2019 Tax LMT

TAXATION
LAW UST LAST MINUTE TIPS 2019

GENERAL PRINCIPLES OF TAXATION

THEORIES AND BASES OF TAXATION
LIFEBLOOD THEORY NECESSITY THEORY BENEFITS-PROTECTION THEORY
Taxes are the lifeblood of the Payment of taxes is a necessary Taxes are what we pay for a
government and its collection must burden to preserve sovereignty of civilized society.
be without hindrance. the State to give the citizens an
army to resist aggression; navy to Premised on the relationship of the
Taxes provide for the very defend its shores from invasion; State and citizep which calls for
existence of the government. and public services to provide for reciprocal obligations.
the people.
State must provide protection to
the citizens with the latter
providing prompt payment of taxes
to support the protection of the
State.

INHERENT LIMITATIONS ON THE POWER OF TAXATION
1.) PUBLIC PURPOSE – proceeds of the tax must be for general welfare. Public purpose is an elastic concept
that may serve different government functions.
2.) INTERNATIONAL COMITY - Property of another State may not be subject of taxation by another. It is
borne from generally-accepted principles of international law.
3.) LEGISLATIVE – power of taxation is inherently lodged in the Legislature. It has the task to determine
amount, subject, rate, method, and kind of tax.
4.) TERRITORIALITY – power of taxation is exercised only within territorial jurisdiction of the State.
However, tax laws may operate outside if due to income derived by resident citizens abroad.
5.) EXEMPTION OF GOV’T ENTITIES and INSTRUMENTALITIES

REQUISITES OF A VALID TAX:
1.) PUBLIC PURPOSE
2.) UNIFORMITY
3.) MUST NOT INFRINGE INHERENT and CONSTITUTIONAL LIMITATIONS
4.) PERSON OR PROPERTY SHOULD BE WITHIN JURISDICTION OF TAXING AUTHORITY

CONSTRUCTION OF TAX LAWS PROSPECTIVITY OF TAX LAWS MARSHALL v. HOLMES DOCTRINE
GR: Tax laws are construed strictly GR: Tax laws must be imposed Marshall Doctrine (McCulloch v.
against the government and prospectively. Maryland) Power to tax involves
liberally in favor of the taxpayer. the power to destroy
XPN: Tax laws may be imposed The power to tax includes the
XPN: TAX EXEMPTIONS are retroactively if such will not power to regulate even to the point
construed strictly against the amount to deprivation of due of prohibition when it is used as a
taxpayer who must prove that he process. tool of police power
squarely falls within the
qualifications of such exemption. Holmes Doctrine
The power to tax is not the power
to destroy while this Court sits.
Court acts as vanguard of
protection for taxation that violates
the law.

Imposition of 20% senior citizen’s discount is a valid exercise of police power. The 20% discount is intended
to improve the welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone to
illnesses and other disabilities, and thus, in need of subsidy in purchasing basic commodities. It is a price
regulatory measure. (Manila Memorial Park v. DSWD)
Coconut levy funds are considered as taxes. Market stall fees, universal charges under EPIRA Law, and
socialized housing tax do not constitute taxes. They are regulatory charges; these are imposed in the exercise of
police power.
UNIVERSITY OF SANTO TOMAS

FACULTY OF CIVIL LAW 1

TAXATION LAW UST LAST MINUTE TIPS 2019
TAXATION vis-à-vis INHERENT POWERS OF THE STATE
TAXATION EMINENT DOMAIN POLICE POWER
Enforced contribution to support Taking of private property for public Power to enact laws for the
existence of State and source of use with just compensation. promotion of general welfare.
revenue to support programs and
policies.

DOUBLE TAXATION
Direct Double Taxation v. Elements of Direct Double Remedies Against Double
Indirect Double Taxation Taxation Taxation
(PAPS-JK) (CREDIT)
GR: Double taxation is not Direct double taxation arises when • Apply for TAX CREDIT
unconstitutional it is imposed: • Principle of RECIPROCITY
• Apply for TAX EXEMPTION
XPN: Direct Double Taxation is 1. On the same subject matter; • Apply for TAX DEDUCTION
violative of the constitution. 2. For the same purpose; • Apply for TAX INCENTIVE
3. By the same taxing authority; • Apply for TAX TREATY
4. Within the same jurisdiction;
and
5. Taxes must be of the same kind
and character.

The Revenue Code of Manila imposed on a Tax on Wholesalers, Distributors, or Dealers and Tax on Retailers. At
the same time, the City of Manila imposed additional taxes on a person who sold goods and services in the course
of trade or business based on a certain percentage of his gross sales or receipts in the preceding calendar year.
Such is direct double taxation. (Nursery Care Corporation v. Acevedo)
The imposition of local business tax based on gross revenue will result in direct double taxation inasmuch as the
revenue or income for a taxable year will definitely include its gross receipts already reported during the previous
year and for which local business tax has already been paid. (Ericsson Telecommunications vs. City of Pasig)
TAX CONDONATION v. TAX EXEMPTION v. TAX AMNESTY
Tax Condonation Tax Exemption Tax Amnesty

Tax Condonation is the way the CIR
Tax Exemption is an existing Tax Amnesty is an act of Congress,
or the Secretary of Finance may
statutory grant applying to specific thru crafting and passing a law
exercise, in its discretion, and
persons, entities, or properties falling specifically to forego tax liabilities
considering the attendant facts of the
within the definition of these already incurred by a class of
particular case, to forgive a tax debt
exempted from tax, thus no incurred taxpayers.
of a particular entity or person or to
tax obligation to begin with unlike
let go of its tax liability. in tax amnesties. Immunity from civil liability only.

Immunity from all criminal, civil, and
administrative liabilites.
Note: BIR cannot grant tax exemption. It is within the province of the Congress
Can tax exemptions be revoked?
GR: YES. Tax exemption is a mere privilege. (e.g., Franchise)
XPN: If exemption is contractual because it may violate the non-impairment clause.
TAX EVASION v. TAX AVOIDANCE
TAX EVASION TAX AVOIDANCE

Illegal and produces criminal liability. A legal scheme and method provided for by the State to
reduce tax liability.
Elements: USE
Unlawful course of action It should be used in good faith and at an arm’s length
Accompanying State of mind which is evil and in bad basis.
faith


End to be achieved: which is non-payment of tax which
is due.
Q: Is prior assessment a condition sine qua non for a criminal case of tax evasion?

NO.

(1) The crime is complete when the taxpayer willfully and fraudulently files his tax return or underpays his taxes.

(2) Section 205, NIRC, provides that civil and criminal actions may be filed simultaneously
(3) They differ as to purpose. The assessment seeks to determine tax liability while the criminal action seeks to
penalize the taxpayer.
ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE

Non- To Recommend promulgation of rules and regulation by the Secretary of Finance.
delegable To Reverse, revoke, or modify any existing ruling of the BIR.
Powers To Issue Rulings of First Impression
of the To Compromise any tax liability
BIR To Assign reassign any internal revenue officers to establishments where articles
subject to excise tax are kept.

BIR RULINGS REVENUE REGULATIONS
As to purpose Answers to queries of taxpayers Implementing rules and guidelines
As to limitations “of first impression” Must not modify the law.
non-delegable authority

If “established precedent”
-delegable authority
As to force and Persuasive but does not have the force and effect of Has the force and effect of tax laws.
effect laws
Publication Does not require publication Requires publication in a
newspaper of general circulation
Issuer Issued by BIR Issued by Secretary of Finance.
CIR power is merely
recommendatory.

