TAXATIONSUMMARY OF CODAL PROVISIONSNATIONAL INTERNAL REVENUE CODE

Organization and Function of the BIR Power and Duties of the BIR (Sec 2)

1. Under the supervision and control of the Department of Finance2. Powers and duties are the ff:

a. Comprehend the assessment and collection of all national internal revenue taxes, fees and charges

b. Enforcement of all forfeitures, penalties and fines, including the execution of judgments in all cases decided by the Court of Tax Appeals and the ordinary courts

c. Give effect to and administer the supervisory and police powers conferred upon it

Chief Officials of the BIR (Sec 3)1. Commissioner of the Internal Revenue2. Deputy Commissioners (4)

Power of the Commissioner1. Interpret laws and decide tax cases (Sec 4)

a. To interpret the provisions of this Code – exclusive and original jurisdiction of the Commissioner subject to review by the Secretary of Finance

b. To decide disputed assessments, refunds of internal revenue taxes, fees or others charges, penalties imposed and other matters, subject to exclusive appellate jurisdiction of the Court of Appeals

2. Obtain information and to summon, examine and take testimony of persons (Sec 5)a. Purpose :

Acertain correctness of any return Making return when none has been made Determine the liability of any person for any internal revenue tax Collect any such liability Evaluate tax compliance

b. Commissioner is authorized to: Examine any book, paper, record, other relevant or material data Obtain informationon a regular basis from :

From whom :o any person o any office or officer of the national and local government, government agencies

and instrumentalities, including the BangkoSentral and government-owned and controlled corporations, any information

What – any information such as, but not limited to:o Cost and volume of productiono Receipts or sales and gross income of taxpayerso Names, addresses and financial statements of :

corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships and their members

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Summon the person liable for tax or required to file a return, or any officer or employee, or any person having possession, custody or care of the books of accounts and other accounting records or any other person, to appear before the Commissioner or his representative at a time an place specified in the summons and to produce such books, papers, records or other data or to give testimony

Take testimony of the person of the person concerned, under oath, as may be relevant or material to such inquiry

Cause revenue officers and employeestomake a canvassand inquire concerning all persons who may be liable to pay any internal revenue tax and all persons owning or having care, management or possession of any object with respect to which a tax is imposed. ***Note : The foregoing shall not be construed as granting the Commissioner the authority to inquire into bank deposits other than provided in Sec 6(F) of NIRC, to wit:

A decedent to determine his gross estate; and Any taxpayer who has filed an application for compromise of his tax

liability under Sec 204(A)(2) of this Code by reason of financial incapacity to pay his tax liability

3. Make assessments and prescribe additional requirements for tax administration and enforcement (Sec 6)a. Examination of Returns and Determination of Tax Due - After return has been filed, may

authorize the examination of any taxpayer and the assessment of the correct amount of tax, subject to the following conditions: Failure to return shall not prevent Commissioner from authorizing such examination Any return filed shall not be withdrawn However, a return may be amended within 3 years from the date of such filing

provided that no notice for audit or investigation has been actually served b. Failure to Submit Required Returns, Statements, Reports and other Documents –

Commissioner shall : Assess the proper tax on the best evidence obtainable where:

A report shall not be forthcoming within the time fixed by laws/rules/regulations There is reason to believe that such report is false, incomplete or erroneous

Make or amend the return from his knowledge from his own knowledge and information obtained through testimony or otherwise, which shall be prima facie and sufficient, where a person: Fails to file a required return or other document prescribed by law Files a false or fraudulent return or other document

c. Conduct Inventory-Taking, Surveillance and Prescribe Presumptive Gross Sales and Receipts – At any time during the taxable year, as a basis for determining tax liabilities and where

there is reason to believe that a person is not declaring his correct income : Order inventory taking of goods Place the business operations under observation or surveillance

***Findings ma be used as basis for other months or quarters of the same or different taxable years; such assessment shall be deemed prima facie correct.

After taking into account sales/receipt/income of similar businesses under similar situations or circumstances, Commissioner may prescribe a minimum amount of gross receipts/sales and taxable base considered as prima facie correct for computing tax liabilities where : A person has failed to issue receipts and invoices in violation of Sec 113 and 237 There is reason to believe that the books of accounts or other records do not

correctly reflect the declarations made

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d. Terminate Taxable Period – Commissioner shall declare the tax period terminated at any time and send notice to taxpayer together with the immediate payment of tax due subject to penalties when it shall come to his knowledge that a taxpayer is: Retiring from business subject to tax Intending to leave the Philippines, to remove his property therefrom Performing any act tending to obstruct the proceedings for collection of tax

e. Prescribe Real Property Taxes Divide into different zones or areas and shall determine the fair market value of real

properties in each zone or area For computation of internal revenue taxes, the value of the property shall be whichever is

higher of: FMV as determined by the Commissioner; OR FMV as shown in the schedule of values of the provincial and city assessors

f. Inquire into Bank Deposit Accounts - Commissioner, notwithstanding RA 1405, Commissioner is authorized to inquire into bank deposits of: Decedent to determine his gross estate Taxpayer who filed for compromise under Sec 204(A)(2) by reason of financial

incapacity; his application to such will not be considered unless he waivesin writing his privilege under RA 1405

g. Accredit and Register Tax Agents - the Commissioner shall: Accredit and register individuals and general professional partnerships and their

representatives who prepare and file tax returns, statements, reports, protests and other papers Those who are denied by the Commissioner and/or the national or regional

accreditation boards may appeal such denial to the Secretary of Finance who shall rule within 60 days from receipt of appeal;

Failure to rule within such period shall be deemed as approval of the application Create national and regional accreditation boards, the members of which shall serve

for 3 yearsh. Prescribe Additional Procedural or Documentary Requirements – in connection with the

submission or preparation of financial statements accompanying tax retursn

4. Authority to delegate power (Sec 7) – Commissioner may :a. Delegate to any subordinate with a rank equivalent to a division chief or higher, subject to

limitations promulgated by the Secretary of Financeb. Not delegate the following powers:

Recommend the promulgation of rules and regulations by the Secretary of Finance Issue rulings of first impression or to reverse, revoke or modify any existing ruling of the

Bureau Compromise or abate, under Sec 204 (A) and (B), any tax liability, however basic

deficiency of P500,000 or less and minor criminal violations may be compromised by a regional evaluation board composed of the :

o Regional Director - Chairman, o Assistant Regional Director - membero Heads of Legal, Assessment and Collection Divisions - membero the Revenue District Officer having jurisdiction over the taxpayer - member

Assign or reassign internal revenue officers to establish where articles subject to excise tax are produced or kept

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5. Ensure the provision and distribution of forms, receipts, certificates and appliances and the acknowledgement of payment of taxes (Sec 8)a. Prescribe, provide and distribute to the proper officials the requisite licenses internal revenue

stamps, labels, all other forms, certificates, bonds records, invoices, books, receipts, instruments, appliances and apparatus used in administering the laws

Internal revenue stamps and strip stamps and labels shall be printed with adequate security features

Internal revenue stamps, by bar code or fusion design, shall be firmly and conspicuously affixed on each pack of cigars adn cigarettes subject to excise tax

b. Acknowledge the payment of tax expressing the amount paid and particular account for which payment was made (can also be done by his duly authorized representative or an authorized agent)

Internal Revenue Districts (Sec 9) – Commissioner, with approval of the Secretary of Finance, shall divide the Phils into such number of revenue districts as may be required for administrative purposes; each of the district shall be under the supervision of a Revenue District Officer

Revenue Regional Director (Sec 10) – shall:1. Implement laws, policies, plans, programs, rules and regulations of the department or agencies in

the regional area2. Administer and enforce internal revenue laws and rules and regulations, including the

assessment and collection of all internal revenue taxes, charges and fees3. Issue Letters of Authority for the examination of taxpayers within the region4. Provide economical, efficient and effective service5. Coordinate with regional offices or other departments, bureaus and offices in the area6. Coordinate with local government units in the area7. Exercise control and supervision over the officers and employees within the region8. Perform such other function as may be provided by law and as may be delegated by the

Commissioner

Revenue District Officer and other Internal Revenue Officers1. To ensure that all internal revenue laws, rules and regulations are faithfully executed and

complied with (Sec 11)2. To aid in the prevention, detection and punishment of frauds or delinquencies (Sec 11)

