Taxation+law.pdf

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

TAXATI ONLAW I .GENERALPRI NCI PLES POWEROFTAXATI ON

TAXATI ON – power by whi ch t he sov er ei gn t hr ough i t sl awmaki ng body r ai sesr ev enuet o def r ayt henecessar y expenses ofgov er nmentf r om among t hose who i n some measur e ar e pr i v i l egedt oenj oyi t sbenef i t sandmust beari t sbur dens. TwoFol dNat ur eoft hePowerof Taxat i on 1.I ti sani nher enta t t r i but eofsov er ei gnt y 2. I ti sl egi sl at i v ei nchar act er Ext entofTaxi ngPower Subj ectt oconst i t ut i onalandi nher ent r est r i ct i ons,t he power of t axat i on i s r egar ded as compr ehensi v e,unl i mi t ed, pl enar yandsupr eme. SCOPEOFLEGI SLATI VETAXI NGPOWER 1. Amountorr at eoft ax 2. Appor t i onmentoft het ax 3. Ki ndoft ax 4. Met hodofcol l ect i on 5. Pur pose/ sofi t sl ev y ,pr ov i ded i ti s f orpubl i cpur pose 6. Subj ectt o be t axed,pr ov i ded i ti s wi t hi ni t sj ur i sdi ct i on 7. Si t usoft axat i on TAXES – enf or ced pr opor t i onal cont r i but i ons f r om t he per sons and pr oper t yl ev i edbyt hel awmaki ngbodyof t heSt at ebyv i r t ueofi t ssov er ei gnt yi n suppor tofgov er nmentand f orpubl i c needs. CHARACTERI STI CSOFTAXES 1. f or cedchar ge; 2. pecuni ar ybur denpay abl ei nmoney ; 3. l ev i edbyt hel egi sl at ur e; 4. assessedwi t hsomer easonabl er ul e of appor t i onment ;( see t heor et i cal j ust i ce) 5. i mposed by t he St at e wi t hi n i t s j ur i sdi ct i on;

TAXATI ON L AW COMMI TTEE

6. l ev i edf orapubl i cpur pose. REQUI SI TESOFAVALI DTAX 1. shoul dbef orapubl i cpur pose 2. t her ul eoft axat i onshal l beuni f or m 3. t hatei t hert he per son orpr oper t y t axedbewi t hi nt hej ur i sdi ct i onoft he t axi ngaut hor i t y 4. t hatt heassessmentandcol l ect i onof cer t ai n ki nds oft axes guar ant ees agai nst i nj ust i ce t o i ndi v i dual s, especi al l y by way of not i ce and oppor t uni t yf orhear i ngbepr ov i ded 5. t he t ax mustnoti mpi nge on t he i nher ent and Const i t ut i onal l i mi t at i onsont hepoweroft axat i on THEORI ESANDBASESOFTAXATI ON 1. Li f ebl oodTheor y Taxesar ewhatwepayf orci v i l i zed soci et y .Wi t houtt axes,t he gov er nment woul dbepar al y zedf orl ackoft hemot i v e powert oact i v at eandoper at ei t .Hence, despi t e t he nat ur al r el uct ance t o sur r ender par t of one' s har dear ned i ncome t ot he t axi ng aut hor i t i es,ev er y per sonwhoi sabl et omustcont r i but ehi s shar ei nt her unni ngoft hegov er nment . ( CI Rv .Al gue, I nc. ) 2. Necessi t yTheor y Thepowert ot axi sanat t r i but eof sov er ei gnt yemanat i ngf r om necessi t y .I t i s a necessar ybur den t o pr eser v et he St at e' ssov er ei gnt yandameanst ogi v e t he ci t i zenr y an ar my t o r esi st an aggr essi on,anav yt odef endi t sshor es f r om i nv asi on,acor psofci v i lser v ant st o ser v e,publ i ci mpr ov ement sdesi gnedf or t heenj oy mentoft heci t i zenr yandt hose whi chcomewi t hi nt heSt at e' st er r i t or y , and f aci l i t i es and pr ot ect i on whi ch a gov er nmenti ssupposedt opr ov i de.( Phi l . Guar ant yCo. , I nc.v .CI R) 3. Benef i t sPr ot ect i on / Reci pr oci t y Theor y Taxat i oni sdescr i bedasasy mbi ot i c r el at i onshi pwher ebyi nexchangeoft he benef i t sandpr ot ect i ont hatt heci t i zens getf r om t heGov er nment ,t ax esar epai d. ( CI Rv .Al gue, I nc. )

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

Not e: Whi l e t axes ar e i nt ended f or gener al benef i t s, speci al benef i t s t o t axpay er s ar e not r equi r ed. The Gov er nment r ender s no speci al or commensur at ebenef i tt oanypar t i cul ar per sonorpr oper t y . I S THE POWER TO TAX THE POWER TO DESTROY? 1. “ Power t o t ax i s t he power t o dest r oy ”( Mar shal lDi ct um)– r ef er st o t heunl i mi t ednessandt hedegr eeorv i gor wi t h whi ch t he t axi ng powermay be empl oy edt or ai ser ev enue. -t hef i nanci alneedsoft heSt at emay out r un any human cal cul at i on,so t he powert omeett hoseneedsbyt axat i on mustnotbel i mi t edev ent hought axes becomebur densomeorconf i scat or y . 2. “ Powert ot axi snott hepowert o dest r oywhi l et heSupr emeCour tsi t s” ( Hol mes Di ct um) – t he powert ot ax knows no l i mi texceptt hose expr essl y st at edi nt heConst i t ut i on.

Mar shal landHol mesDi ct um Reconci l ed Al t hought hepowert ot axi sal most unl i mi t ed,i tmustnotbeexer ci sedi nan ar bi t r ar ymanner .I ft heabusei ssogr eat so as t o dest r oy t he nat ur al and f undament alr i ght s ofpeopl e,i ti st he dut yoft hej udi ci ar yt ohol dsuchanact unconst i t ut i onal . PURPOSESANDOBJECTI VESOFTAXATI ON 1. Rev enue– basi cal l y ,t hepur poseof t axat i on i s t o pr ov i de f unds or pr oper t y wi t h whi ch t he St at e pr omot es t he gener alwel f ar e and pr ot ect i onofi t sci t i zens. 2.NonRev enue( Key :PR2EP) a. Pr omot i onofgener al wel f ar e b. Regul at i on c. Reduct i onofsoci al i nequal i t y d. Encour ageeconomi cgr owt h e. Pr ot ect i oni sm POWEROFJUDI CI ALREVI EW I N TAXATI ON Asl ongast hel egi sl at ur e, i ni mposi ng a t ax , does not v i ol at e appl i cabl e const i t ut i onall i mi t at i onsorr est r i ct i ons, i t i snotwi t hi nt hepr ov i nceoft hecour t st o i nqui r ei nt ot hewi sdom orpol i cyoft he exact i on,t he mot i v es behi nd i t ,t he

TAXATI ON L AW COMMI TTEE

amountt o be r ai sed ort he per sons, pr oper t yorot herpr i v i l egest obet axed. The cour t ’ s power i nt axat i on i s l i mi t ed onl y t o t he appl i cat i on and i nt er pr et at i onoft hel aw.

Not e: The pr i nci pl e of j udi ci al noni nt er f er enceext endst ot headmi ni st r at i v e r eal m. ASPECTSOFTAXATI ON 1. Lev yori mposi t i on oft he t ax ( t ax l egi sl at i on) 2. Enf or cement or t ax admi ni st r at i on ( t axadmi ni st r at i on) BASI C PRI NCI PLESOFA SOUND TAX SYSTEM ( KEY:FAT) 1. Fi scalAdequacy – suf f i ci ency t o meetgov er nmentexpendi t ur es and ot herpubl i cneeds. 2. Admi ni st r at i v e Feasi bi l i t y / Conv eni ence – capabi l i t y ofbei ng ef f ect i v el yenf or ced. 3. Theor et i calJust i ce– basedont he t axpay er ’ s abi l i t yt o pay ;mustbe pr ogr essi v e.( Abi l i t yt oPayTheor y ) TAXATI ON

POLI CE POWER

EMI NENT DOMAI N

1.Pur pose Topr omot e Tof aci l i t at e publ i c t heSt at e’ s pur pose needof t hr ough pr oper t yf or r egul at i ons publ i cuse 2. AmountofExact i on Nol i mi t Li mi t edt o Noexact i on; t hecostof butpr i v at e r egul at i on, pr oper t yi s i ssuanceof t akenbyt he t hel i cense St at ef or or publ i c sur v ei l l ance pur pose Tor ai se r ev enue

3. Benef i t sRecei ved Nospeci al Nodi r ect Adi r ect ordi r ect benef i ti s benef i tr esul t s benef i ti s r ecei v ed; a i nt hef or m of r ecei v edby heal t hy j ust t het axpay er ; economi c compensat i on mer el y st andar dof t ot he gener al soci et yi s pr oper t y benef i tof at t ai ned owner pr ot ect i on

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

4.Noni mpai r mentofCont r act s Cont r act s Cont r act s Cont r act s maynotbe maybe maybe i mpai r ed i mpai r ed i mpai r ed 5.Tr ansf erofPr oper t yRi ght s Taxespai d Not r ansf er Tr ansf eri s becomepar t butonl y ef f ect edi n ofpubl i c r est r ai nti n f av oroft he f unds i t sexer ci se St at e 6.Scope Al lper sons, Al l per sons, Onl yupona pr oper t yand pr oper t y , par t i cul ar exci ses r i ght s and pr oper t y pr i v i l eges

SYSTEMSOFTAXATI ON Gl obalSy st em Schedul arSy st em A sy st em empl oy ed wher e t he t ax sy st em v i ews i ndi f f er ent l y t he t ax base and gener al l yt r eat si n common al l cat egor i es of t axabl ei ncomeof t hei ndi v i dual . A sy st em whi ch t axes al l cat egor i es of i ncome except cer t ai n passi v e i ncomes and capi t algai ns. I t pr escr i bes a uni t ar y but pr ogr essi v e r at e f or t he t axabl e aggr egat e i ncomes and f l at r at es f or cer t ai n passi v e i ncomes der i v ed by i ndi v i dual s.

A sy st em empl oy ed wher et hei ncomet ax t r eat mentv ar i esandi s madet odependont he ki nd or cat egor y of t axabl ei ncomeoft he t axpay er .

A sy st em whi ch i t emi zes t he di f f er ent i ncomesandpr ov i des f orv ar i edper cent ages oft axes,t obeappl i ed t her et o.

EXAMPLES OF TAXES LEVI ED WI TH A REGULATORY PURPOSE, OR COMBI NED EXERCI SEOFPOLI CEPOWERANDTHEPOWER OFTAXATI ON. a.Mot orv ehi cl er egi st r at i onf eesar e now consi der ed r ev enue or t ax measur es. ( Palv .Edu,G. R No.L41383, August15, 1988) Thi s case r ev er sed t he doct r i ne pr ev i ousl yhel di nRepubl i cv .Phi l i ppi ne Rabbi tBusLi nes,I nc. ,32SCRA 211,t o

TAXATI ON L AW COMMI TTEE

t heef f ectt hatmot orv ehi cl er egi st r at i on f ees ar er egul at or y exact i ons and not r ev enuemeasur es. b.The t axi mposed on v i deogr am est abl i shment si snotonl yr egul at or ybut ar ev enuemeasur ebecauset heear ni ngs ofsuch est abl i shment s hav e notbeen subj ectt ot axdepr i v i ngt hegov er nment ofanaddi t i onalsour ceofi ncome.( Ti ov . Vi deogr am Regul at or yBoar d,151SCRA 208) c.The“ coconutl ev yf unds”wer eal l r ai sedundert hest at e’ st axi ngandpol i ce power s. Thest at e’ sconcer nt omakei ta st r ongandsecur esour cenotonl yi nt he l i v el i hoodoft hesi gni f i cantsegmentof t he popul at i on, but al so of expor t ear ni ngs,t hesust ai nedgr owt hofwhi ch i soneoft hei mper at i v esoft heeconomi c gr owt h. ” Phi l i ppi ne CoconutPr oducer s Feder at i on,I nc.Cocof ed v .Pr esi dent i al Commi ssi ononGoodGov er nment( 178 SCRA236, 252) CONSTRUCTI ONOFTAXL AWS 1. Publ i cpur posei sal way spr esumed. 2. I ft hel aw i scl ear ,appl yt hel aw i n accor dancet oi t spl ai n and si mpl e t enor . 3. A st at ut ewi l lnotbeconst r ued as i mposi ng a t ax unl ess i tdoes so cl ear l y , expr essl yandunambi guousl y . 4. I ncaseofdoubt , i ti sconst r uedmost st r ongl yagai nstt heGov er nment , and l i ber al l yi nf av oroft het axpay er . 5. Pr ov i si onsofat axi ngactar enott o beext endedbyi mpl i cat i on. 6. Tax l aws oper at e pr ospect i v el y unl esst hepur poseoft hel egi sl at ur e t o gi v e r et r ospect i v e ef f ect i s expr essl ydecl ar edormaybei mpl i ed f r om t hel anguageused. 7. Taxl awsar especi all awsandpr ev ai l ov eragener al l aw. NATUREOFTAXL AWS

1. Notpol i t i cal i nchar act er 2. Ci v i li nnat ur e,notsubj ectt oexpost f act ol awpr ohi bi t i ons 3. Notpenal i nchar act er

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

TAXESAREPERSONALTOTHETAXPAYER 1. A cor por at i on’ s t ax del i nquency cannot be enf or ced agai nst i t s st ockhol der s. ( Cor por at e Ent i t y Doct r i ne) Except i on:St ockhol der smaybehel d l i abl ef orunpai dt axesofadi ssol v ed cor por at i on: a. i fi tappear st hatt hecor por at e asset s hav e passed i nt ot hei r handsor b. when t he st ockhol der s hav e unpai d subscr i pt i ons t o t he capi t al oft hecor por at i on 2. Est at et axes ar e obl i gat i ons t hat mustbe pai d by t he execut oror admi ni st r at oroutoft henetasset s andcannotbeassessedagai nstt he hei r s. Except i on:I fpr i ort ot hepay mentof t heest at et axdue,t hepr oper t i esof t hedeceasedar edi st r i but edt ot he hei r s,t hen t he l at t eri s subsi di ar y l i abl ef ort hepay mentofsuchpor t i on oft heest at et axashi sdi st r i but i v e shar ebear st ot het ot alv al ueoft he netest at e.( Sec.9,Rev .Regs.No.22003;seeCI Rv s.Pi nedaG. R.No.L22734.Sept ember15, 1967) ) CLASSI FI CATI ONOFTAXES 1. Ast osubj ectmat t er : a. Per sonalTax–t axesar eoff i xed amountupon al lper sons ofa cer t ai n cl ass wi t hi n t he j ur i sdi ct i on wi t hout r egar d t o pr oper t y ,occupat i onorbusi ness i nwhi cht heymaybeengaged. b. Pr oper t y Tax – assessed on pr oper t yofacer t ai ncl ass c. Exci se Tax – i mposed on t he exer ci seofapr i v i l ege d. Cust oms Dut i es – dut i es char ged upon t he commodi t i es on t hei rbei ng i mpor t ed i nt o or expor t edf r om acount r y . 2. Ast obur den: a. Di r ectTax– bot ht hei nci dence oforl i abi l i t yf ort hepay mentof t het axaswel last hei mpactor bur den oft he t ax f al l s on t he sameper son. b. I ndi r ectTax-Thei nci denceofor l i abi l i t yf ort hepay mentoft het ax

TAXATI ON L AW COMMI TTEE

f al l s on one per son but t he bur dent her eofcanbeshi f t edor passedont oanot her . 3. Ast opur pose: a. Gener alTax – l ev i ed f or t he gener aloror di nar ypur posesof t heGov er nment b. Speci alTax– l ev i edf orspeci al pur poses 4. Ast omannerofcomput at i on: a. Speci f i cTax– t hecomput at i on oft het axort her at esoft het ax i sal r eadypr ov i dedf orbyl aw. b. AdVal or em Tax–t axupont he v al ue of t he ar t i cl e or t hi ng subj ect t o t ax at i on; t he i nt er v ent i on ofanot herpar t yi s needed f ort he comput at i on of t het ax. 5. Ast ot axi ngaut hor i t y : a. Nat i onalTax – l ev i ed by t he Nat i onal Gov er nment b. LocalTax– l ev i edbyt hel ocal gov er nment 6. Ast or at e: a. Pr ogr essi v e Tax – r at e or amountoft axi ncr easesast he amountoft hei ncomeorear ni ng t obet axedi ncr eases. b. Regr essi v e Tax – t ax r at e decr eases as t he amount of i ncomet obet axedi ncr eases. c. Pr opor t i onat eTax–basedona f i xedpr opor t i onoft hev al ueof t hepr oper t yassessed. I MPOSI TI ONS NOT STRI CTLY CONSI DERED AS TAXES 1. Tol l–amountchar gedf ort hecost and mai nt enance of t he pr oper t y used. 2. Penal t y – puni shment f or t he commi ssi onofacr i me. 3. Compr omi se Penal t y – amount col l ect ed i n l i eu of cr i mi nal pr osecut i oni ncasesoft axv i ol at i ons. 4. Speci alAssessment–l ev i edonl yon l and based whol l y on benef i t accr ui ng t her eon as a r esul t of i mpr ov ement s or publ i c wor ks under t akenbygov er nmentwi t hi nt he v i ci ni t y . 5. Li cense or Fee – r egul at or y i mposi t i on i nt he exer ci se oft he pol i cepower .

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

6. Mar gi nFee– exact i ondesi gnedt o st abi l i zet hecur r ency . 7. Debt– asum ofmoneydueupon cont r actoronewhi chi sev i denced byj udgment . 8. Subsi dy – a l egi sl at i v e gr ant of moneyi nai dofapr i v at eent er pr i se deemed t o pr omot e t he publ i c wel f ar e. 9. Cust omsdut i esandf ees– dut i es char geduponcommodi t i esont hei r bei ng t r anspor t ed i nt o orexpor t ed f r om acount r y . 10.Rev enue – a br oad t er m t hat i ncl udes t axes and i ncome f r om ot hersour cesaswel l . 11.I mpost– i ni t s gener alsense,i t si gni f i esanyt ax, t r i but eordut y .I ni t s l i mi t ed sense,i tmeans a dut yon i mpor t edgoodsandmer chandi se. Tax

Speci al Assessment

I mposed on Lev i edonl yonl and per sons, pr oper t y andexci ses Per sonal l i abi l i t y Cannotbe made a at t aches on t he per sonall i abi l i t y of per son assessed i n t heper sonassessed case of nonpay ment Not based on any Based whol l y on speci al or di r ect benef i t benef i t Lev i ed and annual l y

pai d Except i onalbot has t ot i meandl ocal i t y

Exempt i on gr ant ed i s appl i cabl e( Ar t . VI ,Sec.28( 3)1987 Const i t ut i on)

Exempt i on does notappl y . N. B.I fpr oper t yi s exemptf r om Real Pr oper t yTax ,i ti s al so exemptf r om Speci al Assessment .

Tax

Li censeFee

Basedont hepower Emanat es f r om oft axat i on pol i cepower To gener at e Regul at or y r ev enue Amount

i s Amounti sl i mi t ed

TAXATI ON L AW COMMI TTEE

unl i mi t ed

t ot he costof( 1) i ssui ngt hel i cense, and ( 2)i nspect i on andsur v ei l l ance

Nor mal l ypai daf t er Nor mal l y pai d t he st ar t of a bef or e busi ness commencementof busi ness Taxes, bei ng t he Li censef eemaybe l i f ebl ood of t he wi t h or wi t hout St at e, cannot be consi der at i on sur r ender edexcept f or l awf ul consi der at i on Nonpay mentdoes Nonpay ment not make t he makes t he busi nessi l l egalbut busi nessi l l egal may beagr oundf or cr i mi nal pr osecut i on

TESTI N DETERMI NI NG I FTHEI MPOSI TI ON I SA TAXORALI CENSEFEE

I ft hepur posei spr i mar i l yr ev enueor i fr ev enuei s,atl east ,oneoft her ealand subst ant i alpur poses, t hent heexact i oni s at ax. I ft he pur pose i sr egul at or yi n nat ur e, i ti sal i cense.( PALv .Edu) Tax

Debt

An obl i gat i on Cr eat edbycont r act i mposedbyl aw Due t o t he Maybeduet ot he gov er nment i ni t s gov er nment buti n sov er ei gncapaci t y i t s cor por at e capaci t y Pay abl ei nmoney

Pay abl ei n money , pr oper t yorser v i ces

Does not dr aw Dr awsi nt er est i f i nt er est except i n st i pul at ed or case of del ay ed del i nquency

Notassi gnabl e

Assi gnabl e

Not subj ect t o Subj ect compensat i on or compensat i on set of f set of f Nonpay ment i s puni shed by i mpr i sonment excepti npol l t ax

t o or

Noi mpr i sonmenti n case of nonpay ment ( Ar t .I I I , Sec. 20 1987

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Const i t ut i on)

I mposed onl y by Canbei mposedby publ i caut hor i t y pr i v at ei ndi v i dual

TESTI N DETERMI NI NG I FTHEI MPOSI TI ON I SA TAXORALI CENSEFEE

I ft hepur posei spr i mar i l yr ev enueor i fr ev enuei s,atl east ,oneoft her ealand subst ant i alpur poses, t hent heexact i oni s at ax. I ft he pur pose i sr egul at or yi n nat ur e, i ti sal i cense.( PALv .Edu) Tax

Debt

An obl i gat i on Cr eat edbycont r act i mposedbyl aw Due t o t he Maybeduet ot he gov er nment i ni t s gov er nment buti n sov er ei gncapaci t y i t s cor por at e capaci t y Pay abl ei nmoney

Pay abl ei n money , pr oper t y or ser v i ces

Does not dr aw Dr awsi nt er est i f i nt er est except i n st i pul at ed or case of del ay ed del i nquency

Notassi gnabl e

Assi gnabl e

Not subj ect t o Subj ect t o compensat i on or compensat i on or set of f set of f Nonpay ment i s puni shed by i mpr i sonment excepti npol l t ax

No i mpr i sonment i n case of nonpay ment ( Ar t .I I I , Sec. 20 1987 Const i t ut i on)

I mposed onl y by Canbei mposedby publ i caut hor i t y pr i v at ei ndi v i dual

COMPENSATI ONORSETOFF Gener al Rul e: Taxes cannot be t he subj ectofcompensat i onorset of f . Reasons: 1. l i f ebl oodt heor y 2. t axes ar e not cont r act ual obl i gat i onbutar i seoutofdut yt o t hegov er nment 3. t hegov er nmentandt het axpay er ar e notmut ual l y cr edi t or s and debt or sofeachot her .( Fr anci av . I AC)

TAXATI ON L AW COMMI TTEE

Except i on: When bot h obl i gat i ons ar e due and demandabl e as wel las f ul l y l i qui dat edandal lt her equi si t esf orav al i d compensat i onar epr esent , compensat i on t akes pl ace by oper at i on of l aw. ( Domi ngov .Gar l i t os) DOCTRI NE OF E QUI TABLE RECOUPMENT NOT FOLLOWEDI NTHEPHI LI PPI NES A t ax pr esent l y bei ng assessed agai nstat axpay erwhi chhaspr escr i bed maynotber ecoupedorset of fagai nst anov er pai dt axt her ef undofwhi chi s al sobar r edbypr escr i pt i on.I ti sagai nst publ i cpol i cysi ncebot hpar t i esar egui l t y ofnegl i gence. Tax

Tol l

Enf or ced pr opor t i onal cont r i but i ons f r om per sonsand pr oper t y

Asum ofmoneyf ort he use of somet hi ng,a consi der at i onwhi chi s pai df ort heuseofa pr oper t ywhi chi sofa publ i cnat ur e;e. g.r oad, br i dge

A demand sov er ei gnt y

of A demand pr opr i et or shi p

of

Nol i mi tast ot he Amountoft ol ldepends amountoft ax upon t he cost of const r uct i on or mai nt enance of t he publ i c i mpr ov ement used I mposed onl y by Maybei mposedby : t heSt at e ( 1) Gov er nment ( 2) Pr i v at e i ndi v i dual s or ent i t i es

Tax

Penal t y

Enf or ced pr opor t i onal cont r i but i ons f r om per sons and pr oper t y

Sanct i on i mposed asapuni shmentf or v i ol at i on of a l aw or act s deemed i nj ur i ous; v i ol at i on of t ax l aws may gi v e r i se t o i mposi t i on of penal t y

I nt ended t o r ai se Desi gned t o r ev enue r egul at econduct May be i mposed Maybei mposedby : onl y by t he ( 1)Gov er nment

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

gov er nment

( 2)Pr i v at ei ndi v i dual s orent i t i es

Tax

Tar i f f

Al l embr aci ngt er m t oi ncl udev ar i ous ki ndsofenf or ced cont r i but i onsupon per sonsf ort he at t ai nmentof publ i cpur poses

Aki ndoft ax i mposedonar t i cl es whi char et r aded i nt er nat i onal l y

TAXPAYERS’ SUI T Acase wher et heactcompl ai nedof di r ect l yi nv ol v est hei l l egaldi sbur sement of publ i cf unds der i v ef r om t axat i on ( Just i ceMel o,di ssent i ng i nKi l osbay an, I ncv sGui ngona, Jr . ) TAXPAYERS AND PUBLI C OFFCI ALS HAVE LOCUSSTANDI REQUI SI TESFORTAXPAYERS’ SUI T a. Thet axmoneyi sbei ngext r act edand spent i n v i ol at i on of speci f i c const i t ut i onal pr ot ect i ons agai nst abusesofl egi sl at i v epower . b. Thatpubl i cmoneyi sbei ngdef l ect ed t oanyi mpr operpur pose( Pascualv s Secr et ar yofPubl i cWor ks) c. Thatt hepet i t i onerseekst or est r ai n r espondent s f r om wast i ng publ i c f undst hr ought heenf or cementofan i nv al i dorunconst i t ut i onall aw

LI MI TATI ONSONTHETAXI NG POWER A. I NHERENTL I MI TATI ONS( KEY:SPI NE) 1. Ter r i t or i al i t yorSi t usoft axat i on 2. Publ i cpur poseoft axes 3. I nt er nat i onal comi t y 4. Nondel egabi l i t yoft het axi ngpower 5. TaxExempt i onoft hegov er nment ( 1)TESTSI N DETERMI NI NGPUBLI CPURPOSE a. Dut yTest–whet hert het hi ngt obe f ur t her ed by t he appr opr i at i on of publ i cr ev enuei ssomet hi ng,whi ch i st he dut y of t he St at e,as a gov er nment , t opr ov i de. b. Pr omot i onofGener alWel f ar eTest – whet hert hepr oceedsoft het ax wi l ldi r ect l ypr omot et hewel f ar eof t hecommuni t yi nequal measur e.

TAXATI ON L AW COMMI TTEE

( 2)NONDELEGABI LI TY OF THE TAXI NG POWER Gener alRul e:Thepoweroft axat i oni s pecul i ar l y and excl usi v el y exer ci sed by t hel egi sl at ur e.( SeeScopeofLegi sl at i v e Taxi ngPower , supr a) -r ef er st ot axl egi sl at i on Except i onst oNondel egabi l i t y : 1. Fl exi bl eTar i f fCl ause:Aut hor i t yoft he Pr esi dentt of i xt ar i f fr at es,i mpor t and expor t quot as, t onnage and whar f agedues,andot herdut i esor i mpost s. ( Ar t .VI ,Sec. 28( 2) ,1987 Const i t ut i on) 2. Powerofl ocalgov er nmentuni t st o l ev yt axes, f ees, andchar ges.( Ar t .X, Sec.5, 1987Const i t ut i on) 3. Del egat i ont oadmi ni st r at i v eagenci es f ori mpl ement at i onandcol l ect i on. - mer el yr ef er st ot axadmi ni st r at i onor i mpl ement at i on ( 3)SI TUSORTERRI TORI ALI TYOFTAXATI ON Thepowert ot axi sl i mi t edonl yt o per sons,pr oper t yorbusi nesses wi t hi n t hej ur i sdi ct i onort er r i t or yoft het axi ng power . FACTORSTHATDETERMI NETHESI TUS: a. Ki ndorcl assi f i cat i onoft het axbei ng l ev i ed b. Si t usoft het hi ngorpr oper t yt axed c. Ci t i zenshi poft het axpay er d. Resi denceoft het axpay er e. Sour ceoft hei ncomet axed f . Si t usoft heexci se, pr i v i l ege, busi ness oroccupat i onbei ngt axed APPLI CATI ONOFSI TUSOFTAXATI ON Ki ndofTax Si t us Per sonal or Communi t yt ax

Resi dence or domi ci l e of t he t axpay er

Real pr oper t yt ax

Locat i onofpr oper t y ( Lexr eisi t ae)

Per sonal pr oper t y t angi bl e:wher ei ti s t ax phy si cal l y l ocat ed orper manent l ykept ( Lexr eisi t ae) i nt angi bl e: subj ect t o Sec.104 oft he NI RC and t he pr i nci pl eofmobi l i a

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

8

San Beda College of Law MEMORYAI DI N TAXATI ON L AW sequunt urper sonam

Busi nesst ax

Pl aceofbusi ness

Exci seorPr i v i l ege Wher e t he act i s t ax per f or medorwher e occupat i on i s pur sued Sal est ax

Wher et he sal ei s consummat ed

I ncomeTax

Consi der ( 1)ci t i zenshi p, ( 2)r esi dence, and ( 3)sour ceof i ncome( Sec.42, 1997NI RC)

Tr ansf ert ax

Resi denceor ci t i zenshi poft he t axpay erorl ocat i on ofpr oper t y

Fr anchi seTax

St at ewhi chgr ant ed t hef r anchi se

SI TUSOFTAXATI ONOFI NTANGI BLEPERSONAL PROPERTY Gener alRul e:Domi ci l e of t he owner pur suantt ot hepr i nci pl eoft hemobi l i a sequunt urper sonam ormov abl esf ol l ow t heper son. Except i ons: 1. When t he pr oper t yhas acqui r ed a busi nesssi t usi nanot herj ur i sdi ct i on; 2. When an expr ess pr ov i si on oft he st at ut epr ov i def oranot herr ul e. I l l ust r at i on: Forpur posesofest at e and donor ’ s t axes, t he f ol l owi ng i nt angi bl epr oper t i esar edeemedwi t h asi t usi nt hePhi l i ppi nes: ( 1)f r anchi se whi ch must be exer ci sedi nt hePhi l i ppi nes; ( 2)shar es, obl i gat i ons or bonds i ssued by any cor por at i on or gani zed orconst i t ut ed i nt he Phi l i ppi nesi naccor dancewi t hi t s l aws; ( 3)shar es,obl i gat i onsorbondsby any f or ei gn cor por at i on ei ght y f i v e per cent ( 85%) of t he busi nessofwhi chi sl ocat edi n t hePhi l i ppi nes; ( 4)shar es, obl i gat i ons or bonds i ssuedbyanyf or ei gncor por at i on i f such shar es,obl i gat i ons or

TAXATI ON L AW COMMI TTEE

bondshav eacqui r edabusi ness si t usi nt hePhi l i ppi nes; and ( 5)shar es or r i ght s i n any par t ner shi p,busi nessori ndust r y est abl i shed i nt he Phi l i ppi nes. ( Sec.104, 1997NI RC) . ( 4)EXEMPTI ONOFTHEGOVERNMENT Asamat t erofpubl i cpol i cy ,pr oper t y of t he St at e and of i t s muni ci pal subdi v i si onsdev ot edt ogov er nmentuses andpur posesi sdeemedt obeexempt f r om t axat i on al t hough no expr ess pr ov i si oni nt hel awi smadet her ef or .

Gener alRul e:The Gov er nmenti st ax exempt . -Howev er , i tcanal sot axi t sel f . RULES: 1. Admi ni st r at i v eAgenci es a.Gov er nment al f unct i on - t ax exempt unl ess when t he l aw expr essl ypr ov i desf ort ax. ( Sec. 32B7) b. Pr opr i et ar yf unct i on – t axabl e unl ess exempt ed byl aw.( Sec. 27C) 2. GOCCs Gener alRul e:I ncome i st axabl e at t her at ei mposeduponcor por at i ons orassoci at i onsengagedi nasi mi l ar busi ness, i ndust r y , oract i v i t y . Except i on:GSI S,SSS,PHI C,PCSO andPAGCOR.( Sec.27( C) , NI RC) 3. Gov er nmentEducat i onal I nst i t ut i ons a. Pr oper t y or r ealest at et ax – pr oper t y act ual l y , di r ect l y and excl usi v el yusedf oreducat i onal pur poses– exemptbuti ncome ofwhat ev erki nd and char act er f r om anyoft hei rpr oper t i es,r eal orper sonal ,r egar dl ess oft he di sposi t i on,i st axabl e.( Sec.30, l astpar . , NI RC) b. I ncomer ecei v edbyt hem assuch ar eexemptf r om t axes.Howev er , t hei ri ncome f r om anyoft hei r act i v i t i es conduct ed f or pr of i t r egar dl essoft hedi sposi t i on,i s t axabl e.( Sec.30, l astpar . , NI RC) 4. I ncomeder i v edf r om anypubl i cut i l i t y orf r om t heexer ci seofanyessent i al gov er nment alf unct i on accr ui ng t o t heGov er nmentoft hePhi l i ppi nesor

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

t oanypol i t i calsubdi v i si ont her eofi s noti ncl uded i n gr oss i ncome and exempt f r om t axat i on. ( Sec. 32( B) ( 7) ( b) , NI RC) 5. Donat i onsi nf av orofgov er nment al i nst i t ut i onsar econsi der edasi ncome ont hepar toft hedonee.Howev er ,i t i snotconsi der edast ax abl ei ncome becausei ti sanexcl usi onf r om t he comput at i on of gr oss i ncome. ( Sec. 32( B) ( 3) , NI RC) 6. Theamountofal lbequest s,l egaci es, dev i sesort r ansf er st oorf ort heuse oft he Gov er nmentoranypol i t i cal subdi v i si on f or excl usi v el y publ i c pur poses i s deduct i bl e f r om t he gr ossest at e.( Sec. 86( A) ( 3) , NI RC) 7. Gi f t smadet oorf ort heuseoft he Nat i onalGov er nmentorany ent i t y cr eat edbyanyofi t sagenci eswhi ch i snotconduct edf orpr of i t ,ort oany pol i t i cal subdi v i si on of t he sai d Gov er nmentar eexemptf r om donor ’ s t ax.( Sec.101( A) ( 2) , NI RC) 8. Localgov er nmentuni t sar eexpr essl y pr ohi bi t edbyt heLGC f r om l ev y i ng t ax upon Nat i onalGov er nment ,i t s agenci es,andi nst r ument al i t i es,and l ocalgov er nmentuni t s.[ Sec.133( o) , LGC] 9. Unl ess ot her wi se pr ov i ded i nt he LocalGov er nmentCode ( LGC) ,t ax exempt i ons gr ant ed t o al lper sons, whet hernat ur alorj ur i di cal ,i ncl udi ng GOCC,exceptl ocalwat erdi st r i ct s, cooper at i v es dul yr egi st er ed under RA No.6938,nonst ock and nonpr of i ti nst i t ut i ons, ar e wi t hdr awn uponef f ect i v i t yoft heLGC.( Sec.193, LGC) 10.Realpr oper t yownedbyt heRepubl i c of t he Phi l i ppi nes or any of i t s pol i t i calsubdi v i si ons except when t hebenef i ci aluset her eofhasbeen gr ant ed, f or consi der at i on or ot her wi se,t oat axabl eper sonshal l be exemptf r om pay mentofr eal pr oper t yt ax.( Sec.234, LGC) ( 5)I NTERNATI ONALCOMI TY Thesepr i nci pl esl i mi tt heaut hor i t yof t he gov er nmentt o ef f ect i v el yi mpose t axes on a sov er ei gn st at e and i t s i nst r ument al i t i es, as wel l as on i t s pr oper t yhel dandact i v i t i esunder t akeni n

TAXATI ON L AW COMMI TTEE

t hatcapaci t y .Ev enwher eoneent er st he t er r i t or yofanot her ,t her ei sani mpl i ed under st andi ngt hatt hef or merdoesnot t her ebysubmi ti t sel ft ot heaut hor i t yand j ur i sdi ct i onoft heot her . B. CONSTI TUTI ONALL I MI TATI ONS A.GENERALORI NDI RECT CONSTI TUTI ONALLI MI TATI ONS 1. DuePr ocessCl ause( Ar t .I I I ,Sec.1, 1987Const i t ut i on) Requi si t es: a.The i nt er est s of t he publ i c as di st i ngui shed f r om t hose of a par t i cul ar cl ass r equi r e t he i nt er v ent i on of t he St at e. ( Subst ant i v el i mi t at i on) b.The means empl oy ed must be r easonabl y necessar y t o t he accompl i shment of t he pur pose and not undul y oppr essi v e. ( Pr ocedur all i mi t at i on) Theconst i t ut i onal i t yofal egi sl at i v e t axi ngactquest i onedont hegr oundof deni al of due pr ocess r equi r es t he exi st ence of an act ual case or cont r ov er sy . 2. EqualPr ot ect i onCl ause( Ar t .I I I ,Sec. 1, 1987Const i t ut i on Requi si t esofaVal i dCl assi f i cat i on: a. based upon subst ant i al di st i nct i ons b. ger manet ot hepur posesoft he l aw c. notl i mi t edt oexi st i ngcondi t i ons onl y d. appl yequal l yt o al lmember sof t hecl ass 3. Fr eedom Of Speech And Of The Pr ess ( Ar t . I I I , Sec. 4, 1987 Const i t ut i on) Ther ei s cur t ai l ment of pr ess f r eedom andf r eedom oft houghtand expr essi oni fat axi sl ev i edi nor dert o suppr esst hi sbasi cr i ghtandi mpose a pr i or r est r ai nt .( Tol ent i no v s. Secr et ar yofFi nance,GRNo.115455, August25, 1994) 4. NonI nf r i ngement Of Rel i gi ous Fr eedom AndWor shi p( Ar t .I I I , Sec.5, 1987Const i t ut i on)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Al i censet axorf eeconst i t ut esa cur t ai l mentofr el i gi ous f r eedom i f i mposed as a condi t i on f or i t s exer ci se.( Amer i canBi bl eSoci et yv s. Ci t yofMani l a,GRNo.L9637,Apr i l 30, 1957)

5. NonI mpai r mentOfCont r act s( Ar t .I I I , Sec.10, 1987Const i t ut i on) Nol awi mpai r i ngt heobl i gat i onof cont r actshal lbepassed.( Sec.10, Ar t .I I I , 1987Const i t ut i on) Ther ul e,howev er ,doesnotappl y t o publ i c ut i l i t yf r anchi ses orr i ght si ncet heyar esubj ectt oamendment , al t er at i onorr epealbyt heCongr ess whent hepubl i ci nt er estsor equi r es. ( Cagay anEl ect r i c&Li ghtCo. ,I nc.v . Commi ssi oner , GR No. 60216, Sept ember25, 1985) RULES: a. When t he exempt i on i s bi l at er al l y agr eed upon bet ween t he gov er nmentand t he t axpay er– i t cannot be wi t hdr awn wi t hout v i ol at i ngt henoni mpai r mentcl ause. b. Wheni ti suni l at er al l ygr ant edbyl aw, andt hesamei swi t hdr awnbyv i r t ue ofanot herl aw–nov i ol at i on. c. When t he exempt i on i s gr ant ed under a f r anchi se – i t may be wi t hdr awn atanyt i met hus,nota v i ol at i on oft henoni mpai r mentof cont r act s 6. Pr esi dent i alpowert ogr antr epr i ev es, commut at i ons and par dons and r emi tf i nes and f or f ei t ur es af t er conv i ct i on( ART.VI I ,SEC.19,1987 CONSTI TUTI ON) Due Equal Uni f or mi t y Pr ocess Pr ot ect i on Taxpay er may not be depr i v ed of l i f e, l i ber t y or pr oper t y wi t hout due pr ocess of l aw. Not i ce must , t her ef or e,

Taxpay er s shal l be t r eat ed al i ke under l i ke ci r cumst ances andcondi t i ons bot h i n t he pr i v i l eges conf er r ed and l i abi l i t i es i mposed.

TAXATI ON L AW COMMI TTEE

Taxabl e ar t i cl es, or ki nds of pr oper t y of t he same cl ass, shal l be t axed at t he same r at e. Ther e shoul d t her ef or e,be no di r ect doubl e t axat i on

be gi v en i ncaseof f ai l ur e t o payt axes

B. SPECI FI CORDI RECT CONSTI TUTI ONALLI MI TATI ONS 1.NonI mpr i sonmentForDebtOrNonPay mentOfPol lTax( Ar t .I I I ,Sec.20, 1987Const i t ut i on) 2.Rul e Requi r i ng ThatAppr opr i at i ons, Rev enue And Tar i f f Bi l l s Shal l Or i gi nat eExcl usi v el yFr om TheHouse OfRepr esent at i v es( Ar t .VI ,Sec.24, 1987Const i t ut i on) 3.Uni f or mi t y , Equi t abi l i t y And Pr ogr essi v i t yOfTaxat i on( Ar t .VI , Sec. 28( 1) , 1987Const i t ut i on) Uni f or mi t y – al lt axabl e ar t i cl es or ki ndsofpr oper t yoft hesamecl ass ar et axedatt hesamer at e. Equi t abi l i t y–t hebur denf al l st ot hose whoar emor ecapabl et opay . Pr ogr essi v i t y–r at ei ncr easesast he t axbasei ncr eases. Q:I sat axl aw adopt i ngar egr essi v e sy st em oft axat i onv al i d? A:Yes.The Const i t ut i on does not r eal l ypr ohi bi tt hei mposi t i onofi ndi r ect t axeswhi ch,l i ket heVAT,ar er egr essi v e. The Const i t ut i onal pr ov i si on means si mpl y t hat i ndi r ect t axes shal l be mi ni mi zed.Themandat et oCongr essi s not t o pr escr i be, but t o ev ol v e, a pr ogr essi v et axsy st em.( EVATEnBanc Resol ut i on,Tol ent i no,etalv sSecr et ar y ofFi nance, Oct ober30, 1995) 4. Li mi t at i ons On The Congr essi onal PowerToDel egat eToThePr esi dent The Aut hor i t y To Fi x Tar i f fRat es, I mpor tAndExpor tQuot as,Et c.( Ar t . VI , Sec.28( 2) , 1987Const i t ut i on) 5. Tax Exempt i on Of Pr oper t i es Act ual l y , Di r ect l y And Excl usi v el y Used ForRel i gi ous,Char i t abl eAnd Educat i onalPur poses.( Ar t .VI ,Sec. 28( 3)7, 1987Const i t ut i on) The const i t ut i onal pr ov i si on ( abov e ci t ed) whi ch gr ant s t ax

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

11

San Beda College of Law MEMORYAI DI N TAXATI ON L AW exempt i onappl i esonl yt opr oper t yor r eal t y t ax es assessed on such pr oper t i es used act ual l y , di r ect l y excl usi v el yf or r el i gi ous,char i t abl e andeducat i onal pur poses.( Ll adocv s. Commi ssi oner ,GRNo.L19201,June 16, 1965) Thepr esentConst i t ut i onr equi r ed t hatf or t he exempt i on of “ l ands, bui l di ngs and i mpr ov ement s” ,t hey shoul dnotonl ybe“ excl usi v el y ”but al so“ act ual l y ”and“ di r ect l y ”usedf or r el i gi ous and char i t abl e pur poses. ( Pr ov i nceofAbr av s.Her nando,GR No.L49336, August31, 1981) The t est of exempt i on f r om t axat i oni st heuseoft hepr oper t yf or t he pur poses ment i oned i n t he Const i t ut i on.( Abr aVal l eyCol l egeI nc. v s.Aqui no,GRNo.L39086,June15, 1988)

EXCLUSI VEBUTNOTABSOLUTEUSE Thet er m “excl usi v el yused”doesnot necessar i l ymeant ot alorabsol ut euse f orr el i gi ous,char i t abl eandeducat i onal pur poses. I ft hepr oper t yi si nci dent al l y used f or sai d pur poses, t he t ax exempt i onmayst i l lsubsi st .( Abr aVal l ey Col l egeI nc.v s.Aqui no,GrNo.L39086, June15, 1988) Cor ol l ar i l y ,i f a pr oper t y ,al t hough act ual l yownedbyar el i gi ous,char i t abl e andeducat i onali nst i t ut i oni susedf ora non- exempt pur pose,t he exempt i on f r om t axshal l notat t ach

Gr ant ee

Taxes cov er ed

ART.XI V, SEC4( 3)

Non- st ock, non pr of i t educat i onal i nst i t ut i on I ncomet ax Cust om Dut i es Pr oper t y t ax ( DECS Or der No.137187)

ART.VI , SEC28( 3)

Rel i gi ous, educat i onal , char i t abl e i nst i t ut i ons Pr oper t yt ax

6. Vot i ng Requi r ementI n Connect i on Wi t h The Legi sl at i v e Gr antOfTax Exempt i on ( Ar t .VI ,Sec.28( 4) ,1987 Const i t ut i on) 7. NonI mpai r mentOfTheJur i sdi ct i on OfTheSupr emeCour tI nTaxCases

TAXATI ON L AW COMMI TTEE

( Ar t .VI I I ,Sec.2And5( 2) ( B) ,1987 Const i t ut i on) 8. Exempt i on Fr om Taxes Of The Rev enuesAndAsset sOfEducat i onal I nst i t ut i ons, I ncl udi ng Gr ant s, Endowment s, Donat i ons And Cont r i but i ons.( Ar t .XI V,Sec.4( 3) And( 4) , 1987Const i t ut i on) OTHER SPECI FI C TAX PROVI SI ONS I N THECONSTI TUTI ON 1. Poweroft hePr esi dentt ov et oany par t i cul ar i t em or i t ems i n an appr opr i at i on,r ev enue,ort ar i f fbi l l . ( Ar tVI , Sec.27( 2) , 1987Const i t ut i on) 2. Necessi t yofanappr opr i at i onbef or e moneymaybepai doutoft hepubl i c t r easur y .( Ar t .VI ,Sec.29( 1) ,1987 Const i t ut i on) 3. Nonappr opr i at i onofpubl i cmoneyor pr oper t yf or t he use,benef i t ,or suppor t of any sect , chur ch, or sy st em ofr el i gi on.( Ar t .VI ,Sec.29 ( 2) , 1987Const i t ut i on) 4. Tr eat ment of t axes l ev i ed f or a speci alpur pose.( Ar t .VI ,Sec.29( 3) , 1987Const i t ut i on) 5. I nt er nalr ev enueal l ot ment st ol ocal gov er nmentuni t s.( Ar t .X,Sec.6, 1987Const i t ut i on)

DOUBLETAXATI ON DOUBLE TAXATI ON – t axi ng t he same pr oper t yt wi cewheni tshoul dbet axed butonce. I S DOUBLE TAXATI ON PROHI BI TED I N THE PHI LI PPI NES? No. Ther e i s no const i t ut i onal pr ohi bi t i onagai nstdoubl et axat i on.I ti s notf av or edbutper mi ssi bl e.( PepsiCol a Bot t l i ngCo.v .Ci t yofBut uan, 1968) . KI NDSOFDOUBLETAXATI ON ( 1)Di r ect Dupl i cat e Taxat i on / Obnoxi ous– doubl et axat i oni nt he obj ect i onabl eorpr ohi bi t edsense. Thi s const i t ut es a v i ol at i on of subst ant i v eduepr ocess. El ement s: a. t hesamepr oper t yorsubj ectmat t er

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

i st axedt wi cewheni tshoul dbet axed onl yonce. b. bot ht axesar el ev i ed f ort hesame pur pose c. i mposedbyt hesamet axi ngaut hor i t y d. wi t hi nt hesamej ur i sdi ct i on e. dur i ngt hesamet axi ngper i od f . cov er i ngt hesameki ndorchar act er oft ax. ( Vi l l anuev av s.Ci t yofI l oi l o) ( 2)I ndi r ectDupl i cat e Taxat i on – not l egal l yobj ect i onabl e.Theabsenceof oneormor eoft heabov ement i oned el ement smakest hedoubl et axat i on i ndi r ect . ( 3)Domest i c-t hi sar i seswhent het axes ar ei mposedbyt hel ocal ornat i onal gov er nment( wi t hi nt hesamest at e) ( 4)I nt er nat i onal -r ef er st ot hei mposi t i on ofcompar abl et axesi nt woormor e st at esont hesamet axpay eri n r espectoft hesamesubj ectmat t er andf ori dent i cal per i ods. REMEDI ESOFDOUBLETAXATI ON 1. TaxSpar i ngRul e– samedi v i dend ear nedbyaNRFCwi t hi nt hePhi l .i s r educedbyi mposi ngal owerr at eof 15% ( i nl i eu oft he 35%) ,on t he condi t i ont hatt hecount r yt owhi ch t heNRFCi sdomi l i cedshal lal l ow a cr edi tagai nstt het axduef r om t he NRFC,t axesdeemedt ohav ebeen pai di nt hePhi l .( Sec. 28B5b)( CI Rv s Pr oct er& Gambl e)( GR No.66838, Dec.2, 1991) 2. Taxdeduct i ons Exampl e:v ani shi ngdeduct i onunder Sect i on86( A) ( 2) , NI RC 3. Taxcr edi t s I nst ancesundert heNI RC:  ForVAT pur poses,t he t ax on i nput s or i t ems t hatgo i nt ot he manuf act ur e of f i ni shed pr oduct s ( whi char eev ent ual l ysol d)maybe cr edi t edagai nstordeduct edf r om t he out putt ax ort ax on t he f i ni shed pr oduct .  For ei gn i ncome t axes may be cr edi t edagai nstt hePhi l .I ncomet ax, subj ect t o cer t ai n l i mi t at i ons, by ci t i zens, i ncl udi ng member s of gener alpr of essi onalpar t ner shi psor

TAXATI ON L AW COMMI TTEE

benef i ci ar i esofest at esort r ust s( pr o r at a) , as wel l as domest i c cor por at i ons.  At axcr edi ti sgr ant edf orest at e t axespai dt oaf or ei gncount r yont he est at eofci t i zensandr esi dental i ens subj ectt ocer t ai nl i mi t at i ons.  Thedonor ’ st axi mposedupona ci t i zenorar esi dentshal lbecr edi t ed wi t ht heamountofanydonor ’ st ax i mposedbyt heaut hor i t yofaf or ei gn count r y , subj ectt ocer t ai nl i mi t at i ons. 4. TaxExempt i ons 5. Pr i nci pl eofReci pr oci t y 6. Tr eat i eswi t hot herst at es METHODSRESORTEDTOBYATAXTREATYI N ORDERTOELI MI NATEDOUBLETAXATI ON FI RSTMETHOD:Thet axt r eat yset sout t her espect i v er i ght st ot axbyt hest at eof sour ce orsi t us and by t he st at e of r esi dencewi t hr egar dt ocer t ai ncl asses ofi ncomeorcapi t al .I nsomecases,an excl usi v er i ghtt ot axi sconf er r edi none oft he cont r act i ng st at es;howev er ,f or ot heri t emsofi ncome orcapi t al ,bot h st at esar egi v ent her i ghtt ot axal t hough t heamountoft axt hatmaybei mposed byt hest at eofsour cei sl i mi t ed. SECONDMETHOD:Thest at eofsour cei s gi v enaf ul lorl i mi t edr i ghtt ot axt oget her wi t ht hest at eofr esi dence.I nt hi scase, t het r eat ymakesi ti ncumbentupont he st at eofr esi dencet oal l ow r el i efi nor der t oav oi ddoubl et axat i on. TWO METHODS OF RELI EF ARE USED UNDER THESECONDMETHOD: 1.Theexempt i onmet hod-t hei ncomeor capi t alwhi chi st axabl ei nt hest at eof sour ceorsi t usi sexempt edi nt hest at e ofr esi dence,al t houghi nsomei nst ances i t may be t aken i nt o account i n det er mi ni ngt her at eoft axappl i cabl et o t he t ax pay er ’ sr emai ni ng i ncome or capi t al . ( Thi smaybedoneusi ngt het ax deduct i onmet hodwhi chal l owsf or ei gn i ncomet axest obededuct edf r om gr oss i ncome,i nef f ectexempt i ngt hepay ment f r om bei ngf ur t hert axed. ) 2.The cr edi t met hod- al t hough t he i ncomeorcapi t alwhi chi st axedi nt he st at eofsour cei sst i l lt axabl ei nt hest at e

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

ofr esi dence.Thet axpai di nt hef or meri s cr edi t ed agai nstt he t ax ,l ev i ed i nt he l at t er . ( Commi ssi onerofI nt er nalRev enue v .S. CJohnsonandSon,I nc.etal . ,G. R No.127105, June25, 1999) Exempt i on Met hod

Cr edi tMet hod

Focus i s on t he Focusi sont het ax i ncome or capi t al i t sel f

NOTE: Comput at i onal i l l ust r at i on bet weenat axdeduct i onandat axcr edi t : Taxdeduct i onmet hod Gr ossi ncome Less: al l owabl ededuct i ons i ncl udi ng f or ei gnt axespai d I ncomesubj ectt ot ax Mul t i pl i edbyr at e I ncomet axdue Taxcr edi tmet hod Gr ossi ncome Less: al l owabl ededuct i ons excl udi ng f or ei gnt axespai d I ncomesubj ectt ot ax Mul t i pl i edbyr at e I ncomet axdue Less: f or ei gnt axespai d Neti ncomet axdue

FORMSOFESCAPE TAXATI ON

FROM

( 1)SHI FTI NG –t hepr ocessbywhi cht he t ax bur den i s t r ansf er r ed f r om t he st at ut or yt axpay er( i mpactoft axat i on)t o anot her ( i nci dentof t axat i on) wi t hout v i ol at i ngt hel aw. I MPACTOFTAXATI ON –p oi ntonwhi cht ax i sor i gi nal l yi mposed. I NCI DENCE OF TAXATI ON – p oi ntonwhi ch t he t ax bur den f i nal l yr est s orset t l es down. I l l ust r at i on:Val ueaddedt ax .Thesel l er i sr equi r ed byl aw t o payt ax,butt he bur deni sact ual l yshi f t edorpassedont o t hebuy er .

TAXATI ON L AW COMMI TTEE

KI NDSOFSHI FTI NG

a. For war dshi f t i ng-whenbur denoft ax i s t r ansf er r ed f r om a f act or of pr oduct i on t hr ough t he f act or s of di st r i but i onunt i li tf i nal l yset t l eson t heul t i mat epur chaserorconsumer b. Backwar d shi f t i ng-when bur den i s t r ansf er r ed f r om consumert hr ough f act or sofdi st r i but i ont ot hef act or s ofpr oduct i on c. Onwar d shi f t i ng-when t he t ax i s shi f t ed 2 or mor e t i mes ei t her f or war dorbackwar d ( 2)CAPI TALI ZATI ON – ame r ei ncr easei n t hev al ueoft hepr oper t yi snoti ncome but mer el y an unr eal i zed i ncr ease i n capi t al .Noi ncomeunt i laf t ert heact ual sal eorot herdi sposi t i onoft hepr oper t yi n excessofi t sor i gi nal cost . EXCEPT:i fbyr easonofappr ai sal , t hecost basi s of pr oper t yi ncr eased and t he r esul t antbasi si susedast henew t ax base f or pur poses of comput i ng t he al l owabl edepr eci at i onexpense,t henet di f f er encebet weent heor i gi nal costbasi s and new basi si st axabl e under t he economi c benef i tpr i nci pl e.( BI R Rul i ng No.029, Mar ch19, 1998) ( 3)TRANSFORMATI ON – t hemanuf act ur er orpr oduceruponwhom t het axhasbeen i mposed,f ear i ngt hel ossofhi smar keti f heshoul daddt het axt ot hepr i ce,pay s t het axandendeav or st or ecouphi msel f byi mpr ov i nghi spr ocessofpr oduct i on, t her ebyt ur ni ngouthi suni t satal ower cost . ( 4)TAX AVOI DANCE – t heexpl oi t at i onby t he t axpay er of l egal l y per mi ssi bl e al t er nat i v e t ax r at es or met hods of assessi ngt axabl epr oper t yori ncome,i n or dert oav oi dorr educet axl i abi l i t y . Exampl e:“ est at epl anni ng”( conv ey ance ofpr oper t yt oaf ami l ycor por at i on f or shar es)( Del pherTr ades Cor p.v s.I AC, 157SCRA349) ( 5) TAXEVASI ON –u sebyt het axpay erof i l l egalorf r audul entmeanst odef eator l essent hepay mentoft het ax. FACTORSI NTAXE VASI ON 1. t heendt obeachi ev ed,i . e.pay ment

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

ofl esst hant hatknownbyt het axpay ert o bel egal l ydue,orpay i ngnot axwheni ti s shownt hatt het axi sdue; 2. an accompany i ng st at e of mi nd whi chi sdescr i bedasbei ngev i l ,i nbad f ai t h, wi l l f ul , or del i ber at e and not coi nci dent al ; and 3. acour seofact i onwhi chi sunl awf ul . I NDI CI AOFF RAUDI N TAXE VASI ON 1.Fai l ur e t o decl ar e f or t axat i on pur posest r ueandact uali ncomeder i v ed f r om busi nessf or2 consecut i v ey ear s ( Republ i cv sGonzal es, L17962) 2.Subst ant i al under decl ar at i on of i ncomet axr et ur nsoft het axpay erf or4 consecut i v e y ear s coupl ed wi t h i nt ent i onalov er st at ementofdeduct i ons ( CI Rv sRey es, 104PHI L1061) TAX AVOI DANCE

TAX EVASI ON

Val i di t y Legal and not I l l egal and subj ect t o subj ect t o cr i mi nal penal t y cr i mi nal penal t y Ef f ect

Mi ni mi zat i on of Al most t axes al way s r esul t s i n absence of t axpay ment s

( 6) TAX EXEMPTI ON – a gr ant of i mmuni t y t o par t i cul ar per sons or cor por at i onsf r om t heobl i gat i ont opay t axes. LEGAL BASI S: No l aw gr ant i nganyt ax

exempt i onshal lbepassed wi t houtt he concur r ence of a maj or i t y of al lt he member sofCongr ess( ART VI .SEC 28( 4) OFTHE1 987CONSTI TUTI ON) KI NDSOFTAXE XEMPTI ON 1. Ast osour ce a. Const i t ut i onal–i mmuni t i esf r om t axat i ont hator i gi nat ef r om t he const i t ut i on. b. St at ut or y–t hosewhi chemanat e f r om l egi sl at i on Exampl esofSt at ut or yExempt i ons Sec.27, NI RC Sec.105 Tar i f f and Cust oms Code

TAXATI ON L AW COMMI TTEE

Sec.234Local Gov er nmentCode Speci al Laws, such as t he Omni busI nv est mentCode of1987 ( EO 226) , Phi l i ppi ne Ov er seas Shi ppi ngAct( RA1407asamended) , Fer t i l i zerI ndust r yAct( RA 3050,as amended) , Mi ner al Resour ces Dev el opmentDecr eeof1974( PD463 as amended) ,Cot t age I ndust r yAct ( RA 318, as amended) and exempt i ons i n “ Housi ng f or Low I ncome Gr oup” ( PD 1205, as amended) c. Cont r act ual -agr eed t o by t he t axi ng aut hor i t y i n cont r act s l awf ul l y ent er ed i nt o by t hem underenabl i ngl aws d. Tr eat y e. Li censi ngOr di nance 2. Ast of or m ( 1)Expr ess– expr essl ygr ant edby or gani corst at ut el aw ( 2)I mpl i ed – when par t i cul ar per sons,pr oper t yorexci sesar e deemed exempt as t hey f al l out si det hescopeoft het axi ng pr ov i si oni t sel f . 3. Ast oext ent ( 1)Tot al–absol ut ei mmuni t y ( 2)Par t i al–onewher eacol l ect i on ofapar toft het axi sdi spensed wi t h 4. Ast oobj ect ( 1)Per sonal– gr ant ed di r ect l yi n f av orofcer t ai nper sons ( 2)I mper sonal– gr ant eddi r ect l yi n f av or of a cer t ai n cl ass of pr oper t y PRI NCI PLESGOVERNI NGTAXE XEMPTI ON a. Exempt i onsf r om t axat i onar ehi ghl y di sf av or ed i n l aw and ar e not pr esumed. b. Hewhocl ai msasexempt i onmust beabl et oj ust i f yhi scl ai m byt he cl ear estgr antofor gani corst at ut e l aw by wor ds t oo pl ai n t o be mi st aken.I fambi guous,t her ei sno exempt i on. c. He who cl ai ms exempt i on shoul d pr ov ebyconv i nci ngpr ooft hathei s exempt ed. d. Taxat i oni st her ul e;t axexempt i oni s t heexcept i on. e. Tax exempt i on must be st r i ct l y

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

const r uedagai nstt het axpay erand l i ber al l y i n f av or of t he t axi ng aut hor i t y . f . Taxexempt i onsar enotpr esumed. g. Const i t ut i onal gr ant s of t ax exempt i onar esel f execut i ng. h. Taxexempt i onsar eper sonal . THE FOLLOWI NG PARTAKE THE NATURE OF TAXEXEMPTI ON 1. Deduct i onsf ori ncomet axpur poses 2. Cl ai msf orr ef und 3. Taxamnest y 4. Condonat i onofunpai dt axl i abi l i t i es NOTE:mustbest r i ct l yconst r uedagai nst t het axpay er WHEN EXEMPTI ONS ARE CONSTRUED LI BERALLYI NFAVOROFGRANTEE 1. Whent hel aw sopr ov i desf orsuch l i ber al const r uct i on. 2. Exempt i ons f r om cer t ai n t axes, gr ant edunderspeci alci r cumst ances t ospeci al cl assesofper sons. 3. Exempt i ons i n f av or of t he gov er nment ,i t spol i t i calsubdi v i si ons ori nst r ument al i t i es. 4. Exempt i onst ot r adi t i onalexempt ees, suchast hosei nf av orofr el i gi ous andchar i t abl ei nst i t ut i ons. 5. I f exempt i ons r ef ert ot he publ i c pr oper t y Q:Mayat axexempt i onber ev oked? A: Yes. I ti sanactofl i ber al i t ywhi ch coul dbet akenbackbyt hegov er nment unl ess t her e ar er est r i ct i ons. Si nce t axat i on i s t he r ul e and exempt i on t her ef r om i st heexcept i on, t heexempt i on maybewi t hdr awnbyt het axi ngaut hor i t y . ( Mact an Cebu I nt er nat i onal Ai r por t Aut hor i t yv s.Mar cos, 261SCRA667) RESTRI CTI ONS ON REVOCATI ON OF TAX EXEMPTI ONS a. Noni mpai r mentcl ause. Wher et he exempt i on was gr ant ed t o pr i v at e par t i es based on mat er i al consi der at i on of a mut ualnat ur e, whi cht henbecomescont r act ualand i s cov er ed by t he noni mpai r ment cl auseoft heConst i t ut i on. b. Adher ence t o f or m- i ft he t ax exempt i on i s gr ant ed by t he Const i t ut i on,i t sr ev ocat i on maybe

TAXATI ON L AW COMMI TTEE

ef f ect ed t hr ough Const i t ut i onal amendmentonl y c. Wher et het axexempt i ongr anti si n t hef or m ofaspeci all awandnotbya gener all aw ev eni ft het er msoft he gener alact ar e br oad enough t o i ncl udet hecodesi nt hegener all aw unl ess t her ei s mani f esti nt entt o r epeal or al t er t he speci al l aw ( Pr ov i nce of Mi sami s Or i ent alv s Cagay anEl ect r i cPowerandLi ghtCo. I nc) NATUREOFTAXAMNESTY 1.Gener alori nt ent i onalov er l ooki ngby t hest at eofi t saut hor i t yt oi mpose penal t i esonper sonsot her wi segui l t y ofev asi onorv i ol at i onofar ev enueor t axl aw. 2.Par t akesofanabsol ut ef or gi v enessof wai v eroft hegov er nmentofi t sr i ght t ocol l ect . 3.Togi v et axev ader s, whowi sht or el ent andar ewi l l i ngt or ef or m achancet o doso. RULESONTAXAMNESTY

