San Beda College of Law

2001 Centralized Bar Operations

Memory Aid
Taxation Law
TABLE OF CONTENTS

I. GENERAL PRINCIPLES .....................................................................2

A. Power of Taxation.............................................................................2
B. Situs of Taxation...............................................................................4
C. Limitations on the Power of Taxation...............................................4
D. Double Taxation...............................................................................6
E. Forms of Escape from Taxation.......................................................6
F. Tax Enforcement and Administration................................................7
II. NATIONAL TAXATION........................................................................9
A. Income Tax......................................................................................9
B. Transfer Taxes..............................................................................14
C. Expanded Value Added Tax..........................................................17
III. LOCAL TAXATION...........................................................................19
IV. REAL PROPERTY TAXATION........................................................19
V. TARIFF AND CUSTOMS LAWS.......................................................20
VI. TAX REMEDIES...............................................................................22
A. Under the National Internal Revenue Code..................................22
B. Under the Local Government Code..............................................29
C. Under the Tariff and Customs Code.............................................30
VII. COURT OF TAX APPEALS............................................................33
VIII. ANNEX A: COMPARATIVE TABLE OF TAX REMEDIES............A-1
IX. ANNEX B: INCOME TAX TABLES...............................................B-1
 limits except those expressly stated in
the Constitution.
I.GENERAL PRINCIPLES Marshall and Holmes Dictums Reconciled:
Although the power to tax is almost
unlimited, it must not be exercised in an arbitrary
✍ THE POWER OF TAXATION manner. We have courts to which people may
seek redress in case of irregularities.
☛ Definitions:
1. Taxation: Power by which the sovereign 3. Benefits-Protection Theory
raises revenue to defray the necessary There exist reciprocal duties of
expenses of the government from among protection and support between State and its
those who in some measure are privileged inhabitants. Inhabitants pay taxes and in return
to enjoy its benefits and must bear its receive benefits and protection from the State.
burden.
2. Taxes: Enforced proportional contribution ☛ Importance of Taxes
from properties and persons levied by the Taxes are the lifeblood of the
State by virtue of its sovereignty for the government and so should be calculated
support of government and for public without unnecessary hindrance; therefore, their
needs. prompt and imperious availability is an
imperious need.
☛ Characteristics of Taxes:
1. forced charge; ☛ General Rule: Taxes are personal to the
2. generally payable in money; taxpayer. Illustrations:
3. levied by the legislature; 1. Corporation’s tax delinquency cannot be
4. assessed with some reasonable rule of enforced against the stockholder (Corporate
apportionment; Entity Doctrine). Exception: Stockholders
5. imposed by the State within its jurisdiction; may be held liable for unpaid taxes of a
6. levied for public purpose. dissolved corporation if the corporate assets
have passed into their hands.
2. Transfer tax on the estate cannot be
☛ Theories or bases of taxation: assessed against the heirs. Exception: Heirs
may be held liable for the transfer tax on the
1. Lifeblood Theory estate, if prior to the payment of the same,
Taxes are the lifeblood of the nation. the properties of the decedent have been
Without revenue raised from taxation, the distributed to the heirs.
government will not survive, resulting in
detriment to society. Without taxes, the ☛ Nature of the Taxing Power
government would be paralyzed for lack of 1. attribute of sovereignty and emanates from
motive power to activate and operate it. (CIR vs necessity, relinquishment of which is never
Algue, Inc., et. al.) presumed;
2. legislative in character; and
Illustrations of Lifeblood Theory: 3. subject to inherent and constitutional
a. Collection of taxes may not be enjoined limitations.
by injunction.
b. Taxes could not be the subject of
☛ Purpose and Objectives of Taxation:
compensation and set-off.
1. Revenue
c. A valid tax may result in destruction of
2. Non-Revenue (still a tax but imposed under
the taxpayer's property.
its non-revenue objective) KEY: PR2EP
a. Regulation;
2. Necessity Theory
b. Promotion of general welfare;
Existence of a government is a
c. Reduction of social inequity;
necessity and cannot continue without any
d. Encouragement of economic growth;
means to pay for expenses.
and
e. Protectionism.
a. Marshall Dictum
“ Power to tax is the power to
☛ Scope of legislative taxing power (MS
destroy” – describes the unlimitedness
SAPAK):
of the power and the degree of vigor
1. Subject to be taxed, provided it is within its
with which the taxing power may be
jurisdiction;
employed in order to raise revenue.
2. Amount or rate of the tax;
3. Purposes for its levy, provided it be for
b. Oliver Wendell Holmes Dictum
public purpose;
“Power to tax is not the power to
4. Kind of tax to be collected;
destroy while this court (US Supreme
5. Apportionment of the tax;
Court) sits” – power to tax knows no
6. Situs of taxation; and
7. Method of collection.
 TAXATION POLICE EMINENT
☛ Aspects of Taxation: POWER DOMAIN
1. Levy or imposition of the tax; and to self-
2. Enforcement or tax administration protection and
self-
☛ Basic Principles of a sound tax system: preservation
A sound tax system must be:
1. sufficient to meet governmental
expenditures (fiscal adequacy); ☛ Impositions not strictly considered as
2. capable of being effectively enforced taxes:
(administrative feasibility); and 1. Toll – amount charged for the cost and
3. based on the taxpayer’s ability to pay maintenance of property used;
(theoretical justice). 2. Compromise penalty – amount collected in
lieu of criminal prosecution in cases of tax
☛ TAXATION, POLICE POWER AND violations;
EMINENT DOMAIN DISTINGUISHED 3. Special assessment – levied only on land
TAXATION POLICE EMINENT based wholly on the benefit accruing
POWER DOMAIN thereon as a result of improvements or
Purpose: public works undertaken by government
To raise To promote To facilitate within the vicinity;
revenue public welfare the State’s 4. License fee – regulatory imposition in the
through need of exercise of the police power of the State;
regulations property for 5. Margin fee – exaction designed to stabilize
public use the currency;
Amount of 6. Custom duties and fees – duties charged
exaction: upon commodities on their being imported
Not limited Limited into or exported from a country;
No exaction;
7. Debt – a tax is not a debt but is an
just
obligation imposed by law.
compensation
is paid by the
Government
☛ LICENSE FEE VS. TAX
Benefits:
No special or No direct Direct benefits
LICENSE FEE TAX
direct benefits are result in the
form of just Basis:
benefits are received; Power of taxation.
compensation Police power
received by damnum
the taxpayer absque injuria Purpose:
is attained To regulate To raise revenue.
Limitation:
Non- Limited to costs of (1) Inherent and
impairment issuing the license; constitutional
of contracts: and (2) necessary limitations.
Contracts inspection or police
may not be surveillance
Contracts may Contracts may
impaired Effect of non-
be impaired be impaired
payment:
Effect of Makes the business Does not make the
transfer: illegal. business illegal.
Taxes paid No transfer Property is
become part but only taken by the
of the public restrain on the State upon
funds ☛ Classification of Taxes:
exercise of payment of
As to subject matter
property rights just
1. Personal tax – also known as capitalization
compensation
or poll tax.
Scope: 2. Property tax – assessed on property of a
It affects all It affects all It affects only certain class.
persons, persons, the particular 3. Excise tax – imposed on the exercise of a
property, and property, property privilege.
excises privileges, and compre- 4. Custom duties – duties charged upon
even rights hended commodities on being imported into or
Basis: exported from a country;
Public Public Necessity of 5. Local taxes – taxes levied by local
necessity necessity and the public for government units pursuant to validly
right of State private delegated power to tax;
and of public property As to burden
1. Direct tax – incidence and impact of 1. franchise which must be exercised in the
taxation fall to one person and cannot be Philippines;
shifted to another. 2. shares, obligations or bonds issued by a
2. Indirect tax – incidence and liability for the corporation organized and constituted in the
tax fall to one person but the burden thereof Philippines in accordance with its laws;
can be passed on to another. 3. shares, obligations or bonds issued by a
As to purpose foreign corporation 85% of its business is
1. General taxes – taxes levied for ordinary or located in the Philippines;
general purpose of the government. 4. shares, obligations or bonds issued by a
2. Special taxes – levied for a special foreign corporation if such shares,
purpose. obligations or bonds have acquired a
As to measure of application business situs in the Philippines; and
1. Specific tax- tax imposed by the head or 5. shares or rights in any partnership, business
number or by some standard of weight or or industry established in the Philippines.
measurement. (Sec. 104, R.A. 8424 or the CTRP)
2. Ad valorem tax – tax imposed upon the
value of the article.
As to rate:
1. Progressive taxes – rate increases as the ✍LIMITATIONS ON THE POWER TO TAX
tax base increases.
2. Regressive taxes – rate increases as tax A. Inherent Limitations
base decreases.
☛ The following are the inherent limitations
on the power to tax (SPINE):
✍ SITUS OF TAXATION 1. Public Purpose of taxes;
2. Non-delegability of the taxing power;
Situs of Taxation - an inherent mandate that 3. Territoriality or situs of taxation;
taxation shall only be exercised on persons, 4. Tax exemption of government;
properties and excises within the territory of the 5. International comity
taxing power.
☛ Test in Determining Public Purpose
☛ Factors that determine the situs of 1. whether the thing to be furthered by the
taxation: appropriation of public revenue is something
1. Nature of the tax; which is the duty of the state, as a
2. Subject matter of the tax; government, to provide
3. Citizenship of the taxpayer; 2. whether the proceeds of the tax will directly
4. Residence of the taxpayer; and promote the welfare of the community in
5. Source of income equal measure.

☛ Application of Situs of Taxation: ☛ Non-delegability of the taxing power:

1. Tax on persons – residence of the - The power of taxation is peculiarly and
taxpayer; exclusively legislative. Consequently, the
2. Community tax – residence or domicile of taxing power as a general rule may not be
the person taxed; delegated.
3. Business tax – where business is
conducted; ☛ Non-delegable Legislative Power:
4. Privilege or occupation tax – where 1. selection of property to be taxed;
occupation is pursued; 2. determination of the purposes for which
5. Sales tax – where transaction takes place; taxes shall be levied;
6. Real property tax – where property is 3. fixing of the rate of taxation;
located; 4. rules of taxation in general
7. Personal property tax – tangible; where it
is physically located; intangible: subject to ☛ Delegable Legislative Power:
Sec. 104 of CTRP and principle of mobilia 1. Authority of the President to fix tariff rates,
sequuntur personam; import and export quotas (Art. VI, Sec.
8. Income – where income is earned or 28[2], 1987 Constitution).
residence or citizenship of the taxpayer; 2. Power of local government units to tax
9. Transfer tax – residence or citizenship of subject to limitations as may be provided by
the taxpayer or location of the property; Local Government Code (Art. X, Sec. 5,
10. Franchise tax – State which granted the 1987 Constitution).
franchise;
11. Tax on corporations and other judicial ☛ Situs of taxation as a limitation on the
entities – law of incorporation. power to tax: (See the subheading on Situs of
Taxation, supra.)
☛ Intangible properties deemed with a situs
in the Philippines: ☛ Exemption of the Government from Taxes
 As a matter of public policy, property of
the State or any of its political subdivisions 6. Origin of Appropriation, Revenue,
devoted to government uses and purposes are and Tariff Bills (Art. VI, Sec. 24 of the
generally exempt from taxation. Constitution; Tolentino vs. Sec. of Finance).

