TAXATION LAW
Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The court’s power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. “Power to tax is the power to
destroy” (Marshall Dictum) – refers to ASPECTS OF TAXATION
the unlimitedness and the degree or 1. Levy or imposition of the tax (tax
vigor with which the taxing power may legislation)
be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy – sufficiency to
meet government expenditures and
2. “Power to tax is not the power to other public needs.
destroy while the Supreme Court sits” 2. Administrative Feasibility/
(Holmes Dictum) – the power to tax Convenience – capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the State’s
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue – basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public
2. Non-Revenue (Key: PR2EP) purpose
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
3. Benefits Received
e. Protectionism
No special No direct A direct
or direct benefit is benefit results
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a in the form of
As long as the legislature, in received by healthy just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
merely society is property
restrictions, it is not within the province
general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the
TAXES ARE PERSONAL TO THE TAXPAYER the tax falls on one person but
1. A corporation’s tax delinquency the burden thereof can be
cannot be enforced against its shifted or passed on to another.
stockholders. (Corporate Entity 3. As to purpose:
Doctrine) a. General Tax – levied for the
Exception: Stockholders may be general or ordinary purposes of
held liable for unpaid taxes of a the Government
dissolved corporation: b. Special Tax – levied for special
a. if it appears that the corporate purposes
assets have passed into their 4. As to manner of computation:
hands or a. Specific Tax – the computation
b. when the stockholders have of the tax or the rates of the tax
unpaid subscriptions to the is already provided for by law.
capital of the corporation b. Ad Valorem Tax – tax upon the
value of the article or thing
2. Estate taxes are obligations that subject to taxation; the
must be paid by the executor or intervention of another party is
administrator out of the net assets needed for the computation of
and cannot be assessed against the the tax.
heirs. 5. As to taxing authority:
Exception: If prior to the payment a. National Tax – levied by the
of the estate tax due, the properties National Government
of the deceased are distributed to b. Local Tax – levied by the local
the heirs, then the latter is government
subsidiary liable for the payment of 6. As to rate:
such portion of the estate tax as his a. Progressive Tax – rate or
distributive share bears to the total amount of tax increases as the
value of the net estate. (Sec. 9, amount of the income or earning
Rev. Regs. No. 2-2003; see CIR vs. to be taxed increases.
Pineda G.R. No. L-22734. b. Regressive Tax – tax rate
September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax – based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax – taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll – amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax – assessed on used.
property of a certain class 2. Penalty – punishment for the
c. Excise Tax – imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty – amount
d. Customs Duties – duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment – levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax – both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee – regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.
(1) SHIFTING – the process by which the (4) TAX AVOIDANCE – the exploitation by
tax burden is transferred from the the taxpayer of legally permissible
statutory taxpayer (impact of taxation) alternative tax rates or methods of
to another (incident of taxation) without assessing taxable property or income, in
violating the law. order to avoid or reduce tax liability.
Example: “estate planning”
IMPACT OF TAXATION – point on which tax (conveyance of property to a family
is originally imposed.
KINDS
1. SELF- ASSESSMENT- one in which the 4. The authority of the Commissioner
tax is assessed by the taxpayer to assess taxes may be delegated,
himself except the power to make final
2. DEFICIENCY ASSESSMENT- made by the assessments.
tax assessor himself whereby the 5. It must be directed to the right
correct amount of the tax is party.
determined after an examination or
investigation is conducted. The Authority of a Revenue Officer -
liability is determined and assessed pursuant to a Letter of Authority issued
for the following reason: by the Regional Director
a. amount ascertained exceeds that a. To examine taxpayers within
which is shown as the tax by the the jurisdiction of the district in
taxpayer in his return order to collect the correct
b. no amount of tax is shown in the amount of tax;
return b. To recommend the assessment of
c. taxpayer did not file any return any deficiency tax due in the
at all same manner that the said acts
3. ILLEGAL AND VOID ASSESSMENT- could have been performed by the
assessment wherein tax assessor has Revenue Regional Director.
no power to assess at all General Rule: income tax returns are
4. ERRONEOUS ASSESSMENT- assessor has
confidential.
power to assess but errs in the Exception: inquiry into income tax
exercise thereof returns may be authorized-
1. The income of the trust for the 2. contributions are made to the trust
taxable year which is to be by such employer, or such
distributed to the beneficiaries – employees, or both;
filing and payment of tax lie on the 3. such contributions are made for the
beneficiaries. purpose of distributing to such
2. The income of the trust which is to employees both the earnings and
be accumulated or held for future principal of the fund accumulated by
distribution whether consisting of the trust, and
ordinary income or gain from the 4. that the trust instrument makes it
sale of assets included in the impossible for any part of the trust
"corpus" of the estate – filing of corpus or income to be used for, or
return and payment of tax become diverted to, purposes other than the
the burden of the trustee or exclusive benefit of such employees.