1.Taxamnest y a) l i ke t ax exempt i on,i ti s nev er f av or ednorpr esumed b) const r ued st r i ct l y agai nst t he t axpay er ( must show compl et e compl i ancewi t ht hel aw) 2. Gov er nment not est opped f r om quest i oni ng t he t ax l i abi l i t y ev en i f amnest yt ax pay ment s wer e al r eady r ecei v ed. Reason: Er r oneous appl i cat i on and enf or cement of t he l aw by publ i c of f i cer s do not bl ock subsequent cor r ectappl i cat i onoft hest at ut e.The gov er nment i s nev er est opped by mi st akesorer r or sofi t sagent s. Basi s:Li f ebl oodTheor y 3. Def enseoft axamnest y ,l i kei nsani t y ,i s aper sonal def ense. Reason:Rel at est ot heci r cumst ances ofa par t i cul araccused and nott he char act eroft he act schar ged i nt he i nf or mat i on. Taxamnest y

Taxexempt i on

I mmuni t yf r om al l I mmuni t yf r om ci v i l

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

cr i mi nal , ci v i l andl i abi l i t yonl y admi ni st r at i v e l i abi l i t i esar i si ngf r om nonpay mentoft axes Appl i esonl yt opast Pr ospect i v e t ax per i ods,hence appl i cat i on r et r oact i v e appl i cat i on

DOCTRI NEOFI MPRESCRI PTI BI LTY Asar ul e, t axesar ei mpr escr i pt i bl eas t heyar et hel i f ebl oodoft hegov er nment . Howev er ,t axst at ut es maypr ov i de f or st at ut eofl i mi t at i ons. Ther ul est hathav ebeenadopt edar e asf ol l ows: a. )Nat i onalI nt er nalRevenueCode The st at ut e of l i mi t at i on f or assessmentoft axi far et ur ni sf i l edi s wi t hi nt hr ee( 3)y ear sf r om t hel astday pr escr i bed byl aw f ort hef i l l i ng oft he r et ur nori ff i l edaf t ert hel astday ,wi t hi n t hr eey ear sf r om dat eofact ualf i l l i ng.I f nor et ur ni sf i l edort her et ur nf i l edi sf al se orf r audul ent ,t he per i od t o assess i s wi t hi nt en y ear sf r om di scov er yoft he omi ssi on, f r audorf al si t y . The per i od t o col l ectt ax i s wi t hi n t hr eey ear sf r om dat eofassessment .I n t hecase, howev er , ofomi ssi ont of i l eori f t her et ur nf i l edi sf al seorf r audul ent ,t he per i odt ocol l ecti swi t hi nt eny ear sf r om di scov er ywi t houtneedofanassessment . b. )Tar i f fandcust omscode I t does not expr ess any gener al st at ut eofl i mi t at i on;i tpr ov i ded,howev er , t hat ‘ ’whenar t i cl eshav eent er edand passedf r eeofdut yorf i naladj ust mentof dut i es made,wi t h subsequentdel i v er y , suchent r yandpassagef r eeofdut yor set t l ement of dut i es wi l l , af t er t he expi r at i onofone( 1)y ear ,f r om t hedat e oft he f i nalpay mentofdut i es,i nt he absenceoff r audorpr ot est ,bef i naland concl usi v e upon al lpar t i es,unl ess t he l i qui dat i on ofi mpor tent r ywas mer el y t ent at i v e. ”( Sec1603, TCC) c. )LocalGov er nmentCode LocalTaxes,f ees,orchar gesshal lbe assessedwi t hi nf i ve( 5)y ear sf r om t he dat et heybecamedue.I ncaseoff r audor i nt entt o ev ade t he pay mentoft axes,

TAXATI ON L AW COMMI TTEE

f ees or char ges t he same may be assessed wi t hi nt en ( 10) y ear sf r om di scov er yoft hef r audori nt entt oev ade pay ment .They shal lal so be col l ect ed ei t herbyadmi ni st r at i v eorj udi ci alact i on wi t hi n f i ve ( 5) y ear s f r om dat e of assessment( Sec.194.LGC)

TAXENFORCEMENTAND ADMI NI STRATI ON SOURCES OF TAX LAWS ( Key :SPEC2TRA BLT) 1. St at ut es 2. Pr esi dent i al Decr ees 3. Execut i v eOr der s 4. Const i t ut i on 5. Cour tDeci si ons 6. TaxCodes 7. Rev enueRegul at i ons 8. Admi ni st r at i v eI ssuances 9. BI RRul i ngs 10.Local TaxOr di nance 11.TaxTr eat i esandConv ent i ons REQUI SI TESOFTAXREGULATI ONS 1. Reasonabl e 2. Wi t hi nt heaut hor i t yconf er r ed 3. Notcont r ar yt ol aw 4. Mustbepubl i shed

NOTE: Admi ni st r at i v er egul at i onsmust al way sbei nhar monywi t ht hepr ov i si ons oft he l aw. I n case ofdi scr epancy bet ween t he basi c l aw and t he i mpl ement i ng r ul e or r egul at i on, t he f or merpr ev ai l s. NONRETROACTI VI TYOFBI RRULI NGS Gener alRul e:Rul i ngsar enotr et r oact i v e i ft heyar e pr ej udi ci alt ot he t axpay er . ( Sec.246, NI RC) Except i ons: 1. Wher e t he t axpay er del i ber at el y mi sst at es oromi t s mat er i alf act s f r om hi sr et ur n orany document r equi r edofhi m byt heBI R. 2. Wher e t he f act s subsequent l y gat her ed by t he BI Ri s mat er i al l y di f f er entf r om t hef act sonwhi cht he r ul i ngi sbased. 3. Wher et het axpay eract edi nbadf ai t h. PRI NCI PLE OF L EGI SLATI VE APPROVALOFAN

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

ADMI NI STRATI VE I NTERPRETATI ON THROUGH REENACTMENT Wher east at ut ei ssuscept i bl eoft he meani ngpl aceduponi tbyar ul i ngoft he gov er nment agency char ged wi t h i t s enf or cement and t he l egi sl at ur e t her eaf t err eenact st hepr ov i si onwi t hout subst ant i alchange,such act i on i st o someext entconf i r mat or yt hatt her ul i ng car r i esoutt hel egi sl at i v epur pose. RULE OF NO ESTOPPEL AGAI NST THE GOVERNMENT Gener alRul e:The Gov er nmenti s not est oppedbyt hemi st akesorer r or sofi t s agent s; er r oneous appl i cat i on and enf or cementofl aw bypubl i cof f i cer sdo not bar t he subsequent cor r ect appl i cat i onofst at ut es.( E.Rodr i guez, I nc. v s.Col l ect or , L23041, Jul y31, 1969) Except i on: I nt hei nt er estofj ust i ceand f ai rpl ay ,aswher ei nj ust i cewi l lr esul tt o t he t axpay er .( seeCI Rv s.CA,GR No. 117982,Feb.6,1997;CI Rv s.CA,GRNo. 107135, Feb.3, 1999) AGENCI ESI NVOLVEDI N TAXADMI NI STRATI ON 1. Bur eauofI nt er nal Rev enue –i nt er nal r ev enuet axes Agent soft heCI R a.Commi ssi onerofCust oms wi t h r espectt ot axesoni mpor t edgoods b. head of t he appr opr i at e gov er nmentof f i ce wi t hr espectt o ener gyt ax c.banksdul yaccr edi t edbyt heCI R ( Sec.12, 1997NI RC) 2. Bur eauofCust oms– cust omsl aw enf or cement 3. Pr ov i nci al , ci t y and muni ci pal assessor sandt r easur er s–l ocaland r eal pr oper t yt axes

ORGANI ZATI ON ANDF UNCTI ON OFTHE BUREAUOFI NTERNALREVENUE( BI R)

BI R shal lbeundert hesuper v i si on andcont r oloft heDept .ofFi nance( Sec. 2, NI RC) POWERSANDDUTI ESOFTHEBI R Assessmentand col l ect i on ofal l nat i onali nt er nalr ev enuet axes,f ees,and char ges 1. Enf or cement of al l f or f ei t ur es, penal t i es, and f i nes connect ed

TAXATI ON L AW COMMI TTEE

t her ewi t h 2. Execut i onofj udgment si nal lcases deci dedi ni t sf av orbyt heCour tof TaxAppeal s( CTA)andt heor di nar y cour t s 3. Gi v e ef f ectt o and admi ni st ert he super v i sor y and pol i ce power s conf er r edt oi tbyt heCodeorot her l aws ASSESSMENT – a f i ndi ng by t he t axi ng aut hor i t yt hatt het axpay erhasnotpai d t hecor r ectt axes. I ti sal so awr i t t en not i cet oat axpay ert ot heef f ectt hatt he amountst at edt her ei ni sdueasat axand cont ai ni ng a demand f ort he pay ment t her eof . Gener alr ul e:Taxes ar e sel f assessi ng andt hus,donotr equi r et hei ssuanceof an assessment not i ce i n or der t o est abl i sht het axl i abi l i t yofat axpay er . Except i ons: 1. Tax per i od of a t axpay er i s t er mi nat ed[ Sec.6( D) , NI RC] 2. Def i ci encyt axl i abi l i t yar i si ngf r om a t axaudi tconduct edbyt heBI R[ Sec. 56( B) , NI RC] 3. Taxl i en[ Sec.219, NI RC] 4. Di ssol v i ng cor por at i on [ Sec.52( c) , NI RC] SI GNI FI CANCEOFASSESSMENT a. I nt hepr operpur sui tofj udi ci aland ext r aj udi ci al r emedi es t o enf or ce t axpay er l i abi l i t i es and cer t ai n mat t er st hatr el at et oi t ,suchast he i mposi t i on of sur char ges and i nt er est s, b. I n t he appl i cat i on of st at ut e of l i mi t at i ons, c. I nt heest abl i shmentoft axl i ens, and d. I nest i mat i ngt her ev enuest hatmay be col l ect ed bygov er nmenti nt he comi ngy ear .( Mamal at eo,Vi ct or i no. Rev i eweronTaxat i on, 2004) KI NDS 1. SELF-ASSESSMENT-onei nwhi cht he t ax i s assessed by t he t axpay er hi msel f 2. DEFI CI ENCY ASSESSMENT-ma debyt he t ax assessorhi msel fwher eby t he cor r ect amount of t he t ax i s

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW det er mi nedaf t eranexami nat i onor i nv est i gat i on i s conduct ed. The l i abi l i t yi sdet er mi nedandassessed f ort hef ol l owi ngr eason: a.amountascer t ai nedexceedst hat whi chi sshownast het axbyt he t axpay eri nhi sr et ur n b.noamountoft axi sshowni nt he r et ur n c.t axpay erdi dnotf i l eanyr et ur nat al l

3. I LLEGALANDVOI DASSESSMENTassessmentwher ei nt axassessor hasnopowert oassessatal l 4. ERRONEOUSASSESSMENT-assessorhas power t o assess buter r si nt he exer ci set her eof

BURDEN OF PROOF I N PREASSESSMENT PROCEEDI NGS Ther e i s a pr esumpt i on of cor r ect nessandgoodf ai t hont hepar tof t he CI R;t hus,t he bur den l i es on t he t axpay er . Ot her wi se,t hef i ndi ngoft he CI Rwi l lbeconcl usi v eandhewi l lassess t het axpay er .Thesamei st r ueev eni ft he CI Ri swr ong,i ft het axpay erdoesnot cont r ov er t . ( Cagay an Robi na Sugar Mi l l i ngCo.v s.Cour tofAppeal s,GR.No. 122451, Oct ober12, 2000) Reasons:a.l i f ebl oodt heor y b.pr esumpt i on ofr egul ar i t yi n per f or mance of publ i c f unct i ons NOTE:Assessment s by t he BI R must hav eoni t sf acet hel aw andf act supon whi cht hepr esumpt i oni smade. PRI NCI PLESGOVERNI NGTAXASSESSMENTS 1. Assessment s ar e pr i ma f aci e pr esumedcor r ectandmadei ngood f ai t h. 2. I tshoul dbebasedonact ual f act s. 3. I ti sdi scr et i onar yont hepar toft he Commi ssi oner .

4. Theaut hor i t yoft heCommi ssi onert o assess t axes may be del egat ed, except t he power t o make f i nal assessment s. 5. I tmustbedi r ect edt ot her i ghtpar t y .

TAXATI ON L AW COMMI TTEE

Aut hor i t yofaRev enueOf f i cer-pur suant t o a Let t erofAut hor i t yi ssued byt he Regi onal Di r ect or a. To exami ne t axpay er s wi t hi nt he j ur i sdi ct i onoft hedi st r i cti nor der t ocol l ectt hecor r ectamountoft ax; b.Tor ecommendt heassessmentof anydef i ci encyt axduei nt hesame mannert hatt he sai d act s coul d hav e been per f or med by t he Rev enueRegi onal Di r ect or . Gener alRul e:i ncome t ax r et ur ns ar e conf i dent i al . Except i on:i nqui r yi nt oi ncomet axr et ur ns maybeaut hor i zed1. i nspect i oni saut hor i zeduponwr i t t en or der of t he Pr esi dent of t he Phi l i ppi nes; 2. i nspect i on i s aut hor i zed under Fi nance Regul at i ons No.33 oft he Secr et ar yofFi nance; 3. pr oduct i on of t he t ax r et ur n i s mat er i alev i dencei nacr i mi nalcase wher ei nt hegov er nmenti si nt er est ed i nt her esul t ; or 4. pr oduct i on ori nspect i on t her eofi s aut hor i zedbyt het axpay erhi msel f . Net wor t h Met hod-i nv ent or ymet hod of i ncomet ax v er i f i cat i on.  Appl i est heaccount i ngpr i nci pl e: asset s–l i abi l i t i es= net wor t h Condi t i onf ori t suse: 1. t axpay er ’ s books do not cl ear l y r ef l ecthi si ncomeort het axpay erhas no books,ori fhe has books,he r ef usest opr oducet hem; 2. t her ei sev i denceofpossi bl esour ce orsour cesofi ncomet oaccountf or i ncr easesi nnet wor t h; 3. t her ei saf i xed st ar t i ng poi ntor openi ngnet wor t h; and 4. t her emustbepr operadj ust ment st o conf or m wi t ht hei ncomet axl aws. POWERSANDDUTI ESOFTHECOMMI SSI ONER I .SECTI ON 4( powert oi nt er pr ett axl aw anddeci det axcases) 1.I nt er pr etpr ov i si ons oft hi s Code and ot hert axl awssubj ectt or ev i ew oft he Secr et ar yofFi nance ( Quasi l egi sl at i v e)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

2.Deci de:( Quasi j udi ci al )

a)di sput edassessment b)r ef unds ofi nt er nalr ev enue t axes, f eesandchar ges c)penal t i esi mposedi nr el at i ont her et o d)ot hermat t er sar i si ngf r om t hi sCode orot herl aws orpor t i ons t her eof admi ni st er edbyt heBI Rsubj ectt o t he excl usi v e appel l at ej ur i sdi ct i on oft heCTA( Sec.4)

I I . SECTI ON 5 ( power t o obt ai n i nf or mat i on,summon,exami neandt ake t est i monyofper sons) 3. Fort heCommi ssi onert oascer t ai n:

( a)cor r ect ness ofanyr et ur n ori n maki ngar et ur nwher enonehas beenmade ( b)l i abi l i t y ofany per son f orany i nt er nal r ev enue t ax or i n cor r ect i ngsuchl i abi l i t y ( c) t axcompl i ance

TheCommi ssi oneri saut hor i zed: 1.t oExami neanyr el ev antBook,paper , r ecor dorot herdat a 2.t o Obt ai n any i nf or mat i on ( cost s, v ol umeofpr oduct i on,r ecei pt s,sal es, gr ossi ncome,et c) ,onar egul arbasi s f r om: i .anyper sonot hert hant heper son underi nv est i gat i onor i i .any of f i ce or of f i cer of t he nat i onal / l ocal gov er nment , gov ’ t agenci es and i nst r ument al i t i es ( Bangko Sent r al ,gov ’ towned and cont r ol l edcor por at i ons)( e. g.LTO, Regi st erofDeeds) 3.t oSummon i .t heper sonl i abl ef ort axorr equi r ed t of i l ear et ur nor i i . anyof f i cerorempl oy eeofsuch per sonor i i i .any per son hav i ng i n hi s possessi on/ cust ody / car e -t hebooksofaccount s, -account i ng r ecor ds ofent r i es r el at i ng t ot he busi ness oft he per sonl i abl ef ort axoranyot her per son -t opr oducesuchbooks, paper s, r ecor ds, andot herdat aandt ogi v e t est i mony 4.t ot aket heTest i monyoft heper son

TAXATI ON L AW COMMI TTEE

concer ned,underoat h as may be r el ev antt ot hei nqui r y 5.t o cause r ev enue of f i cer s and empl oy eest omakeaCanv assofany r ev enuedi st r i ctorr egi on Not hi ng i n Sect i on 5 shal l be const r uedasgr ant i ngt heCommi ssi oner t heaut hor i t yt oi nqui r ei nt obankdeposi t s ot hert hanaspr ov i dedf orundersec.6( F) oft heCode. I I I .SECTI ON 6 ( power t o make assessment s, pr escr i be addi t i onal r equi r ement sf ort axadmi ni st r at i on andenf or cement ) 4. Exami nat i on of r et ur ns det er mi nat i onoft axdue

and

A.Af t erar et ur nhasbeenf i l edt he Commi ssi oner or hi s r epr esent at i v emayaut hor i ze i . t heExami nat i onofany t axpay erand i i . t heAssessmentoft he cor r ectamountoft ax; B.Fai l ur et of i l ear et ur nshal lnot pr ev entt he commi ssi onerf r om aut hor i zi ng t he exami nat i on of anyt axpay er ; * Anyt axordef i ci encyt axso assessedshal lbepai dupon not i ceanddemandf r om t he Commi ssi oner or hi s r epr esent at i v e * Any r et ur n, st at ement or decl ar at i on f i l ed i n any aut hor i zedof f i ceshal lnotbe wi t hdr awn;but wi t hi nt hr ee y ear sf r om dat eoff i l i ng,t he same may be modi f i ed, changedoramended; pr ov i ded t hatno not i ce f oraudi tor i nv est i gat i on ofsuch r et ur n, has i nt he meant i me,been act ual l y ser v ed upon t he t axpay er .

5. Fai l ur et o submi tr equi r ed r et ur ns and ot herdocument s

I faper son i .f ai l st of i l ear equi r edr et ur nor r epor tatt het i mepr escr i bedor i i .wi l l f ul l yorot her wi sef i l esaf al se orf r audul entr et ur n, TheCommi ssi onershal l Makeor

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Amendt her et ur nf r om i .hi sownknowl edgeor i i .f r om suchi nf or mat i onashecan obt ai n t hr ough t est i mony or ot her wi sewhi chshal lbepr i ma f aci ecor r ectandsuf f i ci entf or al l l egal pur poses

6. I nv ent or y t aki ng, Sur v ei l l ance, Pr esumpt i v eGr ossSal es

A.Commi ssi onermay , atanyt i me dur i ngt het axabl ey ear ( a)or dert hei nv ent or yt aki ng of goodsofanyt axpay eror ( b)may pl ace t he busi ness oper at i ons of any per son ( nat ur al / j ur i di cal ) under obser v at i onorSur v ei l l ance, i ft her ei sr easont obel i ev e t hatsuchi snotdecl ar i nghi s cor r ect i ncome, sal es or r ecei pt sf ort axpur poses. Thef i ndi ngsmaybeused as basi sf or assessi ng t he t axes and shal lbe deemed pr i maf aci ecor r ect .

B.Commi ssi onermay pr escr i be a Mi ni mum amount of gr oss r ecei pt s,sal esand t axabl ebase ( t aki ngi nt oaccountt hesal esand i ncomeofot herper sonsengaged i nsi mi l arbusi ness) : i . Whenaper sonhasf ai l edt o i ssuer ecei pt sasr equi r edby sec. 113( I nv oi cer equi r ement s f or VATr egi st er ed per sons) and Sec.237 ( I ssuance of Recei pt s or Commer ci al I nv oi ces)or i i . Whent hebooksofaccount s orr ecor ds do notcor r ect l y r ef l ectt hedecl ar at i onsmade orr equi r ed t o bemadei na r et ur n, Such mi ni mum amountshal l beconsi der edcor r ect .

7. Ter mi nat et axabl eper i od

Commi ssi onershal ldecl ar et het ax per i odofat ax pay erTer mi nat edandsend not i cet ot he t axpay erofsuch deci si on wi t har equestf ori mmedi at e pay mentoft het axwheni thascomet o t heknowl edgeoft heCommi ssi oner : a) t hatat axpay eri sr et i r i ng f r om busi nesssubj ectt ot axor

TAXATI ON L AW COMMI TTEE

b) i si nt endi ngt ol eav et hePhi l s.or c) t or emov ehi spr oper t yt her ef r om or d) t ohi deorconcealhi spr oper t y or e) i sper f or mi nganyactt endi ngt o obst r uctt hepr oceedi ngsf ort he col l ect i onoft ax 8. Pr escr i beRealPr oper t yVal ues

TheCommi ssi oneri saut hor i zedt o: a.Di v i de t he Phi l s. i nt o di f f er ent zonesorar easand b.Det er mi net hef ai rmar ketv al ueof r ealpr oper t i es l ocat ed i n each zoneorar ea

Fort axpur poses, t hev al ueoft he pr oper t yshal lbewhi chev eri shi gher of : a) Fai rmar ketv al ueasdet er mi ned byt heCommi ssi oner ; or b) Fai rmar ketv al ueasshowni nt he schedul e of v al ues of t he pr ov i nci alandci t yassessor s. 9. Aut hor i t yt oI nqui r ei nt oBankDeposi t

Not wi t hst andi ngR. A.1405( Bank Secr ecyLaw)t he Commi ssi oneri s aut hor i zed t oi nqui r ei nt ot he Bank deposi t sof : ( a)adecedentt odet er mi nehi sgr oss est at e ( b)at axpay erwhohasf i l edan appl i cat i ont ocompr omi se pay mentoft axl i abi l i t ybyr eason of f i nanci al i ncapaci t y

The t axpay er ’ s appl i cat i on f or compr omi seshal lnotbeconsi der ed unl ess he wai v es i n wr i t i ng hi s pr i v i l ege underRA 1405 and ot her gener alorspeci all aws.Suchwai v er shal laut hor i zet heCommi ssi onert o i nqui r ei nt ohi sbankdeposi t s.

10.Aut hor i t yt oRegi st ert axagent s

( a)TheCommi ssi onershal laccr edi t and Regi st er ,i ndi v i dual s and gener alpr of essi onalpar t ner shi ps andt hei rr ep.whopr epar eandf i l e t axr et ur ns and ot herpaper s or whoappearbef or et heBI R ( b)The Commi ssi oner shal lcr eat e nat i onalandr egi onalaccr edi t at i on boar ds.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Those who ar e deni ed accr edi t at i onmayappealt hesamet o t heSec.OfFi nancewhoshal lr ul eon t he appeal wi t hi n 60 day sf r om r ecei ptofsuchappeal .Fai l ur et odo sowi t hi nt hepr escr i bedper i odshal l be deemed as appr ov al f or accr edi t at i on.

11.Aut hor i t y t o Pr escr i be Addi t i onal Requi r ement s

TheCommi ssi onermaypr escr i be t hemannerofcompl i ancewi t hany document ar y or pr ocedur al Requi r ementf ort he submi ssi on or pr epar at i on off i nanci alst at ement s accompany i ngt axr et ur ns.

I V.SECTI ON 7 ( Aut hor i t y t o Del egat e

Power)

12.TheCommi ssi onermaydel egat et he power sv est edi nhi mt o

-subor di nat eof f i ci al swi t hr ank equi v al entt oDi v i si onChi eforhi gher , subj ect t o l i mi t at i ons/ r est r i ct i ons i mposed under t he r ul es and r egul at i ons EXCEPT,( t he f ol l owi ng power s shal l NOTbedel egat ed) a) power t o Recommend t he pr omul gat i on of r ul es and r egul at i ons by t he Sec. of Fi nance b) powert oI ssue r ul i ngs off i r st i mpr essi onort oRev er se,r ev oke modi f yanyexi st i ng r ul eoft he BI R c) powert oCompr omi seorAbat e anyt axl i abi l i t y

pr ov i ded howev er t hat t he r egi onalev al uat i on boar d may compr omi se: 1.assessment s i ssued by r egi onal of f i ces i nv ol v i ng def i ci encyt axesofP500, 000 orl essand 2.mi norcr i mi nalv i ol at i ons as may be det er mi ned by t he r ul esandr egul at i ons 3.di scov er ed by r egi onaland

TAXATI ON L AW COMMI TTEE

di st r i ctof f i ci al s

Regi onal Ev al uat i on Boar d i s composedof : i . Regi onal Di r ect orasChai r man i i .Asst .Regi onal Di r ect or i i i .Headsoft heLegal ,Assessment andCol l ect i onDi v . i v .Rev enue Di st r i ctOf f i cerhav i ng j ur i sdi ct i onov ert het axpay er d) powert oAssi gnorr eassi gn i nt er nalr ev enue of f i cer st o est abl i shment s wher e ar t i cl essubj ectt oexci set ax ar ekept . V.SECTI ONS 8 ,14,15,16,17 ( Ot her Power s) 13.Dut yt o ensur et he pr ov i si on and di st r i but i on of f or ms, r ecei pt s, cer t i f i cat es,andappl i ances,andt he acknowl edgment of pay ment of t axes( Sec.8) 14.Aut hor i t yt oadmi ni st eroat hsandt o t aket est i mony( Sec.14) 15.Aut hor i t y t o make ar r est s and sei zur es( Sec.15) 16.Aut hor i t y t o empl oy , assi gn or r eassi gn i nt er nalr ev enue of f i cer s i nv ol v ed i n exci set axf unct i onst o est abl i shment s wher e ar t i cl es subj ectt oexci set axar epr oducedor kept( Sec.16) 17.Aut hor i t y t o assi gn or r eassi gn i nt er nal r ev enue of f i cer s and empl oy ees oft he BI Rt o ot heror speci aldut i es connect ed wi t ht he enf or cementoradmi ni st r at i onoft he r ev enuel aws( Sec.17) ARELEGALOFFI CERSOFTHEBI RAUTHORI ZED TO I NSTI TUTE APPEAL PROCEEDI NGS WI THOUT THE PARTI CI PATI ON OF THE SOLI CI TORGENERAL? NO. The i nst i t ut i on or commencementbef or eapr opercour tof ci v i l and cr i mi nal act i ons and pr oceedi ngs ar i si ng under t he Tax Ref or m Actwhi chshal lbeconduct edby l egalof f i cer soft heBI Ri snoti ndi sput e.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

Anappealf r om suchcour t ,howev er ,i s nota mat t erofr i ght . I ti s st i l lt he Sol i ci t orGener alwho has t he pr i mar y r esponsi bi l i t y t o appear f or t he gov er nment i n appel l at e pr oceedi ngs. ( Commi ssi onerv s.LaSuer t eCi garand Ci gar et t eFact or y ,GRNo.144942,Jul y4, 2002) SOURCESOFREVENUE The f ol l owi ng t axes, f ees and char ges ar e deemed t o be nat i onal i nt er nal r ev enuet axes.( Sec.21, NI RC) 1. I ncomet ax 2. Est at eanddonor ' st axes 3. Val ueaddedt ax 4. Ot herper cent aget axes 5. Exci set axes 6. Document ar yst ampt axes 7. Suchot hert axesasar eorher eaf t er maybei mposedandcol l ect edbyt he Bur eauofI nt er nal Rev enue.

I I .

NATI ONALTAXATI ON A.I NCOMETAXATI ON

DEFI NI TI ONS I NCOME TAX – t axon al ly ear l ypr of i t s ar i si ngf r om pr oper t y ,possessi ons, t r adeorbusi ness,orasat axona per son’ s i ncome, emol ument s, pr of i t sandt hel i ke( 61CJS1559) –t axoni ncome, whet her gr ossornet .( 27Am.Jur .308) I NCOME–a l lweal t h,whi chf l owsi nt ot he t axpay er ot her t han as a mer e r et ur nofcapi t al . CAPI TAL–r esour ceofper son,whi chcan be used i n pr oduci ng goods and ser v i ces. I ncome Capi t al Al l weal t h, whi ch f l ows i nt o t he t axpay erot hert han asamer er et ur nof capi t al .

Fund or pr oper t y whi chcanbeused i npr oduci nggoods orser v i ces

Fl owofWeal t h

Fundorpr oper t y

Sour ceofweal t h

Weal t h

TAXATI ON L AW COMMI TTEE

REQUI SI TESF ORI NCOMETOBETAXABLE 1. Ther emustbeagai norpr of i t . 2. Thegai nmustber eal i zedorr ecei v ed. 3. Thegai nmustnotbeexcl udedbyl aw ort r eat yf r om t axat i on. TESTSONTAXABI LI TYOFI NCOME 1. Fl ow of Weal t h Test – The det er mi ni ng f act or f or t he i mposi t i on of i ncome t ax i s whet her any gai n was der i v ed f r om t het r ansact i on. 1. Real i zat i onTest-unl esst hei ncome i sdeemed" r eal i zed, "t her ei sno t axabl ei ncome. 1. Economi cBenef i tPr i nci pl eTest f l owofweal t hr eal i zedi st axabl e onl y t o t he ext ent t hat t he t axpay er i s economi cal l y benef i t ed. CRI TERI AI NI MPOSI NGI NCOMETAX 1.Ci t i zenshi pPr i nci pl e–Aci t i zenoft he Phi l i ppi nes i s subj ect t o Phi l i ppi ne i ncomet ax( a. )onhi swor l dwi dei ncome, i fher esi desi nt hePhi l i ppi nes, or( b. )onl y onhi si ncomef r om sour ceswi t hi nt he Phi l i ppi nes,i fhequal i f i esasnonr esi dent ci t i zen. 2.Resi dencePr i nci pl e–r esi dental i eni s l i abl et opayi ncomet axonhi si ncome f r om sour ceswi t hi nt hePhi l i ppi nesbut exemptf r om t ax on hi si ncome f r om sour cesout si det hePhi l i ppi nes. 3.Sour cePr i nci pl e–Anal i eni ssubj ect t o Phi l i ppi ne i ncome t ax because he der i v esi ncomef r om sour ceswi t hi nt he Phi l i ppi nes.Thus,anonr esi dental i eni s l i abl et opayPhi l i ppi nei ncomet axonhi s i ncome f r om sour ces wi t hi n t he Phi l i ppi nes such as di v i dend,i nt er est , r ent ,orr oy al t y ,despi t et hef actt hathe hasnotsetf ooti nt hePhi l i ppi nes.

CLASSI FI CATI ONOFTAXPAYERS

I ndi v i dual s a. ci t i zens ( 1)r esi dentci t i zens( RC) ( 2)nonr esi dentci t i zens( NRC) b. al i ens ( 1)r esi dental i ens( RA) ( 2)nonr esi dental i ens( NRA) ( a)engaged i n t r ade or busi nesswi t hi nt hePhi l s.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW ( NRAETB) ( b)notengagedi nt r adeor busi ness wi t hi n t he Phi l i ppi nes( NRANETB)

Cor por at i ons a. Domest i c( DC) b. For ei gn ( 1)r esi dentf or ei gncor por at i on ( RFC) ( 2)nonr esi dentf or ei gn cor por at i on( NRFC) Est at es Tr ust s Par t ner shi ps

A.I NDI VI DUALS WHOARETAXABLE? 1. Resi dentCi t i zen 2. Nonr esi dentCi t i zen A nonr esi dentci t i zen means,a Fi l i pi noci t i zen: a. who est abl i shes t o t he sat i sf act i onoft heCommi ssi oner t hef actofhi sphy si calpr esence abr oadwi t hadef i ni t ei nt ent i ont o r esi det her ei n; b. whol eav est hePhi l i ppi nesdur i ng t het axabl ey eart or esi deabr oad, ei t heras an i mmi gr antorf or empl oy ment on a per manent basi s; c. who wor ksand der i v esi ncome f r om abr oad and whose empl oy mentt her eatr equi r eshi m t o bephy si cal l ypr esentabr oad most of t he t i me dur i ng t he t axabl ey ear ; d. whoi spr ev i ousl yconsi der edasa nonr esi dentandwhoar r i v esi n t hePhi l i ppi nesatany t i medur i ng t het axabl ey eart or esi det her eat per manent l yshal lbeconsi der ed nonr esi dentf ort het axabl ey ear i n whi ch he ar r i v es i n t he Phi l i ppi nes wi t hr espectt o hi s i ncome der i v ed f r om sour ces abr oadunt i lt hedat eofhi sar r i v al [ Sec. 22( E) , NI RC]

NOTE:Anover seascont r actwor ker ( OCW)i st axabl e onl y on i ncome der i v ed f r om sour ces wi t hi n t he Phi l i ppi nes.[ Sec.23( B) ( C) ]

TAXATI ON L AW COMMI TTEE

A seaman i sconsi der ed asan OCW pr ov i ded t he f ol l owi ng r equi r ement sar emet : 1. r ecei v escompensat i onf orser v i ces r ender edabr oadasamemberof t hecompl ementofav essel ; and 2. suchv esseli sengagedexcl usi v el y i ni nt er nat i onal t r ade. Based on t he abov e pr ov i si ons, t her ear et hr ee( 3)t y pesofnonr esi dent ci t i zens,namel y :( 1)i mmi gr ant s;( 2) empl oy ees ofa f or ei gn ent i t y on a per manentbasi s; and ( 3) ov er seas cont r act wor ker s. I mmi gr ant sandempl oy eesofaf or ei gn ent i t yonaper manentbasi sar et r eat ed asnonr esi dentci t i zensf r om t het i me t hey depar tf r om t he Phi l i ppi nes. Howev er ,ov er seas cont r actwor ker s must be phy si cal l y pr esent abr oad mostoft het i medur i ngt hecal endar y eart oqual i f yasnonr esi dentci t i zens. 3. Resi dental i en-meansani ndi v i dual whose r esi dence i s wi t hi n t he Phi l i ppi nesandwhoi snotaci t i zen t her eof .[ Sec. 22( F, NI RC) ] 4. Nonr esi dental i enengagedi nt r ade orbusi ness wi t hi nt he Phi l i ppi nes. ( NRAETB) A nonr esi dental i en means an i ndi v i dualwhose r esi dence i s not wi t hi nt hePhi l i ppi nesandwhoi snot aci t i zent her eof .[ Sec. 22( G) ] The t er m t r ade or busi ness i ncl udes t he per f or mance of t he f unct i onsofapubl i cof f i ce.[ Sec.22 ( S) ] The t er m t r ade, busi ness or pr of essi on shal l not i ncl ude per f or mance of ser v i ces by t he t axpay eras an empl oy ee.[ Sec.22 ( CC) ] A nonr esi dent al i en i ndi v i dual who shal lcome t ot he Phi l i ppi nes and st ay t her ei nf oran aggr egat e per i odofmor et han180day sdur i ng anycal endary earshal lbedeemeda nonr esi dental i endoi ngbusi nessi n t he Phi l i ppi nes Sect i on 22( G) not wi t hst andi ng[ Sec.25( A) ( 1) ] 5. Nonr esi dental i en notengaged i n t r ade or busi ness wi t hi n t he Phi l i ppi nes.( NRANETB)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

ONLY RESI DENT CI TI ZENS ar et axabl e f ori ncomeder i v edf r om sour ceswi t hi n and wi t houtt he Phi l i ppi nes.Al lot her i ndi v i duali ncomet axpay er sar et axabl e onl yf ori ncome der i v ed f r om sour ces wi t hi nt hePhi l i ppi nes.  TaxRat es:Pl easer ef ert oAnnexA.

B.CORPORATI ONS WHOARETAXABLE? 1. Domest i cCor por at i on– cr eat edor or gani zedi nt hePhi l s.orunderi t s l aw[ Sec.22( C) , NI RC] 2. Resi dent For ei gn Cor por at i on – engagedi nt r adeorbusi nesswi t hi n t hePhi l i ppi nes[ Sec.22( H) , NI RC] 3. Nonr esi dentFor ei gnCor por at i on– notengaged i nt r ade orbusi ness wi t hi nt he Phi l i ppi nes [ Sec.22( I ) , NI RC] ACor por at i onI ncl udes: 1. Par t ner shi ps,nomat t erhow cr eat ed oror gani zed; 2. Joi nt st ockcompani es; 3. Joi nt account s ( cuent as en par t i ci paci on) 4. Associ at i ons; or 5. I nsur ance compani es [ Sec. 22( B) , NI RC] . Excl udes: 1. Gener al pr of essi onal par t ner shi ps; 2. Joi ntv ent ur eorconsor t i um f or med f or t he pur pose of under t aki ng const r uct i onpr oj ect sorengagi ngi n pet r ol eum, coal , geot her mal and ot herener gyoper at i onspur suantt o an oper at i ng or consor t i um agr eementunderaser v i cecont r act wi t ht heGov er nment . CORPORATI ONS E XEMPT F ROM I NCOME TAXATI ON ( FOR I NCOME REALI ZED AS SUCH) UNDERNI RC 1. Thoseenumer at edunderSec.30. Exemptcor por at i onsar esubj ect t oi ncomet axont hei ri ncomef r om anyoft hei rpr oper t i es, r eal orper sonal , orf r om anyot heract i v i t i esconduct ed f orpr of i t , r egar dl essoft hedi sposi t i on madeofsuchi ncome. 2. Wi t hr espectt oGOCCs,t hegener al r ul ei st hatt hese cor por at i ons ar e

TAXATI ON L AW COMMI TTEE

t axabl e as any ot her cor por at i on except : a. GSI S b. SSS c. PHI C d. PCSO e. PAGCOR[ Sec.27( C) ] 3. Regi onalorAr eaHeadquar t er sunder Sec.22( DD)–notsubj ectt oi ncome t ax Regi onaloper at i ng headquar t er s underSec.22( EE)shal lpayat axof 10%oft hei rt axabl ei ncome. ONLY DOMESTI C CORPORATI ONS ar e t axabl ef ori ncomeder i v edf r om sour ces wi t hi n and wi t houtt he Phi l i ppi nes.Al l ot hercor por at ei ncome t axpay er s ar e t axabl e onl yf ori ncome der i v ed f r om sour ceswi t hi nt hePhi l i ppi nes.  TaxRat es:Pl easer ef ert oAnnexB.

C.ESTATESANDTRUSTS ESTATE–r ef er st ot hemassofpr oper t i es l ef tbyadeceasedper son. RULESONTAXABI LI TYOFE STATE Whenaper sonwho ownspr oper t y di es,t he f ol l owi ng t axes ar e pay abl e undert hepr ov i si onsoft he i ncomet ax l aw: 1. I ncomet axf ori ndi v i dualunderSec. 24 and 25 ( t o cov er t he per i od begi nni ng Januar yt ot he t i me of deat h) ; 2. Est at ei ncomet axunderSec.60i f t heest at ei sunderadmi ni st r at i onor j udi ci al set t l ement .

ESTATESUNDERJUDI CI ALSETTLEMENT A. Dur i ng t he Pendency of t he Set t l ement Gener alRul e:Anest at eunderj udi ci al set t l ementi ssubj ectt oi ncomet axi n t hesamemannerasi ndi v i dual s.I t s st at usi st hesameast hest at usof t hedecedentpr i ort ohi sdeat h. Except i ons: 1. The ent i t l ement t o per sonal exempt i on i s l i mi t ed onl y t o

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW P20, 000. 2. No addi t i onal exempt i on i s al l owed. 3. The di st r i but i on t o t he hei r s dur i ngt het axabl ey earofest at e i ncome i s deduct i bl ef r om t he t axabl ei ncome of t he est at e. Such di st r i but ed i ncome shal l f or m par toft her espect i v ehei r s’ t axabl ei ncome. Wher e no such di st r i but i ont ot hehei r si smade dur i ngt het axabl ey eart hatt he i ncome i s ear ned, and such i ncome i s subj ect ed t oi ncome t axpay mentbyt he est at e,t he subsequentdi st r i but i on t her eof i snol ongert axabl eont hepar tof t her eci pi ent .

pr oper t y ,ori ndust r yt ot he est at e wi t ht he i nt ent i on of di v i di ng t he pr of i t s bet ween/ among t hemsel v es, an unr egi st er ed par t ner shi p i s cr eat ed and t he est at e becomes l i abl ef ort hepay mentofcor por at e i ncomet ax; or 2. I ft he hei r s, wi t hout cont r i but i ng money ,pr oper t yori ndust r yt ot he est at e, si mpl ydi v i det hef r ui t st her eof bet ween/ among t hemsel v es,a coowner shi pi scr eat edandi ncomet ax i si mposedont hei ncomer ecei v edby each oft he hei r s,pay abl ei nt hei r separ at eandi ndi v i dual capaci t y .

B. TERMI NATI ON OF THE JUDI CI AL SETTLEMENT ( WHERE THE HEI RS STI LL DONOTDI VI DETHEPROPERTY) 1. I ft he hei r s cont r i but et ot he est at e money , pr oper t y , or i ndust r ywi t hi nt ent i ont odi v i de t he pr of i t s bet ween/ among t hemsel v es, an unr egi st er ed par t ner shi pi s cr eat ed and t he est at e becomes l i abl ef ort he pay mentofcor por at ei ncomet ax. ( Ev angel i st av s.Col l ect or , GRNo. L9996, Oct ober15, 1957; Oñav s. Commi ssi oner ,GR No.L19342, May25, 1972) 2. I ft hehei r s,wi t houtcont r i but i ng money ,pr oper t y ori ndust r yt o i mpr ov et heest at e,si mpl ydi v i de t he f r ui t s t her eof bet ween/ among t hemsel v es,a coowner shi p i s cr eat ed, and i ndi v i duali ncomet axi si mposed ont hei ncomer ecei v edbyeach of t he hei r s,pay abl ei nt hei r separ at eandi ndi v i dualcapaci t y . ( Pascualv s.Commi ssi oner ,GR No.L78133,Oct ober18,1988; Obi l l osv s.Commi ssi oner , GRNo. L68118, Oct ober29, 1985)

WHENTRUSTSARETAXABLEENTI TI ES 1.At r ust ,t hei ncomeofwhi chi st obe accumul at ed 2.At r usti nwhi cht hef i duci ar ymay ,at hi s di scr et i on, ei t her di st r i but e or accumul at et hei ncome.

ESTATESNOTUNDERJUDI CI ALSETTLEMENT Pendi ngt heext r aj udi ci alset t l ement , ei t heroft he f ol l owi ng si t uat i ons may ar i se: 1. I f t he hei r s cont r i but e money ,

TAXATI ON L AW COMMI TTEE

TRUST –Ar i ghtt ot hepr oper t y ,whet her r ealorper sonal ,hel dbyoneper sonf or t hebenef i tofanot her .

RULES ON TAXABI LI TY OFTHEI NCOMEOFA TRUST 1. The i ncome of t he t r ust f or t he t axabl ey earwhi chi st obedi st r i but ed t o t he benef i ci ar i es – f i l i ng and pay ment of t ax l i e on t he benef i ci ar i es. 2. Thei ncomeoft het r ustwhi chi st obe accumul at ed or hel d f or f ut ur e di st r i but i on whet her consi st i ng of or di nar yi ncomeorgai nf r om t hesal e ofasset si ncl udedi nt he" cor pus"of t he est at e– f i l i ng ofr et ur n and pay mentoft axbecomet hebur denof t het r ust eeorf i duci ar y . Except i ons: a. I nt hecaseofar ev ocabl et r ust , t hei ncomeoft het r ustwi l lbe r et ur nedbyt hegr ant or . b. I n at r ustwher et hei ncomei s hel df ort hebenef i toft hegr ant or , t hei ncomeoft het r ustbecomes i ncomet ot hegr ant or . c. I nt hecaseoft r ustadmi ni st er ed i naf or ei gncount r y ,t hei ncome oft het r ust ;undi mi ni shedbyany amount di st r i but ed t o t he benef i ci ar i esshal lbet axedt ot he

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW t r ust ee.

I RREVOCABLE TRUSTS ( i r r ev ocabl ebot has t ocor pusandast oi ncome)– Tr usti t sel f ,t hr ough t he t r ust ee or f i duci ar y ,i sl i abl ef ort he pay mentof i ncomet ax.Taxedexact l yi nt hesame wayasest at esunderj udi ci alset t l ement andi t sst at usasani ndi v i duali st hatof t het r ust or .I ti sent i t l edt ot hemi ni mum per sonal exempt i on ( P20, 000) and di st r i but i on oft r usti ncome dur i ng t he t axabl e y ear t o t he benef i ci ar i es i s deduct i bl e f r om t he t r ust ’ s t axabl e i ncome. REVOCABLE TRUSTS – t het r ust or ,nott he t r usti t sel f ,i ssubj ectt ot hepay mentof i ncomet axont het r usti ncome. EXEMPTI ON OFE MPLOYEES’ TRUST Pr ov i ded: 1. t heempl oy ee’ st r ustmustbepar tof a pensi on,st ock bonus or pr of i t shar i ngpl anoft heempl oy erf ort he benef i t of some or al l of hi s empl oy ees; 2. cont r i but i onsar emadet ot het r ustby suchempl oy er , orsuchempl oy ees, or bot h; 3. suchcont r i but i onsar emadef ort he pur pose of di st r i but i ng t o such empl oy ees bot ht he ear ni ngs and pr i nci paloft hef undaccumul at edby t het r ust , and 4. t hatt he t r usti nst r umentmakes i t i mpossi bl ef oranypar toft het r ust cor pusori ncomet obeusedf or ,or di v er t edt o,pur posesot hert hant he excl usi v ebenef i tofsuchempl oy ees. ( Sec.60B, NI RC) Tax exempt i on i sl i kewi se t o be enj oy ed byt hei ncomeoft hepensi on t r ust ; ot her wi se, t axat i on of t hose ear ni ngswoul dr esul ti nadi mi nut i onof accumul at ed i ncome and r educe what ev ert he t r ustbenef i ci ar i es woul d r ecei v e out of t he t r ust f und. ( Commi ssi oner v s.Cour t of Appeal s, Cour tofTaxAppeal sandGCLRet i r ement Pl ans, GRNo.95022, Mar ch23, 1992)

D.PARTNERSHI PS

TAXATI ON L AW COMMI TTEE

KI NDS OF PARTNERSHI PF OR TAX PURPOSES UNDERTHENI RC 1. Gener al Pr of essi onal Par t ner shi ps ( GPP)-f or medbyper sonsf or : a. t hesol epur poseofexer ci si nga commonpr of essi onand b. nopar toft hei ncomeofwhi chi s der i v ed f r om engagi ng i n any t r ade orbusi ness.[ Sec.22( B) , NI RC] . 2. Taxabl eorBusi nessPar t ner shi p– Al l ot her par t ner shi ps except gener alpr of essi onalpar t ner shi psno mat t er ,how cr eat edoror gani zed.I t i ncl udes unr egi st er ed j oi ntv ent ur es andbusi nesspar t ner shi ps. Howev er ,j oi ntv ent ur esar enot t axabl esascor por at i onswheni ti s; ( a) under t aki ngconst r uct i onpr oj ect s( b) engagedi npet r ol eum,coalandot her ener gy oper at i on under a ser v i ce cont r actwi t ht hegov er nment Gener alcopar t ner shi ps ( GCP) ar e par t ner shi ps,whi ch ar e byl aw assi mi l at edt obewi t hi nt hecont ext of ,andso l egal l ycont empl at edas, cor por at i ons.Thepar t ner shi pi t sel fi s subj ectt o cor por at et axat i on.The i ndi v i dualpar t ner s ar e consi der ed st ockhol der s and,t her ef or e,pr of i t s di st r i but edt ot hem byt hepar t ner shi p ar et axabl easdi v i dends. Thet axabl ei ncomef orat axabl e y ear ,af t erdeduct i ng t he cor por at e i ncomet axi mposedt her ei n,shal lbe deemed t o hav e been act ual l y or const r uct i v el y r ecei v ed by t he par t ner si nt hesamet axabl ey earand shal lbe t axed t o t hem i n t hei r i ndi v i dualcapaci t y whet heract ual l y di st r i but edornot .[ Sec.73( D) , NI RC] LI ABI LI TYOFAPARTNERSHI P 1. Gener alPr of essi onalPar t ner shi p .Theyar enotsubj ectt oi ncomet ax, butar er equi r edt of i l er et ur nsoft hei r i ncomef ort hepur poseoff ur ni shi ng i nf or mat i onast ot heshar eofeach par t neri nt henetgai norpr of i t , whi ch each par t ner shal li ncl ude i n hi s i ndi v i dualr et ur n. The par t ner shi p shal l actast hewi t hhol di ngagent . The net i ncome ( i ncome f or di st r i but i on)shal lbecomput edi nt he

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

samemannerasacor por at i on.Dat e off i l i ngoft her et ur ni sApr i l15of eachy ear . 2. Taxabl e orBusi ness Par t ner shi pThe i ncome t ax of t hi st y pe of Par t ner shi pi s comput ed and t axed l i ket hatofacor por at i on.Thi ski ndof par t ner shi p, l i kear egul arcor por at i on, i s al so r equi r ed t of i l e a quar t er l y cor por at ei ncome t ax r et ur n.Fi l i ng and pay mentofquar t er l yr et ur ni s wi t hi n60day saf t ert heendofeach quar t erwhi l et heannualr et ur ni son orbef or eApr i l15 oft hef ol l owi ng y ear . LI ABI LI TYOFAPARTNER Rul es: 1. Shar e of a par t ner i n gener al pr of essi onalPar t ner shi p a. Each par t ner shal lr epor t as gr ossi ncome( busi nessi ncome) hi sdi st r i but edshar eact ual l yor const r uct i v el yr ecei v edi nt henet i ncomeoft hepar t ner shi p.( Sec. 26,NI RC)[ Thesameshar e shal l be subj ect t o cr edi t abl e wi t hhol di ngt axof10%. ]Theyar e l i abl e i n t hei r separ at e and i ndi v i dualcapaci t y . b. Shar eofapar t neri nt hel ossofa gener alpr of essi onalpar t ner shi p maybe t aken byt he i ndi v i dual par t neri nhi sr et ur nofi ncome. c. Each par t ner i n a gener al pr of essi onal par t ner shi p shal l , r epor t as gr oss i ncome hi s di st r i but ed shar e i n t he net i ncomeoft heGPP,basedonhi s agr eedr at i o, whet herhe,av ai l sof i t emi zed or opt i onal st andar d deduct i on. d. Pay ment smadet oapar t nerofa GPP f orser v i cesr ender edshal l be consi der ed as or di nar y busi nessi ncomesubj ectt oSec. 24A( Ef f ect i v eJanuar y1, 1982) 2. Shar e ofa par t neri n Taxabl e or Busi nesspar t ner shi p a. Shar e ofa par t neri nt he net

TAXATI ON L AW COMMI TTEE

i ncomeofat axabl eorbusi ness par t ner shi p( di v i dend) shal lbe subj ectt oaf i nal t axasf ol l ows.  Resi dent Ci t i zen, Nonr esi dentCi t i zenandResi dent Al i en ( 2000 and onwar d)– 10%( Sec.24B2)  Nonr esi dentAl i en engaged i nt r adeorbusi ness– 20% ( Sec.25A2)  Nonr esi dent al i en not engagedi nt r adeorbusi ness –25%( Sec.25B) b. Shar eofapar t neri nt hel ossofa t axabl e orbusi ness par t ner shi p may be t aken by t he i ndi v i dual par t neri nhi sr et ur nofi ncome. c. Pay ment smadet oapar t nerofa busi ness ort axabl e par t ner shi p f orser v i ces r ender ed shal lbe consi der ed as compensat i on i ncomesubj ectt osec.24A.

KI NDSOFI NCOMETAXES UNDERTHENI RC 1.NetI ncomeTax 2.Opt i onal Cor por at eI ncomet ax 3.Mi ni mum Cor por at eI ncomeTax 4.I mpr oper l y Accumul at ed Ear ni ngs Tax 5.Pr ef er ent i alRat esorSpeci alRat esof I ncomeTax 6.Gr ossI ncomeTax 7.Fi nal I ncomeTax 8.Fr i ngeBenef i t sTax 9.Capi t al Gai nsTax

( 1)NETI NCOMETAX

DEFI NI TI ON:Me ans gr oss i ncome l ess deduct i ons and/ or per sonal and addi t i onal exempt i ons( Sec.31, NI RC) NETI NCOMETAXF ORMULA Ent i r eI ncome Less: Excl usi ons and I ncome subj ect t o Fi nal Tax ( e. g. Passi v eI ncome) Gr ossI ncome Less: Deduct i ons( and/ oraddi t i onal exempt i ons, i fappl i cabl e) NetTaxabl eI ncome Mul t i pl yby :TaxRat e( %) NetI ncomeTaxDue

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Less:TaxCr edi t , i fany TaxSt i l ldue, i fany

GROSSI NCOME DEFI NI TI ON:Me ans al li ncome der i v ed f r om what ev ersour ce,i ncl udi ngbutnot l i mi t edt ot hef ol l owi ng( Sec.32) a. Compensat i on; b. Gr ossi ncomef r om pr of essi on,t r ade orbusi ness; c. Gai nsf or m deal i ngsi npr oper t y ; d. I nt er est s; e. Rent s; f . Roy al t i es; g. Di v i dends; h. Annui t i es; i . Pr i zesandwi nni ngs; j . Pensi ons; k. Par t ner ’ sshar ei nt heneti ncomeof t hegener al pr of essi onal par t ner shi p  SeeAnnexDf ordet ai l eddi scussi on ofi t ems. KI NDSOFDI VI DENDS 1. CashandPr oper t yDi v i dends I ndi v i dual Taxpay er a. Fr om Domest i cCor por at i ons  RC, NRC, RA–10%( Sec.24A)  NRAETB–20%( Sec.25A2)  NRANETB – 25% on gr oss i ncome( Sec.25B) b. Fr om For ei gnCor por at i ons  RC,NRC,RA,NRAETB – 532%( Sec.24, 25A1)  NRANETB – 25% on gr oss i ncome( Sec.25B) Cor por at eTaxpay er a. For ei gnt oDomest i cCor p.–32% ( Sec.32A) b. Domest i ct oDomest i cCor p.– Exempt ; i nt er cor por at edi v i dends ( Sec.27D) c. Domest i ct oFor ei gnCor p. Resi dent For ei gn Cor p. – Exempt( Sec.28[ A]7d)  Nonr esi dentFor ei gnCor p.– 15% subj ectt ot hecondi t i on st at ed i n Sec. 28 [ B] 5. Ot her wi se, i tshal lbet axedat 32%.( SeeCommi ssi onerv s. Pr oct erandGambl e,GRNo.

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66838, December2, 1991) 2. St ockDi v i dends Gener alr ul e: Not subj ect t o t ax because i t does not const i t ut e i ncome;i tr epr esent st r ansf er of sur pl ust ocapi t alaccount .( Sec.73B, 1997NI RC) Except i ons: a. Sec.73B, 1997NI RC ( 1)t her e i s r edempt i on or cancel l at i on ( 2)t he t r ansact i on i nv ol v es st ockdi v i dends, and ( 3)t he“ t i meandmanner ”oft he t r ansact i on makes i t “ essent i al l y equi v al entt oa di st r i but i on of t axabl e di v i dends” . ( see Commi ssi onerv s.Cour tof Appeal s, Cour t of Tax Appeal s& ANSCOR,GR No. 108576, Jan.30, 1999) b. t he r eci pi enti s ot hert han t he shar ehol der( Bachr achv s.Sei f er t , GRNo.L2659, Oct ober12, 1950) c. change i n t he st ockhol der ’ s equi t yr esul t s by v i r t ue oft he st ockdi v i dendi ssuance. 3. Li qui dat i ng Di v i dends – When a cor por at i ondi st r i but esal lofi t s asset si ncompl et el i qui dat i onor di ssol ut i on,t hegai nr eal i zed or l osssust ai nedbyt hest ockhol der , whet heri ndi v i dualorcor por at i on, i st axabl ei ncomeordeduct i bl e l oss,ast hecasemaybe.( Sec. 73A) Al i qui dat i ngdi v i dendi snota di v i dendi ncome.Thet r ansact i on i sconsi der edasal eorexchange of pr oper t y bet ween t he cor por at i onandt hest ockhol der . EXCLUSI ONSF ROM GROSSI NCOME NOTE:Un dert he1997TaxCode, t het er m “ excl usi ons”r ef er st oi t emst hatar enot i ncl uded i nt he det er mi nat i on ofgr oss i ncomeei t herbecause: ( a)t heyr epr esentr et ur nofcapi t alor ar enoti ncome, gai norpr of i t ; or ( b)t heyar esubj ectt oanot herki ndof i nt er nal r ev enuet ax; or ( c)t heyar ei ncome, gai norpr of i tt hat

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

ar eexpr essl yexemptf or m i ncomet ax undert he const i t ut i on,t ax t r eat y ,Tax Code, oragener al orspeci al l aw.

1. Pr oceedsofl i f ei nsur ancepai d by

r easonoft hedeat hoft hei nsur edt o hi s est at e or t o any benef i ci ar y ( i ndi v i dual , par t ner shi p, or cor por at i on, butnotat r ansf er eef ora v al uabl econsi der at i on) ,di r ect l yori n t r ust . NOTE: i f t he pr oceeds ar e r et ai nedbyt hei nsur er ,t hei nt er est t her eoni st axabl e;

2. Ret ur nofi nsur ancepr emi um;

NOTE:i fsuchamount s( whenadded t o amount s al r eadyr ecei v ed bef or e t het axabl ey earundersuchcont r act s) exceed t he aggr egat e pr emi ums or consi der at i ons pai d( whet herornot pai ddur i ngt het axabl ey ear ) ,t hent he excessshal lbei ncl udedi nt hegr oss i ncome. Howev er ,i nt hecaseofa t r ansf erf orav al uabl econsi der at i on, byassi gnmentorot her wi se,ofal i f e i nsur ance, endowment or annui t y cont r act ,oranyi nt er estt her ei n,onl y t heact ualv al ueofsuchconsi der at i on andt heamountoft hepr emi umsand ot hersumssubsequent l ypai dbyt he t r ansf er eear eexemptf r om t axat i on. Nol ossi sr eal i zedonsur r enderofa l i f ei nsur ancepol i cyf ori t ssur r ender v al ue.

3. Gi f t , bequestordev i se

Gi f t s, bequest s, and dev i ses ( whi char esubj ectt oest at eorgi f t t axes) ar e excl uded,but not t he i ncomef r om suchpr oper t y .I ft he amountr ecei v ed i s on accountof ser v i ces r ender ed, whet her const i t ut i ng a demandabl e debtor not ,ort heuseoft heoppor t uni t yt o useofcapi t al ,t her ecei pti si ncome ( Pi r ov ano v s. Commi ssi oner , 14 SCRA832)

4. Compensat i on f orper sonali nj ur i es

or si ckness,whet her by sui t or agr eement NOTE:Thephr ase“ per sonali nj ur i es” shoul dbegi v enar est r i ct i v emeani ng t or ef eronl yt ophy si cali nj ur i es.The

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t heor yf ort hi si st hatr ecoupmenton accountofsuchl ossesi snoti ncome, si ncei ti snotder i v edf r om capi t al , f r om l abororf r om bot hcombi ned. And t he f actt hatt he pay mentof compensat i on f or such l oss was v ol unt ar ydoesnotchangei t sexempt st at us.I twasi nf actcompensat i on f oral oss, whi chi mpai r edpet i t i oner ’ s capi t al .

5. I ncomeexemptunderTr eat y ; 6. Ret i r ement

benef i t s, pensi on, gr at ui t i es, et c. a. t hose der i v ed underR. A.7641 ( per t ai nst opr i v at ef i r mswi t hout r et i r ementt r ustf und) ; b. t hose r ecei v ed byof f i ci al s and empl oy eesofpr i v at eempl oy er s i naccor dancewi t har easonabl e pr i v at ebenef i tpl an; Requi si t es: ( 1)i nt he ser v i ce oft he same empl oy er f or at l east 10 y ear s; ( 2)atl east50y ear sol d; ( 3)mustbeav ai l edofonl yonce ( 4)pl an appr ov ed by t he BI R ( R. R. 298) ; c. separ at i onpaybecauseofdeat h, si ckness, or ot her phy si cal di sabi l i t yorf oranycausebey ond t he cont r olof t he of f i ci alor empl oy ee ( e. g. r et r enchment , r edundancy or cessat i on of busi ness) ; “ f or any cause bey ond t he cont r ol of sai d of f i ci al or empl oy ee” – connot es i nv ol unt ar i nessont hepar toft he of f i ci alorempl oy ee;separ at i on mustnotbeaskedori ni t i at edby t heof f i ci al orempl oy ee. d. soci al secur i t y benef i t s, r et i r ement gr at ui t i es, pensi ons and ot her si mi l ar benef i t s r ecei v ed byci t i zens and al i ens whocomet or esi deper manent l y her ef r om f or ei gnsour cespr i v at e orpubl i c; e. benef i t sduet or esi dent sunder t hel awsoft heU. S.admi ni st er ed by t he U. S. Vet er ans Admi ni st r at i on

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW f . SSSbenef i t s; and g. GSI Sbenef i t s.