7. Non-infringement of Religious
B. Constitutional Limitations
Freedom and Worship (Art. III, Sec. 24
of the Constitution)
1. Due Process of Law (Sec.1, Art. III of the ☛ American Bible Society vs. City of Manila
Constitution)
and Tolentino vs. Sec. of Finance rulings
reconciled:
☛ Requisites: The imposition in the former is a license
a. The interests of the public generally
tax which is intended to regulate the exercise of
as distinguished from those of a
freedom of religion while in the latter is a
particular class require the
revenue tax. With respect to revenue tax,
intervention of the State; and
Congress can choose anyone who will be taxed.
b. The means employed must be
Its imposition is a political question.
reasonably necessary to the
accomplishment of the purpose and
8. Delegation of Legislative Authority to
not unduly oppressive.
the President to Fix Tariff Rates,
☛ In a string of cases, the SC held that in order Import and Export Quotas (Art. VIII,
that due process of law will not be violated, the Sec. 28(2) of the Constitution)
imposition of the tax must not be done in an
arbitrary, despotic, capricious, or whimsical 9. Tax Exemption of Properties Actually,
manner. Directly, and Exclusively Used for
Religious, Charitable and Educational
Purposes (See Art. VI, Sec. 28(3) of the
2. Equal Protection of the Law (Sec. 1, Constitution; Lladoc vs. Commissioner;
Art. III of the Constitution) Province of Abra vs. Hernando). This
provision refers only to property taxes.
☛ Requisites for a valid classification:
a. Must not be arbitrary; 10. Majority Vote of all Members of
b. Must be based upon substantial Congress Required in Case of a
distinctions; Legislative Grant of Tax Exemptions
c. Must be germane to the purposes of (Art. VI, Sec. 28 (4) of the Constitution)
law;
d. Must not be limited to existing 11. Non-impairment of the Supreme
conditions only; and
Court’s Jurisdiction in Tax Cases [Art.
e. Must apply equally to all members
VIII, Sec. 2(1) and Art. VIII, Sec.5(b) of the
of a class.
Constitution]
3. Uniformity, Equitability, and
12. Tax Exemption of Revenues and
Progressivity of Taxation (Art. VI, Sec.
Assets of, including Grants,
28 (1) of the Constitution)
Endowments, Donations, or
☛ Definitions: Contributions to, Educational
a. Uniformity: All taxable articles Institutions (Art. XIV, Secs. 4(3) and (4) of
or kinds of property of the same class the Constitution)
shall be taxed at the same rate. A tax is
uniform when it operates with the same 13. Other Provisions of the Constitution
force and effect in every place where Which are Related to Taxation
the subject of it is found. a. Power of the President to veto item or
b. Equitability: Taxation is said to items in an Appropriation, Revenue, or
be equitable when its burden falls to Tariff Bill (Art. VI, Sec. 27 (2))
those better able to pay. b. Necessity of an a Appropriation before
c. Progressivity: Rate increases Money may be paid out of the Public
as the tax base increases. Treasury (Art. VI, Sec. 29 (1))
c. Non-appropriation of Public Money or
4. Non-impairment of Contracts (Art. III, Property for the benefit of any Church,
Sec. 10 of the Constitution) Sect, or System of religion. (Art. VI,
Sec. 29(2)
5. Non-imprisonment for Non-payment d. Treatment of Taxes Levied for a Special
of Poll Tax(Art. III, Sec. 20 of the Purpose.(Art.VI, Sec. 29 (3))
Constitution)
 e. Internal Revenue Allotments to Local 2. Capitalization C
Government Units. (Art.X, Sec.6) 3. Transformation T
4. Avoidance A
5. Exemption E
✍ DOUBLE TAXATION 6. evasion-unlawful E
Key: ESCATE
☛ Definition: Taxing the same subject twice
when it should be taxed only once. Also known A. Shifting
as duplicate taxation.
☛ Definition: Process by which tax burden is
☛ Is double taxation prohibited in the transferred from statutory taxpayer to another
Philippines? without violating the law.
No. There is no constitutional prohibition
against double taxation in the Philippines. It is ☛ Impact of taxation– point on which tax is
something not favored but permissible (Pepsi originally imposed.
Cola Bottling Co. v. City of Butuan, 1968).
☛ Incidents of taxation – point on which the
☛ Kinds of Double Taxation (DT) tax burden finally rests or settles down.

1. Direct duplicate taxation/obnoxious – DT B. Capitalization

in the objectionable or prohibited sense.
REASON: This constitutes a violation of ☛ Definition: Reduction in the price of the
substantive due process. The same property taxed object equal to the capitalized value of
is taxed twice when it should be taxed only future taxes which the purchaser expects to be
once. called upon to pay.
Requisites:
a. the same property is taxed twice when it C. Transformation
should only be taxed once;
b. both taxes are imposed on the same ☛ Definition: The manufacturer or producer
property or subject matter for the same upon whom the tax has been imposed, fearing
purpose; the loss of his market if he should add the tax to
c. imposed by the same taxing authority; the price, pays the tax and endeavors to recoup
d. within the same jurisdiction himself by improving his process of production,
e. during the same taxing period; and thereby turning out his units at a lower cost.
f. covering the same kind or character of
tax. D. Tax Avoidance
2. Indirect double taxation: Not legally
☛ Definition: exploitation by the taxpayer of
objectionable. The absence of one or more of
legally permissible alternative tax rates or
the foregoing requisites of obnoxious DT makes
methods of assessing taxable property or
the DT indirect.
income, in order to avoid or reduce tax liability.
☛ Reliefs from Effects of Double Taxation
1. Tax deductions E. Tax Evasion
Example: Vanishing deductions in
transfer taxes. ☛ Definition: Used by the taxpayer through
2. Tax credits illegal or fraudulent means to defeat or lessen
An amount allowed as a reduction of the the payment of the tax.
Phil. Income tax on account of income
tax(es) paid or incurred to foreign countries. ☛ Indicia of Fraud in Tax Evasion:
It is given to a taxpayer in order to provide a 1. failure to declare for taxation purposes true
relief from too onerous a burden of taxation and actual income derived from business for
in case where the same income is subject to two consecutive years; or
a foreign and Phil. Income tax. This may be 2. substantial underdeclaration of income tax
claimed by (1) citizens of the Philippines and returns of the taxpayer for four consecutive
(2) domestic corporations. years coupled with intentional overstatement
3. Exemptions of deductions.
4. Treaties with other states
5. Principle of reciprocity F. Tax exemption

☛ Definition: A grant of immunity, express or

implied, to particular persons or corporations
✍ FORMS OF ESCAPE FROM TAXATION
from the obligation to pay taxes.
☛ The following are the forms of escape
☛ Kinds of Tax Exemptions
from taxation:
As to basis:
1. Shifting S
1. Constitutional: Immunities from taxation 1. Where no vested right will be impaired;
which originate from the constitution 2. Where the law allows retroactive application;
2. Statutory: Those which emanate from and
legislation 3. If there is bad faith on the part of the
As to form: taxpayer.
1. Express: Expressly granted by organic or
statute law ☛ Agencies Involved in Tax Administration:
2. Implied: When particular persons, 1. BIR
properties, or excises are deemed exempt 2. Bureau of Customs
as they fall outside the scope of the taxing 3. Provincial, city, and municipal assessors
provision itself. and treasurers
As to extent:
1. Total: Connotes absolute immunity. ☛ Powers and Duties of the BIR (Sec. 2,
2. Partial: One where a collection of a part of CTRP): (AGEE)
the tax is dispensed with. 1. Assessment and collection of all national
internal revenue taxes, fees, and charges
☛ Principles Governing Tax Exemptions 2. Give effect to and administer the
1. Exemptions from taxation are highly supervisory and police power conferred to
disfavored in law. it by the Tax Code or other laws
2. He who claims an exemption must be able 3. Enforcement of all forfeitures, penalties
to justify his claim by the clearest grant of and fines in connection therewith
organic or statute law. If ambiguous, there 4. Execution of judgments in all cases
is no tax exemption. Taxation is the rule, tax decided in its favor by the Court of Tax
exemption is the exception. Appeals and the ordinary courts
3. He who claims an exemption must justify
that the legislature intended to exempt ☛ Assessment Defined:
him by words too plain to be mistaken. It is a finding by the taxing agency that
4. He who claims exemption should the taxpayer has not paid his correct taxes. It is
convincingly prove that he is exempted. also a written notice to a taxpayer to the effect
5. Tax exemption must be strictly construed. that the amount stated therein is due as a tax,
6. Tax exemptions are not presumed. and containing a demand for the payment
7. Constitutional grants of tax exemptions are thereof.
self-executing.
8. Tax exemptions are personal. ☛ Burden of proof in pre-assessment
9. Deductions for income tax purposes proceedings:
partake of the nature of tax exemptions; There is a presumption of correctness
hence, they are also to be strictly construed on the part of the CIR, thus the burden of proof
against the taxpayer. is on the taxpayer. Otherwise, the finding of the
CIR will be conclusive and the CIR will assess
the taxpayer. Such finding is conclusive even if
✍TAX ENFORCEMENT AND CIR is wrong if the taxpayer does not controvert.
ADMINISTRATION
☛ Principles Governing Tax Assessments:
☛ Sources of Tax Laws (PADDD)
(Key: SPEC2TRA BLT) 1. Assessments are prima facie presumed
1. Statutes correct and made in good faith
2. Presidential Decrees 2. Assessments should be based on actual
3. Executive Orders facts
4. Constitution 3. Assessment is discretionary on the part of
5. Court Decisions the Commissioner
6. Tax Codes 4. The authority vested in the Commissioner
7. Revenue Regulations to assess taxes may be delegated.
8. Administrative issuances 5. Assessments must be directed to the right
9. BIR Rulings party.
10. Local Tax Ordinances
11. Tax treaties and conventions with foreign ☛ Means Employed in the Assessment of
countries Taxes (Sec. 6, CTRP): (BETI-PPEA)
1. Examination of tax returns
☛ Requisites of Tax Regulations 2. Use of the best evidence obtainable
1. Reasonable 3. Inventory taking, surveillance and use of
2. Within the authority conferred presumptive gross sales and receipts
3. Not contrary to law 4. Termination of taxable period
4. Must be published 5. Prescription of real property values
6. Examination of bank deposits to determine
☛ Retroactivity of BIR Rulings: the correct amount of the gross estate
General Rule: Prospective. 7. Accreditation and registration of tax agents
Exceptions:
 8. Prescription of additional procedural or 3. failure to pay the tax within the time
documentary requirements. prescribed for its payment
4. failure to pay the full amount of tax shown
☛ Examination of Income Tax Returns: on any return required to be filed under the
General Rule: Income tax returns are Tax Code or regulations or the full amount
confidential. of tax due for which no return is required to
Exceptions: be filed, on or before the date prescribed
Inspection of the return may be authorized: for its payment
1. upon written order of the President of the
Philippines;
2. under Finance Regulations no. 33 of the
Secretary of Finance;
3. when the production of the tax return is
material evidence in a criminal case
wherein the Government is interested in II. NATIONAL TAXATION
the result;
4. by the taxpayer himself;
INCOME TAX
☛ Cases when Commissioner may Assess
Taxes on the Basis of the Best Evidence
Obtainable: ✍ DEFINITIONS
1. a person fails to file a return or other
document at the time prescribed by law 1. Income Tax - tax on income, whether gross
2. he willfully or otherwise files a false or or net. (27 Am. Jur. 308)
fraudulent return or other document
2. Income - all wealth which flows into the
☛ Grounds for Termination of Taxable taxpayer other than as a mere return of capital.
Period: (CRIP)
1. the taxpayer is retiring from business 3. Capital - resource of person which can be
subject to tax used in producing goods and services.
2. he intends to leave the Philippines or
remove his property therefrom ☛ Requisites for Income to be Taxable:
3. he hides or conceals his property 1. gain or profit
4. he performs any act tending to obstruct 2. realized or received
the proceedings for the collection of the 3. not excluded by law or treaty
tax for the past or current quarter or year
or renders the same totally or partly ✍ TESTS ON TAXABILITY OF INCOME
ineffective unless such proceedings are
began immediately. 1. Flow of Wealth Test - whether any gain or
the flow of wealth profit was derived from the
☛ Instances when the Commissioner may transaction.
inquire into Bank Deposits:
1. When determining the gross estate of a 2. Realization Test - unless the income is
decedent; deemed "realized," there is no taxable income.
2. Where a taxpayer offers to compromise his
tax liability on the ground of financial 3. Economic-Benefit Principle - flow of wealth
inability in which case he must submit a realized is taxable only to the extent that the
waiver. taxpayer is economically benefited.

☛ Inspection and Examination of Books and

Records, When Made ✍ CLASSIFICATION OF TAXPAYERS:
General Rule: Shall be made once in a taxable
year. a. Individuals
Exceptions: 1) citizens
1. in cases of fraud, irregularity, or mistakes 1 1.1. resident citizens (RC)
2. when taxpayer requests a reinvestigation 2 1.2. non-resident citizens (NRC)
3. to verify compliance with withholding tax 1.3 OCW*
laws and regulations 2) aliens
4. to verify capital gains tax liabilities I.1 resident aliens (RA)
5. upon order of the Commissioner I.2 non-resident aliens
2.2.1.engaged in trade or business
☛ 25% Surcharge on the Amount of the Tax within the Phils. (NRAETB)
Due is imposed in the Following Cases: 3 2.2.2.Not engaged in trade or
1. failure to file any return required under Tax business within the Philippines
Code or regulations on the date prescribed (NRANETB)
2. filing a return with the wrong internal b. Corporations
revenue officer
 1) Domestic (DC) other energy operations pursuant to an
2) Foreign operating or consortium agreement under a
2.1 resident foreign corporation (RFC) service contract with the Government;
2.2 non-resident foreign corporation 2. joint-stock companies;
(NRFC) 3. joint accounts (cuentas en participacion)
4. associations; or
c. Estates 5. insurance companies [Sec. 22(B)].
d. Trusts
H. A General Professional Partnership
means:
☛ Under R.A. 8424 or the CTRP: a) a partnership formed by persons
for the sole purpose of exercising their
A. A non-resident citizen means, a Filipino common profession; and
citizen: b) no part of the income of which is
1. who establishes to the satisfaction of the derived from engaging in any trade or
Commissioner the fact of their physical business [Sec. 22(B)].
presence abroad with a definite intention to - if the requirements are met, it is exempt
reside therein; from income taxation.
2. who leave the Philippines during the taxable
year to reside abroad, either as an I. Domestic Corporation –created or
immigrant or for employment on a organized in the Phils. or under its law [ Sec.
permanent basis; 22(C)]
3. who work and derive income from abroad
and whose employment thereat requires J. Foreign corporation – a corporation which
them to be physically present abroad most is not domestic [Sec. 22(D)]
of the time during the taxable year;
4. who are previously considered as a non- K. Resident Foreign Corporation – engaged
resident and who arrive in the Philippines at in trade or business within the Philippines
anytime during the taxable year to reside [Sec. 22(H)]
thereat permanently shall be considered
non-resident for the taxable year in which he L. Non-resident Foreign Corp. – not engaged
arrives in the Philippines with respect to his in trade or business within the Philippines
income derived from sources abroad until [Sec. 22(I)]
the date of his arrival (Sec.22e, CTRP.)
☛ The income of taxable estates and trusts
B. A resident alien means an individual whose shall be taxed in the same manner as any other
residence is within the Philippines and who individual taxpayer. [Sec. 60 (A)]
is not a citizen thereof. [Sec.22f]
☛ ONLY RESIDENT CITIZENS and
C. A non-resident alien means an individual DOMESTIC CORPORATIONS are taxable for
whose residence is not within the Philippines income derived from sources within and
and who is not a citizen thereof. [Sec.22G] without the Philippines. All other income
taxpayers are taxable only for income
D. The term trade or business includes the derived from sources within the Philippines.
performance of the functions of as a public
office. [Sec. 22S]
✍ KINDS OF INCOME TAXES UNDER
E. The term trade, business or profession R.A. 8424:
shall not include performance of services by
the taxpayer as an employee. [Sec. 22 CC] (1) Net Income Tax
(2) Gross Income Tax
F. A non-resident alien individual who shall (3) Final Income Tax
come to the Philippines and stay therein for (4) Preferential Rates or Special Rates of
an aggregate period of more than 180 days Income Tax
during any calendar year shall be deemed a (5) Improperly Accumulated Earnings Tax
non-resident alien doing business in the (6) Minimum Corporate Income Tax
Philippines Section 22(G) notwithstanding (7) Optional corporate Income tax
[Sec. 25(A)(1)]