Revenue District Officers1. To examine the efficiency of all officers and employees of the BIR under his supervision (Sec 11)2. To report in writing to the Commissioner, through the Regional Director, any neglect of duty,

incompetency, delinquency or malfeasance in office of any internal revenue officer (Sec 11

Agents and Deputies for Collection (Sec 12) :1. Commissioner of Customs and his subordinates for the collection of national internal revenue

taxes on imported goods2. Head of the appropriate government office and his subordinates for the collection of energy tax3. Banks duly accredited by the Commissioner for internal revenue taxes authorized to be made

thru the bank

***Any authorized officer, employee or agent bank shall be subject to the same sanctions and penalties prescribed in Sec 269 and Sec 270

Authority of Revenue Officers1. Pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers

within the jurisdiction of the district(Sec 13)2. Recommend the assessment of any deficiency tax due in the same manner as such acts have

been performed by the Revenue Regional Director himself(Sec 13)

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3. The following shall have the power to administer oaths and to take testimony in any official matter or investigation conducted by them(Sec 14) :a. Commissionerb. Deputy Commissionerc. Service Chiefsd. Assistant Service Chiefse. Revenue Regional Directorsf. Assistant Revenue Regional Directorsg. Chiefs and Assistant Chiefs of Divisionsh. Revenue District Officersi. Special deputies of the Commissionerj. Internal Revenue Officersk. Any other employee especially deputized by the Commissioner

4. The following shall have authority to make arrests and seizures for the violation of any penal law, rule or regulation administered by the BIR (person arrested shall be brought before a court to be dealt with according to the law) – (Sec 15)a. Commissioner’b. Deputy Commissionersc. Revenue Regional Directorsd. Revenue District Officerse. Other Internal Revenue Officers

Internal Revenue Officers1. Assignment

a. Excise tax functions (Sec 16); assigned to establishments or places where articles subject to excise tax are produced or kept – not more than 2 years

b. Other or special duties connected with enforcement and administration of the revenue laws without change in their official rank and salary (Sec 17) For assessment and collection function – not more than 3 years Special duties – not more than 1 year

2. Shall immediately report any facts of violation of this Code or any law, rules or regulations of the BIR that warrant institution of criminal proceedings to the Commissioner through his immediate supervisor giving the name of the offender and the witnesses; in urgent cases, Regional Direcotr or Revenue District Officer may send the report to the corresponding prosecuting officer, with a copy of the report sent to the Commissioner(Sec 18)

Reports by the Commissioner1. Annual Report (Sec 19)

Shall contain detailed statements of the collections of the Bureau with sources of revenue by :

o type of tax, o manner of payment, o revenue region o industry group

disbursements by classes of expenditures If collection exceeds or falls short of target in annual budget by 15% or more, he shall explain

the reason for such excess or shortfall

2. To Congress (Sec20) Furnish the appropriate Committee :

Upon request of Congress In aid of legislation

Pertinent information including but not limited to: Industry audits Collection performance data

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Status reports in criminal actions against persons and taxpayer’s returns However, any return or information associated with directly or indirectly with a particular

taxpayer shall be furnished in Executive Session unless taxpayer consents in writing to such disclosure

Notwithstanding the provision of Section 270

3. To Oversight Committee (Sec 20) Submit through the Chairmen of the Oversight Committee of Ways and Means of the Senate

and House of Representatives A report on the exercise of his power pursuant to the said action every 6 months of each

calendar year With reference to Section 204

National Internal Revenue Taxes (Sec 21)1. Income Tax2. Estate and Donor’s Tax3. Value-added Tax4. Other Percentage Taxes5. Excise Taxes6. Documentary Stamp Taxes7. Such other taxes as may be imposed and collected by the BIR

INCOME TAXATION

Income Tax on Individuals Definition of Terms (Sec 22)– refer to NIRC

General Principles of Income Taxation(Sec 23)Taxpayer Type Source of Taxable Income

Citizen of the Phils residing therein All income derived from sources within and without the Phils

Nonresident citizen Income derived from sources within the Phils

Individual citizen of the Phils working abroad as overseas contract worker; includes a seaman who is a citizen and who receives compensation as member of the complement of the vessel engaged in international trade

Income derived from sources within the Phils

Alien individual, whether resident or not

Income derived from sources within the Phils

Domestic Corporation All income derived from sources within and without the Phils

Foreign Corporation, whether engaged or not in trade or business

Income derived from sources within the Phils.

Income Tax on Resident or Non-Resident Citizen / Resident Alien (Sec 24)

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1. Applicationa. Individual Citizen for all sources within and without the Philsb. Individual Citizen residing outside of the Phils, including overseas contract worker for all

income within Philsc. Resident Alien for all sources within the Phils

2. Married Individuals a. Husband and wife, subject to Sec 51(D), shall compute separately income tax returnsb. If any income cannot be identified as exclusively earned by either, it shall be divided equally

between the spouses

3. Minimum Wage Earnersa. Definition (Sec 22 (HH)) – a worker in the private sector or to an employee in the public

sector with compensation not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned

b. Shall be exempt from income tax for their taxable income, including: Holiday pay, Overtime pay, Night shift differential pay and Hazard pay

4. Type of Income and corresponding Tax RatesNIRC Provision Particulars Tax Rate

Sec 24 (A)

Taxable Income defined in Sec 31 except income under Sec 24 (B), (C), (D)

Sec 31 – taxable income means gross income less deductions and/or personal and additional exemptions

Refer to tax table Sec 24A(2) as amended by

RA 9504

Sec 24(B)(1) – Passive Income: Interest, Royalties, Prizes and Other Winnings

a. Interest from any currency bank deposit from deposit substitutes and from trust funds and similar arrangements

b. Royalties, in generalc. Prizesd. Other Winnings

Final tax rate of 20%

Royalties on books, other literary works and musical compositions

Final tax of 10%

Prizes amounting to 10,000 or less Tax Table Sec 24(A)

Winnings from Phil Charity Sweepstakes and Lotto

exempt

Interest Income by individual taxpayer (except non resident) from bank under an expanded foreign currency deposit system

Final tax of 7½%

Interest income from long term deposit or investment in the form of savings, trust funds, deposit substitutes, investment management accts & other investments

≤ 5 yrs - exempt4 to < 5 yrs - 5%3 to < 4 yrs - 12%< 3 yrs - 20%

Sec 24(B)(2) – Cash/property dividend actually or

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Passive Income:Cash or Property Dividends

constructively received by an individual from a :o Domestic corporationo Joint stock companyo Insurance or mutual fund co.o Regional operating headquarters

of multinational companies Share of individual in the distri-

butable net income after tax of a partnership of which he is a partner

**Except : General Prof Partnership Share of an individual in the net

income after tax of an association, joint account or joint venture or consortium taxable as a corporation of which he is a member or co-venturer

Final tax: 6% - beg of Jan 1, 1998 8% - beg of Jan 1, 199910% - beg of Jan 1, 2000

Note :Tax on dividends shall apply on income earned on or after Jan 1, 1998, income forming part of retained earnings as of Dec 31, 1997 shall not be subject to such tax, even if declared or distributed on or after Jan 1, 1998

Sec 24(C) –Capital Gains from Shares of Stock not traded in the Stock Exchange

Net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corpExcept:a. Shares sold through stock exchangeb. Sec 39(B) – stock in trade included in

the inventory or in the ordinary course of business

≤ 100,000 - 5%> 100,000 - 10%

Sec 24(D) – Capital Gains from Sale of Real Property

Capital gains from sale, exchange or other disposition of real property located in the Phils classified as capital assets, including pacto de retro and other forms of conditional sales, by individuals, including estates or trusts

Final tax of 6% on the Gross Selling Price or Current Fair Market Value, whichever is higher

Gains from sales or other dispositions of real property to the govt or any political subdivisions or agencies or to GOCCs

Rate under Sec 24(A) or Sec 24(D), at the option of the taxpayer

Gains from sale or disposition of principal residence of natural persons, subject to the following conditions: Proceeds fully utilized in acquiring or

constructing new residence within 18 months from sale or disposition

The historical cost or adjusted basis shall be carried over to the new principal residence

Commissioner shall be notified within 30 days from date of sale or disposition

Tax exemption can only be availed of once every 10 years

If not fully utilized, capital gains tax shall be based on the portion of gain presumed to be realized , such computed by multiplying GSP or FMV, whichever is higher, multiplied by a unutilized fraction