7. Mi scel l aneousi t ems

a. Passi v ei ncome der i v ed i nt he Phi l i ppi nesby : ( 1)For ei gngov er nment s; ( 2)Fi nanci ngi nst i t ut i onsowned, cont r ol l ed or enj oy i ng r ef i nanci ng f r om f or ei gn gov er nment s ( 3)I nt er nat i onal or r egi onal f i nanci al i nst i t ut i ons est abl i shed by f or ei gn gov er nment s b. I ncomeder i v edf r om anypubl i c ut i l i t yorf r om t heexer ci seofany gov er nment al f unct i on; c. Pr i zes and awar ds made pr i mar i l y i n r ecogni t i on of r el i gi ous, char i t abl e, sci ent i f i c, educat i onal ,ar t i st i c,l i t er ar y ,or ci v i cachi ev ement Requi si t es: ( 1)r eci pi ent was sel ect ed wi t houtanyact i ononhi s par t ; and ( 2)r eci pi enti snotr equi r edt o r ender subst ant i al f ut ur e ser v i ces. d. Pr i zes and awar ds gr ant ed t o at hl et es i n spor t s compet i t i ons andsanct i onedbyt hei rnat i onal spor t sassoci at i on; e. 13thmont hpayandot herbenef i t s upt oP30, 000. 00; f . GSI S, SSS,Medi car e and uni on duesofi ndi v i dual s; g. Gai ns der i v ed f r om debt secur i t i eswi t hamat ur i t yofmor e t han5y ear s; h. Gai nsf r om r edempt i onofshar es i nMut ual Fund. EXCLUSI ONSVS. DEDUCTI ONS Excl usi ons [ Sec.32( B) ]

Deduct i ons [ Sec.34]

Ref er t o f l ow of weal t hwhi char enot t r eat ed as par t of gr oss i ncome because: ( 1)exempt ed byt he f undament all aw;( 2)

Ref ert ot heamount s whi cht hel aw al l ows t o be subt r act ed f r om gr ossi ncomei n or dert oar r i v eatnet i ncome

TAXATI ON L AW COMMI TTEE

exempt ed byst at ut e; ( 3) do not come wi t hi nt hedef i ni t i onof i ncome Per t ai n t o t he Per t ai n t o t he comput at i onofgr oss comput at i on of t he i ncome neti ncome Somet hi ng ear ned or Somet hi ng spentor r ecei v ed by t he pai d i n ear ni ng of t axpay erwhi chdonot gr ossi ncome f or m par t of gr oss i ncome

DEDUCTI ONS DEFI NI TI ON:I t emsoramount swhi cht he l aw al l owst o bededuct ed f r om gr oss i ncomei nor dert oar r i v eatt het axabl e i ncome. BASI CPRI NCI PLESGOVERNI NGDEDUCTI ONS a. The t axpay erseeki ng a deduct i on must poi nt t o some speci f i c pr ov i si onsoft hest at ut eaut hor i zi ng t hededuct i on; and b. Hemustbeabl et opr ov et hathei s ent i t l edt ot hededuct i onaut hor i zed or al l owed. ( At l as Consol i dat ed Mi ni ng & Dev . Cor p. v s. Commi ssi oner , GR No. L26911, Januar y21, 1981) c. Anyamountpai dorpay abl ewhi chi s ot her wi sededuct i bl ef r om,ort aken i nt o account i n comput i ng gr oss i ncomeorf orwhi chdepr eci at i onor amor t i zat i onmaybeal l owed, shal lbe al l owed as deduct i on onl yi fi ti s shown t hatt he t ax r equi r ed t o be deduct edandwi t hhel dt her ef r om has been pai dt ot he BI R.[ Sec.34( K) , NI RC]

NOTE: Deduct i ons f or i ncome t ax pur poses par t ake oft he nat ur e oft ax exempt i ons;hence,i ft axexempt i onsar e t obest r i ct l yconst r ued,t heni tf ol l ows t hatdeduct i ons mustal so be st r i ct l y const r ued. TAXPAYERS WHO CANNOT AVAI L OF DEDUCTI ONSF ROM GROSSI NCOME 1. Ci t i zens and r esi dental i ens whose i ncome i s pur el y compensat i on

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

i ncome ( except f or pr emi um pay ment s on heal t h and/ or hospi t al i zat i oni nsur ance) ; 2. Nonr esi dental i ens notengaged i n t r adeorbusi nessi nt hePhi l i ppi nes; and 3. Nonr esi dentf or ei gncor por at i on CLASSESOFDEDUCTI ONS 1. I ndi v i dual s a. wi t hgr osscompensat i oni ncome f r om empl oy er empl oy ee r el at i onshi ponl y ( 1)pr emi um pay ment sonheal t h and/ orhospi t al i zat i on i nsur ance ( 2)per sonal addi t i onal exempt i ons b. gr ossi ncomef r om busi nessor pr act i ceofpr of essi on ( 1)Opt i onalSt andar dDeduct i on ( OSD) ( 2)I t emi zeddeduct i ons ( 3)pr emi um pay ment sonheal t h and/ orhospi t al i zat i on i nsur ance ( 4)per sonal addi t i onal exempt i ons 2. Cor por at i ons  I t emi zedDeduct i ons KI NDSOFDEDUCTI ONS a. Opt i onalst andar ddeduct i ons( OSD) –10%oft hegr ossi ncome. TheOSD maybeav ai l edof onl y by i ndi v i dual s ( except nonr esi dental i en)whoar enotpur el y compensat i oni ncomeear ner s. b. Per sonalandaddi t i onalexempt i ons Av ai l abl e onl y t o i ndi v i dual s ( busi nessi ncomeandcompensat i on i ncomeear ner s) . NRAETB may be ent i t l ed t o per sonal exempt i ons( onl y )subj ectt o r eci pr oci t y , i . e. , a. t he count r y ofwhi ch he i sa subj ectorci t i zenhasani ncome t axl aw; and b. t hei ncomet axl awofhi scount r y al l ows per sonal exempt i on t o ci t i zens oft he Phi l i ppi nes not r esi di ng t her ei n, but der i v i ng i ncome t her ef r om and not t o

TAXATI ON L AW COMMI TTEE

exceed t he amountal l owed i n NI RC. Theper sonalexempt i onshal lbe equalt ot hatal l owedbyt hei ncome t axl aw ofhi scount r yt oaci t i zenof t hePhi l i ppi nesnotr esi di ngt her ei n, or t he amountpr ov i ded i nt he NI RC, whi chev eri sl ower . I ndi v i dual s not ent i t l ed t o t hese exempt i ons: a. Nonr esi dentAl i en notengaged i nt r adeorbusi ness b. Al i en i ndi v i dual empl oy ed by Regi onalorAr eaHeadquar t er sof Mul t i nat i onal Compani es c. Al i en i ndi v i dual empl oy ed by Of f shor eBanki ngUni t s d. Al i en i ndi v i dual empl oy ed by Pet r ol eum Ser v i ce Cont r act or andSubcont r act or c. I t emi zeddeduct i ons a. or di nar y and necessar y expenses b. i nt er est s c. t axes d. l osses e. baddebt s f . depr eci at i onofpr oper t y ; g. depl et i onofoi l andgaswel l sand mi nes; h. char i t abl eandot her cont r i but i ons; i . r esear chanddev el opment ; j . pensi ont r ustcont r i but i onsof empl oy ees; and k. pr emi um pay ment sonheal t h and/ orhospi t al i zat i oni nsur ance. ( Thi si st heonl ydeduct i onwhi ch acompensat i oni ncomeear ner maycl ai m asadeduct i on. ) d. Speci aldeduct i ons a. pr i v at e pr opr i et ar y educat i onal i nst i t ut i onsandhospi t al st hatar e nonpr of i t( Sec.34A, 2) b. i nsur ancecompani es( Sec.37) c. est at esandt r ust s( Sec.61)

PERSONALEXEMPTI ONS A. Amount s of Per sonalExempt i ons [ Sec.35, NI RC]

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW 1. P 20, 000 – Si ngl ei ndi v i dualor mar r i ed i ndi v i dualj udi ci al l y decr eed l egal l y separ at ed wi t houtqual i f i ed dependent chi l dr en. 2. P25, 000–Headoft hef ami l yor mar r i ed i ndi v i dualj udi ci al l y decr eed l egal l y separ at ed wi t h qual i f i ed dependent chi l dr en. 3. P 32, 000 – For each l egal l y mar r i edi ndi v i dual . Headoft heFami l y 1. Unmar r i ed orl egal l y separ at ed per sonwi t honeorbot hpar ent s, oroneormor ebr ot her sorsi st er s, or one or mor e l egi t i mat e, r ecogni zed nat ur al or l egal l y adopt edchi l dr enl i v i ngwi t hand dependentupont het axpay erf or t hei rchi efsuppor t ; and “ Chi efsuppor t ”meansmor et han onehal foft her equi r ement sf or suppor t . 2. Wher e such br ot her/si st eror chi l dr en ar e notmor et han 21 y ear sofage,unmar r i edandnot gai nf ul l y empl oy ed, or wher e such dependent sr egar dl ess of age,ar ei ncapabl e of sel f– suppor tbecause ofment alor phy si cal def ect .

Par ent s,br ot her s,si st er sandseni or ci t i zenwi t ht het axpay er , whet herr el at i v e ornot ,mayqual i f yt het axpay er ,t ot he per sonalexempt i onofP25, 000ashead oft hef ami l y butnott ot headdi t i onal exempt i onofP8, 000. B. Addi t i onal Exempt i on f or Dependent s[ Sec.35, NI RC] P8, 000– Foreachoft hequal i f i ed dependent chi l dr en not exceedi ng f our ( 4) i n number . Theaddi t i onalexempt i onr ef er sonl y t oqual i f i eddependentchi l dr ensuchas l egi t i mat e, r ecogni zed nat ur al , i l l egi t i mat eandl egal l yadopt ed. Thepr opercl ai mantoft headdi t i onal exempt i oni st hehusbandbei ngt hehead oft hef ami l yexceptundert hef ol l owi ng cases:

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1. Husbandi sunempl oy ed 2. Husbandi swor ki ngabr oadl i ke anOFW oraseaman 3. Husband expl i ci t l y wai v ed hi s r i ghtoft heexempt i oni nf av orof hi s wi f e i n t he wi t hhol di ng exempt i oncer t i f i cat e. ASeni orCi t i zeni s: 1. any r esi dent ci t i zen of t he Phi l i ppi nes 2. at l east si xt y 60 y ear s ol d, i ncl udi ngt hosewhohav er et i r ed f r om bot h gov er nment of f i ces andpr i v at eent er pr i ses, and 3. hasani ncomeofnotmor et han Si xt yt housand pesos ( 60, 000) perannum subj ectt ot her ev i ew of t he Nat i onal Economi c Dev el opment Aut hor i t y( NEDA) ev er yt hr eey ear s. Par ent sanddependent squal i f y t he t axpay er , t o t he per sonal exempt i onofP25, 000asheadoft he f ami l y but not t o t he addi t i onal exempt i onofP8, 000.

NOTE:NRAETBmaydeductper sonal exempt i on( notaddi t i onal exempt i on) , butonl yt ot heext ental l owedbyhi s count r y t o Fi l i pi nos not r esi di ng t her ei n,and shal lnotexceed t he af or ement i onedamount s.NRANETB cannot cl ai m any per sonal or addi t i onal exempt i ons. C.ChangeofSt at us[ Sec.35, NI RC] 1. I ft het axpay ershoul dmar r yor shoul d hav e addi t i onal dependent s dur i ng t he t axabl e y ear , he may cl ai m t he cor r espondi ngexempt i onsi nf ul l f orsuchy ear . 2. I ft het axpay ershoul ddi edur i ng t het axabl ey ear ,hi sest at emay cl ai m t he cor r espondi ng exempt i onsasi fhedi edatt he cl oseofsuchy ear . 3. I ft hespouseoranydependent shoul d di e or any dependent shoul dmar r yorbecomet went y oney ear sol ddur i ngt hey ear ,or shoul d become gai nf ul l y empl oy ed, t he t ax pay er may

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW cl ai m t heexempt i onsasi ft he spouseordependentdi edorasi f suchdependentmar r i ed,became t went yoney ear sol dorbecame gai nf ul l yempl oy edatt hecl oseof suchy ear . 4. Foranyot herev entandf orwhi ch t her e ar e no speci f i c r ul es appl i cabl e f r om t he abov ement i oned,t he st at us of t he t axpay eratt heendoft hey ear shal ldet er mi nehi sexempt i ons. ( st r i ct l y const r ued agai nst t he t axpay er ) Exampl es:  becamel egal l ysepar at ed – canonl ycl ai m P20, 000  25 y ear s ol d chi l d became i ncapaci t at ed–cannotcl ai m addi t i onal exempt i on

I TEMI ZEDDEDUCTI ONS A.ORDI NARYANDNECESSARY EXPENSES NECESSARY EXPENSE – appr opr i at e and hel pf uli nt hedev el opmentoft axpay er ' s busi nessandar ei nt endedt o mi ni mi ze l ossesort oi ncr easepr of i t s.Thesear e t heday t odayexpenses. ORDI NARY E XPENSE – n or malorusuali n r el at i ont ot het axpay er ’ sbusi nessand t hesur r oundi ngci r cumst ance. REQUI SI TES OF BUSI NESS E XPENSE TO BE DEDUCTI BLE 1. or di nar yandnecessar y ; 2. pai dori ncur r edw/ i nt het axabl ey ear ; 3. pai dori ncur r edi ncar r y i ngonat r ade orbusi ness; 4. subst ant i at edwi t hof f i ci alr ecei pt sor ot heradequat er ecor ds. 5. i fsubj ectt owi t hhol di ngt axespr oof ofpay mentt ot heBur eauofI nt er nal Rev enuemustbeshown. 6. must be r easonabl e ( when t he expensei snotl av i sh,ext r av agantor excessi v eundert heci r cumst ances) 7. mustnotbecont r ar yt ol aw,publ i c pol i cyormor al s.

NOTE:Whi l ei l l egali ncome wi l lf or m par tofi ncomeoft het axpay er ,expenses whi ch const i t ut e br i be,ki ckback and

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ot hersi mi l arpay ment ,bei ngagai nstl aw andpubl i cpol i cyar enotdeduct i bl ef r om gr ossi ncome.( Subsec.A, 1, c) CAPI TAL E XPENDI TURE – An e xpendi t ur e t hatbenef i t snotonl yt hecur r entper i od but al so f ut ur e per i ods. I ti s not deduct i bl ebutdepr eci abl e,except ,i ft he t axpay er i s a nonpr of i t pr opr i et ar y educat i onali nst i t ut i on whi ch mayel ect ei t hert odeductt hecapi t alexpenseor depr eci at ei t .  SeeAnnexE– Busi nessExpenses  SeeAnnexF–Cei l i ngon “ Ent er t ai nment , Amusementand Recr eat i onal Expenses”

B.I NTEREST I NTEREST –s hal lr ef ert ot hepay mentf or t heuseorf or bear anceordet ent i onof money , r egar dl essoft henamei ti scal l ed ordenomi nat ed.I ti ncl udest heamount pai df ort he bor r ower ' s use of ,money dur i ngt het er m oft hel oan, aswel lasf or hi sdet ent i onofmoneyaf t ert heduedat e f ori t sr epay ment . REQUI SI TES F OR DEDUCTI BI LI TY ( REV.REG. NO.132000) 1. Ther emustbeani ndebt edness; 2. Ther eshoul dbeani nt er estexpense pai d or i ncur r ed upon such i ndebt edness; 3. The i ndebt ednessmustbe t hatof t het axpay er ; 4. Thei ndebt ednessmustbeconnect ed wi t ht het axpay er ' st r ade,busi nessor exer ci seofpr of essi on; 5. Thei nt er estex pensemusthav ebeen pai d ori ncur r ed dur i ng t he t ax abl e y ear ; 6. The i nt er est must hav e been st i pul at edi nwr i t i ng; 7. Thei nt er estmustbel egal l ydue; 8. Thei nt er estar r angementmustnot bebet weenr el at edt axpay er s; 9. Thei nt er estmustnotbei ncur r edt o f i nancepet r ol eum oper at i ons; and 10.I ncaseofi nt er esti ncur r edt oacqui r e pr oper t yusedi nt r ade,busi nessor exer ci seofpr of essi on, t hesame, was nott r eat edasacapi t al expendi t ur e.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

11.The i nt er est i s not expr essl y di sal l owed by l aw t o be deduct ed f r om gr ossi ncomeoft het axpay er . RULES ON DEDUCTI BI LI TY OF I NTEREST EXPENSE Gener alRul e-I ngener al ,t heamountof i nt er estexpensepai dori ncur r edwi t hi na t axabl e y ear of i ndebt edness i n connect i on wi t h t he t axpay er ' s t r ade busi nessorexer ci seofpr of essi on,shal l be al l owed as a deduct i on f r om t he t axpay er ' sgr ossi ncome. Li mi t at i on - The amount of i nt er est expensepai di ncur r edbyat axpay eri n connect i on wi t h hi st r ade,busi ness or exer ci seofapr of essi onf r om anexi st i ng i ndebt edness shal lbe r educed by an amountequalt hef ol l owi ngper cent ages ofi nt er esti ncome ear ned whi ch had been subj ect ed t o f i nal wi t hhol di ng dependi ngont hey earwhent hei nt er est i ncomeear ned, v i z: 38%-begi nni ngJanuar y1,2000and t her eaf t er Ai m ofLi mi t at i on: To di scour age socal l ed “ backt oback” l oans wher e a t axpay ersecur es a l oan f r om a bank, t ur ns ar ound and i nv est s t he l oan pr oceedsi nmoneymar ketpl acement s. Byi mposi ngal i mi tast ot heamountof i nt er estexpense t hatcan be deduct ed f r om gr ossi ncome,t hepr ev i ouspr act i ce oft axar bi t r agewasabsol ut el ynul l i f i ed. TaxAr bi t r age–i samet hodofbor r owi ng wi t houtent er i ng i nt o a debt or / cr edi t or r el at i onshi p,of t en t or esol v ef i nanci ng andexchangecont r olpr obl ems. I nt ax cases,backt obackl oani susedt ot ake adv ant ageoft hel oweroft axoni nt er est i ncome and a hi gherr at e oft ax on i nt er estexpensededuct i on. I l l ust r at i on: OnJune1, 2000CompanyXhas: 1. Obt ai nedal oanf r om ABCFi nanci ng Cor por at i on i n connect i on wi t ht he oper at i on of i t s busi ness and i t s i nt er est expense on t he l oan amount edt oP120, 000. 2. Deposi taccounti n DEF Bank and der i v ed i nt er est i ncome t her eof

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amount i ngt oP200, 000onwhi cht he f i nalt ax of P40, 000 has been wi t hhel d. Assume t hatCompany X’ s net i ncome bef or e t he deduct i on of i nt er estexpensei sP500, 000. The deduct i bl e expense shal l be comput edasf ol l ows: Year2000 NetI ncomebef or e i nt er estexpense P500, 000 Less:I nt er estExpense P120, 000 Less:38%ofi nt er est i ncomef r om deposi t ( 38%xP200, 000) 76, 000 Deduct i bl eI nt er est Expense 44, 000 Taxabl eI ncome P456, 000 Deduct i bl eI nt er estExpense 1. I nt er estont axes,suchast hosepai d f ordef i ci encyordel i nquency ,si nce t axes ar e consi der ed i ndebt edness ( pr ov i dedt hatt het axi sadeduct i bl e t ax, excepti nt hecaseofi ncomet ax) . Howev er , f i nes, penal t i es, and sur char gesonaccountoft axesar e not deduct i bl e. The i nt er est on unpai d busi ness t ax shal lnotbe subj ect ed t o t he l i mi t at i on on deduct i on. 2. I nt er estpai dbyacor por at i ononscr i p di v i dends 3. I nt er est on deposi t s pai d by aut hor i zed banks of t he Bangko Sent r alngPi l i pi nast odeposi t or s, i f i ti s shown t hatt he t ax on such i nt er estwaswi t hhel d. 4. I nt er estpai dbyacor por at et ax pay e r whoi sl i abl eonamor t gageuponr eal pr oper t yofwhi c ht hesai dcor por at i on i st hel egalorequi t abl eowner ,ev en t houghi ti snotdi r ect l yl i abl ef ort he i ndebt edness.

NONDEDUCTI BLEI NTERESTE XPENSE 1. An i ndi v i dual t axpay er r epor t i ng i ncomeont hecashbasi si ncur san i ndebt ednessonwhi chani nt er esti s pai di nadv ancet hr oughdi scountor ot her wi se:

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

2. 3. 4. 5. 6.

7.

 al l owed as a deduct i on i nt he y eart hei nde bt e dne s si spai d i ft he i ndebt edness i s pay abl e per i odi c amor t i zat i on on, t he amount of i nt er est whi ch cor r espondst ot heamountoft he pr i nci palamor t i zedorpai ddur i ng t he y ear shal lbe al l owed as deduct i oni nsucht ax abl ey ear . I nt er est pai d on i ndebt edness bet weenr el at edt axpay er I ft he i ndebt edness i si ncur r ed t o f i nancepet r ol eum expl or at i on I nt er estonpr ef er r edst ock,whi chi n r eal i t yi sdi v i dend I nt er est on unpai d sal ar i es and bonuses I nt er estcal cul at edf orcostkeepi ng on accountofcapi t alorsur pl us i nv est edi nbusi nesswhi c hdoesnot r epr esent char ges ar i si ng under i nt er est bear i ngobl i gat i on. I nt er est pai d when t her e i s no st i pul at i onf ort hepay mentt her eof .

OPTI ONALTREATMENTOFI NTERESTE XPENSE Att heopt i onoft het axpay er ,i nt er est i ncur r edt oacqui r epr oper t yusedi nt r ade or busi ness may be al l owed as a deduct i on or t r eat ed as capi t al expendi t ur e.[ Sec34( B) ( 3) , NI RC]

C.TAXES Taxes mean TAXES PROPER, and t her ef or enodeduct i onsar eal l owedf or : 1. i nt er est 2. sur char ges 3. penal t i es or f i nes i nci dent t o del i nquency( Sec.80, Rev .Reg.2) REQUI SI TESF ORDEDUCTI BI LI TY 1. mustbei nconnect i onwi t ht axpay er ’ s busi ness; 2. t axmustbei mposedbyl aw on,and pay abl ebyt axpay er( di r ectt ax) ; and 3. pai d ori ncur r ed dur i ng t he t axabl e y ear . TAXESNOTDEDUCTI BLE 1. i ncomet ax; 2. est at eanddonor ’ st ax; 3. speci al assessment s; 4. excessel ect r i cconsumpt i ont ax; 5. f or ei gni ncomet ax ,warpr of i t sand

TAXATI ON L AW COMMI TTEE

excess pr of i t st ax,i ft he t axpay er makesuseoft axcr edi t ; and 6. f i nalt axes,bei ng i nt he nat ur e of i ncomet ax.

NOTE: Taxes al l owed as deduct i ons, when r ef unded or cr edi t ed,shal lbe i ncl udedaspar tofgr ossi ncomei nt he y earof r ecei ptt ot he ext entof t he i ncome t ax benef i tofsai d deduct i on. ( TaxBenef i tRul e) ForNRAETBandRFC,t axespai dor i ncur r edar eal l owedasdeduct i onsonl yi f andt ot heext entt hatt heyar econnect ed f r om i ncomewi t hi nt hePhi l i ppi nes. EXCEPTI ONS t or equi r ementt hatonl y such per sons on whom t he t ax i s i mposed by l aw can cl ai m deduct i on t her eof : 1. Taxes of shar ehol der upon hi s i nt er estas such and pai d by t he cor por at i on wi t houtr ei mbur sement f r om hi m,can be cl ai med by t he cor por at i onasdeduct i on. 2. Acor por at i onpay i ngt het axf ort he hol deri t sbondsorot herobl i gat i on cont ai ni ngat ax f r eecov enantcl ause cannot cl ai m deduct i on f or such t axes pai d by i tpur suantt o such cov enant . TAXCREDI T DEFI NI TI ON: r i ghtofani ncomet axpay ert o deductf r om i ncome t ax pay abl et he f or ei gn i ncomet axhehaspai dt o hi s f or ei gncount r ysubj ectt ol i mi t at i on. WHOCANCLAI M TAXCREDI T 1. r esi dentci t i zensoft hePhi l i ppi nes 2. r esi dental i ensundert hepr i nci pl eof r eci pr oci t y 3. domest i ccor por at i onswhi chi ncl ude par t ner shi ps except gener al pr of essi onal par t ner shi p 4. benef i ci ar i esofest at esandt r ust s 5. member s ofbenef i ci ar i es ofl ocal par t ner shi ps WHOARENOTENTI TLEDTOTAXCREDI T 1. nonr esi dentci t i zens 2. r esi dental i ens, i fwi t houtr eci pr oci t y 3. r esi dent al i ens whose i ncome i s

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

der i v ed sol el yf r om sour ces wi t hi n t hePhi l i ppi nes 4. f or ei gn cor por at i ons ( r esi dentand nonr esi dent ) FORMULAFORCOMPUTI NGL I MI TATI ON 1. Percount r yl i mi t at i on

Taxabl e i ncomef r om f or ei gncount r y X Phi l . = TaxCr edi t

Taxabl ei ncome i ncomet ax f r om al l sour ces

Li mi t

2. Ov er al ll i mi t at i on

Taxabl e i ncomef r om out si desour ces X Phi l . = TaxCr edi t Taxabl ei ncome i ncomet ax Li mi t f r om al l sour ces

Theal l owabl et axcr edi ti st he“ l ower amount ”bet weent het axcr edi tcomput ed underNo.1andNo.2. WHENCREDI TFORTAXESMAYBETAKEN The cr edi tf ort axes pr ov i ded by Sect i on30( C) ( 3)t o( 9)mayor di nar i l ybe t akenei t heri nt her et ur nf ort hey eari n whi cht het axesaccr uedoronwhi cht he t axeswer epai d, dependentuponwhet her t heaccount soft het axpay erar ekeptand hi sr et ur nsf i l edupont heaccr ualbasi sor upon cash r ecei pt s and di sbur sement s basi s. LI MI TATI ONSONCREDI TFORFOREI GNTAXES 1) Theamountofcr edi ti nr espectt ot he t axespai doraccr uedt oanycount r y shal lnotexceedt hesamepr opor t i on oft het axagai nstwhi chsuchcr edi ti s t aken, whi ch t he t ax pay er ’ s net i ncome f r om sour ces wi t hi n such count r yt axabl eunderTi t l eI I( i ncome Tax)bear st ohi sent i r eneti ncome f ort hesamet axabl ey ear ; and 2) Thet ot alamountoft hecr edi tshal l notexceed t hesamepr opor t i on of t het axagai nstwhi chsuchcr edi ti s t aken, whi ch t he t ax pay er ’ s net i ncome f r om sour ces wi t hout t he Phi l i ppi nes t axabl e under Ti t l e I I ( I ncomeTax)bear st ohi sent i r enet i ncomef ort hesamet axabl ey ear .

D.LOSSES

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LOSSES – r ef ert osuchl osseswhi chdo notcome undert he cat egor y ofbad debt s, i nv ent or yl osses, depr eci at i on, et c. , andwhi char i sei nt axpay er ' spr of essi on, t r adeorbusi ness. REQUI SI TESF ORDEDUCTI BI LI TY 1. Act ual l ysust ai neddur i ngt het axabl e y ear 2. Connect edwi t ht het r ade, busi nessor pr of essi on 3. Ev i dencedbyacl oseandcompl et ed t r ansact i on 4. Notcompensat edf orbyi nsur anceor ot herf or m ofi ndemni t y 5. Notcl ai medasadeduct i onf orest at e t axpur poses 6. Not i ceofl ossmustbef i l edwi t ht he Bur eauofI nt er nalRev enuewi t hi n45 day sf r om t hedat eofdi scov er yof t he casual t y or r obber y ,t hef t or embezzl ement .

NOTE:Thet axpay er ’ sf ai l ur et or ecor di n hi sbookst heal l egedl osspr ov est hatt he l osshadnotbeensuf f er ed,hence,not deduct i bl e.( Ci t yLumberv s.Domi ngoand Cour tofTaxAppeal s,GR No.L18611, Januar y30, 1964) CATEGORYANDTYPESOFLOSSES 1. ORDI NARYL OSSES a. I ncur r edi nt r adeorbusi ness,or pr act i ceofpr of essi on  Net oper at i ng l oss car r y over ( NOLCO)

 Ref er st ot heexcessofal l owabl e deduct i onsov ergr ossi ncomeof t hebusi nessf oranyt axabl ey ear , whi ch had notbeen pr ev i ousl y of f setasdeduct i onf r om gr oss i ncome.  Can be car r i ed ov er as a deduct i onf r om gr ossi ncomef or t he next 3 consecut i v ey ear s i mmedi at el yf ol l owi ngt hey earof suchl oss.  Formi nes,ot hert hatoi landgas wel l ,netoper at i ngl ossi ncur r ed i nanyoft hef i r stt eny ear sof oper at i onmaybecar r i edov erf or t henext5y ear s.  Requi r ement s: ( 1)Thet axpay erwasnotexempt

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW f r om i ncomet axi nt hey ear ofsuchnetoper at i ngl oss; ( 2)Thel osswasnoti ncur r edi n at axabl ey ear dur i ng t he t axpay erwas exemptf r om i ncomet ax ; and ( 3)Ther e has been no subst ant i al change i n t he owner shi poft hebusi nessor ent er pr i se. Ther e i s no subst ant i al changei nt heowner shi pof t hebusi nesswhen: ( a)not l ess t han 75% i n nomi nal v al ue of t he out st andi ng i ssued shar es i s hel d byoron behal f of t he same per sons; or ( b)notl esst han75% oft he pai dupcapi t ali shel dby oronbehal foft hesame per son.

NOTE: The 3 y earper i od shal l cont i nue t o r un not wi t hst andi ng t hatt hecor por at i onpai di t st axes underMCI T,ort hatt hei ndi v i dual av ai l edt he10%OSD.  SeeAnnexSf ori l l ust r at i on. b. Ofpr oper t yconnect ed,wi t ht he t r ade,busi nessorpr of essi on,i f t hel ossar i sesf r om f i r es, st or ms, shi pwr eckorot hercasual t i es,or f r om r obber y , t hef t , or embezzl ement . ( 1)Tot aldest r uct i on Ther epl acementcostt o r est or et he pr oper t yt oi t s nor maloper at i ng condi t i on, but i n no case shal lt he deduct i bl el ossbemor et han t he netbook v al ue oft he pr oper t y as a whol e, i mmedi at el ybef or ecasual t y . ( 2)Par t i alDest r uct i on Theexcessov ert henet book v al ue i mmedi at el y bef or et he casual t y shoul d be capi t al i zed, subj ect t o depr eci at i on ov er t he r emai ni ng usef ull i f e oft he pr oper t y .

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2. CAPI TAL LOSSES ( LOSSES ARE DEDUCTI BLE ONLY TO THE E XTENT OF CAPI TALGAI NS) a. Lossesf r om sal eorexchangeof capi t al asset s b. Lossesr esul t i ngf r om secur i t i es becomi ng wor t hl ess and whi ch ar ecapi t alasset s. c. Losses f r om shor t sal es of pr oper t y . d. Lossesduet of ai l ur et oexer ci se pr i v i l egeoropt i ont obuyorsel l pr oper t y . 3. SPECI ALKI NDSOFL OSSES a. Wager i ngl osses-deduct i bl eonl yt o t heext entofgai norwi nni ngs.[ Sec. 34( D) ( 6) ] ;deemedt oappl yonl yt o i ndi v i dual s b. Lossesonwashsal esofst ocks-not deduct i bl e because t hese ar e consi der edt obear t i f i ci al l oss.

Wash sal es – a sal e or ot her di sposi t i on of st ock or secur i t i es wher e subst ant i al l y i dent i cal secur i t i esar eacqui r edorpur chased wi t hi n 61day per i od,begi nni ng 30 day sbef or et hesal eandendi ng30 day saf t ert hesal e.[ Sec.38] Gener alr ul e:Lossesf r om washsal es ar enotdeduct i bl e. Except i on:Whent hesal ei smadebya deal eri nst ockorsecur i t i esandwi t h r espectt oat r ansact i onmadei nt he or di nar y cour se oft he busi ness of suchdeal er ,l ossesf r om suchsal ei s deduct i bl e. El ement sofWashSal es: ( 1)Thesal eorot herdi sposi t i on of st ockr esul t edt oal oss; ( 2)Ther e was an acqui si t i on or cont r actoropt i onf oracqui si t i on ofst ock orsecur i t i es wi t hi n 30 day sbef or et hesal eor30day s af t ert hesal e; and ( 3)Thest ockorsecur i t i essol dwer e subst ant i al l yt he same as t hose acqui r edwi t hi nt he61dayper i od. c.Abandonment l osses i n pet r ol eum oper at i onandpr oduci ngwel l . ( 1)I n case a cont r actar ea wher e

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

pet r ol eum oper at i ons ar e under t aken i s par t i al l yorwhol l y abandoned, al l accumul at ed expl or at i on and dev el opment expendi t ur es per t ai ni ng t her et o shal l beal l owedasadeduct i on. ( 2)I n case a pr oduci ng wel li s abandoned,t heunamor t i zedcost t her eof , as wel l as t he undepr eci at edcostofequi pment di r ect l y used t her ei n,shal l be al l owedasdeduct i oni nt hey ear t hewel l ,equi pmentorf aci l i t yi s abandoned. d.Lossesduet o vol unt ar yr emovalof bui l di ng i nci dent t o r enewal or r epl acement s - deduct i bl e expense f r om gr ossi ncome. e.Lossofusef ulval ueofcapi t alasset s duet ochar gesi nbusi nesscondi t i onsdeduct i bl eexpenseonl yt ot heext ent of act ual l oss sust ai ned ( af t er adj ust ment f or i mpr ov ement , depr eci at i onandsal v agev al ue)

f .Lossesf r om sal esorexchangesof pr oper t ybet weenr el at edt axpay er sl ossesoft hi snat ur ei snotdeduct i bl e butgai nsar et axabl e. g.Lossesoff ar mer s-i fi ncur r edi nt he oper at i on of f ar m busi ness, i ti s deduct i bl e.

h.Lossi nshr i nkagei nval ueofst ock–i f t he st ock oft he cor por at i on becomes wor t hl ess, t hecostorot herbasi smaybe deduct edbyt heowneri nt het axabl ey ear i nwhi cht hest ockofi t swor t hl essnessi s made.Anyamountcl ai medasal osson accountofshr i nkagei nv al ueoft hest ock t hr ough f l uct uat i on i nt he mar ket or ot her wi se cannot be deduct ed f r om gr ossi ncome.

E.BADDEBTS BAD DEBTS – shal lr ef ert ot hosedebt s r esul t i ng f r om t he wor t hl essness or uncol l ect i bi l i t y ,i n whol e ori n par t ,of

TAXATI ON L AW COMMI TTEE

amount s due t he t axpay erby ot her s, ar i si ng f r om money l ent or f r om uncol l ect i bl e amount s ofi ncome f r om goodssol dorser v i cesr ender ed. REQUI SI TESF ORDEDUCTI BI LI TY 1. Exi st i ng i ndebt edness due t ot he t axpay erwhi ch mustbe v al i d and l egal l ydemandabl e; 2. Connect edwi t ht het axpay er ' st r ade, busi nessorpr act i ceofpr of essi on; 3. Must not be sust ai ned i n a t r ansact i on ent er ed i nt o bet ween r el at edpar t i es; 4. Act ual l yascer t ai nedt obewor t hl ess anduncol l ect i bl easoft heendoft he t axabl ey ear . ; and 5. Act ual l ychar gedof fi nt hebooksof account soft het axpay erasoft he endoft het axabl ey ear . EQUI TABLEDOCTRI NEOFTAXBENEFI T Ar ecov er yofbad debt spr ev i ousl y deduct edf r om gr ossi ncomeconst i t ut es t axabl ei ncomei fi nt hey eart heaccount waswr i t t enof f ,t hededuct i onr esul t edi n at axbenef i t .( TaxBenef i tRul e)

I l l ust r at i on: CaseA Net i ncome ( l oss) bef or e wr i t eof f f orbad P10, 000 debt s Less: Account s wr i t t enof f asbad debt s 3, 000 Fi nal Net I ncome ( Loss) P7, 000 Baddebt s r ecov er y i nasubsequenty ear 3, 000 TAXABLE I NCOME upont he baddebt r ecov er y P3, 000

CaseB

CaseC

( P9, 000)

P5, 000

2, 000

6, 000

( P11, 000)

( P1, 000)

2, 000

6, 000

P -0-

P5, 000

ASCERTAI NMENTOFWORTHLESSNESS  Pr oofofTwoFact s: 1. t axpay erdi di nf actascer t ai nt he debtt obewor t hl ess,i nt hey ear

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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f orwhi chdeduct i oni ssought , 2. t hati nsodoi ng,heact edi ngood f ai t h. ( Col l ect or v s. Goodr i ch I nt er nat i onalRubber ,GR No.L22265, Dec.22, 1967)  Dependsupont hepar t i cul arf act sand t heci r cumst ancesoft hecase.  Goodf ai t hdoesnotr equi r et hatt he t axpay erbean“ i ncor r i gi bl eopt i mi st ” butont heot herhand,hemaynotbe undul ypessi mi st i c.

F.DEPRECI ATI ON DEPRECI ATI ON –t hegr adualdi mi nut i oni n t he ser v i ce orusef ulv al ue oft angi bl e pr oper t yduef r om exhaust i on,wearand t earandnor mal obsol escence. Thet er m al soappl i est oamor t i zat i on ofi nt angi bl easset s,t heuseofwhi chi n t r adeorbusi nessi sofl i mi t eddur at i on. REQUI SI TESF ORDEDUCTI BI LI TY 1. Theal l owancef ordepr eci at i onmust ber easonabl e. 2. I t must be f or pr oper t y use or empl oy menti nt r adeorbusi nessor outofi t snotbei ngusedt empor ar i l y dur i ngt hey ear . 3. Theal l owancemustbechar gedof f wi t hi nt het axabl e, y ear . 4. Schedul eont heal l owancemustbe at t achedt ot her et ur n. PROPERTY HELD BY ONE PERSON FOR LI FE WI TH THEREMAI NDERTOANOTHERPERSON Thededuct i onshal lbecomput edas i ft hel i f et enantwast heabsol ut eowner oft hepr oper t yand,assucht heexpense shal l accr uet ohi m. PROPERTYHELDI N TRUST Al l owabl e deduct i on shal l be appor t i oned bet ween t he i ncome benef i ci ar i es, and t he t r ust ees i n accor dancewi t ht heper t i nentpr ov i si ons of t he i nst r ument cr eat i ng or i nt he absenceofsuchpr ov i si ons,ont hebasi s oft het r usti ncomeal l owabl et oeach. METHODSOFDEPRECI ATI ON The t er m " r easonabl e al l owance" shal li ncl ude ( but not l i mi t ed t o) an al l owancecomput edi naccor dance,wi t h t he r egul at i ons pr escr i bed by t he

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Depar t mentofFi nance,underanyoft he f ol l owi ngmet hods. 1. St r ai ght l i nemet hod 2. Decl i ni ngbal ancemet hod 3. Sum oft hey ear sdi gi tmet hod 4. Any ot hermet hod whi ch may be pr escr i bed by t he Depar t ment of Fi nanceuponr ecommendat i onoft he Commi ssi onerofI nt er nal Rev enue. METHODSOFDEPRECI ATI ON Ki nd For mul a

1) St r ai ght l i ne

cost -sal v agev al ue est i mat edl i f e 2) Decl i ni ng cost–depr eci at i onxRat e bal ance est i mat edl i f e 3) Sum oft hey ear s nt hper i odxcost -sal v age di gi t s( SYD) SYD

I l l ust r at i on:A machi ne i s used i nt he manuf act ur i ng depar t ment of Cor por at i onA,comput et hedepr eci at i on perannum wi t ht hef ol l owi ngf act s: Cost=P15, 000 Sal v age Val ue=P5, 000

1. St r ai ghtLi neMet hodwi t hest i mat ed l i f e=5y ear s 15, 000–5, 000 =P2, 000 5y ear s 2. Decl i ni ngbal ancewi t hr at eof200% Year1: 15, 000–0x200%=P6, 000 5 Year2: 15, 000–6, 000x200%=P3, 600 5

3. Sum oft hey ear sdi gi t s SYDf or5y ear s=5+4+3+2+1or15 Year1: 5/ 15x( 15, 000–5, 000) =P3, 333. 33 Year2: 4/ 15x( 15, 000–5, 000) =P2, 666. 67 AGREEMENT AS TO USEFUL LI FE ON WHI CH DEPRECI ATI ON RATEI SBASED TheBur eauofI nt er nalRev enueand t het axpay ermayagr eei nwr i t i ngont he usef ul l i f e of t he pr oper t y t o be depr eci at ed.The agr eed r at e may be modi f i ed i f j ust i f i ed by f act s or ci r cumst ances.Thechangeshal lnotbe ef f ect i v ebef or et het axabl ey earonwhi ch not i ce i n wr i t i ng by cer t i f i ed mai lor

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

r egi st er ed mai li s ser v ed byt he par t y i ni t i at i ng. SPECI ALTYPESOFDEPRECI ATI ON 1. Pet r ol eum Oper at i ons  Depr eci at i on of al l pr oper t i es di r ect l yr el at edt opr oduct i onof pet r ol eum shal lbeal l owedunder st r ai ght l i ne ( SL) or decl i ni ng bal ance( DB)met hod  Mayshi f tf r om DBt oSLmet hod  Usef ul l i f e: 10y ear sorshor t erl i f e asal l owedbyt heCommi ssi oner  Usef ull i f eofpr oper t ynotdi r ect l y r el at ed t o pr oduct i on:5 y ear s underst r ai ghtl i nemet hod 2. Mi ni ngOper at i ons  Depr eci at i ononal lpr oper t i esi n mi ni ng oper at i ons ot her t han pet r ol eum oper at i ons at t he nor mal r at ei fexpect edl i f ei sl ess t han10y ear s.  I fexpect edl i f ei smor et han10 y ear s,depr eci at i onshal lbeany numberofy ear sbet ween5y ear s andt heexpect edl i f e. 3. Depr eci at i on deduct i bl e by nonr esi dent al i ens engaged i n t r ade/ busi ness or nonr esi dent cor por at i on a. Onl y when such pr oper t y i s l ocat edi nt hePhi l i ppi nes.

G.DEPLETI ONOFOI LANDGAS WELLSANDMI NES DEPLETI ON - e xhaust i on of nat ur al r esour cesasi nmi nes,oi l ,andgaswel l s. Thenat ur alr esour cesar ecal l ed“ wast i ng asset s” . As t he phy si cal uni t s r epr esent i ng such r esour ces ar e ext r act ed and sol d,such asset s mov e t owar dsexhaust i on. Knownascostofdepl et i onal l owance f ormi nes,oi lgaswel l sandot hernat ur al deposi t sst ar t i ngcal endary ear1976and f i scal y earbegi nni ngJul y1, 1975 TOWHOM ALLOWED Onl y mi ni ng ent i t i es owni ng economi ci nt er esti nmi ner al deposi t s. Economi ci nt er estmeansi nt er esti n mi ner al si npl acei nv est mentt her ei nor secur ed by oper at i ng or cont r act

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agr eementf orwhi chi ncomei sder i v ed, andr et ur nofcapi t alexpect ed,f r om t he ext r act i onofmi ner al . Mer e economi c or pecuni ar y adv ant aget obeder i vedbypr oduct i on byonewhohasnocapi t ali nv est menti n t hemi ner aldeposi tdoesnotamountt o economi ci nt er est . FEATURES 1. I nt angi bl eExpl or at i onand dev el opment dr i l l i ngcosti n pet r ol eum expl or at i onshal l be t r eat edei t heras: a. r ev enueexpendi t ur es; or b. capi t alexpendi t ur es 2. The t ot al amount deduct i bl e f or expl or at i on and dev el opment expendi t ur esshal lnotexceed50%of neti ncome f r om mi ni ng oper at i on. Theexcessshal lbecar r i edf or war d t ot he succeedi ng y earunt i lf ul l y deduct ed.

H.CHARI TABLEANDOTHER CONTRI BUTI ONS TAXTREATMENT A.Deduct i bl e I nFul l 1) Reci pi enti s: ( a)Gov er nment oft he Phi l i ppi nes; ( b)Anyofi t s agenci esor pol i t i cal subdi v i si ons; or ( c)Anyf ul l y owned gov er nment cor por at i on Forpr i or i t y act i v i t yi n: 1.Sci ence; 2.Educat i on 3.Cul t ur e 4.Heal t h 5.Economi c Dev el opment 6.Human Set t l ement

B.Deduct i bl e Subj ectTo Li mi t at i on 1) Reci pi enti s: ( a) Gov er nment oft he Phi l i ppi nes; ( b)Anyofi t s agenci esor pol i t i cal subdi v i si ons Foranonpr i or i t y act i v i t yi nanyoft he ar easment i onedi nA, andexcl usi v el yf ora publ i cpur pose.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

7.Yout handSpor t s Dev el opment 2)Reci pi enti sa 2)Nongov er nment f or ei gnor or gani zat i ons i nt er nat i onal or gani zat i on wi t han agr eementwi t h t hePhi l i ppi ne Gov er nmenton deduct i bi l i t y , or i naccor dance wi t hspeci al l aw. 3) Reci pi enti san accr edi t ednongov er nment or gani zat i on, or gani zed/ oper at edf or ( pur poses) :

3) Reci pi enti san accr edi t ed domest i c cor por at i onor associ at i on or gani zed/ oper at e df or( pur poses) :

( a) Sci ent i f i c; ( b) Educat i onal ; ( c) Cul t ur al ; ( d) Char act er bui l di ng/ y out hand spor t sdev el opment ( e) Char i t abl e ( f ) Soci al wel f ar e ( g) Heal t h ( h) Resear ch

( a)Sci ent i f i c ( b)Educat i onal ; ( c)Cul t ur al ; ( d)Yout handspor t s dev el opment ( e)Char i t abl e ( f )Soci al wel f ar e ( g)Rel i gi ous ( h)Rehabi l i t at i onof Vet er ans

Andsat i sf y i ngt he I ft hecondi t i onsi nTabl e f ol l owi ngcondi t i ons: Ai snotcompl i edwi t h: 1. Thedonat i onmustbe ut i l i zednotl at ert han Subj ectt ol i mi t at i on: t he15thdayoft he3rd ( a) I ndi v i dual - 10% mont hf ol l owi ngt he t axabl ei ncomef r om cl oseofi t st axabl ey ear . t r ade busi ness or 2. Theadmi ni st r at i v e pr of essi on bef or e expensemustnot cont r i but i on exceed30%oft ot al ( b) Cor por at i on - 5% expenses. t axabl ei ncomef r om 3. Upondi ssol ut i on, t r ade busi ness or asset smustbe pr of essi on bef or e di st r i but edt oanot her cont r i but i on nonpr of i tdomest i c cor por at i onort ot he st at e.

REQUI SI TESF ORDEDUCTI BI LI TY 1. The cont r i but i on or gi f t must be act ual l ypai d. 2. I tmustbegi v ent ot heor gani zat i ons speci f i edi nt hecode. 3. The neti ncome oft he i nst i t ut i on mustnoti nur et ot hebenef i tofany pr i v at est ockhol derori ndi v i dual . VALUATI ON Char i t abl e cont r i but i on of pr oper t y ot hert hanmoneyshal lbebasedont he acqui si t i oncostofsai dpr oper t y .

I . RESEARCHANDDEVELOPMENT ( R&D)

TAXATI ON L AW COMMI TTEE

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

TAXTREATMENT Ei t heras: 1. Rev enueExpendi t ur es Requi si t es: a. Pai d or i ncur r ed dur i ng t he t axabl ey ear b. Or di nar yandnecessar yexpenses i nconnect i onwi t ht r adebusi ness orpr of essi on c. Not char geabl e t o capi t al account 2. Def er r edExpenses Requi si t es: a. Pai d ori ncur r edi nconnect i on wi t h t r ade, busi ness, or pr of essi on b. Nott r eat edasexpense c. Char geabl et ocapi t al accountbut not char geabl e t o pr oper t y subj ect t o depr eci at i on or depl et i on. Amountdeduct i bl e:

Amountr at abl ydi st r i but edov era per i odof60mont hsbegi nni ngwi t h t hemont ht axpay err eal i zedbenef i t s f r om suchexpendi t ur es. EXCLUSI ON FROM RESEARCH AND DEVELOPMENTEXPENDI TURES 1. Anyexpendi t ur ef ort heacqui si t i onor i mpr ov ement of l and or f or t he i mpr ov ementofpr oper t yt obeused i n connect i on wi t h r esear ch and dev el opmentsubj ectt odepr eci at i on anddepl et i on. 2. Anyexpendi t ur epai dori ncur r edf or t he pur pose of ascer t ai ni ng t he exi st ence,l ocat i on,ext entorqual i t y ofanydeposi tofor eorot hermi ner al i ncl udi ngoi l orgas.

J.PENSI ONTRUST CONTRI BUTI ONS PENSI ON TRUST CONTRI BUTI ONS – a deduct i onappl i cabl eonl yt ot heempl oy er onaccountofi t scont r i but i ont oapr i v at e pensi on pl an f or t he benef i t of i t s empl oy ee. Thi s deduct i on i s pur el y busi nessi nchar act er .

REQUI SI TESF ORDEDUCTI BI LI TY

TAXATI ON L AW COMMI TTEE

1. Theempl oy ermusthav eest abl i shed a pensi on or r et i r ement pl an t o pr ov i de f or t he pay ment of r easonabl e pensi ons t o hi s empl oy ees; 2. Thepensi onpl ani sr easonabl eand act uar i al l ysound; 3. I tmustbef undedbyt heempl oy er ; 4. Theamountcont r i but edmustbeno l ongersubj ectt ot he cont r oland di sposi t i onoft heempl oy er ; 5. The pay ment has not y et been al l owedasadeduct i on; and 6. Thededuct i oni sappor t i onedi nequal par t sov eraper i odof10consecut i v e y ear s begi nni ng wi t ht he y ear i n whi ch t he t r ansf erorpay menti s made. SUMMARY OF RULES ON RETI REMENT BENEFI TSPLAN /PENSI ON TRUST 1. Exempt f r om I ncome Tax – empl oy ees’ t r ustunderSec.60( B) 2. Excl usi on f r om Gr oss I ncome – amountr ecei v ed by t he empl oy ee f r om t he f und upon compl i ance of cer t ai ncondi t i onsunderSec.32( B) ( 6) 3. Deduct i onf r om Gr ossI ncome– a. Amount s cont r i but ed by t he empl oy erdur i ngt het axabl ey ear i nt ot hepensi onpl ant ocov ert he pensi on l i abi l i t yaccr ui ng dur i ng t hey ear–consi der edasor di nar y and necessar y expenses under Sec.34( A) ( 1) b. 1/ 10oft her easonabl eamount pai d byt he empl oy ert o cov er pensi onl i abi l i t yappl i cabl et ot he y ear spr i ort ot het axabl ey ear ,or so pai dt o pl acet het r usti na sound f i nanci al basi s – deduct i bl eunderSec.34( J)

K.PREMI UM PAYMENTS ONHEALTHAND/ OR HOSPI TALI ZATI ONI NSURANCE DEFI NI TI ON: I ti sanamountofpr emi um onheal t hand/ orhospi t al i zat i onpai dby ani ndi v i dualt axpay er( headoff ami l yor mar r i ed) ,f orhi msel fandmember sofhi s f ami l ydur i ngt het axabl ey ear . REQUI SI TESF ORDEDUCTI BI LI TY 1. I nsur ance musthav e act ual l ybeen

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

t aken 2. Theamountofpr emi um deduct i bl e doesnotexceedP2, 400perf ami l yor P200permont hdur i ngt het axabl e ear . 3. Thatsai df ami l yhasagr ossi ncome ofnotmor et hanP250, 000f ort he t axabl ey ear . 4. I ncaseofmar r i edi ndi v i dual , onl yt he spouse cl ai mi ng addi t i onal exempt i on shal lbe ent i t l ed t ot hi s ¬deduct i on. WHOMAYAVAI LOFTHEDEDUCTI ON 1. I ndi v i dualt axpay er s ear ni ng pur el y compensat i on ¬i ncome dur i ng t he y ear . 2. I ndi v i dualt axpay erear ni ngbusi ness i ncome or i n pr act i ce of hi s pr of essi on whet her av ai l i ng of i t emi zed or opt i onal st andar d deduct i onsdur i ngt hey ear . 3. I ndi v i dual t axpay er ear ni ng bot h compensat i on, and busi ness or pr act i ce of pr of essi on dur i ng t he y ear .

NONDEDUCTI BLEEXPENSES REASONSFORNONDEDUCTI BI LI TY 1. Per sonal expenses 2. Capi t al expendi t ur es 3. I t emsnotnor mal l ysubj ectt oi ncome t axandt her ef or ear enotdeduct i bl e. 4. I t ems t aken adv ant age of by t he t axpay ert oav oi dpay mentofi ncome t ax. SPECI FI CI TEMS( SECTI ON 3 6) 1. Per sonal , l i v i ngorf ami l yexpenses; 2. Amountpai doutf ornewbui l di ngsor f or per manent i mpr ov ement s, or bet t er ment made t oi ncr ease t he v al ueofanypr oper t yorest at e, Exceptt hati nt angi bl edr i l l i ngand dev el opment cost i ncur r ed i n pet r ol eum oper at i onsar ededuct i bl e; 3. Amount expended i n r est or i ng pr oper t y or i n maki ng good t he exhaust i on t her eof f or whi ch an al l owancehasbeenmade; 4. Pr emi umspai donanyl i f ei nsur ance pol i cycov er i ngt hel i f eofanyof f i cer or empl oy ee, or of any per son f i nanci al l yi nt er est edi nanyt r adeor

TAXATI ON L AW COMMI TTEE

busi nesscar r i edonbyt het axpay er , i ndi v i dualor cor por at e,when t he t axpay eri s di r ect l y ori ndi r ect l ya benef i ci ar yundersuchpol i cy .[ Sec. 36] 5. Lossesf r om sal esorexchangesof pr oper t ybet weenr el at edt axpay er s. [ Sec.36] TRANSACTI ONSBETWEEN RELATEDPARTI ES 1. Bet weenmember soft hef ami l y ; “ Fami l y ”i ncl udes onl yt he br ot her s,si st er s( whet herbyt he whol e or hal f bl ood) ,spouse, ancest or s, and l i neal descendant soft het axpay er . 2. Excepti nt hecaseofdi st r i but i onsi n l i qui dat i on: a. bet ween an i ndi v i dual and a cor por at i on mor et han 50% i n v al ueoft heout st andi ngst ockof whi ch i s owned, di r ect l y or i ndi r ect l y , by or f or such i ndi v i dual ; b. bet weent wocor por at i onsmor e t han 50% i n v al ue of t he out st andi ng st ock of each of whi ch i s owned, di r ect l y or i ndi r ect l y ,by orf ort he same i ndi v i dual ,i fei t heroneofsuch cor por at i ons,wi t hr espectt ot he t axabl ey earoft he cor por at i on pr ecedi ngt hedat eoft hesal eof exchangewasaper sonalhol di ng companyora f or ei gn per sonal hol di ngcompany ; or 3. Bet weent hegr ant orandaf i duci ar y ofanyt r ust ; 4. Bet weent hef i duci ar yofat r ustand t hef i duci ar yofanot hert r usti ft he same per son i s a gr ant or wi t h r espectt oeacht r ust ; 5. Bet weenaf i duci ar yofat r ustanda benef i ci ar yofsucht r ust . TAXCONSEQUENCES Thef ol l owi ngar enotdeduct i bl e: 1. I nt er estexpense[ Sec.34( B) ( 2) ] 2. Baddebt s[ Sec.34( E) ( 1) ] 3. Lossesf r om sal esorexchangesof pr oper t y[ Sec36( B) ]

( 2)OPTI ONALCORPORATE I NCOMETAX SECTI ON27( A)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

APPLI ESTO: 1. Domest i ccor por at i ons( DC) 2. Resi dentf or ei gncor por at i ons( RFC) RATEOFTAXANDDATEOFEFFECTI VI TY 15% oft heGr ossI ncomeef f ect i v e Januar y1, 2000 CONDI TI ONSORREQUI REMENTS 1. At axef f or tr at i oof20%ofGr oss Nat i onal Pr oduct 2. Ar at i oof40%i ncomet axcol l ect i on t ot ot al t axr ev enues 3. AVATt axef f or tof4%ofGNP 4. A0. 9%r at i oofConsol i dat edPubl i c Sect orFi nanci al Posi t i on( CPSFP)t o GNP OTHERFEATURES 1. Av ai l abl eonl yt of i r mswhoser at i o of : Costofsal es Gr osssal esorr ecei pt sf r om al l sour ces

<=55%

2.Theel ect i onshal l bei r r ev ocabl e f ort hr ee( 3)consecut i v ey ear s MEANI NGOFGROSSI NCOME Gener alconcept– Gr osssal es Less: ( 1)Sal esRet ur n; ( 2)Di scountandal l owances ( 3)Costofgoodssol d-means al l busi ness expenses di r ect l yi ncur r ed t o pr oduce t he mer chandi se t o br i ng t hem t ot hei rpr esentl ocat i on anduse.

( 3)MI NI MUM CORPORATE I NCOMETAX( MCI T) SECTI ON27( E) WHOARECOVERED? MCI Ti si mposed on domest i cand r esi dentf or ei gncor por at i ons 1. Whenev ersuchcor por at i onhaszer o ornegat i v et axabl ei ncome; or 2. Whenev ert he amountofMCI Ti s gr eat ert hant henor mali ncomet ax

TAXATI ON L AW COMMI TTEE

due f r om such cor por at i on det er mi nedunderSect i on27[ A] . LI MI TATI ONS 1. The MCI T shal l appl y onl y t o domest i c and r esi dent f or ei gn cor por at i ons subj ectt ot he nor mal cor por at ei ncome t ax ( i ncome t ax r at esunderSec27[ A]oft heCTRP) . 2. I nt hecaseofadomest i ccor por at i on whose oper at i ons oract i v i t i es ar e par t l ycov er edbyt her egul ari ncome t axsy st em andpar t l ycov er edunder a speci ali ncome t ax sy st em,t he MCI T shal l appl y on oper at i ons cov er ed by t he r egul ar cor por at e i ncomet axsy st em. 3. I ncomput i ngf ort heMCI Tduef r om a r esi dentf or ei gncor por at i on,onl yt he gr oss i ncome f r om sour ces wi t hi n t he Phi l i ppi nes shal lbe consi der ed f orsuchpur pose. WHENDOESACORPORATI ONBECOME LI ABLEUNDERTHEMCI T? MCI Ti si mposed begi nni ng on t he f our t h t axabl e y ear i mmedi at el y f ol l owi ng t he y ear i n whi ch such cor por at i on commenced i t s busi ness. Thet axabl ey eari nwhi cht hebusi ness oper at i onscommencedshal lbet hey ear whent hecor por at i onr egi st er swi t ht he BI R. CARRY FORWARD OF THE EXCESS MI NI MUM TAX  AnyexcessofMCI Tov ert henor mal i ncomet axcanbecar r i edf or war don anannual basi s.  Theexcesscanbecr edi t edagai nst t henor mal i ncomet axduei nt henext 3i mmedi at el y succeedi ng t axabl e y ear s.  Any amountof t he excess MCI T whi chcannotbecr edi t edagai nstt he nor mali ncomet axduei nt henext3y earper i odshal l bef or f ei t ed. RELI EFFROM MCI T The Secr et ar y of Fi nance i s

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

aut hor i zedt osuspendt hei mposi t i onof t he MCI T on any cor por at i on whi ch suf f er sl ossesbecauseof : a. pr ol ongedl abordi sput e; b. f or cemaj eur e; or c. l egi t i mat ebusi nessr ev er ses. “ Subst ant i all ossesf r om apr ol onged l abordi sput e"meansl ossesar i si ngf r om ast r i kest agedbyt heempl oy eeswhi ch l ast edf ormor et hansi x( 6)mont hswi t hi n at ax abl eper i odandwhi chhascausedt he t empor ar y shut down of busi ness oper at i ons. “ For cemaj eur e"meansacauseduet o ani r r esi st i bl ef or ceasby" ActofGod"l i ke l i ght ni ng, ear t hquake, st or m, f l oodandt he l i ke.Thi st er m shal lal soi ncl udear med conf l i ct sl i kewarandi nsur gency . “ Legi t i mat ebusi nessr ever ses"shal l i ncl udesubst ant i all ossessust ai neddue t of i r e,r obber y ,t hef t ,orembezzl ement , or f or ot her economi c r eason as det er mi nedbyt heSecr et ar yofFi nance. TAX RATE: 2% ofgr oss i ncome or t axabl e base per t i nent t o a t r adi ng/ mer chandi si ng concer n or a ser v i ceent i t y TAXBASE:Gr ossI ncome MEANI NGOFGROSSI NOME Gener alconcept-gr ossi ncomemeans: Gr osssal es Less: ( 1)Sal esRet ur n; ( 2)Di scountandal l owances ( 3)Costofgoodssol d-means al l busi ness expenses di r ect l yi ncur r ed t o pr oduce t he mer chandi se t o br i ng t hem t ot hei rpr esentl ocat i on anduse. KI NDSOFBUSI NESS A.Tr adi ngorMer chandi si ngConcer n Gr oss I ncome = CostofSal es= gr oss sal es/ 1. I nv oi cecostoft he r ecei pt sl esssal es goodssol d; r et ur ns, di scount s 2. i mpor tdut i es; andal l owancesand 3. f r ei ght i n costofgoodssol d t r anspor t i ng t he goodst ot hepl ace

TAXATI ON L AW COMMI TTEE

wher et he goods ar eact ual l ysol d; 4. i nsur ance whi l e t he goods ar ei n t r ansi t . B.Manuf act ur i ng CostofSal es = Al l Gr ossI ncome costofpr oduct i onof ( Same) f i ni shed goods,such as 1. r awmat er i al s used; 2. di r ectl abor ; 3. manuf act ur i ng ov er head; 4. f r ei ghtcost ; 5. i nsur ance pr emi ums; 6. ot her cost s i ncur r ed t o br i ng t he r aw mat er i al s t ot he f act or y or war ehouse. C.Ser v i ces CostofSer v i ces=Al l Gr ossI ncome= di r ectcost sand Gr ossr ecei pt sl ess expensesnecessar i l y sal esr et ur ns, i ncur r edt opr ov i de al l owances, t heser v i cesr equi r ed di scount sand byt hecust omer sand cost sofser v i ces cl i ent si ncl udi ng: a.Sal ar i esand empl oy eebenef i t s ofper sonnel , consul t ant sand speci al i st sdi r ect l y r ender i ngt he ser v i ce; b.Costoff aci l i t i es di r ect l yut i l i zedi n pr ov i di ngt he ser v i ce. I tshal l not i ncl udei nt er est expensee xceptf or

banksandot her f i nanci ali nst i t ut i ons.  Gr oss i ncome excl udes passi v e i ncomesubj ectt of i nal t ax .  Ot her i ncome and Ext r aor di nar y I ncomear ei ncl uded si nceRR 998 pr ov i des t hat gr oss sal es i ncl ude sal escont r i but or yt oi ncomet axabl e undert her egul arcor por at et ax.  SeeAnnexTf ori nt er pl ayofnor mal

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW t ax,opt i onalcor por at ei ncome t ax andMCI T.