G. The term corporation shall include: ✍ NET INCOME TAX

1. Partnerships, no matter how formed or ☛ Definition: Means gross income less
created, except (i) general professional deductions and/or personal and additional
partnerships and (ii) a joint venture or exemptions (Sec. 31, RA 8424)
consortium formed for the purpose of
undertaking construction projects or
engaging in petroleum, coal, geothermal and
☛ NET INCOME TAX FORMULA beyond the control of the official or
employee;
Entire Income 4. social security benefits, retirement gratuities,
Less: Exclusions and Income subject to Final pensions and other similar benefits received
Tax(e.g. Passive Income) by citizens and aliens who come to reside
Gross Income permanently here from foreign sources
Less: Deductions (and/or add’l exemptions, if private or public;
applicable) 5. benefits due to residents under the laws of
Net Taxable Income the U.S. administered by the U.S. Veterans
X Tax Rates Administration
Net Income Tax Due 6. SSS benefits; and
Less: Tax Credit, if any 7. GSIS benefits.
Tax Still due, if any
☛ Miscellaneous Items

✍GROSS INCOME 1. Passive income derived by foreign

government in the Philippines;
2. Income derived from any public utility or
☛ Definition: Includes but not limited to the
from the exercise of any governmental
following :
function;
1. compensation;
3. Prizes and awards made primarily in
2. business income;
recognition of religious, charitable, scientific,
3. gains form dealings in property;
educational, artistic, literary, or civic
4. interests;
achievement (C2LARES):
5. rents;
Requisites:
6. royalties;
a. recipient selected without any action on
7. dividends;
his part;
8. annuities;
b. recipient not required to render
9. prizes and winnings;
substantial future services.
10. pensions;
4. Prizes and awards granted to athletes in
11. partner’s share in the net income
sports competitions and sanctioned by their
of the general professional
national sports association ;
partnership (Sec. 32, CTRP)
5. 13th month pay and other benefits up to
P30,000.00;
KEY: D BIG CAR²P³
6. GSIS,SSS, Medicare and union dues of
individuals;
☛ Exclusions from Gross Income:
7. Gains derived from debt securities with a
1. proceeds of life insurance maturity of more than 5 years;
NOTE: if the proceeds are retained by the 8. Gains from redemption of shares in Mutual
insurer, the interest thereon is taxable; Fund
2. Return of premium;
3. Gift, bequest or devise;
NOTE: income therefrom is taxable ✍ DEDUCTIONS
4. Compensation for injuries or sickness;
5. Income exempt under Treaty; ☛ Definition: Items or amounts which the law
6. Retirement benefits, pension, gratuities, etc. allows to be deducted from gross income in
7. Miscellaneous items order to arrive at the taxable income.

☛ Retirement Benefits, Pension, Gratuities,

Etc.: ☛ Kinds of Deductions:
1. those derived under R.A. 7641 (pertains to
private firms without retirement trust fund); 1. Optional standard deductions –10% of the
2. those received by officials and employees of gross income.
private employers in accordance with a
reasonable private benefit plan; 2. Itemized deductions
Requisites: (a) ordinary AND necessary
a) in the service of the same expenses
employer for at least 10 years; (b) interests
b) at least 50 years old; (c) taxes
c) must be availed of only once (d) losses
d) plan approved by the BIR (R.R. (e) bad debts
2-98); (f) depreciation of property;
3. separation pay because of death, sickness, (g) depletion of oil and gas wells
or other physical disability or for any cause and mines;
 (h) charitable and other c. TAXES:
contributions;
(i) research and development; ☛ Requisites to be deductible:
(j) pension trust contributions of 1. must be in connection with taxpayer’s
employees; and business;
(k) premium payments on health 2. tax must be imposed by law on , and
and/or hospitalization insurance payable by, taxpayer; and
3. paid or incurred during the taxable year.
3. Personal and additional exemptions
☛ Exceptions:
4. Special deductions – applicable only to 1. income tax;
Insurance companies, whether domestic or 2. estate and donor’s tax;
foreign. (Sec. 37, CTRP). 3. special assessments;
4. excess electric consumption tax;
5. foreign income tax, war profits and excess
a. ORDINARY AND NECESSARY profits tax, if the taxpayer makes use of tax
EXPENSES: credit; and
6. final taxes, being in the nature of income tax.
☛ Necessary Expense - appropriate and - Taxes allowed as deductions, when
helpful in the development of taxpayer's refunded or credited, shall be included as
business. part of gross income in the year of receipt to
the extent of the income tax benefit of said
☛ Ordinary Expense - normal or usual in the deduction (Tax Benefit Rule).
line of business. - For NRAETB and RFC, taxes paid or
incurred are allowed as deductions only if
☛ Requisites of Business Expense to be and to the extent that they are connected
Deductible: from income within the Philippines.
1. ordinary and necessary;
2. paid or incurred w/in the taxable year;
3. paid or incurred in carrying on a trade or d. LOSSES:
business;
4. substantiated with official receipts or ☛ Requisites to be deductible:
other adequate records. 1. actually sustained;
2. connected with the business, trade or
☛ Capital Expenditure: profession; and
An expenditure that benefits not only the 3. not compensated by insurance or otherwise.
current period but also future periods. It is not
deductible but depreciable, EXCEPT, if the The following losses are subject to special
taxpayer is a non-profit proprietary educational rules under the CTRP (take note of the
institution which may elect either to deduct the pertinent provisions):
capital expense or depreciate it. 1. Capital losses
2. Securities becoming worthless
3. Wash sales
b. INTEREST: 4. Wagering losses
5. Abandonment losses
☛ Requisites to be deductible: 6. Losses of mines other than oil and
1. debt belongs to the taxpayer; gas wells
2. debt must be related to the business or
profession of the taxpayer;
3. interest should be legally due; e. BAD DEBTS
4. interest paid or accrued during the
taxable year. ☛ Requisites to be deductible:
1. Valid and subsisting debt;
☛ Interest Payments not Deductible: 2. Debt must be actually ascertained to be
1. interest paid on indebtedness to finance worthless and uncollectible;
petroleum explorations; 3. Obligation is not between related parties
2. interest on transactions by related parties (Sec. 36 b CTRP);
(transactions-at-arms-length): 4. Debt is expensed within the year; and
3. interest to purchase or carry tax-exempt 5. Debt is connected with profession, trade
obligations; or business.
4. dividend payments cannot be deducted as
interest; and ☛ Equitable Doctrine of Tax Benefit
5. interest paid in advance thru discount or A recovery of bad debts previously
otherwise, EXCEPT that it is deductible in deducted from gross income constitutes taxable
the year indebtedness is paid. income if in the year the account was written
off, the deduction resulted in a tax benefit.
 3. not more than 21 years old, unmarried AND
f. DEPRECIATION: not gainfully employed or where such
dependents regardless of age are incapable
☛ Requisites to be deductible: of self-support because of mental of physical
1. Must be reasonable; defect.
2. Must be on property used in the conduct
of the business; ☛ Clarificatory Illustrations:
3. Must be expensed during the taxable 1. If only 19 years old but married, not qualified
year; as a dependent.
2. Even if 25 years old but physically
incapacitated, qualified as a dependent.
g. DEPLETION OF OIL AND GAS WELLS 3. Dependent does not include the parents,
AND MINES brothers and sisters of the taxpayer.
- same requisites as depreciation 4. If there is any change of status at any time
during the taxable year, the law expressly
favors the taxpayer.
h. CHARITABLE AND OTHER 5. For a NRAETB, only to the extent allowed
CONTRIBUTIONS by his country to Filipinos not residing
therein, but not to exceed the above
☛ Partial Deduction: amounts. Additionally, he must file a true
- not in excess of 5% of taxable income in and accurate return of the total income
case of a corporation received by such NRAETB from all sources
- not in excess of 10% of the taxable income within the Philippines.
in case of an individual

☛ Deductible in Full:
1. Donations to the government ✍ OTHER INCOME TAXES AS DEFINED
2. Donation to certain foreign institutions or
international organizations. 1. Final Income Tax – is derived by
3. Donations to certain accredited NGO’s . multiplying the tax rate on the particular
income subject to a final income tax. Thus,
the income subject to final income tax is no
✍ PERSONAL EXEMPTIONS longer subject to the net income tax;
otherwise, there would be a violation of
☛ Amounts of Personal Exemptions (Sec. 35 prohibited double taxation. Applicable to
of CTRP): passive income and from sources derived
1. Single individual or married individual from within the Philippines as determined
judicially decreed as legally separated with under Sec. 42 of the CTRP. Deductions
no qualified dependents: P20,000 and/or personal and additional exemptions
2. Head of the family: P25,000 are not allowed.
3. Each married person: P32,000
2. Income subject to Preferential or Special
☛ Head of the Family: Rates – here, the income derived by a
1. Unmarried or legally separated person with particular individual or corporation belonging
one or both parents, or one or more brothers to a class of income taxpayer is subject to
or sisters, or one or more legitimate, either a preferential or special rate.
recognized natural or legally adopted
children living with and dependent upon the 3. Improperly Accumulated Earnings Tax –
taxpayer for their chief support; and a tax equivalent to 10% of the improperly
2. Where such brother / sister or children are accumulated taxable income of every
not more than 21 years of age, unmarried corporation formed or availed of for the
and not gainfully employed, or where such purpose of avoiding the income tax with
dependents regardless of age, are incapable respect to its shareholders or the
of self – support because of mental or shareholders of any other corporation, by
physical defect. permitting earnings and profits to
accumulate instead of being divided or
☛ Additional Exemption for Dependents: distributed.
P8,000 for each dependent not to
exceed 4. 4. Minimum Corporate Income Tax – A tax at
the rate of 2% based on gross income
☛ Qualifications of a dependent: imposed on domestic and resident foreign
1. legitimate, illegitimate or legally adopted corporations not covered by a special
child of the taxpayer income tax system, beginning the 4th taxable
2. chiefly dependent upon and living with the year in which such corporation commenced
taxpayer its business operations. It is imposed
whenever such corporation has (a) zero
or negative net taxable income; or (b) the
 amount of minimum corporate income tax is ☛ Tax Return – It is the sole declaration of
greater than the normal income tax due from taxpayer that incorporates all the data/facts
such corporation. necessary for government to determine the
amount of tax. There is pain of perjury if not
5. Optional Corporate Income Tax - The correct.
President, upon recommendation of the
Secretary of Finance may, effective Jan. 1, ☛ Persons Required to File Income Tax
2000, allow corporations the option to be Return:
taxed at 15% of gross income subject to the
following conditions: A. Individual
1) A tax effort ratio of 20% of GNP; 1. Resident citizen;
2) A ratio of 40% of income tax to 2. Non-resident citizen on income from
total tax revenue; within the Phil.;
3) A VAT tax effort of 4% of GNP 3. Resident alien on income from within
4) A O.9% ratio of Consolidated the Phil.;
Public Sector Financial Position to 4. NRAETB on income from within the Phil.
GNP. 5. An individual (citizens / aliens) engaged
N.B.: Available only to firms whose ratio of in business or practice of a profession
cost of sales to gross sales or receipts from within the Phil. regardless of the amount
all sources does not exceed 55%. of gross income;
6. Individual deriving compensation
income concurrently from two or more
employers at any time during the
✍ INCOME TAX INCIDENCE taxable year;
ON SALES OR EXCHANGES OF 7. Individual whose pure compensation
PROPERTY income derived from sources within the
Phil. exceeds P60,000.
☛ Sale on Exchange of Ordinary Assets B. Taxable Estate and Trust
General rules of income taxation apply C. General Professional Partnership
to both as to the gain and as to the loss. D. Corporation
1. Not exempt from income tax;
☛ Transaction Resulting in Taxable Gains 2. Exempt from income tax under Sec. 30
but Non-Recognition of Losses of NIRC but has not shown proof of
a. Sale or exchange between related parties; exemption.
b. Wash sales by non-dealers of securities and
when not subject to the stock transfer tax; ☛ Individuals Exempt From Filing Income
c. Exchanges not solely in kind in merger and Tax Return:
consolidation; and 1. Individual whose gross income does not
d. Sales or exchanges that are not at arms exceed total personal and additional
length. exemptions;
2. Individual with respect to pure compensation
☛ Sale or Exchange of Real Property, and income derived from sources within the
Shares of Stocks of Domestic Corporation Phils., the income tax on which has been
Held as Capital Assets Subject to Capital correctly withheld;
Gains Tax 3. Individual whose sole income has been
As to individuals and domestic corporations subjected to final withholding income tax;
1. On real property – each independent 4. Individual who is exempt from income tax.
transaction is subject to the final tax of 6%
on the gross selling price or the fair market
value at the time of sale, whichever is TRANSFER TAXES
higher, regardless of gain or loss
2. Shares of stock of domestic corporation not TRANSFER TAX INCOME TAX
traded thru a local exchange taxed at the 1. Tax on transfer of 1. Tax on income
rate of 5% for net capital gains not over property.
P100T, and 10% in excess of P100T. 2. Rates are lower 2. Rates are higher
--5% to 20% - -- 5% to 32%
☛ Tax Exempt Exchanges: estate tax
a. Exchange solely in kind in mergers and -- 2% to 15 % -
consolidation; donor’s tax
b. Exchange of property for stocks resulting in 3. Lesser exemptions 3. More exemptions
a change in corporate control