Exempt

Income Tax on Non-Resident Alien (Sec 25)

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1. Engaged in Trade or Business within the Philippines(Sec 25(A))a. Definition – one who come to the Philippines and stay therein for an aggregate period of

more than 180 days during any calendar year

b. Tax RatesNIRC Provision Particulars Tax Rate

Sec 25(A)(1) In General

Same as individual citizen and resident alien

On taxable income received from all sources within the Phils

Sec 25(A)(2)

Cash/property dividend actually or constructively received by an individual from a :o Domestic corporationo Joint stock companyo Insurance or mutual fund co.o Regional operating headquarters

of multinational companies Share of individual in the distri-

butable net income after tax of a partnership of which he is a partner**Except : General Professional Partnership

Share of an individual in the net income after tax of an association, joint account or joint venture or consortium taxable as a corporation of which he is a member or co-venturer

Final Tax of 20%

a.Interest from any currency bank deposit from deposit substitutes and from trust funds and similar arrangements

b.Royalties, in generalc.Prizesd.Other Winnings, except Phil Charity

Sweepstakes and Lotto

Final Tax of 20%

Interest income from long term deposit or investment in the form of savings, trust funds, deposit substitutes, investment management accts & other investments

≤ 5 yrs - exempt4 to < 5 yrs - 5%3 to < 4 yrs - 12%< 3 yrs - 20%

Royalties on books, other literary works, musical compositions

Final Tax of 10%

Prizes amounting to 10,000 or less Section 24(A)Other winnings except Phil Charity Sweepstakes and Lotto

Exempt

Sec 25(A)(3)

Capital gains from sale, barter or exchange of shares of stock in domestic corporations not traded through stock exchange

Same as Sec 24(C)

Capital gains from sale, barter or exchange of real property

Same as Sec 24(D)

2. Not Engaged in Trade or Business within the Philippines(Sec 25(B))

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a. Coverage of Taxable Income – all sources within the Philippines

b. Tax RatesNIRC Provision Particulars Tax Rate

Sec 25(B)

Interest Cash/Property Dividends Rents Salaries Wages Premiums Annuities Compensation Remuneration Emoluments Other fixed or determinable annual or

periodic or casual gains Profits and income Capital Gains

25% of gross income

Capital gains from sale of shares of stock in domestic corporations

Same as Sec 24(C)

Capital gains from sale of real property Same as Sec 24(D)

3. Special Aliens (Sec 25 (C), (D), (E))NIRC Provision Particulars Tax Rate

Sec 25 (C)

Employed by regional or area headquarters and regional operating headquarters established in the Phils by multinational companies (salaries, wages, annuities, compensation, remuneration and other emoluments such as honoraria and allowances)

***Multinational company – foreign entity engaged in international trade with affiliates /subsidiaries / branch office in the Asia-Pacific region and other foreign markets

15% of gross income, provided that the same tax treatment shall apply to Filipinos employed and occupying the same position as those aliens employed by these multinationals (tax parity rule)Sec 25 (D)

Employed by offshore banking units established in the Phils (salaries, wages, annuities, compensation, remuneration and other emoluments such as honoraria and allowances)

Sec 25 (E) Employed by Petroleum Service Contractor and Subcontractor – a permanent resident of a foreign country employed and assigned in the Phils

Members of General Professional Partnerships (Sec 26)

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1. General Professional Partnership (GPP) shall not be subject to income tax2. Partners of GPPs shall be liable for income tax on their separate and individual capacities.3. Net income of GPPs shall be computed in the same manner as a corporation in order to compute

partner’s distributive shares.4. Each partner shall report as gross income his distributive share, actually or constructively

received.

Income Tax on Corporations Domestic Corporations (Sec 27)

1. Definition (Sec 22(B)) – a. Shall include :

partnerships, joint stock corporations, joint accounts, association or insurance companies,

b. But does not include : general professional partnerships and joint venture or consortium formed for undertaking construction projects or engaging

in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government

2. Scope of Taxable Income (Sec 27(A)) – from all sources within and without the Philippines

3. Tax Rates on Corporations in GeneralNIRC Provision Particulars Tax Rate

Sec 27(A) In General 30% of taxable income (effective Jan 1, 2000)

Sec 27 (D) -Passive Income

Interest on currency bank deposit and yield or monetary benefit from deposit substitutes and from trust funds and similar arrangements

Final tax of 20%

Royalties Final tax of 20%Interest from a depositary bank under the expanded foreign currency deposit

Final tax of 7.5%

Net capital gains from sale, exchange or disposition of shares of stock

Except : shares sold through stock exchange

Not over 100,000 - 5%Over 100,000 - 10%

Income by a depositary bank under the expanded foreign currency deposit from foreign currency transactions with

Non-residents Offshore banking units in the Phils Local commercial banks including

foreign banks authorized by the BSP to transact business with foreign currency deposit system

Other depository banks under the expanded foreign currency deposit system

Exempt

Income by a depositary bank from such Regular income tax payable

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transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board

by banks

Interest income from foreign currency loans granted by such depositary banks under such expanded system to residents other than offshore banking units in the Phils or other depository banks under the expanded system

Final tax of 10%

Intercorporate Dividends – received by a domestic corp from another Exempt

Capital gains from sale, exchange or disposition of lands and/or buildings, which are not actually used in business

Final tax of 6% ofross selling price or fair

market value, whichever is higher

4. President may, upon recommendation of the Secretary of Finance, allow corporations the option to be taxed at 15% of gross income(Sec 27A):a. Subject to the following conditions:

Tax effort ratio of 20% of Gross National Product (GNP) Ratio of 40% of income tax collection to total tax revenues VAT tax effort of 4% of GNP 0.9% of the Consolidated Public Sector Financial Position (CPSFP) to GNP

b. Conditions of availment: Available only to firms whose ratio of cost to sales to gross sales or receipts from all

sources does not exceed 55% Upon election, shall be irrevocable for 3 consecutive taxable years during which the

corporation is qualified under the scheme

5. Tax Rates of Certain Corporations

NIRC Provision Particulars Tax Rate

Sec 27 (B) – Proprietary Educational Institutions and Hospitals

Gross income from unrelated trade or business does not exceed 50%

Terms defined :o Unrelated trade or business – means

any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance of its primary purpose or function

o Proprietary educational institution –any private school maintained and administered by private individuals or groups with an issued permit to operate from the DECS or the CHED or TESDA

10% of taxable income

Exceptions1. Passive income taxable

under Sec 27(D)2. When gross income

from unrelated trade or activity exceeds 50%, the entire taxable income is subject to Sec 27(A) or 30%

Sec 27 (C) –Government Owned /Con-trolled Corps, Agencies or Instrumentalities

All corporations, agencies or instrumentalities owned or controlled by the Govt

Subject to existing special or general laws

30% of taxable incomeExcept :

1. GSIS2. SSS3. PHIC4. PCSO

6. Minimum Corporate Income Tax (Sec 27(E))

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a. Requisites 2% of gross income as of end of taxable year Imposed beginning of the 4th taxable year immediately following the year of

commencement of business operations When minimum income tax is greater than the tax computed under Sec 27(A)

b. Carry Forward of Excess Minimum Tax – excess of MCIT over the normal income tax shall be carried forward and credited against the normal income tax for the 3 immediately succeeding taxable years

c. Relief from MCIT – The Secretary of Finance is authorized to suspend imposition of MCIT on any corporation

which suffers losses on account of :o Prolonged labor disputeo Force majeureo Legitimate business reverses

The Secretary of Finance is authorized to promulgate, upon recommendation of the Commissioner, rules and regulations to define terms and conditions under which he may suspend the imposition of MCIT.