fiduciary. (Sec. 60B, NIRC)
Exceptions:
a. In the case of a revocable trust, Tax exemption is likewise to be
the income of the trust will be enjoyed by the income of the pension
returned by the grantor. trust; otherwise, taxation of those
b. In a trust where the income is earnings would result in a diminution of
held for the benefit of the accumulated income and reduce
grantor, the income of the trust whatever the trust beneficiaries would
becomes income to the grantor. receive out of the trust fund.
c. In the case of trust (Commissioner vs. Court of Appeals,
administered in a foreign Court of Tax Appeals and GCL
country, the income of the trust; Retirement Plans, GR No. 95022, March
undiminished by any amount 23, 1992)
distributed to the beneficiaries
shall be taxed to the trustee. D. PARTNERSHIPS
IRREVOCABLE TRUSTS (irrevocable both as KINDS OF PARTNERSHIP FOR TAX PURPOSES
to corpus and as to income) – UNDER THE NIRC
1. General Professional Partnerships
Trust itself, through the trustee or (GPP) - formed by persons for:
fiduciary, is liable for the payment of a. the sole purpose of exercising a
income tax. Taxed exactly in the same common profession and
way as estates under judicial settlement b. no part of the income of which is
and its status as an individual is that of derived from engaging in any
the trustor. It is entitled to the trade or business. [Sec. 22(B),
minimum personal exemption (P20,000) NIRC].
and distribution of trust income during 2. Taxable or Business Partnership –
the taxable year to the beneficiaries is All other partnerships except
deductible from the trust’s taxable general professional partnerships no
income. matter, how created or organized.
It includes unregistered joint
REVOCABLE TRUSTS – the trustor, not the ventures and business partnerships.
trust itself, is subject to the payment of However, joint ventures are not
income tax on the trust income. taxables as corporations when it is;
(a) undertaking construction projects
EXEMPTION OF EMPLOYEES’ TRUST (b) engaged in petroleum, coal and
Provided: other energy operation under a
1. the employee’s trust must be part of service contract with the
a pension, stock bonus or profit government
sharing plan of the employer for the General co-partnerships (GCP)
benefit of some or all of his are partnerships, which are by law
employees; assimilated to be within the context
of, and so legally contemplated as,
b. the recipient is other than the taxable year), then the excess shall
shareholder (Bachrach vs. be included in the gross income.
Seifert, GR No. L-2659, October However, in the case of a transfer for
12, 1950) a valuable consideration, by
c. change in the stockholder’s assignment or otherwise, of a life
equity results by virtue of the insurance, endowment or annuity
stock dividend issuance. contract, or any interest therein,
only the actual value of such
3. Liquidating Dividends – When a consideration and the amount of the
corporation distributes all of its premiums and other sums
assets in complete liquidation or subsequently paid by the transferee
dissolution, the gain realized or are exempt from taxation. No loss is
loss sustained by the realized on surrender of a life
stockholder, whether individual insurance policy for its surrender
or corporation, is taxable value.
income or deductible loss, as the
case may be. (Sec. 73A) 3. Gift, bequest or devise
A liquidating dividend is not Gifts, bequests, and devises
a dividend income. The (which are subject to estate or gift
transaction is considered a sale taxes) are excluded, but not the
or exchange of property income from such property. If the
between the corporation and the amount received is on account of
stockholder. services rendered, whether
constituting a demandable debt or
EXCLUSIONS FROM GROSS INCOME not, or the use of the opportunity to
NOTE: Under the 1997 Tax Code, the use of capital, the receipt is income
term “exclusions” refers to items that (Pirovano vs. Commissioner, 14
are not included in the determination of SCRA 832)
gross income either because:
(a) they represent return of capital 4. Compensation for personal injuries
or are not income, gain or profit; or or sickness, whether by suit or
(b) they are subject to another kind agreement
of internal revenue tax; or NOTE: The phrase “personal
(c) they are income, gain or profit injuries” should be given a
that are expressly exempt form income restrictive meaning to refer only to
tax under the constitution, tax treaty, physical injuries. The theory for this
Tax Code, or a general or special law. is that recoupment on account of
such losses is not income, since it is
1. Proceeds of life insurance paid by not derived from capital, from labor
reason of the death of the insured to or from both combined. And the
his estate or to any beneficiary fact that the payment of
(individual, partnership, or compensation for such loss was
corporation, but not a transferee for voluntary does not change its
a valuable consideration), directly or exempt status. It was in fact
in trust. compensation for a loss, which
NOTE: if the proceeds are impaired petitioner’s capital.
retained by the insurer, the interest
thereon is taxable; 5. Income exempt under Treaty;
General rule: Losses from wash sales f. Losses from sales or exchanges of
are not deductible. property between related
Exception: When the sale is made by taxpayers -losses of this nature is not
a dealer in stock or securities and deductible but gains are taxable.
with respect to a transaction made in
the ordinary course of the business of g. Losses of farmers - if incurred in the
such dealer, losses from such sale is operation of farm business, it is
deductible. deductible.