ADDITIONAL REQUIREMENTS FOR REAL PROPERTY ASSESSMENTS AS AMENDED BY TRAIN

1. MANDATORY CONSULTATION – mandatory consultation with competent appraiser to come up with Fair
Market Value.
2. PRIOR NOTICE TO AFFECTED TAXPAYERS
3. AUTOMATIC ADJUSTMENTS - Fair Market Value is subject to automatic readjustment after every 3 years.
4. PUBLICATION REQUIREMENT
5. PUBLIC RECORDS – must be open to inquiry of any taxpayer.

DOCTRINE OF WILLFUL BLINDNESS BEST OBTAINABLE EVIDENCE
A person, given his experience in his business or The BIR, in the conduct of its tax investigation on a
industry, commits an act or omission tantamount to taxpayer, may resort to any document material to the
gross negligence in attending to his or her tax inquiry, information from government offices, or
obligations which may lead to serious violation of tax testimony of some other persons when the reports
laws like tax evasion.(People v. Kintanar) or records requested from the taxpayer is not
forthcoming (i.e. records are lost; refusal of taxpayer
to submit such records) or the reports submitted are
false, incomplete or erroneous.

Q: Supreme Corporation was able to initially secure a BIR ruling that would exempt its importation of
certain raw materials. Subsequently, the BIR issued another ruling subjecting similar products to certain
tax. Thereafter, the BIR assessed Supreme Corporation for deficiency taxes on all of its raw materials
previously imported. Is the assessment valid?


A: The assessment is not valid because the BIR ruling on which the assessment is based is void for being prejudicial

to the taxpayer. It is provided by the NIRC that the reversal or modification of rulings cannot be allowed when it is
prejudicial to the taxpayer. In the case, Supreme Corporation has already been granted an exemption and the

reward of the ruling, on which the assessment is based, is prejudicial to Supreme Corp.

INCOME TAXATION

GENERAL PRINCIPLES OF INCOME TAXATION
ü
Only resident citizens (RC) and domestic corporations (DC) are subject to income tax on their
worldwide income.
ü
Tax base:
ü
Taxable income = Gross income – allowable deductions
ü
XPN: NRANETBs and NRFCs – Taxed on gross income
ü
Income vs. Capital: Income is any wealth which flows into the taxpayer other than a mere return of
capital while capital constitutes the investment which is the source of income.

INCOME TAX FOR INDIVIDUALS
Classes of individual taxpayers:
1. Citizen
a. Resident Citizen (RC)
b. Non-Resident Citizen (NRC)
i. Overseas Contract Worker (OCW)
ii. Seaman
2. Aliens
a. Resident Alien (RA)
b. Non- Resident Alien (NRA)
i. Engaged in Trade or Business (NRA-ETB)
ii. Not Engaged in Trade or Business (NRA- NETB)
c. Special Aliens
3. Special class of individual employees
• Minimum wage earner

Amendments by TRAIN:
• For special aliens, the BIR has stated that the preferential rates under existing tax treaties is no longer
available. Thus, these special aliens are now subject to the regular income tax rate.
• TRAIN no longer allows personal and additional exemptions, since the definition of Taxable Income has been
updated. The formula will therefore now look like this:

Gross Income
Less: deductions (either itemized or optional standard deduction)
Taxable Income

• In lieu of the itemized deductions, an individual other than a nonresident alien may elect a standard
deduction (OSD) in an amount not exceeding 40% of his gross sales or gross receipts. The taxpayer must
signify in his return his intention to elect the OSD. Such election shall be irrevocable for the taxable year
for which the return is made.
• Rate of Tax on Income of Purely Self-employed Individual and/or Professional Whose Gross Sales or Gross
Receipts and other Non-operating income does not exceed P3,000,000 shall have the option to avail of an
8% tax on gross sales or gross receipts and other non-operating income in excess of P250,000 in lieu of the
graduated income tax rates under Sec 24(A)(2)(a) and the percentage tax under Sec 116.




Q: Situs of income

A:

Merchandising Place of sale

Place of sale
regardless where the
Gain on sale of personal product was bought
property purchased but

not produced
Gain on sale of personal Place of sale and/or
property produced production

Gain on sale of real Location of property
property
Mining income Location of the
mines

Q: Is income earned by non-resident citizen subject to withholding tax on compensation?
A: A citizen of the Philippines who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year is considered a nonresident
citizen who shall be liable for income tax on income earned from Philippine sources.
Compensation income from services rendered abroad is an income from sources without the Philippines. It shall
not be subject to Philippine income tax, and hence, no withholding tax shall be applied.
Q: Income tax on interest on bank deposits
A: Interest income earned from bank deposits of a Filipino citizen is subject to 20% final withholding tax
notwithstanding the fact that the deposit is sourced from income exempt from income tax (such as pension
received from GSIS).
Q: What is the concept of Minimum Corporate Income Tax (MCIT)?
A: The imposition of the MCIT is designed to forestall the prevailing practice of corporations of over claiming
deductions in order to reduce their income tax payments.
A corporation should pay the MCIT whenever its normal corporate income tax (NCIT) is lower than the MCIT, or
when the firm reports a net loss in its tax return. Conversely, the NCIT is paid when it is higher than the MCIT.
The MCIT is imposed beginning on the fourth taxable year immediately following the year in which the corporation
commenced its business operations.
Q: What is the purpose of the MCIT?
A: The imposition of the MCIT is designed to forestall the prevailing practice of corporations of over claiming
deductions in order to reduce their income tax payments.
Q: What is the nature of the MCIT?


A: The MCIT is equal to 2% of the gross income of the corporation at the end of the taxable quarter, except income

exempt from income tax and income subject to final withholding tax.

Q: When is MCIT applicable?

A: Being a minimum income tax, a corporation should pay the MCIT whenever its normal corporate income tax
(NCIT) is lower than the MCIT, or when the firm reports a net loss in its tax return. It is applicable beginning on the

4th taxable year following the year of commencement of business operation.
Q: What are the entities covered by the MCIT?
A: Domestic Corporation (DC) and Resident Foreign Corporation (RFC)
NOTE: MCIT is not applicable to:
1. NRFCs;
2. DCs and RFCs not subject to 30% normal corporate income tax (e.g.: proprietary educational institutions –
10%; non-profit hospital – 10%; foreign international carrier – two and one-half percent (2½%) of the GPB
3. Those enjoying incentives under special investment laws (e.g. PEZA)
Q: When is the application of the MCIT deemed suspended?
A: Since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of Finance,
upon recommendation of the BIR, to suspend the imposition of MCIT if a corporation suffers losses due to any of
the following:
1. Prolonged Labor Dispute – losses arising from a strike staged by the employees which lasted for more than
6 months within a taxable period and which has caused the temporary shutdown of business operations;
2. Force Majeure – a cause due to an irresistible force as by ‘Act of God’ like lightning, earthquake, storm, flood
and the like, and shall also include armed conflicts like war or insurgency;
3. Legitimate Business Reverses – include substantial losses due to fire, theft or embezzlement or for other
economic reason, as determined by the Secretary of Finance (Sec. 27 [E][3], NIRC; RR. No. 998, Sec. 2.27 [E]
[4][b,c,d]).
Q: Improperly Accumulated Earnings of Corporation (IAET)
A: Domestic corporations and closely-held corporations are subject to 10% improperly accumulated earnings tax on
their improperly accumulated earnings (Sec. 29 [A], TRAIN).
Q: What are considered as closely-held corporation?
A: These are corporations, at least 50% in value of the outstanding capital stock of which or at least 50% of the total
combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or not more than 20
individuals (R.R. 2-2001, Sec. 4).
Q: What consists of “Improperly Accumulated Earnings”?
A: These are the profits of a corporation that are accumulated, instead of distributing them to its shareholders, for
the purpose of avoiding the income tax with respect to its shareholders or the shareholders of another corporation
(R.R. 2-2001, Sec. 2).
Q: Nature of the IAET
A: IAET is imposed in the nature of a penalty to the corporation for the improper accumulation of its earnings and as
a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earning
distributed to them by the corporation.
Q: Section 29(A) of the NIRC provides that a corporation shall be imposed for each taxable year with
improperly accumulated earnings tax (IAET) on its income considered as improperly accumulated earnings.