Foreign Corporations (Sec 28)1. Resident Foreign

a. Scope - income from all sources within the Philippines

b. Definition – corporation organized, authorized or existing under the laws of any foreign country, engaged in trade or business within the Philippines

c. Tax ratesNIRC Provision Particulars Tax Rate

Sec 28 (A) In general 30% of taxable income (effective Jan 1, 2009)

Sec 28 (A) (7) Interest from any currency bank deposit from deposit substitutes and from trust funds and similar arrangements

Final tax of 20%

Royalties Final tax of 20%Interest from a depository bank under the expanded foreign currency deposit system

Final tax of 7½ %

Interest derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with non-residents, offshore banking units in the

Phils, local commercial banks including

branches of foreign banks authorized by BSP to transact business with foreign currency deposit system units and

other depository banks under the expanded foreign currency deposit system

Exempt

Income by a depositary bank from Regular income tax payable

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such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board

by banks

Interest income from foreign currency loans granted by such depository banks under said expanded system to residents other than depository banks under the expanded system

Final tax of 10%

Any income of individual or corporation non-residents from transactions under the expanded system

Exempt

Capital gains from sale, barter, exchange or other disposition of shares of stock in a domestic corporation except shares sold through the stock exchange

Not over 100,000 - 5%Over 100,000 - 10%

Dividends from a domestic corporation Exempt

d. Option of 15% on gross income under Sec 27(A) applies

e. Minimum Corporate Income Tax – same as Sec 27(E)

f. Special resident foreign corporationsNIRC Provision Particulars Tax Rate

Sec 28 (A)(3) – International Carrier

International Air Carrier International Shipping 2½ % of Gross Philippine

Billings

Sec 28 (A)(4) – Offshore Banking Units

Income derived by offshore banking unit authorized by the BSP from foreign currency transaction s with :

Non-residents Other offshore banking units Local commercial banks Including branches of foreign

banks authorized by the BSP

Exempt

Interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks including local branches of foreign banks authorized by BSP to transact with offshore banking units

Final tax of 10%

Income of non-resident individuals or corporations from transactions with offshore bankingunits

Exempt

Sec 28 (A) (5) –Branch Profits Remittances

any profit remitted by branch to its head office

includes the following effectively connected with the conduct of its trade or business in the Phils:o interests

15% of the total profits applied or earmarked for remittance without any deduction for the tax component

Except : PEZA

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o dividendso rentso royaltieso renumeration for technical

serviceso salarieso wageso premiumso annuitieso emoluments or other fixed or

determinable annual, period or casual gains

o profitso incomeo capital gains

registered activites Tax shall be collected

and paid as provided under Sec 57 and 58

Sec 28 (A) (6)Regional or Area Headquarters as defined in Sec 22(DD) Exempt

Regional Operating Headquarters as defined in Sec 22(EE) 10% of taxable income

Philippine Gross Billings,defined:o For International Air Carrier – gross revenue derived from :

Carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and place of payment

Tickets revalidated, exchanged and/or indorsed to another international airline, if the passenger boards a plane or point in the Phils

Aliquot portion of the cost of the ticket where a flight originates from the Phils but transhipment of passenger takes place outside of the Phils on another airline

o For International Shipping – gross revenue whether for passenger, cargo or mail originating from the Phils up to final destination, regardless of the place of sale or payments of the passage or freight documents

2. Nonresident Foreigna. Scope – all sources within the Philippines

b. Tax RatesNIRC Provision Particulars Tax Rates

Sec 28(B)(1)

Income received such as Interests Dividends Rents Royalties Salaries Premiums (except reinsurance

premiums) Annuities Emoluments Other fixed or determinable

annual, periodic or casual gains Profits and income Capital gains

30% of gross income

Sec 28 (B) (5) Interest on foreign loans contracted on Final withholding tax of 20%

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or after August 1, 1986

Cash and/or property dividends received from a domestic corporation

Final withholding tax of 15%

subject to the condition that the country in which the non-resident foreign corporation is domiciled, shall allow a credit against tax due to 20% which represents the difference between the regular income tax of 35%; effective Jan 1, 2009, represents the difference between regular tax of 30% and 15% tax on dividends

Net capital gains on sale, barter, exchange or other disposition of shares of stock in domestic corp except shares sold through the stock exchange

Not over 100,000 - 5%Over 100,000 - 10%

c. Special Nonresident Foreign corporationsNIRC Provision Particulars Tax Rates

Sec 28 (B)(2)NonresidentCnematographic Film Owner, Lessor or Distributor 25% of gross income

Sec 28 (B) (3)Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals

4½ % of gross rentals, lease or charter fees from leases or charters to Filipino citizens or corp as approved by Maritime Industry Authority

Sec 28 (B) (3)Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment

7½ % of gross rentals or fees

Improperly Accumulated Earnings (Sec 29)1. Shall apply to every corporation formed or availed for the purpose of avoiding the income

tax with respect to its shareholders or the shareholders of other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed

2. Tax Rate – 10% of improperly accumulated taxable income3. Shall not apply to:

a. Publicly held corporationb. Banks and other nonbank financial intermediariesc. Insurance companies

4. Period not applicable :

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a. If calendar year - as of December 31, 1997 b. If fiscal year - as of the end of the month comprising the 12 month period of 1997 - 1998

5. Conditions indicative of the purpose to avoid tax to shareholders:a. Corporation that is a mere holding company or investment company – prima facie evidence b. Fact that earnings or profits are permitted to accumulate beyond the reasonable needs of

a business, unless contrary is proven by clear preponderance of evidence***Reasonable needs – includes anticipated needs of the business

6. Computation of improperly accumulated income : Taxable income Adjusted by:

o Income exempt from taxo Income excluded from gross incomeo Income subject to final taxo Net operating loss carry over deducted

Reduced by :o Dividends actually or constructively paido Income tax paid for the taxable year

Corporations Exempt from Income Tax (Sec 30)1. Labor, agricultural or horticultural organization not organized principally for profit2. Mutual savings bank not having a capital stock represented by shares, and cooperative bank

without capital stock organized and operated for mutual purposes and without profit;3. A beneficiary society, order or association, operating for the exclusive benefit of the members

such as a fraternal organization operating under the lodge system, or mutual aid association or a nonstock corporation organized by employees providing for the payment of life, sickness, accident or other benefits exclusively to the members of such society, order, or association or nonstock corporation or their dependents;

4. Cemetery company owned and operated exclusively for the benefit of its members;5. Nonstock corporation or association organized and operated exclusively for religious, charitable,

scientific, athletic or cultural purposes, for the rehabilitation of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific person

6. Business league, chamber of commerce or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder, or individual;

7. Civil league or organization not organized for profit but operated exclusively for the promotion of social welfare;

8. A nonstock and nonprofit educational institution;9. Government educational institution10. Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or irrigation company,

mutual or cooperative telephone company, or like organization of a purely local character, teh income of which consists solely of assessments, dues and fees collected from members for the sole purpose of meeting its expenses; and

11. Farmers’ fruit growers’, or like association organized and operated as a sales agent for the purpose of marketing teh products of its members adn turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them;

**Note : the income of whatever kind and character of the above conducted for profit regardless of the disposition made of such income shall be subject to tax. (however, this does not apply to #8 – nonstocknonprofit educational institution which is exempt as provided for in the Constitution)

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Taxable Income(Sec 31) Means the pertinent items of gross income less the deductions and/or personal and additional

exemptions, if any, authorized for such types of income by this Code or other special laws

Gross Income Inclusions (Sec 32A) – means all income derived from whatever source, including, but not limited to,

the following :1. Compensation for services in whatever form paid, including but not limited to fees, salaries,

wages, commissions and similar items2. Gross income derived from the conduct of trade and business or the exercise of a profession3. Gains from dealings in property4. Interests5. Rents6. Royalties7. Dividends8. Annuities9. Prizes and winnings10. Pensions; and11. Partner’s distributive share from the net income of the general professional partnership

Exclusions from gross income (Sec 32B) – the following shall be excluded from gross income and shall be exempt:1. Life Insurance– Requisites:

a. Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured

b. Whether in a single sum or otherwisec. If held by insurer to be paid at an interest, such interest shall be included in the gross income

2. Amount Received by Insured as Return of Premium – Requisites:a. Amount received by the insuredb. As return of premiumc. Under life insurance, endowment or annuity contractsd. Either during the term or at the maturity or surrender of the contract

3. Gifts, Bequests and Devises – value of property acquired as mentioned, provided that income from such, in case of transfers of divided interest, shall be included in the gross income

4. Compensation for Injuries or Sicknessa. Amounts received through :

Accident insurance Health insurance Workmen’s compensation acts

b. As compensation for personal injuries or sickness plus amounts of any damages receivedc. Whether by suit or agreement

5. Income Exempt Under Treaty – income of any kind to the extend required by any treaty obligation binding upon the Govt of the Phils

6. Retirement Benefits, Pensions, Gratuities, etca. Retirement benefits under RA 7641 and by officials and employees of private firms:

In accordance with a reasonable private benefit plan maintained by the employer Retiring official or employee :

o Has been in the service for at least 10 yearso Not less than 50 years of age at the time of retirement

Such benefits granted shall be availed f by an official or employee only once

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b. Amount received by an official or employee or his heirs from the employeras a consequence of separation due to death, sickness or physical disability or any cause beyond the control of such official or employee

c. Social security benefits, retirement, gratuities, pensions and other similar benefits received by resident or non-resident citizen or aliens who permanently reside in the Philsfrom foreign government agencies and other institutions, private or public

d. Benefits due to any person residing in the Phils under the laws of the US administered by the US Veterans Administration

e. Benefits received from or enjoyed under the SSS in accordance with RA 8282f. Benefits received from the GSIS under RA 8291 including retirement gratuity received by

government officials and employees

7. Miscellaneous Itemsa. Income derived from Foreign Government – income from investments in Phil loans,

stocks, bonds, securities or bank deposits by a) foreign governments; b) financing institutions owned, controlled or enjoying refinancing from foreign governments and c) international and regional financial institutions

b. Income derived by the Government or its Political Subdivision – income from any public utility or from exercise of essential governmental function

c. Prizes and Awards In recognition of :

o Religiouso Charitableo Scientifico Educationalo Artistico Literaryo Civic achievement

Provided further that recipient :o Selected without any action on his part to entero Not required to render substantial future services as condition for award/prize

d. Prizes and Awards in Sports Competition – granted to athletes: local and international sports competitions and tournaments whether held in the Phils or abroad sanctioned by their national sports association (associated with Phil Olympic Association)

e. 13th Month Pay and Other Benefits – shall not exceed P30,000 which shall cover benefits received :

Pursuant to RA 6686 Pursuant to PD 851 as amended by Memo Order No 28 dated Aug 13, 1986 Not covered by PD 851 Such as productivity incentives and Christmas bonus; the ceiling of P30,000 may be

increased by issuance of Secretary of Finance, upon recommendation of the Commissioner

f. GSIS, SSS, Medicare and Other Contributions – includes union dues

g. Gains from Sale of Bonds, Debentures or other Certificates of Indebtedness – from the sale or exchange or retirement of bonds, debentures, etc with maturity of more than 5 years

h. Gains from Redemption of Shares in Mutual Fund – gains by investor upon redemption of shares of stock in mutual fund per Sec 22(BB)

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Fringe Benefits (Sec 33)1. Definition – means any good, service or other benefit furnished or granted in cash or in kind by

an employer to an employee such as but not limited to :a. Housingb. Expense accountc. Vehicle of any kindd. Household personnel, such as maid, driver and others;e. Interest on loan at less than market rate to the extent of the difference between the market

rate and actual rate grantedf. Membership fees, dues and other expenses borne by the employer for the employee in social

and athletic clubs or other similar organizations;g. Expenses for foreign travelh. Holiday and vacation expensesi. Educational assistance to the employee or his dependents; andj. Life or health insurance and other non-life insurance premium or similar accounts in excess of

what the law allows2. Exception – where :

a. It is given to rank and file; ORb. It is required by the nature of, or necessary to the trade, business or profession of the

employer; ORc. The fringe benefit is for the convenience or advantage of the employerd. Fringe benefits not taxable :

Fringe benefits which are authorized and exempted from tax under special laws; Contributions of the employer for the benefit of the employee to retirement, insurance

and hospitalization benefit plans; Benefits given to rank and file employees, whether granted under collective

bargaining agreement or not De minimis benefit as defined in the rules and regulations promulgated by the

Secretary of Finance3. Tax Rate –

a. In general – 32% of the grossed up monetary value of fringe benefit furnished or granted to the employee, where:

Actual monetary value Grossed up monetary value = ------------------------------------

100% - 32%b. Special rate – where fringe benefit given and taxable under Sec 25 B, C, D, E, to wit:

NIRC Provision Particulars Tax PayableSec 25 B Non resident individual not

engaged in trade or business in the Phils –

Amount of fringe benefit---------------------------------- x 25%

1 - 25%

Sec 25 CAlien Employed by Regional or Area Headquarters adn Regional Operating of Mutinational Companies

Amount of fringe benefit---------------------------------- x 15%

1 - 15%Sec 25 D Alien Individual Employed by Offshore Banking Units

Sec 25 EAlien Individual Employed by Petroleum Service Contractor and Subcontractor

4. Tax is payable by the employer; such tax to be paid under Sec 57(A)

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Allowable Deductions Deductions from Gross Income (Sec 34)

A. Itemized Deductions1. Expenses

a. Requisites Ordinary Necessary Paid during the taxable year Attributable to the development, management, operation and/or conduct of the trade,

business or exercise of a profession Reasonable

b. Includes : Salaries, Wages and other forms of compensation

o For personal services actually renderedo Includes grossed up monetary value of fringe benefit, provided that final tax

under Sec 33 has been paid

Travel Expenseso Incurred in the Phils and abroado In the pursuit of trade, business or profession

Rentals and other payments required to continue use or possessiono For purposes of trade, business or professiono Relates to property for which the taxpayer :

has not taken or is not taking; or in which he has no equity other than that of a lessee, user or possessor

Entertainment, Amusement and Recreationo Incurred during the taxable yearo Directly connected to the development, management and operation of trade,

business or profession of the taxpayero Directly related to or in furtherance of the conduct of his or its trade, business

or exercise of professiono Not to exceed such ceilings prescribed by the Secretary of Finance, upon

recommendation of the Commissioner, taking into account the needs as well as the special circumstances, nature and character of the industry, trade, business or profession of the taxpayer

o Should not be contrary to law,morals, public policy or public order

c. Substantiation Requirements – requires sufficient evidence such as official receipts or other adequate records:

The amount of expense being deducted; Direct connection or relation to the development, management, operation and/or

conduct of the trade, business or profession of the taxpayer

d. Bribes, Kickbacks and Other Similar Payments – NOT ALLOWED

e. Private Educational Institutions(Proprietary Educational Institutions as referred to in Sec 27B) – in addition to allowable expenses as mentioned above, may at its option deduct capital outlays of depreciable assets incurred during the year for the expansion fo school facilities :

Deduct as expenses ; OR Deduct allowance for depreciation

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2. Interest Requisites

Paid or incurred within a taxable year On indebtedness connected with the taxpayer’s profession, trade or business Allowable deduction shall be 33%(rate as of January 1, 2009, the previous rate

was 42%) of the interest income subjected to final tax

Exceptions - where : Where individual taxpayer reports income on cash basis and the interest on

indebtedness is paid in advance through a discount or otherwise; such interest only deductible in the year the indebtedness is paid

Where indebtedness is payable in periodic amortizations, the interest which corresponds to the amount of the principal amortized or paid during the year is allowed as deduction

If taxpayer and creditor are related parties as provided for under Sec 36B to wit:o Between family members which refers to brothers and sisters (full

blood or half blood), spouse, ancestors and lineal descendantso Between an individual and corporation more than 50% of the

outstanding stock is owned, directly or indirectly, by or for such individual, except in case of liquidation

o Between 2 corporations more than 50% of outstanding stock of which is owned, directly or indirectly, by or for the same individual if either one of such corporations,

o Between grantor and a fiduciary of any trusto Between a fiduciary of a trust and a fiduciary of another trust if the same

person is a grantor with respect to each trusto Between a fiduciary of a trust and beneficiary of such trust

Optional Treatment – Interest acquired to acquire property used in trade, business or exercise of profession may be allowed as a) deduction or b) capital expenditure, at the option of the taxpayer

3. Taxes Requisites :

Incurred within taxable year In connection with profession, trade or business In case of non-resident alien individual engaged in trade or business and resident

foreign corporations, deductions for taxes shall be allowed only if and to the extend that they are connected with income sources within the Philippines

The following taxes are not deductible: Income tax Income taxes imposed by authority of any foreign country, however, deduction shall

be allowed where a taxpayer does not signify in his return to have the benefits of tax credit for taxes of foreign countries

Estate and donor’s taxes Taxes assessed against local benefits of a kind tending to increase the value of the

property assessed Refunded or credited taxes –e included as part of gross income (Tax Benefit Rule)

In the year of receipt To the extent of the income tax benefit of said deduction

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Credit tax for Taxes paid in Foreign Countries – if taxpayer desires to have these benefits, the tax imposed shall be credited with :