( 4)I MPROPERLYACCUMULATED EARNI NGS( I AE)TAX SECTI ON29 ( REVENUEREGULATI ONSNO.2–2001) DEFI NI TI ON: “ I mpr oper l y accumul at ed ear ni ngs ( I AE) ” ar et he pr of i t s of a cor por at i on t hat ar e per mi t t ed t o accumul at ei nst eadofbei ngdi st r i but ed byacor por at i ont oi t sshar ehol der sf or t hepur poseofav oi di ngt hei ncomet ax wi t hr espectt oi t sshar ehol der sort he shar ehol der sofanot hercor por at i on. TAX RATE: 10% of t he I mpr oper l y Accumul at edTaxabl eI ncome( i naddi t i on t oot hert axes) . Rat i onal ebehi ndI AET I ft he ear ni ngs and pr of i t s wer e di st r i but ed,t heshar ehol der swoul dt hen bel i abl et oi ncomet axt her eon,wher eas i ft hedi st r i but i onwer enotmadet ot hem, t heywoul di ncurnot axi nr espectt ot he undi st r i but edear ni ngsandpr of i t soft he cor por at i on.Thus, at axi sbei ngi mposed; a. i nt henat ur eofapenal t yt ot he cor por at i on f or t he i mpr oper accumul at i onofi t sear ni ngs, and b.as a f or m ofdet er r entt ot he av oi dance of t ax upon shar ehol der swho ar esupposed t o pay di v i dends t ax on t he ear ni ngsdi st r i but ed t ot hem by t hecor por at i on. “ I MPROPERLY TAXABLEI NCOME”

ACCUMULATED

Taxabl ei ncomef ort hey ear Add: I ncomeexemptf r om t ax; I ncomeexcl udedf r om gr ossi ncome; I ncomesubj ectt of i nal t ax ; Netoper at i ngl osscar r y ov er( NOLCO) Tot al Less: I ncomet axpai d/ pay abl ef ort het axabl e y ear Di v i dendsact ual l yorconst r uct i v el y

TAXATI ON L AW COMMI TTEE

pai d/ i ssuedf r om t heappl i cabl ey ear ’ s t axabl ei ncome Amountr eser v edf ort her easonabl e needsoft hebusi nessasdef i nedi nt he Regul at i ons Taxbaseofi mpr oper l yaccumul at ed ear ni ngst ax EXCLUSI ONS

 Forcor por at i onsusi ngt hecal endar basi st heaccumul at edear ni ngst ax shal lnotappl yonI AEasofDec.31, 1997.  Forf i scaly earbasi s, t het axshal lnot appl yt ot he12mont hper i odoff i scal y ear19971998. I AEasoft heendofacal endaror f i scaly earper i odonoraf t erDec.31, 1998shal l besubj ectt ot he10%t ax. WHOARECOVERED? Gener alRul e:TheI AEt axshal lappl yt o ev er ycor por at i onf or medorav ai l ed f or t he pur pose of av oi di ng t he i ncome t ax wi t h r espect t o i t s shar ehol der sort heshar ehol der sof anyot hercor por at i on,byper mi t t i ng ear ni ngsand pr of i t st o accumul at e i nst eadofbei ngdi v i dedordi st r i but ed. Thesear e: 1. Domest i c cor por at i ons as def i nedundert heTaxCode; 2. Cor por at i onswhi char ecl assi f i ed ascl osel y hel dcor por at i ons. • t hose cor por at i ons atl east f i f t yper cent( 50%)i nv al ueof t heout st andi ngcapi t alst ock oratl eastf i f t yper cent( 50%) oft het ot alcombi nedv ot i ng powerofal lcl assesofst ock ent i t l ed t ov ot ei s owned di r ect l yori ndi r ect l ybyorf or notmor et han t went y( 20) i ndi v i dual s.  Domest i c cor por at i ons not f al l i ng under t he af or esai d def i ni t i on ar e, t her ef or e, publ i cl y hel dcor por at i ons. Except i on:Thesai dt axshal l notappl yt o: 1. Publ i cl yhel dcor por at i ons( Sec.29) 2. Banksandot hernonbanksFi nanci al

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

i nt er medi ar i es( Sec.29) 3. I nsur ancecompani es( Sec.29) 4. Taxabl e par t ner shi ps ( deemed t o hav e act ual l y or const r uct i v el y r ecei v ed t he t axabl ei ncome under Sec.73D) 5. Gener al pr of essi onal par t ner shi ps ( exempt ; t axabl eagai nstt hepar t ner s) 6. Non-t axabl ej oi ntv ent ur esand 7. Ent er pr i sesdul yr egi st er edwi t ht he Phi l i ppi neEconomi cZoneAut hor i t y ( PEZA) under R. A. 7916, and ent er pr i sesr egi st er edpur suantt ot he BasesConv er si onandDev el opment Actof1992underR. A.7227,aswel l asot herent er pr i sesdul yr egi st er ed under speci al economi c zones decl ar edbyl awwhi chenj oypay ment ofspeci alt axr at eont hei rr egi st er ed oper at i onsoract i v i t i esi nl i euofot her t axes, nat i onal orl ocal . 8. For ei gncor por at i ons[ RRNo.022001] EVI DENCE OF PURPOSE TO AVOI D I NCOMETAX 1. The f actt hatanycor por at i on i sa mer ehol di ngcompanyori nv est ment company shal l be pr i ma f aci e ev i denceofapur poset oav oi dt he t ax upon i t s shar ehol der s or member s. I nst ances i ndi cat i v e ofpur pose t o av oi di ncomet axuponshar ehol der s: a. I nv est ment of subst ant i al ear ni ngs and pr of i t s of t he cor por at i on i n unr el at ed busi ness or i n st ock or secur i t i es of unr el at ed busi ness; a. I nv est menti nbondsandot her l ongt er m secur i t i es; a. Accumul at i on of ear ni ngs i n excess of 100% of pai dup capi t al ,notot her wi sei nt ended f ort her easonabl eneedsoft he busi ness as def i ned i nt hese Regul at i ons. 2. Thef actt hatt heear ni ngsorpr of i t s ofa cor por at i on ar e per mi t t ed t o accumul at e bey ond t he r easonabl e needs of t he busi ness shal l be det er mi nat i v eoft hepur poset oav oi d

TAXATI ON L AW COMMI TTEE

t he t ax upon i t s shar ehol der s or member sunl esst hecor por at i on,by t hecl earpr eponder anceofev i dence, shal l pr ov et hecont r ar y . “ Reasonabl eneedsoft hebusi ness” i ncl udes t he r easonabl yant i ci pat ed needsoft hebusi nesssuchas: a. Al l owancef ort hei ncr easei nt he accumul at i onofear ni ngsupt o 100%oft hepai dupcapi t aloft he cor por at i onasofBal anceSheet dat e,i ncl usi v eofaccumul at i ons t akenf r om ot hery ear s; b. Ear ni ngs r eser v ed f or def i ni t e cor por at eexpansi onpr oj ect sor pr ogr ams as appr ov ed by t he Boar dofDi r ect or sorequi v al ent body ; c. Reser v ed f orbui l di ng,pl ant sor equi pment acqui si t i on as appr ov ed by t he Boar d of Di r ect or sorequi v al entbody ; d. Reser v ed f or compl i ance wi t h anyl oancov enantorpr eexi st i ng obl i gat i on est abl i shed under a l egi t i mat ebusi nessagr eement ; e. Ear ni ngs r equi r ed by l aw or appl i cabl e r egul at i ons t o be r et ai nedbyt hecor por at i onori n r espectofwhi ch t her ei sl egal pr ohi bi t i onagai nsti t sdi st r i but i on; f . I nt he case ofsubsi di ar i es of f or ei gn cor por at i ons i n t he Phi l i ppi nes, al l undi st r i but ed ear ni ngsi nt endedorr eser v edf or i nv est ment s wi t hi n t he Phi l i ppi nesascanbepr ov enby cor por at e r ecor ds and/ or r el ev antdocument ar yev i dence. The cont r ol l i ng i nt ent i on of t he t axpay eri st hatwhi chi smani f est ed at t he t i me of accumul at i on, not subsequent l ydecl ar edi nt ent i ons,whi ch ar emer el yt hepr oductofaf t er t hought .A specul at i v e and i ndef i ni t e pur pose wi l l notsuf f i ce. Def i ni t enessofpl an/ scoupl edwi t h act i on/ s t aken t owar ds i t s consummat i oni sessent i al . PERI OD FOR PAYMENT OF DI VI DEND/ PAYMENTOFI AET Di v i dendsmustbedecl ar edandpai d

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

or i ssued not l at er t han one y ear f ol l owi ngt hecl oseoft het axabl ey ear , ot her wi se, t heI AET, i fany , shoul dbepai d wi t hi nf i f t een( 15)day st her eaf t er .

( 5)I NCOMESUBJECTTO

PREFERENTI ALORSPECI AL RATES Per t ai nst oi ncomeder i v edbya par t i cul ar i ndi v i dual or cor por at i on bel ongi ngt oacl assofi ncomet axpay er t hati ssubj ectt oei t herapr ef er ent i alor speci al r at e.  TaxRat es: Pl easer ef ert oAnnexC.

( 6)GROSSI NCOMETAX( GI T) GROSSI NCOMETAX( GI T)FORMULA Ent i r eI ncome Less:Excl usi onsandI ncomesubj ect t oFi nalTax( e. g.Passi v e I ncome) Gr ossI ncome Mul t i pl yby :TaxRat es( %) NetI ncomeTaxDue GI TAPPLI ESTO 1. Nonr esi dental i en notengaged i n t r adeorbusi ness( 25%) ; and 2. Nonr esi dent f or ei gn cor por at i on. ( 32%)  TaxRat es:Pl easer ef ert oAnnexA andB.

( 7)FI NALI NCOMETAX GENERALPRI NCI PLES 1. I ti sconst i t ut ed asaf ul land f i nal pay mentoft hei ncomet axduef r om t he pay ee on a par t i cul art y pe of i ncomesubj ectt of i nalwi t hhol di ng t ax( FWT) . Thef i nal i t yoft hewi t hhol di ngt ax i sl i mi t edonl yt ot hepay ee’ si ncome t axl i abi l i t yanddoesnotext endt o ot hert axest hatmaybei mposedon

TAXATI ON L AW COMMI TTEE

sai di ncome. 2. Thei ncomesubj ect edt of i nali ncome t axi sno l ongersubj ectt ot henet i ncomet ax; ot her wi se, t her ewoul dbe a v i ol at i on of pr ohi bi t ed doubl e t axat i on. 3. Thel i abi l i t yf ort hepay mentoft he t axr est spr i mar i l yont hepay oras wi t hhol di ngagent . 4. Thepay eei snotr equi r edt of i l ean i ncomet axr et ur nf ort hepar t i cul ar i ncomesubj ect edt oFWT. I ti st he wi t hhol di ngagentwhof i l est her et ur n. 5. Ther at eoft hef i nalt axi smul t i pl i ed t o t he gr oss i ncome. Thus, deduct i ons and/ or per sonal and addi t i onal exempt i ons ar e not al l owed.

( 8)FRI NGEBENEFI TTAX( FBT) FRI NGEBENEFI TTAXi saf i nali ncome t ax on t he empl oy ee whi ch shal lbe wi t hhel dandpai dbyt heempl oy erona quar t er l ybasi s. FRI NGE BENEFI T means any good, ser v i ce,orot herbenef i tf ur ni shed or gr ant edbyanempl oy er , i ncashori nki nd, i n addi t i on t o basi c sal ar i es,t o an i ndi v i dualempl oy ee( exceptr ankandf i l e empl oy ees)suchas,butnotl i mi t edt o t hef ol l owi ng: 1. Housi ng 2. ExpenseAccount 3. Vehi cl eofanyki nd 4. Househol dper sonnel ,suchasmai d, dr i v erandot her s 5. I nt er estonl oanatl esst hanmar ket r at et ot heext entoft hedi f f er ence bet weent hemar ketr at eandact ual r at egr ant ed. 6. Member shi pf ees,dues and ot her expensesbor nebyt heempl oy erf or t heempl oy eei nsoci alandat hl et i c cl ubsandsi mi l aror gani zat i ons 7. Expensesf orf or ei gnt r av el 8. Hol i dayandv acat i onexpenses 9. Educat i onal assi st ance t o t he empl oy eeorhi sdependent s; and 10.Li f e orheal t hi nsur ance and ot her nonl i r e i nsur ance pr emi ums or si mi l aramount sonexcessofwhat t hel awal l ows.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

PERSONSLI ABLE TheEMPLOYER ( asawi t hhol di ng agent ) ,whet heri ndi v i dual ,pr of essi onal par t ner shi poracor por at i on,r egar dl ess ofwhet hert hecor por at i oni st axabl eor not , or t he gov er nment and i t s i nst r ument al i t i es TAX RATE:32% ( f r om Januar y1,2000 onwar ds)oft he Gr ossed up Monet ar y Val ue( GMV)off r i ngebenef i t s. I nt hecaseofal i ens,t het axr at est o beappl i edonf r i ngebenef i tshal lbeas f ol l ows: 1. NRANEBT25% 2. Al i ensempl oy edbyr egi onalHO 15% 3. Al i ensempl oy edbyOBU15% 4. Al i ensempl oy edbyPet r ol eum Ser v i ceCont r act or sand Subcont r act or s15% “ GMV” OF THE FRI NGE BENEFI T REPRESENTS 1. Thewhol eamountofi ncomer eal i zed byt heempl oy eewhi chi ncl udest he net amount of money or net monet ar yv al ueofpr oper t ywhi chhas beenr ecei v ed; pl us 2. The amountoff r i nge benef i tt ax t her eon ot her wi se due f r om t he empl oy eebutpai dbyt heempl oy er f orandi nbehal foft heempl oy ee. “ GMV”oft hef r i ngebenef i tshal l bedet er mi nedbydi v i di ngt hemonet ar y v al ueoft hef r i ngebenef i tbyt heGr ossed updi v i sor .TheGr ossedupdi v i sori st he di f f er ence bet ween 100% and t he appl i cabl er at es. YEAR 1998 1999 2000 onwar ds

GROSSEDUP DI VI SOR

RATE

66% 67%

34%FWT 33%FWT

68%

32%FWT

FRI NGE BENEFI TS NOT SUBJECT TO FBT 1. Fr i nge benef i t s not consi der ed as gr ossi ncome–

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a. i fi ti sr equi r edornecessar yt o t hebusi nessofempl oy er b. i fi ti sf ort he conv eni ence or adv ant ageofempl oy er 2. Fr i nge Benef i tt hati s nott axabl e underSec.32( B)–Excl usi onsf r om Gr ossI ncome 3. Fr i ngebenef i t snott axabl eunderSec. 33Fr i ngeBenef i tTax: a. Fr i nge Benef i t s whi ch ar e aut hor i zed and exempt ed under speci all aws,such as t he 13t h mont h Pay and Ot herBenef i t s wi t ht hecei l i ngofP30, 000. b. Cont r i but i onsoft heempl oy erf or t he benef i toft he empl oy ee t o r et i r ement , i nsur ance and hospi t al i zat i onbenef i tpl ans; c. Benef i t sgi v ent ot heRankand Fi l eEmpl oy ees,whet hergr ant ed under a col l ect i v e bar gai ni ng agr eementornot ; and d. The De mi ni mi s benef i t s – benef i t s whi ch ar e r el at i v el y smal li nv al ue of f er ed by t he empl oy er as a means of pr omot i nggoodwi l l , cont ent ment , ef f i ci encyofEmpl oy ees The t er m “ Rank and Fi l e Empl oy ees” shal l mean al l empl oy ees who ar e hol di ng nei t her manager i al nor super v i sor yposi t i onasdef i nedi n t heLaborCode I nt hecaseofr ankandf i l e empl oy ees,f r i ngebenef i t sot her t hant hoseexcl udedf r om gr oss i ncomeundert heTaxCodeand ot herspeci all aws,ar et axabl e undert he i ndi v i dualnor malt ax r at e. DEDUCTI BI LI TY TO THE TAXABLE I NCOMEOFTHEEMPLOYER Gener alRul e:The amountoft axabl e f r i ngebenef i tandt hef r i ngebenef i t st ax shal l const i t ut e al l owabl e deduct i ons f r om gr ossi ncomeoft heempl oy er . Except i on: I ft hebasi sf orcomput at i onoft he f r i nge benef i t st ax i st he depr eci at i on v al ue,t hezonalv al ueort hef ai rmar ket v al ue,onl yt heact ualf r i ngebenef i t st ax pai d shal l const i t ut e a deduct i bl e expensef ort heempl oy er .Thev al ueof

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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t hef r i ngebenef i tshal lnotbededuct i bl e and shal lbe pr esumed t o hav e been t acked on or act ual l y cl ai med as depr eci at i on expense byt he empl oy er . Pr ov i ded,howev er ,t hati ft heaf or esai d zonalv al ueorf ai rmar ketv al ueoft he sai d pr oper t yi s gr eat ert han i t s cost subj ect t o depr eci at i on, t he excess amountshal lbeal l owedasadeduct i on f r om t he empl oy er ' s gr oss i ncome as f r i ngebenef i texpense.( Sec.2. 33[ D] ,Rev. Reg.No.398) EXAMPLE OF DE MI NI MI S BENEFI TS NOTSUBJECTTOFBT ( RRNO.82000 AND102000) 1. Monet i zed unused v acat i on l eav e cr edi t s ofPRI VATE empl oy ees not exceedi ng( 10)day sdur i ngt hey ear and t he monet i zed v al ue ofl eav e cr edi t spai dt ogov er nmentof f i ci al s andempl oy ees 2. Medi cal cash al l owance t o dependent s of empl oy ees not exceedi ngP750. 00perempl oy eeper semest erorP125permont h; 3. Ri cesubsi dyofP1, 000. 00orone( 1) sack of 50kg. r i ce per mont h amount i ng t o not mor e t han P1, 000: 00, 4. Uni f or m and cl ot hi ng al l owancenot exceedi ngP3, 000perannum; 5. Act ualy ear l y medi calbenef i t s not exceedi ngP10, 000perannum; 6. Laundr y al l owance not exceedi ng P300permont h; 7. Empl oy eesachi ev ementawar dse.g. f or l engt h of ser v i ce or saf et y achi ev ement ,whi chmustbei nt he f or m ofat angi bl eper sonalpr oper t y ot hert han cash orgi f tcer t i f i cat e, wi t hanannualmonet ar yv al ueofnot exceedi ng P10, 000 r ecei v ed byt he empl oy ee under an est abl i shed wr i t t en pl an whi ch does not di scr i mi nat ei nf av orpai dempl oy ees; 8. Gi f t s gi v en dur i ng Chr i st mas and maj oranni v er sar y cel ebr at i ons not exceedi ngP3,000perempl oy eeper annum; 9. Fl ower s, f r ui t s, booksorsi mi l ari t ems gi v en t o empl oy ees underspeci al ci r cumst ances 10.Dai l y mealal l owance f orov er t i me

TAXATI ON L AW COMMI TTEE

wor knotexceedi ng25%oft hebasi c mi ni mum wage. Ti me f orf i l i ng ofquar t er l yr emi t t ance r et ur noff i nali ncomet axeswi t hhel d Thet axi mposedunderSec.33shal l bet r eat edasaf i nali ncomet axont he empl oy eet hatshal lbewi t hhel dandpai d byt heempl oy er , whet heral ar get axpay er ornonl ar get axpay er ,onorbef or et he 10th day of t he mont hf ol l owi ng t he cal endar quar t er i n whi ch t he f r i nge benef i t swer egr ant ed( RR042002) .  For Addi t i onal Rul es on Fr i nge Benef i t s, r ef ert oAnnexH.

( 9)CAPI TALGAI NSTAX SUMMARYOFTAXRATES 1. I ndi v i dual s a. Onsal eofshar esofst ockofa domest i c cor por at i on notl i st ed and t r aded t hr ual ocalst ock exchange, hel dascapi t al asset Ont heNetCapi t alGai n Notov erP100, 000 – FT of5% Amounti nexcessofP100, 000– FT of10%

b. On sal eofr ealpr oper t yi nt he Phi l i ppi neshel dascapi t al asset Ont hegr osssel l i ngpr i ce,ort he cur r entf ai rmar ketv al ueatt het i me ofsal e, whi chev eri shi gher – FT of6%

2. Cor por at i ons a. Onsal eofshar esofst ockofa domest i c cor por at i on notl i st ed and t r aded t hr ual ocalst ock exchange, hel dascapi t al asset Ont heNetCapi t alGai n– Notov erP100, 000 – FTof5% Amounti nexcess ofP100, 000 –FTof10%

b. Onsal eofl and/ bui l di nghel das capi t al asset Ont hegr osssel l i ngpr i ce,ort he cur r entf ai rmar ketv al ueatt het i me ofsal e, whi chev eri shi gher – FT of6%

( Rey es,Vi r gi l i o. I ncome TaxLaw and Account i ng–ANewAppr oach, 2002)

CAPI TALGAI NSANDLOSSES– I NGENERAL

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW b. Wash sal es by nondeal er s of secur i t i esandwhennotsubj ect t ot hest ockt r ansf ert ax; c. Exchangesnotsol el yi nki ndi n mer gerandconsol i dat i on; and d. Sal esorexchangest hatar enot atar msl engt h.

CONCEPTOFCAPI TALASSETS Undert het axcode, t her ei snodef i ni t i on f ort het er m" capi t al asset s" .Whati t gi v esi st hemeani ngofor di nar yasset s: a. Or di nar yasset s( Sec.39, NI RC) a. St ocki nt r adeoft het axpay eror ot herpr oper t i esofaki ndwhi ch woul dpr oper l ybei ncl udedi nt he i nv ent or yoft het axpay er ;

REQUI SI TES FOR RECOGNI TI ON OF CAPI TALGAI N/ LOSS 1. The t r ansact i on must i nv ol v e pr oper t y cl assi f i ed as capi t al asset ; and

b. Pr oper t y hel d by t he t axpay er pr i mar i l yf orsal et ocust omer si n t heor di nar ycour seofbusi ness;

2. Thet r ansact i onmustbeasal eor exchangeoroneconsi der ed as equi v al entt oasal eorexchange.

c. Pr oper t y used i n t r ade or busi ness and subj ect t o depr eci at i on; and

RULES ON THE RECOGNI TI ON OF CAPI TALGAI NSORLOSSES

d. Realpr oper t y used i nt r ade or busi ness. b. Capi t alAsset si ncl ude al lpr oper t y hel dbyt het axpay erwhet herornot connect edi nt r adeorbusi nessbut not i ncl udi ng t hose enumer at ed abov e( #1)asor di nar yasset s. CAPI TALGAI N

CAPI TALLOSS

The gai n der i v ed f r om t he sal e or exchangeofcapi t al asset s.

The l oss i ncur r ed f r om t he sal e or exchangeofcapi t al asset s.

NETCAPI TAL GAI N

NETCAPI TAL LOSS

The excess oft he gai ns f r om sal es/ exchangesofcapi t al asset s ov er t he gai ns f r om such sal es/exchanges.

The excess oft he l ossesf r om sal esor exchangesofcapi t al asset s ov er t he gai ns f r om such sal esorexchanges.

 TRANSACTI ON RESULTI NG I N TAXABLE GAI NSBUTNONRECOGNI TI ONOFL OSSES a. Sal eorexchangebet weenr el at ed par t i es;

TAXATI ON L AW COMMI TTEE



I NDI VI DUAL

CORPORATI ON

Hol di ngPer i od Theper cent agesof gai norl osst obet aken i nt o accountshal lbe t hef ol l owi ng: a. 100%-i ft hecapi t al asset s has been hel df or12mos.or l ess; and b. 50% -i ft hecapi t al asset has been hel df ormor et han 12mos.

Capi t algai nsand l osses ar e r ecogni zedt ot he ext entof100%. ( Ther ei sno hol di ngper i od)



 

Nondeduct i bi l i t y  Capi t al l osses of Net Capi t al ar e al l owed l osses onl yt o ext ent of t he capi t al Capi t all ossesar e al l owed onl y t o gai ns; hence, ext ent of t he t henetcapi t al capi t al gai ns; l oss i s not hence, t he net deduct i bl e. capi t all ossi snot Except i on:I fany deduct i bl e. domest i cbankor t r ustcompany ,a subst ant i alpar tof whosebusi nessi s t he r ecei pt of deposi t s, sel l sany bond, debent ur e, not eorcer t i f i cat e orot herev i dence

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW of i ndebt edness i ssued by any cor por at i on ( i ncl udi ngonei ssued byagov er nmentor pol i t i cal subdi v i si on)



NetCapi t alLoss  Car r y–Ov er  Al l owed Thenetcapi t all oss( i n anamountnoti nexcess of t he t axabl ei ncome bef or e per sonal exempt i onf orsuchy ear ) shal lbe t r eat ed i nt he succeedi ngy ear( butnot bey ond12mont hs)asa deduct i onasshor t t er m capi t all oss ( at 100%) f r om t he net capi t al gai ns.

Notal l owed

 SeeAnnexUf ori l l ust r at i on. SALEOREXCHANGEOFCAPI TALASSETS Thef ol l owi ngar econsi der edassal e orexchangeofcapi t al asset s: 1. Ret i r ementofbonds 2. Shor tsal esofpr oper t y 3. Fai l ur et oexer ci sepr i v i l egeoropt i on t obuyorsel l pr oper t y 4. Secur i t i esbecomi ngwor t hl ess 5. Di st r i but i on i n l i qui dat i on of cor por at i ons 6. Readj ust mentofi nt er esti nagener al pr of essi onal par t ner shi p. TAXFREEEXCHANGES Sal esorexchangesr esul t i ngi nnonr ecogni t i onofgai nsorl osses: 1. Exchangesol el yi nki ndi nl egi t i mat e mer ger sandconsol i dat i on; i ncl udes: a. Bet weent hecor por at i onswhi ch ar e par t i es t ot he mer ger or consol i dat i on ( pr oper t y f or st ocks) ; b. Bet ween a st ockhol der of a cor por at i onpar t yt oamer geror consol i dat i onandt heot herpar t y cor por at i on( st ockf orst ock) ; c. Bet ween a secur i t yhol derofa cor por at i onpar t yt oamer geror consol i dat i onandt heot herpar t y cor por at i on ( secur i t i es f or secur i t i es)

TAXATI ON L AW COMMI TTEE

2. Tr ansf ert oacont r ol l edcor por at i on – exchange ofpr oper t yf orst ocks r esul t i ngi nacqui si t i onofcor por at e cont r olbyaper son, al oneort oget her wi t hot her snotexceedi ngf our . “ Cont r ol ” means owner shi p of st ocksi nacor por at i onamount i ngt o atl east51%oft het ot alv ot i ngpower ofal lcl assesofst ocksent i t l ed t o v ot e. SALEOREXCHANGEOFORDI NARYASSETS Gener alr ul es of i ncome t axat i on appl yt obot hgai nandl oss.  SeeAnnexD( Gr ossI ncome–Gai ns f r om deal i ngsi npr oper t y ) SUMMARY OF TAX TREATMENT OF GAI NS/ LOSSES I N THE EXCHANGE OF PROPERTI ES Gener alRul e:Upont hesal eorexchange ofpr oper t y ,t heent i r egai norl oss,ast he casemaybe,shal lber ecogni zed.[ Sec. 40( C, 1) ] Except i ons: 1. Tr ansact i onswher egai nsandl osses ar enotr ecogni zed– a. Exchange sol el yi n ki nd i n l egi t i mat e mer ger s and consol i dat i on b. Tr ansf er t o a cont r ol l ed cor por at i on[ Sec.40( C, 2) ] 1. Tr ansact i ons wher e gai n i s r ecogni zedbutnott hel oss– a. Tr ansact i ons bet ween r el at ed t axpay er s[ Sec.36] b. I l l egalt r ansact i ons [ Sec.96, Rev .Reg.2] c. Exchanges of pr oper t y , not sol el yi nki nd,i npur suanceof cor por at e mer ger s and consol i dat i ons[ Sec.40, ( C, 3) ] I MPORTANTDI STI NCTI ON I fi ti sanor di nar yasset ,t heor di nar y gai ns and l osses ar e consi der ed i n det er mi ni ngi ncomeorl ossf r om t r ade, busi nessorpr of essi on.( SeeSecs.32A, 34D) I fi ti s a capi t alasset ,det er mi ne

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

f ur t herwhet herornoti ti sar ealpr oper t y l ocat edi nt hePhi l i ppi nes.I fi ti s,t heni t i ssubj ectt ocapi t algai nst ax .( SeeSecs. 24D, 27D5)( Seeal soSecs.24C, 27D2)I f not ,t he capi t algai ns and l osses ar e consi der ed i n det er mi ni ng t he t axabl e i ncome.( Sec.39) CAPI TALGAI NSANDLOSSES– SHARESOFSTOCK The t axat i on of shar es of st ock whet herornotl i st edandt r adedi nt he st ockexchangei ssubj ectt of i nalt ax. WHOARELI ABLETOTHETAX 1. I ndi v i dual t axpay er , ci t i zenoral i en 2. Cor por at e t axpay er , domest i c or f or ei gn 3. Ot hert axpay er ssuchasest at e,t r ust , t r ust f unds and pensi on among ot her s. RATESOFTAX 1. Shar esofst ocknott r adedt hr ougha l ocalst ockexchange– Netcapi t al gai nsder i v eddur i ngt het axabl ey ear f r om sal e,exchange,ort r ansf ershal l be t axed as f ol l ows ( on a per t r ansact i onbasi s) : Notov erP100, 000 -5% Ov er P100, 000 -10% 2. Shar es ofst ock l i st ed t hr ough a l ocalst ockexchange– ½ of1% of t hegr osssel l i ngpr i ceoft hest ock. EXCEPTI ONSTOTHETAX 1. Gai nsder i v edbydeal er si nsecur i t i es. 2. Al lot hergai nswhi char especi f i cal l y exempt f r om i ncome t ax under exi st i ng i nv est menti ncent i v es and ot herspeci al l aws. BASI SFORCOMPUTI NGGAI NORLOSS( BI R RULI NG1 4698)  Thef ai rmar ketv al ue( FMV)oft he sal eofshar esnott r adedbutl i st edi n t he st ock exchange i st he hi ghest cl osi ngpr i ceont hedayt heshar es wer esol d, t r ansf er r edorexchanged.  Whennosal ei smadei nt hest ock exchange,t he FMV shal lbe t he hi ghest sel l i ng pr i ce on t he day near estt ot hedayofsal e,t r ansf eror

TAXATI ON L AW COMMI TTEE

exchange.  Forshar esnotl i st edi nt heexchange, t he FMV shal lbe t he book v al ue near estt hev al uat i ondat e Theabov er ul esshal lbeusedi n comput i ngf ort henetcapi t algai n/ l oss f ordi sposi t i onofshar es. I MPORTANTF EATURES 1. Sal eofshar esofst ockofadomest i c cor por at i on l i st ed and t r aded i na l ocalst ock exchange and t hatof i ni t i alpubl i cof f er i ngshal lbesubj ect t oPer cent aget ax( Busi nessTax) 2. Capi t all ossessust ai ned dur i ng t he y ear( notl i st edandt r adedi nal ocal st ockexchange)shal lbeal l owedas acapi t all ossdeduct i bl eont hesame t axabl ey earonl y( nocar r y ov er ) 3. Theent i r eamountofcapi t algai nand capi t all oss( notl i st edandt r adedi na l ocal st ock exchange) shal l be consi der ed wi t hout t aki ng i nt o accounthol di ngper i odi r r espect i v eof whoi st het axpay er( al l 100%) 4. Nondeduct i bi l i t yofl ossesonwash sal es. FI LI NGANDPAYMENTOFTAX 1. Li st ed and Tr aded i n t he St ock Exchange-Thes t ockbr okershal lt ur n ov ert het axcol l ect ed t ot heB. I . R. wi t hi nf i ve( 5)banki ngday sf r om t he dat eofcol l ect i on. 2. Nott r adedt hr ought hest ockex changeI tshal lbepai dbyt hesel l eronaper t r ansact i on basi s upon f i l i ng oft he r equi r ed r et ur n wi t hi n 30 day s f ol l owi ngeachsal eorot herdi sposi t i on ofshar esofst ock .

CAPI TALGAI NSANDLOSSES ( REALPROPERTY) PERSONS LI ABLE AFFECTED

AND

TRANSACTI ONS

1. I ndi v i dual t axpay er s, est at es and t r ust s Sal e or exchange or ot her di sposi t i on of r eal pr oper t y

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

consi der edascapi t al asset s. Thesai dsal eshal li ncl ude" pact o der et r osal e"andot hercondi t i onal sal e. 2. Domest i cCor por at i on Sal eorexchangeordi sposi t i on ofl andsand/ orbui l di ng whi ch ar e notact ual l yusedi nbusi nessandar e t r eat edascapi t al asset .  EXCEPTI ONSTOTHETAX 1.Gai nsder i v edbydeal er si nr eal est at e RATEANDBASI SOFTAX Af i nalt axof6% i sbased on t he gr osssel l i ngpr i ceorf ai rmar ketv al ueor zonalv al uewhi chev eri shi gher . Not e: Gai n orl oss i si mmat er i al , t her ebei ngaconcl usi v epr esumpt i onof gai n.  See Annex G – Gui del i nes i n Det er mi ni ngWhet heraRealPr oper t y i saCapi t al oranOr di nar yAsset . EXEMPTI ON

OF CERTAI N I NDI VI DUALS FROM THE CAPI TAL GAI NS TAX ON THE SALE OR DI SPOSI TI ONOFAPRI NCI PALRESI DENCE

Condi t i ons: a. Sal eordi sposi t i onoft heol dpr i nci pal r esi dence; b. Bynat ur alper sons-c i t i zensoral i ens pr ov i ded t hat t hey ar e r esi dent s t axabl eunderSec.24 oft heCode ( doesnoti ncl udeanest at eorat r ust ) ; c. Thepr oceedsofwhi chi sf ul l yut i l i zed i n( a)acqui r i ngor( b)const r uct i nga new pr i nci pal r esi dence wi t hi n ei ght een( 18)cal endarmont hsf r om dat eofsal eordi sposi t i on; d. Not i f yt heCommi ssi onerwi t hi nt hi r t y ( 30)day sf r om t hedat eofsal eor di sposi t i on t hr ough a pr escr i bed r et ur nofhi si nt ent i ont oav ai lt het ax exempt i on; e. Canonl ybeav ai l edofonl yonceev er y t en( 10)y ear s; f . Thehi st or i calcostoradj ust edbasi s ofhi sol dpr i nci palr esi dencesol d, exchanged or di sposed shal l be car r i edov ert ot hecostbasi sofhi s newpr i nci pal r esi dence g. I ft her ei s no f ul lut i l i zat i on,t he por t i on oft he gai ns pr esumed t o hav ebeenr eal i zedshal lbesubj ectt o

TAXATI ON L AW COMMI TTEE

capi t al gai nst ax . GROSSI NCOMEFROM DI FFERENTSOURCES ( SEC.42)  Pl easer ef ert oAnnexI . ACCOUNTNG PERI ODSANDMETHODSOF ACCOUNTI NG

I . ACCOUNTI NGPERI ODS A. Gener alr ul e( Sec.43) Taxabl ei ncome i s comput ed upont hebasi soft axpay er ’ sannual account i ng per i od ( f i scal or cal endary ear )i naccor dancewi t h t he met hod of account i ng empl oy ed. I f no met hod of account i ng empl oy ed ormet hod does not cl ear l y r ef l ect t he i ncome, comput at i on shal lbe made i n accor dancew/suchmet hodas t heopi ni onoft heCommi ssi oner cl ear l yr ef l ect st hei ncome. Taxabl e i ncome i s comput ed basedoncal endary eari f : 1. account i ng per i od i s ot her t hanaf i scal y ear 2. t axpay erhasno account i ng per i od 3. t axpay er does not keep books 4. t axpay eri sani ndi v i dual Fi scaly ear :account i ngper i odof 12mont hsendi ngont hel astday of any mont h ot her t han December Cal endary ear :account i ngper i od f r om Januar y1t oDecember31 B. Per i ods i n whi ch i t ems ofgr oss i ncomei ncl uded( Sec.44) Amountofal li t ems ofgr oss i ncomeshal lbei ncl udedi nt he gr ossi ncomef ort het axabl ey ear i nwhi chr ecei v edbyt het axpay er , unl ess,anysuchamount sar et o be pr oper l yaccount ed f ori na di f f er entper i od undermet hods ofaccount i ngper mi t t ed I n case ofdeat h oft axpay er : i ncl ude f ort he t axabl ey eari n whi chf al l st hedat eofhi sdeat h, al lamount swhi chaccr uedupt o t he dat e of hi s deat h;i f not

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW ot her wi se pr oper l yi ncl udi bl ei n r espectofsuchper i odorapr i or per i od

C. Per i od f orwhi ch deduct i on and cr edi t st aken( Sec.45) Deduct i onspr ov i dedi nt hi sTi t l e shal l bet akenf ort het axabl ey ear i n whi ch ‘ pai d or i ncur r ed, dependentupon t hemet hod of account i ng upon t he basi s of whi ch t he net i ncome i s comput ed,unl ess,i n or der t o r ef l ectt he i ncome,deduct i ons shoul dbet akenasofadi f f er ent per i od. I n case ofdeat h oft ax pay er : deduct i ons al l owed f or t he t axabl eper i odi nwhi chf al l st he dat e of hi s deat h, amount s accr ued up t ot he dat e ofhi s deat hi fnotot her wi se pr oper l y al l owabl e i n r espect of such per i odorapr i orper i od. D. Change of account i ng per i od ( Sec. 46) Ki ndsofchanges: -f r om f i scaly eart ocal endar y ear -f r om cal endary eart of i scal y ear -f r om one f i scal y ear t o anot her Ef f ectofchange: Neti ncome, shal l ,wi t ht he appr ov aloft he Commi ssi oner ,becomput edon t hebasi soft henew account i ng per i od, subj ectt oSec.47. E. Fi naloradj ust mentr et ur nsf ora per i odofl esst han12mont hs ( 1) Ret ur ns f or shor t per i od r esul t i ng f r om change of account i ngper i od t axpay er i s ot her t han an i ndi v i dual wi t h t he appr ov al of t he Commi ssi oner I fchangei sf r om f i scaly eart o cal endary ear : - separ at ef i naloradj ust ment r et ur nbemadef ort heper i od bet weent hecl oseoft hel ast f i scaly earf orwhi ch r et ur n

TAXATI ON L AW COMMI TTEE

wasmadeandt hef ol l owi ng December31 I fchangei sf r om cal endary eart o f i scal y ear : - separ at ef i naloradj ust ment r et ur nbemadef ort heper i od bet weent hecl oseoft hel ast cal endarf orwhi chr et ur nwas made and t he dat e desi gnat ed as t he cl ose of t hef i scal y ear I fchangei sf r om onef i scaly ear t oanot her : - separ at ef i naloradj ust ment r et ur nbemadef ort heper i od bet ween t he cl ose of t he f or mer f i scaly earandt he dat edesi gnat edast hecl ose oft henewf i scal y ear ( 2)I ncome comput ed on basi s of shor tper i od I nwhatcases? a. Wher easepar at ef i nalor adj ust mentr et ur ni smade onaccountofachangei n account i ngper i od b. I nal l ot hercaseswher ea separ at ef i nal or adj ust mentr et ur ni s r equi r eorper mi t t edbyR&R pr escr i bedbySec.of Fi nance.upon r ecommendat i onof Commi ssi oner Bot h shal l be made f or a f r act i onal par tofay ear . Theni ncomei scomput edont he basi s of t he shor t per i od f or whi ch separ at e f i nal or adj ust mentr et ur ni smade. I I .METHODSOFACCOUNTI NG A. Cashmet hod Recogni t i on of i ncome andexpensedependentoni nf l ow orout f l owofcash. A. Accr ualmet hod Met hod under whi ch i ncome,gai ns and pr of i t s ar e i ncl uded i n gr ossi ncomewhen ear nedwhet herr ecei v edornot , and expenses ar e al l owed as deduct i ons when i ncur r ed:

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW al t hough noty etpai d.I ti st he r i ghtt or ecei v eandnott heact ual r ecei pt t hat det er mi nes t he i ncl usi onoft heamounti ngr oss i ncome  Exampl es: 1. i nt er estorr enti ncome ear ned but not y et r ecei v ed 2. r ent expense accr ued butnoty etpai d 3. wages due t o wor ker s butr emai ni ngunpai d A. Account i ng f or l ongt er m cont r act s  Longt er m cont r act s:bui l di ng, i nst al l at i on or const r uct i on cont r act scov er i ngaper i odi n excessof1y r  Per sonswhosegr ossi ncome i sder i v edi nwhol eori npar t f r om such cont r act s shal l r epor tsuchi ncomeupont he basi s of per cent age of compl et i on  Ther et ur ni saccompani edby a r et ur n cer t i f i cat e of ar chi t ect s or engi neer s showi ng t he per cent age of compl et i on dur i ng t he t axabl ey ear of t he ent i r e wor k per f or med under t he cont r act  Deduct i ons f r om gr oss i ncome: al l expendi t ur es madedur i ngt het axabl ey ear onaccountoft hecont r act : accountbei ng t aken oft he mat er i al and suppl i es on hand att he begi nni ng and endoft het axabl eper i odf or use i n connect i on wi t ht he wor kundert hecont r actbut noty etsoappl i ed.  Amended r et ur n may be per mi t t ed / r equi r ed by t he Commi ssi oner : i f upon compl et i on of cont r act , t axabl ei ncomehasnotbeen cl ear l y r ef l ect ed f or any y ear ( s) . A. I nst al l mentbasi s ( 1)Sal esofdeal er si nper sonal

TAXATI ON L AW COMMI TTEE

pr oper t y Under r ul es and r egul at i onspr escr i bedbyt he Sec.of Fi nance,a per son who r egul ar l y sel l s or ot her wi se di sposes of per sonal pr oper t y on t he i nst al l mentpl an mayr et ur n asi ncomet her ef r om i nany t axabl ey eart hatpr opor t i on oft hei nst al l mentpay ment s act ual l yr ecei v edi nt haty ear , whi ch t he gr oss pr of i t r eal i zed or t o be r eal i zed whenpay menti scompl et ed, bear st ot hecont r actpr i ce.

Exampl e:Sal ei n2000 Cont r actpr i ce( CP) ( i nst al l ment s r ecei v abl e) P200, 000 Cost 150, 000 Gr osspr of i t( GP) 50, 000 I nst al l ment s pay abl e i n 2 equal annual i nst al l ment s GP/ CPr at i o =50, 000/ 200, 000=25% Col l ect i ons i n 2000=P100, 000 I ncomef or2000 =P100, 000x25%=P25, 000 ( 2)Sal es ofr eal t y and casual sal esofPer sonal t y  I ncasesof : a. casualsal eorot her casualdi sposi t i onof per sonal pr oper t y ( ot hert hani nv ent or y on hand of t he t axpay eratt hecl ose oft he t axabl ey ear ) f orapr i ce>P1, 000, or b. sal e or ot her di sposi t i on of r eal pr oper t y ,i fi n ei t her case t he i ni t i al pay ment s do not exceed 25% oft he sel l i ngpr i ce  How may i ncome be r et ur ned: same as i n sal es of deal er i n

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW per sonal pr oper t yabov e  I ni t i al pay ment s: pay ment s r ecei v ed i n cash or pr oper t y ot her t han ev i dences of i ndebt edness of t he pur chaser dur i ng t he t axabl e per i od i n whi ch t he sal e or ot her di sposi t i oni smade. ( 3)Sal es of r eal pr oper t y consi der ed as capi t alasset byi ndi v i dual s  I ndi v i dualwho sel l s of di sposesofr ealpr oper t y , consi der ed as capi t al assetand i s ot her wi se qual i f i ed t o r epor tt he gai nunder( 2)abov emay payt hecapi t algai nst ax i n i nst al l ment s under r ul esand r egul at i onst o be pr omul gat ed by t he Sec.ofFi nance. ( 4)Change f r om accr ual t o i nst al l mentbasi s  t axpay ermustbeent i t l ed t o benef i t s under ( 1) her eofsal esofdeal er si n per sonal pr oper t y  i ncomput i ngi ncomef or t hey earofchangeorany subsequent y ear : amount s act ual l y r ecei v eddur i nganysuch y earonaccountofsal es orot herdi sposi t i ons of pr oper t y made i n any pr i ory earshal lnotbe excl uded. A. Al l ocat i on of i ncome and deduct i ons  Appl i cabl et o:casesof2or mor eor gani zat i ons, t r adesor busi nesses ( i ncor por at ed and or gani zed wi t hi n t he Phi l i ppi nes) owned or cont r ol l eddi r ect l y/ i ndi r ect l y byt hesamei nt er est  Commi ssi oneri s aut hor i zed t o di st r i but e,appor t i on or

TAXATI ON L AW COMMI TTEE

al l ocat e gr oss i ncome or deduct i ons bet ween or among such or gani zat i on, t r ade or busi ness, i f he det er mi nes t hat such di st r i but i on, appor t i onment oral l ocat i oni snecessar yi n or dert o pr ev entev asi on of t axesort ocl ear l yr ef l ectt he i ncome of any such or gani zat i on, t r ade or busi ness. FI LI NGOFTAXRETURNANDPAYMENTOFTAX TAX RETURN – Thi si sar epor tmadeby t he t axpay ert ot he BI R ofal lgr oss i ncomer ecei v eddur i ngt het axabl ey ear , t he al l owabl e deduct i ons i ncl udi ng exempt i ons,t henett axabl ei ncome,t he i ncomet axr at e,t hei ncomet axdue,t he i ncome t ax wi t hhel d,i f any ,and t he i ncomet axst i l l t obepai dorr ef undabl e.

PERSONS REQUI RED RETURN

TO

FI LE I NCOME TAX

a. I ndi v i dual 1. Resi dentci t i zen; 2. Nonr esi dentci t i zen on i ncome f r om wi t hi nt hePhi l . ; 3. Resi dental i en on i ncome f r om wi t hi nt hePhi l . ; 4. NRAETB oni ncomef r om wi t hi n t hePhi l . 5. An i ndi v i dual( ci t i zens /al i ens) engagedi nbusi nessorpr act i ce ofapr of essi onwi t hi nt hePhi l . r egar dl ess of t he amount of gr ossi ncome; 6. I ndi v i dualder i v i ngcompensat i on i ncomeconcur r ent l yf r om t woor mor e empl oy er s at any t i me dur i ngt het axabl ey ear ; 7. I ndi v i dual whose pur e compensat i on i ncome der i v ed f r om sour ces wi t hi nt he Phi l . exceedsP60, 000. b. Taxabl eEst at eandTr ust c. Gener alPr of essi onalPar t ner shi p d. Cor por at i on 1. Notexemptf r om i ncomet ax; 2. Exemptf r om i ncomet axunder

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Sec.30 ofNI RC buthas not shownpr oofofexempt i on.

I NDI VI DUALS E XEMPT F ROM F I LI NG I NCOME TAXRETURN 1. I ndi v i dualwhosegr ossi ncomedoes not exceed t ot al per sonal and addi t i onal exempt i ons; 2. I ndi v i dual wi t h r espect t o pur e compensat i on i ncome der i v ed f r om sour ces wi t hi nt he Phi l i ppi nes,t he i ncome t ax on whi ch has been cor r ect l ywi t hhel d; 3. I ndi v i dualwhose sol ei ncome has been subj ect ed t of i nalwi t hhol di ng i ncomet ax; 4. I ndi v i dual who i s exempt f r om i ncomet ax. FI LI NG – i s when t he empl oy er ’ s annual r et ur n may be consi der ed as t he “ subst i t ut e”I ncome TaxRet ur n( I TR)ofempl oy eei nasmuch ast hei nf or mat i onpr ov i dedi nhi si ncome t ax r et ur n woul d exact l ybe t he same i nf or mat i oncont ai nedi nt heempl oy er ’ s annual r et ur n. SUBSTI TUTED

HOW I S “ SUBSTI TUTED F I LI NG”DI FFERENT FROM “ NONFI LI NG” ?  Subst i t ut ed Fi l i ng – an i ndi v i dual t axpay eral t houghr equi r edunder t he l aw t of i l e hi si ncome t ax r et ur n,wi l lno l ongerhav et o per sonal l yf i l e hi s own i ncome t axr et ur n. – but i nst ead t he empl oy er ’ s annual i nf or mat i on r et ur nf i l ed i st he consi der ed “ subst i t ut e”i ncomet axr et ur nof t he empl oy ee i nasmuch as t he i nf or mat i on i n t he empl oy er ’ s r et ur n i s exact l y t he same i nf or mat i on cont ai ned i n t he empl oy ee’ sr et ur n.  Nonf i l i ng – appl i cabl et o cer t ai n t y pesofi ndi v i dualt axpay er swho ar enotr equi r edundert hel awt o f i l eani ncomet axr et ur n. Exampl e:empl oy eewhose pur ecompensat i oni ncomedoes notexceedP60, 000andhasonl y

TAXATI ON L AW COMMI TTEE

oneempl oy erf ort het axabl ey ear and whose t ax wi t hhel d i s equi v al entt ohi st axdue. SUBSTI TUTEDFI LI NGOFI NCOMETAXRETURNS BY EMPLOYEES RECEI VI NG PURELY COMPENSATI ON I NCOME.[ SECTI ON 4 ,RR32002; RMC0103] Requi si t es: 1. The empl oy ee r ecei v es pur el y compensat i oni ncome( r egar dl essof amount )dur i ngt het axabl ey ear . 2. The empl oy ee r ecei v es t he i ncome onl yf r om oneempl oy erdur i ng t he t axabl ey ear . 3. The amountoft ax due f r om t he empl oy ee att he end oft he y ear equal st heamountoft axwi t hhel dby t heempl oy er . 4. The empl oy ee' s spouse al so compl i eswi t hal lt hr ee( 3)condi t i ons st at edabov e. 5. The empl oy er f i l es t he annual i nf or mat i on r et ur n( BI R For m No. 1604CF) 6. Theempl oy eri ssuesBI RFor m 2316 ( Oct2002 ENCS)v er si on t o each empl oy ee I NDI VI DUALS NOT QUALI FI ED FOR SUBSTI TUTEDF I LI NG( STI LLREQUI REDTOF I LE) 1. I ndi v i dual s der i v i ng compensat i on f r om t wo or mor e empl oy er s concur r ent l yorsuccessi v el ydur i ng t het axabl ey ear . 2. Empl oy ees der i v i ng compensat i on i ncome,r egar dl ess oft he amount , whet herf r om a si ngl e orsev er al empl oy er sdur i ngt hecal endary ear , t hei ncomet axofwhi chhasnotbeen wi t hhel dcor r ect l y( i . e.t axduei snot equalt ot het axwi t hhel d)r esul t i ngt o col l ect i bl eorr ef undabl er et ur n. 3. Empl oy ees whose mont hl y gr oss compensat i on i ncome does not exceed P5, 000 or t he st at ut or y mi ni mum wage,whi chev eri shi gher , andopt edf ornonwi t hhol di ngoft ax onsai di ncome. 4. I ndi v i dual s der i v i ng ot her nonbusi ness, nonpr of essi onr el at ed i ncomei naddi t i ont ocompensat i on i ncomenotot her wi sesubj ectt of i nal

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

t ax. 5. I ndi v i dual s r ecei v i ng pur el y compensat i oni ncomef r om asi ngl e empl oy eral t hought hei ncomet axof whi ch has been cor r ect l y wi t hhel d, butwhosespousef al l sunder1t o4 abov e. 6. Nonr esi dental i ensengagedi nt r ade orbusi nessi nt hePhi l i ppi nesder i v i ng pur el y compensat i on i ncome, or compensat i oni ncomeandot hernonbusi ness, nonpr of essi onr el at ed i ncome.

NOTE: Nonf i l i ngofI TR,f orempl oy ees whoar equal i f i edf ort hesubst i t ut edf i l i ng shal lbeOPTI ONALf ort het axabl ey ear 2001,t her et ur nsf orwhi chshal lbef i l ed onorbef or eApr i l15,2002. Ther eaf t er , subst i t ut edf i l i ngwher eappl i cabl eshal l beMANDATORY.[ Sec5RR32002)

REQUI REMENTOFBANKSF ORSUBMI SSI ON OF AN I TR F OR L OAN OR CREDI T CARD APPLI CATI ONS Banksmayr equi r et hesubmi ssi onof BI R For m No.1700( f orempl oy eesnot ent i t l ed t o subst i t ut ed f i l i ng of I TR) . Howev er ,f or empl oy ees ent i t l ed t o subst i t ut edf i l i ngofI TR,t hesubmi ssi on oft heJoi ntCer t i f i cat i onwi l l suf f i ce. JOI NT CERTI FI CATI ON - I ti s a swor n st at ementmade by t he empl oy erand empl oy ee,whi ch ser v e t he f ol l owi ng pur poses: 1. I tcont ai ns t he empl oy ee' s consent t hatBI RFor m No.1604¬CFmaybe consi der edhi ssubst i t ut edr et ur n,i n l i euofBI RFor m No.1700,whi cht he empl oy eenol ongerf i l ed. 2. I t cont ai ns t he empl oy er ' s cer t i f i cat i ont hathehasr epor t edt he empl oy ee' si ncome t ot he BI R and t hathehasr emi t t edt het axesont he empl oy ee' si ncome,as i ndi cat ed i n BI RFor m No.1604CF. 3. I t ser v es as pr oof of f i nanci al capaci t y i n case t he empl oy ee deci dest oappl yf orabankl oanora cr edi t car d,orf oranyot herpur pose, asi fhehadi nf actf i l edaBI RFor m

TAXATI ON L AW COMMI TTEE

No.1700. I NDI VI DUALS REQUI RED I NFORMATI ON RETURN

TO

FI LE

AN

I ndi v i dual s notr equi r ed t of i l e an i ncomet axr et ur nmaynev er t hel essbe r equi r ed t of i l e an i nf or mat i on r et ur n pur suant t o r ul es and, r egul at i ons pr escr i bed byt heSecr et ar yofFi nance upon r ecommendat i on of t he Commi ssi oner . PLACEOFFI LI NG 1. Legalr esi dence -aut hor i zed agent bank; Rev enue Di st r i ct Of f i cer ; Col l ect i on agentordul yaut hor i zed t r easur er 2. Pr i nci pal pl aceofbusi ness 3. Wi t ht heOf f i ceoft heCommi ssi oner

TI MEF ORF I LI NG( PAYASYOUFI LESYSTEM)

Apr i l15 – f ort hose ear ni ng sol e compensat i oni ncomeorsol el ybusi ness, pr act i ceofpr of essi onorcombi nat i onof busi nessandcompensat i on. RETURN AND PAYMENT OF ESTI MATED I NCOMETAXBYI NDI VI DUAL ( SELFEMPLOYED ORPRACTI CEOFPROFESSI ON) 1.Fi r stquar t er-Apr i l 15ofcur r enty ear 2. Secondquar t erAugust15ofcur r ent y ear 3. Thi r dquar t er–Nov ember15ofcur r ent y ear 4. Fi nal quar t er-Apr i l 15oft hef ol l owi ng y ear .

Not e: Whent het axduei si nex cessofP2, 000-t het ax pay ermayel ectt opayi nt wo ( 2)equal i nst al l ment s: 1sti nst al l ment-Apr i l 15 2ndi nst al l ment-onorbef or eJul y15 EXTENSI ONOFTI METOF I LERETURN The Commi ssi oner may on mer i t or i ous cases gr anta r easonabl e ext ensi onoft i mef orf i l i ngi ncomet ax

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

r et ur nandmaysubj ectt hei mposi t i onof t went y( 20)per centi nt er estperannum f r om t heor i gi nal duedat e. RETURNOFHUSBANDANDWI FE  Fi l e one ( 1)r et ur nf ort het axpay er y eari ff ol l owi ngr equi si t escompl i ed; a. Mar r i ed i ndi v i dual s ( ci t i zens, r esi dentornonr esi dental i ens) b. Do notder i v ed i ncome pur el y f r om compensat i on.  I fi mpr act i cabl et of i l eoner et ur n: each spouse f i l e a separ at er et ur n of i ncomebutt her et ur nsof i l edshal l be consol i dat ed byt heBur eau f ort he pur posesofv er i f i cat i onf ort hey ear .

r et ur n ofi t si ncome ( exceptt hose i ncomeexempt )  Shal l setf or t h: a. i t ems of gr oss i ncome and deduct i onsal l owed b. namesofpar t ner s c. TI N d. addr ess and shar e of each par t ner

 I ncomeofunmar r i edmi nor sder i v ed f r om pr oper t yr ecei v edbyt hel i v i ng

TAXRETURNOFACORPORATI ON Thoser equi r edt of i l e: 1. Cor por at i on subj ectt ot ax hav i ng exi st ed dur i ng t he t axabl e y ear , whet herwi t hi ncomeornot . 2. Cor por at i on i n t he pr ocess of l i qui dat i onorr ecei v er shi p. 3. I nsur ancecompanydoi ngbusi nessi n t he Phi l i ppi nes order i v i ng i ncome t her ei n 4. For ei gn cor por at i on hav i ng i ncome f r om wi t hi nt hePhi l i ppi nes

par entshal lbei ncl udedi nt her et ur n oft hepar ent , except : a. whendonor ’ st axhasbeenpai d onsuchpr oper t y , or b. whent r ansf erofsuchpr oper t yi s exemptf r om donor ’ st ax

FI LI NGOFRETURN ( PAYASYOUFI LESYSTEM) Quar t er l yr et ur nsf ort hef i r stt hr ee( 3) quar t er sonast r i ct l ysi x t y( 60)daybasi s andt hef i nal oradj ust edr et ur nont he15t h dayoft hef our t h( 4t h)mont hf ol l owi ngt he cl oseofei t hera-f i scal oncal endary ear .

UNMARRI EDMI NOR

PERSONSUNDERDI SABI LI TY

 SeeAnnexVf orI l l ust r at i on.

I fat axpay eri sunabl et omakehi s ownr et ur n, i tmaybemadebyhi s 1. dul yaut hor i zedagent s; 2. r epr esent at i v e; 3. byguar di an; 4. ot herper sonchar gedwi t ht hecar eof hi sper sonorpr oper t y ;  whowi l lassumet her esponsi bi l i t yof maki ng t he r et ur n and i ncur r i ng penal t i es pr ov i ded f or er r oneous, f al seorf r audul entr et ur n.

WHOSHALLFI LE? The r et ur n shal lbe f i l ed by t he pr esi dent , v i cepr esi dent , orot herpr i nci pal of f i cer ,and shal lbe swor nt o bysuch of f i cerandbyt het r easur erorassi st ant t r easur er .

RETURNOFESTATE, TRUSTANDPARTNESHI P Est at eandTr ustwi t hgr ossi ncome of P20, 000 or mor e and par t ner shi p ( whet herpr of essi onalorbusi ness)shal l f i l et hei ri ncomet axr et ur nonorbef or e Apr i l 15.

WI THHOLDI NGTAXES WI THHOLDI NGTAXES Ki nds: 1. Wi t hhol di ngTaxatSour ce: a. Fi nal Wi t hhol di ngTax b. Cr edi t abl e Wi t hhol di ng Tax ( Expandedwi t hhol di ngt ax) 2. Wi t hhol di ng Tax on Compensat i on ( Wages) 3. Wi t hhol di ngTaxonCr edi t abl eVal ueAddedTax 4. Wi t hhol di ngofPer cent ageTax

TAX RETURNS OF GENERAL PROFESSI ONAL PARTNERSHI PS( GPP)  Each GPP shal lf i l ei n dupl i cat e,a

TAXATI ON L AW COMMI TTEE

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

FI NAL WI THHOLDI NG TAXSYSTEM

CREDI TABLE WI THHOLDI NG TAXSYSTEM

Theamountof i ncomet axwi t hhel d byt hewi t hhol di ng agenti sconst i t ut ed asaf ul l andf i nal pay mentoft he i ncomeduef r om t he pay eeont hesai d i ncome.[ Sec.2. 57 ( a) , Rev .Reg.298]

Taxeswi t hhel don cer t ai ni ncome pay ment sar e i nt endedt oequal or atl eastappr oxi mat e t het axduef r om t he pay eeont hesai d i ncome.

Thel i abi l i t yf or pay mentoft het ax r est spr i mar i l yont he pay orort he wi t hhol di ngagent . Thepay eei snot r equi r edt of i l ean i ncomet axr et ur nf or t hepar t i cul ar i ncome.

Thei ncomer eci pi ent i sst i l l r equi r edt of i l e ani ncomet axr et ur n and/ orpayt he di f f er encebet ween t het axwi t hhel dand t het axdueont he i ncome.[ Sec. 2. 57( B) , Rev .Regs.298]

TI METOWI THHOLDTAXATSOURCE -ar i sesatt het i meani ncomei spai d orpay abl e,whi chev ercomesf i r st . The t er m “ pay abl e”r ef er st ot he dat et he obl i gat i onbecomesdue,demandabl eor l egal l y enf or ceabl e. ( Sec.2. 54. 4 Rev . Regs.2. 98) NATUREOFWI THHOLDI NGAGENT’ SL I ABI LI TY Thewi t hhol di ngagenti sdi r ect l y andi ndependent l yl i abl ef ort hecor r ect amountoft het axt hatshoul dbewi t hhel d f r om t he di v i dend r emi t t ance. ( Commi ssi onerv s.Pr oct erandGambl e, GRNo.66838, December2, 1991) CONSEQUENCESFORFAI LURETOWI THHOLD: 1. l i abl ef orsur char gesandpenal t i es; 2. l i abl euponconv i ct i ont oapenal t y equalt ot het ot alamountoft het ax notwi t hhel d,ornotaccount edf or andr emi t t ed.( Sec.251, 1997NI RC) 3. any i ncome pay ment whi ch i s ot her wi se deduct i bl e f r om t he pay or ’ sgr ossi ncomewi l lnotbe al l owed as a deduct i on i fi ti s shownt hatt hei ncomet axr equi r ed t obewi t hhel di snotpai dt ot heBI R. ( Sec.2. 58. 5, Rev .Reg.298)

TAXATI ON L AW COMMI TTEE

WI THHOLDI NGTAXON COMPENSATI ON Ev er y empl oy er must wi t hhol d f r om compensat i on pai d,an amount comput ed i n accor dance wi t h t he r egul at i ons. Except i on: Wher e such compensat i on i ncomeofani ndi v i dual : 1. Does not exceed t he st at ut or y mi ni mum wages; or 2. Fi v e t housand ( P5, 000) mont hl y ( P60, 000ay ear )  whi cheveri shi gher . ELEMENTS OF WI THHOLDI NG ON COMPENSATI ON 1. Ther emustbeanempl oy er empl oy ee r el at i onshi p 2. Ther e must be pay ment of compensat i onorwagesf orser v i ces r ender ed 3. Th e r emus tbeapa yr ol lpe r i od. COMPENSATI ON E XEMPTED 1. Remuner at i ons r ecei v ed as an i nci dentofempl oy ment 2. Remuner at i ons pai df oragr i cul t ur e l abor 3. Remuner at i ons pai d f or domest i c ser v i ces 4. Remuner at i onsf orcasualnoti nt he cour se ofan empl oy er ' st r ade or busi ness. 5. Compensat i on f or ser v i ces of a ci t i z en, r esi dentoft hePhi l i ppi nes,f or a f or ei gn gov er nment or an i nt er nat i onal or gani zat i on 6. Damages 7. Li f ei nsur ance 8. Amountr ecei v edbyt hei nsur edas r et ur nofpr emi um 9. Compensat i on f or i nj ur i es and si ckness 10.I ncomeexemptundert r eat y 11.Thi r t eent h ( 13t h) mont h pay and ot herbenef i t s 12.GSI S; SSS; Phi l heal t h and ot her cont r i but i ons, TAXFREECOVENANTBOND[ SEC.57( C) ] COVENANT BONDS – bonds,mor t gages, deeds of t r ust and ot her si mi l ar obl i gat i onsofdomest i c/ r esi dentf or ei gn

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

cor por at i on, whi ch cont ai n a cont r act / pr ov i si on bywhi ch t heobl i gor agr ees; 1. t opayanypor t i onoft het axi mposed upont heobl i gee; 2. t or ei mbur set heobl i geef orany por t i onoft het ax; or 3.t opayt hei nt er estwi t houtdeduct i on f oranyt axwhi cht heobl i gormaybe r equi r ed/ per mi t t edt opayort or et ai n t her ef r om.

Lesserexempt i ons

Obl i gorshal ldeductandwi t hhol da t ax=30% oft hei nt er estandot her pay ment swhet heri nt er estorot her pay ment sar epay abl eannual l yorata shor t er per i od; whet her bonds, secur i t i es,obl i gat i onshadbeen/ wi l l bei ssued/mar ket edandt hei nt er est andot herpay ment spai dwi t hi nand wi t houtt hePhi l i ppi nesi ft hei nt er est orot herpay menti spay abl et oanonr esi dental i enoraci t i zenorr esi dent oft hePhi l i ppi nes I NCOMEOFRECI PI ENT[ SEC.58( D) ]

ESTATETAXFORMULA



 I ncomewhi chanycr edi t abl et axi s r equi r ed t o be wi t hhel d atsour ce shal lbei ncl udedi nt her et ur nofi t s r eci pi ent .  The excess oft he amountoft ax wi t hhel d ov ert he t ax due on hi s r et ur n shal lbe r ef unded t o hi m, subj ectt o Sect i on 204 ( abat ement , r ef und/ cr edi tt axes) .  I famountwi t hhel datsour cei sl ess t han t het axdueonhi sr et ur n,t he di f f er encei spai di naccor dancewi t h Sect i on56( pay mentandassessment ofi ncomet ax ) .  Al lt axeswi t hhel dshal lbeconsi der ed ast r ustf undsandmai nt ai nedi na separ at e account and not commi ngl edwi t hanyot herf undsof t hewi t hhol di ngagent .

B.TRANSFERTAXES TRANSFERTAX

I NCOMETAX

Tax on t r ansf er of Taxoni ncome pr oper t y . Rat esar el ower

Rat esar ehi gher

TAXATI ON L AW COMMI TTEE

5% t o 20% est at et ax -2% t o15% or 30% -donor ’ s t ax

-5%t o32%

Mor eexempt i ons

( 1)ESTATETAXES DEFI NI TI ON:a nexci set axont her i ghtof t r ansmi t t i ngpr oper t yatt het i meofdeat h andont hepr i v i l eget hataper soni sgi v en i n cont r ol l i ng t o a cer t ai n ext entt he di sposi t i onofhi spr oper t yt ot akeef f ect upondeat h.