For
year 2010, ABC Corporation was assessed for improperly accumulated earnings supposedly
accumulated since year 2007 as shown in its income tax return.

a. Explain the rationale of the concept of Improperly Accumulated Earnings, being subject to
improperly accumulated earnings tax.
The rationale is that if the earnings and profits were distributed, the shareholders would then be liable
to income tax thereon, whereas if the distribution were not made to them, they would incur no tax in
respect to the undistributed earnings and profits of the corporation. Thus, a tax is being imposed in the
nature of a penalty to the corporation for the improper accumulation of its earnings, and as a form of
deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the
earnings distributed to them by the corporation. (RR 2-2001)
b. Can ABC Corporation invoke the defense of prescription, considering that according to Section
203 the prescriptive period for assessment and collection is 3 years?
No, the period for assessment has not yet prescribed.
The dividends must be declared and paid or issued not later than one year following the close of the
taxable year, otherwise, the IAET, if any, should be paid within fifteen (15) days thereafter.
Hence, the 3 year prescriptive period must be from 2008 instead of 2007.
Q: Exempt entities from IAET
A:
1. Publicly-held corporations (Sec. 29 [B][2], NIRC)

2. Banks and other non-bank financial intermediaries
3. Insurance companies
4. Publicly-held corporations
5. Taxable partnerships
6. General professional partnerships
7. Non-taxable joint ventures
8. Enterprises duly registered with the Philippine Economic Zone Authority under R.A. 7916, and enterprises
registered pursuant to the Bases Conversion and Development Act of 1992 under R.A. 7227, as well as other
enterprises duly registered under special economic zones declared by law which enjoy payment of special
tax rate on their registered operations or activities in lieu of other taxes, national or local (R.R. 2-2001, Sec.
4)
Q: What constitute “reasonable needs” of the business in order to justify an accumulation of earnings?
(2010 Bar)
A:
1. Allowance for the increase in accumulation of earnings up to 100% of the paid-up capital
2. Earnings reserved for definite corporate expansion approved by the Board of Directors or equivalent body
3. Reserved for building, plant or equipment acquisition as approved by the Board of Directors or equivalent
body
4. Reserved for compliance with any loan covenant or pre-existing obligation
5. Earnings required by law or applicable regulations to be retained
6. In case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings intended or
reserved for investments within the Philippines (R.R. No. 2-2001, Sec. 3)
Q: Is an association formed to promote good governance subject to income tax?
A: Under Section 30 of the Tax Code, civic league or organization not organized for profit but operated exclusively
for the promotion of social welfare (like good governance) is exempt from income tax.
Hence, no income tax is imposed on the monthly dues from the members of such association.


However, under the last paragraph of Section 30 of the Tax Code, the income of whatever kind and character of the

foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for

profit regardless of the disposition made of such income, shall be subject to income tax.

Thus, income of such association derived from activities conducted for profit, such as proceeds from publications
and fees from seminars and trainings, shall be subject to income tax.

Q: Inapplicability of exception clause (last par. of Sec. 30 of the Tax Code) to non-stock, non- profit
educational institutions.
A: Article XIV, Section 4(3) of the 1987 Constitution provides that the assets of a non-stock, non-profit educational
institution shall be exempt from taxes and duties only if the same are used actually, directly, and exclusively for
educational purposes. The test of exemption from taxation is the use of the property/income and not the source of
the property/income. A statutory clause cannot overcome a constitutional exemption. (CIR v. De la Salle University)
Q: Is the cash equivalent of unused vacation and sick leave credits qualifies as part of separation benefits
subject to income tax?
A: Benefits received on account of separation due to causes beyond the employees’ control are not subject to income
tax, hence, no withholding tax shall be imposed (Section 32(B), NIRC).
Q: Tax Treatment of De Minimis Benefits
A: De minimis benefits not exceeding the amount prescribed by BIR which is 90,000 pesos regulations are neither
considered as taxable compensation nor taxable fringe benefit and hence, it is not subject to withholding tax on
compensation or fringe benefit tax.
Q: Requisites for deductibility of Bad Debts
a. The debts are uncollectible despite diligent effort exerted by the taxpayer;
Note: To prove that the taxpayer exerted diligent efforts to collect the debts:
i. Sending of statement of accounts;
ii. Sending of collection letters;
iii. Giving the account to a lawyer for collection; and
iv. Filing a collection case in court.
b. Existing indebtedness subsisting due to the taxpayer which must be valid and legally demandable;
c. Connected with the taxpayer’s trade, business or practice of profession;
d. Actually charged off in the books of accounts of the taxpayer as of the end of the taxable year;
e. Actually ascertained to be worthless and uncollectible as of the end of the taxable year (usually supported
by board resolution in case of corporations); and
f. Must not be sustained in a transaction entered into between related parties.
Q: Capital Asset v. Ordinary Asset
A: Ordinary assets include inventory or those held primarily for sale to customers, as well as those assets used in
trade or business of the taxpayer. Any other assets which are not considered ordinary assets are classified as
capital assets.
A sale of land classified as ordinary asset is subject to creditable withholding tax (which can be applied as tax credit
to the annual income tax liability), VAT, documentary stamp tax, and local transfer tax. On the other hand, if the
land is classified as capital asset, the sale thereof shall be subject to capital gains tax (instead of CWT and VAT),
documentary stamp tax, and local transfer tax.
Q: Net Capital Loss Carry-Over (NCLCO) v. Net Operating Loss Carry-Over (NOLCO)
A:
BASIS NCLCO NOLCO


Sources Excess of the losses from sales or Excess of allowable deduction
exchanges of capital assets over over gross income.
the gains from such sales or

exchanges
Who can avail Individual Individual and corporate
taxpayer
Period of carry-over In the next succeeding taxable Carryover of operating loss in 3
year succeeding taxable years or 5
years, in the case of mining
companies