Elements of Wash Sales:
(1) The sale or other disposition of h. Loss in shrinkage in value of stock –
stock resulted to a loss; if the stock of the corporation becomes
(2) There was an acquisition or worthless, the cost or other basis may be
contract or option for acquisition deducted by the owner in the taxable
of stock or securities within 30 year in which the stock of its
days before the sale or 30 days worthlessness is made. Any amount
after the sale; and claimed as a loss on account of shrinkage
(3) The stock or securities sold were in value of the stock through fluctuation
substantially the same as those in the market or otherwise cannot be
acquired within the 61-day deducted from gross income.
period.
E. BAD DEBTS
c. Abandonment losses
in petroleum operation and producing BAD DEBTS – shall refer to those debts
well. resulting from the worthlessness or
(1) In case a contract area where uncollectibility, in whole or in part, of
petroleum operations are amounts due the taxpayer by others,
undertaken is partially or wholly arising from money lent or from
abandoned, all accumulated uncollectible amounts of income from
exploration and development goods sold or services rendered.
3) Recipient is an 3) Recipient is an
accredited non- accredited
government domestic
organization, corporation or
organized/ operated association
for (purposes): organized/opera
ted for
(purposes):
receipts less sales goods sold; provides that gross sales include
returns, discounts 2.import duties; sales contributory to income taxable
and allowances and 3.freight in under the regular corporate tax.
cost of goods sold transporting the
goods to the place See Annex T for interplay of normal
where the goods tax, optional corporate income tax
are actually sold; and MCIT.
4.insurance while
the goods are in
transit. (4) IMPROPERLY ACCUMULATED
B. Manufacturing Cost of Sales = All EARNINGS (IAE) TAX
Gross Income cost of production of
(Same) finished goods, such
SECTION 29
as
1.raw materials (REVENUE REGULATIONS NO. 2 – 2001)
used;
2.direct labor; DEFINITION: “Improperly accumulated
3.manufacturing earnings (IAE)” are the profits of a
overhead; corporation that are permitted to
4.freight cost; accumulate instead of being distributed
5.insurance by a corporation to its shareholders for
premiums; the purpose of avoiding the income tax
6.other costs with respect to its shareholders or the
incurred to bring shareholders of another corporation.
the raw materials
to the factory or TAX RATE: 10% of the Improperly
warehouse. Accumulated Taxable Income (in
C. Services Cost of Services = All addition to other taxes).
Gross Income = direct costs and Rationale behind IAET
Gross receipts less expenses necessarily If the earnings and profits were
sales returns, incurred to provide distributed, the shareholders would then
allowances, the services required be liable to income tax thereon,
discounts and costs by the customers and whereas if the distribution were not
of services clients including: made to them, they would incur no tax
a. Salaries and in respect to the undistributed earnings
employee benefits and profits of the corporation. Thus, a
of personnel, tax is being imposed;
consultants and a. in the nature of a penalty to the
specialists directly corporation for the improper
rendering the accumulation of its earnings, and
service; b. as a form of deterrent to the
b. Cost of facilities avoidance of tax upon
directly utilized in shareholders who are supposed
providing the to pay dividends tax on the
service. earnings distributed to them by
It shall not the corporation.
include interest
expense except for “IMPROPERLY ACCUMULATED TAXABLE
banks and other INCOME”
financial
institutions. Taxable income for the year
Add:
• Gross income excludes passive Income exempt from tax;
income subject to final tax. Income excluded from gross income;
• Other income and Extraordinary Income subject to final tax;
Income are included since RR 9-98
3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not
needs of the business as subsequently declared intentions, which
defined in these Regulations. are merely the product of afterthought.
A speculative and indefinite purpose will
2. The fact that the earnings or profits not suffice.
of a corporation are permitted to Definiteness of plan/s coupled with
accumulate beyond the reasonable action/s taken towards its
needs of the business shall be consummation is essential.
determinative of the purpose to
avoid the tax upon its shareholders PERIOD FOR PAYMENT OF DIVIDEND/
or members unless the corporation, PAYMENT OF IAET
by the clear preponderance of Dividends must be declared and paid
evidence, shall prove the contrary. or issued not later than one year
following the close of the taxable year,
“Reasonable needs of the otherwise, the IAET, if any, should be
business” includes the reasonably paid within fifteen (15) days thereafter.
anticipated needs of the business
such as:
a. Allowance for the increase in the (5) INCOME SUBJECT TO
accumulation of earnings up to
PREFERENTIAL OR SPECIAL
100% of the paid-up capital of
the corporation as of Balance RATES
Sheet date, inclusive of
accumulations taken from other Pertains to income derived by a
years; particular individual or corporation
b. Earnings reserved for definite belonging to a class of income taxpayer
corporate expansion projects or that is subject to either a preferential or
programs as approved by the special rate.
