales to diplomatic missions etc.
entities sale by VAT-supplier to manufacturer/producer
1. Made by VAT-exempt supplier from customs whose products are 100% exported
territory to any registered enterprise inside Sale of gold to BSP
ecozone
Sale of goods/supplies/equipment/fuel to persons
2. Intra-ecozone enterprise sale of service, if
engaged in in l hipping/air ran por
PEZA registered seller is subject to 5% special
2. Docking/Undocking services to foreign vessels
tax regime
3. Intra-ecozone sales of goods
Effectively-zero rated sales
1. Made by VAT registered supplier from customs
territory to any registered enterprise inside ecozone
2. Intra-ecozone enterprise sale of service, if PEZA
registered seller is subject to NIRC taxes
80
Under Omnibus Investment Code (EO226)
81
Ibid
82
RA7227
83
RA 7916
Taxable
TR Tax Base Tax Payable
Activity/Property
Actual SBE of Goods
Gross Selling Price
or Properties
Goods/ Personal
= amt. paid to the seller
Properties
Real Properties = consideration/FMV, higher
12%
IF sale is on
instalment plan =
AND ZV/FMV >
𝑥 𝑧𝑜𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑟 𝐹𝑀𝑉 𝑒𝑥𝑒𝑐𝑢𝑡𝑖𝑜𝑛
SP (excluding
VAT)
VAT Payable
Deemed Sale
paid by
Transactions
seller/transferor
Not ICB/T, but
originally intended for
sale/use ICB/T
FMV (at the time of transaction)
Transfer to SH in
E: if FMV is unreasonably lower (by more than 30% of AMV) = AMV
share of profit or Cr
12% or determined by CIR
in payment of debt
Consignment after
60d
Retirement/Cessation
Acquisition Cost or current market price, lower
of business
VAT Payable
Sale of Services 12% Gross receipts derived paid by
performer
Importation of Goods Total Value used by BOC VAT paid by
In general =tariff & custom duties + custom duties + excise tax + charges importer
PRIOR to the
When custom duties 12%
release of goods
are based on quantity = landed cost + excise tax in Customs
or volume custody
1. Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit
beginning on the first day of the month following registration.
2. The cancellation for registration will be effective from the first day of the following month the cancellation was
approved.
3. What is the treatment for Withholding of VAT on Government Money Payments?
a. The government or any of its political subdivisions, instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of
goods and/or services taxed at twelve percent (12%) VAT pursuant to Sections 106 and 108 of the Tax
Code, deduct and withhold a Final VAT due at the rate of five percent (5%) of the gross payment.
b. The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller.
The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or
services to government or any of its political subdivisions, instrumentalities or agencies including GOCCs
in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. Should actual input
VAT attributable to sales to government exceeds seven percent (7%) of gross payments, the excess may
form part of the sellers' expense or cost. On the other hand, if actual input VAT attributable to sale to
government is less than seven percent (7%) of gross payment, the difference must be closed to expense or
cost.
c. The government or any of its political subdivisions, instrumentalities or agencies including GOCCs, as well
as private corporation, individuals, estates and trusts, whether large or non-large taxpayers, shall withhold
twelve percent (12%) VAT with respect to the following payments:
Lease or use of properties or property rights owned by non-residents; and
Other services rendered in the Philippines by non-residents.
VAT- registered
cancelling their
registration (regardless of
w/in 2 years after close the source of input tax)
of the taxable quarter
when sales are made
Input Tax wrt Zero-rated and Application for w/in 2 years after
Effectively zero-rated Sales refund or TCC to close of the taxable
Direct Tax CIR + quarter when sales
Credit supporting docs are made
VAT-registered
Taxpayer Presumptive Input Tax
w/in 90 days
Transitional Input Tax w/in 90 days
Carry-over from
If VAT-exempt Actual Input Tax not related from submission
to zero-rated sales Tax Credit submission
changes his
status to VAT-
registered = GRANTED
transitional
input tax VAT-exempt Transactions DENIED INACTION
DENIED GRANTED
84
Not Included in the Bar Examination Coverage for 2019.
3. Excise Tax and Excise taxes, whether under the specific or the ad
valorem tax system, is basically an indirect tax
Documentary Stamp Tax85 imposed on consumption of certain types or classes
of goods, whether locally manufactured or imported.
a. Excise Taxes While the tax is directly levied upon the
manufacturer/importer upon removal of the taxable
CONCEPT goods from its place of production or from the
Excise taxes are taxes imposed on certain specified customs custody, the tax, in reality, is actually passed
goods manufactured or produced in the Philippines on to the end consumer as part of the transfer value
for domestic sale or consumption or for any other or selling price of the goods, sold, bartered or
disposition and to things imported as well as exchanged. [Silkair (Singapore) Pte. Ltd. v. CIR, G.R.
services performed in the Philippines. [Sec. 129, No. 173594 (2012)]
par. 1, NIRC86]
In the refund of indirect taxes, the proper party to
Kinds of excise taxes [Sec. 129, par. 2, NIRC87] question or seek a refund of the tax is the statutory
1. Specific tax tax due is computed based on the: taxpayer, the person on whom the tax is imposed by
Weight law and who paid the same even when he shifts the
burden thereof to another. The tax liability remains
volume capacity
with the manufacturer/ producer/importer that is
any other physical unit of measurement. primarily, directly, and legally liable for the payment
2. Ad valorem tax tax due is computed based on of excise taxes. [Id.]
the:
selling price PURPOSE
other specified value of goods. The selective application and imposition of excise
taxes may be justified on any of the following
The NIRC enumerates the specific goods and services grounds:
that are subject to Excise Tax: 1. To curtail consumption of certain
NIRC Goods/Services commodities, excessive or indiscriminate use of
Sec. 141 Distilled Spirits which is considered harmful to the individual or
Sec. 142 Wines community. Taxes of this kind are sumptuary in
Sec. 143 Fermented Liquor nature and are exemplified by the taxes on
Sec. 144 Tobacco Products alcoholic beverages and tobacco products.
Sec. 145 Cigars and Cigarettes 2. To protect a domestic industry the products of
Sec. 148 Manufactured Oils and Other Fuels which face competition from similar imported
Sec. 149 Automobiles articles;
Sec. 150 Non-essential Goods 3. To distribute the tax burden in proportion to
benefit derived from a particular government
85 87
Not Included in the Bar Examination Coverage for 2019. SECTION 129. Goods and Services Subject to Excise
86
SECTION 129. Goods and Services Subject to Excise Taxes. x x x For purposes of this Title, excise taxes herein
Taxes. Excise taxes apply to goods manufactured or imposed and based on weight or volume capacity or any other
produced in the Philippines for domestic sales or consumption a a a a specific
or for any other disposition and to things imported as well as tax a a a a a selling
services performed in the Philippines. The excise tax price or other specified value of the good or service
imposed herein shall be in addition to the value-added tax performed a a ad valorem tax .
imposed under Title IV.
NATURE
DST is levied on the exercise by persons of certain
privileges conferred by law for the creation, revision,
or termination of specific legal relationships through
the execution of specific instruments. Hence, in
imposing the DST, not only the document but also
Periods:
Assessment (3 or 10 years)
Return was filed
o Not false or fraudulent 3 years after the
last day of the prescribed period OR 3 years
from the date of actual filing of the return if
paid beyond the prescribed period. [Sec. 203,
NIRC]
o False or Fraudulent or Failure to file a return
(FFF) 10 years from date the fraud or
falsity or omission was discovered [Sec.
222(a), NIRC]
Collection (3 or 5 years)
o Collections with assessments 5 years from
issuance of FAN (Final Assessment Notice)
or FLD (Final letter of Demand) [Sec.
222(c), NIRC]
o Collections without assessments must be
made within the period of making an
assessment.
If the return filed was false or fraudulent or
if no return was filed a proceeding in court
may be filed within 10 years from date of
discovery of fraud or falsity [Sec. 222(a),
NIRC]
Criminal offense [Sec. 281, NIRC]
o 5 years from date of commission, and if same
is unknown then, from discovery and the
institution of judicial proceedings for its taxpayer spends during a given year exceeds his
investigation and punishment. reported income, and the source of such money
The prescription period shall not run when the is otherwise unexplained, it may be inferred that
offender is absent from the Philippines such expenditures represent unreported income.
c. Percentage Method: This method is a
a. Assessment computation whereby determinations are made
by the use of percentages or ratios considered
typical of the business under investigation. By
1. Definition and Requisites of a Valid reference to similar business or situations,
Assessment percentage computations are secured to
determine sales, gross profit or even net profit.
To assess means to impose a tax; to charge with a tax; d. Unit and Value Method: The determination of
to declare a tax to be payable; to apportion a tax to be gross receipts may be computed by applying price
paid or contributed, to fix a rate; to fix or settle a sum and profit figures to the known ascertainable
to be paid by way of tax; to set, fix or charge a certain quality of business done by taxpayer
sum to each taxpayer; to settle determine or fix the
amount of tax to be paid (84 C.J.S 74-750) Inventory method for income determination (Net
Worth Method)
An assessment is the notice to the effect that the Holland v. US: In a typical net worth prosecution, the
amount therein stated is due from a taxpayer as a tax Government, having concluded that the taxpayer's
with a demand for payment of the same within a records are inadequate as a basis for determining
stated period of time. [CIR v. CTA, 27 SCRA 1159] income tax liability, attempts to establish an "opening
net worth" or total net value of the taxpayer's assets
Forms of assessment at the beginning of a given year. It then proves
a. Self-assessment Assessments made by increases in the taxpayer's net worth for each
taxpayers who then file returns. succeeding year during the period under examination,
b. Deficiency assessment Assessments made by and calculates the difference between the adjusted net
the BIR after the conduct of an investigation or values of the taxpayer's assets at the beginning and
audit when it finds that the tax return filed by the end of each of the years involved. The taxpayer's non-
taxpayer contains an under-declaration of income deductible expenditures, including living expenses,
or when the taxpayer does not at all file a tax are added to these increases, and if the resulting figure
return. for any year is substantially greater than the taxable
c. Jeopardy assessment [Section C, infra] income reported by the taxpayer for that year, the
Government claims the excess represents unreported
Requisites for valid assessment taxable income.
a. The taxpayer shall be informed in writing of the
law and the facts on which the assessment is Formula
made [Sec. 228, NIRC] Increase in Net worth
b. An assessment contains not only a computation Add: Non-deductible Item
of tax liabilities, but also a demand for payment Less: Non-taxable income or receipts subjected to
within a prescribed period [CIR v. PASCOR, final tax transfer taxes
G.R. No. 128315 (1999)] Taxable Net Income
c. An assessment must be served on and received Less: Personal and additional exemptions
by the taxpayer [CIR v. PASCOR, supra.] NET INCOME SUBJECT TO TAX
Note: The presumption of the correctness of Notices (Preliminary Assessment Notice, Final
assessment CANNOT be made to rest on another Letter of Demand, Final Assessment Notice,
presumption, e.g., presumption of regularity of Final Decision on a Disputed Assessment) may
performance of official functions. be served in the following modes:
Personal Service (by personal delivery to known
Constructive methods of income determination address of taxpayer) preferred mode
a. Rely upon circumstantial evidence of
Substituted Service (by leaving the notice with
determining the correct income or transaction of
omeone a a pa er kno n addre ); or
a taxpayer (Indirect Method)
b. Expenditure Method: It proceeds on the theory
that where the amount of money which a
Service by mail Service to the tax agent shall be administratively by previously assessed as a
deemed service to the taxpayer (RR 18-2013) distraint or levy or by deficiency
(p.391 Ingles) judicial action [p. 405,
Ingles] Deficiency tax must be
2. Tax Delinquency as Distinguished assessed prior to
from Tax Deficiency collection, as the
deficiency has to be
Deficiency is defined as the amount still due and determined first [p.405,
collectible from a taxpayer upon audit or Ingles]
investigation; whereas delinquency is defined as the SUBJECT to
SUBJECT to
failure of the taxpayer to pay the tax due on the date administrative penalties
administrative penalties
fixed by law or indicated in the assessment notice or of:
of:
letter of demand. Deficiency interest is imposed for 25% surcharge
interest
the shortage of taxes paid, while delinquency interest interest
compromise penalty
is imposed for the delay in payment of taxes. compromise penalty
[Takenaka Corporation Philippine Branch v. CIR, G.R. [Mamalateo]
No. 193321 (2016); First Lepanto Taisho Insurance
Corporation v. CIR, G.R. No. 197117 (2013)] 3. Jeopardy Assessment
The taxpayer and the CIR may agree in writing, before Determining if prescriptive period has set in
the expiration of the time prescribed in Sec. 203, to In determining if prescription to assess has indeed set
extend the period of assessment [Sec. 222(b), NIRC] in, the important date to remember is the date when
a. The waiver of prescription must be executed the demand letter or notice is released, mailed or sent
properly, otherwise, invalid and results to by the CIR to the taxpayer (Basilan Estates, Inc. v. CIR,
prescription of the right to assess/collect. G.R. No. L-22492, September 5, 1967)
[Philippine Journalists Inc. vs. CIR, G.R. No. 162852 Provided the release was effected BEFORE
(2004)] prescription sets in, the assessment is deemed
b. Requirements for a valid waiver under RMO 20- made on time even if the taxpayer actually
90 and RMO 14-2016: receives it AFTER the prescriptive period
1. In writing (may be but need not be Mailing of the assessment before the prescriptive
notarized); period sets in must be proved with substantial
2. Indicate the date of execution by the evidence by the CIR.
taxpayer, which must be before the If taxpayer makes a direct denial of receipt of a
expiration of the period to assess or collect mailed demand letter, such denial shifts the
taxes, or before the lapse if the period burden to the Government to prove that such
previously agreed upon in a prior agreement; letter was indeed received by the taxpayer
3. Indicate the date agreed upon within which (Republic v. CA, G.R. No. L-38549, April 30,
an assessment may still be issured; 1987). (pp. 394-395 Ingles)
4. Indicate the date of acceptance, which must
be before the expiration of the period to
5. Civil Penalties, Additions to the Tax
assess or to collect taxes, or before the lapse
of the period agreed upon in a prior [Sec. 248, NIRC] [RR 21-2018]
agreement; and
5. Taxpayer must be furnished with a copy of DELINQUENCY INTEREST AND
the waiver. DEFICIENCY INTEREST
88
SECTION 249. Interest. Subsections (B) and (C) hereof, be imposed
(A) In General. There shall be assessed and collected on simultaneously.