Q: Tax Base of Capital Gains Tax (CGT)
A: The tax base of CGT on sale of real property is the highest among the:\
a. Gross selling price;

b. Zonal value;
c. Market value per tax declaration.
Note: Under the TRAIN Law, additional rules have been prescribed for the determination of zonal values, to wit:
a. Mandatory Consultation. – Consultation with competent appraisers both from the private and public
sectors in determining fair market value (“FMV”) of real properties is expressly made mandatory.
b. Prior Notice to Affected Taxpayers. – Adjustment of FMV of real properties must be made upon prior notice
to affected taxpayers.
c. Automatic Adjustment. - FMV of real properties is subject to automatic adjustment once every 3 years
through rules and regulations issued by the Secretary of Finance.
d. Publication Requirement. – Requires publication in a newspaper of general circulation in the province, city
or municipality concerned, or in the absence thereof, posting in the provincial capitol, city or municipal hall
and in 2 other conspicuous public places therein, before adjustment in zonal valuation can be valid.
e. Public Records. - Basis of any valuation, including the records of consultations done, shall be public records
open to the inquiry of any taxpayer.
Q: Requisites for Exemption of Sale of Principal Residence from Capital Gains Tax (CGT)
a. Proceeds are fully utilized to acquire/construct new principal residence within 18 months from the sale of
old principal residence. (Note: The sale must precede the acquisition/construction)
b. Availed once every 10 years
c. CIR is notified within 30 days of sale
d. 6% CGT is deposited with an authorized agent bank subject to release upon certification of the RDO that
the proceeds have been utilized
Historical cost are adjusted based on his old principal residence shall be carried over to the cost basis of
his new principal residence
Q; Requisites of Tax-Free Exchange under Section 40(C)(2) of the Tax Code
a. the transferee is a corporation;

b. the transferee exchanges its shares of stock for property/ies of the transferor;
c. the transfer is made by a person, acting alone or together with others, not exceeding four (4) persons; and,
d. as a result of the exchange the transferor, alone or together with others, not exceeding four (4), gains
control of the transferee. (Commissioner of Internal Revenue v. Dominium Realty & Construction Corp., C.T.A.
EB Case No. 1713 (C.T.A. Case No. 8887), [November 13, 2018])
Q: Creditable Withholding Tax (CWT) v. Final Withholding Tax (FWT)
CWT FWT
Nature Constitutes advance payment of Constitutes final and full
the income tax due on the income settlement of the tax liability on
subjected to withholding. the income subjected to
withholding.


Part of the income in the ITR The income subjected to The income subjected to
subject to income tax? withholding is included in the withholding is not included in the
taxable income in ITR. taxable income in ITR.

Tax
Tax Credit The tax withheld can be claimed The tax withheld cannot be
as a tax credit against income tax claimed as tax credit.
due.
Filing of ITR? The earner is required to file an If the only source of income is
ITR. already subjected to FWT, there
is no more need to file ITR.

Q: Taxability of PAGCOR
A: PAGCOR is no longer exempt from corporate income tax as it has been effectively omitted from the list of
GOCCs that are exempt from the payment of the income tax.
PAGCOR’s income from:
1. Gaming operations – exempt from corporate income tax; 5% franchise tax under PD No. 1869
2. Other related activities – exempt from franchise tax; subject to corporate income tax pursuant to PD No.
1869 in relation to RA No. 9337. (PAGCOR v. BIR, G.R. No. 215427, December 10, 2014).
Q: If the PAGCOR is exempt from income tax is the income of its contractees and licensees also exempt?
A: YES. Contractees and licensees of PAGCOR are likewise exempt from the payment of CIT and other taxes since
Section 13(b) of P.D. No. 1869 is clear and unequivocal that said exemption inures to their benefit. (Bloomberry
Resorts and Hotels, Inc. v. BIR)
TRANSFER TAXES
Estate tax is an excise tax imposed upon the privilege of transmitting property at the time of death and on the
privilege that a person is given in controlling to a certain extent the disposition of his property to take effect upon
death. Estate tax laws rest in their essence upon the principle that death is the generating source from which the
taxing power takes its being, and that it is the power to transmit or the transmission from the dead to the living
on which the tax is more immediately based.
Determination of gross estate
The value of the gross estate of the decedent shall be determined by including the value at the time of his death of
all property, real or personal, tangible or intangible, wherever situated: Provided, however, That in the case of a
nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines shall be included in his taxable estate (Sec. 86, TRAIN Law)
Period for filing estate tax returns
It is filed within 1 year from the decedent’s death. Extension to file an estate tax return is allowed in meritorious
cases but not to exceed 30 days (Sec. 90, NIRC).
When the transfer is made in the ordinary course of business, it will be considered as made for an adequate and
full consideration. The requisites are:
1. Bona fide transaction;
2. Arm’s length; and
3. Free from any donative intent.
NOTE: A sale, exchange or other transfer property made in the ordinary course of business (a transaction which
is a bona fide, at arm’s length, and free from any donative intent), will be considered as made for an adequate
and full consideration in money or money’s worth.
Q: Do funds deposited in a joint saving current account subject of “survivorship agreement” form part of the
gross estate of the decedent (husband)?


A: NO. The funds are considered exclusive property of the surviving spouse. The survivorship agreement not having

executed for unlawful purpose, its “winner-take-all” feature is permitted by the Civil Code which considers the same

as a mere obligation with a term. Being the separate property of the wife, they form no part of estate of the deceased
husband.

Determination of net estate

The basic equation to determine the next taxable estate is (gross estate – deductions)
NOTE: Before you can arrive at the value of the net estate, you have to determine first the value of gross estate.
Deductions from estate
1. Ordinary deductions [VETS]

a. Expenses, losses, indebtedness, taxes, etc. (ELIT)[JEF-TULI]
i. Claims against the estate
ii. Claims against insolvent persons
iii. Unpaid mortgage or indebtedness on property
iv. Taxes
v. Losses
b. Vanishing deduction
c. Transfer for public use
d. Net share of the surviving spouse in the community or conjugal property
2. Special deductions [FAMS]
a. Family home (must not exceed ₱10,000,000)
b. Standard deduction (₱5,000,000)
c. Amount received by heir under RA 4917

NOTE: NRA cannot avail of the special deductions.
NOTE:
Under the date-of-death valuation rule, claims existing at the time of death should be made the basis of the
determination of allowable deductions. Thus, post-death developments, such as condonation in this case, are
not material in determining the amount of the deduction (Dizon, et. al v. CA)
Exempted Proceeds from Life Insurance
a. Proceeds from a life insurance policy is receivable by a 3rd person (NOT the decedent’s estate, executor or
administrator) AND that the said beneficiary is designated as irrevocable;
b. Where the life insurance was not taken by the decedent upon his own life even though the beneficiary is the
decedent’s estate, executor, or administrator;
Accident insurance proceeds. NIRC specifically mentions only life insurance policies;
c.
d. Proceeds of a group insurance policy taken out by a company for its employees;
e. Proceeds of insurance policies issued by the GSIS to government officials and employees are exempt from all
taxes;
f. Proceeds of insurance policies from GSIS and SSS; and,
g. Proceeds of life insurance payable to heirs of deceased members of military personnel.

Deductions from Gross Gifts Resident or Citizen Donors
TRAIN already removed Section 101 (A)(1), which had previously allowed dowries or gifts on account of marriage
to be deducted from gross gifts
TAX Rates Payable by Donor
In terms of rates, TRAIN made the following changes:
• TRAIN increased the threshold for exempt gifts during the calendar year to P250,000 (from P100,000);


•
Flat rate of 6% of total gifts in excess of P250,000; and
•
Removed the distinction between strangers and non-strangers. Hence, any reference to strangers
should be removed.
NOTE: the P250,000 counts as a deduction from total gifts, because the 6% rate is imposed on the total gifts in
excess of P250,000

Q: Are donations for political campaign purposes exempted from donor’s tax?