✍ ESTATE TAX
✍ FILING OF TAX RETURN AND
PAYMENT OF THE TAX ☛ ESTATE TAX FORMULA
 Gross Estate (Sec. 85) a. funeral expenses
Less: (1) Deductions (Sec. 86) b. judicial expenses
(2) Net share of the SS in the CP c. claims against the estate
Net Estate d. claims against insolvent
Less: Exemptions (first P200,000 exemption, person
Sec. 84) e. unpaid mortgages
Net Taxable Estate f. taxes
X Tax rate (Sec. 84) g. losses
2. Transfer for public use
Estate Tax due
3. Vanishing deduction
Less: Tax Credit [if any] (Sec. 86[E] or 110[B]
4. Family home
Estate Tax Due, if any 5. Standard deduction
6. Medical expenses
7. Amounts received by heirs
☛ GROSS ESTATE (Sec. 85, CTRP) under RA 4917 (Retirement Benefits)
A. As to resident alien or Filipino decedent
- all real, tangible personal, intangible B. For non-resident aliens (ELIT-TV)
personal property wherever 1. Expenses, losses, indebtedness,
situated. taxes, etc. (FJCCULT)
A. As to non-resident alien decedent 2. Transfer for public use
- all real and tangible personal 3. Vanishing deduction
property situated in the Phil.
- Intangible personal property with a
situs in the Phil. Unless exempted DEDUCTIONS ON
on the basis of reciprocity. ESTATE TAX APPLICABLE TO
RESIDENT ALIENS AND CITIZENS:
☛ Inclusions in the Gross Estate (Sec. 85,
CTRP): ☛ Funeral Expenses:
a. Decedent’s interest The amount deductible is the lowest among
b. Transfer in contemplation of death the following:
c. Revocable transfer 1. actual funeral expenses
d. Transfer under general power of 2. 5% of the gross estate
appointment 3. P200,000
e. Proceeds of life insurance
f. Transfers for insufficient ☛ Claims against the Estate:
consideration Requisites to be deductible:
g. Prior interests 1. The debt instrument must be notarized
2. If loan was contracted within 3 years before
☛ Exempt Transmissions (Sec. 87, CTRP): the death of the decedent, the administrator
1. The merger of usufruct in the owner of the or executor shall submit a statement
naked title; showing the disposition of the proceeds of
2. Fideicommisary substitution; the loan.
3. The transmission from the first heir, legatee N.B.: These requisites do not apply if the claim
or donee in favor of another beneficiary, in did not arise from contractual obligations.
accordance with the will of the predecessor;
and ☛ Taxes:
4. All bequests, devices, legacies or transfers The following are not deductible:
to social welfare, cultural and charitable 1. income tax on income received after death
institutions no part of the net income of 2. property taxes not accrued before death
which inures to the benefit of any individual; 3. estate tax
Provided, that not more than 30% of the said
bequests, legacies or transfers shall be used ☛ Losses:
by such institutions for administration Requisites to be deductible:
purposes. 1. arising from fire, storm, shipwreck, or other
casualty, robbery, theft or embezzlement;
☛ Value of Gross Estate: 2. Not compensated by insurance or otherwise;
The gross estate shall be valued at its 3. Not claimed as deduction in an income tax
fair market value at the time of death of the return of the taxable estate;
decedent. 4. Occurring during the settlement of the
estate; and
☛ Deductions from the Gross Estate 5. Occurring before the last day for the
payment of the estate tax (last day to pay:
A. For resident aliens and citizens (ELIT, six months after the decedent’s death).
TVFSAM)
1. Expenses, losses, ☛ Transfer for Public Use:
indebtedness, taxes, etc. (ELIT- Requisites to be deductible:
FJCCULT) 1. The disposition is in a last will and testament
2. To take effect after death
3. In favor of the government of the Phil., or b. More than one foreign country
any political subdivision thereof - The credit shall be that which is the lower
4. For exclusive public purposes. amount between Limit A and Limit B

☛ Vanishing Deduction: Limit A. Whichever is lower between:

Requisites to be deductible: 1. Estate tax paid to foreign country
1. the present decedent died within 5 years 2. NTE, foreign country X Phil. estate tax
from transfer of the property from a prior NTE, world
decedent or donor.
2. The property must be located in the Phils. Limit B. Whichever is lower between:
3. The property formed part of the taxable 1. total of estate taxes paid to all foreign
estate of the prior decedent, or of the countries
taxable gift of the donor. 2. NTE outside Phil. X Phil. estate tax
4. The estate tax or donor’s tax on the gift must NTE, world
have been finally determined and paid.
5. The property must be identified as the one
received from the prior decedent, or ✍ DONOR’S TAX
something acquired in exchange therefor.
6. No vanishing deduction on the property was ☛ Requisites: (ADIC)
allowable to the estate of the prior decedent. 1. capacity of the donor
2. donative intent
☛ Family Home: 3. delivery, whether actual or constructive, of
Requisites to be deductible: the subject gift
1. Said family home must have been the 4. acceptance by the donee
decedent’s family home.
2. Said fact must be certified to by the ☛ Stranger - a person who is not a brother,
barangay captain of the locality where it is sister, spouse, ancestor and lineal descendant,
located. or of a relative by consanguinity in the collateral
3. Maximum of P1,000,000 within the 4th civil degree.

☛ Medical Expenses:
Requisites to be deductible: ☛ FORMULA:
1. incurred within one year prior to his death
2. Substantiated with receipts a. On the 1st donation of a year:
3. Maximum of P500,000
Gross gifts xxx
Less: Deductions from gross gifts xxx
DEDUCTIONS ON Net gifts xxx
ESTATE TAX APPLICABLE TO X Tax Rate xxx
NON-RESIDENT ALIENS
Donor’s tax on the net gifts
1. Expenses, losses, indebtedness and b. On donation of a subsequent date during the
taxes (ELIT) year:
Formula:
Gross gifts made on this date xxx
Phil. Gross Estate X World ELIT Less: Deductions from gross gifts xxx
World Gross Estate Net gifts xxx
Add: All prior net gifts within the year xxx
2. Transfer for public use. Aggregate net gifts xxx
3. Vanishing deduction on property in the X Tax Rate xxx
Philippines.
Donor’s tax on aggregate net gifts xxx
Less: Donor’s tax on all prior net gifts xxx
☛ Estate Tax Credit
Donor’s tax on the net gifts on this date xxx
FORMULA:

a. One foreign country only: ☛ Exemption of certain gifts:

4 - The tax credit is whichever is lower
between: 1. Gifts made by a resident
a. dowries or gifts made on account of
1. Estate tax paid to the foreign marriage and before its celebration or
country within one year thereafter by parents to
2. NTE, foreign country X Phil. each of their legitimate, illegitimate or
estate tax adopted children to the extent of the
NTE, world first P10,000.
(NTE - Net Taxable Estate)
 b. Gifts made to or for the use of the The allowable tax credit is the lower amount
National Government or any entity between the tax credit limit under (a) and (b).
created by any of its agencies which is
not conducted for profit, or to any
political subdivision of the said
government. EXPANDED VALUE ADDED
c. Gifts in favor of educational, TAX
charitable, religious, cultural or social welfare
corporation, institutions, foundations, trust or
philanthropic organization, research institution or ✍ Persons liable to Pay the VAT: ( S B E
organization, accredited non-government LSI)
organization (NGO). Provided, that no more 1. Any person whether natural of juridical who,
than 30% of said gifts shall be used by such in the course of trade or business, sells,
donee for administration purposes. barters, exchanges, or leases goods or
properties, or renders services;
2. Gifts made by a non-resident not a citizen of 2. Any person who imports goods whether for
the Phil. business or non-business purpose; and
a. same as (b) provided, gross receipts is more than
b. same as (c) except accredited non- P550,000.00, otherwise,
government organization (NGO)
☛ more than P100T but less than P550T –3%
☛ Tax credit for donor’s taxes paid to a percentage tax
foreign country: ☛ less than P100T – no business tax liability
1. Donor was a Filipino citizen or
resident alien
2. At time of foreign donation ✍ Transactions Subject to VAT: (S I T S
3. Donor’s taxes of any character and )
description
4. Are imposed and paid by the
1. every sale, barter, or exchange, leases
authority of a foreign country.
goods or properties made in the course of
trade or business;
☛ Limitations on tax credit:
2. transactions deemed sale for VAT
1. The amount of the credit in respect to the
purposes;
tax paid to any country shall not exceed the
3. importation of goods; and
same proportion of the tax against which
4. every sale of service made in the course
such credit is taken, which the decedent’s
of trade or business other than services
net gifts situated within such country taxable
rendered by persons subject to “other
under the NIRC bears to his entire net gift;
percentage taxes”.
and
2. The total amount of the credit shall not ✍ Elements of VAT :
exceed the same proportion of the tax
against which such credit is taken, which the 1. sale must be made in the Philippines;
decedent’s net gift situated outside the 2. sale must be of taxable goods, properties or
Philippines taxable under the NIRC bears to services; and
his entire net gift. 3. sale must be made by a taxable person in the
course or furtherance of his business.
☛ FORMULA:
✍ Rate Structure under the VAT System:
a. For donor’s taxes paid to one foreign 1 1. 0% rate for export sales and persons
country whose sales are effectively zero-rated and
zero-rated sales of services; and
NG situated in a foreign country X PDT 2. 10% for all other articles and transactions
Entire net gifts covered by the VAT.
= Tax credit limit