89
any unpaid amount of tax, interest at the rate of twenty percent SECTION 249. Interest.
(20%) per annum, or such higher rate as may be prescribed (B) Deficiency Interest. Any deficiency in the tax due, as
by rules and regulations, double the legal interest rate for the term is defined in this Code, shall be subject to the interest
loans or forbearance of any money in the absence of an prescribed in Subsection (A) hereof, which interest shall be
express stipulation as set by the Bangko Sentral ng assessed and collected from the date prescribed for its
Pilipinas from the date prescribed for payment until the payment until the full payment thereof, or upon issuance of
amount is fully paid.: Provided, That in no case shall the a notice and demand by the Commissioner of Internal
deficiency and the delinquency interest prescribed under Revenue, whichever comes earlier.
a. The amount of the tax due on any return required Surcharge penalty imposed in addition to the tax
to be filed; or required to be paid [Sec. 24, NIRC]
b. The amount of the tax due for which no return is
required; or Rates of Surcharge (25% or 50%)
c. A deficiency tax, or any surcharge or interest 25% of the amount due in the following cases:
thereon on the due date appearing in the notice a. Failure to file any return and pay the tax due on
and demand of the CIR or his authorized the date prescribed; or
representative until the amount is fully paid, b. Filing a return with an internal revenue officer
which interest shall form part of the tax [Sec. other than those with whom the return is
249(C), NIRC] required to be filed unless the CIR authorizes
otherwise; or
c. Failure to pay the deficiency tax within the time
Interest on extended payment prescribed for its payment in the notice of
12% per annum on the tax or deficiency tax or any assessment; or
part thereof unpaid from the date of notice and d. Failure to pay the full or part of the amount of
demand until it is paid if any person required to pay tax due on or before the date prescribed for its
the tax is: payment [Sec. 248 (A), NIRC]
a. Qualified and elects to pay the tax on installment
but fails to pay the tax or any installment or any 50% of the tax or of the deficiency tax in case any
part of such amount or installment or before the payment has been made, in the following cases:
date prescribed for its payment; or a. Willful neglect to file the return within the period
b. Where the CIR has authorized an extension of prescribed; or
time within which to pay a tax or a deficiency tax b. A false or fraudulent return is willfully made [Sec.
or any part thereof [249(D), NIRC] 248(B), NIRC]
In no case shall deficiency and delinquency Prima facie evidence of a false or fraudulent
interest be imposed simultaneously. [Sec. 249(A), return: Substantial underdeclaration of taxable sales,
NIRC] However, the double imposition of both receipts or income, or a substantial overstatement of
deficiency and delinquency tax shall continue deductions. Failure to report sales, receipts or income
in an amount exceeding thirty percent (30%) of that
TRANSITORY PROVISION [Sec. 6, RR 2018] declared per return, and a claim of deductions in an
In cases where the tax liability or deficiency tax amount exceeding (30%) of actual deductions, shall
became due before the effectivity of the TRAIN Law render the taxpayer liable for substantial
on January 1, 2018, and the full payment thereof will underdeclaration or for overstatement. [Sec. 248(B),
only be effected after such date, the rates shall be NIRC]
applied as follows:
Applicable Interest COMPROMISE PENALTY
Period
Type and Rate Compromise penalty an amount of money paid by
Deficiency and/or a taxpayer to compromise a tax violation that he has
For the period up to committed, which may be the subject of criminal
delinquency interest at
Dec. 31, 2017 prosecution. The basis of the amount paid is the gross
20%
For the period Deficiency and/or sales or receipts during the year or the tax due.
beginning January 21, delinquency interest at
2018 until full payment 12% Compromise an amount of money paid by the
taxpayer to settle his civil liability for tax assessed by
SURCHARGE the government. The basis of the amount paid is the
basic tax assessed. [Mamalateo]
ILLUSTRATION
Mr. A has been assessed deficiency income tax of P1,000,000, exclusive of interest and surcharge, for taxable year 2015.
The tax liability remained unpaid despite the lapse of June 30, 2017, the deadline for payment stated in the notice and
demand issued by the Commissioner. Payment was made by Mr. A on February 10, 2018. The civil penalties are computed
as follows:
Issuing a warrant of distraint and levy Assessment becomes final and demandable.
a. A reasonable doubt as to the validity of the Taxes are erroneously paid when a taxpayer pays
claim against the taxpayer exists; or under a mistake of fact, such as, he is not aware of an
b. The financial position of the taxpayer existing exemption in his favor at the time that
demonstrates a clear inability to pay the assessed payment is made. Taxes are illegally collected when
tax. (financial incapacity) payments are made under duress.
Two-year period when counted: General Rule: The taxpayer must file a written claim for
From the date that the tax was paid. refund stating a categorical demand for
reimbursement before the CIR within two years from
How date of payment determined: the date of payment. [Sec. 229, NIRC]
If the income tax is withheld at source payment
When it comes to recovery of unutilized input VAT,
is at the end of the taxable year.
Section 112 [two (2) years after the close of the
If the income is paid on a quarterly basis taxable quarter when the sales were made], and not
payment is from the time of filing the final Section 229 of the 1997 Tax Code, is the governing
adjustment return. law. Second, prior to 8 June 2007, the applicable rule
is neither Atlas nor Mirant, but Section 112(A). The
CIR vs. TMX Sales [G.R. No. 83736 (1992)]: When a Atlas doctrine, which held that claims for refund or
tax is paid in installments, the prescriptive period credit of input VAT must comply with the two-year
should be counted from the date of final payment or prescriptive period under Section 229, should be
the last installment. This rule proceeds from the effective only from its promulgation on 8 June 2007
theory that there is no payment until the entire tax until its abandonment on 12 September 2008 in
Mirant. [CIR v. San Roque Power Corp, G.R. No 187485 Tax credit certificates (TCCs) can be applied against
(2013)] all internal revenue taxes, excluding withholding tax.
TCCs which remain unutilized after five years from
the date of issue shall be considered as invalid, unless
revalidated. If not revalidated, the amount covered
by the TCC shall revert to the general fund. [Sec. 230,
NIRC]
Constructive Distraint may be placed by the CIR cash or sums of money, owned by a delinquent
or any taxpayer to safeguard the interest of the taxpayer which is in the possession of a third party
Government [Sec. 206, NIRC]. Delinquency of the
taxpayer is not necessary. DISTRAINT OF INTANGIBLE
PROPERTIES [Sec. 208, NIRC]
1. Stocks and other securities: by serving a copy
of the warrants of distraint on the taxpayer, AND
conducting the sale, the goods or effects the GOVERNMENT in satisfaction of the
distrained shall be restored to the owner. [Sec. claim. [Sec. 215, NIRC]
210, NIRC]
5. Redemption of Property Sold
8. Purchase by the government at sale upon At any time before the day fixed for the sale,
distraint the taxpayer may discontinue all proceeding
If the amount offered by the highest bidder is not by paying the taxes, penalties and interest.
equal to the amount of the tax or is very much [Sec. 213, NIRC]
less than the actual market value of the articles Within one (1) year from the date of sale, the
offered for sale, the CIR or his deputy may taxpayer or anyone for him, may pay to the
purchase the same in behalf of the National Revenue District Officer the total amount of
Government for the amount of taxes, penalties the following: public taxes + penalties +
and costs due. The property so purchased may be interest from the date of delinquency to the
resold by the CIR or his deputy. [Sec. 212, NIRC] date of sale + interest on said purchase price
at the rate of fifteen percent (15%) per
9. Report of sale to BIR annum from the date of sale to the date of
Within two (2) days after the sale, the officer redemption. [Sec. 214, NIRC]
making the same shall make a report of his
proceedings in writing to the CIR and shall Note: If the property was forfeited in favor of the
himself preserve a copy of such report as an government, the redemption price shall include
official record. [Sec. 211, NIRC] only the taxes, penalties and interest plus costs of
sale (no interest on purchase price since the
/SUMMARYREMEDY OF LEVY ON REAL Go ernmen did no p rcha e he proper
PROPERTY anyway, it was forfeited)
1. Release of the Properties from Distraint The taxpayer-owner shall not be deprived of
If at any time prior to the consummation of the possession of the said property and shall be
sale all proper charges are paid to the officer entitled to rents and other income until the
conducting the sale, the goods or effects expiration of the period for redemption [Sec. 214,
distrained shall be restored to the owner. [Sec. NIRC]
210, NIRC]
6. Final Deed of Purchaser
2. Purchase by the government at sale upon After the period of redemption, a final deed of
distraint sale is issued in favor of the purchaser.
If the amount offered by the highest bidder is not
equal to the amount of the tax or is very much Further distraint or levy
less than the actual market value of the articles The remedy by distraint of personal property and levy
offered for sale, the CIR or his deputy may on realty may be repeated if necessary until the full
purchase the same in behalf of the National amount due, including all expenses, is collected. [Sec.
Government for the amount of taxes, penalties 217, NIRC]
and costs due. The property so purchased may be
resold by the CIR or his deputy. [Sec. 212, NIRC]
c. Forfeiture of Real Property
3. Report of sale to BIR
Within two (2) days after the sale, the officer Forfeiture implies a divestiture of property without
making the same shall make a report of his compensation in consequence of a default or offense.
proceedings in writing to the CIR and shall The effect of forfeiture is to transfer the title of the
himself preserve a copy of such report as an specific thing from the owner to the government. [De
official record. [Sec. 211, NIRC] Leon]
2. Failure to file VAT return as required under the An assessment is not necessary before a criminal
provisions of Sec. 114 of the Tax Code. charge can be filed. The criminal charge need only be
3. Understatement of taxable sales or receipts by proved by a prima facie showing of a wilful attempt
30% or more of his correct taxable sales or to file taxes, such as failure to file a required tax return.
receipt for the taxable quarter. [CIR v. Pascor,G.R. No. 128315 (1999)]
4. Failure of any person to register as required under
the provisions of Sec. 236 of the Tax Code. Suit to recover tax based on false or fraudulent
returns
e. Non-Availability of Injunction to A proceeding in court for the collection of the tax
assessed may be filed without assessment at any time
Restrain Collection of Tax within ten (10) years after the discovery of the falsity,
fraud or omission. Provided, that in a fraud
No court shall have the authority to grant an assessment which has become final and executor, the
injunction to restrain the collection of any national fact of fraud shall be judicially taken cognizance of in
internal revenue tax, fee or charge imposed by this the civil or criminal action for the collection thereof.
Code. [Sec. 218, NIRC] [Sec. 222, NIRC]
cancelled once he is
convicted
imposed on the partner,
president, general
Corporations, manager, branch manager,
associations, treasurer, officer-in-charge
partnerships etc. and employees
responsible for the
violation [Sec. 253, NIRC]
III. LOCAL autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments. [Sec. 5, Art. X,
GOVERNMENT 1987 Constitution]
CODE OF 1991, AS Each local government unit shall exercise its power to
create its own sources of revenue and to levy taxes,
AMENDED fees, and charges subject to the provisions herein,
consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively
A. Local Government to the local government units. (Sec. 129, LGC)
8
less than One hundred pesos (P100.00) nor more than
not be Unjust, excessive, oppressive, or One thousand pesos (P1,000.00). [Sec. 516, LGC]
confiscatory;
not be Contrary to law, public policy, c.-Authority to Grant Local Tax
national economic policy, or in the restraint
of trade; Exemptions
c. The collection of local taxes, fees, charges and
O
other impositions shall not be let to any Private
person;
LGUs may, through ordinances duly approved, grant
tax exemptions, incentives or reliefs under such terms
O
d. The revenue collected shall inure solely to the and conditions as they may deem necessary. [Sec. 192,
LGC]
benefit of, and be subject to the disposition by,
the local government unit levying the tax, fee,
charge or other Imposition, unless otherwise d.
- Withdrawal of exemptions
specifically provided herein; and,
e. Each local government unit shall, as far as Local tax exemptions, in general
O
Practicable, evolve a progressive system of General rule: Unless otherwise provided, tax
taxation. (SEC. 130, LGC) exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or judicial,
2. Nature and Source of Taxing including government-owned or controlled
corporations are withdrawn upon the effectivity of
Power the LGC. [Sec. 193, LGC]
LGUs shall have the authority to adjust the tax rates Ordinances issued in the exercise of such power, or
as prescribed not oftener than once every five (5) any particular item/s therein, may be vetoed by local
years, but in no case shall the adjustment exceed ten chief executives of the LGUs, except the Punong
percent (10%) of the rates fixed by the Code. [Sec. Barangay, on the ground that it is ultra vires or
191, LGC] prejudicial to public welfare. His reasons shall be
stated in writing. [Sec. 55 (a) and (b), LGC]
Payable annually, on
or before Jan 31.