Gr ossEst at e( Sec.85) Less: ( 1)Deduct i ons( Sec.86) ( 2) Netshar eoft heSSi nt heCPP NetTaxabl eEst at e Mul t i pl yby :Taxr at e( Sec.84) Est at eTaxdue Less: TaxCr edi t[ i fany ]( Sec.86[ E]or 110[ B] Est at eTaxDue, i fany

GROSSESTATE ADECEDENT’ SGROSSESTATEI NCLUDES( SEC. 85) RESI DENT&NONRESI DENTCI TI ZEN, RESI DENTALI EN DECEDENT

NONRESI DENT ALI EN DECEDENT

1.Real pr oper t y wher ev ersi t uat ed

1.Real pr oper t y si t uat edi nt he Phi l i ppi nes.

2.Per sonal pr oper t y wher ev ersi t uat ed a) Tangi bl e, and b) I nt angi bl e

2.Per sonal pr oper t y a)Tangi bl e pr oper t y si t uat ed i nt he Phi l i ppi ne s b) I nt angi bl e per sonal pr oper t y

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW wi t hasi t us i nt he Phi l i ppi nes unl ess exempt ed ont hebasi s of r eci pr oci t y .

THELAW

THAT GOVERNSTHEI MPOSI TI ON OF ESTATETAX

Thest at ut ei nf or ce att het i meof deat hoft hedecedentshal lgov er nest at e t axat i on. I NTANGI BLE

PERSONAL PROPERTI ES WI TH A SI TUSI NTHEPHI L.( SEC.104, 1997NI RC)

1. Fr anchi sewhi chmustbeexer ci sedi n t hePhi l i ppi nes; 2. Shar es,obl i gat i onsorbondsi ssued by any cor por at i on or soci edad anoni maor gani zedorconst i t ut edi n t hePhi l i ppi nesi naccor dancewi t hi t s l aws; 3. Shar es,obl i gat i onsorbondsi ssued byanyf or ei gncor por at i onei ght y f i v e percent um ( 85%)oft hebusi nessof whi chi sl ocat edi nt hePhi l i ppi nes; 4. Shar es,obl i gat i onsorbondsi ssued byanyf or ei gn cor por at i on,i fsuch shar es,obl i gat i ons orbonds hav e acqui r ed a busi ness si t us i nt he Phi l i ppi nes; 5. Shar esorr i ght si nanypar t ner shi p, busi ness ori ndust r yest abl i shed i n t hePhi l i ppi nes.

2. t he l aws oft he f or ei gn count r yof whi cht hedecedentwasaci t i zenand r esi dentatt het i meofhi sdeat h a. al l ow a si mi l arexempt i on f r om t r ansf ert axesordeat ht axesof ev er ychar act er b. i nr espectofi nt angi bl eper sonal pr oper t yownedbyci t i zensoft he Phi l i ppi nes notr esi di ng i nt hat f or ei gncount r y( Reci pr oci t y ) . VALUATI ONOFTHEGROSSESTATE Thepr oper t i escompr i si ngt hegr oss est at eshal lbev al uedbasedont hei rf ai r mar ketv al ueasoft het i meofdeat h. PROPERTY 1)Real Pr oper t y

VALUATI ON -f ai rmar ketv al ue a)asdet er mi nedbyt he Commi ssi oneror b)as shown i n t he schedul e of v al ues f i xedbyt hepr ov i nci al andci t yassessor s WHI CHEVERI SHI GHER

2)Shar esofSt ock Unl i st ed Common Shar es Pr ef er r ed Shar es Li st ed

bookv al ue parv al ue ar i t hmet i cmean bet weent hehi ghestand l owestquot at i onata dat enear estt hedat eof deat h, i fnonei sav ai l abl e ont hedat eofdeat h i t sel f .

I NTANGI BLE

3) Ri ghtt o usuf r uct , useor habi t at i on, aswel l ast hatofannui t y

1. t hedecedentatt het i meofhi sdeat h was a ci t i zen and r esi dent of a f or ei gncount r ywhi chatt het i meof hi sdeat h a. di dnoti mposeat r ansf ert axor deat ht axofanyc har act er a. i nr espectofi nt angi bl eper sonal pr oper t y of ci t i zens of t he Phi l i ppi nes notr esi di ng i nt hat f or ei gncount r y ; or

-shal l bet akeni nt o accountt hepr obabl el i f e oft hebenef i ci ar yi n accor dancewi t ht he l at estbasi cst andar d mor t al i t yt abl e, t obe appr ov edbyt he Secr et ar yofFi nance, uponr ecommendat i on oft heI nsur ance Commi ssi oner .

4)Per sonal pr oper t y

-whet hert angi bl eor i nt angi bl e, appr ai sedat FMV.“ Sent i ment al v al ue”i spr act i cal l y di sr egar ded.

PERSONAL PROPERTY,WI TH A SI TUS I N THE PHI LI PPI NES,OF A DECEDENT WHO I S A NONRESI DENT ALI EN SHALL NOT FORM PART OF THE GROSS ESTATE I F ( RECI PROCI TYCLAUSE)( SEC.104)

TAXATI ON L AW COMMI TTEE

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

I NCLUSI ONSI NTHEGROSSE STATE( SEC.85) 1.DECEDENT’ SI NTEREST To t he ext ent of t he i nt er est i n pr oper t yoft hedecedentatt het i meof hi sdeat h. 2.TRANSFER I N CONTEMPLATI ON OF DEATH 1. At r ansf ermot i v at edbyt het hought ofi mpendi ng deat h al t hough deat h maynotbei mmi nent ; or 2. A t r ansf erby whi ch t he decedent r et ai nedf orhi sl i f eorf oranyper i od whi chdoesnoti nf actendbef or ehi s deat h: a. t hepossessi onorenj oy mentof , ort her i ghtt ot hei ncomef r om t hepr oper t y , or b. t he r i ght , ei t her al one or i n conj unct i onwi t hanyper son,t o desi gnat et heper sonwho shal l possessorenj oyt hepr oper t yor t hei ncomet her ef r om. Except i on:bonaf i desal ef oranadequat e and f ul l consi der at i on i n money or money ’ swor t h. 3.REVOCABLETRANSFER A t r ansf er wher eby t he t er ms of enj oy mentoft hepr oper t ymaybeal t er ed, amended,r ev okedort er mi nat ed byt he decedental oneori nconj unct i onwi t hany ot herper son,orwher eanysuchpoweri s r el i nqui shed i n cont empl at i on of t he decedent ’ sdeat h.I ti senought hatt he decedenthadt hepowert oal t er ,amend orr ev oket houghhedi dnotexer ci sesuch power . Except i on:bonaf i desal ef oranadequat e and f ul l consi der at i on i n money or money ’ swor t h. 4.TRANSFERUNDERGENERALPOWER OFAPPOI NTMENT Apowerofappoi nt menti st her i ghtt o desi gnat et heper sonorper sonswhowi l l succeed t ot he pr oper t y oft he pr i or decedent . The gener alpowerofappoi nt ment maybeexer ci sedbyt hedecedent : 1. bywi l l ; or

TAXATI ON L AW COMMI TTEE

2. bydeedexecut edi ncont empl at i onof hi sdeat h; or 3. bydeedunderwhi chhehasr et ai ned f orhi sl i f e orf orany per i od not ascer t ai nabl ewi t houtr ef er encet ohi s deat horf oranyper i odwhi chdoes noti nf actendbef or ehi sdeat h: a. t hepossessi onorenj oy mentof , ort her i ghtt ot hei ncomef r om t hepr oper t y ; or b. t he r i ght , ei t her al one or i n conj unct i onwi t hanyper son,t o desi gnat et heper sonswhoshal l possessorenj oyt hepr oper t yor t hei ncomet her ef r om. Except i on:bonaf i desal ef oranadequat e and f ul l consi der at i on i n money or money ’ swor t h. 5.PROCEEDSOFLI FEI NSURANCE Pr oceedsofl i f ei nsur ancet akenby t he decedenton hi s own l i f e shal lbe i ncl uded i n t he gr oss est at e i ft he benef i ci ar yi s: a. t he est at e of t he decedent , hi s execut ororadmi ni st r at or( r egar dl ess whet hert hedesi gnat i oni sr ev ocabl e ori r r ev ocabl e) ; or b. at hi r dper sonot hert hant heest at e, execut ororadmi ni st r at orwher et he desi gnat i on of t he benef i ci ar yi s r ev ocabl e. 6.TRANSFERSFORI NSUFFI CI ENT CONSI DERATI ON Thev al uet obei ncl udedi nt hegr oss est at ei st he excessoft hef ai rmar ket v al ueoft hepr oper t yatt het i meoft he decedent ’ sdeat hov ert heconsi der at i on r ecei v ed.Thi si sappl i cabl ei ncasesof t r ansf er i n cont empl at i on of deat h, r ev ocabl et r ansf er and t r ansf er under gener alpowerofappoi nt mentmadef ora consi der at i onbuti snotabonaf i desal e f oranadequat eandf ul lconsi der at i oni n moneyormoney ’ swor t h. 7.PRI ORI NTERESTS Al lt r ansf er s, t r ust s, est at es, i nt er est s, r i ght s,power s and r el i nqui shment of power smade,cr eat ed,ar i si ng,exi st i ng, exer ci sedorr el i nqui shedbef or eoraf t er t heef f ect i v i t yoft heNI RC.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

PROPERTY RELATI ONS BETWEEN HUSBAND ANDWI FE The pr oper t yr el at i ons bet ween t he spousesshal lbegov er ned bycont r act ( mar r i age set t l ement )execut ed bef or e t hemar r i age. I nt heabsenceofsuchcont r act ,ori f t hecont r acti sv oi d: Onmar r i agescont r act edbef or eAugust3, 1988, t he sy st em of conj ugal par t ner shi pofgai nsshal l gov er n; On mar r i ages cont r act ed on or af t er August3,1988 ( ef f ect i v i t y oft he Fami l yCodeoft hePhi l i ppi nes) ,t he sy st em ofabsol ut e communi t y of pr oper t yshal l gov er n. EXEMPTTRANSMI SSI ONS( SEC.87) 1. Themer gerofusuf r ucti nt heowner oft henakedt i t l e; 2. Fi dei commi sar ysubst i t ut i on; 3. Thet r ansmi ssi onf r om t hef i r sthei r , l egat eeordoneei nf av orofanot her benef i ci ar y ,i n accor dance wi t ht he wi l l oft hepr edecessor ; and Al l bequest s, dev i ces, l egaci es or t r ansf er st osoci alwel f ar e,cul t ur aland char i t abl ei nst i t ut i onsnopar toft henet i ncomeofwhi chi nur est ot hebenef i tof anyi ndi v i dual ;Pr ov i ded,t hatnotmor e t han30% oft hesai dbequest s,l egaci es or t r ansf er s shal lbe used by such i nst i t ut i onsf oradmi ni st r at i onpur poses.

DEDUCTI ONSON GROSSE STATE APPLI CABLETO RESI DENTALI ENSANDCI TI ZENS ( REVENUEREGULATI ONS2 2003) Thef ol l owi ngar ededuct i bl ef r om t he gr oss est at e ofci t i zens and r esi dent al i ens: 1. Expenses, l osses, i ndebt edness, t axes, et c.( or di nar ydeduct i ons) 2. Tr ansf erf orpubl i cuse 3. Vani shi ngdeduct i on 4. Fami l yhome 5. St andar ddeduct i onequi v al entt oone mi l l i onpesos( P1, 000, 000) 6. Medi cal expenses 7. Amount sr ecei v edbyhei r sunderRA 4917( Ret i r ementBenef i t s) 8. Netshar eoft hesur v i v i ngspousei n t heconj ugal orcommuni t ypr oper t y

TAXATI ON L AW COMMI TTEE

1.ORDI NARYDEDUCTI ONS A. FUNERALEXPENSES Theamountdeduct i bl ei st hel owest amongt hef ol l owi ng: 1. act ual f uner al expenses 2. 5%oft hegr ossest at e 3. P200, 000. I ti ncl udest hef ol l owi ng: 1. Mour ni ng appar eloft he sur v i v i ng spouseandunmar r i edmi norchi l dr en oft hedeceased,boughtandusedi n t heoccasi onoft hebur i al . 2. Expensesoft hewakepr ecedi ngt he bur i al i ncl udi ngf oodanddr i nks. 3. Publ i cat i onchar gesf ordeat hnot i ces. 4. Tel ecommuni cat i on expenses i n i nf or mi ngr el at i v esoft hedeceased. 5. Cost of bur i alpl ot . Tombst one monumentormausol eum butnot t hei rupkeep.I ncasedeceasedowns af ami l yest at eorsev er albur i all ot s, onl yt hev al uecor r espondi ngt ot he pl otwher ehei sbur i edi sdeduct i bl e. 6. I nt er mentf eesandchar ges. 7. Al lot herexpensesi ncur r ed f ort he per f or mance of t he r i t ual and cer emoni esi nci dentt ot hei nt er ment . Expensesi ncur r edaf t ert hei nt er ment , such as f or pr ay er s, masses, ent er t ai nment , or t he l i ke ar e not deduct i bl e. Anypor t i onoft hef uner alandbur i al expensesbor neordef r ay edbyr el at i v es and f r i ends oft he deceased ar e not deduct i bl e. JUDI CI AL EXPENSES OF THE TESTAMENTARY OR I NTESTATE PROCEEDI NGS Expensesal l owedasdeduct i onunder t hi scat egor yar et hose: 1. i ncur r edi nt hei nv ent or y t aki ngof asset s compr i si ng t he gr oss est at e, 2. admi ni st r at i on, 3. pay mentofdebt soft heest at e, as wel las t he di st r i but i on oft he est at eamongt hehei r s. I nshor t ,t hesededuct i bl ei t emsar e expensesi ncur r eddur i ngt heset t l ement oft heest at ebutnotbey ondt hel astday pr escr i bed by l aw,or t he ext ensi on

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

t her eof ,f ort hef i l i ng oft heest at et ax r et ur n. CLAI MSAGAI NSTTHEE STATE The wor d " cl ai ms" i s gener al l y const r uedt omeandebt sordemandsof apecuni ar ynat ur ewhi chcoul dhav ebeen enf or ced agai nstt he deceased i n hi s l i f et i meandcoul dhav ebeenr educedt o si mpl emoneyj udgment s. Cl ai ms agai nst t he est at e or i ndebt ednessi nr espectofpr oper t ymay ar i seoutof : 1.Cont r act ; 2.Tor t ; or 3.Oper at i onofLaw. Requi si t es: 1. Thel i abi l i t yr epr esent saper sonal obl i gat i on of t he deceased exi st i ngatt het i meofhi sdeat h except unpai d obl i gat i ons i ncur r ed i nci dentt o hi s deat h suchasunpai df uner alexpenses ( i . e. ,ex pensesi ncur r edupt ot he t i me ofi nt er ment )and unpai d medi cal expenses whi ch ar e cl assi f i ed under a di f f er ent cat egor yofdeduct i ons; 2. The l i abi l i t y was cont r act ed i n goodf ai t handf oradequat eand f ul lconsi der at i on i n money or money ' swor t h; 3. Thecl ai m mustbeadebtorcl ai m whi ch i s v al i d i n l aw and enf or ceabl ei ncour t ; 4. Thei ndebt ednessmustnothav e beencondonedbyt hecr edi t oror t he act i on t o col l ectf r om t he decedent must not hav e pr escr i bed. CLAI MSAGAI NSTI NSOLVENTPERSONS Requi si t es: 1. Theamountt her eofhasbeeni ni t i al l y i ncl udedaspar tofhi sgr ossest at e ( f orot her wi set heywoul dconst i t ut e doubl ededuct i onsi ft heywer et obe deduct ed) 2. Thei ncapaci t yoft hedebt or st opay t hei robl i gat i oni spr ov en.

UNPAI DMORTGAGE I ncaseunpai dmor t gagepay abl ei s bei ng cl ai med by t he est at e, v er i f i cat i onmustbemadeast owho was t he benef i ci ar y of t he l oan pr oceeds.  I ft hel oani sf oundt obemer el yan accommodat i onl oanwher et hel oan pr oceedswentt oanot herper son, t he v al ue oft he unpai dl oan mustbe i ncl udedasar ecei v abl eoft heest at e.  I ft her ei sal egali mpedi mentt o r ecogni zet hesameasr ecei v abl eof t he est at e,sai d unpai d obl i gat i on/ mor t gage pay abl e shal l not be al l owed as a deduct i on f r om t he gr ossest at e.  I n al li nst ances, t he mor t gaged pr oper t y ,t o t he ext ent of t he decedent ' si nt er estt her ei n,shoul d al way s f or m par t of t he gr oss t axabl eest at e.



TAXES Taxeswhi chhav eaccr uedasoft he deat hoft hedecedentwhi chwer eunpai d asoft het i meofdeat h. Thef ol l owi ngar enotdeduct i bl e: 1. i ncomet axoni ncomer ecei v ed af t erdeat h 2. pr oper t y t axes not accr ued bef or edeat h 3. est at et ax LOSSES Requi si t es: 1. I tshoul dar i sef r om f i r e,st or m, shi pwr eck, or ot her casual t y , r obber y , t hef torembezzl ement ; 2. Notcompensat ed byi nsur ance orot her wi se; 3. Notcl ai medasdeduct i oni nan i ncomet axr et ur noft het axabl e est at e; 4. Occur r i ng dur i ng t heset t l ement oft heest at e; and 5. Occur r i ngbef or et hel astdayf or t he pay mentoft he est at et ax ( l astdayt opay :si xmont hsaf t er t hedecedent ’ sdeat h) .

2.TRANSFERFORPUBLI CUSE Requi si t es:

TAXATI ON L AW COMMI TTEE

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

1. Thedi sposi t i oni si nal astwi l land t est ament 2. Tot akeef f ectaf t erdeat h 3. I nf av oroft he gov er nmentoft he Phi l . , or any pol i t i cal subdi v i si on t her eof 4. Forexcl usi v epubl i cpur poses.

Not e:Thi sshoul dal soi ncl udebequest s, dev i ces,ort r ansf er st o soci alwel f ar e, cul t ur al andchar i t abl ei nst i t ut i ons.

3.VANI SHI NGDEDUCTI ON DEFI NI TI ON:Th ededuct i onal l owed f r om t hegr ossest at ef orpr oper t i est hatwer e subj ectt odonor ’ sorest at et axes.I ti s cal l edv ani shi ngdeduct i onbecauset he deduct i on al l owed di mi ni shes ov er a per i odoff i v ey ear s.Ther at eofdeduct i on dependsont heper i odf r om t hedat eof t r ansf ert ot hedeat hoft hedecedent ,as f ol l ows: PERI OD

DEDUCTI ON

 1y earorl ess  1y ear–2y ear s

100% 80%

 2y ear s–3y ear s  3y ear s–4y ear s  4y ear s–5y ear s

60% 40% 20%

Requi si t es: 1. t hepr esentdecedentdi ed wi t hi n5 y ear sf r om t r ansf eroft hepr oper t y f r om apr i ordecedentordonor . 2. Thepr oper t ymustbel ocat edi nt he Phi l s. 3. The pr oper t yf or med par t of t he t axabl eest at eoft hepr i ordecedent , oroft het axabl egi f toft hedonor . 4. Theest at et axordonor ’ st axont he gi f t must hav e been f i nal l y det er mi nedandpai d. 5. The pr oper t ymustbe i dent i f i ed as t he one r ecei v ed f r om t he pr i or decedent ,orsomet hi ng acqui r ed i n exchanget her ef or . 6. No v ani shi ng deduct i on on t he pr oper t ywasal l owabl et ot heest at e oft hepr i ordecedent .

4.FAMI LYHOME Condi t i ons:

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1. Thef ami l yhomemustbet heact ual r esi dent i alhomeoft hedecedentand hi sf ami l yatt het i meofhi sdeat h,as cer t i f i edbyt heBar angayCapt ai nof t hel ocal i t ywher et hef ami l yhomei s si t uat ed; 2. Thet ot alv al ueoft hef ami l yhome mustbei ncl udedaspar toft hegr oss est at eoft hedecedent ; and 3. Al l owabl ededuct i onmustbei nan amountequi v al entt o  t hecur r entf ai rmar ketv al ueof t hef ami l yhomeasdecl ar edor i ncl udedi nt hegr ossest at e, or  t heext entoft hedecedent ' s i nt er est( whet her conj ugal / communi t yorexcl usi v e pr oper t y ) , whi chev eri sl ower , but notexceedi ngP1, 000, 000

5.STANDARDDEDUCTI ON

Adeduct i oni nt he amountof One Mi l l i on Pesos ( P1, 000, 000) shal l be al l owed as an addi t i onal deduct i on wi t houtneedofsubst ant i at i on. Thef ul lamountofP1, 000, 000shal l beal l owedasdeduct i onf ort hebenef i tof t hedecedent .

6.MEDI CALEXPENSES  Any amountofmedi calexpenses i ncur r edwi t hi noney earf r om deat h i nexcessofFi v eHundr edThousand Pesos( P500, 000)shal lnol ongerbe al l owed as a deduct i on undert hi s subsect i on.  Nei t her can any unpai d amount t her eofi n excess oft he P500, 000 t hr eshol dnoranyunpai damountf or medi calexpenses i ncur r ed pr i ort o t he oney earper i od f r om dat e of deat h be al l owed t o be deduct ed f r om t he gr oss est at e as cl ai m agai nstt heest at e.

7.AMOUNTRECEI VEDBY HEI RSUNDERREPUBLI CACT NO.4917 Any amountr ecei v ed by t he hei r s f r om t he decedent ' s empl oy er as a consequence of t he deat h of t he decedent empl oy ee i n accor dance wi t h

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

Republ i cActNo.4917i sal l owedasa deduct i on pr ov i ded t hatt heamountof t hesepar at i onbenef i ti si ncl udedaspar t oft hegr ossest at eoft hedecedent .

8. NETSHAREOFTHE SURVI VI NGSPOUSEI NTHE CONJUGALPARTNERSHI POR COMMUNI TYPROPERTY Af t er deduct i ng t he al l owabl e deduct i ons( onl yt heor di nar ydeduct i ons) apper t ai ni ng t o t he conj ugal or communi t y pr oper t i es i ncl uded i nt he gr ossest at e,t heshar eoft hesur v i v i ng spousemustber emov edt oensur et hat onl yt hedecedent ' si nt er esti nt heest at e i st axed.

DEDUCTI ONSON GROSS ESTATEAPPLI CABLETO NONRESI DENTALI ENS Thef ol l owi ngar ededuct i bl ef r om t hegr oss est at eofnonr esi dental i ens:

1. Expenses,l osses,i ndebt ednessand t axes( ELI T)( or di nar ydeduct i ons) For mul a: Tax = Phi l .Gr oss Cr edi t Est at e X Wor l d Li mi t Wor l dGr oss ELI T Est at e 2. Tr ansf erf orpubl i cuse 3. Vani shi ng deduct i on on pr oper t yi n t hePhi l i ppi nes. 4. Conj ugal shar e of t he sur v i v i ng spouse

ESTATETAXCREDI T At axcr edi ti sgr ant edf orest at e t axespai dt o af or ei gncount r yont he est at e ofci t i zens and r esi dental i ens subj ectt ot hef ol l owi ngl i mi t at i ons 1. Onef or ei gncount r yonl y The t ax cr edi ti s whi chev eri s l owerbet ween: 4.Est at et axpai dt ot hef or ei gncount r y 5.TaxCr edi tLi mi t=

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NTE, f or ei gncount r y X Phi l .est at e NTE, wor l d Tax

( NTE-NetTaxabl eEst at e) 2. Mor et hanonef or ei gncount r y Thecr edi tshal lbet hatwhi chi s t hel oweramountbet ween Li mi tA andLi mi tB. Li mi tA.Whi chev eri sl owerbet ween:  Est at et ax pai d t o af or ei gn count r y  TaxCr edi tLi mi t= NTE, f or ei gncount r y X Phi l .est at e NTE, wor l d Tax Li mi tB.Whi chev eri sl owerbet ween:  Tot alofest at et axespai dt oal l f or ei gncount r i es  TaxCr edi tLi mi t= NTEout si dePhi l .X Phi l .est at e NTE,wor l d Tax

SETTLEMENTOFTHE ESTATETAX A.FI LI NG NOTI CEOFDEATH TOBEF I LED I nal l casesoft r ansf er ssubj ectt ot ax, orwher e,t houghexemptf r om t ax,t he gr oss v al ue of t he est at e exceeds P20, 000,t he execut or ,admi ni st r at oror anyoft hel egalhei r s,wi t hi nt womont hs af t ert hedecedent ’ sdeat h, orwi t hi nal i ke per i odaf t erqual i f y i ngassuchexecut or or admi ni st r at or ,shal lgi v e a wr i t t en not i cet her eoft ot heCommi ssi oner .( Sec. 89) AN ESTATETAX RETURN I S REQUI RED TO BE FI LED 1. whent heest at ei ssubj ectt oest at e t ax; or 2. when t he est at ei s notsubj ectt o est at e t ax but t he gr oss est at e exceedsP200, 000; or 3. r egar dl ess of t he amount of t he gr ossest at e,wher et hegr ossest at e consi st sofr egi st er edorr egi st r abl e pr oper t y such as mot orv ehi cl e or shar es of st ock or ot her si mi l ar

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW pr oper t yf orwhi chcl ear ancef r om t he BI R i s r equi r ed as a condi t i on pr ecedent f or t he t r ansf er of owner shi pt her eofi nt henameoft he t r ansf er ee.

TI MEFORF I LI NGOFTHEESTATETAXRETURN Theest at et axr et ur n shal lbe f i l ed wi t hi nsi x( 6)mont hs af t ert hedeat hof t hedecedent . Ext ensi on:TheBI R may ,i nmer i t or i ous cases, gr ant an ext ensi on of not exceedi ngt hi r t y( 30)day sf ort hef i l i ngof t heest at et axr et ur n. WHEN THE GROSS ESTATE EXCEEDS P2, 000, 000, THE ESTATE TAX RETURN SHALL BE ACCOMPANI ED BY A STATEMENT WHI CH I S CERTI FI ED BY AN I NDEPENDENT CERTI FI EDPUBLI CACCOUNTANTSTATI NG 1. t hei t emi zedasset soft hedecedent wi t hi t scor r espondi nggr ossv al ueat t het i meofhi sdeat h, ori nt hecaseof a nonr esi dent ,notci t i zen of t he Phi l i ppi nes,t hatpar tofhi s gr oss est at esi t uat edi nt hePhi l i ppi nes; 2. t he i t emi zed deduct i ons f r om t he gr ossest at e; 3. t heamountoft axdue,whet herpai d orst i l l dueandout st andi ng. PLACE WHERE RETURN

TO

FI LE

THE

ESTATE TAX

1. Resi dentCi t i zen -wi t ht heAccr edi t edAgentBank ( AAB) , Rev enue Di st r i ct Of f i cer , Col l ect i on Of f i cerordul yaut hor i zed Tr easur eroft heci t yormuni ci pal i t y wher et hedecedentwasdomi ci l edat t het i meofhi sdeat h. 2. Nonr esi dent( ci t i zenoral i en) a. has r egi st er ed execut or or admi ni st r at or -wi t ht he Rev enue Di st r i ct Of f i ce wher e such execut oror admi ni st r at ori sr egi st er ed b. execut ororadmi ni st r at ori snot r egi st er ed -wi t ht he Rev enue Di st r i ct Of f i cehav i ngj ur i sdi ct i onov ert he execut or ’ or admi ni st r at or ’ s r esi dence

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c. noexecut ororadmi ni st r at or - wi t h t he Of f i ce of t he Commi ssi oner( Sec.9C,Rev .Reg. 22003)

B.PAYMENT PAYMENTOFTHEESTATETAXDUE Theest at et axdueshal lpai datt he t i mewhent heest at et axr et ur ni sf i l ed. When t he Commi ssi onerf i nds t hat t hepay mentoft heest at et axont hedue dat ewoul di mposeunduehar dshi psupon t heest at eoranyhei r : a. t he pay mentoft he est at et ax maybeext endedf oraper i odnot t oexceedf i v e( 5)y ear si ft her ei s aj udi ci al set t l ementoft heest at e; or b. t he pay mentoft he est at et ax maybeext endedf oraper i odnot t oexceedt wo( 2)y ear si ft her ei s anext r aj udi ci alset t l ementoft he est at e. NOTE:I ncaset heav ai l abl ecashi snot suf f i ci ent t o pay i t st ot alest at et ax l i abi l i t y ,t heest at emaybeal l owedt opay t axbyi nst al l ment .( Sec.9F,Rev .Reg.22003) LI ABI LI TYFORPAYMENT The est at et axshal lbe pai d byt he execut ororadmi ni st r at orbef or edel i ver y t oanybenef i ci ar yofhi sdi st r i but i veshar e oft heest at e. Suchbenef i ci ar yt ot heext entofhi s di st r i but i v eshar eoft heest at eshal lbe subsi di ar i l yl i abl ef ort hepay mentofsuch por t i on of t he est at e t ax as hi s di st r i but i v eshar ebear st ot hev al ueof t het ot alnetest at e.( Sec.9G,Rev .Reg.22003) No j udge shal l aut hor i ze t he di st r i but i on of t he est at e unl ess a cer t i f i cat i onf r om t heCommi ssi onert hat t axhasbeenpai di sshown.( Sec.94) Noshar esorot herf or msofsecur i t i es shal lbet r ansf er r edi nt hebooksofany cor por at i on, par t ner shi p, busi ness or i ndust r y or gani zed i nt he Phi l i ppi nes, unl ess a si mi l ar cer t i f i cat i on by t he Commi ssi oneri sshown.( Sec.97) Whenabankhasknowl edgeoft he deat hofaper sonwhomai nt ai nedaj oi nt account ,i tshal lnotal l owanywi t hdr awal

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

by t he sur v i v i ng deposi t orwi t houtt he abov ecer t i f i cat i on.( Sec.97) Pr ovi ded: t hatt he admi ni st r at orof t heest at eoranyone( 1)oft hehei r sof t hedecedentmay ,uponaut hor i zat i onby t heCommi ssi oner ,wi t hdr aw anamount notexceedi ng t went yt housand pesos ( P20, 000)wi t houtt hesai dcer t i f i cat i on.

( Commi ssi oner of I nt er nal Rev enue v s.Pi neda,GR No.L –22734, Sept ember15, 1967)

( 2)DONOR’ STAXES Ther ei snot hi ngi nt heTaxCodeand i nt heper t i nentr emedi all awt hati mpl i es t he necessi t y oft he pr obat e cour tor est at eset t l ementofcour t ’ sappr ov alof t heSt at e’ scl ai mf orest at et axesbef or e t hesamecanbeenf or cedandcol l ect ed by t he BI R. On t he cont r ar y ,under Sect i on94, i ti st hepr obat eorset t l ement cour twhi chi sbi ddennott oaut hor i zet he del i v er yoft hedi st r i but i v eshar et oany i nt er est ed par t y wi t houta cer t i f i cat i on f r om t heCI Rshowi ngt hepay mentoft he est at et ax. ( Mar cos I Iv s.Cour tof Appeal s, GRNo.120880, June5, 1997) COLLECTI ON OFTAXF ROM THEHEI RS Anest at eori nher i t ancet ax,whet her assessedbef or eoraf t ert hedeat hoft he deceased, canbecol l ect edf r om t hehei r s ev en af t er t he di st r i but i on of t he pr oper t i esoft hedecedent .( Pal ancav s. Commi ssi onerofI nt er nalRev enue,GR No.16661, Januar y31, 1962) The Gov er nmenthas t wo way s of col l ect i ngt axesduef r om t heest at e. a. Bygoi ngaf t eral lt hehei r sand col l ect i ngf r om eachoneoft hem t he amount of t he t ax pr opor t i onat et ot hei nher i t ance r ecei v ed, or b. Pur suantt ot hel i encr eat edby Sect i on 219 oft he Tax Code upon al lpr oper t yand r i ght st o pr oper t y bel ongi ng t o t he t axpay erf orunpai di ncomet ax, i s bysubj ect i ngsai dpr oper t yoft he est at ewhi chi si nt hehandsofan hei rort r ansf er eet ot hepay ment of t he t ax due t he est at e.

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DEFI NI TI ON:A t ax on t he pr i v i l ege of t r ansmi t t i ng one’ s pr oper t yorpr oper t y r i ght s t o anot her or ot her s wi t hout adequat eandf ul l v al uabl econsi der at i on. COVERAGEOFTHETAX( SEC.104) RESI DENT&NONRESI DENT CI TI ZEN, RESI DENTALI EN DONOR

NONRESI DENT ALI ENDONOR

1.Real pr oper t y 1.Real pr oper t y wher ev ersi t uat ed si t uat edi nt he Phi l i ppi nes. 2.Per sonalpr oper t y 2.Per sonal pr oper t y wher ev ersi t uat ed a.Tangi bl epr oper t y a. Tangi bl e, and si t uat edi nt he I nt angi bl e Phi l i ppi nes b.I nt angi bl eper sonal pr oper t ywi t ha si t usi nt he Phi l i ppi nesunl ess exempt edont he basi sof r eci pr oci t y .

REQUI SI TES 1. Capaci t yoft hedonor 2. Donat i v eI nt ent 3. Del i v er y , whet her act ual const r uct i v e, oft hesubj ectgi f t 4. Accept ancebyt hedonee LAW THAT GOVERNS DONOR’ STAX

or

THE I MPOSI TI ON OF

Thedonor ’ st axshal lnotappl yunl ess

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

andunt i lt her ei sacompl et edgi f t .The t r ansf eri s per f ect ed f r om t hemoment t hedonorknowsoft heaccept anceby t hedonee;i ti scompl et edbyt hedel i v er , ei t heract ual l yorconst r uct i v el y ,oft he donat edpr oper t yt ot hedonee.Thus,t he l aw i n f or ce at t he t i me of t he per f ect i on/ compl et i on of t he donat i on shal lgov er nt hei mposi t i onoft hedonor ’ s t ax. Agi f tt hati si ncompl et ebecauseof r eser v ed power s, becomes compl et e whenei t her : 1.t hedonorr enouncest hepower ; or 2.hi sr i ghtt o exer ci se t he r eser v ed power ceases because of t he happeni ng of some ev ent or cont i ngency or t he f ul f i l l ment of somecondi t i on,ot hert hanbecause oft hedonor ' sdeat h.  Renunci at i on by t he sur v i v i ng spouse ofhi s/ hershar ei nt he conj ugalpar t ner shi porabsol ut e communi t yaf t ert hedi ssol ut i on oft hemar r i age i nf av oroft he hei r soft hedeceasedspouseor anyot herper son/ si ssubj ectt o donor ' st ax.  Wher easgener alr enunci at i onby an hei r ,i ncl udi ng t he sur v i v i ng spouse,ofhi s/ hershar ei nt he her edi t ar y est at e l ef t by t he decedent i s not subj ect t o donor ' st ax ,unl ess speci f i cal l y andcat egor i cal l ydonei nf av orof i dent i f i edhei r / st ot heexcl usi on ordi sadv ant ageoft heot hercohei r si nt he her edi t ar y est at e. ( Sec.11, Rev .Reg.22003) STRANGER-aper sonwhoi snotabr ot her , si st er , spouse, ancest or and l i neal descendant , or of a r el at i v e by consangui ni t yi nt hecol l at er alwi t hi nt he 4thci v i l degr ee.  Al egal l yadopt edchi l di sent i t l edt o al lt her i ght sandobl i gat i onspr ov i ded by l aw t ol egi t i mat e chi l dr en,and t her ef or e,donat i ont ohi m shal lnot beconsi der edasdonat i onmadet o st r anger .  Donat i on made bet ween busi ness or gani zat i ons and t hose made bet weenani ndi v i dualandabusi ness

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or gani zat i onshal lbeconsi der edas donat i onmadet oast r anger . VALUATI ONOFGI FTSOFPROPERTY Thef ai rmar ketv al ueoft hepr oper t y gi v enatt het i meoft hegi f tshal lbet he v al ueoft hegi f t .

I NTANGI BLE

PERSONAL PROPERTI ES WI TH A SI TUSI N THE PHI L.( SAMEASI N ESTATETAX SUBJECT TO THE RECI PROCI TY RULE)( SEC.

104)

For mul a:( Onacumul at i v ebasi sov era per i odofonecal endary ear ) 1. Ont he1stdonat i onofay ear Gr ossgi f t s Less:Deduct i onsf r om gr oss gi f t s Netgi f t s Mul t i pl yby :TaxRat e Donor ’ st axont henetgi f t s

xxx xxx xxx xxx xxx

2. On donat i on ofa subsequent dat edur i ngt hey ear Gr ossgi f t smadeont hi sdat e Less:Deduct i onsf r om gr ossgi f t s Netgi f t s Add:Al lpr i ornetgi f t swi t hi nt he y ear Aggr egat enetgi f t s Mul t i pl yby : TaxRat e Donor ’ st axonaggr egat enetgi f t s Less:Donor ’ st axonal lpr i ornet gi f t s Donor ’ st axont henetgi f t sont hi s dat e

XX XX XX XX XX XX XX XX XX

EXEMPTI ONOFCERTAI NGI FTS 1. Gi f t smadebyar esi dent a.Dowr i es or gi f t s made on accountofmar r i ageandbef or e i t scel ebr at i onorwi t hi noney ear t her eaf t erbypar ent st oeachof t hei rl egi t i mat e,i l l egi t i mat e or adopt edchi l dr ent ot heext entof t hef i r stP10, 000. b.Gi f t smadet oorf ort heuseof t heNat i onalGov er nmentorany

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW ent i t y cr eat ed by any of i t s agenci eswhi chi snotconduct ed f or pr of i t ,or t o any pol i t i cal subdi v i si on of t he sai d gov er nment . c.Gi f t si nf av or of educat i onal , char i t abl e,r el i gi ous,cul t ur alor soci al wel f ar e cor por at i on, i nst i t ut i ons,f oundat i ons,t r ustor phi l ant hr opi c or gani zat i on, r esear ch i nst i t ut i on or or gani zat i on, accr edi t ed nongov er nmentor gani zat i on( NGO) . Pr ov i ded,t hatnomor et han30% ofsai d gi f t s shal lbe used by such donee f oradmi ni st r at i on pur poses. 2. Gi f t smadebyanonr esi dentnot aci t i zenoft hePhi l . a.sameas( b) b.sameas( c)exceptaccr edi t ednon gov er nmentor gani zat i on( NGO)

A

NONPROFI T EDUCATI ONAL AND/ OR CHARI TABLE CORPORATI ON, I NSTI TUTI ON, ACCREDI TEDNONGOVERNMENTORGANI ZATI ON, TRUST OR PHI LANTROPHI C ORGANI ZATI ON, RESEARCHI NSTI TUTI ONORORGANI ZATI ONI S

1. one i ncor por at ed as a nonst ock ent i t y 2. pay i ngnodi v i dends 3. gov er nedbyt r ust eeswhor ecei v eno compensat i on, and 4. dev ot i ng al li t s i ncome whet her st udent s’f ees orgi f t s,donat i ons, subsi di es or ot her f or ms of phi l ant r ophyt ot heaccompl i shment and pr omot i on of t he pur poses enumer at ed i n i t s Ar t i cl es of I ncor por at i on. TAX CREDI T FOR DONOR’ S TAXES PAI D TO A FOREI GNCOUNTRY

1. Donor was a Fi l i pi no ci t i zen or r esi dental i en 2. Att i meoff or ei gndonat i on 3. Donor ’ st axesofanychar act erand descr i pt i on 4. Ar e i mposed and pai d by t he aut hor i t yofaf or ei gncount r y . LI MI TATI ONSONTAXCREDI T 1. Theamountoft hecr edi ti nr espectt o

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t het axpai dt oanycount r yshal lnot exceed t hesamepr opor t i on oft he t axagai nstwhi chsuchcr edi ti st aken, whi ch t he decedent ’ s net gi f t s si t uat edwi t hi nsuchcount r yt axabl e undert heNI RCbear st ohi sent i r enet gi f t ; and 2. Thet ot alamountoft hecr edi tshal l notexceed t hesamepr opor t i on of t het axagai nstwhi chsuchcr edi ti s t aken,whi cht hedecedent ’ snetgi f t si t uat ed out si de t he Phi l i ppi nes t axabl eundert heNI RC bear st ohi s ent i r enetgi f t . FORMULAOFTAXCREDI TL I MI T 1. Fordonor ’ st axespai dt oonef or ei gn count r y NGsi t uat ed Tax i naf or ei gncount r y XPDT=Cr edi t Ent i r enetgi f t Li mi t ( NG-NetGi f t s; PDT-Phi l .Donor ' sTax) 2. Fordonor ’ st axes pai dt ot wo or mor ef or ei gncount r y NGout si det hePhi l . XPDT=Tax Ent i r enetgi f t s Cr edi t Li mi t The al l owabl et axcr edi ti st he l oweramountbet weent het axcr edi tl i mi t under( a)and( b) .

SETTLEMENTOFTHEDONOR’ STAX TI MEFORF I LI NGOFRETURNANDPAYMENTOF THEDONOR’ STAX Thedonor ’ st axr et ur ni sf i l edandt he donor ’ st axduei spai dwi t hi nt hi r t y( 30) day saf t ert hedat et hegi f ti smade. The r et ur n shal lbe underoat hi n dupl i cat eset t i ngf or t h: 1. Eachgi f tmadedur i ngt hecal endar y ear whi ch i st o be i ncl uded i n comput i ngnetgi f t s; 2. The deduct i ons cl ai med and al l owabl e; 3. Anypr ev i ousnetgi f t smadedur i ng t hesamecal endary ear ; 4. Thenameoft hedonee;

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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5. Rel at i onshi p of t he donor t ot he donee; and 6. Suchf ur t heri nf or mat i onasmaybe r equi r ed by r ul es and r egul at i ons madepur suantt ol aw.

NOTE:Thef i l i ngofanot i ceofdonat i on i snotr equi r ed,unl i kei nest at et axwher e not i ceofdeat hi sr equi r ed. PLACEFOR FI LI NG OF RETURN AND PAYMENT OFTHEDONOR’ STAX 1. Resi dent Wi t hanaut hor i zedagentbank,t he Rev enue Di st r i ctOf f i cer ,Rev enue Col l ect i onOf f i cerordul yaut hor i zed Tr easur eroft heci t yormuni ci pal i t y wher et hedonorwasdomi ci l edat t het i meoft het r ansf er ,ori ft her e be no l egal r esi dence i n t he Phi l i ppi nes,wi t ht he Of f i ceoft he Commi ssi oner . 2. Nonr esi dent Fi l edwi t ht hePhi l i ppi neEmbassyor Consul at ei nt hecount r ywher ehe i s domi ci l ed att he t i me oft he t r ansf er ,ordi r ect l ywi t ht heOf f i ce oft heCommi ssi oner .

TAX COLLECTI ON CANNOT BE RESTRAI NED BY COURTI NJUNCTI ON ( SEC.218, 1997NI RC) Just i f i cat i on:Li f ebl oodTheor y Except i on:I nj unct i onmaybei ssuedby t heCTAi nai dofi t sappel l at ej ur i sdi ct i on underRA1125( asamendedbyRA9282) . Condi t i ons f or t he I ssuance of an I nj unct i onbyt heCour tofTaxAppeal s The CTA may enj oi n col l ect i on of t axes: a. I fi n i t s opi ni on t he same may j eopar di zet hei nt er estoft hegov er nment and/ ort het axpay er . b. I nt hi si nst ance, t hecour tmayr equi r e t het axpay erei t hert odeposi tt heamount cl ai medorf i l easur et ybondf ornotmor e t handoubl et heamountwi t ht hecour t . * Bef or e enf or cement of r emedi es, assessmenti snecessar yt ot r i ggert he pr ocess. I f no r et ur n i s f i l ed, t he Commi ssi oneri s empower ed t o obt ai n i nf or mat i on,and t o summon/ exami ne, and t ake t est i mony of per sons t o det er mi net heamountoft axdue.( Sec.5, 1997NI RC)

TAXRATE

TAXREMEDI ESUNDERTHE1 997TAXCODE:

I ft hedoneei sast r anger ,t her at eof t axshal l be30%oft henetgi f t s. I ft hedoneei snotast r anger ,t he r at eshal lbef r om 2% t o15% oft henet gi f t s.

1. Summar y – r emedi es at t he admi ni st r at i v el ev elorr egul at i ont hatar e execut ed wi t hout cer emony or del ay ; shor torconci se 2.Subst ant i v e–r emedi espr ov i dedf orby l aw orr egul at i on;an essent i alpar tor const i t uent or r el at i ng t o what i s essent i al 3.Pr ocedur al–r emedi esi nv ol v i ngl awof pl eadi ng, ev i dence, j ur i sdi ct i on, et c. 4.Admi ni st r at i v e–r emedi esav ai l abl eat t headmi ni st r at i on( BI R)l ev el 5. Judi ci al–r emedi est hatar eenf or ced t hr oughj udi ci alact i on,whi chmaybe ci v i l orcr i mi nal

 SeeAnnexW -Donor ’ sTax

C.TAXREMEDI ES UNDERTHENI RC

I . TAXREMEDI ESOFTHE GOVERNMENT I MPORTANCE 1. They enhance and suppor t t he gov er nment ’ st axcol l ect i on. 2. They ar e saf eguar ds oft axpay er ’ s r i ght sagai nstar bi t r ar yact i on.

TAXATI ON L AW COMMI TTEE

TAX REMEDI ES OF THE GOVERNMENT TO EFFECTCOLLECTI ONOFTAXES

1. Compr omi se( Sec.204) 2. Di st r ai nt( Act ualand Const r uct i v e) ( Secs.205208) 3. Lev y( Sec.207B) 4. TaxLi en( Sec.219)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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5. Ci v i l Act i on( Sec.221) 6. Cr i mi nal Act i on( Secs.221, and222) 7. For f ei t ur eofPr oper t y( Sec.224 225) 8. Suspensi on of busi ness oper at i onsi nv i ol at i onofVAT ( Sec.115) 9. Enf or cementofAdmi ni st r at i v e Fi ne Ther emedi esofdi st r ai ntandl ev yas wel lascol l ect i on byci v i land cr i mi nal act i ons may ,i nt he di scr et i on oft he Commi ssi oner , be pur sued si ngl y or i ndependent l y ofeach ot her ,oral lof t hem si mul t aneousl y .

( 1)COMPROMI SE DEFI NI TI ON: Acont r actwher ebyt hepar t i es, byr eci pr ocalconcessi ons, av oi dl i t i gat i on orputanendt ooneal r eadycommenced ( Ar t .2028, NewCi v i lCode) . REQUI SI TES 1. Thet axpay ermusthav eat axl i abi l i t y . 2. Ther e must be an of f er ( by t he t axpay erofanamountt obepai dby t het axpay er ) 3. Ther emustbeanaccept ance( byt he Commi ssi oner or t axpay er as t he case may be)oft he of f eri nt he set t l ementoft heor i gi nal cl ai m. OFFI CERSAUTHORI ZEDTOCOMPROMI SE 1. TheCommi ssi onerofI nt er nalRev enue ( CI R)wi t hr espectt ocr i mi nalandci v i l casesar i si ngf r om v i ol at i onsoft he TaxCode[ Secs.7( C)and204,1997 NI RC] . Thi s poweroft he CI Ri s di scr et i onar yandonceexer ci sedby hi m cannotber ev i ewedori nt er f er ed wi t h by t he Cour t s. ( Koppel , Phi l i ppi nesv s.Commi ssi oner ,GRNo. L1977, Sept ember21, 1950) 2. By t he Regi onalEv al uat i on Boar d composedof : a.t heRegi onal Di r ect orasChai r man, b.Assi st antRegi onal Di r ect or , t heheadsoft heLegal , AssessmentandCol l ect i on Di v i si ons, and c.t heRev enueDi st r i ctOf f i cerhav i ng

TAXATI ON L AW COMMI TTEE

j ur i sdi ct i onov ert het axpay er , as member s;  on assessment si ssued by t he r egi onalof f i ces i nv ol v i ng basi c t axes ofP500, 000 orl ess,and mi norcr i mi nal v i ol at i ons. CASESWHI CHMAYBECOMPROMI SED 1. Del i nquentaccount s 2. Casesunderadmi ni st r at i v epr ot est s 3. Ci v i lt axcasesbei ngdi sput edbef or e t hecour t s 4. Col l ect i oncasesf i l edi ncour t s 5. Cr i mi nalv i ol at i ons,ot hert hant hose al r eady f i l ed i n cour t or t hose i nv ol v i ngcr i mi nal t axf r aud; and, 6. Cases cover ed by pr eassessment not i cesbutt axpayeri snotagr eeabl e t ot hef i ndi ngsoft heaudi tof f i ceas conf i r medbyt her evi ewof f i ce.( Sec. 2, Rev.Reg.72001) EXCEPTI ONS 1. Wi t hhol di ngt axcases; 2. Cr i mi nal t axf r audcases; 3. Cr i mi nalv i ol at i ons al r eady f i l ed i n cour t ; 4. Del i nquent account s wi t h dul y appr ov ed schedul e of i nst al l ment pay ment s; 5. Cases wher e f i nal r epor t s of r ei nv est i gat i on or r econsi der at i on hav e been i ssued r esul t i ng t o r educt i oni nt heor i gi nalassessment andt het axpay eri sagr eeabl et osuch deci si on. 6. Caseswhi chbecomef i nal and execut or yaf t erf i nal j udgmentofa cour t , wher ecompr omi sei s r equest edont hegr oundofdoubt f ul v al i di t yoft heassessment( RR. 30–2002) ; 7.Est at et axcaseswher ecompr omi se i sr equest edont hegr oundof f i nanci al i ncapaci t yoft het axpay er . ( RR.30–2002) COMMI SSI ONER

MAY COMPROMI SE THE PAYMENT OF ANY I NTERNAL REVENUE TAX WHEN

1. Ar easonabl edoubtast ot hev al i di t y oft he cl ai m agai nstt he t axpay er exi st s; or

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW a.Thedel i nquentaccountordi sput ed assessment i s one r esul t i ng f r om aj eopar dyassessment . b. The assessmentseems t o be ar bi t r ar yi nnat ur e,appear i ngt o bebasedonpr esumpt i ons,and t her ei sr easont obel i ev et hati t s i sl acki ngi nl egaland/ orf act ual basi s; or c. The t axpay erf ai l ed t of i l e an admi ni st r at i v e pr ot est on accountoft heal l egedf ai l ur et o r ecei v enot i ceofassessmentor pr el i mi nar y assessment and t her ei sr easont obel i ev et hati t s i sl acki ngi nl egaland/ orf act ual basi s; or d. Thet axpay erf ai l edt of i l ea r equestf or r ei nv est i gat i on/ r econsi der at i on wi t hi n30day sf r om r ecei ptof f i nal assessmentnot i ceand t her ei sr easont obel i ev et hati t s i sl acki ngi nl egal and/ orf act ual basi s; or e. Thet axpay erf ai l edt oel ev at et o t heCTAanadv er sedeci si onof t he Commi ssi oner , or hi s aut hor i zed r epr esent at i v e, i n some cases,wi t hi n 30 day s f r om r ecei ptt her eofandt her ei s r eason t o bel i ev et hat i t si s l acki ng i nl egaland/ orf act ual basi s; or f . Theassessmentwer ei ssuedon oraf t erJan.1,1998,wher et he demand not i ce al l egedl yf ai l ed t o compl ywi t ht he f or mal i t i es pr escr i bedunderSec.228oft he 1997NI RC; or g. Assessment s made based on t he “ BestEv i dence Obt ai nabl e Rul e”and t her ei sr eason t o bel i ev et hatt he same can be di sput ed by suf f i ci ent and compet entev i dence. h. The assessment was i ssued wi t hi nt hepr escr i pt i v eper i odf or assessmentasext endedbyt he t axpay er ' s execut i on ofWai v er oft heSt at ut eofLi mi t at i onst he v al i di t yoraut hent i ci t yofwhi ch i sbei ngquest i onedorati ssue and t her ei s st r ong r eason t o bel i ev e and ev i dence t o pr ov e

TAXATI ON L AW COMMI TTEE

t hati ti snotaut hent i c.( RR.30– 2002) i . Theassessmenti sbasedonan i ssuewher eacour tof compet entj ur i sdi ct i onmadean adv er sedeci si onagai nstt he Bur eau, butf orwhi cht he Supr emeCour thasnotdeci ded uponwi t hf i nal i t y .( RR.082004) .

2. Thef i nanci alposi t i onoft het axpay er demonst r at esacl eari nabi l i t yt opay t heassessedt ax[ Sec.204( A) ,1997 NI RC) .I n such case,t he t axpay er shoul d wai v e t he conf i dent i al i t y pr i v i l egeonbankdeposi t sunderRA No.1405[ Sec.6( F) ( 2) , NI RC] . Fi nanci al I ncapaci t y .—Theof f er t ocompr omi sebasedonf i nanci al i ncapaci t ymaybeaccept edupon showi ngt hat : a.Thecor por at i onceasedoper at i on ori sal r eadydi ssol v ed.Pr ov i ded, t hatt axl i abi l i t i escor r espondi ngt o t he Subscr i pt i on Recei v abl e or Asset sdi st r i but ed/ di st r i but abl et o t he st ockhol der s r epr esent i ng r et ur n ofcapi t alatt he t i me of cessat i on of oper at i on or di ssol ut i onofbusi nessshal l notbe consi der edf orcompr omi se; or b.The t axpay er ,asr ef l ect ed i ni t s l at estBal anceSheetsupposedt o bef i l edwi t ht heBur eauofI nt er nal Rev enue,i ssuf f er i ngf r om sur pl us or ear ni ngs def i ci tr esul t i ng t o i mpai r menti nt heor i gi nalcapi t al by at l east 50%,pr ov i ded t hat amount s pay abl e or due t o st ockhol der sot hert hanbusi nessr el at ed t r ansact i ons whi ch ar e pr oper l yi ncl udi bl ei nt he r egul ar " account spay abl e"ar ebyf i ct i onof l aw consi der edaspar tofcapi t al and not l i abi l i t y , and pr ov i ded f ur t hert hatt he t axpay erhas no suf f i ci entl i qui dassett osat i sf yt he t axl i abi l i t y ; or

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW c.Thet axpay eri ssuf f er i ngf r om a net wor t h def i ci t( t ot al l i abi l i t i es exceedt ot alasset s)comput edby deduct i ng t ot all i abi l i t i es ( netof def er r ed cr edi t s and amount s pay abl e t o st ockhol der s/ owner s r ef l ect ed as l i abi l i t i es, except busi nessr el at ed t r ansact i ons) f r om t ot alasset s( netofpr epai d expenses,def er r ed char ges,pr eoper at i ng expenses,as wel las appr ai sal i ncr easesi nf i xedasset s) , t aken f r om t he l at est audi t ed f i nanci alst at ement s,pr ov i dedt hat i n t he case of an i ndi v i dual t axpay er ,hehasnoot herl ev i abl e pr oper t i esundert hel awot hert han hi s f ami l y home; ( Sec. 3,RR. 30–2002) . c.The t axpay eri s a compensat i on ear nerwi t h no ot hersour ce of i ncome and t he f ami l y ’ s gr oss mont hl y compensat i on does not exceed ( P10, 500/ mont hi fsi ngl e; P21, 000/ mont hi f mar r i ed) ,and t hati tappear st hatt het axpay er possesses no ot her l ev i abl e/ di st r ai nabl easset s,ot hert hanhi s f ami l yhome; or d. Thet axpay erhasbeengr ant edby t he SEC or by any compet ent t r i bunal a mor at or i um or suspensi on of pay ment s t o cr edi t or s,or ot her wi se decl ar ed bankr uptori nsol v ent .( Sec.3,RR. 072001)

The Congr essi onal Ov er si ght Commi t t ee,underSect i on 290 oft he 1997NI RCi sempower edt or equi r et he BI R: 1. The submi ssi on ofal lper t i nent i nf or mat i on,i ncl udi ng but not l i mi t ed t o i ndust r y audi t s, col l ect i on per f or mance dat a, st at us r epor t s on cr i mi nal act i onsi ni t i at edagai nstper sons; and 2. The submi ssi on of t axpay er r et ur ns.

TAXATI ON L AW COMMI TTEE

MI NI MUM COMPROMI SERATES( MCR)OFANY TAXLI ABI LI TY

a. I ncaseoff i nanci al i ncapaci t y : MCR=10%oft hebasi cassessedt ax b. Ot hercases: MCR= 40% oft hebasi cassessed t ax[ Sec.204( A) , 1997NI RC] APPROVAL OF THE COMPROMI SE BY THE EVALUATI ON BOARDI SREQUI REDWHEN a. t he basi c t ax i nv ol v ed exceeds P1, 000, 000. 00, or b. t he set t l ementof f er ed i sl esst han t heMCR.

NOTE: TheMCRmaybel esst hant he pr escr i bedr at esof10% or40%,ast he casemaybe,pr ov i dedi ti sappr ov edby t heEv al uat i onBoar d( composedoft he BI R Commi ssi oner and t he f our BI R Deput yCommi ssi oner s) . COMPROMI SEOFCRI MI NALVI OLATI ONS Gener alRul e: Al lcr i mi nalv i ol at i ons undert heCTRPmaybecompr omi sed. Except i ons: 1. Thoseal r eadyf i l edi ncour t 2. Those i nv ol v i ng f r aud [ Sec.204( B) , 1997NI RC] . EXTENTOFTHECOMMI SSI ONER’ SDI SCRETI ON TOCOMPROMI SECRI MI NALVI OLATI ONS 1. Bef or et hecompl ai nti sf i l edwi t ht he Pr osecut or ’ sOf f i ce:TheCI Rhasf ul l di scr et i on t o compr omi se except t hosei nv ol v i ngf r aud. 2. Af t ert hecompl ai nti sf i l edwi t ht he Pr osecut or ’ s Of f i ce butbef or et he i nf or mat i on i sf i l ed wi t ht hecour t : The CI R can st i l l compr omi se pr ov i ded t he pr osecut ormustgi v e consent . 3. Af t eri nf or mat i on i sf i l ed wi t ht he cour t :TheCI Ri snol ongerper mi t t ed t o compr omi sewi t horwi t houtt he consentoft hePr osecut or .( Peopl e v s.Magdal uy o,GRNo.L16235,Apr i l 20, 1961) Thi si smor eso,whent hecour t hasr ender edaf i nalj udgment .Asa mer eagentoft heGov er nment ,t he Commi ssi oneri s notaut hor i zed t o

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW acceptany t hi ng l ess t han whati s adj udi cat ed i n f av or of t he Gov er nment .Byv i r t ueofsuchf i nal j udgment , t he Gov er nment has al r eadyacqui r edav est edr i ght .  

NATUREOFA COMPROMI SEI NE XTRAJUDI CI AL SETTLEMENT OF THE TAXPAYER’ S CRI MI NAL LI ABI LI TYFORHI SVI OLATI ON I ti sconsensuali nchar act er ,hence, may notbe i mposed on t he t axpay er wi t houthi sconsent .TheBI R mayonl y suggestset t l ementofhi st ax l i abi l i t y t hr oughacompr omi se.Theext r aj udi ci al set t l ement and t he amount of t he suggest ed compr omi se penal t y shoul d conf or m wi t h t he schedul e of compr omi sepenal t i espr ov i dedundert he r el ev antBI Rr egul at i onsoror der s. REMEDY I N CASETHETAXPAYER REFUSES OR FAI LSTOABI DETHETAXCOMPROMI SE

1. Enf or cet hecompr omi se a.I fi ti saj udi ci alcompr omi se, i tcan beenf or cedbymer eexecut i on.A j udi ci al compr omi sei sonewher ea deci si onbasedont hecompr omi se agr eementi sr ender edbyt hecour t onr equestoft hepar t i es. b. Any ot her compr omi se i s ext r aj udi ci aland l i ke any ot her cont r actcanonl ybeenf or cedby cour tact i on. 2. Regar di tas r esci nded and i nsi st upon or i gi naldemand ( Ar t .2041, Ci v i lCode) . COMPROMI SEPENALTY I ti san amountofmoneyt hatt he t axpay er pay st o compr omi se a t ax v i ol at i on.Thi si spai di nl i euofcr i mi nal pr osecut i on. A t axpay er cannot be compel l edt opayacompr omi sepenal t y . I fhedoesnotwantt opay ,t heCI Rmust i nst i t ut eacr i mi nal act i on. COMPROMI SEVS.ABATEMENT

Compr omi sei nv ol v esar educt i onof t het axpay er ’ sl i abi l i t y ,whi l e abat ement meanst hatt heent i r et axl i abi l i t yoft he t axpay eri scancel l ed.

TAXATI ON L AW COMMI TTEE

ABATEMENT THECOMMI SSI ONERMAYABATEORCANCELA TAXLI ABI LI TYWHEN

1. The t ax or any por t i on t her eof appear st obeunj ust l yorexcessi v el y assessed; [ Sec.204( B) , 1997NI RC] . a.When t he f i l i ng of t he r et ur n/ pay ment i s made at t he wr ongv enue; b. When t he t axpay er ’ s mi st ake i n pay ment of hi st ax i s due t o er r oneouswr i t t enof f i ci aladv i ceof ar ev enueof f i cer ; c.Whent het axpay erf ai l st of i l et he r et ur nandpayt het axont i medue t o subst ant i al l osses f r om pr ol onged l abor di sput e, f or ce maj eur e, l egi t i mat e busi ness r ev er ses,pr ov i ded,howev er ,t he abat ement shal lonl y cov er t he sur char ge and t he compr omi se penal t y and not t he i nt er est i mposed underSec.249 oft he Code; d. Whent heassessmenti sbr ought aboutort her esul toft axpay er ’ s noncompl i ancewi t ht hel aw due t oadi f f i cul ti nt er pr et at i onofsai d l aw. e.Whent het axpay erf ai l st of i l et he r et ur nandpayt hecor r ectt axon t i meduet oci r cumst ancesbey ond hi scont r ol ,pr ov i ded,howev er ,t he abat ement shal lonl y cov er t he sur char ge and t he compr omi se penal t y and not t he i nt er est i mposed underSec.249 oft he Code; f .Lat e pay mentoft he t ax under mer i t or i ous ci r cumst ances ( ex. Fai l ur et obeatbankcut of ft i me, sur char ge er r oneousl y i mposed, et c. )( Sec.2, Rev .Reg.132001) 2. The admi ni st r at i on and col l ect i on cost si nv ol v ed do notj ust i f yt he col l ect i on oft heamountdue [ Sec. 204( B) , 1997NI RC] . a.Abat ement of penal t i es on assessment conf i r med by t he l owercour tbutappeal ed byt he t axpay ert oahi ghercour t b. Abat ement of penal t i es on

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW wi t hhol di ngt axassessmentunder mer i t or i ousci r cumst ances c.Abat ementofpenal t i esondel ay ed i nst al l ment pay ment under mer i t or i ousci r cumst ances d. Abat ement of penal t i es on assessment r educed af t er r ei nv est i gat i onbutt ax pay eri sst i l l cont est i ng r educed assessment ; and e.Such ot herci r cumst ances whi ch t he Commi ssi oner may deem anal ogous t o t he enumer at i on abov e.( Sec.3, Rev .Reg.132001)

3. The Commi ssi onermay al so,ev en wi t houta cl ai m t her ef or ,r ef und or cr edi tanyt axwher eont hef aceof t her et ur nuponwhi chpay mentwas madesuchpay mentappear scl ear l y t ohav ebeener r oneousl ypai d( Sec. 229, 1997NI RC) ) .