(NG - Net Gifts; PDT - Phil. Donor's Tax) ☛ Input Tax – tax on purchase price of goods
which is passed on or shifted to a buyer /
b. For donor’s taxes paid to two or more purchaser /lessee by the supplier / seller /
foreign country lessor. It is the VAT paid by a VAT-registered
person in the course of his trade or business.
NG outside the Phil. X PDT
Entire net gifts ☛ Output Tax-- VAT due on the sale of
=Tax credit limit taxable goods or services by any person
registered or required to register for VAT
purposes.
 1. Mandatory – every person who in the
☛ Transitional Input Tax Credit – person who course of trade or business, sells, barters,
becomes liable to VAT or any person who elects exchanges, leases goods or services for
to be a VAT-registered person shall, subject to others, if the aggregate amount of actual or
the filing of an inventory of goods, material and expected gross sales and / or gross receipts
supplies equivalent to 8% of value of such exceeds P550T for any 12-month period.
inventory or the actual VAT paid on such goods,
materials and supplies, whichever is higher, 2. Optional -- any of the following persons
which shall be creditable against the output tax. may, at their option, apply for VAT
registration:
☛ Export Sales – sale and shipment or a. seller of goods or services whose
exportation of goods from the Philippines to a taxable sale or gross receipts do not
foreign Country irrespective of any shipping exceed P550T for any 12-month
arrangement that may be agreed upon which period;
may influence or determine the transfer of b. seller of agricultural or marine food
ownership of the goods so exported, or foreign- products in their original state;
currency denominated sales. c. seller of fertilizer, seeds, seedlings
and fingerlings, fish live stock and
☛ Foreign Currency Denominated Sales – poultry feeds,
sales to non-residents of goods assembled or including ingredients whether locally
manufactured in the Philippines for delivery to produced or imported, used in the
residents in the Philippines and paid for in manufacture
convertible foreign currency remitted through the of finished foods;
banking system in the Philippines. d. seller of non-food agricultural,
marine and forest products in their
original state;
☛ ZERO-RATED VS. EXEMPT e. seller of cotton and cotton seeds in
TRANSACTIONS the original state, and copra.
ZERO-RATED EXEMPT ( 550 FANC )
TRANSACTIONS
N.B.: Items b to e, refer to export sales only
Extent:
Only removes the
All value added tax is
value added tax at ✍ Transactions deemed sales for VAT
removed
the exempt stage purposes (Sec. 106B)
1. Transfer, use or consumption not in
the course of trade or business of
Claim for refund: goods originally intended for sale
Taxpayer is not or for use in the course of business;
Taxpayer can claim
entitled to credit or 2. Distribution or transfer to share-
the refund of input
refund of the input tax holders or investors as share in the
taxes passed on to
passed on to him by profits of the VAT -registered
him by the supplier,
the supplier, etc. persons;
etc. or credit such
input taxes against his 3. Consignment of goods if actual sale is not
liabilities for output made within 60 days following the date of
taxes on his other non- consignment;
zero rated transactions 4. Distribution or transfer to creditors in
payment of debt;
5. Retirement from or cessation of business,
Scope: with respect to inventories of taxable goods
Not taxable sales and
Generally, taxable existing as of such retirement or cessation.
therefore not taken into
sales, and taken into
account in determining
account in determining
turn-over or VAT-
turn-over or sales for
registration purposes
sales for VAT-
registration purposes. III. LOCAL TAXATION
✍ Definition:
Registration
The power of local government unit to
requirement: (1) create its own sources of revenue and (2) to
Exempt person may
Zero-rated person may levy taxes, fees, and charges. (See Sec. 5, Art.
not register for VAT.
still register for VAT. X, 1987 Constitution and Sec. 129, LGC)

✍ Nature of the Taxing Power of Local

Governments
✍ Registration Requirements: 1. Not inherent;
2. Exercised only if delegated to them by law
or Constitution.
3. Not absolute; subject to limitations provided 5. Shall not be contrary to law, public policy,
by law. national economic policy, or in restraint of
trade
✍ Aspects of Local Taxing Power 6. Collection of local taxes and other
1. Local taxation, and impositions shall not be let to any person
2. Real property taxation 7. The revenues collected under the Code
N.B.: Both aspects are governed by the Local shall inure solely to the benefit of, and
Government Code (LGC). subject to disposition by, the LGU levying
the tax or other imposition unless otherwise
✍ Doctrine of preemption or exclusion specifically provided therein
Where the National Government elects 8. Each LGU shall, as far as practicable,
to tax a particular area, it impliedly withholds evolve a progressive system of taxation.
from the local government the delegated power
to tax the same field. This doctrine principally
rests upon the intention of Congress.

☛ Excluded impositions (pursuant to the

IV. REAL PROPERTY
doctrine of preemption): TAXATION
1. Taxes which are levied under the NIRC,
unless otherwise provided by LGC of 1991; ✍ Definitions:
2. Taxes, fees, etc. which are imposed under
1. Real Property Taxation: A direct tax on
the Tariffs and Customs Code;
ownership of lands and buildings or other
3. Taxes, fees, etc., the imposition of which
improvements thereon payable regardless of
contravenes existing governmental policies
whether the property is used or not.
or which violates the fundamental principles
2. Real property – subject to the definition
of taxation; and
given by Art. 415 of the Civil Code.
4. Taxes, fees and other charges imposed
3. Improvement – valuable addition made to a
under special law.
property or an amelioration in its condition
amounting to more than a mere replacement
✍ Situs of Municipal Taxation (Sec. 150, of parts.
1991 LGC)
✍ Characteristics:
1. Place of sale( with branch or sales outlet 1. Direct on ownership; O
therein): Municipality or city where the 2. ad valorem tax A
branch or outlet is located. 3. proportionate P
2. Place of sale (no branch or sales outlet): 4. creates a single indivisible obligation S
Municipality or city of principal office (not in
the place of sale). 5. local tax L
3. If manufacturer, assembler, contractor, Key: SAPOL
producer or exporter (MACPE) with factory,
project office, plant or plantation (FPPP): ✍ Taxing Authorities:
a. 30% of recorded sales in the principal 1. Province, at the rate of not > 1% of
office: city or municipality where the assessed value;
principal office is located; 2. City at the rate of not > 2%; and
b. 70% of recorded sales in the principal 3. Municipality within Metro Manila at the rate
office: city or municipality where the of not > 2%.
FPPP is located (pro rata if FPPP are
located in different municipalities or ✍ Extent of the power to levy:
cities). 1. Basic real property tax;
c. If plantation is located in some other 2. 1% additional real estate tax to finance the
place than that where the factory is Special Education Fund;
located, the foregoing 70% shall be 3. 5% additional tax on idle lands; and
subdivided as follows: 4. Special levy or special assessments (may
- 60% to the city or municipality be imposed even by municipalities outside
where the factory is located, Metro Manila).
- 40% to the city or municipality
where the plantation is located. ✍ Fundamental Principles Governing
Real Property Taxation
✍ Fundamental Principles Governing F 1. Real property shall be appraised at its
Local Taxation: current and fair market value;
1. Shall be uniform in each local sub-unit U 2. Real property shall be classified for
2. Shall be equitable and based as much as assessment purposes on the basis of actual
possible on the taxpayer’s ability to pay use.
3. Levied for public purposes U 3. Real property shall be assessed on
4. Shall not be unjust, excessive, oppressive, the basis of uniform classification
or confiscatory within each LGU
P 4. The appraisal, assessment, levy and ☛ Functions of the Bureau of Customs
collection of RPTax shall not be let (ACE2S3):
to any private person. a. Assessment and collection of revenues
E 5. The appraisal and assessment of real from imported articles and all other
property shall be equitable. impositions under the tariff and customs
Key: FEU-UP laws;
b. Control smuggling and related frauds;
✍ Properties Exempt from Real Property c. Supervision and control over the
Tax (Sec. 193, 1991 LGC): entrance and clearance of vessels and
1. Real property owned by the government aircraft engaged in foreign commerce;
except when the beneficial use thereof has d. Enforcement of TCC and related laws;
been granted to a taxable person; e. Supervision and control over the
2. charitable institutions, churches, personages handling of foreign mails arriving in the
or convents appurtenant thereto, mosques, Philippines;
non-profit or religious cemeteries and all f. Supervise and control all import and
lands, buildings and improvements actually, export cargoes for the protection of
directly and exclusively used for religious, government revenue;
charitable or educational purposes (Art. VI, g. Exclusive original jurisdiction over
Sec. 28, Constitution); seizure and forfeiture cases under the
3. machineries and equipment that are tariff and customs laws.
actually, directly and exclusively used by
local water utilities and GOCC’s engaged in ☛ Jurisdiction of Collector of Customs over
the supply and distribution of water and/or importation of articles
electric power; 1. Cause all articles for importation to be
4. real property owned by duly registered entered in the customhouse,
cooperatives as provided for in RA 6938; 2. Cause all such articles to be appraised and
and classified,
5. machinery and equipment used for pollution 3. Assess and collect the duties, taxes and
control and environmental protection. other charges thereon, and
4. Hold possession of all imported articles until
✍ Duty of Real Property Owners the duties, taxes and other charges are paid
beginning 1991: thereon. (Sec. 1206, TCC)
Real property owner must file with
Assessor’s Office a sworn statement of real ☛ Territorial jurisdiction of the BOC:
property value whether exempt or non-exempt. 1. All seas within the jurisdiction of the
Every buyer of real property must make Philippines
a new declaration thereof. (Failure to do so shall 2. All coasts, ports, airports, harbors, bays,
make the assessment in the name of the rivers and inland waters whether navigable
previous owner binding). or not from the sea. (1st par, Sec. 603, TCC)

✍ When tariff and customs applied:

☛ Only after importation has begun but before

IV. TARIFF AND importation is terminated.
Importation begins:
CUSTOMS CODE a. when the conveying vessel or
aircraft
b. enters the jurisdiction of the Phil.
✍ DEFINITIONS: c. with intention to unload therein
Importation is deemed terminated:
1. Tariff: Customs duties, toll or tribute a. (i) upon payment of the duties, taxes
payable upon merchandise to the Gov’t. and other charges due upon the
2. Custom Duties: Tax assessed upon articles. (ii) and legal permit for
merchandise from or exported to, a foreign withdrawal shall have been granted.
country. (Garcia v. Executive Sec., 211 b. In case the articles are free of
SCRA 227 [1992]) duties, taxes and other charges,
until they have legally left the
N.B.: Customs and tariffs are synonymous with jurisdiction of the customs (Sec.
one another. They both refer to the taxes 1202, TCC)
imposed on imported or exported wares,
articles, or merchandise.
✍ ARTICLES UNDER TCC
MAY EITHER BE:
✍ THE BUREAU OF CUSTOMS (BOC) a. Subject to duty
b. Prohibited from being imported
(Prohibited importation)
 c. Conditionally-free from tariff and It is a declaration to the BOC showing
customs duties (conditionally-free particulars of the imported article that will enable
importation) the customs authorities to determine the correct
d. Free from TC duties (duty-free) duties. An importer is required to file an import
entry. It must be accomplished from
☛ Imported goods must be entered in a disembarking of last cargo from vessel.
customhouse at their port of entry otherwise
they shall be considered as contraband and the ☛ Transaction value under RA 8181
importer is liable for smuggling (See Sec. 101, It is the invoice value of the goods plus
TCC). freight, insurance, costs, expenses and other
necessary expenses. This replaces the Home
Consumption Value as basis of valuation of
✍ LIABILITY FOR CUSTOMS DUTIES goods.

☛ General Rule: All importations / exportations ✍ CLASSIFICATION OF CUSTOM

of goods are subject to customs duties (Sec. DUTIES:
105, TCC).
Exceptions: ☛ Regular Duties:
a. Exemptions under the TCC; 1. Ad valorem duty: This is a duty based on
b. Exemptions granted to gov’t agencies, the value of the imported article.
instrumentalities or GOCCs with existing
2. Specific duty: This is a duty based on the
contracts, commitments, agreements, or
dutiable weight of goods (either the gross
obligations with foreign countries;
weight, legal weight, or net weight).
c. Exemptions of international
organizations pursuant to agreements or 3. Alternating duties: This is a duty which
special laws; and alternates ad valorem and specific.
d. Exemptions granted by the Pres. of the 4. Compound Duty: This is a duty consisting
Phil. upon recommendation of NEDA of ad valorem and specific duties.
(Sec. 105, TCC).
☛ Special duties
☛ Liability of importer for custom duties: a. Dumping duty
a. A personal debt which can be b. Countervailing duty
discharged only by payment in full c. Marking duty
thereof; d. Discriminatory duty
b. A lien upon the imported articles while
they are in custody or subject to the ☛ Nature of special customs duties:
control of the gov’t (Sec. 1204, TCC). Special customs duties are additional
import duties imposed on specific kinds of
☛ Drawback imported articles under certain conditions.
A device resorted to for enabling a
commodity affected by taxes to be exported and ☛ Purpose of special customs duties:
sold in foreign markets upon the same terms as The special customs duties are imposed
if it had not been taxed at all (Uy Chiaco Sons for the protection of consumers and
vs. Collector of Customs, 24 Phil 562) manufacturers, as well as Phil. products from
undue competition posed by foreign-made
products.
☛ Import Entry

☛ SPECIAL DUTIES COMPARED

DUMPING DUTY COUNTERVAILING MARKING DUTY DISCRIMINATORY

DUTY DUTY
Imposed upon Imposed upon Imposed upon Imposed upon
foreign products with foreign goods those not properly goods coming from
value lower than enjoying subsidy marked as to place countries that
NATURE their fair market thus allowing them of origin of the discriminates
value to the to sell at lower goods. against Philippine
detriment of local prices to the products.
products. detriment of local
products similarly
situated.
Difference Equivalent to the 5% ad valorem Any amount not
between the actual bounty, subsidy, or of articles exceeding 100% ad
AMOUNT/
price and the normal subvention. valorem of the
RATE
value of the article. subject articles
 Special Sec. of Finance Commissioner President of the
IMPOS-
Committee on Anti- of Customs Philippines
ING
Dumping (composed
AUTHO-
of the Sec. of
RITY
Finance as
Chairman;
Members: the Sec.
of DTI; and either
the Sec. of
Agriculture if article
in question is agri.
product or the Sec.
of Labor if non-agri.)