Ceiling on Business Tax Imposable on FEES AND CHARGES FOR REGULATION &
Municipalities within Metro Manila LICENSING
Such municipalities may levy taxes at rates which shall General rule: As a condition to the conduct of business
not exceed by fifty percent (50%) the maximum rates or profession, the municipality may impose
prescribed in sec 143. [Sec. 144, LGC] reasonable fees and charges not yet imposed by the
province, commensurate with the cost of regulation,
TAX ON RETIREMENT ON BUSINESS inspection and licensing. [Sec. 147, LGC]
Upon termination of a business subject to tax under
Sec.143 and 144, a sworn statement of its gross sales Exception: Professional tax in Sec. 139
or receipts for the current year shall be submitted. If
the tax paid is less than the tax due, the difference Specific rules:
shall be paid before the business is considered 1. Municipality has power to impose reasonable
officially retired. [Sec. 145, LGC] rates for sealing and licensing of weights and
*
Sec 143 f measures [Sec. 148, LGC]
Banks & financial
RULES ON PAYMENT OF BUSINESS TAX 2. The Municipality has exclusive authority to grant
institutions 1. Taxes in Sec. 143 shall be paid for every separate fishery privileges in municipal waters. The
or distinct establishment or place where business sangguniang bayan may:
subject to tax is conducted. a. Grant fishery privileges to erect fish corrals,
2. One line of business is not exempted by being oysters, mussels or other aquatic beds or
conducted with some other businesses for which bangus fry areas, within a definite zone of the
such tax has been paid. municipal waters, as
3. The tax on a business must be paid by the person b. Grant marginal fishermen the privilege to
conducting it. gather, take or catch bangus fry, prawn fry or
4. If a person operates 2 or more businesses kawag-kawag or fry of other species and fish
mentioned in Sec 143 which are taxed; from the municipal waters by nets, traps or
computation shall be based on: other fishing gears free of rental, fee, charge
a. combined total gross sales/receipts IF or imposition.
subject to the same tax rate c. Issue licenses for the operation of fishing
b. separate reports on gross sales/receipts if vessels of three [3] tons or less
subject to different tax rates d. Penalize the use of explosives, noxious or
poisonous substances, electricity, muro-ami,
Condominium corporations are not business entities, and other deleterious methods of fishing and
and are thus not subject to local business tax. Even prescribe a criminal penalty therefor [Sec.
though the corporation is empowered to levy 149, LGC]
assessments or dues from the unit owners, these
amounts are not intended for the incurrence of profit SITUS OF TAX COLLECTED
by the corporation, but to shoulder the multitude of
necessary expenses for maintenance of the According to Sec. 150 of the LGC, situs shall be
condominium. [Yamane vs. BA Lepanto Condominium determined by the following rules:
Corp., G.R. No. 154993 (1995)]
RULE 1: In case of persons maintaining/operating a
Business tax must be based on gross receipts, it being branch or sales outlet making the sale or transaction,
different from gross revenue. The right to receive the tax shall be recorded in said branch or sales outlet
income, and not the actual receipt determines when and paid to the municipality/city where the branch or
to include the amount in gross income. [Ericsson sales outlet is located.
Telecoms vs. City of Pasig, G.R. No. 176667 (2006)]
RULE 2: Where there is NO branch or sales outlet 3. Sales in all other places which do not have a sales
in the city/municipality where the sale is made, sale branch shall be distributed as follows: 30% to
shall be recorded in the principal office and the tax Valenzuela and 70% to Bulacan.
shall be paid to such city/municipality.
Note: The sales allocation shall be applied irrespective
RULE 3: In the case of manufacturers, contractors, of whether or not sales are made in the locality where
producers, and exporters having factories, project the factory, project office, plant, or plantation is
offices, plants, and plantations, proceeds shall be located.
allocated as follows:
1. 30% of sales recorded in the principal office shall Excise Tax: Tax is imposed on the performance of
be made taxable by the city/municipality where an act or occupation, enjoyment of a privilege. The
the principal office is located power to levy such tax depends on the place in which
2. 70% shall be taxable by the city/municipality the act is performed or the occupation is engaged in;
where the factory, project office, plant, or not upon the location of the office. [Allied Thread Co.,
plantation is located Inc. v. City Mayor of Manila, G.R. No. L-40296 (1984)]
f. Community Tax
Who may levy
Cities or municipalities
[Sec. 156, LGC]
1. Individuals who are:
Inhabitants of the Philippines
18 years of age or over
Either:
Regularly employed on a wage or salary basis for at least 30 consecutive
Persons Liable working days during any calendar year
[Sec. 157 & 158, Engaged in business or occupation
LGC] Owns real property with an aggregate assessed value of P1,000 or more
Is required by law to file an income tax return
2. Juridical Persons
Every corporation no matter how created or organized,
Whether domestic or resident foreign,
Engaged in or doing business in the Philippines
1. Individuals
a. Annual community tax of P5.00 PLUS annual additional tax of P1.00 per
P1,000.00 of income regardless whether from business, exercise of profession or
Rates [Sec. 157 & property
158, LGC] b. Never to exceed P5000
c. Husband and wife shall pay a basic tax of P5.00 each PLUS additional tax based
on total property owned by them and the total gross receipts or earnings derived
therefrom
2. Juridical Persons
a. Annual community tax of P500.00 PLUS annual additional tax of not more than
P10,000.00 according to the ff. schedule:
P2.00 for every P5,000 worth of real property in the Philippines owned
during the preceding year based
P2.00 for every P5,000.00 of gross receipts derived from business in the
Philippines during the preceding year.
b. Dividends received by a corporation from another corporation shall be deemed
part of the gross receipts or earnings for purposes of computing additional tax.
Persons Exempt 1. Diplomatic and consular representatives
[Sec. 159, LGC] 2. Transient visitors who stay in the Philippines for not more than 3 months
Place of Payment
Where individual resides, or where the principal office of the juridical entity is located.
[Sec. 160, LGC]
Accrues on the 1st day of January of each year to be paid not later than the last day of
February of each year.
Presentation of Community Tax Certificate is If: actually and directly collected by the city or
necessary when an individual subject to municipal treasurer, community tax accrues entirely to
community tax: the general fund. If: collected through the barangay
1. Acknowledges any document before a notary treasurers, apportioned equally. [Sec. 164, LGC]
public
2. takes the oath of office upon election or 6. Common Limitations on the
÷
appointment to any position in the government
service Taxing Powers of LGUs
3. receives any license, certificate, or permit from
any public authority Unless otherwise provided, the following cannot be
4. pays any tax or fee levied by the local governments: [IDEC-GAPEP-
5. receives any money from any public fund GRR-ECN]:
6. transacts other official business a. Income tax, except when levied on banks and
7. receives any salary or wage from any person or other financial institutions;
commission b. Documentary stamp tax;
c. Estate tax, inheritance, gifts, legacies and other
Presentation of certificate is not needed in the acquisitions mortis causa, except as otherwise
registration of a voter. [Sec. 163, LGC] provided;
d. O Customs duties, registration fees of vessel and
The city or municipal treasurer shall deputize the wharfage on wharves, tonnage dues, and all other
barangay treasurers to collect, provided the latter be kinds of customs fees, charges and dues except
bonded. wharfage on wharves constructed and
maintained by the LGU concerned;
e. Taxes, fees or charges on Goods carried into or Doctrine of Preemption. Preemp ion in he ma er
out of, or passing through, the territorial of taxation simply refers to an instance where the
jurisdictions of local government units in the national government elects to tax a particular area,
guise of charges for wharfage, tolls for bridges or impliedly withholding from the local government the
otherwise, or other taxes, fees, or otherwise delegated power to tax the same field. This doctrine
primarily rests upon the intention of Congress.
Sec.133(e) prohibits the imposition, in the guise Conversely, should Congress allow municipal
of wharfage, of fees, as well as all other taxes or corporations to cover fields of taxation it already
charges in any form whatsoever, on goods or occupies, then the doctrine of preemption will not
merchandise. It is therefore irrelevant if the fees appl . [Victorias Milling v. Municipality of Victoria, G.R.
imposed are actually for police surveillance on No. L-21183 (1968)]
the goods, because any other form of imposition
on goods passing through the territorial 7. Collection of Business Tax
jurisdiction of the municipality is clearly
prohibited. [See Palma Development Corp. v.
Municipality of Managas, G.R. No. 152492 (2003)] a. Tax Period and Manner of
Payment
f. Taxes, fees or charges on Agricultural and aquatic
products when sold by marginal farmers or Based on calendar year, unless otherwise provided.
fishermen;
g. Taxes on business enterprises certified to by the May be paid annually or in quarterly instalments. [Sec.
Board of Investments as Pioneer or non-pioneer 165, LGC]
for a period of 6 and 4 years, respectively from
the date of registration;
h. Excise taxes on articles enumerated under the
b. Accrual of Tax
NIRC, as amended, and taxes, fees or charges on
General rule: Accrues on the first day of January of each
petroleum products;
year
i. Percentage or VAT on sales, barters or
exchanges or similar transactions on goods or
Except: New taxes, fees or charges, or changes in the
services except as otherwise provided herein;
rates thereof which shall accrue on the first day of the
j. Taxes on the Gross receipts of transportation
quarter next following the effectivity of the ordinance
contractors and persons engaged in the
imposing such new levies or rates. [Sec. 166, LGC]
transportation of passengers or freight by hire
and common carriers by air, land or water, except
as provided in the Code; c. Time of Payment
k. Taxes on premiums paid by way or Reinsurance
or retrocession; Within the 20 days of January or of each subsequent
l. Taxes, fees or charges for the Registration of quarter. [i.e., Jan 20, Apr 20, July 20, and Oct 20]. It
motor vehicles and for the issuance of all kinds may be extended by the sanggunian for justifiable
of licenses or permits for the driving thereof, reasons, without surcharges or penalties. Extension
except tricycles; cannot exceed 6 months. [Sec. 167, LGC]
m. Taxes, fees, or other charges on Philippine
products actually Exported, except as otherwise d. Penalties on Unpaid Taxes, Fees
provided;
n. Taxes, fees, or charges, on Countryside and
or Charges
Barangay Business Enterprises and cooperatives
1. Surcharge not exceeding 25% on taxes, fees or
duly registered under the Cooperative Code of
charges NOT paid on time; and
the Philippines; and
2. Interest not exceeding 2% per month of the
o. Taxes, fees or charges of any kind on the
unpaid taxes, fees or charges including
National Government, its agencies and
surcharges, until the amount is fully paid
instrumentalities, and local government units.
3. In no case shall the total interest exceed 36
[Sec. 133, LGC]
months. [Sec. 168, LGC]
e. Authority of Treasurer in written protest with the local treasurer contesting the
assessment; otherwise it shall become final and
Collection and Inspection of executory. The local treasurer shall decide within 60
Books days from the time of filing.
All local taxes, fees and charges shall be collected by If the protest is found to be wholly or partly
the local treasurer or their duly authorized deputies meritorious, a notice cancelling wholly or partially the
[Sec. 170, LGC] assessment will be issued. If the protest was denied or
when the 60-day period already lapsed, the taxpayer
The local treasurer may, by himself or through his shall have 30 days from the receipt of denial or the
deputies duly authorized in writing, examine the end of the 60-day period to appeal with the court of
books, accounts, and other pertinent records of any competent jurisdiction; otherwise, the assessment
person subject to local taxes, fees and charges in order becomes conclusive and unappealable. [Sec. 195,
to ascertain, assess and collect the correct amount of LGC]
the tax, fee or charge.
The court of competent jurisdiction where an appeal
Examination must be done during business hours, can be made is the Regional Trial Courts then Court
only once for every tax period and shall be certified to of Tax Appeals via a Petition for Review to the CTA
by the examining official. [Sec. 171, LGC] Division under Rule 42 (if from RTC acting original),
or Petition for Review under Rule 43 (if from RTC
8. Ta a R acting in its appellate jurisdiction).
competent jurisdiction 30 days from receipt of denial (agent if absent from the Philippines, or occupant
of claim. [Sec. 196, LGC] of the property in question if none)
c. Report on any levy
9. Civil Remedies by the LGU d. Annotation of the levy on the tax declaration and
the certificate of title
for Collection of Revenues e. Advertisement and Sale [Sec. 178, LGC]
Non-payment of a tax, fee or charge creates a lien Note: Either of these remedies or all may be pursued
superior to all liens or encumbrances in favor of any concurrently or simultaneously at the discretion of the
other person, enforceable by administrative or judicial local government unit concerned [Sec. 174, LGC]. In
action. case the levy on real property is not issued before or
simultaneously with the warrant of distraint on
The lien may only be extinguished upon full payment personal property, and the personal property of the
of the delinquent local taxes, fees, and charges taxpayer is not sufficient to satisfy his delinquency,
including related surcharges and interests. [Sec. 173, the provincial, city or municipal treasurer, as the case
LGC] may be, shall within thirty (30) days after execution of
the distraint, proceed with the levy on the taxpayer's
b. Civil Remedies, in General real property. [Sec. 176, LGC]
I
c. Wi hin 30 da from he Secre ar of J ice
decision or after 60 days inaction, an appeal may
B. Real Property Taxation
0
be filed with the RTC. [Sec. 187, LGC]
1. Fundamental Principles
Penalty on local treasurer for failure to issue and
execute warrant of distraint or levy a. Current fair market value is the basis for
Automatically dismissed from the service after due assessment
notice and hearing [Sec. 177, LGC]
All real property, whether taxable or exempt,
2. Judicial Action shall be appraised at the CURRENT AND FAIR
MARKET VALUE prevailing in the locality
The local government may institute an ordinary civil where the property is situated. [Sec. 201, LGC]
action with regular courts of proper jurisdiction for
the collection of delinquent taxes, fees, charges or b. Actual use shall be the basis of classification for
other revenues. assessment
Real property shall be classified, valued and
The civil action shall be filed by the local treasurer. assessed on the basis of its actual use
[Sec. 183, LGC] regardless of where located, whoever owns
it, and whoever uses it.
LGC does not contain a provision prohibiting courts Actual Use- refers to the purpose for which
from enjoining the collection of local taxes. Such the property is principally or
lapse may have allowed preliminary injunction under predominantly utilized by the person in
Rule 58, ROC where local taxes are involved. [Valley possession thereof [Sec. 199 (b), LGC]
Trading Co. vs. CFI of Isabela, G.R. No. L-49529(1989);
MCIAA v. Marcos [G.R. No. 120082 (1996)]:
Angeles City v. Angeles City Electric Corporation, G.R. No.
U age mean direc , immedia e and ac al
166134 (2010)]
application of the property
c. Private persons cannot be left to the appraisal,
assessment, levy and collection of real property
tax.
d. Uniform classification within each local
government unit shall be observed.
e. equitable appraisal and assessment is required.
[Sec. 197, LGC]
Coverage; for a Province, or a City or The sanggunian may fix different rates for different
Municipality within Metro Manila parts or sections thereof, depending on whether such
1. Land land is more or less benefited by the proposed work.
2. Building [Sec. 241, LGC]
3. Machinery
4. Other improvements not specifically exempted Special Education Fund (SEF)
[Sec. 232, LGC] A province, or city or municipality within Metro
Manila may levy and collect an annual tax of one
The rate shall be as follows: percent (1%) on the assessed value of real property
1. Province: not exceeding one percent (1%) of the which shall be in addition to the basic real property
assessed value of real property; and tax.