Kind of Taxpayer Availment (Amount) of Tax CreditCitizen and Domestic Corporation Income tax paid or incurred during the

taxable year to any foreign countryIndividual member of a general professional partnership or a beneficiary of an estate or trust

Proportionate share of the taxes of the general professional partnership, estate or trust paid or incurred during the taxable year to a foreign country

Alien individual or foreign corporation Tax credit not allowed

Limitations on Credit – Sec 34 C(4) Adjustments on Payment of Incurred taxes – Sec 34 (5) Year in which Credit taken – Sec 34 C(6) Proof of Credits – Foreign tax credits shall allowed only if the taxpayer establishes the

following :a. Total amount of income derived from sources without the Philsb. Amount of income derived from each country, the tax paid or incurred to which is

claimed as a creditc. All other information necessary for the verification and computation of such credits

4. Losses (Sec 34 D) Requisites :

a. Losses actually sustained during the taxable yearb. Not compensated for by insurance or other forms of indemnityc. Incurred in trade, profession or businessd. Of property connected with the trade business or professione. Loss arises from fires, storms, shipwreck, or other casualties or from robbery, theft or

embezzlementf. Declaration of loss submitted within 45 days from date of discovery of casualty or

robbery (such period as prescribed by the Secretary of Finance which shall not be less than 30 nor more than 90 days)

g. Such loss has not been deducted for estate tax purposes For non-resident alien individual or foreign corporation – applies to losses sustained

related to trade or profession conducted within the Phils not compensated by insurance or other indemnity

Other Losses:a. Net Operating Loss Carry Over (NOLCO)

Refers to the excess of allowable deduction over gross income of the business in a taxable year

Net operating loss for the taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next 3 consecutive taxable years immediate following the year of loss, provided that :o Any net loss incurred in a taxable year which a taxpayer was exempt shall

not be allowed as a deduction o There is no substantial change in ownership of the business or enterprise, in

that: Not less than 75% in nominal value of outstanding issued shares is held

by or on behalf of the same persons; or Not less than 75% of the paid up capital of the corporation, is held by or

on behalf of the same persons.o Mines other oil and gas wells – its NOLCO incurred in any of the first 10

years may be carried over as a deduction from the taxable income for the next 5 years (read further Sec 34 D(3))

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b. Capital Losses Allowed up to the amount provided for in Sec 39 If securities which are capital assets become worthless during the taxable assets,

such loss shall be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets

c. Losses from Wash Sales of Stocks or Securities – refer to Sec 38

d. Wagering Losses – allowed only up to the extent of the gains from such transactions

e. Abandonment Losses – read Sec 34D (7)

5. Bad Debts (Sec 34E) Debts due actually ascertained to worthless and charged off within the taxable year Exceptions :

o Debts not connected with profession, trade or businesso Those sustained between related parties as provided for in Sec 36(B)

Requisites:o Valid debto Uncollectible after due diligenceo Actually written off; mere provision does not qualify

Recovery of bad debts – shall be included as part of the gross income in the year of recovery, provided,o Such had been previously allowed as a deduction in the preceding yearso Recovery recognized up to the extent of the income tax benefit of said deduction

(TAX BENEFIT RULE) Securities Becoming Worthless – loss shall be considered as a loss from the sale or

exchange on the last day of such capital assets where: o Securities ascertained to worthless and charged off within the taxable year o Such are capital assetso Shall not come from a bank or trust company incorporated under the laws of the Phils

a substantial part of its business is the receipt of deposits

6. Depreciation Reasonable allowance for the exhaustion, wear and tear (obsolescence) of property used

in business Allowable methods:

o Straight lineo Declining balanceo Sum of the years digito Any other method prescribed by the Secretary of Finance

Where the taxpayer and the Commissioner have entered into an agreement on the useful life and the rate of depreciation, such shall be binding on both in the absence of facts and circumstances not taken into consideration during the adoption of such agreement; any change in the agreed rates shall not be effective for taxable years prior to the taxable year in which notice by certified mail or registered mail is served

Where taxpayer has adopted such depreciate method without any written objection from the Commissioner or his representative, such shall be considered binding.

Depreciation of properties related to Petroleum Production :o Shall be allowed under the straight line or declining balance method at the option

of the service contractor;

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o If declining balance is initially selected, it may shift to straight line at any subsequent date

o Useful life of 10 years or shorter as may be permitted by the Commissioner while properties not used directly in petroleum production shall be depreciated using straight line method at an estimated useful life of 5 years

Depreciation of properties used in Mining Operations :o At normal rate of depreciation is expected life is 10 years or less;o Depreciation over any number of years between 5 yrs and the expected life if the

latter is more than 10 years, provided that the contractor notifies the Commissioner at the beginning of the depreciation period

Depreciation by Nonresident Aliens Engaged in Trade or Business or Resident Foreign Corporations :

o A reasonable allowance for the deterioration of property of property in the business, trade or profession shall be permitted when such property is located in the Philippines

7. Depletion of Oil and Gas Wells and Mines – Sec 34G

8. Charitable and Other Contributions – Sec 34H Requisites :

o Contributions or gifts actually paid or made within the taxable yearo For use of :

Phil government or any of its agencies or political subdivision exclusively for public purposes

Accredited domestic corporation or associations organized and operated for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans

Social welfare institutions Non government associations

o No part of the income of which inures to the benefit of any private individual Rates:

o 10% of taxable income - Individualo 5% of taxable income – Corporationo Deductible in Full – donations to:

a. Government – for priority activities according to the National Priority Plan as determined by NEDA for : Education, Health, Youth and sports development, Human settlements Science and culture Economic development

b. Foreign Institutions or International Organizations - those in compliance with agreement, treaties or commitments entered into by the Govt of the Phils and the foreign institutions or international organizations

c. Accredited Nongovernment Organizations – means a non-profit domestic corporation: Organized exclusively for scientific, research, educational, character-building

and youth and sports development, health, social welfare, cultural or charitable purposes

No part of net income which inures to the benefit of any private individual

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Makes utilization for the active conduct of the activities not later than the 15th day of the 3rd month after the close of its taxable year ; utilization means: Any amount in cash or in kind paid or utilized to accomplish one or more

purposes for which such was created Any amount paid to acquire an asset used directly in carrying out one or

more purposes for which such is created Its administrative expense should not exceed 30% of the total expenses Assets, in case of dissolution, would be distributed to another non-profit

domestic corporation organized for similar purposes or the state for public purposes

Valuation : Acquisition cost of property Proof of Deductions : as provided for by the rules and regulations prescribed by the

Secretary of Finance, upon recommendation of the Commissioner.

9. Research and Development Requisites:

o Paid or incurred during the taxable yearo In connection with trade, business or professiono Deducted as ordinary and necessary expenses not chargeable to capital

account The following may be deferred expenses at the election of the taxpayer, those:

o Paid or incurred in connection with trade , business or professiono Not treated as expenseso Charged to capital account but not chargeable to property which is subject to

depreciation or depletion ***Such election shall not apply to any expenditure paid or incurred during any taxable year for which the taxpayer makes the decision.

The following expenses do not apply:o Acquisition or improvement of land, or for the improvement of property to be used in

connection with research and development o Ascertaining the existence, location, extent or quality of any deposit of ore or other

mineral including oil or gas.

10. Pension Trusts – consist of a reasonable amount transferred or paid into the pension trust where such amount:o Has not been allowed as a deductiono Is apportioned in equal parts over a period of 10 years from the year which the transfer is

made

11. Changes in Itemized Deductions Secretary of Finance may prescribe rules and regulations, limitations or ceilings for any of

the itemized deductions Requires public hearing Factors to be considered :

o Adequacy of the prescribed limits on the actual expenditure requirements of each particular industry

o Effects of inflation

B. Income and Deductions of Insurance Companies, Whether Domestic or Foreign (Sec 37)***read the provision

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C. Losses from Wash Sales (Sec 38) – No deduction for loss sustained from any sale or disposition of shares of stock where :

o Such transaction occurred within a period beginning 30 days before the date and of such sale and 30 days after such date

o Taxpayer has acquired or entered into a contract or option (even if not excercised) to so acquire substantially identical stock or securities

o Exception : when claim is made by a dealer in stock or securities in the ordinary course of business

D. Capital Gains and Losses (Sec 39/40) Terms

o Capital Assets – property held by the taxpayer but does not include : Stock in trade of the taxpayer or Inventory on hand at the close of the year Property held primarily for sale to customers in the ordinary course of trade or

business Property used in trade or business which is subject to depreciation Real property used in trade or business

o Net Capital Gain – excess of the gains from sale or exchange of capital assets over losses

o Net Capital Loss – excess of losses from sale or exchange of capital assets over the gains

For individuals, the following percentages of the gain or loss recognized shall be taken into account:o 100% if capital asset has been held for not more than 12 monthso 50% if capital asset has been held for more than 12 months

Losses shall be allowed only to the extent of the gains from such sales or exchanges Shall not cover same transactions of a bank or trust company incorporated in the Phils,

a substantial part its business is the receipt of deposits, sells any bond, debenture, note or certificate or other evidence of indebtedness issued by an corporation

Net Capital Loss Carry-over – an individual which sustains a net capital loss, such loss shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital asset held for not more than 12 months.