☛ Flexible Tariff Clause G. Criminal Action (Secs. 220, 221, and

The President may fix tariff rates, import 229)
and export quotas, etc. under TCC (See Sec. H. Suspension of business operations in
28, Art. VI, Constitution and Sec. 401, TCC) violation of VAT (Sec. 115)
I. Enforcement of Administrative Fine

A. Tax Lien

V. TAX REMEDIES ☛ Definition: It is a legal claim or charge on

property, either real or personal, established by
law as a security in default of the payment of
taxes (51 AmJur 881). Generally, it attaches to
TAX REMEDIES the property irrespective of ownership or transfer
UNDER THE NATIONAL INTERNAL thereof.
REVENUE CODE
☛ Extent and nature:
The tax, together with interests, penalties,
I. TAX REMEDIES OF THE and costs that may accrue in addition thereto is
a lien upon all property and rights to
GOVERNMENT
property belonging to the taxpayer.
The lien shall not be valid against any
mortgagee, purchaser, or judgment creditor
✍ Importance until notice of such lien shall be filed by the
1. They enhance and support the Commissioner of Internal Revenue in the Office
government’s tax collection. of the Register of Deeds of the province or city
2. They are safeguards of taxpayer’s where the property of the taxpayer is situated or
rights against arbitrary action. located (Sec. 219, CTRP).

✍ Tax collection cannot be restrained

by court injunction (Sec. 219, CTRP) B. Compromise

☛ Justification: Lifeblood Theory. ☛ Definition: A contract whereby the parties,

by reciprocal concessions, avoid a litigation or
☛ Exception: Injunction may be issued by the put an end to one already commenced (Art.
CTA in aid of its appellate jurisdiction under RA 2028, New Civil Code).
1125 (see requisites thereof, under the
subheading “Court of Tax Appeals,” infra.). ☛ Requisites (TAO):
1. The taxpayer must have a tax liability.
2. There must be an offer (by the taxpayer of
✍ The following are generally the tax
an amount to be paid by the taxpayer)
remedies of the government to effect
3. There must be an acceptance (by the
collection of taxes:
Commissioner or taxpayer as the case may
A. Tax Lien (Sec. 219)
be) of the offer in the settlement of the
B. Compromise (Sec. 204)
original claim.
C. Distraint (Actual and Constructive)
(Secs. 205-208)
☛ Officers authorized to compromise:
D. Levy (Sec. 207B)
E. Forfeiture of Property (Sec. 215) 1. The Commissioner of Internal Revenue
F. Civil Action (Sec. 220) (CIR) is the only official vested with power
and discretion to compromise criminal and
 civil cases arising from violations of the Tax ☛ Remedy in case the taxpayer refuses or
Code (Secs. 7C and 204, CTRP). fails to abide the tax compromise:
2. Subordinate officials may preliminarily 1. Enforce the compromise
enter into a compromise. The effects are: a. If it is a judicial compromise, it can be
i. Acceptance of an offer of enforced by mere execution. A judicial
compromise: not final and may be compromise is one where a decision
reviewed by the Commissioner. based on the compromise agreement is
ii. Rejection of an offer of rendered by the court on request of the
compromise: final and binding parties.
unless revoked or set aside by the b. Any other compromise is extrajudicial
Commissioner. (Gibbs vs. Collector, and like any other contract can only be
17 Phil. 232) enforced by court action.
2. Regard it as rescinded and insist upon
☛ Commissioner may compromise any original demand (Art. 2041, Civil Code).
internal revenue tax when –
1. A reasonable doubt as to the validity of the ☛ Compromise Penalty
claim against the taxpayer exists; or It is an amount of money which the
2. The financial position of the taxpayer taxpayer pays to compromise a tax violation.
demonstrates a clear inability to pay the This is paid in lieu of criminal prosecution. A
assessed tax [Sec. 204(A), CTRP]. In such taxpayer cannot be compelled to pay a
case, the taxpayer should waive the compromise penalty. If he does not want to pay,
confidentiality privilege on bank deposits the CIR must institute a criminal action.
under RA 1405 (See Sec. 6F2, CTRP).

☛ Minimum compromise rates (MCR) of any C. Distraint

tax liabilities:
1. In case of financial incapacity: MCR = 10% ☛ Definition: It is the seizure by the
of the basic assessed tax government of personal property, tangible or
2. Other cases: MCR = 40% of the basic intangible, to enforce the payment of taxes. The
assessed tax [Sec. 204(A), CTRP] property may be offered in a public sale, if taxes
are not voluntarily paid. It is a summary remedy.
☛ Approval of the compromise by the
Evaluation Board is required when: ☛ Two types of distraint:
1. the basic tax involved exceeds 1. Actual: there is taking of possession of the
P1,000,000.00, or personal property from the taxpayer by the
2. the settlement offered is less than the government. Physical transfer of possession
minimum compromise rates (MCR). is not always required. This is true in the
case of intangible property such as stocks
N.B.: The MCR may be less than the prescribed and credits.
rates of 10% or 40%, as the case may be, 2. Constructive: the owner is merely
provided it is approved by the Evaluation Board. prohibited from disposing of his property.

☛ Compromise of Criminal Violations

General Rule: Criminal violations may be ☛ Requisites for the exercise of the remedy
compromised. of distraint:
Exceptions: 1. The taxpayer must be delinquent (except in
1. Those already filed in court constructive distraint) in the payment of tax;
2. Those involving fraud [Sec. 204(A), CTRP]. 2. There must be a subsequent demand for its
payment (assessment);
☛ Extent of the Commissioner’s discretion 3. The taxpayer must fail to pay the tax at the
to compromise criminal violations:
time required; and
1. Before the complaint is filed with the 4. The period within which to assess or collect
Prosecutor’s Office: The CIR has full the tax has not yet prescribed.
discretion to compromise except those
involving fraud. ☛ Nature of the warrant of distraint or levy
2. After the complaint is filed with the The warrant is a summary procedure
Prosecutor’s Office but before the “forcing” the taxpayer to pay. The receipt of a
information is filed with the court: The CIR warrant may or may not partake the character of
can still compromise provided the a final decision. If it is an indication of a final
prosecutor must give consent. decision, the taxpayer may appeal to the CTA
3. After information is filed with the court: The within 30 days from service of the warrant.
CIR is no longer permitted to compromise
with or without the consent of the Prosecutor ☛ Duties of the officer serving the warrant of
(People vs. Magdaluyo, April 20, 1961). distraint:
1. Make an account of the personal properties a. person owing the debts or
distrained; b. having in his possession or under his
2. Sign the list of personal properties control such credits or
distrained to which shall be added, a c. upon his agent.
statement of the sum demanded and note of NB: The warrant of distraint shall be
the time and place of sale; sufficient authority to the person owing the
3. Leave either with the owner or person from debts or having in his possession or under
whose possession such personal properties his control any credits belonging to the
were taken, or at the dwelling or place of taxpayer to pay to the Commissioner the
business of such person with someone of amount of such debts or credits (Sec. 208,
suitable age and discretion (Sec. 208, CTRP).
CTRP)
☛ The taxpayer’s property may be placed
☛ Procedures for the actual distraint or under constructive distraint when he:
garnishment: 1. is retiring from any business
subject to tax; or
1. Personal Property 2. is intending to –
a. leave the Philippines, or
I b. remove his property therefrom,
Service of
Service of the warrant of or
Warrant of
distraint upon the person in c. hide or conceal his property, or
Distraint
possession of the taxpayer’s
3. is performing any act tending to
property (Sec. 208, CTRP).
obstruct the proceeding for
collecting the tax due or which may
Posting of II
be due from him (Sec. 206, NIRC).
Notice Posting of notice in not less
than two (2) public places in the
☛ Procedure for the constructive distraint of
municipality or city (Sec. 209,
personal property:
CTRP)
CIR shall require the taxpayer or
Taxpayer any person having possession
Notice of III must sign or control of such property to (a)
Time and Notice to the taxpayer receipt sign a receipt covering the
Place of specifying the time and place
property distrained and
Sale of sale and the articles
distrained.
Taxpayer’s (b) obligate himself to
oblig. to 1. preserve the same intact
IV preserve and unaltered and
Disposition
Disposition of proceeds of 2. not to dispose of the same
sale (Sec. 209, CTRP). in any manner whatsoever
without the express
authority of the
Commissioner of Internal
3. Stocks and other securities: By serving a
Revenue.
copy of the warrant of distraint upon the
a. taxpayer and If the taxpayer or person in
b. upon the president, manager, treasurer Remedy
when possession of the property
or other responsible officer of the refuses or fails to sign the
corporation, company or association taxpayer
didn’t sign receipt referred to, the revenue
which issued the said stock and officer effecting the constructive
securities (Sec. 208, CTRP). receipt
distraint shall (a) proceed to
prepare a list of such property
and (b) in the presence of two
4. Bank accounts: They shall be garnished by (2) witnesses leave a copy
serving a warrant of distraint upon the thereof in the premises where
a. taxpayer and the property distrained is
b. upon the president, manager, treasurer, located, after wh9ch the said
or other responsible officer of the bank. property shall be deemed to
NB: Upon receipt of the warrant of distraint, have been placed under
the bank shall turn over to the constructive distraint.
Commissioner so much of the bank
accounts as may be sufficient to satisfy the ☛ ACTUAL VS. CONSTRUCTIVE
claim of the government (Sec. 208, CTRP). DISTRAINT
ACTUAL DISTRAINT CONSTRUCTIVE
5. Debts and credits: By serving a copy of the DISTRAINT
warrant of distraint upon the Made only on the Made on the
property of a property of any notified of the levy (Sec. 207B,
delinquent taxpayer taxpayer, whether CTRP).
delinquent or not
There is taking of The taxpayer is Time and III
possession merely prohibited Place of Advertisement of the time and
from disposing of his Sale place of sale of the taxpayer’s
property property or so much thereof as
may be necessary to satisfy the
Effected by leaving Effected by claim within 20 days after levy,
a list of distrained requiring the taxpayer and it shall cover a period of at
property or by service to sign a receipt of the least 30 days (Sec. 213,
of a warrant of distraint property or by the CTRP).
or garnishment revenue officer
preparing and leaving IV
Sale
a list of such property Sale at public auction to the
An immediate step Not necessarily so highest bidder (Sec. 213,
for collection of taxes CTRP).
Both
Are summary remedies for the collection of Disposition V
taxes; Disposition of proceeds of
sale. In case the proceeds of
Refer only to personal property; and the sale exceed the claim
Cannot be availed of where the amount of the (taxes, penalties and interest)
tax involved is not more than P100 and cost of the sale, the excess
shall be turned over to the
owner of the property (Sec. 213,
CTRP).
D. Levy

☛ Definition: It refers to the act of seizure of

real property in order to enforce the payment of ☛ DISTRAINT VS. LEVY
taxes. The property may be offered in a public
sale, if after seizure, the taxes are not voluntarily DISTRAINT LEVY
paid. Refers to personal Refers to real
property property
☛ Requisites for the exercise of the remedy
Forfeiture by the Forfeiture is
of levy: Same as in the remedy of distraint.
government is not authorized
provided
☛ When may levy be effected? The taxpayer is not The right of
Real property may be levied upon given the right of redemption is granted
before, simultaneously, or after the distraint redemption with in case of real property
of personal property belonging to the delinquent respect to distrained levied upon and sold,
(Sec. 207B, CTRP); and the remedy by distraint personal property. or forfeited to the
and levy may be repeated if necessary until the government.
full amount, including all expenses, is collected Both
(Sec. 217, CTRP). Are summary remedies for the collection of
taxes; and
☛ Procedure of levy on real property: Cannot be availed of where the amount of the
tax involved is not more than P100
Prepare I
Certificate Preparation of a duly
of Levy authenticated certificate
containing: (a) description of E. Forfeiture
the property levied (b) name of
the taxpayer, and (c) the ☛ Definition: divestiture of property without
amounts of tax and penalty compensation, in consequence of a default or
due from him. This certificate offense.
shall operate with the force of a
legal execution throughout the ☛ Enforcement of the remedy of forfeiture:
Philippines (Sec. 207B, CTRP). 1. In case of personal property – The
forfeiture of chattels and removable fixtures
II of any sort is enforced by seizure and sale
Service of
Service of written notice to the or destruction of the specific forfeited
Notice
delinquent taxpayer or occupant property.
of the property. The proper
Register of Deeds shall also be
2. In case of real property – The forfeiture of government because tax officers will be obliged
real property is enforced by a judgment of to act promptly.
condemnation and sale in a legal action or
proceeding, civil or criminal, as the case ☛ Rules on Prescription:
may require. 1. When the tax law itself is silent on
prescription, the tax is imprescriptible;
☛ Effect of the forfeiture of property with 2. When no return is required, tax is
respect to title thereto: The effect is to transfer imprescriptible; NB: Remedy of taxpayer is
the title to the specific thing from the owner to to file a return.
the government. 3. Defense of prescription is waivable;
4. Provisions on prescription, being remedial in
nature, should be liberally interpreted to
carry out its intent.
F. Civil Actions
☛ Prescriptive Period for the assessment of
☛ Definition: For tax remedy purposes, these taxes:
are actions instituted by the government to
collect internal revenue taxes. It includes filing General Rule:
by the government with the probate court claims THREE (3) YEARS after the date the
against the deceased taxpayer. return is due or filed, whichever is later (Sec.
203, CTRP).
☛ When resorted to?
1. When a tax is assessed but the assessment Exceptions:
becomes final and unappealable because 1. FAILURE TO FILE A RETURN: TEN (10)
the taxpayer fails to file an administrative YEARS from the date of the discovery of the
protest with the CIR within 30 days from omission to file the return (Sec.222[a]);
receipt; or 2. FALSE OR FRADULENT RETURN with
2. When a protest against assessment is filed INTENTION TO EVADE THE TAX: TEN
and a decision of the CIR was rendered but (10) YEARS from the date of the discovery
the said decision becomes final, executory, of the falsity or fraud (Sec.222);
and demandable for failure of the taxpayer 3. AGREEMENT IN WRITING to the extension
to appeal the decision to the CTA within (not reduction) of the period to assess
30 days from receipt of the decision. between the CIR and the taxpayer before
the expiration of the 3-year period. NB: The
☛ Where to file: Civil actions for the collection extended period agreed upon can further be
of delinquent taxes are filed in the regular courts extended by a subsequent written
and not before the CTA. agreement made before the expiration of the
extended period previously agreed upon
☛ Defenses which are precluded by final (Sec. 222[b]).
and executory assessments: 4. WRITTEN WAIVER or RENUNCIATION of
1. Invalidity or illegality of the assessment; and the original three (3) year limitation, signed
2. Prescription of the government’s right to by the taxpayer (Sambrano vs. CTA 101
assess. Phil. 1).