2. City or municipality within Metro Manila: not
exceeding two percent (2%) of the assessed value b. Exempt from Real Property Tax
of real property. [Sec. 233, LGC]
1. Owned by the Republic of the Philippines or any
Special Levy on Idle Lands
of its political subdivisions except when
A province, or city or municipality within Metro
beneficial use is granted for a consideration or to
Manila may levy an annual tax on idle lands at the rate
a taxable person.
not exceeding five percent [5%] of the assessed value
2. Charitable institutions, churches, parsonages, or
of the property in addition to the basic tax
convents appurtenant thereto, mosques, non-
profit or religious cemeteries, and all lands,
Lands covered
buildings, and improvements actually, directly
1. Agricultural Lands
and exclusively used for religious, charitable, or
More than one hectare in area suitable for
educational purposes.
cultivation, dairying, inland fishery, and other
3. Machinery and equipment actually, directly and
agricultural uses, one-half of which remain
exclusively used by local Water utilities and
uncultivated or unimproved
GOCCs engaged in the supply and distribution
2. Other than Agricultural
of water and/or generation and transmission of
More than one thousand square meters in area
electric power.
one half of which remain unutilized or
4. Real property owned by duly registered
unimproved [Sec. 236 and 237, LGC]
cooperatives as provided for under Republic Act
3. Residential lots in subdivisions
No. 6938 [Cooperative Code of the Philippines].
Regardless of land area; lot owner shall be liable
5. Machinery and equipment used for pollution
if ownership of the lot has been transferred;
control and Environmental protection. [Sec. 234,
otherwise, developer shall be liable for the
LGC]
additional tax.
Provision
SC Ruling
Provincial Assessor of Marinduque v. CA [G.R. No. involved
170532 (2009)]: A claim for exemption under Sec. 234 Mactan The Mactan
(e) should be supported by evidence that the property Airport Airport is a
sought to be exempt is actually, directly and Authority government
exclusively used for pollution control and vs. City of instrumentality;
environmental protection. Lapu- only portions of
Lapu, the land leased to
Proof of Exemption G.R. taxable persons
1. Documentary evidence such as affidavits, by- No. like private parties
laws, contract, articles of incorporation 181756 are subject to real
2. Given to local assessor (2015) estate tax.
3. Within 30 days from date of declaration
4. Failure to file, will be listed as in Assessment Charitable Institutions
Rolls as taxable A charitable institution does not lose its character and
its exemption simply because it derives income from
GOCCs paying patients so long as the money received is
GOCCs are not covered by the exemption since the devoted to the charitable object it was intended to
exemption only refers to instrumentalities without achieve, and no money inures to the benefit of
personalities distinct from the government. [Philippine persons managing the institution. [Lung Center of the
Ports Authority vs. City of Iloilo, G.R. No. 109791 (2003)] Philippines vs. Quezon City, G.R. No. 144104 (2004)]
The declaration must be filed with the assessor once Real property owned by the Republic of the
every three (3) years during the period from January 1 Philippines, its instrumentalities, political subdivision,
to June 30. [Sec. 202, LGC] the beneficial use has been granted to a taxable
person
Declaration by Any Person Acquiring Real
Property or Making Improvements In the name of the possessor, grantee or of the public
The sworn statement declaring the true value of the entity if such property has been acquired or held for
property must be filed to the provincial, city or resale or lease. [Sec. 205, LGC]
municipal assessor within sixty [60] days after the
acquisition or upon completion or occupancy of the d. Preparation of Schedules of FMV
improvement, whichever comes earlier. [Sec. 203,
LGC] Authority of assessor to take evidence
The assessor of the province, city or municipality or
Declaration by the Provincial or City or his deputy may summon the owners or persons
Municipal Assessor having legal interest therein and witnesses, administer
When the person required to file the sworn oaths, and take deposition concerning the property,
declaration refuses or fails to make such declaration, its ownership, amount nature, and value. [Sec. 213,
the provincial, city or municipal assessor shall declare LGC]
the property in the name of the defaulting owner.
Amendment of schedule of fair market value
Notice of Transfer of Real Property Before any general revision of property assessment is
Any person who shall transfer real property made, there shall be prepared a schedule of FMV by
ownership to another shall notify the provincial, city the provincial, city or municipal assessors; which shall
or municipal assessor within sixty [60] days from the be published in a newspaper of general circulation or
date of such transfer. in the absence thereof, shall be posted in the
provincial capital, city or municipal hall and in two
The notification shall include: other conspicuous public places therein. [Sec. 212,
1. Mode of transfer, LGC]
2. Description of the property alienated, and
3. Name and address of the transferee [Sec. 208,
LGC] e. Classes of Real Property
1. Residential Is land principally devoted to
c. Listing of Real Property in the habitation
Assessment Rolls 2. Agricultural Is land devoted principally to the
planting of trees, raising of crops, livestock and
The local assessor must maintain an assessment roll poultry, dairying, salt making, inland fishing and
wherein all real property, whether taxable or exempt, similar aquaculture activities and other
located within the territorial jurisdiction of the LGU, agricultural activities and is not classified as
is listed. mineral, timber, residential, commercial or
industrial land
Real property in general 3. Commercial Is land devoted principally for
Shall be listed, valued and assessed in the name of the the object of profit and is not classified as
owner or administrator, or anyone having legal agricultural, industrial, mineral, timber or
interest in the property. residential land
4. Industrial Is land devoted principally to
For undivided real property industrial activity as capital investment and is not
May be in the name of the estate or of the heirs and classified as agricultural, commercial, timber,
devisees, or in the name of one or more co-owners mineral or residential land
3. The owner of property is out of the country or and may only be extinguished upon payment of
cannot be located. [Sec. 270, LGC] the tax and the related interests and expenses.
[Sec. 257, LGC]
d. Special Rules on Payment
3. Levy
Payment of real property tax in installments Upon the failure to pay the tax when due, the
Payment of real property tax and the additional tax local treasurer shall issue a warrant levying the
for the Special Education Fund, without interest, may real property subject to tax. The warrant shall
be made in four [4] equal instalments: include a duly authenticated certificate showing
the name of the owner or person having legal
1st : March 31st
interest therein, description of the property,
2nd : June 30th amount of the tax due and interest thereon.
3rd : September 30th
4th : December 31st Warrant must be mailed or served to owner or
person having legal interest in the property.
This shall not apply to special levies which shall be
governed by ordinance of the sanggunian concerned. Written notice of levy must be mailed or served
to the assessor and the Register of Deeds where
Payments of real property taxes shall first be applied the property is located.
to prior years delinquencies, interests and penalties, if
any, and only after the delinquencies are settled may The Register of Deeds must annotate the levy on
tax payments be credited for the current period. [Sec. the tax declaration and certificate of title. [Sec.
250, LGC] 258, LGC]
Interests on unpaid real property tax Failure to issue or execute the warrant of levy
In case of failure to pay the basic real property tax or within one year from the time the tax becomes
any other tax when due shall subject the taxpayer to delinquent or within thirty days from the date of
the payment of interest at the rate of two percent per the issuance thereof shall be dismissed from
month on the unpaid amount or a fraction thereof service. [Sec. 259, LGC]
until the delinquent tax shall have been fully paid. But
the total interest on the unpaid tax shall not exceed 4. Resale of real estate taken for taxes, fees or
thirty-six months. [Sec. 255, LGC] charges
The Sanggunian concerned may, by ordinance duly
Condonation of real property tax approved, and upon notice of not less than
By SANGGUNIAN: in case of general failure twenty (20) days, sell and dispose of the real
of crops or substantial decrease in the price of property acquired under the preceding section at
agricultural or agri-based products or calamity in public auction. The proceeds of the sale shall
any LGU [Sec. 276, LGC] accrue to the general fund of the local
By the PRESIDENT of the Philippines: when government unit concerned. [Sec. 264, LGC]
public interest so requires [Sec. 277, LGC]
5. Further levy until full payment of amount due
e. Remedies of LGUs for Collection Levy may be repeated if necessary until the full
due, including all expenses, is collected. [Sec. 265,
of Real Property Tax LGC]
1. Issuance of notice of delinquency for real
property tax payment 6. Refund or Credit of Real
Property Tax
2. L a G L The basic real
property tax shall constitute a lien on the PAYMENT UNDER PROTEST
property subject to tax, superior to all liens, This is resorted to when the taxpayer questions the
charges or encumbrances in favor of any person, excessiveness of the amount of tax imposed on him.
irrespective of the owner or possessor thereof,
enforceable by administrative or judicial action
Meralco v. Nelia Barlis [G.R. No. 114231 (2001)]: The appeal shall not have the effect of suspending the
The trial court has no jurisdiction to issue a writ effectivity of the tax ordinance and the accrual and
of prohibition which seeks to set aside the payment of the tax.
warrant of garnishment over petitioner bank
deposit in satisfaction of real property taxes Within 30 days after receipt of the decision or the
without paying first under protest the tax lapse of the sixty-day period without the Secretary of
assessed and without exhausting available Justice acting upon the appeal, the aggrieved party
administrative remedies. may file appropriate proceedings with a court of
The local treasurer shall decide the protest within competent jurisdiction. [Sec. 187, LGC]
60 days from receipt.
b. Appeal to the Local Board of Assessment Assailing the validity of a tax sale
Appeals No court shall entertain any action assailing the
c. Appeal to the Central Board of Assessment validity of any sale at public auction until the taxpayer
Appeals shall have deposited with the court the amount for
d. Appeal to the CTA En Banc which the real property was sold, together with
Appeal must be filed through a petition for interest of two percent per month from the date of
review within 30 days from the receipt of the sale to the time of the institution of the action. [Sec.
decision of CBAA [Sec. 11, R.A. 1125 as 267, LGC]
amended]
e. Appeal to the SC
Appeal must be filed within 15 days from receipt
of decision of the CTA [Rule 45, Rules of Court]
c. Judicial
Question on the legality of a tax ordinance
Any question on the constitutionality or legality of a
tax ordinance may be raised on appeal within 30 days
from effectivity to the Secretary of Justice who shall
render a decision within 60 days from the date of
receipt of the appeal.
Flowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-L a G C
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto
Assessor prepares
Owner declares real Assessor declares
assessment rolls
property once every 3 real property if owner/
START wherein real property
years (sec. 202) w/n administrator fails to
shall be listed, valued
Jan 1 to June 30 do so (sec. 204)
and assessed (sec. 205)
Submit documents
Owner may claim
supporting exemption w/ Is real property
for tax exemption Yes
in 30 days from tax exempt?
Required (sec. 206)
declaration (sec. 206)
Documents
submitted w/in
30 days? Property shall be
Property dropped from
Yes proven as tax Yes
assessment roll
No exempt? (sec. 206)
Property shall be
listed as taxable in
No
the assessment
roll (sec. 206) END
Flowchart VI: Ta a R I C R a P
Tax-L G C
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto
Amount of tax
LT must decide w/
protested shall be
LT grants LT decides w/in in 60 days from
refunded or Yes Yes
protest? 60 days? receipt of protest
applied as tax
(sec. 252)
credit (Sec. 252)
No
For purposes of this flowchart owner means owner or administrator of real property or any
START person having legal interest thereto
LT returns to the
Sanggunian concerned
purchaser/bidder the
may, by ordinance sell
price paid + interest
and dispose of the real
of 2% per month
LT shall deliver to property acquired under
(sec. 261)
purchaser certificate the preceding section at
of sale public auction. (sec. 264)
If property is not
redeemed, the local Levy may be repeated
Proceeds of sale in treasurer shall until the full amount due,
excess of delinquent execute a deed of including all expenses, is
tax, interest & conveyance to the collected. (sec. 265)
expenses of sale purchaser (sec. 262)
remitted to the owner
(sec. 260)
END
under Section 229 of the National Internal Internal Revenue Code or Tariff and Customs Code
Revenue Code; and other laws administered by the Bureau of Internal
3. Decisions, resolutions or orders of the Regional Revenue or Bureau of Customs, where the principal
Trial Courts in local tax cases decided or resolved amount of taxes and fees, exclusive of charges and
by them in the exercise of their original penalties, claimed is less than one million pesos or
jurisdiction; where there is no specified amount claimed. [Sec.
4. Decisions of the Commissioner of Customs in 3(b)(2), Rule 4, RRCTA]
cases involving liability for customs duties, fees
or other money charges, seizure, detention or Criminal cases within the jurisdiction of the
release of property affected, fines, forfeitures of Court En Banc [Sec. 2(f-h), Rule 4, RRCTA]
other penalties in relation thereto, or other The Court en banc shall exercise exclusive appellate
matters arising under the Customs Law or other jurisdiction to review by appeal the following:
laws administered by the Bureau of Customs; 1. Decisions, resolutions or orders on motions for
5. Decisions of the Secretary of Finance on customs reconsideration or new trial of the Court in
cases elevated to him automatically for review Division in the exercise of its exclusive original
from decisions of the Commissioner of Customs jurisdiction over cases involving criminal
adverse to the Government under Section 2315 offenses arising from violations of the National
of the Tariff and Customs Code; and Internal Revenue Code or the Tariff and
6. Decisions of the Secretary of Trade and Industry, Customs Code and other laws administered by
in the case of nonagricultural product, the Bureau of Internal Revenue or Bureau of
commodity or article, and the Secretary of Customs;
Agriculture, in the case of agricultural product, 2. Decisions, resolutions or orders on motions for
commodity or article, involving dumping and reconsideration or new trial of the Court in
countervailing duties under Section 301 and 302, Division in the exercise of its exclusive appellate
respectively, of the Tariff and Customs Code, jurisdiction over criminal offenses mentioned in
and safeguard measures under Republic Act No. the preceding subparagraph; and
8800, where either party may appeal the decision 3. Decisions, resolutions or orders of the Regional
to impose or not to impose said duties. trial Courts in the exercise of their appellate
jurisdiction over criminal offenses mentioned in
2. Criminal Cases subparagraph (f).
b. Local Taxes
The LGU concerned may enforce the collection of
delinquent taxes, fees, charges or other revenues by
civil action in any court of competent jurisdiction.