Board of Directors or equivalent
body; Tax Rates: Please refer to Annex C.
c. Reserved for building, plants or
equipment acquisition as (6) GROSS INCOME TAX (GIT)
approved by the Board of
Directors or equivalent body; GROSS INCOME TAX (GIT) FORMULA
d. Reserved for compliance with
any loan covenant or pre- Entire Income
existing obligation established Less: Exclusions and Income subject
under a legitimate business to Final Tax (e.g. Passive
agreement; Income)
e. Earnings required by law or Gross Income
applicable regulations to be Multiply by: Tax Rates (%)
retained by the corporation or in
respect of which there is legal Net Income Tax Due
prohibition against its
distribution; GIT APPLIES TO
f. In the case of subsidiaries of
foreign corporations in the 1. Non-resident alien not engaged in
Philippines, all undistributed trade or business (25%); and
earnings intended or reserved 2. Non-resident foreign corporation.
for investments within the (32%)
Philippines as can be proven by
corporate records and/or Tax Rates: Please refer to Annex A
relevant documentary evidence. and B.
• The fair market value (FMV) of the CAPITAL GAINS AND LOSSES
sale of shares not traded but listed (REAL PROPERTY)
in the stock exchange is the highest
closing price on the day the shares PERSONS LIABLE AND TRANSACTIONS
were sold, transferred or exchanged. AFFECTED
• When no sale is made in the stock
exchange, the FMV shall be the 1. Individual taxpayers, estates and
highest selling price on the day trusts
nearest to the day of sale, transfer Sale or exchange or other
or exchange. disposition of real property
• For shares not listed in the considered as capital assets.
exchange, the FMV shall be the book The said sale shall include "pacto
value nearest the valuation date de retro sale" and other conditional
sale.
The above rules shall be used in 2. Domestic Corporation
computing for the net capital gain/loss Sale or exchange or disposition
for disposition of shares. of lands and/or building which are
not actually used in business and are
IMPORTANT FEATURES treated as capital asset.
REQUIREMENT OF BANKS FOR SUBMISSION OF Time For Filing (Pay as you file system)
AN ITR FOR LOAN O R CREDIT CARD
APPLICATIONS April 15 – for those earning sole
compensation income or solely business,
Banks may require the submission of practice of profession or combination of
BIR Form No. 1700 (for employees not business and compensation.
entitled to substituted filing of ITR).
However, for employees entitled to RETURN AND PAYMENT OF ESTIMATED INCOME
substituted filing of ITR, the submission TAX BY INDIVIDUAL (SELF-EMPLOYED OR
of the Joint Certification will suffice. PRACTICE OF PROFESSION)
Individuals not required to file an • File one (1) return for the taxpayer
income tax return may nevertheless be year if following requisites
required to file an information return complied;
pursuant to rules and, regulations a. Married individuals (citizens,
prescribed by the Secretary of Finance resident or nonresident aliens)
upon recommendation of the b. Do not derived income purely
Commissioner. from compensation.
PLACE OF FILING • If impracticable to file one return:
each spouse file a separate return of
1. Legal residence - authorized agent income but the return so filed shall
bank; Revenue District Officer; be consolidated by the Bureau for
Collection agent or duly authorized the purposes of verification for the
treasurer year.
2. Principal place of business
D
In the absence of such contract, or if E
the contract is void: D
On marriages contracted before August U
3, 1988, the system of conjugal
C
partnership of gains shall govern;
T
On marriages contracted on or after
August 3, 1988 (effectivity of the I
Family Code of the Philippines), the O
system of absolute community of N
property shall govern. S
O
Exempt Transmissions (Sec. 87) N
1. The merger of usufruct in the owner
of the naked title; G
2. Fideicommisary substitution;
R
3. The transmission from the first heir,
O
legatee or donee in favor of another
beneficiary, in accordance with the S
will of the predecessor; and S
All bequests, devices, legacies or E
transfers to social welfare, cultural and S
charitable institutions no part of the net T
income of which inures to the benefit of A
any individual; Provided, that not more T
than 30% of the said bequests, legacies E
or transfers shall be used by such
A
institutions for administration purposes.
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1. ORDINARY DEDUCTIONS
A. Funeral Expenses
The amount deductible is the lowest
among the following:
1. actual funeral expenses
2. 5% of the gross estate
3. P200,000.
6. MEDICAL EXPENSES
D N
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D N
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I S
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N D
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G A
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S
T The following are deductible from the gross
estate of non-resident aliens:
A
1. Expenses, losses, indebtedness and
T
taxes (ELIT) (ordinary deductions)
E
Formula:
A Tax = Phil. Gross
P Credit Estate X World
Limit World Gross ELIT
P
Estate
L
I 2. Transfer for public use
C
A 3. Vanishing deduction on property in
the Philippines.