Retirement of Bonds – amounts received by holder upon retirement of bonds, debentures, notes or certificate or other evidences of indebtedness issued by any corporation with interest coupons or in registered form shall be considered as amounts received in exchange therefor

Gains or losses from short sales of property shall be considered as gains or losses from sales or exchanges of capital assets;

Gains or losses attributable to the failure to exercise privileges or options to buy or sell property shall be considered as capital gains or losses

E. Inventories (Sec 41) – a particular method of valuing inventory shall be used in all subsequent years unless: A change to different methods is authorized with the approval of the Commissioner Commissioner finds that the nature of stock on hand is such that inventory gains should be

considered realized for tax purposes; provided that he shall not exercise his authority more often than once every 3 years and that any change in valuation method must be subject to approval by the Secretary of Finance.

Additional Requirements for Deductibility (Sec 34 (K)) – any deductible amount shall be allowed as a deduction only if the tax required to be deducted and withheld therefrom has been paid in accordance with Sec 58 and 81.

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Optional Standard Deduction (Sec 34(L))- in lieu of allowable itemized deductions, taxpayer may chose optional standard deduction Who may avail:

Individual other than a non-resident alien – 40% of gross sales or gross receipts Shall not be required to submit his tax return required in this Code

Corporation (Domestic and Resident Foreign) – 40% of gross income Unless taxpayer elects optional standard deduction, he is assumed to prefer itemized standard

deductions Election of optional deduction shall be irrevocable of the taxable year for which the return is made

Other Deductions for Individual TaxpayersA. Personal Exemption (Sec 35)

Basic Personal Exemption - P50,000 Additional Exemptions for Dependents – P25,000 each, not exceeding 4

o To be claimed by only one spouseo In case of legally separated spouses, exemption to be claimed by the spouse who has

custody of the chidren, provided total amount shall not exceed the maximum o Dependent

legitimate, illegitimate, or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is :

not more than 21 years old unmarried not gainfully employed

OR regardless of age, incapable of self-support because of mental or physical defect

Personal and additional exemptions may be claimed in full regardless of the following changes in status during the taxable year:o Taxpayer marries or dies during the taxable yearo Additional dependento Spouse or dependent dieso Dependent marries or becomes 21 yrs old or becomes gainfully employed

Allowed to a non-resident alien engaged in trade, business or profession for an amount :o Equal to the exemptions allowed in the income tax law in the country of which he is

subject or citizeno Not to exceed the amount provided herein

***Nonresident alien should file a true and accurate return of the total income from all sources in the Philippines

B. Premium on Health and/or Hospitalization Insurance of an Individual Taxpayer (Sec 34 (M)) Not to exceed P2,400 per family per taxable year Said family has gross income of not more than P250,000 for the taxable year In case of married taxpayer, the spouse claiming the additional exemption shall be entitled to

this deduction

Items not deductible (Sec 36) – a. The following are not deductible in computing net income :

Personal, living or family expenses; Any amount paid out for new buildings or for permanent improvements, or betterments

made to increase the value of any property or estate;

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This Subsection shall not apply to intangible drilling and development costs incurred in petroleum operations which are deductible under Subsection (G) (1) of Section 34 of this Code.

Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or

Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy.

b. Losses from sale or exchanges of property direct or indirectly are not allowed when such transaction occurs :

Between members of a family. For purposes of this paragraph, the family of an individual shall include only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants; OR

Between an individual and corporation more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, except in the case of distributions in liquidationOR

Between two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for the same individual if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale of exchange was under the law applicable to such taxable year, a personal holding company or a foreign personal holding company, except in the case of distributions in liquidation; OR

Between the grantor and a fiduciary of any trust; OR Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the

same person is a grantor with respect to each trust; OR Between a fiduciary of a trust and beneficiary of such trust

Determinatin of Amount and Recognition of Gain or Loss (Sec 40)

Situs of Taxation (Sec 42)

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ESTATE TAX Scope of Estate Tax (Sec 84)

o Net Estateo Of a decedent, whether resident or non-residento Tax rates per Sec 84

Gross Estate (Sec 85)1. The value of the gross estate shall consist of :

a. Value at the time of death – such value to be determined as follows (Sec 88) : Usufruct – in accordance with the latest Basic Standard Mortality Table, to be approved

by the Secretary of Finance, upon recommendation of the Insurance Commissioner Properties – appraised at its fair market value as of the time of death; such value shall be

the higher of the :o Fair market value as determined by the Commissioner, oro Fair market value in the schedule of values fixed by the Provincial and City

Assessorsb. Of all property – real or personal, tangible or intangiblec. Wherever situatedd. However, if non-resident decedent (not a citizen) – property situated in the Phils

2. Inclusions (Exclusions)a. Decedent’s Interest – to the extent of the interest therein of the decedent at the time of his

death

b. Transfer in Contemplation of Death – Includes transfer by the decedent, by trust or otherwise, :

o In contemplation of or intended to take effect in possession or enjoyment at or after death

o Under which he has retained, for his life or for any period which does not end before his death, any of the following : Possession or enjoyment or right to income from the property Right, either alone or with others, to designate the person who shall possess or

enjoy the property or income therein, Exception : in case of a bonafide sale for an adequate and full consideration

c. Revocable Transfer Transfer by trust or otherwise, where enjoyment thereof was subject to any change

through the exercise of a power, by the decedent alone or with others, to alter, amend, revoke or terminate, or where any such power is relinquished in contemplation of the decedent’s death.

Such power to alter, amend or revoke shall be considered to exist on the date of the decedent’s death

Exception : in case of a bonafide sale for an adequate and full consideration

d. Property Passing Under General Power of Appointment – Any property passing under a general power of appointment exercised by the decedent :

o By willo By deed executed in contemplation of or intended to take effect in possession or

enjoyment at or after his deatho By deed under which he has retained for his life or any period not ascertainable

without reference to his death or any period which does not end before his death Property includes the following :

o The possession or enjoyment of, or the right to the income from the property

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o The right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom

Exception : in case of a bona fide sale for an adequate and full consideration in money or money’s worth

e. Proceeds of Life Insurance – amounts receivable by : The estate, the executor or administrator as taken out by the decedent upon his own

life, irrespective whether or not the insured retained the power of revocation By any beneficiary, except when it is expressly stipulated that such beneficiary is

irrevocable

f. Prior Interests – Refers to transfers, trusts, estates, interests, rights, powers and relinquishment of powers

related to :o Transfers in contemplation of deatho Revocable transfero Proceeds of life insurance

Made, created, arising, existing, exercised or relinquished before or after the effectivity of this Code

g. Transfers for Insufficient Consideration Relates to those transfers, trust... under :

o Transfers in contemplation of deatho Revocable Transferso Property passing under a General Power of Appointmento That are not bonafide sale for an adequate and full consideration

The amount included in the gross estate shall be the excess of the fair market value at the time of death

h. Capital of the Surviving Spouse – not deemed part of the decedent’s gross estate

Net Estate (Sec 86)A. Deductions Allowed to a Citizen or Resident Decedent

1. Expenses, Loses, Indebtedness and Taxesa. Funeral Expenses – an amount equal to 5% of the gross estate or P200,000 whichever is

lowerb. Judicial Expenses – related to testamentary or intestate proceedingsc. Claims against Estate