The civil action shall be filed by the local treasurer.
[Sec. 183, LGC]
Prescriptive period
Local taxes, fees, or charges shall be assessed within
five (5) years from the date they became due.
except when there is fraud or intent to evade tax. [Sec. property of the taxpayer for the satisfaction of his tax
194 LGC] liability as provided under existing laws.
The running of the periods of prescription shall be Exception: Where the collection of the amount of the
suspended for the time during which: a pa er liabili , o gh b mean of a demand for
1. The treasurer is legally prevented from making payment, by levy, distraint or sale of any property of
the assessment of collection; the taxpayer, or by whatever means, as provided
2. The taxpayer requests for a reinvestigation and under existing laws, may jeopardize the interest of the
executes a waiver in writing before expiration of Government or the taxpayer, an interested party may
the period within which to assess or collect; and file a motion for the suspension of the collection of
3. The taxpayer is out of the country or otherwise the tax liability [Sec. 11, RA 1125, as amended]
cannot be located. [Sec. 194, LGC]
Injunction not available to restrain collection
2. Civil Cases No court shall have authority to grant an injunction
to restrain the collection of any national internal
revenue tax, fee or charge imposed by the Code. [Sec.
a. Who May Appeal, Mode of 217, NIRC]
Appeal, Effect of Appeal Exception: Sec. 11, RA 1125, supra.
Appeal to CTA Division Note: The LGC does not have a provision prohibiting
1. A party aggrieved or adversely affected by the injunction in the collection of tax.
decision or ruling or inaction of
a. CIR; The requirement for depositing an amount or posting
b. Commissioner of Customs; a surety bond as a condition for the suspension of the
c. Secretary of Finance; collection of taxes may be dispensed with.
d. Secretary of Trade and Industry;
e. Secretary of Agriculture; or The CTA has ample authority to dispense with the
f. RTC exercising original jurisdiction deposit of the amount claimed or the filing of the
2. May appeal within 30 days from the receipt of the required bond, whenever the method employed by
copy of the decision or ruling, or the expiration the BIR in the collection of tax jeopardizes the
of the period fixed by law for the Commissioner interest of the taxpayer for being patently in violation
to decide, to the Court of Tax Appeals Division. of law. [Sps. Pacquiao v. CTA First Division, G.R. No.
213394 (2016)]
Mode of Appeal: Rule 42
Aggrieved party may file a motion for reconsideration TAKING OF EVIDENCE
or new trial within 15 days from receipt of the copy The Court may receive evidence in the following
of the decision. cases:
1. In all cases falling within the original jurisdiction
Appeal to CTA en Banc of the Court in Division pursuant to Section 3,
A party adversely affected by a decision or resolution Rule 4 of these Rules; and
of a Division of the Court on a motion for 2. In appeals in both civil and criminal cases where
reconsideration or new trial may appeal within 15 days the Court grants a new trial pursuant to Section
from receipt of the copy of the decision. 2, Rule 53 and Section 12, Rule 124 of the Rules
of Court. [Sec. 2, Rule 12, A.M. No. 05-11-07]
Mode of Appeal: Rule 43
A party adversely affected by a decision or ruling of TAKING OF EVIDENCE BY:
the Central Board of Assessment Appeals and the 1. Justice
Regional Trial Court in the exercise of their appellate The Court may, motu proprio or upon proper motion,
jurisdiction may appeal within 30 days from the direct that a case, or any issue therein, be assigned to
receipt of the copy of the decision. one of its members for the taking of evidence, when
the determination of a question of fact arises at any
SUSPENSION OF COLLECTION OF TAX stage of the proceedings, or when the taking of an
General rule: No appeal taken to the Court shall account is necessary, or when the determination of an
suspend the payment, levy, distraint, or sale of any issue of fact requires the examination of a long
When: He shall file a motion for reconsideration or b. Appeal to the CTA En Banc
new trial within fifteen days from the date he received
notice of the decision, resolution or order of the No civil proceeding involving matter arising under the
Court in question. National Internal Revenue Code, the Tariff and
Customs Code or the Local Government Code shall
The Court shall resolve the motion for be maintained, except as herein provided, until and
reconsideration or new trial within three months from unless an appeal has been previously filed with the
the time it is deemed submitted for resolution.
CTA and disposed of in accordance with the Instituted by the filing an information in the name of
provisions of this Act. the People of the Philippines
A party adversely affected by a resolution of a Those involving violations of the NIRC and other
Division of the CTA on a motion for reconsideration laws enforced by the BIR: Must be approved by the
or new trial, may file a petition for review with the CIR
CTA en banc. [Sec. 18, RA No. 1125 as amended] Those involving violations of the tariff and
Customs Code and other laws enforced by the
The CTA En Banc cannot annul a final and Bureau of Customs: Must be approved by the
executory judgment of a division of the court Commissioner of Customs
The laws creating the CTA and expanding its
j ri dic ion, and he CTA o n r le of proced re do Institution shall interrupt the running of the period of
not provide for a scenario where the CTA sitting en prescription
banc is asked to annul a decision of one of its
divisions. Similarly, the SC or the CA divisions are not Prosecution of criminal action
considered separate and distinct courts but are Conducted and prosecuted under the direction and
divisions of one and the same court. There is no control of the public prosecutor
hierarchy of courts within the SC and the CA.
Annulment by a collegial court, sitting En Banc is Those involving violations of the NIRC and other
tantamount to allowing a court to annul its own laws enforced by the BIR or violations of the tariff
judgment and acknowledging that a hierarchy exists and Customs Code and other laws enforced by
within such court. A proper remedy would have been the Bureau of Customs - The prosecution may be
an original action for Certiorari under Rule 65. [CIR conducted by their respective duly deputized legal
v. Kepco Ilijan Corp., G.R. No. 199422 (2016)] officers.
TRAIN LAW
Taxation Law
On December 19, 2017, the President signed into law package 1 of the Tax Reform for Acceleration and Inclusion
( TRAIN ) bill or Rep blic Ac ( R.A. ) No. 10963. The la con ain amendments to several provisions of the National
In ernal Re en e Code of 1997 ( NIRC or Ta Code ) on indi id al income a a ion, pa i e income for bo h
individuals and corporations, e a e a , donor a , al e-added a ( VAT ), e ci e a , and documentary stamp tax
( DST ), among o her . Belo i a compari on of he old NIRC pro i ion and he change in rod ced b TRAIN.
(PWC Tax Alert No. 34-2018)
[ITEM VETOED]
Grandfather clause:
Deduction of
premium Sec. 34 (M) Allowed deduction of 24k per year or 200 per month
payments on worth of premium payments on health and/or hospitalization
Repealed
health and/or insurance of an individual provided that the family has a gross
hospitalization income not exceeding 250k for the taxable year.
insurance
Secs. 35 and 79 (D) Exemptions on the following:
On personal and
50k worth of basic personal exemption; 25k worth of additional
additional Repealed
exemption per qualified dependent not exceeding four; Personal
exemptions
exemption allowable to non-resident alien individual
Exemption
Sec. 62 Exemption of 20k allowed from the income of the estate
allowed to estate Repealed
or trust.
and trust
Income tax Sec. 79 (F) Husband deemed head of the family and proper
collected at source claimant of the additional exemption. Taxes to be withheld from
Repealed
husband and the wages of the wife must be in accordance with the table for
wife zero exemption of the withholding tax table.
Filing of tax returns
An individual whose
taxable income (not
from business or
profession) does not
exceed 250k shall not be
required to file an ITR.
Those engaged in
business or profession
required to file ITR
regardless of gross
income.
Removed: The
provision allowing the
Commissioner of
Internal Revenue to
adjust the withholding
of tax at more frequent
intervals is removed.
Changed date: Filing
Sec. 74 (A) Every individual subject to income tax and is receiving of declaration of
Declaration of
self-employment income shall make and file a declaration of his estimated income shall
income tax for
estimated income for the current taxable year on or before 15 be on or before 15 May
individuals
April of the same taxable year. of the same taxable
year.
Changed date:
Return and Payment of the fourth
Sec. 74 (B) The amount of estimated income shall be paid in 4
payment of instalment shall be paid
instalments with the fourth instalment to be paid on or before 15
estimated income on or before 15 May of
April of the following calendar year.
tax the following calendar
year.
Tax
NIRC TRAIN Law (RA 10963)
Particulars
Estate Tax Table
Over But not The tax Plus Of the
Over shall be Excess
Over
Sec. 84. 0 200,000 Exempt
Rate of Estate Estate tax rate is fixed at 6%
200,000 500,000 0 5% 200,000
Tax
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000
Citizens or residents are allowed the following deductions, among Removed the
others: deductions of funeral
Expenses, losses, indebtedness, and taxes (among others, expenses, judicial
Sec. 86(A) funeral expenses not to exceed PHP200,000 and judicial expenses, and medical
Deductions for expenses) expenses.
Citizens or Increased allowance
Family home not to exceed PHP1m
Residents for deduction of family
Standard deduction of PHP1m home to PHP10m.
Medical expenses not to exceed PHP500,000. Increased the standard
deduction to PHP5m
Removed allowance
A nonresident alien is allowed the following deductions, among for deduction of
others: expenses, losses,
Sec. 86(B) indebtedness, and
Expenses, losses, indebtedness, and taxes (among others,
Deductions for taxes.
funeral expenses not to exceed PHP200,000 and judicial
Nonresident expenses) Provides for a
not a citizen standard deduction of
Property previously taxed
PHP500,000.
Transfers for public use
Provides that a
proportion of the
Sec. 101
Exemption of Sec. 101 (A) PHP10,000 amount of dowries or gifts made on
Repealed
Dowries acco n of marriage are e emp from donor a .
Repealed
[ITEM VETOED]
Expressly added as
e por ale he ale
The following sales by VAT-registered persons shall be subject to and delivery of goods
zero percent (0%) rate: to registered
a. Export sales which include the following: enterprises within a
1. sale and actual shipment of goods from the Philippines to separate customs
a foreign country; territory as provided
2. sale of raw materials or packaging materials to a under special laws and
nonresident buyer for delivery to a resident local export- within Tourism
oriented enterprise; Enterprise Zones
3. sale of raw materials or packaging materials to export- declared by TIEZA.
oriented enterprise whose export sales exceed seventy Items 2, 3, and 5 shall
Sec. 106 (A) (2)
percent (70%) of total annual production; be subject to 12%
Limiting the
4. sale of gold to the Bangko Sentral ng Pilipinas (BSP); VAT upon the
zero-rated sale
5. those considered export sales under Executive Order No. successful
of goods
226, otherwise known as the Omnibus Investment Code establishment and
transactions
of 1987, and other special laws; and implementation of an
6. sale of goods, supplies, equipment and fuel to persons enhanced VAT refund
engaged in international shipping or international air system.
transport operations. For Item 4, Sale of
gold to BSP is
b. Foreign currency denominated sales; and reclassified from
export sales to exempt
c. Sales to persons or entities exempted under special laws or transactions.
international agreements Item 6 will qualify as
export sales provided
that the goods,
supplies, equipment
and fuel shall be used
for international
shipping and air
transport operations.
Foreign currency
denominated sales are
removed from zero-
rated sale of goods.
Inclusion of sale of
electricity by generation
companies, transmission by
Sec 108(A) any entity, and distribution
Additional Sec. 108 (A) Provision defines sale or exchange of services. companies,
Provision including electric
cooperatives in the
definition of sale or
exchange of services.
Item 1 will qualify as
zero-rated sale of
services if these
services are exclusively
for international
shipping and air
transport operations.
For Item 2, Zero-
rating for transport of
passenger and cargo
from the Philippines
Sec. 108 (B) Zero-rated sales of services include:
to foreign country
1. Services rendered to persons engaged in international
shall apply for
shipping or international air transport operations;
domestic air or sea
2. Transport of passengers and cargo by air or sea vessels from
vessels only.
the Philippines to a foreign country;
Sec 108(B) Items 3 and 4 shall be
3. Services performed by subcontractors and/or contractors in
Limiting the subjected to 12% VAT
processing, converting, of manufacturing goods for an
zero-rated sale upon successful
enterprise whose export sales exceed 70% of total annual
of services establishment and
production; and
transactions implementation of an
4. Processing, manufacturing or repacking goods for other
persons doing business outside the Philippines which goods enhanced VAT refund
are subsequently exported, where the services are paid for in system.
acceptable foreign currency and accounted for in accordance [ITEM VETOED]
with the rules and regulations of BSP Expressly added as
zero-rated transactions
the sale of services to
registered enterprises
within a separate
customs territory as
provided under special
laws and within
Tourism Enterprise
Zones as declared by
TIEZA.
VAT exemptions include, among others, the following Item 1 was expanded
Sec 109(1)
transactions: to include those
TARIFF AND
CUSTOMS CODE
Taxation Law
Customs duties taxes on the importation or Methods for determining dutiable value
exportation of commodities, the tariff or tax assessed 1. Transaction value an ad valorem rate of duty
upon the merchandise imported from or exported to equivalent to the price actually paid or payable for
a foreign country. [Garcia v. Exec. Sec., G.R. No. the goods when sold for export to the
101273 (1992)] Philippines, as adjusted; [Sec. 701, CMTA]
2. Transaction value of identical goods the
Note: Customs and tariffs are used interchangeably. transaction value of identical goods sold for
They both refer to the taxes imposed on imported or export to the Philippines and exported at or
exported wares, articles, or merchandise. about the same time as the goods being valued;
a refer to goods which are the
Export tariff duty levied, assessed and collected on same in all respects, including physical
the gross FOB value at the time of shipment based on characteristics, quality and reputation,
the prevailing exchange rate on traditional export discounting minor differences in appearances;
products, such as certain wood products, mineral [Sec. 702, CMTA]
91
Not Included in the Bar Examination Coverage for 2019.