( 2)DI STRAI NT DEFI NI TI ON: I ti s t he sei zur e by t he gov er nmentofper sonal pr oper t y , t angi bl e ori nt angi bl e,t oenf or cet hepay mentof t axes.Thepr oper t ymaybeof f er edi na publ i csal e,i ft axesar e notv ol unt ar i l y pai d.I ti sasummar yr emedy . NATUREOFTHE WARRANT OF DI STRAI NT OR LEVY Thewar r anti sasummar ypr ocedur e “ f or ci ng”t het axpay ert opay .Ther ecei pt ofawar r antmayormaynotpar t aket he char act erofaf i naldeci si on.I fi ti san i ndi cat i onofaf i naldeci si on, t het axpay er mayappealt ot heCTA wi t hi n30day s f r om ser v i ceoft hewar r ant . Dut i es of t he of f i cer ser v i ng t he war r antofdi st r ai nt : 1. Makeanaccountoft heper sonal pr oper t i esdi st r ai ned; 2. Si gn t he l i st of per sonal pr oper t i es di st r ai ned t o whi ch shal lbeadded,a st at ementof t hesum demandedandnot eof t het i meandpl aceofsal e; 3. Leav e ei t herwi t ht he owneror per son f r om whose possessi on

TAXATI ON L AW COMMI TTEE

such per sonalpr oper t i es wer e t aken,oratt hedwel l i ngorpl ace ofbusi nessofsuchper sonwi t h someone of sui t abl e age and di scr et i on( Sec.208, CTRP) TWOTYPESOFDI STRAI NT 1. Act ual : t her e i s t aki ng of possessi on of t he per sonal pr oper t yf r om t het axpay erbyt he gov er nment .Phy si calt r ansf erof possessi on i s not al way s r equi r ed.Thi si st r uei nt hecase ofi nt angi bl e pr oper t y such as st ocksandcr edi t s. 2. Const r uct i v e:t heowneri smer el y pr ohi bi t edf r om di sposi ngofhi s pr oper t y . ACTUALVS.CONSTRUCTI VEDI STRAI NT ACTUAL DI STRAI NT

CONSTRUCTI VE DI STRAI NT

Made onl y on t he Madeont hepr oper t y pr oper t y of a of any t axpay er , del i nquentt axpay er whet herdel i nquentor not Ther e i s t aki ng of The t axpay er i s possessi on mer el y pr ohi bi t ed f r om di sposi ngofhi s pr oper t y Ef f ect edbyl eav i nga l i st of di st r ai ned pr oper t yorbyser v i ce of a war r ant of di st r ai nt or gar ni shment

Ef f ect edbyr equi r i ng t het axpay ert osi gna r ecei pt of t he pr oper t y or by t he r ev enue of f i cer pr epar i ngandl eav i ng al i stofsuchpr oper t y

An i mmedi at e st ep Notnecessar i l yso f orcol l ect i onoft axes

Bot h Ar esummar yr emedi esf ort hecol l ect i onof t axes; NOTE:Ref eronl yt oper sonal pr oper t y ; and cannotbeav ai l edofwher et heamountoft he t axi nv ol v edi snotmor et hanP100

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

REQUI SI TESFORTHEEXERCI SEOFTHEREMEDY OFDI STRAI NT

1. The t axpay er must be del i nquent ( excepti n const r uct i v e di st r ai nt )i n t hepay mentoft ax ; 2. Ther emustbeasubsequentdemand f ori t spay ment( assessment ) ; 3. Thet axpay ermustf ai lt opayt het ax att het i mer equi r ed; and 4. Theper i odwi t hi nwhi cht oassessor col l ectt het axhasnoty etpr escr i bed. PERSONS WHO

SHALL SEI ZE AND DI STRAI NT PERSONALPROPERTY( ACTUALDI STRAI NT)

1. Amountofdel i nquentt ax i s mor e t hanP1, 000, 000– Commi ssi oneror hi sdul yaut hor i zedr epr esent at i v es. 2. Amount of del i nquent t ax i s P1, 000, 000orl ess–Rev enueDi st r i ct Of f i cer .( Sec.207( A) , 1997NI RC) AUTHORI TY OF THE COMMI SSI ONER TO I NQUI REI NTOBANKDEPOSI TACCOUNTS Di st r ai nt i ncl udes gar ni shment of moneyev eni nbankdeposi t sbecauseRA 1405 ( Bank Secr ecy Law)cov er s onl y di v ul gi ngofi nf or mat i onofdeposi t s.No i nqui r yi smadeongar ni shmentf ori tonl y ear mar ksapor t i onoft hedeposi t s. Not wi t hst andi ng any cont r ar y pr ov i si onofRA1405,t heCommi ssi oner i s aut hor i zed t oi nqui r ei nt ot he bank deposi t sof : 1.a decedentt o det er mi ne hi s gr oss est at e 2.a t axpay erwho wai v es hi sr i ghtby r easonoff i nanci ali ncapaci t yt opayhi s t axl i abi l i t y( Sec. 5, NI RC) PROCEDURESFORTHE ACTUALDI STRAI NTOR GARNI SHMENT I Commencementofdi st r ai nt pr oceedi ngs

Ei t herbyt heCI Rorhi sdul yaut hor i zed r epr esent at i v e;orbyt heRev enueDi st r i ct Of f i cer

TAXATI ON L AW COMMI TTEE

I I Ser v i ceofWar r antofDi st r ai nt ( Sec.208) Wi t hr espectt o: 1.Per sonal pr oper t y– ( a)upont heowneroft hegoods, chat t el s, orot herper sonal pr oper t y ; or ( b)upont heper sonf r om whose possessi onsuchpr oper t i esar e t aken. 2.St ocksandot hersecur i t i es ( a)upont het axpay er ; and ( b)upont hepr esi dent , manager , t r easur erorot herr esponsi bl e of f i ceroft hecor por at i on, companyorassoci at i onwhi ch i ssuedt hesai dst ockand secur i t i es. 3.Bankaccount sshal l begar ni shedby ser v i ngawar r antof di st r ai nt– ( a)upont het axpay er ; and ( b)upont hepr esi dent , manager , t r easur er , orot herr esponsi bl e of f i ceroft hebank. Not e:Upon r ecei ptoft he war r antof di st r ai nt ,t hebankshal lt ur nov ert ot he Commi ssi oner so much of t he bank account sasmaybesuf f i ci entt osat i sf y t hecl ai m oft hegov er nment . 4.Debt sandcr edi t s– ( a)per sons owi ng orhav i ng i n hi s possessi ont hedebt s; ( b)orunderhi scont r olsuchcr edi t s; or ( c)uponhi sagent .

Not e:Thewar r antofdi st r ai ntshal lbe suf f i ci entaut hor i t yt ot heper sonowi ng t hedebt sorhav i ngi nhi spossessi onor underhi scont r olanycr edi t sbel ongi ngt o t het axpay ert opayt ot heCommi ssi oner t heamountofsuchdebt sorcr edi t s.

Taxpay ermustsi gn r ecei pt

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

I I I Post i ngofNot i ce ( Sec.209, NI RC) Not i ce speci f y i ng t het i me andpl aceof sal e and t he ar t i cl esdi st r ai ned. The post i ngshal lbemade i n notl ess t han t wo( 2)publ i cpl acesi nt heci t yormuni ci pal i t ywher et hedi st r ai nti smade.One pl acef orpost i ngofsuchnot i cei satt he Of f i ce oft he May orofsuch ci t y or muni ci pal i t y .

I V Sal eofPr oper t yDi st r ai ned

THE TAXPAYER’ S PROPERTY MAY BE PLACED UNDERCONSTRUCTI VEDI STRAI NTWHENHE

1. i sr et i r i ngf r om anybusi nesssubj ect t ot ax; 2. i si nt endi ngt o– a.l eav et hePhi l i ppi nes, b.r emov ehi spr oper t yt her ef r om, c.hi deorc onceal hi spr oper t y , 3. i s per f or mi ng any act t endi ng t o obst r uctt hepr oceedi ngf orcol l ect i ng t het axdueorwhi chmaybeduef r om hi m( Sec.223, 1997NI RC) . PROCEDURE FOR THE CONSTRUCTI VE DI STRAI NTOFPERSONALPROPERTY Taxpay er ’ sobl i gat i ont opr eser v e

CI R shal lr equi r et he t axpay erorany per sonhav i ngpossessi onorcont r olof suchpr oper t yt o ( a)si gnar ecei ptcov er i ngt hepr oper t y di st r ai nedand ( b)obl i gat ehi msel ft o 1.pr eser v et hesamei nt actand unal t er edand

TAXATI ON L AW COMMI TTEE

2.nott odi sposeoft hesamei nany mannerwhat soev erwi t houtt he expr essaut hor i t yoft he Commi ssi onerof I nt er nal Rev enue.

Remedywhent axpay erdi dn’ tsi gn r ecei pt I ft het axpay erorper soni npossessi onof t hepr oper t yr ef usesorf ai l st osi gnt he r ecei ptr ef er r ed t o,t he r ev enue of f i cer ef f ect i ngt heconst r uct i v edi st r ai ntshal l ( a)pr oceed t o pr epar eal i stofsuch pr oper t yand ( b)i nt hepr esenceoft wo( 2)wi t nesses l eav e a copy t her eofi nt he pr emi ses wher et hepr oper t ydi st r ai nedi sl ocat ed, af t erwhi ch t he sai d pr oper t yshal lbe deemed t o hav e been pl aced under const r uct i v edi st r ai nt .

( 3)LEVY DEFI NI TI ON:I tr ef er st ot heactofsei zur e ofr ealpr oper t yi nor dert o enf or cet he pay mentoft axes.Thepr oper t ymaybe of f er edi napubl i csal e,i faf t ersei zur e, t het axesar enotv ol unt ar i l ypai d. REQUI SI TES FOR REMEDYOFLEVY

THE

EXERCI SE

OF THE

Sameasi nt her emedyofdi st r ai nt .

WHENMAYLEVYBEEFFECTED? Realpr oper t y may be l ev i ed upon bef or e, si mul t aneousl y , or af t er t he di st r ai ntofper sonalpr oper t ybel ongi ng t ot hedel i nquent[ Sec.207( B) ,1997NI RC] ; andt her emedybydi st r ai ntandl ev ymay be r epeat ed i fnecessar yunt i lt he f ul l amount ,i ncl udi ng al l expenses, i s col l ect ed( Sec.217, 1997NI RC) . PROCEDUREOFLEVYONREALPROPERTY

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW I Pr epar eCer t i f i cat eofLev y

I Pr epar at i on of a dul y aut hent i cat ed cer t i f i cat econt ai ni ng: ( a)descr i pt i onoft hepr oper t yl ev i ed; ( b)nameoft het axpay er , and ( c)t heamount soft axandpenal t ydue f r om hi m. Thi s cer t i f i cat e shal l oper at e wi t ht he f or ce ofa l egal execut i ont hr oughoutt hePhi l i ppi nes ( Sec.207B, 1997NI RC) .

b.by publ i cat i on once a week f or3 weeks i n a newspaper of gener al ci r cul at i oni nt hemuni ci pal i t yorci t y wher et he pr oper t yi sl ocat ed ( Sec. 213, CTRP) .

I V Sal e

DI STRAI NTVS. LEVY I I Ser v i ceofNot i ce Ser v i ceofwr i t t ennot i cet o: ( a)t hedel i nquentt axpay er ; or ( b)i fhei sabsentf r om t hePhi l i ppi nes, t o hi sagentormanageroft hebusi nessi n r espectt owhi cht hel i abi l i t yar ose; or c. t ot heoccupantoft hepr oper t y . d. t hepr operRegi st erofDeedsshal l al sobenot i f i edoft hel ev y( Sec.207B, 1997NI RC) .

I I I Adv er t i sementoft heTi meand Pl aceofSal e Theadv er t i sementshal l cont ai n: 1. t heamountoft axandpenal t i esdue; 2. nameoft het axpay eragai nstwhom t axesar el ev i ed; 3. shor tdescr i pt i ont hepr oper t yt obe sol d. The adv er t i sement shal lbe made wi t hi n 20 day s af t ert he l ev y ,and t he sameshal lbef oraper i odofatl east30 day s.I tshal l beef f ect uat edby : a.post i nganot i ceatt hemai nent r ance oft hemuni ci palbui l di ngorci t yhal l andi napubl i candconspi cuouspl ace i nt hebar r i oordi st r i cti nwhi cht he r eal pr oper t yl i es; and

TAXATI ON L AW COMMI TTEE

DI STRAI NT

LEVY

Ref er st oper sonal pr oper t y

Ref er st or eal pr oper t y

For f ei t ur ebyt he gov er nmenti snot pr ov i ded

For f ei t ur ei s aut hor i zed

Thet axpay eri snot gi v ent her i ghtof r edempt i onwi t h r espectt odi st r ai ned per sonal pr oper t y .

Ther i ghtof r edempt i oni s gr ant edi ncaseof r eal pr oper t yl ev i ed uponandsol d, or f or f ei t edt ot he gov er nment .

Bot h Ar esummar yr emedi esf ort hecol l ect i onof t axes; and Cannotbeav ai l edofwher et heamountof t het axi nv ol v edi snotmor et hanP100

REDEMPTI ONOFPROPERTYSOLD

Wi t hi n1y earf r om t hedat eofsal e, t he pr oper t ymaybe r edeemed byt he del i nquentt axpay erorany onef r om hi m, uponpay mentoft het axes,penal t i esand i nt er est t her eon f r om t he dat e of del i nquencyt ot hedat eofsal e,t oget her wi t hi nt er estonpur chasepr i ceat15% perannum f r om t hedat eofsal et ot he dat eofr edempt i on.( Sec.214, NI RC) . FORFEI TURETOTHEGOVERNMENT I ft her ei snobi dderi nt hepubl i csal e ori ft heamountoft hehi ghestbi di s

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

i nsuf f i ci entt o payt he t axes,penal t i es and cost s,t he r ealpr oper t y shal lbe f or f ei t edt ot heGov er nment .

Di r ect edagai nst t hepr oper t y subj ectt ot het ax

Neednotbe di r ect edagai nstt he pr oper t ysubj ectt o t ax

Regar dl essoft he owneroft he pr oper t y

Pr oper t ysei zed mustbeownedby t het axpay er

FURTHERDI STRAI NTANDL EVY Ther emedyofdi st r ai ntandl ev ymay be r epeat ed i fnecessar yunt i lt he f ul l amount of t he t ax del i nquency due i ncl udi ngal lexpensesi scol l ect edf r om t het axpay er .Ot her wi se, acl ev ert axpay er who i s abl et o concealmostoft he v al uabl e par t of hi s pr oper t y woul d escape pay mentofhi st ax l i abi l i t yby sacr i f i ci ngani nsi gni f i cantpor t i onofhi s hol di ngs.

( 4)TAXLI EN DEFI NI TI ON: I ti sal egalcl ai m orchar geon pr oper t y , ei t her r eal or per sonal , est abl i shedbyl awasasecur i t yi ndef aul t oft hepay mentoft axes( 51AmJur881) . Gener al l y ,i tat t aches t ot he pr oper t y i r r espect i v e of owner shi p or t r ansf er t her eof . EXTENTANDNATURE The t ax, t oget her wi t h i nt er est s, penal t i es,andcost st hatmayaccr uei n addi t i ont her et oi sal i enuponal lpr oper t y andr i ght st opr oper t ybel ongi ngt ot he t axpay er . Thel i enshal lnotbev al i dagai nstany mor t gagee, pur chaser , or j udgment cr edi t orunt i lnot i ceofsuchl i enshal lbe f i l ed by t he Commi ssi onerofI nt er nal Rev enuei nt heOf f i ceoft heRegi st erof Deedsoft hepr ov i nceorci t ywher et he pr oper t yoft he t axpay eri ssi t uat ed or l ocat ed( Sec.219, 1997NI RC) . WHENDOESI TATTACH? Notonl yf r om t he ser v i ce oft he war r antofdi st r ai ntbutf r om t het i met ax becamedueandpay abl e. LI ENVS. DI STRAI NT LI EN

TAXATI ON L AW COMMI TTEE

DI STRAI NT

( 5)CI VI LACTI ONS DEFI NI TI ON: F ort ax r emedy pur poses, t hese ar e act i ons i nst i t ut ed by t he gov er nmentt o col l ecti nt er nalr ev enue t axes.I ti ncl udesf i l i ngbyt hegov er nment wi t ht hepr obat ecour tcl ai msagai nstt he deceasedt axpay er . WHENRESORTEDTO? 1. When a t ax i s assessed butt he assessment becomes f i nal and unappeal abl e because t he t axpay er f ai l st of i l eanadmi ni st r at i v epr ot est wi t ht he CI R wi t hi n 30 day sf r om r ecei pt ; or 2. Whenapr ot estagai nstassessment i sf i l edandadeci si onoft heCI Rwas r ender ed but t he sai d deci si on becomes f i nal , execut or y , and demandabl e f or f ai l ur e of t he t axpay ert o appealt hedeci si on t o t heCTAwi t hi n30day sf r om r ecei pt oft hedeci si on.

NOTE:Judi ci alact i onmayber esor t edt o ev en bef or e assessment al t hough i mpr act i cal ,asst at edi nSec.203,1997 NI RC,“ … and no pr oceedi ng i n cour t wi t houtassessmentf ort hecol l ect i onof such t axes shal lbe begun af t er t he expi r at i onofsuch( 3y ear )per i od. ” I tshoul dbenot edt hatnoci v i lor cr i mi nalact i onf ort her ecov er yoft axes shal l bef i l edi ncour twi t houtt heappr ov al oft heCommi ssi oner . WHERETOFI LE 1. Cour tofTaxAppeal s– wher et he pr i nci palamountoft axesandf ees, excl usi v e ofchar ges and penal t i es cl ai med i s One mi l l i on pesos and abov e.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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2. Regi onalTr i alCour t ,Muni ci palTr i al Cour t ,Met r opol i t an Tr i alCour t– wher et hepr i nci palamountoft axes and f ees,excl usi v eofchar gesand penal t i escl ai med i sl esst han One mi l l i onpesos.( Sec.7, RANo.9282) THE APPROVALOFTHE CI RI SE SSENTI ALI N CI VI LCASES.Ho wev er ,underSec.7,1997 NI RC,t he Commi ssi onermaydel egat e suchpowert oaRegi onal Di r ect or . DEFENSES WHI CH

ARE PRECLUDED BY FI NAL ANDEXECUTORYASSESSMENTS

1. I nv al i di t y or i l l egal i t y of t he assessment ; and 2. Pr escr i pt i onoft hegov er nment ’ s r i ghtt oassess.

( 6)CRI MI NALACTI ONS The j udgmenti nt he cr i mi nalcase shal lnotonl yi mpose t he penal t y but shal lal so or dert he pay mentoft axes subj ectoft he cr i mi nalcase as f i nal l y deci dedbyt heCommi ssi oner( Sec.205, NI RC) . WHERETOFI LE 1. Cour tofTaxAppeal s– oncr i mi nal of f enses ar i si ng f r om v i ol at i ons of t he NI RC orTCC and ot herl aws admi ni st er edbyt heBI Randt heBOC, wher et hepr i nci palamountoft axes and f ees,excl usi v eofchar gesand penal t i es cl ai med i s One mi l l i on pesosandabov e. 2. Regi onalTr i alCour t ,Muni ci palTr i al Cour t ,Met r opol i t anTr i alCour t–on cr i mi nal of f enses ar i si ng f r om v i ol at i ons oft he NI RC orTCC and ot herl awsadmi ni st er edbyt heBI R and t he BOC,wher et he pr i nci pal amountoft axesandf ees,excl usi v e ofchar gesandpenal t i escl ai medi s l esst hanOnemi l l i onpesosorwher e t her ei snospeci f i edamountcl ai med. ( Sec.7, RANo.9282) I MPORTANTCONSI DERATI ONS 10.No cr i mi nalact i on shal lbe begun wi t hout t he appr ov al of t he

TAXATI ON L AW COMMI TTEE

Commi ssi oner .( Sec.220, 1997NI RC) 10.I tshal lbebr oughti nt henameoft he Gov er nmentandshal lbeconduct ed byt hel egal of f i cer soft heBI R. EFFECT OF ACQUI TTAL OF THE TAXPAYERI NACRI MI NALACTI ON I tdoesnotnecessar i l yr esul ti nt he exoner at i onofsai dt axpay erf r om hi sci v i l l i abi l i t yt opayt axes. Rat i onal e:Thedut yt opayt axi si mposed byst at ut epr i ort oandi ndependentofany at t emptont hepar toft het axpay ert o ev ade pay ment .I ti s not a mer e consequence of t he f el oni ous act s char ged,nori si ta mer e ci v i ll i abi l i t y der i v ed f r om a cr i me. ( Republ i cv s. Pat anao, GRNo.L14142, May30, 1961) EFFECT OF SUBSEQUENT SATI SFACTI ONOFCI VI LLI ABI LI TY Thesubsequentsat i sf act i onofci v i l l i abi l i t ybypay mentorpr escr i pt i ondoes notext i ngui sh t he t axpay er ’ s cr i mi nal l i abi l i t y . NOSUBSI DI ARYI MPRI SONMENT I ncaseofi nsol v encyont hepar tof t he t axpay er ,subsi di ar yi mpr i sonment cannotbei mposed asr egar dst he t ax whi chhei ssent encedt opay . Howev er ,i tmaybei mposedi ncases off ai l ur et opayt hef i nei mposed.( Sec. 280, 1997NI RC)

CRI MI NAL ACTI ON MAY BE FI LED DURI NG THE PENDENCY OF AN ADMI NI STRATI VEPROTESTI NTHEBI R I ti s nota r equi r ementf ort he f i l i ng t her eoft hatt her e be a pr eci se comput at i onandassessmentoft het ax, si nce whati si nv ol v ed i nt he cr i mi nal act i oni snott hecol l ect i onoft axbuta cr i mi nalpr osecut i onf ort hev i ol at i onof t heNI RC.Pr ov i ded, howev er , t hatt her ei s a pr i ma f aci e showi ng of a wi l l f ul at t emptt oev adet axes.( SeeUngabv s.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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Cusi ,GRNos.L4191924,May30,1980 i nr el at i ont oCommi ssi onerv s.Cour tof Appeal s, GRNo.119322, June4, 1996)

( 7)FORFEI TURE DEFI NI TI ON: di v est i t ur e of pr oper t y wi t houtcompensat i on, i nconsequenceof adef aul torof f ense. ENFORCEMENT OF THE REMEDY OF FORFEI TURE a. I ncaseofper sonalpr oper t y– The f or f ei t ur eofchat t el sandr emov abl e f i xt ur es ofanysor ti s enf or ced by sei zur eandsal eordest r uct i onoft he speci f i cf or f ei t edpr oper t y . b. I n case of r ealpr oper t y – The f or f ei t ur eofr ealpr oper t yi senf or ced byaj udgmentofcondemnat i onand sal ei nal egalact i onorpr oceedi ng, ci v i lorcr i mi nal ,as t he case may r equi r e. c. I n case ofdi st i l l ed spi r i t s,l i quor s, ci gar s, ci gar et t es manuf act ur ed, pr oduct soft obaccoandappar at us used f ort hei rpr oduct i on – Upon f or f ei t ur e,maybedest r oy edbyor der oft heCommi ssi onerwher et hesal e maybei nj ur i oust opubl i cheal t hor pr ej udi ci al t ol awenf or cement .

Theef f ecti st ot r ansf ert het i t l et o t hespeci f i ct hi ngf r om t heownert ot he gov er nment .Al lt hepr oceedsi ncaseof a sal e go t o t he cof f er s of t he gov er nment( U. S.v s.Sur l a,GRNo.6536, Sept ember2,1911) .I nsei zur ef ort he enf or cementofa t axl i en,t her esi due, af t er deduct i ng t he t ax l i abi l i t y and expenseswi l lgot ot het axpay er( Bankof t hePhi l .I sl andv s.Tr i ni dad, GRNo.16014, Oct ober4, 1941) . I NFORMER’ SREWARD( Sec282) A.Forv i ol at i onsoft heNI RC,ar ewar dof 10% oft her ev enues,sur char ges,or f eesr ecov er edand/ orf i neorpenal t y i mposedandcol l ect edorP1M per case, whi chev eri sl owershal lbegi v en t o: 1.anyper son who v ol unt ar i l ygi v es def i ni t eandswor ni nf or mat i onnot y eti nt hepossessi onoft heBI R l eadi ngt ot hedi scov er yoff r aud upon t he I nt er nalRev enue Laws and/ oranyv i ol at i onst her eof 2.ani nf or merwher et heof f enderhas of f er ed t o compr omi se t he v i ol at i on ofl aw comi i t ed byhi m and hi sof f erhasbeenaccept ed andcol l ect ed byt heCI R . Thi s excl udes an I nt er nal Rev enue Of f i cer / empl oy ee orot herpubl i c of f i ci al / empl oy ee,orhi sr el at i v e wi t hi nt hesi xt hdegr ee *Thi sshal lnotr ef ert oacaseal r eady pendi ngorexami nedbyt heCI R

d. Ot herar t i cl essubj ectt oexci set ax whi ch hav e been manuf act ur ed or r emov ed i nv i ol at i on oft he Code, di es f or pr i nt i ng or maki ng f ake r ev enuest ampsandl abel s– Upon f or f ei t ur emaybesol dordest r oy edat t hedi scr et i onoft heCommi ssi oner . For f ei t ed pr oper t y shal l not be dest r oy edunt i latl east20day sf r om sei zur e. EFFECT OF THE FORFEI TURE OF PROPERTY

TAXATI ON L AW COMMI TTEE

B.For t he di scov er y and sei zur e of smuggl edgoods - ar ewar dof10%oft heFMVoft he smuggl ed and conf i scat ed goods orP 1M percase,whi chev eri s l ower ,shal lbe gi v en t o per sons i nst r ument ali nt hedi scov er yand sei zur eofsuchsmuggl edgoods. *Thi sdoesnotappl yt oal l publ i cof f i ci al s whet her i ncumbent or r et i r ed, who acqui r edt hei nf or mat i oni nt hecour seof per f or manceoft hei rdut i esdur i ngt hei r i ncumbency .

PRESCRI PTI VEPERI ODSFOR

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

THEASSESSMENTAND COLLECTI ONOFTAXES RATI ONALEOFPRESCRI PTI VEPERI ODS Such per i ods ar e desi gnat ed t o secur e t he t axpay er s agai nst unr easonabl e i nv est i gat i on af t er t he l apseoft heper i odpr escr i bed.Theyar e al so benef i ci al t o t he gov er nment becauset axof f i cer swi l lbeobl i gedt oact pr ompt l y . RULESONPRESCRI PTI ON 1. Whent het axl aw i t sel fi ssi l ent on pr escr i pt i on, t he t ax i s i mpr escr i pt i bl e; 2. Whennor et ur ni sr equi r ed,t axi s i mpr escr i pt i bl e; Not e:Remedyoft axpay eri st of i l ea r et ur n. 3. Def ense of pr escr i pt i on i s wai v abl e; WHATCONSTI TUTESASSESSMENT? Anassessmentcont ai nsnotonl y acomput at i onoft axl i abi l i t i esbutal soa demandf orpay mentwi t hi napr escr i bed per i od. PRESCRI PTI VE PERI OD ASSESSMENTOFTAXES

FOR

THE

Gener alRul e: Thr ee( 3)y ear saf t ert hedat et he r et ur ni sdueorf i l ed,whi chev eri sl at er ( Sec.203, 1997NI RC) . Except i ons: 1. Fai l ur et of i l ear et ur n:t en( 10) y ear s f r om t he dat e of t he di scov er yoft heomi ssi ont of i l e t her et ur n( Sec. 222[ A] ) ; 2. Fal se orf r audul entr et ur n wi t h i nt ent i on t o ev ade t he t ax:t en ( 10)y ear sf r om t hedat eoft he di scov er yoft hef al si t yorf r aud ( Sec. 222[ A] ) ; Not e:Not hi ngi nSect i on222( A)shal l be const r ued t o aut hor i ze t he exami nat i on and i nv est i gat i on or

TAXATI ON L AW COMMI TTEE

i nqui r yi nt o any t ax r et ur nf i l ed i n accor dance wi t ht he pr ov i si ons of anyt axamnest yl awordecr ee.  Fr aud must be al l eged and pr ov edasaf act .I tmustbet he pr oductofadel i ber at ei nt entt o ev ade t axes. I t may be est abl i shedbyt he: a. I nt ent i onal and subst ant i al under st at ement of t ax l i abi l i t ybyt het ax pay er ; b. I nt ent i onal and subst ant i al ov er st at ementofdeduct i ons ofexempt i ons; and/ or c. Recur r ence of t he abov e ci r cumst ances  Fal si t y const i t ut es a dev i at i on f r om t he t r ut h due t o mi st ake, car el essnessori gnor ance.   Ther ei sf r audi nt hef ol l owi ngdeci ded cases: 1.Fr audmustbet hepr oductofa del i ber at ei nt entt oev adet axes ( Jal andoniv s.Republ i c) 2.Si mpl est at ementt hatr et ur nf i l edwas notf r audul entdoesnotdi spr ov e exi st enceoff r aud( Tay engcov s. Col l ect or ) 3.Subst ant i al under decl ar at i onsof i ncomef orsi xconsecut i v ef i v ey ear s demonst r at ef r audul enceofr et ur n ( Per ezv s.CTA) 4.Pr esenceoff i ct i t i ousexpenses, wi t h noev i dencepr esent ed, pr ov es exi st enceoff r aud( TanGuanv s. Commi ssi oner ) Howev er , t hecour t sdi dnotconsi der t het axr et ur nsf i l edasf al seorf r audul ent wi t hi nt entt oev adepay mentoft axi nt he f ol l owi ngcases: a. Mer e under st at ementi nt he t ax r et ur n wi l lnotnecessar i l yi mpl y f r aud( Jal andoniv s.Republ i c) b. Sal eofar ealpr oper t yf orapr i ce l esst hani t sf ai rmar ketv al uei s not necessar i l y a f al se r et ur n ( Commi ssi onerv s.Ay al aSecur i t i es) c. Fr audi saquest i onoff actandt he ci r cumst ances const i t ut i ng f r aud mustbeal l egedandpr ov edi nt he t r i alcour t( Commi ssi onerv s.Ay al a Secur i t i es)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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d. Fr aud i s nev eri mput ed and t he cour t s nev ersust ai nf i ndi ngs of f r auduponci r cumst ancest hatonl y cr eat esuspi ci on( Commi ssi onerv s. Jav i er ) e. Mi st akes ofr ev enue of f i cer s on t hr ee di f f er entoccasi ons r emov e el ementoff r aud ( Aznarv s.CTA andCol l ect or )

3. Agr eement i n wr i t i ng t o t he ext ensi onoft heper i odt oassess bet weent heCI Randt het axpay er bef or et he expi r at i on oft he 3y earper i od.NB:The ext ended per i od agr eed upon can f ur t her be ext ended by a subsequent wr i t t en agr eementmadebef or e t he ex pi r at i on oft he ext ended per i od pr ev i ousl y agr eed upon ( Sec.222[ b] ) . 4. Wr i t t enwai v erofr enunci at i onof t he or i gi nal t hr ee ( 3) y ear l i mi t at i on,si gnedbyt het axpay er ( Sambr ano v s. Cour t of Tax Appeal s,GR No.L8652,Mar ch 30, 1957) . Not e: Not i ce of t he assessment i s r el eased,mai l edorsentt ot het axpay er al sowi t hi nt he3y earper i od. I ti snot r equi r edt hatt henot i ceber ecei v edby t het axpay erwi t hi nt hepr escr i bedper i od. Butt hesendi ngoft henot i cemustcl ear l y be pr ov en. ( Basi l an Est at e,I nc.v s. Commi ssi oner , GR No. L22492, Sept ember5, 1967) AMENDMENTOFRETURN I f t he amended r et ur n i s subst ant i al l ydi f f er entf r om t he or i gi nal r et ur n,t he pr escr i pt i v e per i od shal lbe count edf r om t hef i l i ngoft heamended r et ur n.Butt hesai dper i odshal lr unf r om t hef i l i ngoft heor i gi nalr et ur ni ft hesame i s suf f i ci ent l y compl et et o enabl et he Commi ssi oner t o make a pr oper assessment .( Commi ssi onerv s.Phoeni x Assur anceCo. ,GRNo.L19727,May20, 1965) WhenSubst ant i v e: a. subst ant i al under decl ar at i on ( exceedi ng30%oft hatdecl ar ed) of t axabl e sal es, r ecei pt s or

TAXATI ON L AW COMMI TTEE

i ncome, b. ora subst ant i alov er st at ement ( exceedi ng 30% ofdeduct i ons) ( Sec.248) PRESCRI PTI VE PERI OD COLLECTI ONOFTAXES

FOR

THE

Gener alPer i ods: Fi v e( 5)y ear s–f r om assessment orwi t hi n per i od f orcol l ect i on agr eed uponi nwr i t i ngbef or eexpi r at i onoft he5y earper i od( Sec.222, 1997NI RC) . Ten ( 10) y ear s – wi t hout assessmenti ncaseoff al seorf r audul ent r et ur nwi t hi nt entt oev adeorf ai l ur et of i l e r et ur n( Sec.222, 1997NI RC) . WHAT I S THE PRESCRI PTI VE PERI OD WHERETHEGOVERNMENT’ SACTI ONI S ON A BOND WHI CH THE TAXPAYER EXECUTESI N ORDER TO SECURETHE PAYMENTOFHI STAXOBLI GATI ON?

Ten( 10)y ear sunderAr t .1144( 1) oft heCi v i lCodeandnott hr ee( 3)y ear s under t he NI RC. I nt hi s case,t he Gov er nmentpr oceedsbycour tact i ont o f or f ei ta bond.The act i on i sf ort he enf or cementofacont r act ualobl i gat i on. ( Republ i cv s.Ar anet a,GR No.L14142, May30, 1961) GROUNDS FOR SUSPENSI ON OF THE RUNNI NG OF THE STATUTE OF LI MI TATI ONS a. Whent heCI Ri spr ohi bi t edf r om maki ng t he assessment or begi nni ngt hedi st r ai ntorl ev yor a pr oceedi ng i n cour t ,and f or si xt y( 60)day st her eaf t er ; b. Whent het axpay err equest sf ora r econsi der at i onwhi chi sgr ant ed byt heCI R; c. When t he t axpay er cannotbe l ocat edi nt headdr essgi v enby hi m i nt he r et ur n,unl ess he i nf or mst heCI Rofanychangei n hi saddr ess. d. Whent hewar r antofdi st r ai ntor l ev y i s dul y ser v ed, and no pr oper t yi sl ocat ed; and e. Whent het axpay eri soutoft he Phi l i ppi nes( Sec.223, 1997NI RC) .

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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A TAX RETURN I S CONSI DERED FI LED FOR PURPOSES OF STARTI NG THE RUNNI NG OF THE PERI OD OF LI MI TATI ONSI F a. Ther et ur ni sv al i d–i thascompl i ed subst ant i al l ywi t ht her equi r ement sof t hel aw; and b.Ther et ur ni sappr opr i at e –i ti sa r et ur nf ort hepar t i cul art axr equi r ed byl aw.

Not e: Adef ect i v et axr et ur ni st hesame asi fnor et ur nwasf i l edatal l . PRESCRI PTI VE PERI OD FOR THE VI OLATI ONOFANYPROVI SI ONOFTHE TAXCODE ( SEC.281, 1997NI RC) 1. Shoul dbef i l edwi t hi nf i v e( 5)y ear s f r om t he( a)dayoft hecommi ssi on oft hev i ol at i onoft hel aw,andi ft he same be notknown,f r om t he ( b) di scov er yt her eofandt hei nst i t ut i on oft he j udi ci alpr oceedi ngs f ori t s i nv est i gat i onandpuni shment .

2. I l l ust r at i v e case:( Li m v s.Cour tof Appeal sGR Nos.4813437,Ocober 18, 1990) a. char gei sf ai l ur eorr ef usalt opay def i ci ency i ncome t ax – commi t t edonl yaf t ert hef i nal i t y oft heassessmentcoupl edwi t h t he t axpay er ’ s wi l l f ulr ef usalt o payt het axeswi t hi nt heal l ot t ed per i od.( i . e.cannotbecommi t t ed uponf i l i ngt her et ur n) b. char ge i s f i l i ng of f al se or f r audul entr et ur n wi t hi nt entt o ev ade t he assessment – i n addi t i ont ot hef actofdi scov er y , t her e must be a j udi ci al pr oceedi ng f ort hei nv est i gat i on and puni shment of t he t ax of f ense bef or e t he 5 y ear pr escr i pt i v eper i odbegi nst or un.

I I .TAXREMEDI ESOFTHE TAXPAYER

TAXATI ON L AW COMMI TTEE

GENERALREMEDI ES A.ADMI NI STRATI VE Bef or ePay ment a. Pr ot est–f i l i ngapet i t i onf or r econsi der at i on or r ei nv est i gat i on wi t hi n 30 day s f r om r ecei pt of assessmentWi t hi n 60 day s f r om f i l i ng of pr ot est ,al l r el ev ant suppor t i ng document sshoul dhav ebeen submi t t ed, ot her wi se, t he assessment shal l become f i nal– cannotbe appeal ed ( Sec.228, 1997NI RC) .

Not e:Submi ssi onofdocument s wi t hi n t he 60 day per i od i s opt i onalt ot het axpay er . " Thatt her el ev antsuppor t i ng document sment i onedi nt he l aw r ef er s t o such document s whi ch t he t axpay er f eel s woul d be necessar y t o suppor t hi s pr ot est and not what t he Commi ssi onerf eel s shoul d be submi t t ed, ot her wi se, t axpay erwoul dal way sbeat t hemer cyoft heBI R whi ch may r equi r e pr oduct i on of such document s whi ch t axpay ercoul dnotpr oduce. " ( St andar dChar t er edBankv s. CI R,CTA Case No.5696, August16, 2001) A pr ot est i sa v i t al documentwhi chi saf or mal decl ar at i on ofr esi st ance of t het axpay er .I ti sar eposi t or y ofal lar gument s.I tcan be used i n cour t i n case admi ni st r at i v er emedi eshav e beenexhaust ed.I ti sal sot he f or malactoft he t axpay er quest i oni ng t he of f i ci al act uat i onoft heCI R.Thi si s equi v al entt oapl eadi ng. b. Ent er i ngi nt oacompr omi se ( Sec.204, 1997NI RC) . Af t erPay ment Fi l i ngofcl ai mf orr ef undor

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW t ax cr edi twi t hi n2y ear sf r om dat e ofpay mentr egar dl ess of anysuper v eni ngcause( Sec.229, 1997NI RC) .

B.JUDI CI AL Ci v i lAct i on a.Appeal t o t he Cour t of Tax Appeal s – wi t hi n 30 day sf r om r ecei ptofdeci si onont hepr ot est orf r om t hel apseof180day sdue t oi nact i on oft he Commi ssi oner ( Sec.228, 1997NI RC) . b. Act i on t o cont est f or f ei t ur e of chat t el , atanyt i mebef or et hesal e ordest r uct i ont her eof ,t or ecov er t hesame,andupongi v i ngpr oper bond,enj oi nt hesal e;oraf t ert he sal e and wi t hi n 6 mont hs,an act i ont or ecov ert henetpr oceeds r eal i zedatt hesal e( Sec.231,1997 NI RC) ; and c.Act i on f or damages agai nst a r ev enueof f i cerbyr easonofany actdone i nt he per f or mance of of f i ci al dut y( Sec.227, 1997NI RC) . Cr i mi nalAct i on a.Fi l i ng of cr i mi nal compl ai nt agai nster r i ng BI R of f i ci al s and empl oy ees. b. I nj unct i on– whent heCTA i ni t s opi ni on,t hecol l ect i onbyt heBI R mayj eopar di zet axpay er .

Not e: Wi t ht heenact mentoft henew CTAl aw( RANo.9282)amendi ngRANo. 1125,CTA now has j ur i sdi ct i on ov er cr i mi nalcases.( SeeChapt erVI-Cour tof TaxAppeal s. ) Subst ant i v eRemedi es 1.Quest i oni ng t he const i t ut i onal i t y or v al i di t yoft axst at ut esorr egul at i ons 2.Nonr et r oact i v i t yofr ul i ngs ( Sec. 246, NI RC) 3.Fai l ur et oi nf or mt het axpay eri nwr i t i ng oft he l egaland f act ualbases of assessmentmakesi tv oi d( Sec.228, NI RC) 4.Pr eser v at i onofbooksofaccount sand once a y earexami nat i on ( Sec.235, NI RC) ASSESSMENTANDPROTEST  Assessment

TAXATI ON L AW COMMI TTEE

Gener alr ul e:Taxes ar e sel fassessi ng andt hus,donotr equi r et hei ssuanceof an assessment not i ce i n or der t o est abl i sht het axl i abi l i t yofat axpay er . Except i ons: 1. Tax per i od of a t axpay er i s t er mi nat ed( Sec.6( D) , NI RC) 2. Def i ci ency t ax l i abi l i t y ar i si ng f r om a t axaudi tconduct ed by t heBI R( Sec.56( B) , NI RC) 3. Taxl i en( Sec.219, NI RC) 4. Di ssol v i ng Cor por at i on ( Sec. 52( c) , NI RC)  Pr ot est 1.Di r ectdeni alofpr ot est Admni st r at i v edeci si ononadi sput ed assessment - The deci si on of t he Commi ssi oner or hi s dul y aut hor i zed r epr esent at i v eshal l( a)st at et hef act s, t heappl i cabl el aw, r ul esandr egul at i onor j ur i spr udenceonwhi chsuchdeci si oni s based ot her wi se,t he deci si on shal lbe v oi d,i nwhi chcaset hesameshal lnotbe consi der ed a deci si on a di sput ed assessmentand( b)t hatt hesamei shi s f i naldeci si on( Sec.3. 1. 5,Rev .Regs.No. 1299) 2.I ndi r ectdeni alofpr ot est a.Commi ssi onerdi dnotr ul eont he t axpay er ’ s mot i on f or r econsi der at i on of t he assessment–i twasonl ywhen r espondent r ecei v ed t he summonson t heci v i lact i onf ort hecol l ect i on ofdef i ci encyi ncomet axt hatt he per i odt oappealcommencedt o r un ( Commi ssi oner v s. Uni on Shi ppi ngCor p. ) b.Ref er r albyt heCommi ssi onerof r equestf orr ei nv est i gat i ont ot he Sol i ci t or Gener al ( Republ i cv s Li m Ti anTengSons) c. Rei t er at i ng t he demand f or i mmedi at e pay ment of t he def i ci encyt axduet ot axpay er ’ s cont i nued r ef usal t o execut e wai v er( Commi ssi onerv s.Ay al a Secur i t i esCor p. ) d.Pr el i mi nar ycol l ect i on l et t ermay ser v e as assessment not i ce ( Uni t edI nt er nat i onalPi ct ur esv s.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Commi ssi oner )

ACTS OF BI R COMMI SSI ONER CONSI DERED AS DENI ALOFPROTEST WHI CHSERVEASABASI SFORAPPEAL TOTHECOURTOFTAXAPPEALS 1. f i l i ng byt he BI R ofa ci v i lsui tf or col l ect i on of t he def i ci ency t ax ( Commi ssi oner v s.Uni on Shi ppi ng Cor por at i on,GRNo.66160,May21, 1990) 2. i ndi cat i on t ot he t axpay er by t he Commi ssi oner “ i n cl ear and unequi v ocall anguage”ofhi sf i nal deni al .( Commi ssi oner v s. Uni on Shi ppi ngCor por at i on,GRNo.66160, May21, 1990) 3. BI R demand l et t er r ei t er at i ng hi s pr ev i ousdemandt opay ,sentt ot he t axpay er af t er hi s pr ot est of t he assessment .( Sur i gaoEl ect r i cCo. , I nc. v s.CTA,GR No.L25289,June28, 1974; Commi ssi oner v s. Ay al a Secur i t i es Cor por at i on,GR No.L29485, Mar ch31, 1976) 4. Theact uali ssuanceofawar r antof di st r ai ntand l ev yi n cer t ai n cases cannotbeconsi der edaf i naldeci si on on a di sput ed set t l ement . ( Commi ssi oner v s.Uni on Shi ppi ng Cor por at i on,GRNo.66160,May21, 1990)

FI LI NGOFCLAI M FOR TAXREFUNDORTAXCREDI T GROUNDS FOR FI LI NG A CLAI M FOR TAXREFUNDORTAXCREDI T 1. Tax i s col l ect ed er r oneousl y or i l l egal l y . 2. Penal t yi scol l ect edwi t houtaut hor i t y . 3. Sum col l ect edi sexcessi v e. TAXREFUNDVS.TAXCREDI T TAXREFUND

TAXCREDI T

Thet axpay erasksf or The t axpay er asks r est i t ut i on of t he t hat t he money so moneypai dast ax pai dbeappl i edt ohi s exi st i ngt axl i abi l i t y

TAXATI ON L AW COMMI TTEE

Twoy ear per i od t o f i l ecl ai m wi t ht heCI R st ar t s af t er t he pay mentoft het axor penal t y

Twoy ear per i od st ar t sf r om t hedat e such cr edi t was al l owed ( i n case cr edi t i s wr ongl y made) .

REQUI SI TES OF TAX REFUND OR TAX CREDI T 1. Cl ai m mustbei nwr i t i ng; 2. I t must be f i l ed wi t h t he Commi ssi onerwi t hi nt wo( 2)y ear s af t er t he pay mentof t he t ax or penal t y . Not e:Nosui torpr oceedi ngshal lbe begunaf t ert heexpi r at i onoft hesai d t wo ( 2) y ear sr egar dl ess of any super v eni ng cause t hatmay ar i se af t erpay ment . 3. Showpr oofofpay ment . COMMENCEMENT OF THE TWO ( 2) YEARPERI OD( JURI SPRUDENCE) 1. Taxsoughtt ober ef undedi si l l egal l y orer r oneousl ycol l ect ed -f r om t hedat et het axwaspai d. ( Commi ssi onerv s.Vi ct or i asMi l l i ng, GRNo.L24108, Januar y31, 1968) 2. Taxi spai donl yi ni nst al l ment sor onl yi npar t -f r om t he dat et he l astorf i nal i nst al l mentorpay mentbecausef or t ax pur poses,t her ei s no pay ment unt i lt hewhol eorent i r et axl i abi l i t yi s f ul l ypai d. ( Col l ect orv s.Pr i et o,GR No.L11976, August29, 1961) 3. Taxpay ermer el ymadeadeposi t -count edf r om t heconv er si onoft he deposi tt opay ment( Uni onGar ment v s.Col l ect or ,CTA Case No.416, Nov ember17, 1958) - Mer el y maki ng a deposi ti s not equi v al ent t o pay ment unt i lt he amounti s act ual l y appl i ed t ot he speci f i c pur pose f orwhi ch i twas deposi t ed. 4. Taxhasbeenwi t hhel df r om sour ce ( t hr ought hewi t hhol di ngt axsy st em) -count edf r om t hedat ei tf al l sdueat t heendoft het axabl ey ear -At axpay erwhocont r i but est ot he wi t hhol di ng t ax sy st em does not r eal l y deposi t an amount t ot he

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

gov er nment ,buti nt r ut h,per f or ms and ext i ngui sheshi st axobl i gat i on f ort he y earconcer ned.( Gi bbsv s. Commi ssi oner , GR No. L17406, Nov ember29, 1965) 5. Endoft axabl ey earv s.dat eoft he f i l i ngoft hef i naladj ust edr et ur n -f r om t he dat e when t he f i nal adj ust edr et ur nwasf i l ed. -t he r at i onal ei n comput i ng t hi s per i odi st hef actt hati ti sonl yt hen t he cor por at i on can ascer t ai n whet heri tmadepr of i t sori ncur r ed l osses i ni t s busi ness oper at i ons. ( ACCRA I nv est ment sv s.Cour tof Appeal s, GRNo.96322, December20, 1991) 6. Dat ewhenquar t er l yi ncomet axwas pai dv s.dat e when f i naladj ust ed r et ur nwasf i l ed -f r om t hedat ewhenf i naladj ust ed r et ur nwasf i l ed -Thef i l i ngoft hequar t er l yi ncome t axr et ur n( Sec.68)andpay mentof quar t er l yi ncomet axshoul donl ybe consi der edmer ei nst al l ment soft he annualt ax due.( Commi ssi onerv s. TMXSal es, GRNo.83736, Januar y15, 1992) 7. Dat e when t he f i nal adj ust ment r et ur nwasact ual l yf i l ed( ex.Apr .2) v s.Lastdaywhen t he adj ust ment r et ur ncoul dst i l lbef i l ed( ex.Apr .15) -f r om t hedat et hef i naladj ust ment r et ur n was act ual l y f i l ed. ( Commi ssi onerv s.Cour tofAppeal s, GRNo117254, Januar y21, 1999) 8. Taxwasnoter r oneousl yori l l egal l y pai d but t he t axpay er became ent i t l ed t o r ef und because of super v eni ngci r cumst ances -f r om t hedat et het axpay erbecomes ent i t l edt or ef undandnotf r om t he dat eofpay ment .( Commi ssi onerv s. DonPedr oCent r alAzucar er a,GRNo. L28467, Feb.28, 1973) PAYMENT UNDER PROTEST I S NOT NECESSARYUNDERNI RC A sui torpr oceedi ngf ort axr ef und maybemai nt ai ned“ whet herornotsuch t ax,penal t yorsum hasbeenpai dunder pr ot estordur ess”( Sec.229, NI RC) .

Not e:Si mi l ar l y ,pay mentunderpr ot esti s

TAXATI ON L AW COMMI TTEE

notnecessar yi nr ef undf orl ocalt axes. ( SeeSec.196, LGC) . Howev er ,pay mentunderpr ot esti s necessar yi n cl ai m f orr ef und f orr eal pr oper t yt axes ( Sec.252,LGC)andf or cust omsdut i es( Sec.2308, TCC) . SUSPENSI ON OF THE PRESCRI PTI VEPERI OD

TWOYEAR

1. Ther ei sapendi ngl i t i gat i onbet ween t he Gov er nmentand t he t axpay er ; and 2. CI Ri nt hatl i t i gat edcaseagr eedt o abi debyt hedeci si onoft heSCast o t hecol l ect i onoft axesr el at i v et her et o ( PanayEl ect r i cCo.v s.Col l ect or ,GR No.L10574, May28, 1958) . I NTERESTONTAXREFUNDS Gener alRul e: Gov er nmentcannotber equi r ed t opayi nt er estont axesr ef undedt ot he t axpay eri nt heabsenceofast at ut or y pr ov i si oncl ear l yorexpr essl ydi r ect i ngor aut hor i zi ng such pay ment . ( Commi ssi onerv s.Sweeney ,GR No.L12178, August29, 1959) Except i ons: 1. When t he CI R act ed wi t h pat ent ar bi t r ar i ness. Ar bi t r ar i ness pr esupposes i nexcusabl e or obst i nat e di sr egar d of l egal pr ov i si ons. ( Commi ssi oner v s. Vi ct or i as Mi l l i ng,GR No.L19667, Nov .29, 1966) 2. UnderSec.79( C) ( 2)wi t hr espectt o i ncomet axeswi t hhel dont hewages oft heempl oy ees. TAXCREDI TCERTI FI CATE 1. Maybeappl i edagai nstanyi nt er nal r ev enuet axexceptwi t hhol di ngt axes, 2. Or i gi nalcopyi ssur r ender ed t ot he r ev enueof f i ce, 3. Not axr ef undwi l lbegi v enr esul t i ng f r om av ai l mentofi ncent i v esgr ant ed byl awwher enoact ualpay mentwas made( Sec.204C, 1997NI RC) .

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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FORFEI TURE OF CASH REFUND/ TAX CREDI T 1. For f ei t ur eofr ef undi nf av oroft he gov er nmentwhenar ef undcheckor war r ant r emai ns uncl ai med or uncashedwi t hi nf i v e( 5)y ear sf r om dat eofmai l i ngordel i v er y . 2. For f ei t ur eofTaxCr edi t–at axcr edi t cer t i f i cat e whi ch r emai ns unut i l i zed af t erf i v e( 5)y ear sf r om dat eofi ssue, shal lbe i nv al i d,unl ess r ev al i dat ed ( Sec.230, 1997NI RC) .

REGLEMENTARYPERI ODS I NI NCOMETAXI MPOSED BYLAW UPONTHETAXPAYER

( PURSUANTTOREV.REG.NO.1299, SEC.228OFTHE1997NI RC, ANDRANO. 1125ASAMENDEDBYRANO.9282) BI Rmakesat axassessment



I ft axpay eri snotsat i sf i edwi t ht he assessmentf i l eapr ot estwi t hi n30day s f r om r ecei ptt her eof



Submi tsuppor t i ngdocument swi t hi n60 day sf r om dat eoft hef i l i ngoft hepr ot est



I fpr ot esti sdeni ed, el ev at et hemat t ert o t heCommi ssi onerofI nt er nal Rev enue ( CI R)wi t hi n30day sf r om r ecei ptoft he deci si onoft heCI R’ sdul yaut hor i zed r epr esent at i v eof f i cer



Appealt ot heDi v i si onoft heCour tof TaxAppeal s( CTA)wi t hi n30day sf r om r ecei ptoff i nal deci si onofCI Rorhi sdul y aut hor i zedr epr esent at i v e( t het axpay er hast heopt i ont oappeal st r ai ghtt ot he CTAuponr ecei ptoft hedeci si onoft he CI R’ sdul yaut hor i zedr epr esent at i v e)



I ft heCI Rorhi sdul yaut hor i zed r epr esent at i v ef ai l st oactont hepr ot est wi t hi n180day sf r om dat eofsubmi ssi on byt ax pay er , t hel at t ermayappealwi t hi n 30day sf r om l apseoft he 180dayper i odwi t ht heCTADi v i si on



ThePar t yadv er sel yaf f ect edbyt heCTA

TAXATI ON L AW COMMI TTEE

Di v i si on’ sdeci si onmayf i l eonemot i on f orr econsi der at i on/ newt r i al wi t hi n15 day sf r om r ecei ptofdeci si on.I ft heMR i sdeni edf i l eapet i t i onf orr ev i ewwi t ht he CTAenbanc



Appealt ot heSupr emeCour twi t hi n15 day sf r om r ecei ptoft heCTAenbanc deci si onunderRul e45oft heRul esof Cour t PREASSESSMENT NOTI CE, WHEN REQUI RED( SEC.228, NI RC)

NOT

1. When t he f i ndi ng f or any def i ci ency t ax i st he r esul tof mat hemat i cal er r or i n t he comput at i on of t he t ax as appear i ng on t he f ace oft he r et ur n; or 2. When a di scr epancy has been det er mi ned bet ween t he t ax wi t hhel dandt heamountact ual l y r emi t t edbyt hewi t hhol di ngagent ; or 3. When at axpay erwho opt ed t o cl ai m ar ef und ort axcr edi tof excesscr edi t abl ewi t hhol di ngt ax f or a t axabl e per i od was det er mi nedt ohav ecar r i edov er and aut omat i cal l y appl i ed t he same amountcl ai med agai nst t he est i mat ed t ax l i abi l i t i es f or t het axabl equar t erorquar t er sof t hesucceedi ngt axabl ey ear ; or 4. When t he exci se t ax due on exci sabl ear t i cl eshasnotbeen pai d; 5. Whenanar t i cl el ocal l ypur chased ori mpor t edbyanexemptper son, such as, but not l i mi t ed t o, v ehi cl es, capi t al equi pment , machi ner i esandspar epar t s,has beensol d,t r adedort r ansf er r ed t ononexemptper sons.

Not es:  As a gener alr ul e,pay ment underpr ot esti snotr equi r ed undert heNI RC,exceptwhen par t i al pay ment of uncont r ov er t ed t axes i s r equi r edunderRR1299.The Commi ssi oner may , ev en wi t hout a wr i t t en cl ai m

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW t her ef or ,r ef undorcr edi tany t ax,wher eont hef aceoft he r et ur n upon whi ch pay ment was made, such pay ment appear scl ear l yt ohav ebeen er r oneousl ypai d.  I n case of t he CI R’ sf i nal deni aloft hecl ai mf orr ef und, t he30dayper i od t o appeal wi t ht heCTAmustbewi t hi n t he2y earper empt or yper i od f ori nst i t ut i ngj udi ci al act i on.  See Annex N – Assessment Pr ocessandAppeal

ADDI TI ONSTOTHETAX ( SECS.247252NI RC) DEFI NI TI ON:i ncr ement st ot hebasi ct ax i nci dent due t o t he t axpay er ’ s noncompl i ance wi t h cer t ai n l egal r equi r ement s. 1. CI VI LPENALTY/SURCHARGE 1. 25%sur char ge a. Fai l ur et of i l eanyr et ur nand payt het axduet her eonas r equi r edundert hepr ov i si ons oft hi s Code orr ul es and r egul at i ons on t he dat e pr escr i bed; or b. Unl essot her wi seaut hor i zed byt heCommi ssi oner ,f i l i nga r et ur n wi t h an i nt er nal r ev enue of f i cer ot her t han t hosewi t hwhom t her et ur n i sr equi r edt obef i l ed; or c. Fai l ur et opayt hedef i ci ency t axwi t hi nt het i mepr escr i bed f ori t spay menti nt henot i ce ofassessment ; or d. Fai l ur et opayt hef ul lorpar t oft heamountoft axshown onanyr et ur nr equi r edt obe f i l edundert hepr ov i si onsof t hi s Code or r ul es and r egul at i ons, or t he f ul l amountoft axduef orwhi ch no r et ur ni sr equi r ed t o be f i l ed,onorbef or et hedat e pr escr i bed f ori t s pay ment . ( Sec.248) 2. 50%sur char ge a. i ncaseofwi l l f ulnegl ectt o

TAXATI ON L AW COMMI TTEE

f i l e t he r et ur n wi t hi n t he per i od pr escr i bed by t he Code, or  wi l l notappl yi ncasea t axpay er , wi t houtnot i ce f r om t heCommi ssi oner , orhi sdul yaut hor i zed r epr esent at i v e, v ol unt ar i l y f i l est hesai dr et ur n( onl y 25%shal l bei mposed)  50% sur char ge shal lbe i mposed i n case t he t axpay erf i l est her et ur n onl yaf t erpr i ornot i cei n wr i t i ng f r om t he Commi ssi onerorhi sdul y aut hor i zed r epr esent at i v e( Sec.4. 2,Rev .Reg. 1299)

b. i n case a f al se orf r audul ent r et ur ni swi l l f ul l ymade Pr i maFaci eev i dence  subst ant i alunder decl ar at i on ( exceedi ng 30% of t hat decl ar ed) of t axabl e sal es, r ecei pt sori ncome,  orasubst ant i al ov er st at ement( exceedi ng 30%ofact ualdeduct i ons)of deduct i ons( Sec.248) 2. I NTEREST -20%perannum orsuchhi gherr at e asmaybepr escr i bed byt her ul es andr egul at i ons a. Def i ci encyi nt er est( Sec.249B) b. Del i nquencyi nt er est( Sec.249C) c. I nt er est on Ext ended Pay ment ( Sec.249D) 3. OTHER CI VI L PENALTI ES ADMI NI STRATI VEFI NES

OR

a. Fai l ur et of i l ecer t ai ni nf or mat i on r et ur ns( Sec.250) b. Fai l ur eofawi t hhol di ngagentt o col l ectandr emi tt ax( Sec.251) c. Fai l ur eofawi t hhol di ngagentof r ef und excess wi t hhol di ng t ax ( Sec.252)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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I I I . LOCALTAXATI ON POWERSANDLI MI TATI ONS NATURE AND SOURCE OF LOCAL TAXI NG POWER ( SEE.SEC 5,ART.X, 1987 CONSTI TUTI ON AND SEC.129, LGC) The LocalGov er nment Uni t has t he power : a. t o cr eat ei t s own sour ces of r ev enueand b. t ol ev yt axes, f eesandchar ges.

Congr ess cannot enact l aws depr i v i ng LGU f r om exer ci si ng such powert ot axbuti tmaysetgui del i nesand l i mi t at i onsf ort heexer ci se. Such t axes,f ees,and char ges shal laccr ue excl usi vel yt ot he l ocal gover nmentuni t s. NATUREOFTHETAXI NGPOWER a. Noti nher ent ; b.Exer ci sedonl yi fdel egat edt ot hem byl aworConst i t ut i on; c. Not absol ut e; subj ect t o l i mi t at i onspr ov i dedf orbyl aw. Undert hepr esentconst i t ut i onal r ul e,“ wher et her ei snei t heragr antnora pr ohi bi t i onbyst at ut e, t het axpowermust bedeemed t o exi stal t houghCongr ess may pr ov i de st at ut or yl i mi t at i ons and gui del i nes.The basi cr at i onal ef ort he cur r entr ul ei st osaf eguar dt hev i abi l i t y andsel f suf f i ci encyofl ocalgov er nment uni t sbydi r ect l ygr ant i ng t hem gener al andbr oadt axpower s. ”( Mani l aEl ect r i c Co.v s.Pr ov i nce ofLaguna,G. R.No. 131359)   ASPECTSOFLOCALTAXI NGPOWER a.l ocal t axat i on b. r eal pr oper t yt axat i on

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FUNDAMENTALPRI NCI PLESGOVERNI NG L OCAL TAXATI ON ( SEC.130, LGC) a. Shal lbeuni f or m i n each l ocal subuni t b. Shal lbeequi t abl eandbasedas much as possi bl e on t he t axpay er ’ sabi l i t yt opay c. Lev i edf orpubl i cpur poses d. Shal lnotbe unj ust ,excessi v e, oppr essi v e, orconf i scat or y e. Shal lnotbe cont r ar yt ol aw, publ i cpol i cy ,nat i onaleconomi c pol i cy , ori nr est r ai ntoft r ade f . Col l ect i on of l ocalt axes and ot heri mposi t i onsshal lnotbel et t oanyper son g. The r ev enues col l ect ed under t heCodeshal li nur esol el yt ot he benef i t of , and subj ect t o di sposi t i onby ,t heLGU l ev y i ng t he t ax or ot her i mposi t i on unl ess ot her wi se speci f i cal l y pr ov i dedt her ei n h. Each LGU shal l , as f ar as pr act i cabl e, ev ol v eapr ogr essi v e sy st em oft axat i on. LOCALTAXI NGAUTHORI TY( SEC.132, LGC) Shal lbeexer ci sedbyt heSangguni an of t he LGU concer ned t hr ough an appr opr i at eor di nance.   POWER TO PRESCRI BE PENALTI ES FOR TAX VI OLATI ONSAND L I MI TATI ONSTHEREON ( SEC. 516, LGC) 1. The Sangguni an i s aut hor i zed t o pr escr i bef i nesorot herpenal t i esf or v i ol at i onsoft axor di nances. a. i n no case shal lf i nes be l ess t han P1, 000 nor mor e t han P5, 000 b. norshal lt he i mpr i sonmentbe l esst hanone( 1)mont hnormor e t hansi x( 6)mont h. 2. Suchf i neorot herpenal t yshal lbe i mposed att he di scr et i on oft he cour t . 3. The Sangguni ang Bar angay may pr escr i be a f i ne ofnotl ess t han P100normor et hanP1, 000.   POWER TO ADJUST LOCAL TAX RATE ( SEC. 191, LGC) Adj ust ment of t he t ax r at es as pr escr i bedher ei nshoul dnotbeof t ener

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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t hanonceev er yf i v e( 5)y ear s,andi nno caseshal lsuchadj ust mentexceedt en per cent( 10%)oft her at esf i x edundert he LGC. POWER TO GRANT LOCAL TAX EXEMPTI ONS ( SEC.192, LGC) Local gov er nment uni t s may , t hr oughor di nancesdul yappr ov ed,gr ant t ax exempt i ons,i ncent i v es or r el i ef s undersucht er msandcondi t i ons, ast hey maydeem necessar y . TAX EXEMPTI ONS E XI STI NG BEFORE THE EFFECTI VI TY OF THE L GC HAS BEEN ABOLI SHED( SEC.193, LGC)     Unl ess ot her wi se pr ov i ded i nt hi s Code, t ax exempt i ons or i ncent i v es gr ant ed t o,orpr esent l yenj oy ed byal l per sons,whet her nat ur al or j ur i di cal , i ncl udi ng gov er nment owned or cont r ol l ed cor por at i ons ar e her eby wi t hdr awn upon t he ef f ect i v el y oft he LGC  exceptt hef ol l owi ng: 8. l ocal wat erdi st r i ct s, 9. cooper at i v es dul yr egi st er ed under R. A.No.6938,nonst ock and nonpr of i thospi t al sand 10.educat i onal i nst i t ut i ons. Thepowert ogr antt axexempt i ons, t axi ncent i v esand t axr el i ef sshal lnot appl yt or egul at or yf eeswhi char el ev i ed undert hepol i cepoweroft heLGU. Tax exempt i ons shal lbe conf er r ed t hr ough t he i ssuance of a nont r ansf er abl et axexempt i oncer t i f i cat e. GUI DELI NES FOR THE GRANTI NG OF TAX EXEMPTI ONS, TAX I NCENTI VES AND TAX RELI EFS ( ART. 282[ B] , RULES AND REGULATI ONSI MPLEMENTI NGTHEL GC) 1. Ont hegr antoft axexempt i onsort ax r el i ef s: a. t he same may be gr ant ed i n casesofnat ur alcal ami t i es,ci v i l di st ur bance,gener al f ai l ur e of cr ops, or adv er se economi c condi t i ons such as subst ant i al decr easei npr i cesofagr i cul t ur al oragr i basedpr oduct s. b.The gr antshal lbe t hr ough an or di nance.