✍ Abatement ☛ Prescriptive Period for the Collection of

Taxes:
☛ The Commissioner may abate or cancel a
tax liability when: General Periods for the Collection of Taxes:
1. The tax or any portion thereof appears to be 5 years – from assessment or within
unjustly or excessively assessed; or period for collection agreed upon in writing
before expiration of the 5-year period (Sec. 222,
2. The administration and collection costs CTRP).
involved do not justify the collection of the 10 years – without assessment in case
amount due [Sec. 204(A), CTRP]. of false or fraudulent return with intent to evade
or failure to file return (Sec. 222, CTRP).

✍ Prescriptive Periods ☛ Grounds for suspension of the running of

for the Assessment and the statute of limitations:
Collection of Taxes 1. When the CIR is prohibited from making
the assessment or beginning the distraint or
☛ Rationale of herein prescriptive periods: levy or a proceeding in court, and for sixty
Such periods are designated to secure (60) days thereafter;
the taxpayers against unreasonable 2. When the taxpayer requests for a
investigation after the lapse of the period reconsideration which is granted by the
prescribed. They are also beneficial to the CIR;
3. When the taxpayer cannot be located in b. Injunction – when the CTA in its
the address given by him in the return, opinion the collection by the BIR may
unless he informs the CIR of any change in jeopardize taxpayer.
his address.
4. When the warrant of distraint or levy is duly
served, and no property is located; and ✍ Filing of claim for
5. When the taxpayer is out of the Tax Refund or Tax Credit
Philippines (Sec. 223, CTRP).
☛ Grounds for filing a claim for tax refund or
☛ A tax return is considered FILED for tax credit:
purposes of starting the running of the 1. Tax is collected erroneously or illegally.
period of limitations if: 2. Penalty is collected without authority.
1. The return is valid – it has complied 3. Sum collected is excessive.
substantially with the requirements of the
law; and ☛ TAX REFUND VS. TAX CREDIT
2. The return is appropriate – it is a
return for the particular tax required by law. TAX REFUND TAX CREDIT
☛A defective tax return is the same as if no The taxpayer asks The taxpayer asks
return was filed at all. for restitution of the that the money so paid
money paid as tax be applied to his
existing tax liability
Two-year period to Two-year period
II. TAX REMEDIES OF THE TAXPAYER file claim with the CIR starts from the date
starts after the such credit was
payment of the tax or allowed (in case credit
✍ General Remedies of a Taxpayer penalty is wrongly made).

☛ Administrative ☛ Requisites of Tax Refund or Tax Credit

1. Before Payment – 1. Claim must be in writing;
a. Protest – filing a petition for 2. It must be filed with the CIR within TWO (2)
reconsideration or reinvestigation within YEARS after the payment of the tax or
30 days from receipt of assessment penalty. Where the payment was made by
(Sec. 228, CTRP); A protest is a vital wrongly crediting a prior over payment, the
document which is a formal declaration two year period should start from the date
of resistance of the taxpayer. It is a such credit was allowed.
repository of all arguments. It can be 3. Show proof of payment.
used in court in case administrative
remedies have been exhausted. It is ☛ Suspension of the Two-year Prescriptive
also the formal act of the taxpayer Period:
questioning the official actuation of the 1. There is a pending litigation between the
CIR. This is equivalent to a pleading. Government and the taxpayer; and
b. Entering into a compromise (Sec. 2. CIR in that litigated case agreed to abide by
204, CTRP). the decision of the SC as to the collection of
2. After Payment – taxes relative thereto (Panay Electric Co.
Filing of claim for refund or tax credit vs. Collector, May 28, 1958).
within 2 years from date of payment
regardless of any supervening cause (Sec.
229, CTRP). ✍Reglementary Periods in Income Tax
Imposed by Law upon the Taxpayer
☛ Judicial (pursuant to Rev. Reg. No. 12-99, Sec.
1. Civil Action –
228 of the CTRP, and Rules of Court)
a. Appeal to the Court of Tax Appeals –
within 30 days from receipt of decision BIR makes a tax assessment
on the protest or from the lapse of 180
days due to inaction of the 
Commissioner (Sec. 228, CTRP). If taxpayer is not satisfied with the assessment
b. Action to contest forfeiture of chattel file a protest within 30 days from receipt thereof
(Sec. 231, CTRP); and 
c. Action for damages (Sec. 227, CTRP). Submit supporting documents within 60 days
2. Criminal Action – from date of the filing of the protest
a. Filing of criminal complaint against 
erring BIR officials and employees. If protest is denied, elevate the matter to the
Commissioner of Internal Revenue (CIR) within
30 days from receipt of the decision of the CIR’s
duly authorized representative officer ☛ Prescriptive Periods of Assessment
 1. Local taxes, fees, or charges – FIVE (5)
Appeal to the Court of Tax Appeals (CTA) YEARS from the date they became due.
within 30 days from receipt of final decision of (Sec. 194, LGC).
CIR or his duly authorized representative (the 2. When there is fraud or intent to evade the
taxpayer has the option to appeal straight to the payment of taxes, fees or charges – TEN
CTA upon receipt of the decision of the CIR’s (10) YEARS from discovery of the fraud or
duly authorized representative) intent to evade the payment (Sec. 194,
LGC).

If the CIR or his duly authorized representative ☛ Prescriptive Period of Collection
fails to act on the protest within 180 days Local taxes, fees, or charges may be
from date of submission by taxpayer, the latter collected WITHIN FIVE (5) YEARS from the
may appeal within 30 days from lapse of the date of assessment by administrative or judicial
180 day period action. No such action shall be instituted after
 the expiration of such period (Sec. 194, LGC).
Appeal to the Court of Appeals (CA) within 15
days from receipt of the CTA’s decision ☛ Grounds for the Suspension of the
Running of the Prescriptive Periods:
 1. The treasurer is legally prevented from the
Appeal to the Supreme Court within 15 days assessment or collection of the tax;
from receipt of the CA’s decision 2. The taxpayer requests for a reinvestigation
and executes a waiver in writing before the
☛ As a general rule, payment under protest expiration of the period within which to
is not required under the NIRC, except when assess or collect; and
partial payment of uncontroverted taxes is 3. The taxpayer is out of the country or
required as provided under RR 12-99. otherwise cannot be located (Sec. 194,
LGC).

II. TAX REMEDIES OF THE

TAX REMEDIES TAXPAYER
UNDER THE LOCAL GOVERNMENT
CODE (LGC) ✍ The following are the remedies of the
taxpayer in local taxation:
LOCAL TAXATION REMEDIES
I. Administrative
I. TAX REMEDIES OF THE LOCAL
A. Protest – within 60 days from receipt of
GOVERNMENT UNITS assessment (Sec. 195 LGC). Payment
under protest not necessary
✍ The following are the Civil Remedies B. Payment & subsequent refund or tax
of the Local Government Units (LGU) to credit – within 2 yrs. from payment of tax
effect collection of taxes: to local treasurer (Sec. 196 LGC) It is to
1. Tax Lien (Sec. 173, LGC) be noted that, unlike in internal revenue
2. Distraint (Sec. 175, LGC) taxes, the supervening cause applies in
3. Levy (Sec. 175, LGC) local taxation because the period for the
4. Civil Action (Sec. 183, LGC) filing of claims for refund or credit of local
5. Purchase of property by LGUs for want of taxes is counted not necessarily from the
bidder (Sec. 181, LGC); Property distrained date of payment but from the date the
not disposed within 120 days from date of taxpayer is entitled to a refund or credit.
distraint – considered sold to the LGU (Sec. C. Right of redemption – 1 yr. From the date
175, LGC). of sale or from the date of forfeiture (Sec.
181 LGC)
✍ Jurisdiction of courts over local
taxation cases: II. Judicial
1. The Court of Tax Appeals has no jurisdiction
over local taxation cases. A. Appeal – any question on constitutionality
2. Regular judicial courts are not prohibited or legality of tax ordinance within 30 days
from enjoining the collection of local taxes, from effectivity thereof to Secretary of
subject to Rule 58 (Preliminary Injunction) of Justice (Sec. 187 LGC)
the Rules of Court. B. Court action – within 30 days after receipt
of decision or lapse of 60 days of
✍ Prescriptive Periods in the Secretary of Justice’s inaction (Sec. 187
LGC)
Assessment and Collection of
Local Taxes
 - within 30 days from receipt when C. Suit assailing validity of tax; recovery of
protest of assessment is denied (Sec. refund of taxes paid (Sec. 64 PD 464).
195 LGC) D. Suit to declare invalidity of tax due to
- if no action is taken by the treasurer irregularity in assessment and collection
in refund cases and the two year period (Sec. 64 PD 464).
is about to lapse (Sec. 195 LGC) E. Suit assailing the validity of tax sale (Sec.
- if remedies available does not provide 83 PD 464)
plain, speedy and adequate remedy.
C. Action for declaratory relief
D. Injunction – if irreparable damage would
be caused to the taxpayer and no ☛ Condonation of Real Property Taxes
adequate remedy is available. a. Real property taxes may be condoned
wholly or partially in a given local
government unit when
i. There is general failure of crops;
ii. There is substantial decrease in
REAL PROPERTY TAX REMEDIES the price of agricultural or
agribased products; or
I. TAX REMEDIES OF THE LOCAL iii. There is calamity.
GOVERNMENT TO EFFECT b. By the President of the Philippines when
public interest so requires.
COLLECTION OF TAXES
1. Real Property tax lien (Secs. 246 and 251,
LGC);
2. Distraint (Sec. 254, LGC); TAX REMEDIES
3. Levy (Sec. 254, LGC); UNDER THE TARIFF AND CUSTOMS
4. Civil Action – formal demand not required CODE (TCC)
(Sec. 266, LGC);
5. Purchase of property by local treasurer for ✍ Remedies of the Government to effect
want of bidder (Sec. 263, LGC).
collection of taxes:
1. Tax Lien (Sec. 1204 TCC)
☛ “Property Discovered for the First Time”
2. Reduction of customs
Property that for so many years had not
duties/compromise – subject to
been declared and when discovered owner must
approval of Sec. of Finance (Sec.
pay back taxes plus incremental penalties.
709, 2316 TCC)
Assessed taxes shall cover not more than ten
3. Civil Action (Sec. 1204 TCC)
(10) years prior to the date of the initial
4. Criminal Action
assessment.
5. Seizure, Search, Arrest (Sec. 2205,
2210, 2211 TCC)/ forfeiture (Sec.
2530 TCC)
II. TAX REMEDIES OF THE TAXPAYER
✍ Remedies of the taxpayer:
I. Administrative
I. Administrative
A. Protest – payment under protest is required
A. Protest
within 30 days to provincial, city, or municipal
a. Any importer or interested party if
treasurer
dissatisfied with published value within
B. Refund or tax credit – within 2 years from
15 days from date of publication
the date the tax payer is entitled thereto (Sec.
b. Taxpayer – within 15 days from
253 LGC)
assessment. Payment under protest is
C. Redemption of real property (Sec. 261
necessary (Sec. 2308, 2210 TCC)
LGC)
B. Refund – abatement or drawback (Sec.
1701-1708 TCC)
II. Judicial
C. Settlement of any seizure by payment
of fine or redemption – BUT this shall
A. Appeal – within 60 days from assessment
not be allowed in any case where
of provincial, city or municipal assessor to
importation is absolutely prohibited or
LBAA (Sec. 226 LGC)
the release would be contrary to law
- within 30 days from receipt of (Sec. 2307 TCC)
decision of LBAA to CBAA (Sec. 230
LGC) II. Judicial
- in case of denial of refund or 2 A. Appeal – within 15 days to Commissioner
credit, appeal to BAA as in protest case
3 after notification by collector of his
(Sec. 253 LGC)
decision (Sec. 2313 TCC) within 30 days
B. Court Action – appeal of CBAA’s decision
from receipt of decision of the
to Supreme Court by certiorari.
 Commissioner or Secretary of Finance to Hearing within 15 days from receipt of the duly
the CTA (Sec. 2403 TCC, Sec. 7 RA presented protest. Upon termination of the
1125) hearing, the Collector shall decide on the same
B. Action to question the legality of seizure within 30 days
C. Abandonment (Sec. 1801 TCC)