3. Transaction value of similar goods the 3. Duties and taxes of the Philippines; and
transaction value of similar goods sold for export 4. Other permissible deduction under the WTO
to the Philippines and exported at or about the Valuation Agreement [CAO 4-2004]
same time as the goods being valued; a
refer to goods which, although not alike ALL of the following conditions must be satisfied
in all respects, have like characteristics and similar so that the dutiable value shall be the Transaction
component materials which enable them to Value (TV):
perform the same functions and to be 1. No restrictions as to the disposition or use of
commercially interchangeable; factors to be goods by the buyer except restrictions which:
considered in determining whether goods are a. are imposed by law or by Philippine
similar may include quality of the goods, its authorities
reputation and the existence of a trademark [Sec. b. limit the geographical area where goods may
703, CMTA] be resold
4. Deductive value an amount based on the unit c. do not substantially affect the value of the
price at which the imported goods or identical or goods
similar imported goods are sold in the 2. The sale or price is not subject to some condition
Philippines, in the same condition as when or consideration for which value cannot be
imported, in the greatest aggregate quantity, at or determined
about the time of importation of the goods being 3. Buyer and seller are not related or if they are, that
valued, to persons not related to the persons the transaction value is acceptable for customs
from whom they buy such goods, subject to purposes [Sec. 701, CMTA]
certain deductions [Sec. 704, CMTA]
5. Computed value the aggregate value of the Persons are deemed related if:
cost or value of materials and fabrication or other 1. They are officers or direc or of one ano her
processing employed in producing the imported business;
goods; amount for profit and general expenses; 2. They are legally recognized partners in business;
freight, insurance fees and other transportation 3. There exists an employer-employee relationship
expenses for the importation of the goods, between them;
among others; and [Sec. 705, CMTA] 4. Any person directly or indirectly owns, controls
6. Fallback value an amount determined by or holds 5% or more of the outstanding voting
using other reasonable means and on the basis of stock or shares of both seller and buyer;
data available in the Philippines. [Sec. 706, 5. One of them directly or indirectly controls the
CMTA] other;
6. Both of them are directly or indirectly controlled
Note: by a 3rd person;
General rule: Imported goods shall be valued using the 7. Together they directly or indirectly control a 3rd
transaction value. [Sec. 700, CMTA] person; or
Exception: Where the dutiable value cannot be 8. They are members of the same family, including
determined under the transaction value system, the those related by affinity or consanguinity up to
succeeding methods are sequentially applied. the 4th civil degree. [Sec. 701, CMTA]
However, the order of methods 4 and 5 may be
reversed at the request of the importer, subject to the If related, use of TV is acceptable if the importer
approval of the Commissioner. [Sec. 700, CMTA; demonstrates that such value closely
CAO 4-2004] approximates one of the following:
1. TV in sales to unrelated buyers of identical or
Ground to refuse the request: if the Commissioner similar goods
deems that the BOC will experience real difficulties in 2. Deductive value of identical or similar goods
determining the dutiable value using Method 5 determined according to method #4
3. Computed value of identical or similar goods
Dutiable Value (DV) must not include: determined according to method #5 [Sec. 701,
1. Charges for construction, erection, assembly CMTA]
maintenance or technical assistance undertaken
after importation;
2. Cost of transport after importation;
Philippines and charged to producer profits and Presidential Decree No. 1464", otherwise known
general expenses cost of transport, insurance and as the "Tariff and Customs Code of the
charges to the port or place of importation Philippines, as Amended", are hereby adopted.
*Note: these additional costs are added only if not Marking duties
included in the determination of the aggregate of CMTA, Sec. 710. Marking of Imported Goods
relevant costs, charges and expenses or value of and Containers.
materials and production. (A) Marking of Goods, Except as hereinafter
provided, all goods of foreign origin imported
Fallback value into the Philippines or their containers, as
If DV cannot be determined using any of the above provided in subsection (B) hereof shall be
methods, use other reasonable means consistent with conspicuously marked in any official language of
principles and general provisions of the General the Philippines as legibly, indelibly and
Agreements on Tariffs and Trade [GATT] permanently as the nature of the goods or
container will permit and in such manner as to
SPECIFIC indicate to an ultimate purchaser in the
Rates are based on units of weight number or Philippines the name of the country of origin of
measurement [Sec. 202, TCC] the goods. Pursuant thereto, the Commissioner
shall, with the approval of the Secretary of
Kinds of weight: Finance:
1. Gross Weight weight of same, together with
the weight of all containers, packages, holders (1) Determine the character of words and phrases
and packings, of any kind, in which said articles or abbreviation thereof which shall be acceptable
are contained, held or packed at the time of as indicating the country of origin and prescribe
importation any reasonable method of marking, whether by
2. Legal Weight weight at the time of their sale printing, stenciling, stamping, branding, labeling
to the public in usual retail quantities or by any other reasonable method, and in a
3. Net Weight only the actual weight at the time conspicuous place on the goods or container
of importation excluding the weight of the where the marking' shall appear;
immediate and all other containers (2) Require the addition of other words or
symbols which may be appropriate to prevent
b. Special Duties deception or mistake as to the origin of the goods
or as to the origin of any other goods with which
These are additional import duties imposed on such imported goods is usually combined
specific kinds of imported articles. [See Table of subsequent to importation but before delivery to
Special Duties below] an ultimate purchaser; and
(3) Authorize the exception of any goods from
Dumping duties the requirements of marking if:
CMTA, Sec. 711. Dumping Duty. The
provisions of Republic Act No. 8752, otherwise (i) Such goods are incapable of being marked;
known as the "Anti-Dumping Act of 1999", are (ii) Such goods cannot be marked prior to
hereby adopted. shipment to the Philippines without injury;
(iii) Such goods cannot be marked prior to
Countervailing duties shipment to the Philippines, except at an expense
CMTA, Sec. 713. Countervailing Duty. The economically prohibitive of their importation;
provisions of Republic Act No. 8751, otherwise (iv) The marking of a container of such goods will
known as "An Act Strengthening the reasonably indicate the origin of such goods;
Mechanisms for the Imposition of (v) Such goods are crude substances;
Countervailing Duties on Imported Subsidized (vi) Such goods are imported for use by the
Products, Commodities or Articles of Commerce importer and not intended for sale in their
in Order to Protect Domestic Industries from imported or any other form;
Unfair Trade Competition, Amending for the (vii) Such goods are to be processed in the
Purpose Section 302, Part 2, Title II, Book I of Philippines by the importer or for the importer's
account other than for the purpose of concealing
the origin of such goods and in such manner that shall constitute as an act of abandonment of said
any mark contemplated by this section would goods and their disposition shall be governed by
necessarily be obliterated, destroyed, or the provisions of this Act relative to
permanently concealed; abandonment of imported goods.
(viii) An ultimate purchaser, by reason of the
character of such goods or by reason of the
circumstances of their importation, must
necessarily know the country of origin of such Retaliatory/discriminatory duties
goods even though they are not marked to CMTA, Sec. 714. Discrimination by Foreign
indicate their origin; Countries. Without prejudice to the Philippine
(ix) Such goods were produced more than twenty commitment in any ratified international
(20) years prior to their importation into the agreements or treaty, the following recourse shall
Philippines; or be applicable in case of discrimination by foreign
(x) Such goods cannot be marked after countries:
importation except at an expense which is
economically prohibitive, and the failure to mark (a) When the President finds that the public
the goods before importation was not due to any interest will be served thereby, the President shall,
purpose of the importer, producer, seller or by proclamation, specify and declare new or
shipper to avoid compliance with this section. additional duties in an amount not exceeding one
hundred percent (100%) ad valorem upon goods
(B) Marking of Containers. Whenever goods wholly or in part the growth or product of, or
are exempt under paragraph (3) of subsection (A) imported in a vessel of any foreign country
of this section from the requirements of marking, whenever the President shall find as a fact that
the immediate container, if any, of such goods, or such country:
such other container or containers of such goods,
shall be marked in such manner as to indicate to (1) Imposes, directly or indirectly, upon the
an ultimate purchaser in the Philippines the name disposition or transportation in transit or through
of the country of origin of such goods in any reexportation from such country of any goods
official language of the Philippines, subject to all wholly or in part the growth or product of the
provisions of this section, including the same Philippines, any unreasonable charge, exaction,
exceptions as are applicable to goods under regulation or limitation which is not equally
paragraph (3) of subsection (A). enforced upon the like goods of every foreign
country; or
(C) Fine for Failure to Mark. If, at the time of (2) Discriminates in fact against the commerce of
importation any good or its container, as the Philippines, directly or indirectly, by law or
provided in subsection (B) hereof, is not marked administrative regulation or practice, by or in
in accordance with the requirements of this respect to any customs, tonnage, or port duty,
section, there shall be levied, collected, and paid fee, charge, exaction, classification, regulation,
upon such good a marking duty of five percent condition, restriction or prohibition, in such
(5%) of dutiable value, which shall be deemed to manner as to place the commerce of the
have accrued at the time of importation, Philippines at a disadvantage compared with the
commerce of any foreign country.
(D) Release Withheld Until Marked. No
imported goods held in customs custody for (b) If at any time the President shall find it to be
inspection, examination, or assessment shall be a fact that any foreign country has not only
released until such goods or their containers shall discriminated against the commerce of the
have been marked in accordance with the Philippines, as aforesaid, but has, after the
requirements of this section and until the amount issuance of a proclamation as authorized in
of duty estimated to be payable under subsection subsection (a) of this section, maintained or
(C) of this section shall have been deposited. increased its said discrimination against the
commerce of the Philippines, the President is
(E) The failure or refusal of the owner or hereby authorized, if deemed consistent with the
importer to mark the goods as herein required interests of the Philippines and of public interest,
within a period of thirty (30) days after due notice to issue a further proclamation directing that such
admission, for conditional importation, or for if in bulk, the nature and correct commodity
customs transit. [Sec. 401, CMTA] description of the goods contained therein, its
value as set forth in a proper invoice, and such
Kinds of Goods Declaration other information as may be required by rules
1. For Consumption and regulations. [Sec. 411, CMTA]
2. For Customs Bonded Warehousing 2. signed by the declarant [Sec. 107, CMTA]
3. For admission
4. For conditional importation Form
5. For customs transit As far as practicable, the format of the goods
declaration shall conform with international
Sec. 1302, TCC All imported articles, except standards. The Bureau shall require the electronic
importation admitted free of duty, shall be subject to lodgement of the goods declaration. [Sec. 407, CMTA]
a formal or informal entry.
[Sec. 1306, TCC requires a number of copies in such form as
Kinds of Import Entry [Sec. 1302, TCC] prescribed by regulations and excludes consignee and port of
1. Formal Entry A formal entry may be: destination from the content of the import entry]
2. For immediate consumption, or
3. Under irrevocable domestic letter of credit, bank Articles to be cleared on informal entry
guarantee or bond for: 1. Goods of a commercial nature with Free on
4. Placing the article in customs bonded warehouse; Board (FOB) or Free Carrier At (FCA) value of
5. constructive warehousing and immediate less than P50,000.00, subject to adjustment every
transportation to other ports of the Philippines three years; and
upon proper examination and appraisal; or 2. Personal and household effects or goods, not in
6. Constructive warehousing and immediate commercial quantity, imported in a passenger's
exportation. baggage or mail.
7. Informal Entry
The Commissioner may adjust the value of goods of
Statements in Goods Declaration commercial nature that shall be cleared through an
1. The invoice and goods declaration contain an informal entry process. [Sec. 402, CMTA; Sec. 1302,
accurate and faithful account of the prices paid or TCC value of #1 is P2,000 or less]
payable for the goods, and other adjustments to
the price actually paid or payable, and that Articles to be cleared on formal entry
nothing has been omitted therefrom or concealed All goods declaration for consumption shall be
whereby the government of the Republic of the cleared through a formal entry process. [Sec. 402,
Philippines might be defrauded of any part of the CMTA]
duties and taxes lawfully due on the goods;
2. To the best of the declarant's information and Note: All importations entered through a formal entry
belief, all the invoices and bills of lading or airway process shall be covered by a letter of credit or any
bills relating to the goods are the only ones in verifiable commercial document evidencing payment
existence relating to the importation in question, or in cases where there is no sale for export, by any
and that these documents are in the same state as commercial document indicating the commercial
when they were received by the declarant, and the value of the goods. [Sec. 402, CMTA; RA 9135
declaration thereon are in all respects genuine (2001)]
and true. [Sec. 412, CMTA]
c. Declaration of Correct Weight or
[U de Sec. 1304, TCC, e f g c ded: T a e
entry delivered to the Collector contains a full account of the Value
value or price articles, including b ec f e e . ]
Unless otherwise provided for in this Act, all
Content of Goods Declaration imported goods shall be subject to the lodgement of
1. shall contain the names of the consignee, a goods declaration.
importing vessel or aircraft, port of departure,
port of destination and date of arrival, the PROVISIONAL GOODS DECLARATION
number and marks of packages, or the quantity, (PGD) UNDER CMTA, SEC. 403: Where the
declarant does not have all the information or d. Liability for Payment of Duties
supporting documents required to complete the
goods declaration, the lodging of a provisional goods General rule: the liability for duties, taxes, fees and
declaration may be allowed: Provided, That it other charges attached to importation constitutes a
substantially contains the necessary information personal debt due from the importer in favor of the
required by the Bureau and the declarant undertakes government; it constitutes a lien upon the imported
to complete the information or submit the supporting goods which may be enforced while such goods are
documents within 45 days from the filing of the PGD, nder c om c od . [CMTA, Sec. 405; same
extendible for another 45 days for valid reasons. under Sec. 1204, TCC]
If the Bureau accepts a PGD, the duty treatment of How to discharge: Discharged only by payment in
the goods shall not be different from that of goods full of all duties, taxes, fees and other charges legally
with complete declaration. accruing
Goods under a PGD may be released upon posting Exception: Relieved by laws or regulations
of any required security equivalent to the amount
ascertained to be the applicable duties and taxes. [See
also Sec. 1400, CMTA on misdeclaration] e. Liquidation of Duties
INFORMATION TO BE FURNISHED [SEC. When made: Upon approval by the Collector of the
1313, TCC] returns of the appraiser and reports of the weights,
gauge or quantity [Sec. 1601, TCC]
Classification
When article is not specifically classified in the Code, How: the liquidation shall be made on the face of the
the interested party, importer or foreign exporter may entry showing the particulars thereof, initiated by the
submit a sample with full description of component liquidating clerk, approved by the chief liquidator, and
materials in a written request. recorded in the record of liquidations. [Sec. 1601,
TCC]
Value
Upon written application, Collector shall furnish Additional Process: A daily record of all entries
importer within 30 days the latest information as to liquidated shall be posted in the public corridor of the
the value of the articles to be imported. customhouse, stating the name of the vessel or
aircraft, the port from which she arrived, the date of
Importer must present all pertinent papers and her arrival, the name of the importer, and the serial
documents, act in good faith and unable to obtain number and date of the entry. A daily record must also
information due to unusual conditions be kept by the Collector of all additional duties, taxes
and other charges found upon liquidation, and notice
Information given is not an appraisal nor is it binding shall promptly be sent to the interested parties. [Sec.
pon he Collec or righ of apprai al. 1601, TCC]
f. Keeping of Records
Exceptions:
1. Fraud 1. All importers are required to keep at their
2. Protest principal place of business, in the manner
3. Compliance audit pursuant to the provisions of prescribed by regulations to be issued by the
the Code Commissioner and for a period of 3 years from
the date of final payment of duties and taxes or
Note: Exceptions do not apply in case of tentative customs clearance, as the case may be, all records
liquidation pertaining to the ordinary course of business and
to any activity or information contained in the
Fractions in the Liquidation a fraction of a peso records required by this title in connection with
less than fifty centavos shall be disregarded, and a any such activity.
fraction of a peso amounting to fifty centavos or more 2. All parties engaged in customs clearance and
shall be considered as one peso. In case of processing are required to keep at their principal
overpayment or underpayment of duties, taxes, place of business, in the manner prescribed by
surcharges, wharfage and/or other charges paid on regulations to be issued by the Commissioner and
entries, where the amount involved is less than five for a period of 3 years from the date of filing of
pesos, no refund or collection shall be made. [Sec. the goods declaration, copies of the
1604, TCC] abovementioned records covering the
transactions handled.