B
L 4. Conjugal share of the surviving
E spouse
T
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A
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A tax credit is granted for estate
taxes paid to a foreign country on the
H
estate of citizens and resident aliens E
subject to the following limitations
E
1. One foreign country only S
The tax credit is whichever is
lower between:
T
4. Estate tax paid to the foreign A
country T
5. Tax Credit Limit = E
NTE, foreign country X Phil. estate
NTE, world Tax
T
(NTE - Net Taxable Estate) A
X
2. More than one foreign country
The credit shall be that which is A. FILING
the lower amount between Limit A
and Limit B. Notice Of Death To Be Filed
In all cases of transfers subject to
Limit A. Whichever is lower tax, or where, though exempt from tax,
between: the gross value of the estate exceeds
• Estate tax paid to a foreign P20,000, the executor, administrator or
country any of the legal heirs, within two
• Tax Credit Limit = months after the decedent’s death, or
NTE, foreign country X Phil. estate within a like period after qualifying as
NTE, world Tax such executor or administrator, shall
give a written notice thereof to the
Limit B. Whichever is lower Commissioner. (Sec. 89)
between:
• Total of estate taxes paid to all An Estate Tax Return Is Required To Be
foreign countries Filed
• Tax Credit Limit = 1. when the estate is subject to estate
NTE outside Phil. X Phil. estate tax; or
NTE, world Tax 2. when the estate is not subject to
estate tax but the gross estate
exceeds P 200,000; or
If the donee is a stranger, the rate of TAX REMEDIES UNDER THE 1997 TAX CODE:
tax shall be 30% of the net gifts.
If the donee is not a stranger, 1. Summary – remedies at the
the rate shall be from 2% to 15% of the administrative level or regulation that
net gifts. are executed without ceremony or
delay; short or concise
See Annex W - Donor’s Tax 2. Substantive – remedies provided for
by law or regulation; an essential part or
constituent or relating to what is
C. TAX REMEDIES essential
UNDER THE NIRC 3. Procedural – remedies involving law of
pleading, evidence, jurisdiction, etc.
Requisites Exceptions
1. The taxpayer must have a tax
liability. 1. Withholding tax cases;
2. There must be an offer (by the 2. Criminal tax fraud cases;
taxpayer of an amount to be paid by 3. Criminal violations already filed in
the taxpayer) court;
3. There must be an acceptance (by 4. Delinquent accounts with duly
the Commissioner or taxpayer as the approved schedule of installment
case may be) of the offer in the payments;
settlement of the original claim. 5. Cases where final reports of
reinvestigation or reconsideration
Officers authorized to compromise have been issued resulting to
reduction in the original assessment
1. The Commissioner of Internal and the taxpayer is agreeable to
Revenue (CIR) with respect to such decision.
Both I
Are summary remedies for the collection of Commencement of distraint
taxes; proceedings
NOTE: Refer only to personal property; and
cannot be availed of where the amount of
the tax involved is not more than P100
Either by the CIR or his duly authorized
representative; or by the Revenue
District Officer
Requisites for the exercise of the
remedy of distraint
Note: Upon receipt of the warrant of 1. is retiring from any business subject
distraint, the bank shall turn over to the to tax;
Commissioner so much of the bank 2. is intending to –
accounts as may be sufficient to satisfy a. leave the Philippines,
the claim of the government. b. remove his property therefrom,
4. Debts and credits – c. hide or conceal his property,
(a) persons owing or having in his 3. is performing any act tending to
possession the debts; obstruct the proceeding for
(b) or under his control such credits; collecting the tax due or which may
or be due from him (Sec. 223, 1997
(c) upon his agent. NIRC).
DISTRAINT LEVY
final decision (Sec. 3.1.5, Rev. Regs. No. 4. The actual issuance of a warrant of
12-99) distraint and levy in certain cases
cannot be considered a final decision
2. Indirect denial of protest on a disputed settlement.
a. Commissioner did not rule on the (Commissioner vs. Union Shipping
taxpayer’s motion for Corporation, GR No. 66160, May 21,
reconsideration of the 1990)
assessment – it was only when
respondent received the
summons on
authorized representa-
tive (Sec. 4.2, Rev. Reg.
12-99)
locality and the ordinance shall 2. The ordinance levying such taxes,
prescribe the terms and fees or charges shall not be enacted
conditions therefore. without any prior public hearing
b. The grant shall be for a definite conducted for the purpose.
period of not exceeding 1
calendar year.
c. The grant shall be by ordinance
passed prior to the 1 st day of LIMITATIONS OF THE RESIDUAL POWER
January of any year. 1. Constitutional limitations on
d. Any grant to a type or kind of taxing power
business shall apply to all 2. Common limitations prescribed
businesses similarly situated. in Sec. 133 of the LGC
3. Fundamental principles
LEVYING OF LOCAL TAXES (LOCAL TAX governing the exercise of the
ORDINANCE) taxing power of the LGUs
Requisites: prescribed under Sec. 130 of
1. The procedure applicable to local the LGC
government ordinances in general 4. The ordinance levying such
should be observed (Sec. 187, LGC) residual taxes shall not be
2. Procedural details (Secs. 54, 55, and enacted without any prior
59, LGC): public hearing conducted for
a. necessity of a quorum the purpose and
b. submission for approval by the 5. The principle of preemption.