A: YES. Any contribution in cash or in kind to any candidate, political party, or coalition of parties for campaign
purposes, reported to COMELEC shall not be subject to payment of any gift tax, provided the political
candidate submitted his Statement of Contribution and Expenses.

VALUE ADDED TAX

Q: Is VAT regressive?
A: YES. The principle of progressive taxation has no relation with the VAT system in as much as the VAT paid by
the consumer or business for every goods bought or services enjoyed is the same regardless of income. In other
words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income
earned by a person or profit margin marked by a business, such that the higher the income or profit margin, the
smaller the portion of the income or profit that is eaten by VAT. A converse, the lower the income or profit margin,
the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or businesses
with low-profit margins that is always hardest hit (ABAKADA Guro v. Ermita, G.R. No. 168056, September 1, 2005).
Transactions Deemed Sale [CORD]
O Transfer, use or consumption not in the course of business of goods or properties Originally intended
for sale or for use in the course of business.

D Distribution or transfer to:

a. Shareholders or investors as share in the profits of the VAT-registered persons
b. Creditors in payment of debt

C Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned.
NOTE: Consigned good returned by the consignee within the 60-day period are not deemed sold.

R
Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation.

Destination Principle vs. Cross Border Doctrine
Destination Principle Cross Border Doctrine

The goods and services are taxed only in the country where NO VAT shall be imposed to form part of the cost of the
these are consumed goods destined for consumption OUTSIDE the territorial
border of the taxing authority
NOTE: Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated,
while imports are taxed.
Export processing zones are to be managed as a separate customs territory from the rest of the Philippines and,
thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales by persons from the
Philippine Customs Territory to those inside the export processing zones are already taxed as exports. (Atlas
Consolidated Mining and Development Corporation v. CIR, G.R. No. 141104 & 148763, June 8, 2007).
Zero-rated sales vs. VAT-exempt transactions
Zero Rated Sale Vat-Exempt Transaction


Generally refers to the export sale of goods and services. The goods are not subject to VAT at a particular stage.
The seller of such transactions charges no output tax but In VAT-exempt sales, the taxpayer/seller shall not bill any
can claim a refund or tax credit certificate for the input output tax on his sales to his customers and corollary, is
VAT attributable to zero-rated sales. not allowed any credit or refund of the input taxes he paid
on his purchases.
No VAT shall be shifted or passed-on by VAT-registered
sellers or suppliers from the Customs Territory on their
sale, barter, or exchange of goods, properties or services
to the subject registered Freeport Zone enterprises.

VAT on Real Properties
Summary Rules on Sales of Real Properties
Sale not in the ordinary course of trade or business VAT exempt

Sale of residential lot by a real estate dealer
• Selling price ≤ P 1,919,500* VAT exempt
• Selling price > P 1,919,500 VAT
Sale of residential lot by a non-dealer
• Use in business (incidental transaction) VAT
• Not use in business (regardless of amount) 6% CGT
Sale of residential house & lot and other residential
dwellings by a real estate dealer
• Selling price ≤ P 3,199,200** VAT exempt
• Selling price > P 3.199.200 VAT
Sale of residential house & lot and other residential
dwellings by a non-dealer
• Use in business (incidental transaction) VAT
• Not use in business (regardless of amount) 6% CGT
Sale of real property classified as low cost housing VAT exempt
Sale of real property classified as socialized housing VAT exempt
*Apply rules on adjacent lots
**Apply rules on adjacent house and lots and other residential
dwellings
Note: Parking lot is always subject to VAT, regardless of
amount.

Summary Rules on Lease of Residential Units

Monthly rental P12,800 or less regardless of annual gross VAT exempt and no percentage tax
sales (P15,000 under TRAIN)
Monthly rental above P12,800 but annual gross sales do VAT-exempt under Sec. 109 (W) but shall pay 3%
not exceed P1,919,500 percentage tax under Section 116 of NIRC
Monthly rental above P12,800 and annual gross sales Subject to VAT
exceed P 1,919,500
Monthly rental P12,800 or less regardless of annual gross VAT exempt and no percentage tax
sales
Threshold is now P3,000,000 annual gross sales and P15,000 monthly rental under TRAIN.
Transitional Input VAT

Prior payment is not necessary before a taxpayer could avail of the 2% transitional input VAT. Transitional input
VAT is based on the value of the inventory, which are products which the VAT- registered business offers for sale.
It is not limited to improvements. All that is required from the taxpayer is to file a beginning inventory with BIR. (Fort
Bonifacio Development Corporation v. CIR)
Q: Are gross receipts derived from sales of admission tickets in showing motion pictures subject to
VAT?

A: NO. The legislative intent is not to impose VAT on persons already covered by the amusement tax



Refund or Tax Credit of Excess Input Tax

Requirements to claim for VAT refund

1. The taxpayer is VAT-registered;
2. The taxpayer is engaged in zero-rated or effectively zero-rated sales;
3. The input taxes are due or paid;
4. The input taxes are not transitional input taxes as it cannot be claimed as a refund or credit;
5. The input taxes have not been applied against output taxes during and in the succeeding quarters;
6. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
7. For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted for in accordance with the rules and regulations of the BSP;
8. Where there are both zero-rated or effectively zero- rated sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated
on the basis of sales volume; and
9. The claim is filed within two years after the close of the taxable quarter when such sales were made (Luzon
Hydro Corporation v. CIR, G.R. No. 188260, November 13, 2013, penned by Justice Bersamin).
LOCAL TAXATION

Fundamental Principles in Local Taxation (UE-LIP)

1. Uniformity
2. Taxes, charges and impositions shall be:
a. Equitable and based as much as possible on taxpayers capacity to pay
b. For Public Purpose
c. Not Unjust, oppressive, or confiscatory;
3. Collection of taxes shall not be Let to private persons
4. Revenues collected pursuant to the LGC shall inure to the LGU levying such tax or charges
5. As much as practicable, evolve Progressive system of taxation.

Real Property Exempt from Real Property Tax
1. When real property is owned by the Republic of the Philippines
XPN: Beneficial use is granted for consideration to a taxable person
2. Charitable institutions, churches, parsonages, convents, non-profit religious cemeteries and all lands,
buildings, and improvements, actually, directly, and exclusively used for charitable or educational
purposes.
3. Real property owned by cooperative
4. Machineries owned and used by local water districts and GOCCs engaged in the distribution of water
and/or generation, transmission of electric power.
5. Machinery used for pollution control and environmental protection.