Notes: 3. Locators or persons authorized to bring
imported goods into free zones, such as the
READJUSTMENT OF APPRAISAL, special economic zones and free ports, are
CLASSIFICATION OR RETURN required to keep subject-records of all its
[Sec. 1407, TCC] activities, including in whole or in part, records
on imported goods withdrawn from said zones
Prescriptive Period for Appraisal, Classification into the customs territory for a period of three (3)
or Return years from the date of filing of the goods
General rule: Appraisal, classification or return as finally declaration. [Sec. 1003, CMTA]
passed upon and approved or modified by the
Collector shall not be altered or modified in any Audit examination
manner. Any authorized officer of the Bureau shall be given by
the importer and customs broker full and free access
Exceptions: to the premises where the records are kept, to conduct
1. Within one year after payment of the duties, upon audit examination, inspection, verification, and
statement of error in conformity with seventeen investigation of those records relevant to such
hundred and seven hereof, approved by the investigation or inquiry. [Sec. 1002, CMTA]
Collector
2. Within fifteen days after such payment upon [Sec. 3514, TCC also required all importers and brokers, to
request for reappraisal and/or reclassification keep records for 3 years for inspection by customs officers
addressed to the Commissioner by the Collector, authorized by BOC]
if the appraisal and/or classification is deemed to
be low
3. Upon request for reappraisal and/or
reclassification, in the form of a timely protest
addressed to the Collector by the interested party
The Secretary of Finance shall adjust the de minimis if the goods had been entered without the benefit of
value every 3 years. The value shall be adjusted to its this section, shall be subject to forfeiture and the
present value using the CPI, as published by the PSA. importation shall constitute a fraudulent practice
[Sec. 423, CMTA] against customs laws: Provided, However, That a sale
pursuant to a judicial order or in liquidation of the
CAO 2-2016 estate of a deceased person shall not be subject to the
De Minimis importations shall be lodged and preceding proviso, without prejudice to the payment
processed under a simplified system and with the of duties, taxes and other charges; Provided, Further,
use of information and communications That the President may, upon the recommendation of
echnolog ( ICT ) enabled em o allo the Secretary of Finance, suspend, disallow or
advance clearance, and ensure proper customs completely withdraw, in whole or in part, any
monitoring and control; conditionally free importation under this section:
De Minimis importations shall, as far as
practicable, be subject to a nonintrusive 1. Aquatic products such as fishes, crustaceans,
examination (e.g. x-ray or any other equivalent mollusks, marine animals, seaweeds, fish oil, roe,
device) on a random basis based. caught or gathered by fishing vessels of
The customs examiner may physically inspect the Philippine registry; Provided, That they are
imported goods. imported in such vessels or in crafts attached
thereto; Provided, However, That they have not
Exclusions from Immediate Release as De been landed in any foreign territory or, if so
Minimis importations: landed, that they have been landed solely for
1. Importations declared a i ho commercial transshipment without having been advanced in
al e or of no commercial al e or i h condition;
pecific amo n b q alified b he phra e for
c om p rpo e or analogo phra e . The 2. Equipment for use in the salvage of vessels or
party concerned must declare the specific value aircrafts, not available locally, upon identification
of the goods, supported by available invoice, and the giving of a security in an amount equal to
receipt or equivalent document. 100% of the ascertained duties, taxes and other
2. Tobacco and liquor products carried by charges thereon, conditioned for the exportation
passengers in excess of the allowable limits but thereof or payment of corresponding duties,
within the De Minimis value. taxes and other charges within six (6) months
3. Goods subject to requirements or conditions from the date of acceptance of the goods
imposed by the concerned regulatory agency, declaration; Provided, That the Bureau may
unless for personal use and within the limits extend the time for exportation or payment of
allowed by regulations. duties, taxes and other charges for a term not
4. Prohibited and restricted importations. exceeding six (6) months from the expiration of
5. Importations to be entered conditionally-free, for the original period;
warehousing, for transit, and / or admission to a
free zone [CAO 2-2016] 3. Cost of repairs, excluding the value of the goods
used, made in foreign countries upon vessels or
aircraft documented, registered or licensed in the
f. Conditionally-Free and Duty- Philippines, upon proof satisfactory to the
Exempt Importations [Sec. 800, Bureau: (1) that adequate facilities for such
CMTA] repairs are not afforded in the Philippines; or (2)
that such vessels or aircrafts, while in the regular
The following goods shall be exempt from the course of their voyage or flight, were compelled
payment of import duties upon compliance with the by stress of weather or other casualty to put into
formalities prescribed in the regulations which shall a foreign port to make such repairs in order to
be promulgated by the Commissioner with the secure the safety, seaworthiness, or airworthiness
approval of the Secretary of Finance: Provided, That of the vessels or aircrafts to enable them to reach
goods sold, bartered, hired or used for purposes other their port of destination;
than what they were intended for and without prior
payment of the duty, tax or other charges which 4. Goods brought into the Philippines for repair,
would have been due and payable at the time of entry processing or reconditioning to be reexported
household effects only and shall neither be in Personal and household effects and vehicles
commercial quantities nor intended for barter, belonging to foreign consultants and experts
sale or for hire and that the FCA value of which hired by, or rendering service to, the government,
shall not exceed 150,000.00; Provided, Further, and their staff or personnel and families
That every three (3) years after the effectivity of accompanying them or arriving within a
this Act, the Secretary of Finance shall adjust the reasonable time before or after their arrival in the
amount herein stated to its present value using Philippines, in quantities and of the kind
the CPI as published by the PSA; Provided, necessary and suitable to the profession, rank or
Finally, That residents of the Philippines, OFWs position of the person importing said items, for
or other Filipinos can only avail of this privilege their own use and not for barter, sale or hire:
up to three (3) times in a calendar year. Any Provided, That the Bureau may require either a
amount in excess of the allowable non-dutiable written commitment or a security in an amount
value shall be subject to the applicable duties and equal to 100% of the ascertained duties, taxes and
taxes; other charges thereon, upon the goods classified
under this subsection; conditioned for the
For purposes of this Act, OFWs refer to holders exportation thereof or payment of the
of valid passports duly issued by the Department corresponding duties, taxes and other charges
of Foreign Affairs (DFA) and certified by the within three (3) months after the expiration of
Department of Labor and Employment (DOLE) their term or contract; Provided, However, That
or the Philippine Overseas Employment the Bureau may extend the time for exportation
Administration (POEA) for overseas or payment of duties, taxes and other charges for
employment purposes. They cover all Filipinos, a term not exceeding three (3) months from the
working in a foreign country under employment expiration of the original period;
contracts, regardless of their professions, skills or
employment status in a foreign country; and 9. Professional instruments and implements, tools
of trade, occupation or employment, wearing
Calendar Year refers to the period from January apparel, domestic animals, and personal and
1 to December 31. household effects belonging to persons coming
to settle in the Philippines or Filipinos or their
8. Wearing apparel, goods of personal adornment, families and descendants who are now residents
toilet goods, portable tools and instruments, or citizens of other countries, such parties
theatrical costumes and similar effects hereinafter referred to as overseas Filipinos, in
accompanying travelers, or tourists, or arriving quantities and of the class suitable to the
within a reasonable time before or after their profession, rank or position of the persons
arrival in the Philippines, which are necessary and importing said items, for their own use and not
appropriate for the wear and use of such persons for barter or sale, accompanying such persons, or
according to the nature of the journey, their arriving within a reasonable time: Provided, That
comfort and convenience; Provided, That this the Bureau may, upon the production of
exemption shall not apply to goods intended for satisfactory evidence that such persons are
other persons or for barter, sale or hire: Provided, actually coming to settle in the Philippines and
However, That the Bureau may require either a that the goods are brought from their former
written commitment or a security in an amount place of abode, exempt such goods from the
equal to 100% of the ascertained duties, taxes and payment of duties and taxes; Provided, Further,
other charges thereon, conditioned for the That vehicles, vessels, aircrafts, machineries and
exportation thereof or payment of the other similar goods for use in manufacture, shall
corresponding duties, taxes and other charges not fall within this classification and shall
within three (3) months from the date of therefore be subject to duties, taxes and other
acceptance of the goods declaration: Provided, charges;
Further, That the Bureau may extend the time for
exportation or payment of duties, taxes and other 10. Goods used exclusively for public entertainment,
charges for a term not exceeding three (3) and for display in public expositions, or for
months from the expiration of the original exhibition or competition for prizes, and devices
period. for projecting pictures and parts and
appurtenances thereof, upon identification,
examination, and appraisal and the giving of a Provided, However, That such privilege shall be
security in an amount equal to 100% of the accorded under special agreements between the
ascertained duties, taxes and other charges Philippines and the countries which they
thereon, conditioned for exportation thereof or represent: Provided, Further, That the privilege
payment of the corresponding duties, taxes and may be granted only upon specific instructions of
other charges within three (3) months from the the Secretary of Finance pursuant to an official
date of acceptance of the goods declaration: request of the DFA on behalf of members or
Provided, That the Bureau may extend the time attaches of foreign embassies, legations, consular
for exportation or payment of duties, taxes and officers and other representatives of foreign
other charges for a term not exceeding three (3) governments;
months from the expiration of the original
period; and technical and scientific films when 13. Imported goods donated to or, for the account
imported by technical, cultural and scientific of the Philippine government or any duly
institutions, and not to be exhibited for profit: registered relief organization, not operated for
Provided, Further, That if any of the films is profit, for free distribution among the needy,
exhibited for profit, the proceeds therefrom, shall upon certification by the DSWD or the
be subject to confiscation, in addition to the Department of Education (DepED), or the
penalty provided under this Act; Department of Health (DOH), as the case may
be;
11. Goods brought by foreign film producers directly
and exclusively used for making or recording 14. Containers, holders and other similar receptacles
motion picture films on location in the of any material including kraft paper bags for
Philippines, upon their identification, locally manufactured cement for export,
examination and appraisal and the giving of a including corrugated boxes for bananas,
security in an amount equal to 100% of the mangoes, pineapples and other fresh fruits for
ascertained duties, taxes and other charges export, except other containers made of paper,
thereon, conditioned for exportation thereof or paperboard and textile fabrics, which are of such
payment of the corresponding duties, taxes and character as to be readily identifiable and/or
other charges within three (3) months from the reusable for shipment or transportation of goods
date of acceptance of the goods declaration, shall be delivered to the importer thereof upon
unless extended by the District Collector for identification, examination and appraisal and the
another three (3) months; photographic and giving of a security in an amount equal to 100%
cinematographic films, underdeveloped, exposed of the ascertained duties, taxes and other charges
outside the Philippines by resident Filipino thereon, within six (6) months from the date of
citizens or by producing companies of Philippine acceptance of the goods declaration;
registry where the principal actors and artists
employed for the production are Filipinos, upon 15. Supplies which are necessary for the reasonable
affidavit by the importer and identification that requirements of the vessel or aircraft in its voyage
such exposed films are the same films previously or flight outside the Philippines, including goods
exported from the Philippines. As used in this transferred from a bonded warehouse in any
paragraph, he erm ac or and ar i Customs District to any vessel or aircraft engaged
include the persons operating the photographic in foreign trade, for use or consumption of the
camera or other photographic and sound passengers or its crew on board such vessel or
recording apparatus by which the film is made; aircraft as sea or air stores; or goods purchased
abroad for sale on board a vessel or aircraft as
12. Importations for the official use of foreign saloon stores or air store supplies; Provided, That
embassies, legations and other agencies of any surplus or excess of such vessel or aircraft
foreign governments: Provided, That those supplies arriving from foreign ports or airports
foreign countries accord like privileges to shall be dutiable;
corresponding agencies of the Philippines.