local chief executive
c. he matter of veto and overriding Principle of Preemption or
the same Exclusionary doctrine
d. the publication and affectivity Where the National Government
3. Public hearings are required before elects to tax a particular area, it
any local tax ordinance is enacted impliedly withholds from the local
(Sec.187, LGC) government the delegated power to tax
4. Within 10 days after their approval, the same field. This doctrine principally
publication in full for 3 consecutive rests on the intention of the Congress.
days in a newspaper of general
circulation. In absence of such Excluded impositions (pursuant to the
newspaper in the province, city or doctrine of preemption):
municipality, then the ordinances a. Taxes which are levied under the
may be posted in at least 2 NIRC, unless otherwise provided
conspicuous and publicly accessible by LGC of 1991;
places (Sec. 189, LGC) b. Taxes, fees, etc. which are
imposed under the Tariffs and
Residual Taxing Powers of the Local Customs Code;
government units (Sec. 186, lgc) c. Taxes, fees, etc., the imposition
To levy taxes, fees or charges on any of which contravenes existing
base or subject NOT: governmental policies or which
1. Specifically enumerated in LGC violates the fundamental
2. Taxed under the provisions of principles of taxation;
the NIRC, as amended, and d. Taxes, fees and other charges
3. Other applicable laws imposed under special law.
A. ADMINISTRATIVE
Before assessment IV. REAL PROPERTY
a. Appeal – any question on TAXATION
constitutionality or legality of tax
ordinance within 30 days from
effectivity thereof to Secretary of Definitions:
Justice (Sec. 187 LGC) REAL PROPERTY TAXATION – A direct
b. Declaratory relief whenever tax on ownership of lands and
applicable. buildings or other improvements
thereon payable regardless of
After assessment whether the property is used or
a. Protest – within 60 days from receipt not, although the value may vary
of assessment (Sec. 195 LGC). in accordance with such factor.
Payment under protest is not Under the LGC, it covers
necessary. the administration, appraisal,
assessment, levy and collection
b. Payment & subsequent refund or of Real Property Tax, i.e. tax on
tax credit – within 2 years from land and building and other
payment of tax to local treasurer structures and improvements on
(Sec. 196 LGC). It is to be noted it, including machineries.
that, unlike in internal revenue
taxes, the supervening cause applies REAL PROPERTY – subject to the
in local taxation because the period definition given by Art. 415 of
for the filing of claims for refund or the Civil Code.
credit of local taxes is counted not
necessarily from the date of
payment but from the date the
(d) For Advance and Prompt Payment PRESCRIPTIVE PERIODS FOR THE
1. Advance payment – discount not COLLECTION OF REAL
exceeding 20% of annual tax (Sec. PROPERTY TAXES
251, LCG)
2. Prompt payment – discount not
exceeding 10% of annual tax due 1. Basic real property tax and any
(Art 342 IRR) other tax levied under the title on
Real Property Taxation– five (5)
Collection of Tax (Sec. 247) years from the date they became
It shall be the responsibility of the due. (Sec. 270, LGC).
city or municipal treasurer concerned. 2. When there is fraud or intent to
The city or municipal treasurer may evade the payment of taxes – ten
deputize the barangay treasurer to (10) years from discovery of the
collect all taxes on real property located fraud or intent to evade the
in the barangay; provided, the barangay payment (Sec. 270, LGC).
treasurer is properly bonded.
GROUNDS FOR THE SUSPENSION OF
Period to Collect (Sec. 270) THE RUNNING OF THE PRESCRIPTIVE
1. within five (5) years from the PERIODS
date they become due
2. within ten (10) years from 1. The treasurer is legally prevented
discovery of fraud, in case there from the assessment or collection of
is fraud or intent to evade the tax;
2. The taxpayer requests for a
Suspension of Prescriptive Period (Sec. reinvestigation and executes a
270) waiver in writing before the
1. local treasurer is legally expiration of the period within
prevented to collect tax. which to assess or collect; and
2. the owner or property requests 3. The taxpayer is out of the country or
for reinvestigation and writes a otherwise cannot be located (Sec.
waiver before expiration of 270, LGC).
period to collect.
3. the owner of property is out of 2. TAX REMEDIES OF THE
the country or cannot be TAXPAYER
located.
A. ADMINISTRATIVE
REAL PROPERTY TAX
REMEDIES UNDER THE LGC Protest – payment under protest is
required within 30 days to provincial,
1. TAX REMEDIES OF THE LOCAL city, or municipal treasurer. No protest
GOVERNMENT TO EFFECT shall be entertained unless the tax is
COLLECTION OF TAXES first paid. (Sec. 252 LGC)
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
B. JUDICIAL 4. Appeal
1. this remedy is normally • Within 15 days to the
availed of when the tax lien
Commissioner after
is lost by the release of the
notification by Collector of
goods
his decision (Sec. 2313
• Civil Action (Sec. 1204, TCC).