✍ Two kinds of proceedings in the  

Bureau of Customs (BOC): If decision is adverse If decision is adverse
1. Customs protest cases to the protestant to the Government
2. Customs seizure and forfeiture cases
 
A. Customs Protest Cases Appeal with the Automatic review by
Commissioner within Commissioner
☛ Definition: These are cases which deal 15 days from notice 
solely with liability for customs duties, fees, and
other charges.  Automatic review
by
☛ When customs protest applicable: Appeal with the the Sec. of Finance
The customs protest is required to be Court of Tax Appeals 
filed only in case the liability of the taxpayer for within 30 days from notice If decision of
duties, taxes, fees and other charges is
determined and the taxpayer disputes said  Commissioner or
liability. Appeal with the Court of Sec. of Finance is
Appeals within 15 days adverse to the
☛ When Customs protest NOT required from notice protestant, he may
Where there is no dispute, but the claim for  appeal to the
refund arises by reason of the happening of CTA,
supervening events such as when the raw Appeal by certiorari with CA, and SC under
material imported is utilized in the production of the Supreme Court within the same procedure
finished products subsequently exported and a 15 days from notice on the left
duty drawback is claimed.
☛ Reasons for the automatic review of
☛ Requirements for making a protest: decisions adverse to the Government
a. must be in writing 1. To protect the interest of the Government
b. must point out the particular decision or 2. A favorable decision will not be appealed by
ruling of the Collector of Customs to the taxpayer and certainly a Collector will
which exception is taken or objection not appeal his own decision.
made; 3. Lifeblood Theory
c. must state the grounds relied upon for
relief;
d. must be limited to the subject matter of B. Seizure and Forfeiture Cases
a single adjustment;
e. must be filed when the amount claimed ☛ Definition: These refer to matters involving
is paid or within 15 days after the smuggling. It is administrative and civil in nature
payment; and is directed against the res or imported
f. protestant must furnish samples of articles and entails a determination of the
goods under protest when required. legality of their importation. These are actions in
rem.
☛ Procedure on Customs Protest Cases:
☛ Smuggling
The Collector acting within his jurisdiction shall A. An act of any person who shall:
cause the imported goods to be entered at the
4 1. Fraudulently import any article contrary to
customhouse
5 law, or
 6 2. Assist in so doing, or
The Collector shall assess, liquidate, and collect 7 3. Receive, conceal, buy, sell, facilitate,
the duties thereon, or detain the said goods if 8 transport, conceal or sell such article
the party liable does not pay the same 9 knowing its illegal importation (Sec. 3601,
 10 TCC)
The party adversely affected (the protestant) 4. Export contrary to law. (Sec. 3514, TCC)
may file a written protest on his foregoing liability B. The Philippines is divided into various
with the Collector within 15 days after paying the ports
liquidated amount (the payment under protest of entry – entry other than port of entry,
rule applies) will
be SMUGGLING.

☛ Evidence for conviction in smuggling ☛ Persons having police authority to
cases. enforce the Tariff & Customs Laws and effect
Mere possession of the article in question - searches, seizures and arrests:
UNLESS defendant could explain that his a. officials of the BOC, district collectors,
possession is lawful to the satisfaction of the police officers, agents, inspectors, and
court (Sec. 3601, TCC). Payment of the tax due guests of the BOC;
after apprehension is not a valid defense b. officers of the Phil. Navy and other
(Rodriguez v. CA, 248 SCRA 288) members of the AFP and national law
enforcement agencies when authorized
☛ Contraband: Articles of prohibited by the Commissioner of Customs
importations or exportations. (Sec. 3514, TCC) c. officials of the BIR on all cases falling
within the regular performances of their
☛ Things subject to confiscation in duties, when the payment of internal
smuggling cases: taxes are involved;
Anything that was used for smuggling is d. officers generally empowered by law to
subject to confiscation, like the vessel, plane, effect arrests and execute processes of
etc. (Llamado vs. Comm. of Customs, 1983). courts, when acting under the direction
EXCEPTION: Common carriers that are not of the Collector. (Sec. 2203, TCC)
privately chartered cannot be confiscated.
☛ Administrative and Judicial Procedures
☛ Right of customs officers to effect seizure relative to Customs Seizures and Forfeitures
& arrest
a. May seize any vessel, aircraft, cargo, Determination of probable cause and
article, animal or other movable property issuance of warrant
when the same is subject to forfeiture or
liable for any time as imposed under

Actual seizure of the articles
tariff and customs laws, rules &
regulations 
b. May exercise such powers only in Listing of description, appraisal and
conformity with the laws and provisions classification of seized property
of the TCC (Sec. 2205) 
Report of seizure to the Comm. of Customs
☛ Doctrine of Hot Pursuit
and the Chairman, Comm. on Audit
Requisites:
1. Over Vessels 
a. An act is done in Phil. Waters which Issuance by the Collector of a warrant of
constitutes a violation of the tariff detention
and customs laws 
b. a pursuit of such vessel began
Notification to owner or importer
within the jurisdictional waters which
i. may continue beyond the 
maritime zone, and Formal hearing
ii. the vessel may be seized on the 
high seas.
District collector renders his decisions
2. Over Imported Articles
a. There is a violation of the tariff and  
customs laws If decision is not If decision is not
b. As a consequence they may be favorable to the favorable to the
pursued in the Phils. aggrieved owner Government
c. With jurisdiction over them at any or importer 
place therein for the enforcement of
the law. ( 2nd par. Sec. 603, TCC)  Automatic review by
Appeal by the aggrieved the Commissioner
☛ RTC vs. BOC owner or importer
The RTCs do not have jurisdiction over
seizure and forfeiture proceedings conducted by ☛ Requirements for customs forfeiture
the BOC and to interfere with these 1. The wrongful making by the owner,
proceedings. The Collector of Customs has importer, exporter or consignee of any
exclusive jurisdiction over all questions touching declaration or affidavit, or the wrongful
on the seizure and forfeiture of dutiable goods. making or delivery by the same persons of
No petitions for certiorari, prohibition or any invoice, letter or paper - all touching on
mandamus filed with the RTC will lie because the importation or exportation of
these are in reality attempts to review the merchandise.; and
Commissioner's actuations. Neither replevin filed 2. That such declaration, affidavit, invoice,
with the RTC will issue. Rationale: Doctrine of letter or paper is false. (Farolan, Jr. v.
Primary Jurisdiction. CTA, 217 SCRA 298)
 2. Customs compromise does not extinguish
☛ Places where searches & seizures may be criminal liability (People vs. Desiderio, Nov.
conducted: 26, 1965).
a. enclosures
b. dwelling house (there must be search ☛ At any time prior to the sale, the delinquent
warrant issued by a judge) importer may settle his obligations with the
c. vessels or aircrafts and persons or Bureau of Customs, in which case the aforesaid
articles conveyed therein articles may be delivered upon payment of the
d. vehicles, beasts and persons corresponding duties and taxes and compliance
e. persons arriving from foreign countries. with all other legal requirements (Sec. 1508,
TCC)
☛ Burden of proof in seizure or forfeiture:
claimant (Sec. 2535, TCC). ☛ Abatement
The reduction or non-imposition of
☛ Requirements for manifest customs duties on certain imported materials as
A manifest in coastwise trade for cargo a result of:
and passengers transported from one place or 1. Damage incurred during voyage;
port in the Philippines to another is required 2. Deficiency in contents packages
when one or both of such places is a port of 3. Loss or destruction of articles after arrival
entry (Sec. 906, TCC). Manifests are also 4. Death or injury of animals
required of vessel from a foreign port (Sec.
1005, TCC). ☛ Fraudulent Practices considered as
Criminal Offenses against Customs Revenue
☛ Query: Is manifest required only for Laws:
imported goods? a. Unlawful importation;
No. Articles subject to seizure do not b. Entry of imported or exported article by
have to be imported goods. Manifests are also means of any false or fraudulent
required for articles found on vessels or aircraft practices, invoice, declaration, affidavit,
engaged in coastwise trade (Rigor vs. Rosales, or other documents;
117 SCRA 780). c. Entry of goods at less than their true
weights or measures or upon a
☛ Unmanifested Cargo is subject to classification as to quality or value;
Forfeiture whether the act of smuggling is d. Payment of less than the amount due;
established or not under the principle of res ipsa e. Filing any false or fraudulent claim for
loquitur. It is enough that the cargo was the payment of drawback or refund of
unmanifested and that there was no showing duties upon the exportation of
that payment of duties thereon had been made merchandise; or
for it to be subject to forfeiture. f. Filing any affidavit, certificate or other
document to secure to himself or others
☛ Cargo, sea store, and provisions the payment of any drawback,
distinguished: allowance or refund of duties on the
1. Cargo: Article of value (including foreign exportation of mdse. greater than that
currencies), usually movables, other than legally due thereon. (Sec. 3602, TCC)
those as part of sea stores or provisions.
2. Sea Store: It is where the passengers can
buy their necessities.
3. Provisions: Those necessary for the
subsistence of the crew. VI. COURT OF TAX
☛ Settlement of Forfeiture Cases
APPEALS (RA 1125)
General Rule: Settlement of cases by payment
of fine or redemption of forfeited property is ✍ Salient features of the CTA:
allowed. 1. It is a judicial body;
Exceptions: 2. It is a court of special jurisdiction;
1. the importation is absolutely prohibited or 3. It is not governed by technical rules of
2. the surrender of the property to the person evidence.
offering to redeem would be contrary to
law, or ✍ Powers of the CTA:
3. when there is fraud. (Sec. 2307, TCC)
☛ The following are the powers of the CTA:
☛ Acquittal in Criminal Charge NOT Res 1. to administer oaths;
Judicata in Seizure or Forfeiture Proceedings 2. to receive evidence;
Reasons: 3. to summon witnesses by subpoena;
1. Criminal proceedings are actions in 4. to require production or papers or
personam while seizure or forfeiture documents by subpoena duces tecum;
proceedings are actions in rem. 5. to punish contempt;
6. to promulgate rules and regulations for
the conduct of its business; ☛ Simultaneous filing of an application for
7. to assess damage against appellant if refund or credit and institution of a case
appeal to CTA is found to be frivolous or before the CTA allowed
dilatory; The law fixes the same period of two (2)
8. to suspend the collection of the tax years for filing a claim for refund with the
pending appeal; and Commissioner and for filing a case with the
9. to render decisions on cases brought CTA. The two-year period for both starts from
before it. the date after the payment of the tax or penalty,
or from the approval of the application for credit.
☛ Requisites for a Valid Suspension of Observation: If we are not going to
Collection of the Tax pending Appeal: allow the taxpayer to file a refund before the
There must be a CTA and let him wait for the CIR’s decision, and
1. Showing that collection of the tax may the latter failed to render a decision within the 2-
jeopardize the interest of the government year period, the said taxpayer can no longer file
and / or the taxpayer; a refund before the CTA because his right to
2. Deposit of the amount claimed or file a appeal has prescribed.
surety bond for not more than double the
amount of tax with the Court when required;
and
3. Showing by taxpayer that appeal is not
frivolous nor dilatory.

✍ Jurisdiction of the CTA:

☛ Exclusive appellate jurisdiction to review

on appeal:
1. decisions of CIR in –
a. disputed assessments, refunds of internal
revenue taxes, fees or other charges;
penalties imposed in relation thereto; or
b. other matters arising under the NIRC, or
other law or part of law administered by
the BIR.
2. decision of Commissioner of Customs in –
a. cases involving liability from custom
duties, fees or other money charges;
seizure, detention or release of property
affected; fines, forfeitures or other
penalties imposed in relation thereto; or
b. other matters arising under the Customs
Law, or other law or part of law
administered by the Bureau of Customs

☛ “Other matters”
Those controversies which can be
considered within the scope of the
function of the BIR / BOC under
ejusdem generis rule (e.g. action for the
nullity of distraint and levy; questioning
the propriety of the assessment;
collection of compromise penalties).

☛ General Rule: New issues cannot be raised

for the first time on appeal.
Exceptions:
1. Defense of prescription
REASON: This is a statutory right (Visayan
Land Transportation vs Collector)
2. Errors of administrative officials
REASON: State can never be in estoppel
and lifeblood theory. (CIR vs Procter and
Gamble Phils. Mfg. Corp.)