Goods imported for the personal or family use of 16. Goods and salvage from vessels recovered after
members and attaches of foreign embassies, a period of two (2) years from the date of filing
legations, consular officers and other the marine protest or the time when the vessel
representatives of foreign governments; was wrecked or abandoned, or parts of a foreign
vessel or its equipment, wrecked or abandoned in provision of this subsection, and the excess of the
Philippine waters or elsewhere: Provided, That consignment may be entered in bond, or for
goods and salvage recovered within the said consumption, as the importer may elect:
period of two (2) years shall be dutiable; Provided, Further, That every three (3) years after
the effectivity of this Act, the Secretary of
17. Coffins or urns containing human remains, Finance shall adjust the amount herein stated to
bones or ashes, used personal and household its present value using the CPI as published by
effects (not merchandise) of the deceased person, the PSA.
except vehicles, the FCA value of which does not
exceed 150,000.00, upon identification as such: 19. Animals, except race horses, and plants for
Provided, That every three (3) years after the scientific, experimental propagation or breeding,
effectivity of this Act, the value herein stated shall andfor other botanical, zoological and national
be adjusted to its present value using the CPI as defense purposes: Provided, That no live trees,
published by the PSA; shoots, plants, moss and bulbs, tubers and seeds
for propagation purposes may be imported under
18. Samples of the kind, in such quantity and of such this section, except by order of the government
dimension or construction as to render them or other duly authorized institutions; Provided,
unsaleable or of no commercial value; models not However, That the free entry of animals for
adapted for practical use; and samples of breeding purposes shall be restricted to animals
medicines, properly marked ample-sale of recognized breed, duly registered in the record
p ni hable b la , for he p rpo e of or registry established for that breed, and
introducing new goods in the Philippine market certified as such by the Bureau of Animal
and imported only once in a quantity sufficient Industry (BAI): Provided, Further, That the
for such purpose by a person duly registered and certification of such record, and pedigree of such
identified to be engaged in that trade: Provided, animal duly authenticated by the proper
That importations under this subsection shall be custodian of such record or registry, shall be
previously authorized by the Secretary of submitted to the District Collector, together with
Finance: Provided, However, That importation the affidavit of the owner or importer that such
of sample medicines shall have been previously animal is the animal described in said certificate
authorized by the Secretary of Health, and that of record and pedigree: Provided, Finally, That
such samples are new medicines not available in the animals and plants are certified by the NEDA
the Philippines: Provided, Further, That samples as necessary for economic development;
not previously authorized or properly marked in
accordance with this section shall be levied the 20. Economic, technical, vocational, scientific,
corresponding tariff duty. philosophical, historical and cultural books or
publications, and religious books like Bibles,
Commercial samples, except those that are not missals, prayer books, the Koran, Ahadith and
readily and easily identifiable as in the case of other religious books of similar nature and
precious and semi-precious stones, cut or uncut, extracts therefrom, hymnal and hymns for
and jewelry set with precious or semi-precious religious uses; Provided, That those which may
stones, the value of any single importation of have already been imported but are yet to be
which does not exceed FCA value of 50,000.00 released by the Bureau at the effectivity of this
upon the giving of a security in an amount equal Act may still enjoy the privilege herein provided
to the ascertained duties, taxes and other charges upon certification by the DepED that such
thereon, conditioned for the exportation of said imported books and/or publications are for
samples within three (3) months from the date of economic, technical, vocational, scientific,
the acceptance of the goods declaration or in philosophical, historical or cultural purposes or
default thereof, the payment of the that the same are educational, scientific or
corresponding duties, taxes and other charges: cultural materials covered by the International
Provided, That if the FCA value of any single Agreement on Importation of Educational
consignment of such commercial samples Scientific and Cultural Materials (XAESCM)
exceeds 50,000.00, the importer thereof may signed by the President of the Philippines on
select any portion of the same not exceeding the August 2, 1952, or other agreements binding
FCA value of 50,000,00 for entry under the upon the Philippines. Educational, scientific and
cultural materials covered by international Geosciences Bureau, for a period ending five (5)
agreements or commitments binding upon the years from the first date of actual commercial
Philippine government so certified by the production of saleable mineral products:
DepED; Provided, That such goods are not locally
available in reasonable quantity, quality and price
21. Philippine goods previously exported from the and are necessary or incidental in the proper
Philippines and returned without having been operation of the mine; and aircrafts imported by
advanced in value, or improved in condition by agro-industrial companies to be used by them in
any process of manufacturing or other means, their agriculture and industrial operations or
and upon which no drawback or bounty has been activities, spare parts and accessories thereof,
allowed, including instruments and implements, when certified to as such by the Secretary of the
tools of trade, machinery and equipment, used Department of Agriculture (DA) or the Secretary
abroad by Filipino citizens in the pursuit of their of the Department of Trade and Industry (DTI),
business, occupation or profession; and foreign as the case may be;
goods previously imported when returned after
having been exported and loaned for use 24. Spare parts of vessels or aircraft of foreign
temporarily abroad solely for exhibition, testing registry engaged in foreign trade when brought
and experimentation, for scientific or educational into the Philippines exclusively as replacements
purposes; and foreign containers previously or for the emergency repair thereof, upon proof
imported which have been used in packing satisfactory to the District Collector that such
exported Philippine goods and returned empty if spare parts shaft he utilized to secure the safety,
imported by or for the account of the person or seaworthiness or airworthiness of the vessel or
institution who exported them from the aircraft, to enable it to continue its voyage or
Philippines and not for sale, barter or hire subject flight;
to identification: Provided, That Philippine
goods falling under this subsection upon which 25. Goods exported from the Philippines for repair,
drawback or bounty have been allowed shall, processing or reconditioning without having
upon reimportation thereof, be subject to a duty been substantially advanced in value, and
under this subsection equal to the amount of subsequently reimported in its original form and
such drawback or bounty; in the same state: Provided, That in case the
reimported goods advanced in value, whether or
22. Aircraft, equipment and machinery, spare parts, not in their original state, the value added shall be
commissary and catering supplies, aviation gas, subject to the applicable duty rate of the tariff
fuel and oil, whether crude or refined except heading of the reimported goods; and
when directly or indirectly used for domestic
operations, and such other goods or supplies 26. Trailer chassis when imported by shipping
imported by and for the use of scheduled airlines companies for their exclusive use in handling
operating under congressional franchise: containerized cargo, upon posting a security in an
Provided, That such goods or supplies are not amount equal to 100% of the ascertained duties,
locally available in reasonable quantity, quality taxes and other charges due thereon, to cover
and price and are necessary or incidental to the aperiod of one (1) year from the date of
proper operation of the scheduled airline acceptance of the entry, which period, for
importing the same; meritorious reasons, may be extended by the
Commissioner from year to year, subject to the
23. Machineries, equipment, tools for production, following conditions:
plans to convert mineral ores into saleable form, a. That they shall be properly identified and
spare parts, supplies, materials, accessories, registered with the Land Transportation
explosives, chemicals, and transportation and Office (LTO);
communications facilities imported by and for b. That they shall be subject to customs
the use of new mines and old mines which supervision fee to be fixed by the District
resume operations, when certified to as such by Collector and subject to the approval of the
the Secretary of the Department of Environment Commissioner;
and Natural Resources (DENR), upon the c. That they shall be deposited in the customs
recommendation of the Director of Mines and territory when not in use; and
Outright Smuggling
The act of importing goods into the country without
complete customs prescribed importation
documents, or without being cleared by customs or
other regulatory government agencies, for the
purpose of evading payment of prescribed taxes,
duties and other government charges. [Sec. 101(ff),
CMTA]
accident, stress of weather, or other necessity and not chartered or leased, or that the agent in
is subsequently approved by the District charge thereof at the time, has no knowledge of
Collector; the unlawful act; and
5. Goods which are fraudulently concealed in or
removed contrary to law from any public or
private warehouse, container yard, or container 12. Goods sought to be imported or exported:
freight station under customs supervision; a. Without going through a customs office,
6. Goods, the importation or exportation of which whether the act was consummated,
are effected or attempted contrary to law, or any frustrated, or attempted;
goods of prohibited importation or exportation, b. Found in the baggage of a person arriving
and all other goods which, in the opinion of the from abroad and undeclared by such person;
District Collector, have been used, are or were c. Through a false declaration or affidavit
entered to be used as instruments in the executed by the owner, importer, exporter,
importation or the exportation of the former; or consignee concerning the importation of
7. Unmanifested goods found on any vessel or such goods;
aircraft if manifest therefor is required; d. On the strength of a false invoice or other
8. Sea stores or aircraft stores adjudged by the document executed by the owner, importer,
District Collector to be excessive, when the exporter, or consignee concerning the
duties and taxes assessed by the District Collector importation or exportation of such goods; or
thereon are not paid or secured forthwith upon e. Through any other practice or device
assessment of the same; contrary to law by means of which such
9. Any package of imported goods which is found goods entered through a customs office to
upon examination to contain goods not specified the prejudice of the government.
in the invoice or goods declaration including all
other packages purportedly containing imported Conditions Affecting Forfeiture of Goods
goods similar to those declared in the invoice or The forfeiture shall be effected only
goods declaration to be the contents of the when and while the goods are in the custody or within
misdeclared package; the jurisdiction of customs officers, or
in the possession or custody of or subject to the
Misdeclared Shipment control of the importer, exporter, original owner,
Shipments declared as consolidated Balikbayan consignee, agent of another person effecting the
Boxes but are found to be otherwise shall be importation, entry or exportation in question, or
considered as misdeclared and subjected to in the possession or custody of or subject to the
seizure and forfeiture proceedings. [Sec. 8, CMO control of persons who shall receive, conceal, buy,
33-2016 (Guidelines on the Implementation of sell, or transport the same, or aid in any of such acts,
CAO 05-2016 on Consolidated Shipment of with knowledge that the goods were imported, or
Duty and Tax-Free Balikba an Bo e )] were the subject of an attempt at importation or
10. Boxes, cases, trunks, envelopes, and other exportation contrary to law. [Sec. 1115, CMTA]
containers of whatever character used as
receptacle or as device to conceal goods which Seizure or Release of Goods
are subject to forfeiture under this Act or which The District Collector shall issue an order of release
are so designed as to conceal the character of or a warrant of seizure within five (5) days, or two (2)
such goods; days in case of perishable goods, upon the
11. Any conveyance actually used for the transport recommendation of the alerting officer or any other
of goods subject to forfeiture under this Act, with customs officer.
its equipage or trappings, and any vehicle
similarly used, together with its equipment and The District Collector shall immediately make a
appurtenances. The mere conveyance of report of such seizure or release to the Commissioner.
smuggled goods by such transport vehicle shall [Sec. 1116, CMTA]
be sufficient cause for the outright seizure and
confiscation of such transport vehicle but the Warrant of Seizure or Order of Release
forfeiture shall not be effected if it is established The District Collector shall have the authority to issue
that the owner of the means of conveyance used a warrant of seizure of the goods upon determination
as aforesaid, is engaged as common carrier and
of the existence of probable cause and in case of Service of warrant to an unknown owner shall be
nonexistence thereof, the issuance of order of release. effected by posting the warrant for fifteen (15) days
in a public place at the concerned district, and by
In case the District Collector issued an order of electronic or printed publication. [Sec. 1119, CMTA]
release, the District Collector shall immediately
transmit all the records to the Commissioner who Proceedings in Case of Property Belonging to
shall automatically review within forty-eight (48) Unknown Parties
hours, or within twenty-four (24) hours in case of If, within fifteen (15) days after service of warrant, no
perishable goods. When no decision is made by the owner or agent can he found or appears before the
Commissioner within the prescribed period, the District Collector, the seized goods shall be forfeited
imported goods shall be deemed released. ipso facto in favor of the government to be disposed of
in accordance with the CMTA. [Sec. 1121, CMTA]
The lifting of the alert order shall he issued by the
District Collector only upon the affirmation of the Burden of Proof in Forfeiture Proceedings
decision of the District Collector by the In all proceedings for the forfeiture of any vehicle,
Commissioner, or after the lapse of the period of vessel, aircraft, or goods under this Act, the burden of
review by the Commissioner, whichever is earlier. proof shall be borne by the claimant. [Sec. 1123,
[Sec. 1117, CMTA] CMTA]
How claimed
1. Claim made in writing
2. Collector shall verify with the records in his office
3. Certify claim to Commissioner with his
recommendation and necessary papers
4. Commissioner shall then cause the claim to be
paid if found correct
START
C Amount
decision favorable Automatic review* by Customs
Yes involved less Yes
to taxpayer/ Commisioner (Sec. 2313)
than 5M?
a ?
Is
Does
No C
commissioner
Yes decision favorable
decide w/in 30
Taxpayer appeals to taxpayer/
days?
to Customs a ?
Commissioner 15
days from receipt No
of notice
Inaction construed as affirmation
C
Does
Commissioner
Yes No, amount is at least
decide w/n 30
Is 5M
days?
C Yes
Automatic Review* by
decision
the Secretary of
favorable to Yes
Finance (SOF) (Sec.
taxpayer/
2313, CMO 3-2002)
adverse to
?
I SOF
decision Does SOF
No favorable to Yes decide within
No No taxpayer/adverse 30 days?
?
No
Yes
Inaction construed as
affirmation of
Decision becomes
No
END final &
( Appeal
unappealable
in case of inaction by to CTA
commissioner)
Appeal to the
Inaction construed
Court of Tax
as affirmation of
Appeals within 30
C
days from notice
decision
of decision
Appeal to CTA en
MR within 15 days
banc 15 days from Appeal to the
from receipt of END
receipt of decision Supreme Court
decision
denying MR
*Automatic review is intended to protect the interest of the Government. W/o auto review, the Commissioner and SoF would not know
about the decision laid down by the Collector favoring the taxpayer. Automatic review is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the taxpayer & adverse to the Government. (Yaokasin v. Commissioner 180 SCTA 591
For 1]:
appropriately set
to a level not
exceeding one-
third of the
applicable out-
quota customs
duty on the
agricultural
product under
tariff increase, consideration in
either ad the year when it
valorem or is imposed
specific, or
5% of dutiable both, to be paid For 2], compute
Anti-Dumping
value, deemed to Not exceeding through a cash as follows:
Duty = Equivalent to the
have accrued at 100% ad valorem bond set at a 0 - if price
Normal Value subsidy
the time of upon the articles level sufficient difference is at
- Export Price
importation to redress or most 10% of the
prevent injury trigger price
to the domestic 30% of the
industry [Sec. 8, amount by which
RA 8800] the price
difference
exceeds 10% of
the trigger price
50% - if it
exceeds 40% but
less than 60%
70% - if it
exceeds 60 but at
most 75%
90% - if it
exceeds 75%