TCC)
• Criminal Action B. JUDICIAL
1. Appeal
TAX REMEDIES OF THE TAXPAYER • Within 30 days from receipt
of decision of the
A. ADMINISTRATIVE Commissioner or Secretary of
1. Protest Finance to the division of the
a. Any importer or interested CTA (Sec. 2403 TCC, Sec. 7
party if dissatisfied with RA 1125, as amended by Sec.
published value within 15 9 RA 9282)
days from date of • Since Sec.11 of RA 1125 as
publication, or within 5 days amended by RA 9282
from the date the importer empowers the Tax Court to
is entitled to refund if issue injunctions, it would
payment is rendered appear that an importer may
erroneous or illegal by appeal without first paying
events occurring after the the duties, such as in
payment. seizure, but not in protest
b. Taxpayer – within 15 days cases.
from assessment. Payment 2. Action to question the legality
under protest is necessary. of seizure
(Sec. 2308, 2210 TCC) 3. Abandonment (Sec. 1801 TCC)
2. Refund a. expressly (Sec. 1801 TCC)
shall be of the same level as the issue an order authorizing the BIR,
Court of Appeals, possessing all the through the Commissioner:
inherent powers of a Court of Justice
1. to seize and distraint any goods,
COMPOSITION chattels, or effects and the personal
• Consists of a Presiding Justice and property, including stocks and other
five (5) Associate Justices securities, debts, credits, bank
• May sit en banc or in two (2) accounts, and interests in and rights
Divisions, each Division consisting of to personal property and/or
three (3) Justices. The Presiding 2. levy the real property of such
Justice and the most Senior persons in sufficient quantity to
Associate Justice shall serve as satisfy the tax or charge together
chairmen of the two divisions with any increment thereto incident
to delinquency.
QUORUM
• Four (4) Justices shall constitute a This remedy shall not be exclusive
quorum for sessions EN BANC. and shall not preclude the Court from
availing of other means under the Rules
• Two (2) Justices for sessions of a
of Court.
DIVISION.
PROVIDED: in case the required quorum
cannot be had due to any vacancy, JURISDICTION
disqualification, inhibition, disability,
or any other lawful cause, the Presiding I. EXCLUSIVE APPELLATE JURISDICTION
Justice shall designate any Justice of TO REVIEW BY APPEAL
other Divisions of the Court to sit
temporarily therein. (a) Decisions of the Commissioner
of Internal Revenue
POWERS 1. in cases involving disputed
1. to administer oaths; assessments, refunds of
2. to receive evidence; internal revenue taxes, fees
3. to summon witnesses by or other charges, penalties
subpoena; in relation thereto,
4. to require production or papers 2. or other matters arising
or documents by subpoena duces under the NIRC or other laws
tecum; administered by the BIR;
5. to punish contempt; (b) Inaction by the Commissioner of
6. to promulgate rules and Internal Revenue
regulations for the conduct of its 1. in cases involving disputed
business; assessments, refunds of
7. to assess damage against internal revenue taxes, fees
appellant if appeal to CTA is or other charges, penalties
found to be frivolous or dilatory; in relation thereto,
8. to suspend the collection of the 2. or other matters arising
tax pending appeal; and under the NIRC or other laws
9. to render decisions on cases administered by the BIR,
brought before it where the NIRC provides a
10. to issue order authorizing specific period for action, in
distraint of personal property which case the inaction shall
and levy of real property be deemed a denial;
(c) Decisions, orders or resolutions
DISTRAINT OF PERSONAL PROPERTY of the RTC
AND LEVY OF REAL PROPERTY – in local tax cases originally
Upon the issuance of any ruling, decided or resolved by them in
order or decision by the CTA favorable to the exercise of their original or
the national government, the CTA shall appellate jurisdiction;
for taxes, fees, charges and Within 30 days after the receipt of
penalties. such decision or ruling or after the
• In collection cases where the expiration of the period fixed by law for
principal amount of taxes and action.
fees, exclusive of charges and
penalties, claimed is less than Modes of Appeal
one million pesos (P 1, 000, 000. (1) By filing a petition for review under
00) – shall be tried by the proper a procedure analogous to that
Municipal Trial Court, provided for under Rule 42 of 1997
Metropolitan Trial Court, and Rules on Civil Procedure
Regional Trial Court. • decision, ruling, or inaction of
the Commissioner of Internal
(b) Exclusive appellate jurisdiction Revenue, Commissioner of
in tax collection cases Customs, the Secretary of
• Over appeals from the Finance, the Secretary of Trade
judgments, resolutions or orders and Industry or the Secretary of
of RTC in tax collection cases Agriculture or the Regional Trial
originally decided by them, in Courts
their respective territorial • this appeal shall be heard by a
jurisdiction. Division of the CTA
• Over petitions for review of the (2) By filing a petition for review under
judgements, resolutions or a procedure analogous to that
orders of the RTC in the exercise provided for under Rule 43 of 1997
of their appellate jurisdiction Rules on Civil Procedure
over tax collection cases • decisions or rulings of the
originally decided by the Central Board of Assessments
Metropolitan Trial Courts, Appeals and the Regional Trial
Municipal Trial Courts and Courts in the exercise of its
Municipal Circuit Trial Courts, in appellate jurisdiction
their respective jurisdiction. • this appeal shall be heard by the
CTA en banc.