GOV’T INSTRUMENTALITIES EXEMPT FROM RPT
MIAA BCDA GSIS
PEZA BSP Cebu Port
Authority
MCIAA Philippine Cagayan Port
Reclamataion Authority
Authority

Common Limitations in Taxing Power of LGUs [IDE-C3AP3-MENT]

1. Income tax, except when levied on banks and other financial institutions;


2. Documentary stamp tax;
3. GR: Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise
provided under the LGC;
XPN: Tax on transfer of real property (Sec. 135, LGC)

4. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharfage on wharves constructed and maintained by the LGU
concerned;
5. Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the
territorial jurisdictions of LGUs in the guise of charges for wharfage, tolls for bridges or otherwise, or other
taxes, fees, or charges in any form whatsoever upon such goods or merchandise;
6. Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
7. Taxes on business enterprises certified to by the BOI as pioneer or non-pioneer for a period of six (6) and
four (4) years, respectively from the date of registration;
8. Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees, or charges on petroleum
products;
NOTE: LGUs are devoid of taxing power over the manufacturing and distribution of petroleum products
per se or even the activity or privilege related to the petroleum products, it is covered by the limitation
under Sec. 133(h), LGC and thus, no levy can be imposed. Sec. 143(h) defines the general power of LGUs to
tax businesses within its jurisdiction. Thus, the omnibus grant of power to LGUs under Sec. 143(h) of the
LGC cannot overcome the specific exception or exemption in Sec. 133(h) of the same Code. (Batangas City v.
Pilipinas Shell Petroleum Corporation)
9. Percentage or VAT on sales, barters, or exchanges or similar transactions on goods or services except as
otherwise provided herein;
10. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land, or water, except as provided in this Code;
11. Taxes on premiums paid by way or reinsurance or retrocession;
12. Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;
13. Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided in the
LGC (i.e. Sec. 143(c), LGC- municipalities may impose taxes on exporters);
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and duly registered cooperatives
15. Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and LGUs

Q: Quezon City passed an ordinance which contains a proviso: “The parcels of land sold after the effectivity
of this revision shall be subject to RPT based on the actual amount reflected in the deed of conveyance or
the current approved zonal valuation of the BIR prevailing at the time of the sale, cession, transfer, and
conveyance, whoever is higher, as evidenced by the certificate of payment of the capital gains tax issued
therefore.” Is the said proviso valid?
A: NO. The said proviso mandates an exclusive rule in determining the fair market value and departs from the
established procedures such as sales analysis approach, the income capitalization approach and reproduction cost
approach under the rules implementing the statute. It unduly interferes with the duties statutorily placed.

PROFESSIONAL TAX
Place of Payment: Province where he practices his profession or where the principal office is located.
Date of Payment: Payable annually on or before Jan 31 or before beginning the practice of the profession.
NOTE: TAX TO BE PAID ONLY ONCE. Person who has paid the corresponding professional tax shall be entitled to
practice his profession in any part of the Philippines without being subjected to any other national or local tax,
license, or fee for the practice of such profession.

TAX REMEDIES
ASSESSMENT
Requisites of a valid assessment (BaD SAWS)


1. In writing and signed by the BIR;
2. Contains the law and the facts on which the assessment is based (basis must be provided);
3. Contains a demand for payment within the prescribed period; (must contain a due date to pay)
4. Must be addressed to, served on and received by the taxpayer.

NOT AN ASSESSMENT
1. The revenue officers’ Affidavit-Report, which was attached to the criminal Complaint filed with the DOJ.
2. A written communication by a revenue officer of tax liability of the taxpayer, giving him an opportunity to
contest or disprove the BIR examiner’s findings is not an assessment since it is yet indefinite

Jeopardy assessment is a delinquency tax assessment made without the benefit of a complete or partial
investigation by an authorized revenue officer who has a reason to believe that the assessment and collection of a
deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to (a) comply with audit and
investigation requirements to present his books of accounts and/or pertinent records, (b) substantiate all or any of
the deductions, exemptions or credits claimed in his return.

Prescriptive Periods
Date of filing Prescriptive Period of assessement
Before due date 3 years from due date
On due date 3 years from due date
Beyond due date 3 years from actual filing
Fraudulent filing 10 years from discovery of fraud or bad faith
Non-filing 10 years from discovery of non-filing
LGC/local taxes 5 years from due date, except in fraud, which is 10
years
Prescriptive period for collection is 3 years.
Principles on Tax Assessment
1. Prima facie presumed correct and made in good faith (Ratio: Lifeblood doctrine, presumption of regularity)
2. Should be based on actual facts

3. Discretionary on the part of Commissioner (therefore, not compellable by mandamus)
4. Power to assess is delegable

The decision of the CIR or his duly authorized representative on a disputed assessment to state the facts, law and
rules and regulations, or jurisprudence on which the decision is based. Failure to do so will invalidate the FDDA.
A final decision on disputed assessment that is declared void does not necessarily result in a void assessment. The
nullification of the FDDA does not extend to the nullification of the entire assessment. An FDDA that does not
inform the taxpayer in writing of the facts and law on which it is based renders the decision void. It is as if there
was no decision rendered. It is tantamount to a denial by inaction, which may still be appealed before the CTA.

TAX LIEN DISTRAINT LEVY

a legal claim or charge on property, a summary remedy in which the Enforeced on real property.
personal or real, established by collection of tax is enforced on the
law as a sort of security for the taxpayer’s personal property.
payment of When
tax obligations. It attaches when enforced to taxpayer’s personal
the taxpayer neglects or refuses to property not in his possession, it is
pay tax after demand. called garnishment.
The BIR is authorized to issue a warrant of garnishment against the bank account of a taxpayer despite the pendency
of protest

Under NIRC, notice by publication is not enough there must be a personal notice to the registered owner of the
property for cases involving an auction sale of land for the collection of delinquent taxes are in personam.



Cases which may be compromised [DANC3]

1. Delinquent accounts
2. Cases under Administrative protest after issuance of FAN to the taxpayer which are still pending with the BIR
3. Cases covered by pre-assessment notices but taxpayer is Not agreeable to the findings of the audit office
4. Civil tax cases disputed before the courts
5. Collection cases filed in courts
6. Criminal violations except:
a. Those already filed in courts; and
b. Those involving criminal tax fraud

Cases which cannot be compromised [AFP CREW]
1. Criminal violations already filed in courts.

2. Cases which become Final and executory after final judgment of a court, where compromise is requested on
the ground of doubtful validity of the assessment.
3. Payment in installment of delinquent accounts
4. Criminal tax fraud cases
5. Final Reports of reinvestigation or reconsideration have been issued
6. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.
7. Withholding tax cases, unless the applicant – taxpayer invokes provisions of law that cast doubt on the
taxpayer’s obligation to withhold.

Grounds for Compromise
1. A reasonable doubt as to the validity of the claim against the taxpayer exists (Doubtful Validity);
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax (Financial
Incapacity)

Notes:
Under CMTA, the Commissioner may compromise any administrative case involving the imposition of fines and
surcharges.
Cases involving forfeiture proceedings shall however not be subject to any compromise under CMTA.

Compromise is different from compromise penalty. Compromise as amount of paid by the taxpayer to settle his
tax liability is different from compromise penalty which is the amount paid by the taxpayer to compromise tax
violation and paid in lieu of criminal prosecution.