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c. Anyexempt i onorr el i efgr ant edt o at y peorki ndofbusi nessshal l appl yt o al lbusi ness si mi l ar l y si t uat ed. d. Thesameshal lt akeef f ectonl y dur i ngt henextcal endary earf ora per i odnotexceedi ng12mont hs as may be pr ov i ded i n t he or di nance. e. I nt hecaseofshar edr ev enues, t heexempt i onorr el i efshal lonl y ext endt ot heLGUgr ant i ngsuch exempt i onorr el i ef . 2. Ont hegr antoft axi ncent i v es: a. Thesameshal lbegr ant edonl y t onewi nv est ment si nt hel ocal i t y andt heor di nanceshal lpr escr i be t he t er ms and condi t i ons t her ef or e. b. Thegr antshal lbef oradef i ni t e per i od of not exceedi ng 1 cal endary ear . c. Thegr antshal lbebyor di nance passed pr i ort ot he 1st day of Januar yofanyy ear . d. Anygr antt oat y peorki nd of busi ness shal l appl y t o al l busi nessessi mi l ar l ysi t uat ed. LEVYI NGOFLOCALTAXES( LOCALTAX ORDI NANCE) Requi si t es: 1.The pr ocedur e appl i cabl et ol ocal gov er nment or di nances i n gener al shoul dbeobser v ed( Sec.187, LGC) 2. Pr ocedur aldet ai l s( Secs.54,55,and 59, LGC) : a. necessi t yofaquor um b. submi ssi onf orappr ov albyt he l ocal chi efexecut i v e c. hemat t erofv et oandov er r i di ng t hesame d. t hepubl i cat i onandaf f ect i v i t y 3. Publ i chear i ngsar er equi r ed bef or e anyl ocalt axor di nance i s enact ed ( Sec. 187, LGC) 4. Wi t hi n10 day saf t ert hei rappr ov al , publ i cat i oni nf ul lf or3consecut i v e day si n a newspaper of gener al ci r cul at i on. I n absence of such newspaperi nt he pr ov i nce,ci t y or muni ci pal i t y , t hent heor di nancesmay bepost edi natl east2conspi cuous andpubl i cl yaccessi bl epl aces( Sec. 189, LGC)

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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  RESI DUAL TAXI NG POWERS OF THE L OCAL GOVERNMENTUNI TS( SEC.186, LGC) Tol ev yt axes,f eesorchar gesonany baseorsubj ectNOT: 1. Speci f i cal l yenumer at edi nLGC 2. Taxedundert hepr ov i si onsoft he NI RC, asamended, and 3. Ot herappl i cabl el aws Condi t i ons: 1.Thatt het axes, f ees, orchar gesshal l notbeunj ust , excessi v e, oppr essi v e, conf i scat or yorcont r ar yt odecl ar ed nat i onal pol i cy 2.Theor di nancel ev y i ngsucht axes, f ees orchar gesshal l notbeenact ed wi t houtanypr i orpubl i chear i ng conduct edf ort hepur pose. 

LI MI TATI ONSOFTHERESI DUALPOWER 1. Const i t ut i onal l i mi t at i ons on t axi ngpower 2. Commonl i mi t at i onspr escr i bed i nSec.133oft heLGC 3. Fundament al pr i nci pl es gov er ni ng t he exer ci se oft he t axi ng power of t he LGUs pr escr i bedunderSec.130oft he LGC 4. The or di nance l ev y i ng such r esi dual t axes shal l not be enact edwi t houtanypr i orpubl i c hear i ng conduct ed f or t he pur poseand 5. Thepr i nci pl eofpr eempt i on. PRI NCI PLEOFPREEMPTI ON ORE XCLUSI ONARY DOCTRI NE

Wher e t he Nat i onal Gov er nment el ect st ot axapar t i cul arar ea,i ti mpl i edl y wi t hhol dsf r om t hel ocalgov er nmentt he del egat edpowert ot axt hesamef i el d. Thi s doct r i ne pr i nci pal l yr est s on t he i nt ent i onoft heCongr ess.   Excl uded i mposi t i ons ( pur suantt ot he doct r i neofpr eempt i on) : a. Taxeswhi char el ev i edundert he NI RC,unl essot her wi sepr ov i ded byLGCof1991; b. Taxes, f ees, et c. whi ch ar e i mposed undert he Tar i f f s and

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Cust omsCode; c. Taxes,f ees,et c. ,t hei mposi t i on of whi ch cont r av enes exi st i ng gov er nment alpol i ci es orwhi ch v i ol at es t he f undament al pr i nci pl esoft axat i on; d. Taxes,f ees and ot herchar ges i mposedunderspeci al l aw. COMMON LI MI TATI ONS ON LOCAL TAXI NGPOWER( SEC.133, LGC) Local gov er nmentuni t scannotl ev y : 1. I ncomet ax ,exceptonbanksand ot herf i nanci al i nst i t ut i ons; 2. Document ar yst ampt ax; 3. Est at e t ax ,i nher i t ance, gi f t s, l egaci es and ot heracqui si t i ons mor t i scausaexceptasot her wi se pr ov i ded 4. Cust omsdut i es,r egi st r at i onf ees of v essel s and whar f age on whar v es,t onnage dues and al l ot her ki nds of cust oms f ees, char ges and dues except whar f age on whar v es const r uct ed and mai nt ai ned by t he l ocal gov er nment uni t concer ned; 5. Taxes,f ees,char ges and ot her i mposi t i onsupongoodscar r i ed i nt ooroutof , orpassi ngt hr ough, t het er r i t or i alj ur i sdi ct i onsofl ocal gov er nmentuni t si nt hegui seof char ges f orwhar f age,t ol l sf or br i dgesorot her wi se. 6. Taxes, f ees or char ges on agr i cul t ur alandaquat i cpr oduct s whensol dbymar gi nalf ar mer sor f i sher men; 7. Taxes on busi ness ent er pr i ses cer t i f i ed by t he Boar d of I nv est ment s as pi oneerornon pi oneerf oraper i odof6and4 y ear s,r espect i v el y ,f r om t hedat e ofr egi st r at i on; 8. Exci se t axes on ar t i cl es enumer at edundert heNI RC,as amended,and t axes,f ees or char gesonpet r ol eum pr oduct s; 9. Per cent age orv al ue added t ax ( VAT) on sal es, bar t er s or exchanges or si mi l ar t r ansact i ons on goods or ser v i ces except as ot her wi se pr ov i dedher ei n;

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW 10.Taxesont hegr ossr ecei pt sof t r anspor t at i on cont r act or s and per sons engaged i n t he t r anspor t at i onofpassenger sor f r ei ght by hi r e and common car r i er s by ai r ,l and orwat er , exceptaspr ov i dedi nt heCode; 11.Taxesonpr emi umspai dbyway ofRei nsur anceorr et r ocessi on; 12.Taxes,f ees orchar ges f ort he r egi st r at i on of mot or v ehi cl es andf ort hei ssuanceofal lki nds ofl i censes orper mi t sf ort he dr i v i ngt her eof , exceptt r i cy cl e; 13.Taxes,f eesorot herchar geson Phi l i ppi ne pr oduct s act ual l y expor t ed,except as ot her wi se pr ov i dedi nt heCode; 14.Taxes, f ees or char ges on Count r y si de and bar angay busi ness ent er pr i ses and cooper at i v es dul y r egi st er ed underR. A.6810andR. A.6938, ( Cooper at i v es Code of t he Phi l i ppi nes); and 15.Taxes,f ees orchar ges ofany ki ndont heNat i onalGov er nment , i t sagenci esandi nst r ument al i t i es, andl ocal gov er nmentuni t s.

CLASSI FI CATI ON OF COMMON LI MI TATI ONS 1. Taxes whi ch ar el ev i ed undert he NI RC unl ess ot her wi se pr ov i ded by t heLGC  Number s1, 2, 3, 8, 9, 10 2. Taxes,f ees,et c.whi char ei mposed undert heTar i f f sandCust omsCode  Number4 3. Taxes,f eesandchar geswher et he i mposi t i on of whi ch cont r av enes exi st i ng gov er nment al pol i ci es or whi ch ar e v i ol at i v e of t he f undament al pr i nci pl esoft axat i on  Number s5, 6, 7, 11, 13, 14, 15 4. Taxes,f ees,and char ges i mposed underspeci al l aws.  Number12 TAXESANDOTHERI MPOSI TI ONSTHAT THELOCALGOVERNMENTMAYLEVY PROVI NCES ( SECS.134141, LGC) 1. TaxonTr ansf erofReal Pr oper t y

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2. TaxonBusi nessofPr i nt i ngand Publ i cat i on 3. Fr anchi seTax 4. TaxonSand, Gr av el andot her Quar r yResour cesext r act edf r om Publ i cLand 5. Pr of essi onal Tax 6. AmusementTax 7. Annual Fi xedTaxf orev er y Del i v er yTr uckorVanof Manuf act ur er sorPr oducer s, Whol esal er sof , Deal er s, or Ret ai l er si n, cer t ai npr oduct s  SeeAnnexJ f ort her at esand det ai l s.

( B)MUNI CI PALI TI ES ( SEC.143, LGC) 1. Muni ci pal Taxes- t axes on t he busi nessesoft hef ol l owi ng: a. Onmanuf act ur er s, assembl er s, r epacker s, pr ocessor s, br ewer s, di st i l l er s, r ect i f i er s, and compounder sofl i quor s, di st i l l ed spi r i t s, andwi nesor manuf act ur er sofanyar t i cl eof commer ceofwhat ev erki ndor b. Onwhol esal er s, di st r i but or s, or deal er si nanyar t i cl eof commer ceofwhat ev erki ndor c. Onexpor t er s, andon manuf act ur er s, mi l l er s, pr oducer s, whol esal er s, di st r i but or s, deal er s orr et ai l er sofessent i al commodi t i es d. Onr et ai l er s e. Oncont r act or sandot her i ndependent f . Onbanksandot herf i nanci al g. Onpeddl er sengagedi nt hesal e ofanymer chandi seorar t i cl eof commer ce  h. Onanybusi ness, notot her wi se speci f i edi nt hepr ecedi ng par agr aphs, whi cht he sangguni anconcer nedmay deem pr opert ot ax. 

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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2. Muni ci pal nonr ev enue f ees and char ges Themuni ci pal i t ymayi mposeand col l ectsuchr easonabl ef eesandchar ges on busi ness and occupat i on except pr of essi onal t axesr eser v edf orpr ov i nces. ( Sec.147.LGC) RATES OF TAX WI THI N THE METROPOLI TAN MANI LAAREA( SEC. 144, LGC) -Not t o exceed by 50% t he maxi mum r at es pr escr i bed i n t he pr ecedi ngSect i on.

CI TI ES  ( SEC.151, LGC)  Theci t ymayl ev yt het axes, f ees, and char ges whi ch t he pr ov i nce or muni ci pal i t ymayi mpose.  Thet axr at est hatt heci t ymayl ev y may exceed t he maxi mum r at es al l owed f or t he pr ov i nce or muni ci pal i t ybynotmor et han 50% exceptt her at esofpr of essi onaland amusementt axes. ( D)BARANGAYS ( SEC.152, LGC) Bar angay smayl ev yt hef ol l owi ngt axes, f ees,and char ges whi ch shal laccr ue excl usi v el yt ot hem:

PAYMENTOFBUSI NESSTAXES a. I t shal lbe pay abl ef or ev er y separ at e or di st i nct est abl i shment or pl ace wher e busi ness subj ectt ot he t ax i s conduct ed and one l i ne of busi ness does not become exemptbybei ngconduct edwi t h someot herbusi nessf orwhi ch sucht axhasbeenpai d.       b. Thet axonabusi nessmustbe pai d byt he per son conduct i ng t hesame.   c. I n cases wher e a per son conduct soroper at es2ormor e oft hebusi nessesment i onedi n Sect i on143ofLGC -whi char esubj ectt ot hesame r at eoft ax,t het axshal lbecomput ed ont hecombi nedt ot algr osssal esor r ecei pt soft hesai d2ormor er el at ed busi nesses. -whi char esubj ectt odi f f er ent r at es of t ax,t he gr oss sal es or r ecei pt s ofeach busi ness shal lbe separ at el yr epor t edf ort hepur pose ofcomput i ngt het axduef r om each busi ness.  SeeAnnexK f ort her at esand det ai l s.

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a. Taxes – On st or es orr et ai l er s wi t h f i xed busi ness est abl i shment s wi t ht he gr oss sal es or r ecei pt s f or t he pr ecedi ng cal endar y ear of P50, 000orl ess( f orbar angay si n t heci t i es)and P30, 000 orl ess ( f orbar angay si nmuni ci pal i t i es) b. Rat e=notex ceedi ng1%ofsuch gr osssal esorr ecei pt s. c. Ser v i ceFeesorChar ges– For ser v i cesr ender edi nconnect i on wi t ht her egul at i onort heuseof bar angay owned pr oper t i es or ser v i ce f aci l i t i essuch aspal ay , copr aort obaccodr y er s d. Bar angayCl ear ance–Noci t yor muni ci pal i t y may i ssue any l i cense orper mi tf ee f orany busi ness or act i v i t y unl ess a cl ear ancei sf i r stobt ai nedf r om t he bar angay wher e such busi nessoract i v i t yi sl ocat edor conduct ed. e. Ot herFeesandChar ges– The bar angay may l ev yr easonabl e f eesandchar ges: 1. On Commer ci albr eedi ng of f i ght i ng cocks, cockf i ght s andcockpi t s; 2. On pl aces of Recr eat i on whi chchar geadmi ssi onf ees; and 3. On Bi l l boar ds, si gnboar ds, neon si gns and out door

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW adv er t i sement s.

SI TUSOFLOCALTAXATI ON A.Si t usAccor di ngt ot heCases Wi t hr espectt oexci set ax, t het ax i s upon t he per f or mance of an act , enj oy mentofapr i v i l egeort heengagi ng i nanoccupat i on.Thepowert ol ev ysuch t axi snotdependentont hedomi ci l eof t het axpay er ,butont hepl acei nwhi ch t heacti sper f or medort heoccupat i oni s engagedi n;notupont hel ocat i onoft he of f i ce,butt hepl acewher et hesal ei s per f ect ed.( Al l i edThr eadCo. ,I nc.v .Ci t y May orofMani l a, L40296) Wi t hr espectt o sal e,i ti st he pl aceoft heconsummat i onoft hesal e, associ at edwi t ht hedel i v er yoft het hi ngs whi ch ar et he subj ectmat t er of t he cont r actt hatdet er mi nest hesi t usoft he cont r actf orpur posesoft axat i on, andnot mer el yt hepl aceoft heper f ect i onoft he cont r act .( Shel lCo. ,I nc.v .Muni ci pal i t yof Si pocot , Camar i nesSur105Phi l1263) B.Si t usAccor di ngt oSec.150, LGC Br anchorsal esof f i ce–af i xedpl acei n t hel ocal i t ywhi chconduct st heoper at i on oft hebusi nessasanext ensi onoft he pr i nci pal of f i ce    Pr i nci palof f i ce-t he head ort he mai n of f i ce oft he busi ness;t he ci t yort he muni ci pal i t yspeci f i cal l yment i onedi nt he Ar t i cl es of I ncor por at i on or of f i ci al r egi st r at i onpaper sasbei ngt heof f i ci al addr essofsai dpr i nci palof f i ceshal lbe consi der edt hesi t ust her eof . 1. Pl aceofsal e( wi t hbr anchorsal es out l ett her ei n) :  Muni ci pal i t y orci t y wher et he br anchorout l eti sl ocat ed. 2. Pl aceofsal e( nobr anchorsal es out l et ) :  Muni ci pal i t yorci t yofpr i nci pal of f i ce( noti nt hepl aceofsal e) 3.I fmanuf act ur er ,assembl er ,cont r act or , pr oducer ,orexpor t er( MACPE)wi t h f act or y , pr oj ect of f i ce, pl ant or pl ant at i on( FPPP) 4.30%ofr ecor dedsal esi nt hepr i nci pal

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of f i ce:ci t yormuni ci pal i t ywher et he pr i nci pal of f i cei sl ocat ed 5. 70%ofr ecor dedsal esi nt hepr i nci pal of f i ce:ci t yormuni ci pal i t ywher et he FPPPi sl ocat ed  pr or at ai fFPPP ar el ocat edi n di f f er entmuni ci pal i t i esorci t i es i npr opor t i ont ot hei rr espect i v e v ol umesofpr oduct i on. 6. I fpl ant at i oni sl ocat edi nsomeot her pl acet hanwher et hef act or yi s l ocat ed, t hef or egoi ng70%shal l be subdi v i dedasf ol l ows:  60% t ot he ci t yormuni ci pal i t y wher et hef act or yi sl ocat ed  40% t ot he ci t yormuni ci pal i t y wher et hepl ant at i oni sl ocat ed. COMMON REVENUE RAI SI NG POWERS OFLGUs( SEC.153TO155) 1. Ser v i cef eesandchar gesf orser v i ces r ender ed 2. Publ i c Ut i l i t y Char ges f or t he oper at i on ofpubl i c ut i l i t i es owned, oper at ed and mai nt ai ned by LGUs wi t hi nt hei rj ur i sdi ct i on. 3. Tol l f eesorchar gesf ort heuseofany publ i cr oad,pi erorwhar f ,wat er way , br i dge,f er r y or t el ecommuni cat i on sy st em f unded and const r uct ed by t hel ocal gov er nmentuni tconcer ned Except i ons: a.Of f i cer sandenl i st edmenoft he AFPandPNP; b.Postof f i ce per sonneldel i v er i ng mai l ; and c.Phy si cal l y handi capped and di sabl ed ci t i zens who ar e si xt y f i v e( 65)y ear sorol der . ( Sec.152, LGC) Whenpubl i csaf et yandwel f ar eso r equi r es,t hesangguni anconcer nedmay di scont i nuet hecol l ect i onoft het ol l s, and t her eaf t ert hesai df aci l i t yshal lbef r ee andopenf orpubl i cuse. COMMUNI TYTAX Ci t i esormuni ci pal i t i esmayl ev ya communi t yt ax. I ndi v i dual sLi abl e( Sec.157) a. ev er y i nhabi t ant of t he Phi l i ppi nes; b. ei ght een( 18)y ear sofageor

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW ov er ; c. under any of t he f ol l owi ng i nst ances: d. who has been r egul ar l y empl oy edonawageorsal ar y basi sf oratl eastt hi r t y( 30) consecut i v e wor ki ng day s dur i nganycal endary ear ; or e. whoi sengagedi nbusi nessor occupat i on; or f . who ownsr ealpr oper t ywi t h anaggr egat eassessed v al ue ofP1, 000ormor e; or g. whoi sr equi r edbyl aw t of i l e an i ncomet axr et ur n Tax Rat e = P5. 00 and an annual addi t i onalt ax of P1. 00 f or ev er y P1, 000 of i ncome r egar dl ess of whet herf r om busi ness,exer ci seof pr of essi onorf r om pr oper t ywhi chi n nocaseshal l exceedP5, 000. I ncaseofhusbandandwi f e, t he addi t i onalt ax her ei ni mposed shal l bebasedupont het ot al pr oper t y ownedbyt hem andt het ot algr oss r ecei pt sorear ni ngsder i v edbyt hem. B. Jur i di calPer sons( Sec.158) Ev er ycor por at i onnomat t erhow cr eat ed or or gani zed, whet her domest i c or r esi dent f or ei gn, engagedi nordoi ngbusi nessi nt he Phi l i ppi nes shal l pay an annual communi t yt ax.

TaxRat e=P500andanannualaddi t i onal t ax whi ch i n no case shal l exceed P10, 000i naccor dancewi t ht hef ol l owi ng schedul e: 1. Forev er yP5, 000 wor t h ofr eal pr oper t yownedbyi tdur i ngt he pr ecedi ng y ear based on t he v al uat i onusedf ort hepay mentof t her eal pr oper t yt ax P2. 00; and 2. For ev er y P5, 000 of gr oss r ecei pt sorear ni ngsder i v edbyi t f r om i t s busi ness i n t he Phi l i ppi nesdur i ngt hepr ecedi ng y earP2. 00. The di v i dends r ecei v ed by a cor por at i onshal l ,f ort hepur poseoft he addi t i onalt ax,beconsi der edaspar tof t he gr oss r ecei pt s orear ni ngs ofsai d

TAXATI ON L AW COMMI TTEE

cor por at i on. THE FOLLOWI NG ARE EXEMPT FROM THECOMMUNI TYTAX( SEC.159) 1. Di pl omat i c and consul ar r epr esent at i v es; and 2. Tr ansi entv i si t or swhent hei rst ayi n t hePhi l i ppi nesdoesnotexceedt hr ee ( 3)mont hs. PLACEOFPAYMENT:pl aceofr esi dence oft hei ndi v i dual , ori nt hepl acewher et he pr i nci palof f i ceoft hej ur i di calent i t yi s l ocat ed. TI MEOFPAYMENT:accr uesont he1st dayofJanuar yofeachy earwhi chshal l be pai d notl at ert han t he l astdayof Febr uar yofeachy ear . PENALTI ES FOR DELI NQUENCY: an i nt er estof24% perannum f r om t hedue dat eunt i li ti spai dshal lbeaddedt ot he amountdue. Acommuni t yt axcer t i f i cat emayal so bei ssuedt oanyper sonorcor por at i on notsubj ectt ot hecommuni t yt axupon pay mentofP1. 00( Sec.162, LGC) . PRESENTATI ON OF COMMUNI TY TAX CERTI FI CATEON CERTAI N OCCASI ONS–( SEC. 163) A.I ndi v i dual 1. Whenani ndi v i dualsubj ectt o t he communi t y t ax acknowl edges any document bef or eanot ar ypubl i c; 2. t akest heoat hofof f i ceupon el ect i onorappoi nt mentt oany posi t i on i n t he gov er nment ser v i ce; 3. r ecei v es any l i cense, cer t i f i cat eorper mi tf r om any publ i caut hor i t y ;pay sanyt ax orf ee; 4. r ecei v esanymoneyf r om any publ i cf und; 5. t r ansact s ot her of f i ci al busi ness; or 6. r ecei v es anysal ar yorwage f r om any per son or cor por at i on. Thepr esent at i onoft hecommuni t yt ax cer t i f i cat e shal l not be r equi r ed i n

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

connect i onwi t ht her egi st r at i onofav ot er . B. Cor por at i on 1. r ecei v esanyl i cense,cer t i f i cat e or per mi tf r om any publ i c aut hor i t y ; 2. pay sanyt axorf ee; 3. r ecei v es money f r om publ i c f unds; or 4. t r ansact s ot her of f i ci al busi ness. The ci t y of muni ci pal t r easur er deput i zes t he bar angay t r easur er t o col l ect t he communi t y t ax i n t hei r r espect i v ej ur i sdi ct i ons.( Sec.164, LCG) Thepr oceedsoft hecommuni t yt ax act ual l yanddi r ect l ycol l ect edbyt heci t y ormuni ci pal t r easur ershal l accr ueent i r el y t o t he gener al f und of t he ci t y or muni ci pal i t yconcer ned. Pr oceeds of t he communi t y t ax col l ect edt hr ought hebar angayt r easur er s shal l beappor t i onedasf ol l ows:  50%accr uest ot hegener al f undof t heci t yormuni ci pal i t yconcer ned; and  50% accr ues t o t he bar angay wher et het axi scol l ect ed.   COLLECTI ON OFL OCALTAXES TaxPer i od and MannerofPay ment– ( Sec.165, LGC) Unl ess ot her wi se pr ov i ded,t he t axper i odshal l bet hecal endary ear . Such t axes,f ees,and char ges maybepai di nquar t er l yi nst al l ment s. Accr ualofTax– ( Sec.166, LGC) Unl essot her wi sepr ov i ded,shal l accr ueont hef i r stdayofJanuar yof eachy ear . Howev er ,new t axes,f ees or char ges,or changes i nt he r at es t her eof ,shal laccr ueont hef i r stday of t he quar t er nextf ol l owi ng t he ef f ect i v i t yoft heor di nancei mposi ng suchnewl ev i esorr at es. Ti meofPay ment–( Sec.167, LGC) Unl essot her wi sepr ov i dedshal l bepai d wi t hi nt hef i r stt went y( 20) day s of Januar y or of each subsequentquar t erast hecasemay

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be. May ,f oraj ust i f i abl er easonor cause, be ext ended wi t hout sur char gesorpenal t i es, butonl yf ora per i odnotexceedi ngsi x( 6)mont hs. Sur char ges and Penal t i es on Unpai d Taxes, FeesorChar ges–( Sec.168, LGC) Sur char genotexceedi ng25% of t heamountoft axes,f eesorchar ges i ncl udi ng sur char ges, unt i l such amounti sf ul l ypai d. Buti n no case shal lt he t ot al i nt er eston t he unpai d amountor por t i ont her eofexceedt hi r t ysi x( 36) mont hs. I nt er est s on Ot herUnpai d Rev enues – ( Sec.169, LGC) An i nt er estt her eon att her at e notexceedi ng2% permont hf r om t he dat ei ti sdueunt i li ti spai d,buti nno case shal lt he t ot ali nt er eston t he unpai d amount or por t i on t her eof exceedt hi r t ysi x( 36)mont hs. COLLECTI ON OF L OCAL REVENUES BY THE TREASURER– ( SEC.170LGC) Al ll ocalt axes,f eesand char ges shal lbecol l ect edbyt hepr ov i nci al ,ci t y , muni ci palorbar angayt r easur er ,ort hei r dul yaut hor i zeddeput i es. The pr ov i nci al ,ci t y ormuni ci pal t r easur ermay desi gnat et he bar angay t r easur erorhi sdeput yt o col l ectl ocal t axes, f eesorchar ges. I ncaseabondi sr equi r edf ort he pur pose,t hepr ov i nci al ,ci t yormuni ci pal gov er nment shal l pay t he pr emi ums t her eoni naddi t i ont ot hepr emi umsof t hebondt hatmayber equi r edundert he Code.

LOCALTAXREMEDI ES UNDERTHELGC 1.TAXREMEDI ESOFTHE LOCALGOVERNMENTUNI TS( LGUs) CI VI LREMEDI ESOFTHEL OCALGOVERNMENT UNI TS ( LGU)TO EFFECT COLLECTI ON OF TAXES

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

( 1)LocalGov er nment ’ sLi en–Local t axes, f ees, char ges and ot her r ev enuesconst i t ut eal i en, super i ort o al ll i ens,char gesorencumbr ancesi n f av orofanyper son,enf or ceabl eby any appr opr i at e admi ni st r at i v e or j udi ci al act i on. ( 2)Ci v i lRemedi es ( a)byadmi ni st r at i v eact i ont hr ough di st r ai ntofper sonal pr oper t yand byl ev yuponr eal pr oper t y ( b)byj udi ci al act i on Ei t heroft heser emedi esoral lmaybe pur sued concur r ent l yorsi mul t aneousl y att hedi scr et i onoft heLGUconcer ned. JURI SDI CTI ONOFCOURTSOVERLOCAL TAXATI ONCASES

a. Wi t ht heamendmentbr oughtby

RA No.9282,t heCour tofTax Appeal s now has appel l at e j ur i sdi ct i on ov er l ocalt axat i on cases deci ded by t he Regi onal Tr i alCour ti nt heexer ci seofi t s appel l at eoror i gi nal j ur i sdi ct i on. b. Regul arj udi ci alcour t s ar e not pr ohi bi t ed f r om enj oi ni ng t he col l ect i onofl ocalt axes,subj ect t oRul e58( Pr el i mi nar yI nj unct i on) oft heRul esofCour t .

Not e: Unl i ke t he NI RC,t he LocalTax Code does not cont ai n any speci f i c pr ov i si on pr ohi bi t i ng cour t s f r om enj oi ni ng t he col l ect i on ofl ocalt axes. Suchst at ut or yl apseori nt entmayhav e al l owedpr el i mi nar yi nj unct i onwher el ocal t axesar ei nv ol v ed.Buti tcannotnegat e t he pr ocedur alr ul es and r equi r ement s underRul e 58 oft he Rul esofCour t s. ( Val l eyTr adi ngCo.v s.CFIofI sabel a,GR No.49529, Mar ch31, 1989) PRESCRI PTI VEPERI ODSF ORTHE ASSESSMENTANDCOLLECTI ON OFL OCALTAXES PRESCRI PTI VE PERI ODS ASSESSMENT

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OF

1. Localt axes,f ees,orchar ges–f i v e ( 5)y ear sf r om t hedat et heybecame due.( Sec.194, LGC) . 2. When t her ei sf r aud ori nt entt o ev adet hepay mentoft axes,f eesor char ges – t en ( 10) y ear s f r om di scov er y oft he f r aud ori nt entt o ev adet hepay ment( Sec.194, LGC) . PRESCRI PTI VEPERI ODOFCOLLECTI ON Localt axes, f ees, orchar gesmay becol l ect edwi t hi nf i v e( 5)y ear sf r om t he dat eofassessmentbyadmi ni st r at i v eor j udi ci alact i on.Nosuchact i onshal lbe i nst i t ut ed af t ert he expi r at i on ofsuch per i od( Sec.194, LGC) . GROUNDS FOR THE SUSPENSI ON OF THE RUNNI NG OF THE PRESCRI PTI VE PERI ODS a. The t r easur er i s l egal l y pr ev ent edf r om t heassessment orcol l ect i onoft het ax; b. The t axpay er r equest sf or a r ei nv est i gat i on and execut es a wai v er i n wr i t i ng bef or e t he expi r at i on oft he per i od wi t hi n whi cht oassessorcol l ect ; and c. The t axpay er i s out of t he count r yorot her wi secannotbe l ocat ed( Sec.194, LGC) .

2.TAX REMEDI ES OF TAXPAYER

THE

REMEDI ES OF THE TAXPAYER I N L OCAL TAXATI ON ADMI NI STRATI VE Bef or eassessment a. Appeal – any quest i on on const i t ut i onal i t y or l egal i t y of t ax or di nance wi t hi n 30 day s f r om ef f ect i v i t yt her eof t o Secr et ar y of Just i ce( Sec.187LGC) b. Decl ar at or y r el i ef whenev er appl i cabl e.

Af t erassessment a. Pr ot est–wi t hi n60day sf r om r ecei pt of assessment ( Sec. 195 LGC) . Pay ment under pr ot est i s not necessar y . b. Pay ment&subsequentr ef undort ax cr edi t–wi t hi n2y ear sf r om pay ment

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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oft axt ol ocalt r easur er( Sec.196 LGC) .I ti st obenot edt hat ,unl i kei n i nt er nal r ev enue t axes, t he super v eni ng cause appl i es i nl ocal t axat i onbecauset heper i odf ort he f i l i ngofcl ai msf orr ef undorcr edi tof l ocal t axes i s count ed not necessar i l yf r om t hedat eofpay ment butf r om t he dat et he t axpay eri s ent i t l edt oar ef undorcr edi t .

c. Ri ghtofr edempt i on– 1y earf r om t hedat eofsal eorf r om t hedat eof f or f ei t ur e( Sec.179, LGC) . B.JUDI CI AL 1. Cour tact i on  wi t hi n 30 day s af t err ecei ptof deci si onorl apseof60day sof Secr et ar y of Just i ce’ si nact i on ( Sec.187LGC)  wi t hi n30day sf r om r ecei ptwhen pr ot estofassessmenti sdeni ed ( Sec.195LGC)  i f no act i on i st aken by t he t r easur eri nr ef undcasesandt he t woy earper i odi saboutt ol apse ( Sec.195LGC)  i fr emedi es av ai l abl e does not pr ov i de pl ai n, speedy and adequat er emedy . 2. Act i onf ordecl ar at or yr el i ef 3. I nj unct i on – i fi r r epar abl e damage woul dbecausedt ot het axpay erand noadequat er emedyi sav ai l abl e.

I V. REALPROPERTY TAXATI ON DEFI NI TI ONS: REALPROPERTYTAXATI ON – A di r ect t axon owner shi p ofl andsand bui l di ngsorot heri mpr ov ement s t her eon pay abl er egar dl ess of whet hert hepr oper t yi susedor not ,al t hought hev al uemayv ar y i naccor dancewi t hsuchf act or . Undert heLGC,i tcov er s t he admi ni st r at i on, appr ai sal , assessment ,l ev yand col l ect i on ofRealPr oper t yTax,i . e.t axon l and and bui l di ng and ot her

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st r uct ur esandi mpr ov ement son i t , i ncl udi ngmachi ner i es. REAL PROPERTY – subj ect t o t he def i ni t i ongi v enbyAr t .415oft he Ci v i lCode. I MPROVEMENT – v al uabl e addi t i on made t o a pr oper t y or amel i or at i on i n i t s condi t i on amount i ngt omor et hanamer e r epl acementof par t si nv ol v i ng capi t al expendi t ur esandl abor .

NATUREANDCLASSES CHARACTERI STI CSOFREALPROPERTY TAX 1. Di r ect t axont heOwner shi pof r eal pr oper t y 2. Ad v al or em t ax. The v al ue i s basedont het axbase. 3. Pr opor t i onat e – t he t ax i s cal cul at ed on t he basi s of a cer t ai n per cent ageoft hev al ue assessed. 4. I ndi v i si bl esi ngl eobl i gat i on 5. Local t ax        TAXI NGAUTHORI TI ES( SEC.233, LGC) LGU

Rat eofBasi cReal Pr oper t yTax

1.Pr ov i nce

not exceedi ng 1% of assessedv al ue

2.Ci t y

notexceedi ng 2%

3.Muni ci pal i t y wi t hi nMet r o Mani l a

notexceedi ng2%.

FUNDAMENTAL PRI NCI PLES GOVERNI NG REAL PROPERTY TAXATI ON( SEC.198, LGC) 1. Realpr oper t yshal lbeappr ai sedati t s cur r entandFai rmar ketv al ue; 2. Realpr oper t yshal lbecl assi f i edf or assessmentpur posesont hebasi sof act ual Use. 3. Realpr oper t yshal lbeassessedon t he basi s ofUni f or m cl assi f i cat i on

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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wi t hi neachLGU 4. Theappr ai sal ,assessment ,l ev yand col l ect i onofRPTaxshal lnotbel et t oanyPr i v at eper son 5. Theappr ai salandassessmentofr eal pr oper t yshal l beEqui t abl e. EXTENTOFTHEPOWERTOLEVY  Basi cr eal pr oper t yt ax;  1% addi t i onalr ealest at et axt o f i nance t he Speci al Educat i on Fund; ( Sec.236)  5% addi t i onaladv al or em t axon I dl el ands; ( Sec.236, LGC)and  Speci al l ev y or speci al assessment s( may be i mposed ev en by muni ci pal i t i es out si de Met r o Mani l a) on l ands compr i sed wi t hi n i t st er r i t or i al j ur i sdi ct i onspeci al l ybenef i t edby publ i c wor ks, pr oj ect s or i mpr ov ement sf undedbyt hel ocal gov er nmentuni tconcer ned. Pr ov i ded:  Speci all ev yshal lnotexceed 60% oft he act ualcostof such pr oj ect s and i mpr ov ement s,i ncl udi ng t he cost sofacqui r i ngl andand such ot herr ealpr oper t yi n connect i ont her ewi t h  notappl yt ol ands exempt f r om basi cr ealpr oper t yt ax andt her emai nderoft hel and hav e been donat ed t ot he l ocal gov er nment uni t concer ned f or t he const r uct i onofsai dpr oj ect s. ( Sec.240, LGC) . FOR PURPOSES OF REAL PROPERTY TAXATI ONI DLELANDSSHALLI NCLUDE: ( SEC.237, LGC) 1. Agr i cul t ur al l ands mor e t han one hect ar ei nar eaonehal fofwhi chr emai n uncul t i v at ed or uni mpr ov ed by t he owner of t he pr oper t y or per son hav i ngl egal i nt er estt her ei n. Agr i cul t ur al l ands pl ant ed t o per manentorper enni alcr opswi t hat l east50t r eest oahect ar eshal lnot beconsi der edi dl el ands. Landsact ual l yusedf orgr azi ng pur poses shal ll i kewi se not be consi der edi dl el ands; and

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2. Landsot hert hanagr i cul t ur all ocat ed i naci t yormuni ci pal i t ymor et hanone t housandsquar emet er si nar eaonehal f

of whi ch r emai n unut i l i zed or uni mpr ov ed by t he owner of t he

pr oper t y or per son hav i ng l egal i nt er estt her ei n. I DLELANDSEXEMPTFROM TAX( SEC. 238, LGC) Byr easonof : 1. f or cemaj eur e 1. ci v i l di st ur bance 1. nat ur al cal ami t y 1. oranycausewhi chphy si cal l yor l egal l ypr ev ent st heowneroft he pr oper t yorper sonhav i ngl egal i nt er estt her ei nf r om i mpr ov i ng, ut i l i zi ngorcul t i v at i ngt hesame. CLASSI FI CATI ON OF L ANDS F ORPURPOSES OFASSESSMENTSEC.218( A) a. b. c. d. e. f . g.

Commer ci al Agr i cul t ur al Resi dent i al Mi ner al I ndust r i al Ti mber l and Speci al

SPECI ALCLASSESOFREALPROPERTY ( SEC.216, LGC) 1. Hospi t al s 2. Cul t ur al andSci ent i f i cpur poses 3. ownedandusedbyLocal wat er di st r i ct s 4. GOCCs r ender i ng essent i al publ i c ser v i cesi nt hesuppl yanddi st r i but i on of wat er and/ or gener at i on or t r ansmi ssi onofel ect r i cpower . PROPERTI ES EXEMPT FROM REAL PROPERTYTAX( SEC.234, LGC) Exempt i oni sl i mi t edonl yt ot hef ol l owi ng: 1. Real pr oper t y owned by t he gov er nment except when t he benef i ci aluset her eofhasbeen gr ant edt oat axabl eper son; 2. Char i t abl ei nst i t ut i ons,chur ches, per sonages or conv ent s appur t enant t her et o, mosques, nonpr of i torr el i gi ouscemet er i es and al ll ands, bui l di ngs and

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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i mpr ov ement s act ual l y ,di r ect l y andexcl usi v el yusedf orr el i gi ous, char i t abl e or educat i onal pur poses ( Ar t . VI , Sec. 28, Const i t ut i on) ; 3. Machi ner i esandequi pmentt hat ar e act ual l y , di r ect l y and excl usi v el yused byl ocalwat er ut i l i t i esandGOCC’ sengagedi n t he suppl y and di st r i but i on of wat erand/ orel ect r i cpower ; 4. Real pr oper t y owned by dul y r egi st er ed cooper at i v es as pr ov i dedf ori nRA6938; and 5. Machi ner yand equi pmentused f or pol l ut i on cont r ol and env i r onment al pr ot ect i on. ACTUALUSEOFPROPERTY AS BASI S FORASSESSMENT( SEC.217LGC) Real pr oper t y shal l be cl assi f i ed, v al ued and assessed on t he basi s of act ualuser egar dl essofwher el ocat ed, whoev erownsi t , andwhoev erusesi t . Unpai dr eal t yt axes at t ach t ot he pr oper t yand i schar geabl eagai nstt he per sonwhohadact ualorbenef i ci aluse and possessi on of i tr egar dl ess of whet herornothe i st he owner . To i mpose t he r ealpr oper t yt ax on t he subsequentownerwhi chwasnei t hert he ownernort he benef i ci aluseroft he pr oper t ydur i ng t he desi gnat ed per i ods woul dnotonl ybecont r ar yt ol awbutal so unj ust .( Est at eofLi mv s.Ci t yofMani l a, GRNo.90639, Febr uar y21, 1990)

PROCEDURE STEP 1:DECLARATI ON OF REAL PROPERTY DECLARATI ON BY OWNER OR ADMI NI STRATOR ( SEC.202203)  Fi l e a swor n decl ar at i on wi t ht he assessor -onceev er y3y ear sdur i ng t heper i odf r om Januar y1 t oJune30.  Forne wl yacqui r edpr oper t y– WHEN:Mustf i l ewi t ht heassessorwi t hi n 60day sf r om dat eoft r ansf er

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WHAT:Swor nst at ementcont ai ni ngt he f ai rmar ketv al ueanddescr i pt i onoft he pr oper t y .  Fori mpr ov ementonpr oper t y WHEN:Must f i l ewi t hi n60day supon compl et i on or occupat i on ( whi chev er comesear l i er ) WHAT:Swor nst at ementcont ai ni ngt he f ai rmar ketv al ueanddescr i pt i onoft he pr oper t y . DECLARATI ONBYPROVI NCI AL/CI TY/ MUNI CI PALASSESSOR( SEC.204) WHEN:Onl ywhent heper sonunderSec. 202r ef usesorf ai l st omakeadecl ar at i on wi t hi nt hepr escr i bedt i me. Nooat hbyt heassessori sr equi r ed.

Not es: Pr oofofExempt i on ofReal Pr oper t yf r om Taxat i on-( Sec.206) WHO: Byanyper sonorf orwhom r eal pr oper t yi sdecl ar ed.  Cl ai m f orexempt i on mustbe f i l ed wi t h t he assessor t oget her wi t h suf f i ci entdocument ar yev i dence t o suppor tcl ai m WHEN:wi t hi n30day sf r om t hedat eof decl ar at i onofpr oper t y . I F PROPERTY I S DECLARED FOR THE F I RST TI ME–( SEC. 222) I fDecl ar ed f ort he f i r stt i me,r eal pr oper t yshal l beassessedf orbackt axes: Fornotmor et han10y ear spr i ort odat e ofi ni t i al assessment Taxesshal l becomput edont hebasi s ofappl i cabl eschedul eofv al uesi nf or ce dur i ngt hecor r espondi ngper i od.

STEP2:LI STI NGOFREAL PROPERTYI NTHEASSESSMENT ROLLS( SECS.205, 207) 

Al ldecl ar at i onsshal lbekeptand f i l edunderauni f or m cl assi f i cat i on sy st em t o be est abl i shed byt he pr ov i nci al , ci t y or muni ci pal assessor .

STEP3:APPRAI SALAND

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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VALUATI ONOFREALPROPERTY ( SECS.212214, 224225) DETERMI NATI ON OF FAI R MARKET VALUE ( FMV) Forl and  As sessor of t he pr ov i nce/ ci t y or muni ci pal i t y may summon t he owner s of t he pr oper t i es t o be af f ect ed and mayt akedeposi t i ons concer ni ng t he pr oper t y , i t s owner shi p,amount ,nat ur eandv al ue ( Sec.213, LGC)

 Assessorpr epar esaschedul eof FMV f or di f f er ent cl asses of pr oper t i es.  Sangguni anenact sanor di nance  The schedul e of FMV i s publ i shed i n a newspaper of gener al ci r cul at i on i n t he pr ov i nce, ci t y or muni ci pal i t y concer ned ori nt he absence t her eof ,shal lbepost ed i nt he pr ov i nci al capi t ol , ci t y or muni ci palhal landi nt woot her conspi cuous publ i c pl aces t her ei n( Sec.212, LGC)

Formachi ner y 1. ForBr andnewmachi ner y :FMVi st he acqui si t i oncost 2. I nal l ot hercases:FMV =Remai ni ngeco.l i f e X Repl acement Est i mat edEco. Li f e Cost

STEP4:DETERMI NEASSESSEDVALUE ( SEC.218) Det er mi neAssessedVal ue Pr ocedur e 1. Taket heschedul eofFMV 2. Assessed Val ue = FMV x Assessmentl ev el 3. Tax=Assessedv al uexTaxr at e

STEP5:PAYMENTAND COLLECTI ONOFTAX ( a)Accr ualofTax:Januar yofev er yy ear and such wi l lconst i t ut e as a super i orl i en.( Sec.246) ( b)Ti meandMannerofPay ment :( Sec. 250)

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1.basi cr eal pr oper t yt axi n4equal i nst al l ment s( Mar ch31, June30, Sept ember30, December30) 2. speci al l ev y – gov er ned by or di nance ( c)I nt er estf orLat ePay ment( Sec.255) 1. t woper cent( 2%)f oreachmont h on unpai d amount unt i lt he del i nquentamounti spai d 2. pr ov i dedi nnocaseshal lt het ot al i nt er est exceed t hi r t y si x ( 36) mont hs. ( d)ForAdv anceandPr omptPay ment

1. Adv ance pay ment– di scountnot exceedi ng 20% ofannualt ax( Sec. 251, LCG) 2. Pr ompt pay ment – di scount not exceedi ng10%ofannualt axdue( Ar t 342I RR)

COLLECTI ONOFTAX( SEC.247) I tshal lbet her esponsi bi l i t yoft heci t y ormuni ci pal t r easur erconcer ned. Theci t yormuni ci palt r easur ermay deput i zet hebar angayt r easur ert ocol l ect al lt axesonr ealpr oper t yl ocat edi nt he bar angay ; pr ov i ded, t he bar angay t r easur eri spr oper l ybonded. PERI ODTOCOLLECT( SEC.270) 1. wi t hi nf i v e( 5)y ear sf r om t hedat e t heybecomedue 2. wi t hi n t en ( 10) y ear s f r om di scov er yoff r aud,i ncaset her e i sf r audori nt entt oev ade SUSPENSI ON OF PRESCRI PTI VE PERI OD ( SEC. 270) 1. l ocal t r easur er i s l egal l y pr ev ent edt ocol l ectt ax. 2. t heownerorpr oper t yr equest s f orr ei nv est i gat i onandwr i t esa wai v er bef or e expi r at i on of per i odt ocol l ect . 3. t heownerofpr oper t yi soutof t hecount r yorcannotbel ocat ed.

REALPROPERTYTAX REMEDI ESUNDERTHELGC 1.TAXREMEDI ESOFTHELOCAL GOVERNMENTTOEFFECT

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW COLLECTI ONOFTAXES

A.ADMI NI STRATI VE 1. Real Pr oper t yt axl i en( Secs.257, LGC) – super i ort o al ll i ens,char ges or encumbr ances; 2. Di st r ai nt( Sec.254[ B] , LGC) ; 3. Lev y( Sec.254[ A] , 258LGC) ; 4. Pur chase of pr oper t y by l ocal t r easur erf orwantofbi dder( Sec.263, LGC) . B.JUDI CI AL Ci v i l Act i on(Sec.266, 270LGC)

PRESCRI PTI VEPERI ODSFORTHE COLLECTI ONOFREAL PROPERTYTAXES 1. Basi cr ealpr oper t yt axandanyot her

t ax l ev i ed undert he t i t l e on Real Pr oper t y Taxat i on– f i v e( 5)y ear s f r om t hedat et heybecamedue.( Sec. 270, LGC) . 2. When t her ei sf r aud ori nt entt o ev adet hepay mentoft axes– t en ( 10) y ear sf r om di scov er y of t he f r audori nt entt oev adet hepay ment ( Sec.270, LGC) . GROUNDS FOR THE SUSPENSI ON OF THE RUNNI NG OF THE PRESCRI PTI VE PERI ODS 1. The t r easur er i sl egal l y pr ev ent ed f r om t heassessmentorcol l ect i onof t het ax; 2. The t axpay er r equest s f or a r ei nv est i gat i onandexecut esawai v er i nwr i t i ngbef or et heexpi r at i onoft he per i od wi t hi n whi ch t o assess or col l ect ; and 3. Thet axpay eri soutoft hecount r yor ot her wi se cannotbe l ocat ed ( Sec. 270, LGC) .

2.TAXREMEDI ESOFTHE TAXPAYER A.ADMI NI STRATI VE Pr ot est – pay ment under pr ot est i s r equi r edwi t hi n30day st opr ov i nci al , ci t y , ormuni ci palt r easur er .Nopr ot estshal l beent er t ai nedunl esst het axi sf i r stpai d.

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( Sec.252LGC) Cl ai mf orTaxRef undorCr edi t( Sec.253) a) t he t axpay ermayf i l e a wr i t t en cl ai mf orr ef undorcr edi twi t ht he pr ov i nci alorci t yt r easur erwi t hi n t wo y ear sf r om t he dat et he t axpay er i s ent i t l ed t o such r educt i onoradj ust ment . b) i n case ofdeni alofr ef und or cr edi t ,appealt o LBAA as i n pr ot estcase. Redempt i on ofr ealpr oper t y( Sec.261 LGC) Remedyagai nstt heAssessment / Appeal 1st: wi t hi n 60 day s f r om not i ce of assessment of pr ov i nci al ,ci t y or muni ci palassessort o LBAA ( Sec. 226LGC) 2nd: wi t hi n 30 day sf r om r ecei pt of deci si onofLBAAt oCBAA( Sec.230 LGC) 3rd: wi t hi n 30 day sf r om r ecei pt of deci si on ofCBAA t o Cour tofTax Appeal senbanc 4th: wi t hi n 15 day sf r om r ecei pt of deci si onofCour tofTaxAppeal sen banct ot heSupr emeCour t

APPEALSI NREALPROPERTY TAXATI ON PROVI NCI AL, CI TYORMUNI CI PAL ASSESSOR

wi t hi n60day s

Owner / Per sonwi t hl egal i nt er est mustf i l e: 1)Wr i t t enPet i t i onunderOat h 2)Wi t hSuppor t i ngDocument s LOCALBOARDOFASSESSMENTAPPEALS ( LBAAshoul ddeci dewi t hi n120day sf r om r ecei ptofpet i t i on)

wi t hi n30day s CENTRALBOARDOFASSESSMENT APPEALS

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW wi t hi n30day s

COURTOFTAXAPPEALS( ENBANC)

wi t hi n15day s SUPREMECOURT

B.JUDI CI AL 1. Cour tAct i on – appealofCBAA’ s deci si ont oCour tofTaxAppeal sen banc. 2. Sui tassai l i ngv al i di t yoft ax;r ecov er y ofr ef undoft axespai d( Sec.64PD 464) . 3. Sui tt odecl ar ei nv al i di t yoft axduet o i r r egul ar i t y i n assessment and col l ect i on( Sec.64PD464) 4. Sui tassai l i ngt hev al i di t yoft axsal e ( Sec.83PD464)( Sec.267LGC) CONDONATI ONOFREALPROPERTYTAXES 1. Byt heSangguni an Real pr oper t y t axes may be condoned whol l y orpar t i al l yi na gi v enl ocal gov er nmentuni twhen: a . Ther ei sgener al f ai l ur eofcr ops; b. Ther ei ssubst ant i aldecr easei n t hepr i ceofagr i cul t ur aloragr i basedpr oduct s; or c . Ther ei scal ami t y . 2. Byt hePr esi dentoft hePhi l i ppi nes  whenpubl i ci nt er estsor equi r es.

V. TARI FFAND CUSTOMSCODE DEFI NI TI ONS TARI FF:Cust omsdut i es,t ol lort r i but e pay abl e upon mer chandi se t o t he Gov er nment . CUSTOM DUTI ES:Tax assessed upon mer chandi se f r om or expor t ed t o,a f or ei gncount r y .( Gar ci av .Execut i v eSec. , GRNo.101273, Jul y 3, 1992) )   Not e: Cust oms and t ar i f f s ar e sy nony mouswi t honeanot her .Theybot h

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r ef ert ot het axesi mposedoni mpor t edor expor t edwar es, ar t i cl es, ormer chandi se.   OTHER TYPES OF FEES CHARGED BUREAUOFCUSTOMS

BY THE

 Ar r ast r echar ge  Whar f age due – count er par t of l i cense,char ged notf ort heuseof any whar fbutf ora speci alf und knownast hePor tWor ksFund.  Ber t hi ngf ee  Har borf ee  Tonnagedue MEANI NGANDSCOPEOFTHETARI FFAND CUSTOMSLAWS I ncl udenotonl yt hepr ov i si onsoft he Tar i f f and Cust oms Code ( TCC) and r egul at i onspur suantt her et o, butal lot her l awsandr egul at i onst hatar esubj ectt o t he Bur eau of Cust oms ( BOC) or ot her wi sewi t hi ni t sj ur i sdi ct i on. Ast oi t sscope,t her ef or e,t ar i f fand cust oms l aws ext end notonl yt ot he pr ov i si onsoft he TCC butt o al lot her l awsaswel l , t heenf or cementofwhi chi s ent r ust edt ot heBOC.

THEBUREAUOFCUSTOMS FUNCTI ONS OF THE BUREAU OF CUSTOMS 1. Assessment and col l ect i on of r ev enuesf r om i mpor t edar t i cl esand al lot heri mposi t i onsundert het ar i f f andcust omsl aws; 2. Cont r ol smuggl i ngandr el at edf r auds; 3. Super v i si on and cont r ol ov er t he ent r ance and cl ear ance ofv essel s and ai r cr af t engaged i n f or ei gn commer ce; 4. Enf or cementofTCCandr el at edl aws; 5. Super v i si on and cont r ol ov er t he handl i ngoff or ei gnmai l sar r i v i ngi n t hePhi l i ppi nes; 6. Super v i seandcont r olal li mpor tand expor tcar goesf ort hepr ot ect i onof gov er nmentr ev enue; 7. Excl usi v e or i gi nalj ur i sdi ct i on ov er sei zur e and f or f ei t ur e cases under t het ar i f fandcust omsl aws.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW

JURI SDI CTI ON OF COLLECTOR OF CUSTOMS OVER I MPORTATI ON OF ARTI CLES 1. Causeal lar t i cl esf ori mpor t at i ont o beent er edi nt hecust omhouse, 2. Cause al l such ar t i cl es t o be appr ai sedandcl assi f i ed, 3. Assessandcol l ectt hedut i es,t axes andot herchar gest her eon, and 4. Hol d possessi on of al li mpor t ed ar t i cl es unt i lt he dut i es,t axes and ot herchar gesar epai dt her eon.( Sec. 1206, TCC)   TERRI TORI AL JURI SDI CTI ON OF THE BOC 1. Al lseaswi t hi nt hej ur i sdi ct i onoft he Phi l i ppi nes 2. Al lcoast s,por t s,ai r por t s,har bor s, bay s, r i v er s and i nl and wat er s whet hernav i gabl e ornotf r om t he sea.( 1stpar , Sec.603, TCC)

CUSTOMSDUTI ES WHENTARI FFANDCUSTOMSAPPLI ED Onl yaf t eri mpor t at i onhasbegunbut bef or ei mpor t at i oni st er mi nat ed.

I mpor t at i onbegi ns: 1) when t he conv ey i ng v esselor ai r cr af t 2) ent er st hej ur i sdi ct i onoft hePhi l . 3) wi t hi nt ent i ont ounl oadt her ei n I mpor t at i oni sdeemedt er mi nat ed: ( a)uponpay mentoft hedut i es, t axesand ot herchar gesdueupont hear t i cl es. ( b)andl egalper mi tf orwi t hdr awalshal l hav ebeengr ant ed.  I ncaset hear t i cl esar ef r eeof dut i es, t axesandot herchar ges, unt i lt hey hav el egal l yl ef tt he j ur i sdi ct i on oft he cust oms( Sec.1202, TCC) I NTENTI ONTOUNLOAD Ev en i fnoty etunl oaded,and t her ei s unmani f est edcar go,f or f ei t ur emayt ake pl ace because i mpor t at i on has al r eady begun. ARTI CLESUNDERTCC

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Mayei t herbe: 1. Subj ectt odut y– a. Li v e ani mal s and ani mal pr oduct s; b. Veget abl epr oduct s; c. Ani malorv eget abl ef at s; oi l sand t hei rcl eav agepr oduct s; pr epar ed edi bl ef at s;ani malorv eget abl e waxes; d. Pr epar edf oodst uf f s; bev er ages, spi r i t sandv i negar ; t obaccoand manuf act ur edt obacco subst i t ut es; e. Mi ner al pr oduct s; f . Pr oduct sofchemi cal oral l i ed i ndust r i es; g. Pl ast i csandar t i cl est her eof ; r ubberandar t i cl est her eof ; h. Rawhi desandski ns; l eat her , et c. ; i . Woodandar t i cl esofwood, et c. ; j . Pul pofwood, et c. ; k. Text i l esandt ext i l ear t i cl es; l . Ar t i cl esofst one; pl ast er , cement , et c. ; m.Foot wear , headgear , et c. ; n. Nat ur al orcul t ur edpear l s pr eci ous/ semi pr eci ousst ones; o. Basemet al sandar t i cl esofbase met al s; p. Machi ner yandmechani cal appl i ances; el ect r i cequi pment ; soundr ecor der s, et c; q. Vehi cl es, ai r cr af t , v essel sand associ at edt r anspor tequi pment ; r . Opt i cal , phot ogr aphi c, medi cal , sur gi cal i nst r ument s, et c. ; s. Ar ms, ammuni t i on, par t sand accessor i es; t . Mi scel l aneousmanuf act ur ed ar t i cl es; and u. Wor ksofar t , col l ect or ' spi eces ar i dant i ques( Sec.104, Ti t l e1, TCC) . 2. Pr ohi bi t ed f r om bei ng i mpor t ed ( Pr ohi bi t edi mpor t at i on) a.Absol ut el y pr ohi bi t ed such as: weaponsofwar ; gambl i ngdev i ces; nar cot i cs or pr ohi bi t ed dr ugs; i mmor al , obscene or i nsi di ous ar t i cl es; and t hose pr ohi bi t ed underspeci al l aws( Sec. 102, TCC) . b.Qual i f i edl ypr ohi bi t ed Wher esuchcondi t i onsast o war r anta l awf uli mpor t at i on do

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW notexi st ,t hel egalef f ect soft he i mpor t at i on of qual i f i edl y pr ohi bi t edar t i cl esar et hesameas t hose of absol ut el y pr ohi bi t ed ar t i cl es.( Auy ongHi anv s.CTA,GR No.L28782, Sept ember12, 1974)

3. Condi t i onal l y f r ee f r om t ar i f f and cust oms dut i es ( condi t i onal l y f r ee i mpor t at i on)  Thosepr ov i dedi nSec.105, TCC;  Those gr ant ed t o gov er nment agenci es, GOCCs wi t h agr eement s wi t h f or ei gn count r i es;  Those gi v en t o i nt er nat i onal i nst i t ut i onsent i t l edt oexempt i on by agr eementorspeci all aws; and  Thoset hatmaybegr ant edbyt he Pr esi dent upon NEDA’ s r ecommendat i on. 4. Fr eef r om TCdut i es( dut y f r ee) I mpor t ed goods must be ent er ed i n a cust omhouse att hei r por tofent r yot her wi set heyshal lbe consi der ed as cont r aband and t he i mpor t eri sl i abl ef orsmuggl i ng( See Sec.101, TCC) .     Al lar t i cl eswheni mpor t edf r om anycount r yi nt ot hePhi l i ppi nesshal l be subj ect t o dut y upon each i mpor t at i on,ev en t hough pr ev i ousl y expor t edf r om t hePhi l i ppi nes,except asot her wi sespeci f i cal l ypr ov i dedf or i nt heTCCorot herl aws. LI ABI LI TYFORCUSTOMSDUTI ES  Gener al Rul e: Al l i mpor t at i ons / expor t at i ons ofgoods ar e subj ectt o cust omsdut i es( Sec.105, TCC) . Except i ons: ( 1)Exempt i onsundert heTCC; ( 2)Exempt i ons gr ant ed t o gov er nment agenci es, i nst r ument al i t i esorGOCCswi t h exi st i ngcont r act s,commi t ment s, agr eement s,orobl i gat i onswi t h f or ei gncount r i es; ( 3)Exempt i ons of i nt er nat i onal or gani zat i ons pur suant t o agr eement sorspeci al l aws; and ( 4)Exempt i onsgr ant edbyt hePr es.

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of t he Phi l . upon r ecommendat i onofNEDA ( Sec. 105, TCC) .

LI ABI LI TYOFI MPORTERFORCUSTOM DUTI ES  A per sonaldebtwhi ch can be di schar ged onl ybypay menti n f ul l t her eof ;  Al i enupont hei mpor t edar t i cl es whi l et hey ar ei n cust ody or subj ect t ot he cont r olof t he gov er nment .( Sec.1204, TCC) .

EXTENTOFI MPORTER’ SL I ABI LI TY The l i abi l i t y ofan i mpor t eri s l i mi t ed t ot he v al ue of t he i mpor t ed mer chandi se.I ncaseoff or f ei t ur eoft he sei zed mat er i al ,t he maxi mum ci v i l penal t yi st hef or f ei t ur ei t sel f .( Mendoza v s.Dav i d, GRNo.L9452, Mar ch27, 1961) DRAWBACK A dev i cer esor t edt of orenabl i nga commodi t y af f ect ed by t axes t o be expor t ed and sol di nf or ei gn mar ket s upont hesamet er msasi fi thadnotbeen t axedatal l .( UyChacoSonsv s.Col l ect or ofCust oms,GR No.7618,Mar ch 27, 1913)   I MPORTE NTRY I ti sadecl ar at i ont ot heBOCshowi ng par t i cul ar soft hei mpor t edar t i cl et hatwi l l enabl e t he cust oms aut hor i t i es t o det er mi net hecor r ectdut i es.Ani mpor t er i sr equi r edt of i l eani mpor tent r y .I tmust beaccompl i shedf r om di sembar ki ngof l astcar gof r om v essel .  TRANSACTI ONVALUEUNDERRANO. 8181 I ti st he i nv oi ce v al ue oft he goods pl us f r ei ght ,i nsur ance,cost s, expensesandot hernecessar yexpenses. Thi sr epl aces t he Home Consumpt i on Val ueasbasi sofv al uat i onofgoods.  CLASSI FI CATI ONOFCUSTOM DUTI ES  Regul arDut i es – t hose whi ch ar e i mposedandcol l ect edmer el yasa sour ceofr ev enue. 1. Adv al or em dut y :Thi si sadut y based on t he v al ue of t he i mpor t edar t i cl e. 2. Speci f i c dut y :Thi si s a dut y basedont hedut i abl ewei ghtof goods( ei t hert hegr osswei ght ,

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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l egal wei ght , ornetwei ght ) . 3. Al t er nat i ngdut i es:Thi si sadut y whi chal t er nat esadv al or em and speci f i c. 4. CompoundDut y :Thi si sadut y consi st i ng ofad v al or em and speci f i cdut i es.

  B.Speci aldut i es – t hose whi ch ar e i mposedandcol l ect edi naddi t i ont o t heor di nar ycust omsdut i esusual l y t o pr ot ectl ocali ndust r i es agai nst f or ei gncompet i t i on. 1. Dumpi ngdut y 2. Count er v ai l i ngdut y

3. Mar ki ngdut y 4. Di scr i mi nat or ydut y

  NATUREOFSPECI ALCUSTOMSDUTI ES Speci al cust oms dut i es ar e addi t i onal i mpor t dut i es i mposed on speci f i cki ndsofi mpor t edar t i cl esunder cer t ai ncondi t i ons.   PURPOSE OF SPECI AL CUSTOMS DUTI ES Thespeci alcust omsdut i esar e i mposedf ort hepr ot ect i onofconsumer s and manuf act ur er s,as wel l as Phi l . pr oduct sf r om unduecompet i t i onposed byf or ei gnmadepr oduct s.