In criminal and collection cases, the
Government may directly file the Procedure
said cases with the CTA covering A. Any party adversely affected by a
amounts within its exclusive and ruling, order or decision of a Division
original jurisdiction. of the CTA may file a motion for
reconsideration or new trial before
See ANNEX P – Comparative the same Division within 15 days
Diagrams on CTA jurisdiction. from notice
Section 109(n), if the seller is the the goods superior to all charges or
artist himself or the artist’s services liens on the goods, irrespective of
performed for the production of the possessor thereof.
such works.
TRANSACTIONS DEEMED SALE:
4. Section 109(p) makes Regional or
Area Headquarters exempt from The following transactions shall be
VAT. deemed sale therefore making them
covered by VAT:
5. Under Section 109(w) in order for
the sale or lease of real property to (1) Transfer, use or consumption not in
be exempted from VAT, the the course of business of goods or
transaction must NOT be conducted properties originally intended for sale or
in the ordinary course of trade or for use in the course of business;
business. It complements Section (2) Distribution or transfer to:
106(A)(1)(a) where it states that in (a) Shareholders or investors as
order for the sale or lease of real share in the profits of the VAT-registered
property to be covered by VAT, it persons; or
must be made in the ordinary course (b) Creditors in payment of debt;
of trade or business. (3) Consignment of goods if actual sale is
not made within sixty (60) days following
6. Revenue Regulations No. 6-97 adds a the date such goods were consigned; and
requirement in order for the lease of (4) Retirement from or cessation of
residential units with a monthly business, with respect to inventories of
rental of not more than P8,000.00, taxable goods existing as of such
as provided in Section 109(x), to be retirement or cessation.
VAT exempt, that the annual gross
receipts must not exceed How to determine the VAT: The tax
P550,000.00. shall be computed by multiplying the
total amount indicated in the invoice by
7. Section 109(z) provides that the sale one-eleventh (1/11).
or lease of goods or performances of
services other than those mentioned Example: the total amount indicated in
in the preceding paragraphs are VAT the invoice is P110. P110/11 = P10. P10
exempt if the Gross Annual Receipts is the amount of VAT.
do not exceed P550,000.00.
However, the limitation of TAX CREDIT AND REFUND
P550,000.00 does apply for those
transactions from Section 109(a) to Formula for Tax Credit:
(y), except (x) because Revenue Output
Regulations No. 6-97 imposes a Less: Input
P550,000.00 limitation. VAT due.
accordance with Section 111 of the The claim for tax credit referred to
NIRC. in the foregoing paragraph shall include
not only those filed with the Bureau of
"OUTPUT TAX" means the value-added Internal Revenue but also those filed
tax due on the sale or lease of taxable with other government agencies, such as
goods or properties or services by any the Board of Investments or the Bureau
person registered or required to register of Customs.
under Section 236 of the NIRC.
The Commissioner within 120 days,
• If at the end of any taxable quarter in proper cases, from the date of
the output tax exceeds the input submission of complete documents in
tax, the excess shall be paid by the support of the application shall grant a
VAT-registered person. If the input refund or issue the tax credit certificate
tax exceeds the output tax, the for creditable input taxes.
excess shall be carried over to the
succeeding quarter or quarters. Any Remedy in case of full, or partial
input tax attributable to the denial, or failure on the part of the
purchase of capital goods or to zero- Commissioner to act upon the
rated sales by a VAT-registered application for tax credit or refund: the
person may at his option be taxpayer affected may, within thirty (30)
refunded or credited against other days from the receipt of the decision
internal revenue taxes, subject to denying the claim or after the expiration
the provisions of Section 112. of the one hundred twenty day-period,
appeal the decision or the unacted claim
with the Court of Tax Appeals.
OPTIONS OF A TAXPAYER AS PROVIDED
IN SECTION 112:
RETURN AND PAYMENT OF VAT
1. to claim for tax credit; or
2. to claim for refund
Every person liable to pay the value-
The claim, which must be in writing, added tax shall file a quarterly return of
for both cases, must be filed within 2 the amount of his gross sales or receipts
years after the close of the taxable within 25 days following the close of
quarter when the sales were made for: each taxable quarter prescribed for each
a) the issuance of a tax credit taxpayer: Provided, however, That VAT-
certificate; b) refund of creditable input registered persons shall pay the value-
tax due or paid attributable to such added tax on a monthly basis.
sales.
Any person, whose registration has
HOW TO DETERMINE CREDITABLE INPUT been cancelled in accordance with
TAX Section 236, shall file a return and pay
The sum of the excess input tax the tax due thereon within 25 days from
carried over from the preceding month the date of cancellation of registration:
or quarter and the input tax creditable Provided, That only one consolidated
to a VAT-registered person during the return shall be filed by the taxpayer for
taxable month or quarter shall be his principal place of business or head
reduced office and all branches.