Any taxpayer who has filed an application for compromise of his tax liability by means of financial incapacity
waives his right under RA 1405 (Secrecy of Bank Deposits)

NIRC Local Taxes RPT CMTA

Subject of protest FLD/FAN – Protest Notice of assessment of Notice of Ruling or decision
may be request for issued by local treasurer assessment of of of Customs
reconsideration or issued by local Collector
reinvestigation treasurer
Period to file 30 days from 60 days from receipt of 30 days from 15 days from
receipt of FLD or NOA payment of protest payment of protest
FAN
Requirement of Not required Not required GR: Payment Required
payment under under protest is
protest required

XPN: LIM

Lack of authority
to collect


Illegality of
assessment
Payment by
mistake
Before whom CIR or duly Local Treasurer Local Treasurer Commissioner
filed authorized
representative
Period to decide Request for 60 days 60 days 30 days
reconsideration –
180 days from
filing

Request for
reinvestigation –
180 days from
submission of
documents
Decision on If decided by DAR, RTC/MTC/MeTC/MCTC LBAA then to CTA Divisionif
protest to CIR or CTA Court of competent CBAA. Decision of aggrieved taxpayer
appealable to Division jurisdiction depending CBAA appealable is taxpayer.
whom on the amount to CTA Division.
If decided by CTA Automatic review
Division, to CTA en by the Secretary of
banc Finance if
aggrieved party is
the government.
Period to appeal 30 days from adverse decision or inaction







Motions for Reconsideration
Prohibited – decision of BIR, no effect, does not toll the period to file an appeal to CTA Division.


Mandatory – decision of CTA Division before appeal to CTA en banc.

Optional – decision of CTA en banc before appealing to SC.

REFUND

NIRC Local Taxes RPT CMTA
Period to File 2 years from payment, 2 years from the date of 12 months from the
which is the filing of the the payment of such tax, payment of duties and
final adjustment return fee, or charge, or from the taxes.
(Sec. 229) date the taxpayer is
entitled to a refund or
Note: For refund of credit
unutilized input VAT,
period is 2 years from the
close of the taxable
quarter when the zero-
rated sale was made (Sec.
112)
Doctrine of supervening Not applicable Applicable
clause

Supervening causes refer to facts that transpire after judgment has become final and executory or to new
circumstances which developed after the judgment has acquired finality, including matters which the parties were
not aware of prior to or during the trial as they were not yet in existence at that time.
The proper party is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the tax
even when he shifts the burden thereof to another.
Note: The withholding agent has the authority to file a claim for refund. Reason: “It is very difficult, indeed
conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax.” (CIR v.
Smart Communications, Inc., J. Del Castillo)
Period for BIR to decide on a protest is 180 days. There is no period provided for BIR to decide on a claim for tax
refund. However, the taxpayer must file a judicial claim within two years from payment or filing of final adjustment
return. For filing of tax refund under Sec. 112 (refund of unutilized input VAT attributable to zero-rated sales, the
period for BIR to decide is 120 days. (90 days under TRAIN.)
Jurisprudential Rules under Sec. 229
1. Corporation – the 2-year period commences to run from the filing of the Final Adjustment Return (FAR).
2. Leap year - the leap day (February 29) is ignored because what is applicable is the provision in the 1987
Revised Administrative Code which defines 1 year as consisting of 12 months.
3. Supervening causes
GR: Non-payment cannot be excused by supervening cause arising after payment
XPN:
Assurance from the BIR that the suit or proceeding filed beyond the 2-year period shall still be accepted
by the BIR.
Agreement with the BIR to await the decision of the court
4. Dissolved Corporation (BPI v. CIR) – Prescriptive period shall run 30 days after the approval by the SEC of its
plan for dissolution

NOTES ON VAT REFUND


Admin claim with BIR must be filed within 2 years from the close of the taxable quarter when the zero-rated sale

was made.

The CIR has 120 days from the date of submission of complete documents which to decide

Judicial claim CTA Division must be filed within 30 days after denial or expiration of 30 day period

XPN: Judicial claim was filed between December
10, 2003 and October 6, 2010: the taxpayer
would not be required to wait for the lapse of 120-
day period. (CIR v. Aichi Forging Company of Asia)
Reason: Effectivity of BIR Ruling No. DA-489-03.
Such BIR Ruling constitutes estoppel.
Requisites for filing of refund under Sec. 112 [PRICE] (CIR v. Toledo Power Company)

1. Prescriptive period must be complied with

2. Registration – Taxpayer must be VAT-registered
3. Input tax must be the source of refund

4. Creditable input tax must not be applied against output VAT
5. Engaged in zero-rated transactions

Comparison of Section 112 and 229

Section 112 Section 229
Unutilized creditable input VAT related to Internal revenue taxes other than VAT
Subject
zero-rated sale
2 years from the close of the taxable 2 years from payment, which is the filing of
Prescriptive
quarter where the zero-rated sale was the final adjustment return
period
made
30 days from the lapse of 90-day period 30 days after the receipt of adverse
Appeal to CTA or from receipt of decision of denial, decision but must be within the 2-year
Division whichever comes first period from payment or filing of the final


adjusted return.
Note: The previous rule under the NIRC mandates a longer period of 120 days which has been amended by TRAIN

Law that prescribes a 90-day period. While the statutory declaration declares a shorter period, there is a want of

implementing rules to execute such period.
REQUISITES OF A VALID WAIVER OF STATUTE OF LIMITATIONS
RMO 20-90 and RDAO 05-01 laid down the procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. Expiry date should be indicated.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.
3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and
agreed to the waiver. The date of such acceptance by the BIR should be indicated.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the
second copy for the taxpayer and the third copy for the Office accepting the waiver.

Q: Does the CTA have jurisdiction over a special civil action for certiorari assailing an interlocutory
order issued by the RTC in a local tax case?

A: YES. A court may issue a writ of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to
review, by appeal or writ of error, the final orders or decisions of the lower court (The City Of Manila v. Hon. Grecia-
Cuerdo, G.R. No. 175723, February 4, 2014).
The CTA may take cognizance of cases directly challenging the constitutionality or validity of a tax law or regulation
or administrative issuance. RA 9282, a special and later law than BP Blg. 129 provides an exception to the original
jurisdiction of the RTC over actions questioning the constitutionality or validity of tax laws or regulations. Except for
local tax cases, actions directly challenging the constitutionality or validity of a tax law or regulation or administrative
issuance may be filed directly before the CTA (BDO v. Secretary of Finance).
- CTA (not CA) has jurisdiction now on petitions of certiorari assailing interlocutory orders involving tax.
e.g., exclusive appellate jurisdiction over decision of Secretary of Justice on findings by the fiscal of
probable cause on criminal violations of CMTA is appealable to CTA, and not CA.

- Simultaneous running of delinquency and deficiency interest is allowed before TRAIN Law. Such has been
disallowed under TRAIN Law.
- CTA en banc cannot entertain a petition for annulment of judgment of CTA division. The divisions are not
considered separate and distinct courts but are divisions of one and the same court. The petition is
cognizable by SC.

- Dispute solely between BIR and another government agency, including GOCCs, is cognizable by Secretary of
Justice, Solicitor General, or Government Corporate Counsel, depending on the issues and the government
agencies involved. (PSALM v CIR)

PERCENTAGE TAX, EXCISE TAX, DOCUMENTARY STAMP TAX

Percentage Tax


Any person whose sales or receipts are exempt from the 3% of gross quarterly sales or receipts
payment of value-added tax for not exceeding the VAT
threshold and who is not a VAT-registered person

Sale, barter, exchange or other disposition of shares of ½ of 1% of gross selling price (now 6/10 of 1% under
stock listed and traded through the local stock exchange TRAIN)
other than the sale by a dealer in securities

Documentary Stamp Tax (DST)

GR: The party primarily liable on the payment of DST is the person making, signing, issuing, accepting, or
transferring the document or facility evidencing the aforesaid transactions.