SPECI ALDUTI ESCOMPARED DUMPI NGDUTY

COUNTERVAI LI NGDUTY

MARKI NGDUTY

DI SCRI MI NATORY DUTY

1. Nat ur e I mposed upon f or ei gn pr oduct s wi t h v al ue l ower t han t hei r f ai r mar ketv al uet ot he det r i mentof l ocal pr oduct s.

I mposed upon f or ei gn goodsenj oy i ngsubsi dy t hus al l owi ng t hem t o sel latl owerpr i ces t o t he det r i mentofl ocal pr oduct s si mi l ar l y si t uat ed.

I mposed upon t hose not pr oper l ymar ked as t o pl ace of or i gi n of t he goods.

I mposed upon goodscomi ngf r om count r i es t hat di scr i mi nat e agai nst Phi l i ppi ne pr oduct s.

2.Amount / Rat e Di f f er encebet ween t heact ualpr i ceand t henor malv al ueof t hear t i cl e.

Equi v al ent t o t he bount y , subsi dy , or subv ent i on.

5% ad v al or em ofar t i cl es

Any amount not exceedi ng100% ad v al or em of t he subj ectar t i cl es

3. I mposi ngAut hor i t y Speci al commi t t ee on Ant i Dumpi ng ( composed of t he Secr et ar y of Fi nance as Chai r man; Member s: t he Secr et ar y of DTI , and ei t her t he Secr et ar y of Agr i cul t ur ei far t i cl e i n quest i on i s agr i cul t ur alpr oduct ort heSecr et ar yof l abor i f nonagr i cul t ur al pr oduct

Secr et ar yofFi nance

Commi ssi oner ofCust oms

Pr esi dent of t he Phi l i ppi nes

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 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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FLEXI BLETARI FFCLAUSE The Pr esi dentmay f i xt ar i f fr at es, i mpor tandexpor tquot as,et c.underTCC ( SeeSec.28, Ar t .VI , Const i t ut i onandSec. 401, TCC)   1. t o i ncr ease, r educe or r emov e exi st i ng pr ot ect i v er at es ofi mpor t dut y( i ncl udi nganynecessar ychange i ncl assi f i cat i on) . The exi st i ng r at es may be i ncr easedordecr easedt oanyl ev el , ononeorsev er alst agesbuti nno case shal lt he i ncr eased r at e of i mpor t dut y be hi gher t han a maxi mum ofonehundr ed( 100%)per centadv al or em 2. t oest abl i shi mpor tquot aort oban i mpor t sofanycommodi t y , asmaybe necessar y ; and 3. t oi mposeanaddi t i onaldut yonal l i mpor t snotexceedi ngt en( 10%)per centadv al or em whenev ernecessar y : LI MI TATI ONS I MPOSED REGARDI NG THEFLEXI BLETARI FFCLAUSE a.Conductbyt heTar i f fCommi ssi onof ani nv est i gat i oni napubl i chear i ng. TheCommi ssi onshal lal sohear t hev i ewsand r ecommendat i onsof any gov er nmentof f i ce,agency or i nst r ument al i t yconcer ned. The Commi ssi on shal lsubmi t t hei rf i ndi ngsandr ecommendat i ons t ot heNEDA wi t hi nt hi r t y( 30)day s af t ert he t er mi nat i on oft he publ i c hear i ngs. TheNEDAt her eaf t ersubmi t si t s r ecommendat i ont ot hePr esi dent . a. The power of t he Pr esi dent t o i ncr ease ordecr ease t he r at es of i mpor t dut y wi t hi n t he abov ement i oned l i mi t sf i xed i nt he Codeshal li ncl udet hemodi f i cat i oni n t hef or m ofdut y .

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I nsuchacaset hecor r espondi ng adv al or em orspeci f i cequi v al ent sof t hedut ywi t hr espectt ot hei mpor t s f r om t hepr i nci palcompet i ngf or ei gn count r y f or t he most r ecent r epr esent at i v eper i odshal l beusedas bases( Sec.401, TCC) .

THETARI FFCOMMI SSI ON( TC) FUNCTI ONS OF THE TARI FF COMMI SSI ON 1. I nv est i gat i v ePower s( Sec.505, TCC) a. t he admi ni st r at i on of and t he f i scalandi ndust r i alef f ect soft he t ar i f fand cust omsl awsoft hi s count r ynow i nf or ce orwhi ch mayher eaf t erbeenact ed; b. t her el at i onsbet weent her at esof dut yon r aw mat er i al s and t he f i ni shed or par t l y f i ni shed pr oduct s; c. t he ef f ect s ofad v al or em and speci f i c dut i es and of com¬pound speci f i c and ad v al or em dut i es; d. al l quest i ons r el at i v e t o t he ar r angementofschedul es and cl assi f i cat i on ofar t i cl es i nt he sev er al schedul esoft het ar i f fl aw; e. t he t ar i f fr el at i ons bet ween t he Phi l i ppi nesandf or ei gncount r i es, commer ci alt r eat i es,pr ef er ent i al pr ov i si ons,economi c al l i ances, t heef f ectofexpor tbount i esand pr ef ¬er ent i al t r anspor t at i onr at es; f . t he v ol ume of i mpor t at i ons, compar ed wi t h domest i c pr o¬duct i onandconsumpt i on; g. condi t i ons,causes,and ef f ect s r el at i ngt ocompet i t i onoff or ei gn i ndust r i es wi t h t hose of t he Phi l i ppi nes,i ncl ud¬i ng dumpi ng andcostofpr oduct i on; and

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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h. i n gener al ,t o i nv est i gat e t he oper at i onofcust omsand t ar i f f l aws,i ncl udi ng t hei rr el at i on t o t he nat i onal r ev ¬enues, t hei r ef f ectupon t he i ndust r i es and l abor of t he count r y and t o submi tr epor t sofi t si nv est i gat i on aspr o¬v i ded. 2. Admi ni st r at i v e Assi st ance t o t he Pr esi dentandCongr ess ( Sec.506, TCC)

TAXREMEDI ESUNDERTHE TARI FFANDCUSTOMSCODE ( TCC) TAX REMEDI ES GOVERNMENT

OF

THE

A.ADMI NI STRATI VE 1. TaxLi en( Sec.1204TCC) at t aches on t he goods, r egar dl essofowner shi p,whi l e st i l li nt hecust odyorcont r olof t heGov er nment av ai l ed of when t he i mpor t at i on i s nei t her pr ohi bi t ednori mpr oper l ymade 2. Admi ni st r at i v e Fi nes and For f ei t ur es  appl i edwhent hei mpor t at i on i sunl awf ul ,  andi tmaybeex er ci sedev en wher et hear t i cl esar enotor no l onger i n Cust om’ s cust ody -unl ess t he i mpor t at i on i s mer el y at t empt ed i n whi ch casei tmaybeef f ect edonl y whi l e t he goods ar e st i l l wi t hi n t he Cust oms j ur i sdi ct i onori nt hehandsof a per son who i s awar e t her eof( Sec.2531 & 2530, TCC)  under Sec.2530( a)oft he TCC, i n or der t o war r ant f or f ei t ur e,i ti snotnecessar y t hat t he v esselor ai r cr af t must i t sel f car r y t he

TAXATI ON L AW COMMI TTEE

cont r aband. The compl ement ar yi f col l at er al useoft heCessnapl anef or smuggl i ng oper at i on i s suf f i ci entf ori tt obedeemed t o hav e been used i n smuggl i ng. ( Ll amado v s. Commi ssi oner of Cust oms, GR No.L28809,May 16, 1983) 3. Reduct i on ofcust oms dut i es / compr omi se  subj ectt oappr ov alofSec.of Fi nance ( Sec.709, 2316TCC) 4. Sei zur e,Sear ch,Ar r est ( Sec. 2205,2210,2211TCC) B.JUDI CI AL 1. t hi s r emedy i s nor mal l y av ai l edofwhent het axl i en i sl ostbyt her el easeoft he goods  Ci v i lAct i on ( Sec.1204, TCC)  Cr i mi nal Act i on

TAXREMEDI ESOFTHETAXPAYER A.ADMI NI STRATI VE 1. Pr ot est a. Any i mpor t er or i nt er est ed par t y i f di ssat i sf i ed wi t h publ i shed v al ue wi t hi n 15 day sf r om dat eofpubl i cat i on, orwi t hi n 5 day sf r om t he dat et hei mpor t eri sent i t l ed t o r ef und i f pay ment i s r ender eder r oneousori l l egal byev ent soccur r i ngaf t ert he pay ment . b. Taxpay er– wi t hi n 15 day s f r om assessment . Pay ment underpr ot esti s necessar y . ( Sec.2308, 2210TCC) 2. Ref und a. A wr i t t en cl ai m f orr ef und may be submi t t ed by t he i mpor t eri nabat ementcases on mi ssi ng packages, def i ci enci es i nt he cont ent s of packages or shor t ages bef or ear r i v aloft hegoodsi n t he Phi l i ppi nes,ar t i cl es l ost or dest r oy ed af t er such

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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ar r i v al , dead or i nj ur ed ani mal s,and f or mani f est cl er i cal er r or s; and b. Dr awback cases wher et he goodsar er eex por t ed ( Sec. 17011708TCC) . 3. Set t l ement of any sei zur e by pay mentoff i neorr edempt i on  Butt hi sshal lnotbeal l owed i n any case wher e i mpor t at i on i s absol ut el y pr ohi bi t ed, or t he r el ease woul dbecont r ar yt ol aw,or whent her ei sanact ualand i nt ent i onalf r aud ( Sec.2307 TCC) . 4. Appeal  Wi t hi n 15 day s t o t he Commi ssi oner af t er not i f i cat i on by Col l ect orof hi sdeci si on ( Sec.2313TCC) . B.JUDI CI AL 1. Appeal  Wi t hi n30day sf r om r ecei pt of deci si on of t he Commi ssi oner or Secr et ar y ofFi nancet ot hedi v i si onof t heCTA( Sec.2403TCC, Sec. 7RA 1125,asamendedby Sec.9RA9282)  Si nceSec. 11ofRA 1125as amended by RA 9282 empower st heTaxCour tt o i ssue i nj unct i ons,i t woul d appeart hatani mpor t ermay appealwi t houtf i r stpay i ng t hedut i es, suchasi nsei zur e, butnoti npr ot estcases. 2. Act i ont oquest i ont hel egal i t yof sei zur e 3. Abandonment( Sec.1801TCC) a. expr essl y( Sec.1801TCC) b. i mpl i edl y– c. f ai l ur et of i l e an i mpor t ent r ywi t hi n30day sf r om t hedi schar geofgoodsor d. hav i ngf i l edanent r yf ai l s t o cl ai m wi t hi n 15 day s buti tshal lnotbe so ef f ect i v e unt i l so decl ar edbyt hecol l ect or . ( Sec.1801,asamended byRA7651)

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TWOKI NDSOFPROCEEDI NGSI N THEBUREAUOFCUSTOMS( BOC) A.CUSTOMSPROTESTCASES DEFI NI TI ON:Th esear ecaseswhi chdeal sol el ywi t hl i abi l i t yf orcust oms dut i es, f ees, andot herchar ges.

Not e: Bef or ef i l i ngapr ot est ,t her emust f i r stbeapay mentunderpr ot est . WHENCUSTOMSPROTESTAPPLI CABLE Thecust omspr ot esti sr equi r edt obe f i l ed onl yi n case t he l i abi l i t y oft he t axpay erf ordut i es,t axes,f eesandot her char gesi sdet er mi nedandt het axpay er di sput essai dl i abi l i t y . WHENCUSTOMSPROTESTNOTREQUI RED Wher et her ei s no di sput e,butt he cl ai mf orr ef undar i sesbyr easonoft he happeni ngofsuper v eni ngev ent ssuchas whent her awmat er i ali mpor t edi sut i l i zed i nt he pr oduct i on off i ni shed pr oduct s subsequent l y expor t ed and a dut y dr awbacki scl ai med. REQUI REMENTSFORMAKI NGAPROTEST 1. Mustbei nwr i t i ng 2. Mustpoi ntoutt hepar t i cul ardeci si on orr ul i ngoft heCol l ect orofCust oms t o whi ch except i on i s t aken or obj ect i onmade; 3. Mustst at et hegr oundsr el i edupon f orr el i ef ; 4. Mustbel i mi t edt ot hesubj ectmat t er ofasi ngl eadj ust ment ; 5. Must be f i l ed when t he amount cl ai medi spai dorwi t hi n15day saf t er t hepay ment ; 6. Pr ot est antmustf ur ni shsampl esof goodsunderpr ot estwhenr equi r ed. PROCEDURE I N CUSTOMS PROTEST CASES TheCol l ect oract i ngwi t hi nhi sj ur i sdi ct i on shal l causet hei mpor t edgoodst obe ent er edatt hecust omhouse



 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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TheCol l ect orshal l assess, l i qui dat e, and col l ectt hedut i est her eon, ordet ai nt he sai dgoodsi ft hepar t yl i abl edoesnotpay t hesame



Thepar t yadv er sel yaf f ect ed( t he pr ot est ant )mayf i l eawr i t t enpr ot eston hi sf or egoi ngl i abi l i t ywi t ht heCol l ect or wi t hi n15day saf t erpay i ngt hel i qui dat ed amount( t hepay mentunderpr ot estr ul e appl i es)



Hear i ngwi t hi n15day sf r om r ecei ptoft he dul ypr esent edpr ot est .Upont er mi nat i on oft hehear i ng, t heCol l ect orshal l deci de ont hesamewi t hi n30day s





I fdeci si oni sadv er set o I fdeci si oni sadv er set o t hepr ot est ant t hegov er nment





Appeal wi t ht he Commi ssi onerwi t hi n 15day sf r om not i ce

Aut omat i cRev i ewby t heCommi ssi oner



Aut omat i cr ev i ewby t heSecr et ar yof Fi nance

Appeal wi t ht heCour t ofTaxAppeal sDi v i si on wi t hi n30day sf r om not i ce

 



I fdeci si onof C o mmi s s i oneror Appeal wi t ht he S e c r e t a r y o f F i nancei s CTAenbanc adv er set ot he  pr ot est ant , hemay Appeal bycer t i or ar i appeal t ot heCTAand wi t ht heSupr emeCour t SCundert hesame wi t hi n15day sf r om pr ocedur eont hel ef t . not i ce

REASONS

FOR THE AUTOMATI C REVI EW OF DECI SI ONSADVERSETOTHEGOVERNMENT

1. To pr ot ectt he i nt er estoft he Gov er nment 2. A f av or abl edeci si onwi l lnotbe appeal ed by t he t axpay er and cer t ai nl y a Col l ect or wi l l not appeal hi sowndeci si on. 3. Li f ebl oodTheor y

TAXATI ON L AW COMMI TTEE

B.SEI ZUREANDFORFEI TURECASES DEFI NI TI ON: Th ese r ef er t o mat t er s i nv ol v i ng smuggl i ng.I ti sadmi ni st r at i v e andci v i li nnat ur eandi sdi r ect edagai nst t her esori mpor t edar t i cl esandent ai l sa det er mi nat i on of t he l egal i t y of t hei r i mpor t at i on.Thesear eact i onsi nr em. Thus,I ti sofnodef enset hatt he owneroft hev esselsoughtt obef or f ei t ed hadnoact ualknowl edget hathi spr oper t y wasusedi l l egal l y .Theabsenceorl ackof act ualknowl edge of such use i sa def enseper sonalt ot heownerhi msel f , whi ch cannoti n any way absol v et he v esself r om t he l i abi l i t y of f or f ei t ur e. ( Commi ssi onerofCust oms v s.Mani l a St ar Fer r y ,I nc. , GR Nos. 3177678, Oct ober21, 1993) SMUGGLI NG 1. Anactofanyper sonwhoshal l : a . Fr audul ent l yi mpor tany ar t i cl e cont r ar yt ol aw, or b. Assi sti nsodoi ng, or c . Recei v e, conceal , buy , sel l , f aci l i t at e,t r anspor t ,conceal or sel l such ar t i cl e knowi ngi t s i l l egali mpor t at i on ( Sec.3601, TCC) d. Expor t cont r ar yt o l aw. ( Sec. 3514, TCC) 2. ThePhi l i ppi nesi sdi v i dedi nt ov ar i ous por t sofent r y–ent r yot hert hanpor t ofent r y , wi l l beSMUGGLI NG. PORTOFENTRY A domest i c por topen t o bot h f or ei gn and coast wi se t r ade i ncl udi ng “ ai r por tofent r y ” .( Sec.3514, TCC) ALL ar t i cl es i mpor t ed i nt ot he Phi l i ppi neswhet hersubj ectt odut yornot shal lbeent er edt hr oughacust omshouse atapor tofent r y . ENTRY: i nCust omsl awmeans1. t he document sf i l ed att he Cust omshouse 2. t he submi ssi on and accept ance of t he document s 3. t he pr ocedur e of passi ng goodst hr ought hecust oms house ( Rodr i guezv s.Cour t ofAppeal s,GRNo.115218,

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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San Beda College of Law MEMORYAI DI N TAXATI ON L AW Sept ember18, 1995)

CONTRABAND: Ar t i cl es of pr ohi bi t ed i mpor t at i onsorexpor t at i ons.( Sec.3514, TCC)

EVI DENCE FOR CONVI CTI ON I N SMUGGLI NGCASES Mer e possessi on oft he ar t i cl ei n quest i on-unl essdef endantcoul dexpl ai n t hat hi s possessi on i sl awf ult ot he sat i sf act i onoft hecour t( Sec.3601, TCC) . Pay ment of t he t ax due af t er appr ehensi on i s not a v al i d def ense ( Rodr i guezv s.Cour tofAppeal s,GRNo. 115218, Sept ember18, 1995) THI NGSSUBJECTTOCONFI SCATI ONI N SMUGGLI NGCASES Any t hi ng t hat was used f or smuggl i ngi ssubj ectt oconf i scat i on,l i ke t he v essel ,pl ane,et c. ( Ll amado v s. Commi ssi onerofCust oms,GR No.L28809, May16, 1983) . Except i on:Commoncar r i er st hatar enot pr i v at el ychar t er edcannotbeconf i scat ed. RI GHT OF CUSTOMS OFFI CERS TO EFFECTSEI ZURE&ARREST( SEC.2205) 1. Maysei zeanyv essel ,ai r cr af t ,car go, ar t i cl e, ani mal or ot her mov abl e pr oper t ywhent hesamei ssubj ectt o f or f ei t ur e orl i abl ef oranyt i me as i mposed undert ar i f fand cust oms l aws, r ul es&r egul at i ons 2. May exer ci se such power s onl yi n conf or mi t y wi t h t he l aws and pr ov i si onsoft heTCC COMMONCARRI ERS; FORFEI TURE 1. Common car r i er s ar e gener al l ynot subj ectt of or f ei t ur eal t houghi ft he ownerhasknowl edgeofi t susei n smuggl i ng and was a consent i ng par t y , i tmayal sobef or f ei t ed. 2. I famot orv ehi cl ei shi r edt o car r y smuggl ed goods but i t has no Cer t i f i cat e of Publ i c Conv eni ence ( CPC) , i ti snotacommoncar r i er .I ti s t hussubj ectt of or f ei t ur e,andl ackof per sonalknowl edgeoft heowneror t he car r i er i s not a def ense t o

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f or f ei t ur e. PROPERTI ES NOT SUBJECT TO FORFEI TURE I N THE ABSENCE OF PRI MAFACI EEVI DENCE Thef or f ei t ur eoft hev ehi cl e, v esselor ai r cr af tshal lnotbe ef f ect ed i fi ti s est abl i shedt hatt heownert her eoforhi s agent i n char ge of t he means of conv ey ance used as af or esai d has no knowl edge of or par t i ci pat i on i nt he unl awf ulact : Pr ov i ded,howev er ,t hatapr i maf aci e pr esumpt i onshal l exi stagai nstt hev essel , v ehi cl e or ai r cr af t under any of t he f ol l owi ngci r cumst ances: 1. I ft heconv ey ancehasbeenused f or smuggl i ng at l east t wi ce bef or e; 2. I ft heowneri snoti nt hebusi ness f or whi ch t he conv ey ance i s gener al l yused; and 3. I ft heowneri sf i nanci al l ynoti na posi t i ont oownsuchconv ey ance. DOCTRI NEOFHOTPURSUI T Requi si t es: 1. Ov erVessel s a. An acti s done i n Phi l .Wat er s whi chconst i t ut esav i ol at i onof t het ar i f fandcust omsl aws b. apur sui tofsuch v esselbegan wi t hi nt he j ur i sdi ct i onalwat er s whi ch ( i ) may cont i nue bey ond t he mar i t i mezone, and ( i i )t hev esselmaybesei zedon t hehi ghseas. 2. Ov erI mpor t edAr t i cl es a. Ther ei sav i ol at i onoft het ar i f f andcust omsl aws b. Asaconsequencet heymaybe pur suedi nt hePhi l . c. Wi t hj ur i sdi ct i onov ert hem atany pl acet her ei nf ort heenf or cement oft hel aw.( 2ndpar .Sec.603, TCC) REGI ONALTRI ALCOURTS( RTC) VS. BUREAUOFCUSTOMS( BOC)  The RTCs do nothav ej ur i sdi ct i on ov er sei zur e and f or f ei t ur e

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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pr oceedi ngsconduct ed byt heBOC and t o i nt er f er e wi t h t hese pr oceedi ngs. The Col l ect or of Cust oms has excl usi v ej ur i sdi ct i on ov eral lquest i ons t ouchi ng on t he sei zur e and f or f ei t ur e of dut i abl e goods.  Nopet i t i onsf orcer t i or ar i ,pr ohi bi t i on ormandamusf i l edwi t ht heRTCwi l l l i e because t hese ar e i n r eal i t y at t empt s t o r ev i ew t he Commi ssi oner ' s act uat i ons.Nei t her r epl ev i nf i l edwi t ht heRTCwi l li ssue. Rat i onal e: Doct r i ne of Pr i mar y Jur i sdi ct i on.  Ev eni faCust omssei zur ei si l l egal , excl usi v e j ur i sdi ct i on ( t o t he excl usi on of r egul ar cour t s) st i l l bel ongst ot heBur eau ofCust oms ( Jao v .Cour tofAppeal s,GR No. 104604, Oct ober6, 1995) . GOODS I N CUSTOM’ S CUSTODY BEYONDREACHOFATTACHMENT Goodsi nt he cust om’ scust ody pendi ngpay mentofcust omsdut i esar e bey ondt her eachofat t achment .Asl ong as t he i mpor t at i on has not been t er mi nat ed,t he i mpor t ed goodsr emai n undert hej ur i sdi ct i on oft heBur eau of Cust oms.( Vi duy av s.Ber di ago, GRNo.L29218, Oct ober29, 1976) ADMI NI STRATI VE AND JUDI CI AL PROCEDURES RELATI VE TO CUSTOMS SEI ZURESANDFORFEI TURES Det er mi nat i onofpr obabl ecauseand i ssuanceofwar r ant

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Act ual sei zur eoft hear t i cl es

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Li st i ngofdescr i pt i on, appr ai sal and cl assi f i cat i onofsei zedpr oper t y

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Repor tofsei zur et ot heComm.of Cust omsandt heChai r man, Comm. onAudi t

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I ssuancebyt heCol l ect orofawar r ant ofdet ent i on

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Not i f i cat i ont oownerori mpor t er

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For mal hear i ng

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Di st r i ctcol l ect orr ender shi s deci si ons

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I fdeci si oni snot f av or abl et ot he aggr i ev edowneror i mpor t er

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I fdeci si oni snot f av or abl et ot he gov er nment

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Appeal byt he Aut omat i cRev i ew aggr i ev edowneror byt he i mpor t er Commi ssi oner PERSONS HAVI NG POLI CEAUTHORI TY TO ENFORCETHETARI FF&CUSTOMS LAWS AND EFFECT SEARCHES, SEI ZURES AND ARRESTS ( SEC.2203, TCC) 1) of f i ci al soft heBOC, di st r i ctcol l ect or s, pol i ce of f i cer s,agent s,i nspect or s,and guest soft heBOC; 2) of f i cer soft hePhi l .Nav yandot her member soft he AFP and nat i onall aw enf or cementagenci es when aut hor i zed byt heCommi ssi onerofCust oms 3) of f i ci al soft heBI Ronal lcasesf al l i ng wi t hi nt her egul arper f or mancesoft hei r dut i es,when t he pay mentof i nt er nal t axesar ei nv ol v ed; 4) of f i cer sgener al l yempower edbyl aw t oef f ectar r est sandexecut epr ocesses ofcour t s, whenact i ngundert hedi r ect i on oft heCol l ect or . REQUI REMENTS FOR CUSTOMS FORFEI TURE 1. Thewr ongf ulmaki ngbyt heowner , i mpor t er ,expor t erorconsi gnee of any decl ar at i on oraf f i dav i t ,ort he wr ongf ulmaki ng ordel i v er ybyt he sameper sonsofanyi nv oi ce, l et t eror paper - al l t ouchi ng on t he i mpor t at i on or expor t at i on of mer chandi se. ; and 2. That such decl ar at i on, af f i dav i t , i nv oi ce,l et t er or paper i s f al se. ( Far ol an, Jr .v s.Cour tofTaxAppeal s, GRNo.42204, Januar y21, 1993) PLACESWHERESEARCHES&SEI ZURES

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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MAYBECONDUCTED ( a)encl osur es ( b)dwel l i ng house ( t her e mustbe sear chwar r anti ssuedbyaj udge) ( c)v essel sorai r cr af t sandper sons orar t i cl esconv ey edt her ei n ( d)v ehi cl es, beast sandper sons ( e)per sons ar r i v i ng f r om f or ei gn count r i es.

Not e: Bur den ofpr oofi n sei zur e or f or f ei t ur ei sont hecl ai mant .( Sec.2535, TCC) REQUI REMENTSFORMANI FEST Amani f esti ncoast wi set r adef or car goandpassenger st r anspor t edf r om onepl aceorpor ti nt hePhi l i ppi nest o anot heri sr equi r edwhenoneorbot hof suchpl acesi sapor tofent r y( Sec.906, TCC) .Mani f est s ar e al so r equi r ed of v esself r om a f or ei gn por t( Sec.1005, TCC) . I S MANI FEST REQUI RED ONLY FOR I MPORTEDGOODS? NO.Ar t i cl essubj ectt osei zur edo nothav et obei mpor t edgoods.Mani f est s ar e al so r equi r ed f orar t i cl esf ound on v essel sorai r cr af tengagedi ncoast wi se t r ade.( Ri gorv s.Rosal es, GRNo.L33756, Oct ober23, 1982) UNMANI FESTEDCARGOI SSUBJECTTO FORFEI TURE whet her t he act of smuggl i ngi sest abl i shedornotundert he pr i nci pl eofr esi psal oqui t ur .I ti senough t hatt hecar gowasunmani f est edandt hat t her ewasnoshowi ngt hatpay mentof dut i est her eonhadbeenmadef ori tt obe subj ectt of or f ei t ur e. SETTLEMENTOFFORFEI TURECASES Gener alRul e:Set t l ementofcases by pay ment of f i ne or r edempt i on of f or f ei t edpr oper t yi sal l owed. Except i ons: 1. t he i mpor t at i on i s absol ut el y pr ohi bi t edor 2. t hesur r enderoft hepr oper t yt o t he per son of f er i ng t or edeem woul dbecont r ar yt ol aw, or 3. whent her ei sf r aud.( Sec.2307, TCC)

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ACQUI TTALI N CRI MI NALCHARGENOT RES JUDI CATA I N SEI ZURE OR FORFEI TUREPROCEEDI NGS Reasons: 1) Cr i mi nalpr oceedi ngsar eact i onsi n per sonam whi l esei zur eorf or f ei t ur e pr oceedi ngsar eact i onsi nr em. 2) Cust oms compr omi se does not ext i ngui sh cr i mi nall i abi l i t y .( Peopl e v s. Desi der i o, GR No. L208005, Nov ember26, 1965)

Not e: Atanyt i mepr i ort ot hesal e,t he del i nquent i mpor t er may set t l e hi s obl i gat i onswi t ht heBur eauofCust oms, i nwhi chcaset heaf or esai dar t i cl esmay be del i v er ed upon pay ment of t he cor r espondi ng dut i es and t axes and compl i ance wi t h al l ot her l egal r equi r ement s( Sec.1508, TCC) ABATEMENT The r educt i on ornoni mposi t i on of cust oms dut i es on cer t ai n i mpor t ed mat er i al sasar esul tof : 1) Damagei ncur r eddur i ngv oy age; 2) Def i ci encyi ncont ent spackages 3) Loss ordest r uct i on ofar t i cl es af t erar r i v al 4) Deat hori nj ur yofani mal s FRAUDULENTPRACTI CESCONSI DERED AS CRI MI NAL OFFENSES AGAI NST CUSTOMSREVENUELAWS 1) Unl awf ul i mpor t at i on; 2) Ent r yofi mpor t edorexpor t edar t i cl e bymeansofanyf al seorf r audul ent pr act i ces, i nv oi ce, decl ar at i on, af f i dav i t , orot herdocument s; 3) Ent r yofgoodsatl esst hant hei rt r ue wei ght s or measur es or upon a cl assi f i cat i onast oqual i t yorv al ue; 4) Pay mentofl esst hant heamountdue; 5) Fi l i nganyf al seorf r audul entcl ai mf or t hepay mentofdr awbackorr ef undof dut i es upon t he expor t at i on of mer chandi se; or 6) Fi l i nganyaf f i dav i t , cer t i f i cat eorot her documentt o secur et o hi msel for ot her st hepay mentofanydr awback, al l owanceorr ef undofdut i esont he

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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expor t at i onofmdse.gr eat ert hant hat l egal l yduet her eon.( Sec.3602, TCC)

VI . COURTOF TAXAPPEALS ( RA1125asamended byRA9282)  SeeANNEXOf orcompar i sonofCTA ascr eat edbyRA No.1125andt he amendment smadebyRANo.9282.

NATUREANDPOWERS ELEVATI ONOFRANK shal lbe oft he same l ev elas t he Cour t of Appeal s,possessi ng al lt he i nher entpower sofaCour tofJust i ce COMPOSI TI ON  Consi st sofaPr esi di ngJust i ceand f i v e( 5)Associ at eJust i ces  Maysi tenbancori nt wo( 2)Di v i si ons, eachDi v i si onconsi st i ngoft hr ee( 3) Just i ces. ThePr esi di ngJust i ceand t he mostSeni orAssoci at e Just i ce shal lser v easchai r menoft het wo di v i si ons QUORUM  Four( 4)Just i cesshal lconst i t ut ea quor um f orsessi onsENBANC.  Two ( 2)Just i cesf orsessi onsofa DI VI SI ON. PROVI DED:i ncaset her equi r edquor um cannot be had due t o any v acancy , di squal i f i cat i on,i nhi bi t i on,di sabi l i t y ,or any ot herl awf ulcause,t he Pr esi di ng Just i ce shal ldesi gnat e any Just i ce of ot her Di v i si ons of t he Cour tt o si t t empor ar i l yt her ei n. POWERS 1. t oadmi ni st eroat hs; 2. t or ecei v eev i dence; 3. t o summon wi t nesses by subpoena; 4. t or equi r epr oduct i onorpaper sor document s by subpoena duces t ecum; 5. t opuni shcont empt ;

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6. t o pr omul gat e r ul es and r egul at i onsf ort heconductofi t s busi ness; 7. t o assess damage agai nst appel l anti f appealt o CTA i s f oundt obef r i v ol ousordi l at or y ; 8. t osuspendt hecol l ect i onoft he t axpendi ngappeal ; and 9. t or ender deci si ons on cases br oughtbef or ei t 10.t o i ssue or der aut hor i zi ng di st r ai ntofper sonalpr oper t yand l ev yofr eal pr oper t y DI STRAI NT OF PERSONAL PROPERTY ANDLEVYOFREALPROPERTY Upont hei ssuanceofanyr ul i ng, or der ordeci si onbyt heCTA f av or abl et ot he nat i onalgov er nment ,t heCTAshal li ssue anor deraut hor i zi ngt heBI R,t hr ought he Commi ssi oner : 1. t o sei ze and di st r ai ntany goods, chat t el s,oref f ect sandt heper sonal pr oper t y ,i ncl udi ngst ocksandot her secur i t i es, debt s, cr edi t s, bank account s,andi nt er est si nandr i ght s t oper sonal pr oper t yand/ or 2. l ev yt her ealpr oper t yofsuchper sons i nsuf f i ci entquant i t yt osat i sf yt het ax or char ge t oget her wi t h any i ncr ement t her et o i nci dent t o del i nquency . Thi sr emedyshal lnotbeexcl usi v e and shal lnotpr ecl ude t he Cour tf r om av ai l i ngofot hermeansundert heRul es ofCour t .

JURI SDI CTI ON I .EXCLUSI VEAPPELLATE JURI SDI CTI ONTOREVI EW BYAPPEAL ( a) Deci si onsoft he Commi ssi oner ofI nt er nalRevenue 1. i n cases i nv ol v i ng di sput ed assessment s, r ef unds of i nt er nalr ev enue t axes,f ees orot herchar ges,penal t i esi n r el at i ont her et o, 2. or ot her mat t er s ar i si ng undert heNI RCorot herl aws admi ni st er edbyt heBI R; ( b) I nact i onbyt heCommi ssi onerof

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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I nt er nalRevenue 1. i n cases i nv ol v i ng di sput ed assessment s, r ef unds of i nt er nalr ev enue t axes,f ees orot herchar ges,penal t i esi n r el at i ont her et o, 2. or ot her mat t er s ar i si ng undert heNI RCorot herl aws admi ni st er ed by t he BI R, wher et he NI RC pr ov i des a speci f i cper i odf oract i on,i n whi chcaset hei nact i onshal l bedeemedadeni al ; ( c) Deci si ons,or der sorr esol ut i ons oft heRTC –i nl ocalt ax cases or i gi nal l y deci ded orr esol v ed byt hem i n t heex er ci seoft hei ror i gi nalor appel l at ej ur i sdi ct i on; ( d) Deci si onsoft he Commi ssi oner ofCust oms 1. i ncasesi nv ol v i ngl i abi l i t yf or cust omsdut i es, f eesorot her moneychar ges, sei zur e, det ent i onorr el easeof pr oper t yaf f ect ed, f i nes, f or f ei t ur esorot herpenal t i es i nr el at i ont her et o, 2. or ot her mat t er s ar i si ng undert he Cust omsLaw or ot herl aws admi ni st er ed by t heBur eauofCust oms; ( e) Deci si onsoft heCent r alBoar dof AssessmentAppeal s –i nt heexer ci seofi t sappel l at e j ur i sdi ct i onov ercasesi nv ol v i ng t heassessmentandt axat i onof r ealpr oper t yor i gi nal l ydeci dedby t he pr ov i nci alorci t y boar d of assessmentappeal s; ( f ) Deci si ons of t he Secr et ar y of Fi nance –oncust omscasesel ev at edt o hi m aut omat i cal l yf orr ev i ewf r om deci si onsoft heCommi ssi onerof Cust oms whi ch ar e adv er se t o t he Gov er nmentunder Sect i on 2315oft heTar i f fandCust oms Code; ( g) Deci si ons of t he Secr et ar y of Tr adeandI ndust r yi nt hecaseof nonagr i cul t ur al pr oduct , commodi t y or ar t i cl e,and t he Secr et ar y ofAgr i cul t ur ei nt he case of agr i cul t ur al pr oduct ,

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commodi t yorar t i cl e, –i nv ol v i ng dumpi ng and count er v ai l i ngdut i esunderSecs. 301and302,r espect i v el y ,oft he Tar i f fand Cust oms Code,and saf eguar dmeasur esunderRANo, 8800,wher e ei t her par t y may appealt hedeci si ont oi mposeor nott oi mposesai ddut i es. I I . JURI SDI CTI ON OVER CASES I NVOLVI NGCRI MI NALCASES

( a)Excl usi veor i gi nalj ur i sdi ct i onov er al l cr i mi nal cases ar i si ng f r om v i ol at i onsoft heNI RCorTar i f fand Cust oms Code and ot her l aws admi ni st er ed by t he BI R ort he Bur eauofCust oms  Pr ov i ded howev er , wher e t he pr i nci palamountoft axes and f ees,excl usi v e ofchar ges and penal t i es cl ai med i sl ess t han onemi l l i onpesos( P1,000,000. 00)orwher et her ei snospeci f i ed amountcl ai med- t heof f enses orpenal t i esshal lbet r i edbyt he r egul ar cour t s and t he j ur i sdi ct i onoft heCTA shal lbe appel l at e.  Anypr ov i si onofl awort heRul es of Cour t t o t he cont r ar y not wi t hst andi ng, t he cr i mi nal act i on and t he cor r espondi ng ci v i lact i on f ort he r ecov er yof ci v i l l i abi l i t y f or t axes and penal t i es shal latal lt i mes be si mul t aneousl y i nst i t ut ed wi t h, and j oi nt l y det er mi ned i nt he samepr oceedi ngbyt heCTA, t he f i l i ngoft hecr i mi nalact i onbei ng deemedt onecessar i l ycar r ywi t h i tt hef i l i ngoft heci v i lact i on, and nor i ghtt or eser v et hef i l i ngof suchci v i lact i onsepar at el yf r om t he cr i mi nal act i on wi l l be r ecogni zed. ( b)Excl usi veappel l at ej ur i sdi ct i oni n cr i mi nal of f enses  Ov erappeal sf r om t hej udgment s, r esol ut i onsoror der soft heRTC i nt axcasesor i gi nal l ydeci dedby t hem, i n t hei r r espect i v e t er r i t or i al j ur i sdi ct i on.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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 Ov erpet i t i onsf orr ev i ew oft he j udgment s,r esol ut i ons,oror der s oft heRTCi nt heexer ci seoft hei r appel l at e j ur i sdi ct i on ov er t ax casesor i gi nal l ydeci ded byt he Met r opol i t an Tr i al Cour t s, Muni ci pal Tr i al Cour t s, and Muni ci palCi r cui tTr i alCour t si n t hei rr espect i v ej ur i sdi ct i on. I I I .JURI SDI CTI ON OVER TAX COLLECTI ONCASES ( a)Excl usi veor i gi nalj ur i sdi ct i on i n t ax col l ect i on cases i nv ol v i ng f i nalandexecut or yassessment s f or t axes, f ees, char ges and penal t i es.  I n col l ect i on cases wher et he pr i nci palamountoft axes and f ees,excl usi v e ofchar ges and penal t i es,cl ai med i sl ess t han onemi l l i onpesos( P1,000,000. 00)–shal lbet r i edbyt hepr oper Muni ci pal Tr i al Cour t , Met r opol i t an Tr i al Cour t , and Regi onalTr i alCour t .

( b)Excl usi veappel l at ej ur i sdi ct i oni n t axcol l ect i oncases  Ov erappeal sf r om t hej udgment s, r esol ut i onsoror der sofRTC i n t ax col l ect i on cases or i gi nal l y deci ded by t hem, i n t hei r r espect i v et er r i t or i al j ur i sdi ct i on.  Ov erpet i t i onsf orr ev i ew oft he j udgement s, r esol ut i ons or or der soft heRTCi nt heex er ci se oft hei rappel l at ej ur i sdi ct i onov er t ax col l ect i on cases or i gi nal l y deci dedbyt heMet r opol i t anTr i al Cour t s,Muni ci palTr i alCour t s andMuni ci pal Ci r cui tTr i al Cour t s, i nt hei rr espect i v ej ur i sdi ct i on.

 I ncr i mi nalandcol l ect i oncases,t he

Gov er nmentmaydi r ect l yf i l et hesai d caseswi t ht heCTAcov er i ngamount s wi t hi n i t s excl usi v e and or i gi nal j ur i sdi ct i on.

 See ANNEX P – Compar at i v e Di agr amsonCTAj ur i sdi ct i on.

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“ OTHERMATTERS” Those cont r ov er si es whi ch can be consi der ed wi t hi n t he scope of t he f unct i onoft heBI R/BOCunderej usdem gener i sr ul e( e. g.act i onf ort henul l i t yof di st r ai nt and l ev y ; quest i oni ng t he pr opr i et yoft heassessment ;col l ect i onof compr omi sepenal t i es) .

APPEAL WHEN Wi t hi n 30 day saf t ert her ecei ptof such deci si on or r ul i ng or af t er t he expi r at i onoft heper i odf i xedbyl aw f or act i on. MODESOFAPPEAL ( 1)Byf i l i ngapet i t i onf orr ev i ew undera pr ocedur eanal ogoust ot hatpr ov i ded f orunderRul e42of1997Rul eson Ci v i l Pr ocedur e  deci si on,r ul i ng,ori nact i onoft he Commi ssi oner of I nt er nal Rev enue, Commi ssi oner of Cust oms, t he Secr et ar y of Fi nance,t he Secr et ar yofTr ade andI ndust r yort heSecr et ar yof Agr i cul t ur e ort he Regi onalTr i al Cour t s  t hi sappealshal lbehear dbya Di v i si onoft heCTA ( 2)Byf i l i ngapet i t i onf orr ev i ewundera pr ocedur e anal ogous t o t hat pr ov i dedf orunderRul e43of1997 Rul esonCi v i l Pr ocedur e  deci si onsorr ul i ngsoft heCent r al Boar d ofAssessment s Appeal s andt heRegi onalTr i alCour t si n t he exer ci se of i t s appel l at e j ur i sdi ct i on  t hi sappealshal lbehear dbyt he CTAenbanc. PROCEDURE A.Anypar t yadv er sel yaf f ect edbyar ul i ng, or derordeci si onofaDi v i si onoft he CTA may f i l e a mot i on f or r econsi der at i onornewt r i al bef or et he same Di v i si on wi t hi n 15 day sf r om not i ce

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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B. Any par t y adv er sel y af f ect ed by a r esol ut i onofaDi v i si onoft heCTAon amot i onf orr econsi der at i onornew t r i almayf i l eapet i t i onf orr ev i ewwi t h t heCTAenbanc. C. Any par t y adv er sel y af f ect ed by a deci si onorr ul i ngoft heCTAenbanc mayf i l ewi t ht heSupr emeCour ta v er i f i ed pet i t i on f or r ev i ew on cer t i or ar ipur suantt oRul e45oft he 1997Rul esonCi v i l Pr ocedur e. THI RTY ( 30)DAY PRESCRI PTI VE PERI OD FOR APPEAL St ar t st or un f r om t he dat et he t axpay err ecei v est heappeal abl edeci si on. I f t he t axpay er ’ s r equest f or r econsi der at i on( i . e. ,t hepr ot esti sdeni ed ort heor i gi nalassessmenti smai nt ai ned, t heappeal abl edeci si oni st hedeci si on deny i ngt her equestf orr econsi der at i on. Thesai dper i odi sj ur i sdi ct i onaland nonext endi bl e.Request sormot i onsf or r econsi der at i on, howev er , oper at e t o suspend t he r unni ng oft he per i od t o appeal . A pr o f or ma r equest f or r econsi der at i onoronewhi chi sdi r ect ed t ot he Secr et ar y ofFi nance does not suspend t he r unni ng of t he 30day r egl ement ar yper i od. ONLY A FI NAL DECI SI ON I S APPEALABLE TO THECOURTOFTAXAPPEALS  Pr el i mi nar y col l ect i on l et t er s,post

 

 

r epor t i ngnot i cesandpr eassessment not i cesar enotappeal abl e,because t heyar enott hef i naldeci si onoft he Commi ssi oner . An assessmentcan be appeal ed i f t axpay er does not seek a r econsi der at i on. Att i mes t her ei s an exchange of communi cat i ons bet ween t axpay er and Commi ssi onerst at es t hathi s act i oni sf i nal ,t hen,per i odf orappeal begi nst or un. Commi ssi onermustst at et hathi s deci si oni sf i nal ,f orper i odofappeal t or un. Fi naldeci si oncannotbei mpl i edf r om i ssuanceofwar r antofdi st r ai ntand l ev y , unl essi ti si ssuedaf t erar equest

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f orr econsi der at i on. GENERALRULE:New i ssuescannotbe r ai sedf ort hef i r stt i meonappeal . EXCEPTI ONS: a. Def enseofpr escr i pt i on Reason:Thi si s a st at ut or yr i ght . ( Vi say an Land Tr anspor t at i on v s. Col l ect or ) b. Er r or sofadmi ni st r at i v eof f i ci al s Reason: St at e can nev er be i n est oppel and l i f ebl ood t heor y . ( Commi ssi oner v s. Pr oct er and Gambl e Phi l s.Mf g.Cor p,GR No. 66838, Apr i l15, 1988)

NOTE:Howev er ,t hi s was r ev er sed i n Supr eme Cour t ’ s subsequentr esol ut i on wher ei ni twashel dt hat“ i nt heabsence ofexpl i ci tst at ut or y pr ov i si ons t ot he cont r ar y , t heGov er nmentmustf ol l owt he same r ul es of pr ocedur e whi ch bi nd pr i v at e par t i es. ” ( Commi ssi oner v s. Pr oct er and Gambl e,GR No. 66838, December2, 1991, Resol ut i on) TAX COLLECTI ON NOT SUSPENDED APPEAL

DURI NG

Gener alRul e: No appealt aken t ot he CTA shal lsuspendt hepay ment ,l ev yor di st r ai nt ,and/ orsal eofanypr oper t yof t het axpay er . Except i on: TheCTA i sempower ed t o suspendt hecol l ect i onofi nt er nalr ev enue t axesandcust om dut i esonl ywhent her e wasa– c) showi ngt hatcol l ect i onoft het ax mayj eopar di zet hei nt er estoft he gov er nmentand/ort het axpay er ; d) deposi toft heamountcl ai medor f i l easur et ybondf ornotmor et han doubl et heamountoft axwi t ht he Cour twhenr equi r ed; and e) showi ngbyt axpay ert hatappeali s notf r i v ol ousnordi l at or y . CANTHECTAENJOI N COLLECTI ONOFTAXES?  Sec.11ofRANo.1125asamended bySec.9ofRANo.9282gr ant sCTA powert osuspendcol l ect i onoft axi f such col l ect i on wor ks t o ser i ous pr ej udi ce of ei t her t axpay er or

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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gov er nment .  Howev er ,Sec.218oft heTaxCode pr ov i des no cour t may gr ant i nj unct i ont or est r ai ncol l ect i onofany t ax,f eeorchar gei mposed byTax Code.  Thepr ov i si oni nTaxCoder ef er st o cour t sot hert hant heCTA.( Bl aquer a v s.Rodr i guez, GRNo.L11295, Mar ch 29, 1958)  Appeal t o t he CTA does not aut omat i cal l y suspend col l ect i on unl essCTAi ssuessuspensi onor der atanyst ageofpr oceedi ngs. SI MULTANEOUSFI LI NGOFANAPPLI CATI ONFOR REFUND OR CREDI T AND I NSTI TUTI ON OF A CASEBEFORETHECTAALLOWED

Thel awf i xest hesameper i odof t wo( 2)y ear sf orf i l i ngacl ai mf orr ef und wi t ht heCommi ssi onerandf orf i l i nga casewi t ht heCTA.Thet woy earper i od f orbot hst ar t sf r om t hedat eaf t ert he pay mentoft het axorpenal t y , orf r om t he appr ov al oft heappl i cat i onf orcr edi t .

Obser vat i on:I fwear enotgoi ngt oal l ow t het axpay ert of i l ear ef undbef or et he CTA and l et hi m wai tf or t he CI R’ s deci si on,andt hel at t erf ai l edt or endera deci si onwi t hi nt he2y earper i od,t hesai d t axpay ercan no l ongerf i l ear ef und bef or et he CTA because hi sr i ghtt o appeal haspr escr i bed. WEI GHTOFDECI SI ONOFCTA  Deci si ons of Tax Cour t hav e per suasi v eef f ectandmayser v eas j udi ci algui des. They hav e mor e per suasi v ev al uet hanBI RRul i ngs.  CTA’ sf i ndi ngsoff actar eent i t l edt o t hehi ghestr espect .( Ray mundov s. deJoy a, GRNo.L27733, December3, 1980)  TheSupr emeCour twi l lnotsetasi de concl usi ons r eached by Tax Cour t whi ch by t he v er y nat ur e of i t s f unct i on,i sdedi cat edexcl usi v el yt o t he consi der at i on oft ax pr obl ems andhasdev el opedanexper t i seon t hesubj ect ,unl esst her ehasbeenan abuseorani mpr ov i dentexer ci seof aut hor i t yoni t spar t .( Commi ssi oner

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v s. Cour t of Appeal s & At l as Consol i dat ed, GR No. 86785, Nov ember21, 1991)

VI I . VALUE–ADDEDTAX ( VAT) TI TLEI VOFNI RC DEFI NI TI ON:Th ev al ueadded t ax i s an i ndi r ectt axandt heamountoft axmaybe shi f t ed or passed on t o t he buy er , t r ansf er ee or l essee of t he goods, pr oper t i es orser v i ces.Thi sr ul e shal l l i kewi se appl yt o exi st i ng cont r act s of sal e orl ease ofgoods,pr oper t i es or ser v i cesatt het i meoft heef f ect i v i t yof Republ i cActNo.7716. VATr epl acedSal esTaxasi mposedby pr ev i ousTaxLaws. HI STORY: a. Execut i v eOr derNo.273 b. Republ i cActNo.7716 c. Republ i cActNo.8241 d. Republ i c Act No. 8424 ( t ook ef f ecton1Januar y1998) TRANSACTI ONSCOVEREDBYVAT: 1. Sal eofCommodi t i esorGoods( i n t hecour seoft r adeorbusi ness onl y ) 2. Sal eofSer v i ces( i nt hecour seof t r adeorbusi nessonl y ) 3. Expor t at i on ( i n t he cour se of t r adeorbusi nessonl y ) 4. I mpor t at i on ( whet herornoti n t hecour seoft r adeorbusi ness) PERSONSLI ABLEF ORVAT Anyper son who,i nt he cour se of t r ade or busi ness, sel l s bar t er s, exchanges,l eases goodsorpr oper t i es, r ender s ser v i ces,and any per son who i mpor t s goods shal lbe subj ectt ot he v al ueadded t ax ( VAT) i mposed i n Sect i ons 106 t o 108 oft he Nat i onal I nt er nal Rev enueCode.

“ I N THE COURSE OF TRADE OR BUSI NESS” Ther egul arconductorpur sui tofa commer ci al or an economi c act i v i t y , i ncl udi ngt r ansact i onsi nci dent alt her et o,

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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byanyper sonr egar dl essofwhet heror nott heper sonengagedt her ei ni sanonst ock, nonpr of i t pr i v at e or gani zat i on ( i r r espect i v eoft hedi sposi t i onofi t snet i ncome and whet her or not i t sel l s excl usi v el yt omember sort hei rguest s) , orgov er nmentent i t y . Ther ef or ei ft hedi sposi t i onofgoods orser v i cesi sNOTi nt hecour seoft r ade orbusi nesst heni ti snotsubj ectt oVAT; wi t ht he except i on of i mpor t at i on of cour se.

dut i esar edet er mi nedont hebasi sof t hequant i t yorv ol umeoft hegoods, t hev al ueaddedt axshal lbebasedon t hel andedcostpl usexci set axes,I f any .cust omsdut i es.

B.Zer or at ed( 0%)r at eoft ax

Ther ul eofr egul ar i t y ,t ot hecont r ar y not wi t hst andi ng,ser v i ces as def i ned i n t hi sCoder ender edi nt hePhi l i ppi nesby nonr esi dent f or ei gn per sons shal lbe consi der edasbei ngcour seoft r adeor busi ness.

1. Expor tSal esaspr ov i dedi nSect i on 106( A) ( 2) ( a) 2. For ei gn Cur r encyDenomi nat ed Sal e aspr ov i dedi nSect i on106( A) ( 2) ( b) 3. Sal et oper sonsorent i t i eswhi chi s VAT exemptunderspeci all aws or i nt er nat i onal agr eement st owhi cht he Phi l i ppi nesi sasi gnat or yaspr ov i ded i nSect i on106( A) ( 2) ( c) 4. Tr ansact i ons subj ect t o zer or at ed ( 0%)aspr ov i dedi nSect i on108( B)

I mpor t at i oni ssubj ectt oVATr egar dl ess ofwhet herornoti ti si nt hecour seof t r adeorbusi ness

REGI STRATI ON UNDER THE VAT SYSTEM ( SECTI ON236OFTHENI RC)

Ther easonf ort her ul ei st opr ot ect ourl ocalordomest i cgoodsorar t i cl es andt or egul at et heent r yori nt r oduct i on off or ei gn ar t i cl est o ourl ocalmar ket . Regul at i on i s one oft he pur poses of Taxat i on. TaxRat es: 1. 10% - t he r at e used i n sal e of commodi t i es and goods,sal e of ser v i ces, andi mpor t at i on. 2. Zer or at ed ( 0%)-t he r at e used i n expor t at i on. MANNEROFCOMPUTI NGTHEVAT: A.10%r at eofTax 1. I n sal eofcommodi t i esand goods, 10% i s mul t i pl i ed wi t ht he Gr oss Sel l i ngPr i ce. 2. I nsal eofser v i ces,10% i smul t i pl i ed wi t ht heGr ossRecei pt s. 3. I ni mpor t at i on,10%i smul t i pl i edwi t h t he r at es used by t he Bur eau of Cust oms i n i mposi ng t ar i f f and cust omsdut i espl uscust omsdut i es, exci se t axes, i f any , and ot her char ges,sucht axt obepai dbyt he i mpor t erpr i ort ot her el easeofsuch goods f r om cust oms cust ody : Pr ov i ded,Thatwher et he cust oms

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Gener alRul e:Fai l ur et or egi st eri ssubj ect t o t empor ar y cl osur e of t he est abl i shmentf or5day saspr ov i dedi n Sect i on115( b) . Except i on: I t does not appl yt o an expor t erwhof ai l st or egi st er .Theef f ect i s,i nst eadoft r eat i ngt het r ansact i onas zer or at ed( 0%) , i ti st r eat edasanexempt t r ansact i on. Whati st hedi f f er ence?I nzer or at ed( 0%) t r ansact i ons, t ax cr edi ti s av ai l abl e. Howev er ,i n exempt t r ansact i ons,t ax cr edi ti snotav ai l abl e. EXEMPTTRANSACTI ONS( SECTI ON 109) : 1. I nSect i on109( a)and( c) ,f oodand nonf ood pr oduct s ar e VATexempt asl ongast hesepr oduct sar ei ni t s or i gi nalst at e.Thesi mpl epr ocessof pr epar at i on orpr eser v at i on f ort he mar ket such as f r eezi ng, dr y i ng, sal t i ng,br oi l i ng,r oast i ng,smoki ng,or st r i ppi ng does not r emov e t he pr oductf r om i t scat egor yofbei ngi n i t sor i gi nal st at e.  Howev er ,ev eni ft hepr oduct swer e nol ongeri ni t sor i gi nalst at e,i tcan st i l lbe VATexemptunderSect i on

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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109( r ) , i f sol d by agr i cul t ur al cooper at i v es dul y r egi st er ed by Cooper at i v eDev el opmentAut hor i t y . 2. Under Sect i on 109( m) , pr i v at e educat i onali nst i t ut i ons ar e exempt f r om VAT i fdul yaccr edi t edbyt he DECS orbyt he CHED.I n case of gov er nment educat i onali nst i t ut i on, noaccr edi t at i oni sr equi r ed. 3. Tr ansact i onsi nt hef i el dofAr t sar e VATexempt onl y ,as pr ov i ded i n Sect i on 109( n) ,i ft he sel l eri st he ar t i sthi msel fort hear t i st ’ sser v i ces per f or medf ort hepr oduct i onofsuch wor ks. 4. Sect i on 109( p)makes Regi onalor Ar eaHeadquar t er sexemptf r om VAT. 5. UnderSect i on109( w)i nor derf ort he sal eorl easeofr ealpr oper t yt obe exempt edf r om VAT,t het r ansact i on must NOT be conduct ed i n t he or di nar ycour seoft r adeorbusi ness. I tcompl ement sSect i on106( A) ( 1) ( a) wher ei tst at est hati nor derf ort he sal eorl easeofr ealpr oper t yt obe cov er edbyVAT,i tmustbemadei n t he or di nar y cour se of t r ade or busi ness. 6. Rev enueRegul at i onsNo.697addsa r equi r ementi nor derf ort hel easeof r esi dent i aluni t swi t hamont hl yr ent al of not mor e t han P8, 000. 00,as pr ov i dedi nSect i on109( x) ,t obeVAT exempt ,t hat t he annual gr oss r ecei pt s must not exceed P550, 000. 00. 7. Sect i on109( z)pr ov i dest hatt hesal e orl easeofgoodsorper f or mancesof ser v i cesot hert hant hosement i oned i nt hepr ecedi ngpar agr aphsar eVAT exempti ft heGr ossAnnualRecei pt s donotexceedP550, 000. 00.Howev er , t he l i mi t at i on ofP550, 000. 00 does appl yf ort hose t r ansact i ons f r om Sect i on 109( a) t o( y ) ,except ( x) becauseRev enueRegul at i onsNo.697i mposesaP550, 000. 00l i mi t at i on.  I n casesoft ax f r ee i mpor t at i on of goodsi nt ot hePhi l i ppi nesbyper sons,

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ent i t i esoragenci esexemptf r om t ax wher esuchgoodsar esubsequent l y sol d,t r ansf er r edorexchangedi nt he Phi l i ppi nest ononexemptper sonsor ent i t i es,t hepur chaser s,t r ansf er ees orr eci pi ent sshal lbeconsi der edt he i mpor t er st her eof ,whoshal lbel i abl e f oranyi nt er nalr ev enuet axonsuch i mpor t at i on.The t ax due on such i mpor t at i onshal lconst i t ut eal i enon t hegoodssuper i ort oal lchar gesor l i ensont hegoods, i r r espect i v eoft he possessort her eof . TRANSACTI ONSDEEMEDSALE: Thef ol l owi ng t r ansact i onsshal lbe deemed sal e t her ef or e maki ng t hem cov er edbyVAT: ( 1)   Tr ansf er ,useorconsumpt i onnoti n t he cour se of busi ness of goods or pr oper t i esor i gi nal l yi nt endedf orsal eor f orusei nt hecour seofbusi ness; ( 2)   Di st r i but i onort r ansf ert o: ( a)   Shar ehol der sori nv est or sas shar ei nt hepr of i t soft heVATr egi st er ed per sons; or ( b)   Cr edi t or si npay mentofdebt ; ( 3)   Consi gnmentofgoodsi fact ual sal ei s notmadewi t hi nsi xt y( 60)day sf ol l owi ng t hedat esuchgoodswer econsi gned; and ( 4)   Ret i r ement f r om or cessat i on of busi ness,wi t hr espectt oi nv ent or i esof t axabl e goods exi st i ng as of such r et i r ementorcessat i on.

Howt odet er mi net heVAT:Thet axshal l be comput ed by mul t i pl y i ng t he t ot al amounti ndi cat edi nt hei nv oi cebyoneel ev ent h( 1/ 11) . Exampl e:t het ot alamounti ndi cat ed i n t hei nv oi cei sP110.P110/ 11=P10.P10 i st heamountofVAT. TAXCREDI TANDREFUND

For mul af orTaxCr edi t : Out put Less: I nput VATdue.  I fI nputi sgr eat ert hanOut put ,Tax Cr edi ti sav ai l abl e.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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" I NPUTTAX"meanst hev al ueaddedt ax due f r om orpai d by a VATr egi st er ed per son i nt he cour se ofhi st r ade or busi nessoni mpor t at i onofgoodsorl ocal pur chaseofgoodsorser v i ces,i ncl udi ng l ease oruse ofpr oper t y ,f r om a VATr egi st er edper son.I tshal lal soi ncl udet he t r ansi t i onal i nput t ax det er mi ned i n accor dancewi t hSect i on111oft heNI RC. " OUTPUT TAX"means t he v al ueadded t axdueont hesal eorl easeoft axabl e goodsorpr oper t i esorser v i cesbyany per sonr egi st er edorr equi r edt or egi st er underSect i on236oft heNI RC.  I fatt heendofanyt axabl equar t er t heout putt axexceedst hei nputt ax, t heexcessshal lbepai dbyt heVATr egi st er ed per son.I ft he i nputt ax exceedst heout putt ax ,t heexcess shal l be car r i ed ov er t o t he succeedi ngquar t erorquar t er s.Any i nputt axat t r i but abl et ot hepur chase ofcapi t algoods ort o zer or at ed sal es by a VATr egi st er ed per son may athi s opt i on be r ef unded or cr edi t ed agai nst ot her i nt er nal r ev enue t axes, subj ect t o t he pr ov i si onsofSect i on112.

OPTI ONSOFATAXPAYERASPROVI DED I NSECTI ON112: 1. t ocl ai mf ort axcr edi t ; or 2. t ocl ai mf orr ef und Thecl ai m,whi chmustbei nwr i t i ng, f orbot h cases,mustbe f i l ed wi t hi n2 y ear s af t er t he cl ose of t he t axabl e quar t erwhent hesal eswer emadef or :a) t hei ssuanceofat axcr edi tcer t i f i cat e;b) r ef undofcr edi t abl ei nputt axdueorpai d at t r i but abl et osuchsal es. HOW TO DETERMI NE CREDI TABLE I NPUTTAX The sum oft he excess i nputt ax car r i edov erf r om t hepr ecedi ngmont hor quar t erandt hei nputt axcr edi t abl et oa VATr egi st er edper sondur i ngt het axabl e mont horquar t ershal l ber educed

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r educed by t he amountof cl ai m f or r ef undort axcr edi tf orv al ueaddedt ax andot heradj ust ment s,suchaspur chase r et ur ns or al l owances and i nput t ax at t r i but abl et oexemptsal e. Thecl ai mf ort axcr edi tr ef er r edt oi n t hef or egoi ngpar agr aphshal li ncl udenot onl yt hose f i l ed wi t ht he Bur eau of I nt er nalRev enuebutal sot hosef i l edwi t h ot hergov er nmentagenci es,suchast he Boar dofI nv est ment sort heBur eauof Cust oms. TheCommi ssi onerwi t hi n120day s, i n pr oper cases, f r om t he dat e of submi ssi on ofcompl et e document si n suppor toft heappl i cat i onshal lgr anta r ef undori ssuet het axcr edi tcer t i f i cat e f orcr edi t abl ei nputt axes. Remedy i n case off ul l ,orpar t i al deni al ,or f ai l ur e on t he par t of t he Commi ssi onert oactupont heappl i cat i on f ort ax cr edi torr ef und:t he t axpay er af f ect edmay ,wi t hi nt hi r t y( 30)day sf r om t her ecei ptoft hedeci si ondeny i ngt he cl ai m oraf t ert heexpi r at i onoft heone hundr ed t went y day per i od,appealt he deci si onort heunact ed cl ai m wi t ht he Cour tofTaxAppeal s. RETURNANDPAYMENTOFVAT Ev er yper sonl i abl et opayt hev al ueaddedt axshal lf i l eaquar t er l yr et ur nof t heamountofhi sgr osssal esorr ecei pt s wi t hi n25day sf ol l owi ngt hecl oseofeach t axabl e quar t er pr escr i bed f or each t axpay er :Pr ov i ded,howev er ,ThatVATr egi st er ed per sonsshal lpayt hev al ueaddedt axonamont hl ybasi s. Anyper son,whoser egi st r at i onhas been cancel l ed i n accor dance wi t h Sect i on236, shal lf i l ear et ur nandpayt he t axduet her eonwi t hi n25day sf r om t he dat e of cancel l at i on of r egi st r at i on: Pr ov i ded,That onl y one consol i dat ed r et ur nshal l bef i l edbyt het axpay erf orhi s pr i nci palpl aceofbusi nessorheadof f i ce andal l br anches.

 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo

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 CHAI RPERSON: Char mai neTor r es ASST.CHAI RPERSON: Rhohai lCast r o EDP: Rachel l eSay a SUBJECTHEADS: Jemi naSy , Casi anoI l agan, Jr . , Ry anCo, Edwi nTor r es : MEMBERS: Mar i t aLour desAzur , Edi zerEnr i quez, Chr i st i anCabr er a, Jhundee Gui l l er mo