XPN: Whenever one of the parties is exempt from the DST, the other party thereto who is not exempt shall be the
one directly liable for the tax
The fact that the Savings Account Plus (SAP) is evidenced by a passbook cannot remove its coverage from DST on
certificates of deposit. A document to be considered a certificate of deposit need not be in a specific form. Thus, a
passbook issued by a bank qualifies as a certificate of deposit drawing interest because it is considered a written
acknowledgement by a bank that it has accepted a deposit of a sum of money from a depositor. (Prudential Bank
v. CIR)
Excise Tax
Sale of Petroleum is Exempt -Sale to international carriers

-Exempt entities under treaties
-Clark Development Authority

TARIFFS AND CUSTOMS

Doctrine of Hot Pursuit Balikbayan Boxes Flexible Tarriff Clause
Customs laws may be enforced Balikbayan boxes are In the interest of the general welfare and
within the contiguous zone (24 conditionally free importations national security, the President upon
nautical miles within the recommendation of NEDA
baseline. Requisites
Shall contain personal and a) Increase, reduce, or remove existing
If customs laws of PH was household effects only protective tariff rates of import duty, but
violated within the contiguous Shall not be in commercial in no case shall be higher than 100% ad
zone, under the Doctrine of Hot quantities nor intended for valorem;
Pursuit, law enforcement may barter, sale, or hire b) Establish import quota or ban importation
pursue the violator even in the Value of which shall not exceed of any commodity as may be necessary;
high seas but not within the EEZ 150,000 php and
of another country Privilege may be availed up to 3 c) Impose additional duty on all imports not
times in a calendar year. exceeding 10% ad valorem whenever
necessary

Importation
Begins: The carrying vessel or aircraft enters the Philippine territory with the intention to unload therein.
Terminated:
(a) The duties, taxes and other charges due upon the goods have been paid or secured to be paid at the port of
entry unless the goods are free from duties, taxes and other charges and legal permit for withdrawal has been
granted; or
(b) In case the goods are deemed free of duties, taxes and other charges, the goods have legally left the
jurisdiction of the Bureau.

Exemption of Personal and Household Effects
- Personal and household effects belonging to returning residents which were formally declared and listed
before departure and identified under oath before the District Collector when exported from the Philippines by
such returning residents upon their departure therefrom or during their stay abroad (including jewelry)


- Returning residents are nationals who have stayed in a foreign country for a period of at least 6 months.

Requisites for exemption:

1. It shall not be in commercial quantities;
2. It is not intended for barter, sale or for hire; Value Length of stay abroad

3. Limited to the FCA or FOB value of:
P150,000 Less than 5 years

At least 5 years, not more
P250,000 than 10 years

P350,000 At least 10 years

Abandonment - renunciation by an importer of all his interests and property rights in the importer article.
Goods are forfeited in favor of the government.
Express Abandonment - When the owner, importer, or consignee of the imported goods expressly signifies in
writing to the District Collector the intention to abandon the same.

Implied Abandonment –

1. When the owner, importer, consignee, of the imported goods after due notice, fails to file the goods
declaration within 15 days (subject to extension of 15 days)
2. Having filed such goods declaration, the owner, importer, consignee or interested party after due notice,
fails to pay the assessed duties, taxes and other charges thereon within 15 days from the date of final
assessment; or
3. Having paid the assessed duties, taxes and other charges, the owner, importer or consignee or interested
party after due notice, fails to claim the goods within 30 days from payment.

SMUGGLING
a. Fraudulent act of importing any goods into the Philippines; or
b. The act of assisting in receiving, concealing, buying, selling, disposing or transporting such goods, with full
knowledge that the same has been fraudulently imported; or
The fraudulent exportation of goods

1. That the Merchandise must have been fraudulently or knowingly imported contrary to law;
2. That the defendant, if he is not the importer himself, must have Received, concealed, bought, sold or in any
manner facilitated the transportation, concealment or sale of the merchandise; and

3. That the defendant must be Shown to have knowledge that the merchandise has been illegally imported.

OUTRIGHT SMUGGLING TECHNICAL SMUGGLING
An act of importing goods into the country without complete Importing goods into the country by means of fraudulent,
customs prescribed importation documents, or without falsified or erroneous declartion of the goods to its nature,
being cleared by customs or other regulatory government land, quality, quantity or weight, for the purpose of reducing
agencies, for the purpose of evading payment of prescribed or avoiding payment of prescribed taxes, duties and other
taxes, duties, and other government charges. charges.
Goods and articles do not undergo processing and clearing Goods and articles pass through the BOC, but the processing
procedures at the BOC, and are not declared through through BOC, but the processing and clearing procedures
submission of import documents are attended by fraudulent acts in order to evade the
payment of correct taxes, duties, and other charges.





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TAXATION

LAW UST LAST MINUTE TIPS 2019

UNIVERSITY OF SANTO TOMAS

TAX CONDONATION v. TAX EXEMPTION v. TAX AMNESTY

Tax Condonation Tax Exemption Tax Amnesty

Can tax exemptions be revoked?

GR: YES. Tax exemption is a mere privilege. (e.g., Franchise)

XPN: If exemption is contractual because it may violate the non-impairment clause.

TAX EVASION v. TAX AVOIDANCE

TAX EVASION TAX AVOIDANCE

UNIVERSITY OF SANTO TOMAS

ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE

UNIVERSITY OF SANTO TOMAS

Classes of individual taxpayers:

UNIVERSITY OF SANTO TOMAS

property purchased but

Gain on sale of personal Place of sale and/or

property produced production

Gain on sale of real Location of property

Mining income Location of the

Q: Income tax on interest on bank deposits

Q: What is the concept of Minimum Corporate Income Tax (MCIT)?

Q: What is the purpose of the MCIT?

Q: What is the nature of the MCIT?

Q: What are the entities covered by the MCIT?

A: Domestic Corporation (DC) and Resident Foreign Corporation (RFC)

NOTE: MCIT is not applicable to:

Q: When is the application of the MCIT deemed suspended?

Q: Improperly Accumulated Earnings of Corporation (IAET)

Q: What are considered as closely-held corporation?

Q: What consists of “Improperly Accumulated Earnings”?

Q: Nature of the IAET

UNIVERSITY OF SANTO TOMAS

Q: Exempt entities from IAET

1. Publicly-held corporations (Sec. 29 [B][2], NIRC)

Q: Is an association formed to promote good governance subject to income tax?

UNIVERSITY OF SANTO TOMAS

Q: Tax Treatment of De Minimis Benefits

Q: Requisites for deductibility of Bad Debts

Q: Capital Asset v. Ordinary Asset

BASIS NCLCO NOLCO

UNIVERSITY OF SANTO TOMAS

Q: Tax Base of Capital Gains Tax (CGT)

a. Gross selling price;

Q; Requisites of Tax-Free Exchange under Section 40(C)(2) of the Tax Code

a. the transferee is a corporation;

Q: Creditable Withholding Tax (CWT) v. Final Withholding Tax (FWT)

UNIVERSITY OF SANTO TOMAS

PAGCOR’s income from:

Determination of gross estate

Period for filing estate tax returns

1. Bona fide transaction;

2. Arm’s length; and

3. Free from any donative intent.

UNIVERSITY OF SANTO TOMAS

Deductions from estate

1. Ordinary deductions [VETS]

Exempted Proceeds from Life Insurance