Debt instrument was duly notarized at the time of indebtedness If loan was contracted within 3 years before death, a statement showing

disposition of the proceeds is executedd. Claims against Insolvent Persons – where the value of decedent’s interest is included in

the value of the gross estatee. Unpaid Mortgages

Value, undiminished by such mortgage, is included in the value of the gross estate

Does not include any income tax upon income received after deathf. Losses

Incurred during the settlement of the estate Arising from fires, storms, shipwreck or other casualties, from robbery, theft or

embezzlement Not compensated by insurance or otherwise Not claimed as a deduction for income tax purposes Incurred not later than the last day for the payment of the estate tax

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2. Property Previously Taxed (Vanishing Deductions)a. Those property :

Forming part o the gross estate situated in the Philippines of any person who died with 5 years prior to the death of the decedent; or

Transferred to the decedent within 5 years prior to his death

b. Amount of deduction to be deducted from the gross estate:Deductible Value Time of death of prior decedent to death of

present decedent100% of value Within 1 year80% of value More than 1 yr not more than 2 yrs60% of value More than 2 yrs not more than 3 yrs40% of value More than 3 yrs not more than 4 yrs20% of value More than 4 yrs not more than 5 yrs

c. Deductions shall be allowed: Where a donor’s tax or estate tax imposed was finally determined and paid Such deduction shall be reduced by the same ratio as to the amounts allowed as

deductions Where property consists of 2 or more items, the aggregate value of such items shall

be used

3. Transfers for Public Usea. All bequests, legacies, devises or transfersb. To or for use of the Govt of the Phils or any political subdivision thereofc. Exclusively for public purposes

4. Family Homea. Fair market value of the decedent’s family homeb. Up to P1,000,000, the excess of which shall be subject to estate taxc. Such family home must be certified as such by the barangay captain of the locality

5. Standard Deduction – up to P1,000,000

6. Medical Expensesa. Incurred by the decedent within 1 year prior to decedent’s deathb. Duly substantiated with receiptsc. Shall not exceed P500,000

7. Amount received by Heirs under RA 4917a. Received by the heirs from the decedent-employee as a consequence of death of the

decedent-employeeb. In accordance with RA 4917c. Such amount is included in the gross estate of the decedent

B. Deductions Allowed to a Nonresident Decedent Allowable Deductions

o Expenses, Losses, Indebtedness and Taxeso Property Previously Taxed – same as that deductible from the estate of a resident or

citizen decedento Transfers for Public Use

No deduction shall be allowed unless the executor, administrator or any heir includes the return required the value of the gross estate of the decedent at the time of his death not situated in the Philippines.

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C. Share in the Conjugal Property – shall be deducted from the net estate of the decedent :1. Net share of the surviving spouse in the conjugal partnership property2. Diminished by the obligations chargeable to such property

D. Tax Credit for Estate Tax paid to a Foreign Country1. The estate tax due shall be credited with the amounts of any estate tax imposed by a foreign

country2. Limitations of Tax Credit – the amount of credit shall not exceed:

a. The same proportion of the tax against which such credit is taken, which the decedent’s net estate situated within such country taxable under this Title bears to his entire net estate

b. The same proportion of the tax against which such credit is taken, which the decedent’s net estate situated outside the Philippines taxable under this Title bears to his entire net estate.

Exemptions (Sec 87) – The following shall not be taxed :1. Merger of usufruct in the owner of the naked title2. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the

fideicommissary3. Transmission from the first heir, legatee or done in favor of another beneficiary, in accordance

with the desire of the predecessor; and4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions

provided that : No part of the net income of which inures to the benefit of any individual; and Not more than 30% shall be used by such institutions for administration purposes

Procedure1. Notice of Death (Sec 89) – executor, administrator or legal heir of decedent is required when

Gross value of the estate exceeds P20,000 Within 2 months after decedent’s death or within a like period after qualifying as executor or

administrator2. Estate Tax Return (Sec 90)

Gross estate exceeds P200,000 or regardless of value, estate consists of registered or registrable property (i.e. real property, motor vehicle, shares of stock)

A return under oath must be filed stating:o Value of the gross estateo Deductions allowedo Other supplemental datao However, when gross value exceeds P2,000,000, it shall be supported by certified

statement by a CPA containing: Itemized assets of decedent with corresponding value at time of deat Itemized deductions from gross estate Amount of tax due whether paid or still due and outstanding

Within 6 months from the decedent’s death A certified copy of the schedule of partition and the order of the court shall be furnished the

Commissioner within 30 days such partition or order Extension – not exceeding 30 days from filing of return for meritorious cases Place of Filing –

o Authorized agent bank or RDO, Collection Officer or duly authorized Treasurer of the city of municipality where the decedent was domiciled; OR

o Office of the Commissioner, if there be no legal residence3. Payment of Estate Tax (Sec 91)

Payment shall be made at the time the return is filed Extension – when payment would impose undue hardship upon the estate or heirs,

Commissioner may extend time for payment

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o 5 years – if estate is settled through the courtso 2 years – if estate is settled extrajudiciallyo By such extension, the running of the Statute of Limitations for assessment per Sec

203 shall be suspended for the period of such extensiono In addition, may be required to furnish a bond or sureties for an amount not

exceeding double the amount of taxo No extension shall be granted by reason of negligence, intentional disregard of rules

and regulations or fraud Estate tax imposed shall be paid before distribution of the estate; the beneficiary shall be

subsidiarily liable for the payment of the portion of his estate tax as his share bears to the value of the total assets

Accountabilities / Rights of Certain Persons1. Executor or Administrator (Sec 92)

May make a written application to the Commissioner for the determination of the amount of estate tax due and discharge from personal liability therefore; shall be notified within 1 year from making such application or from the filing of the return

Shall be discharged from personal liability for any deficiency and shall be entitled to a receipt or writing showing such discharge

2. Judge (Sec 94) – shall not authorize delivery of distributive shares unless there is a certification from the Commissioner that the estate tax has been paid

3. Register of Deeds (Sec 95) – shall not register any document transferring real property or real rights therein by way of gifts inter vivos or mortis causa unless there is a certification from the Commissioner that the tax due thereon has been paid

4. Lawyers, Notary Public or any Government Officer (Sec 96) – shall have the duty of furnishing the Commissioner, Regional Director or appropriate officer of the place where he has his principal office with copies of such documents and any information which may facilitate the collection of said taxes

5. Debtor of a Deceased (Sec 96) – shall not pay his debts to the heir, legatee, devisee, executor or administrator unless : There is a certification from the Commissioner that tax thereon has been paid; OR Such credit is included in the inventory of the estate of the deceased

6. Corporations, Sociedad Anonima, Partnership, Business or Industry organized in the Phils (Sec 97) – no transfer to any new owner in the books of corporations or organizations upon any share, obligation, bond or right by way of gift inter vivos or mortis causa unless there is a certification from the Commissioner that the taxes thereon have been paid.

7. Banks (Sec 97) Bank that has knowledge of the death of the person who has a bank deposit account alone or

jointly with another shll not allow withdrawal unless the Commissioner has certified that the taxes imposed have been paid

An authorized withdrawal not exceeding P20,000 may be made without authorization; hence, all withdrawal slips shall contain a statement that all the joint depositors are still living at the time of withdrawal by one of the joint depositors and shall be under oath by said depositors

8. New Obligations of Decedent after Payment of Estate Tax (Sec 96)- if after payment of estate tax, new obligations of the decedent shall appear and have been satisfied, a right to the restitution of the proportional part of the tax paid shall accrue

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DONOR’S TAX Imposition of Donor’s Tax

Requisites (Sec 98)o Transfer of any person, resident or non-resident of property by gifto Whether the gift is in trust or otherwiseo Whether such gift is direct or indirecto Whether property is real or personal, tangible or intangible

Transfer for Less than Adequate and Full Consideration (Sec 100)o General Rule : The excess of the fair market value of the property over the value of the

consideration shall be deemed a gift and shall be included in computing the amount of gifts made during the taxable year

o Exception : Real property per Sec 24(D)

Valuation (Sec 102) – fair market value at the time of the gift; for real property refer to Sec 88(B)

Rates (Sec 99) Basis : Total Net Gift Donor’s Tax Table – applicable to relatives, to wit:

o Brother, sister (whether whole or half-blood), spouse, ancestor and lineal descendanto Relative by consanguinity in the collateral line within the fourth degree

Donation to a Stranger – 30% of total net gift Contribution to Candidate, Political Party or Coalition of Parties – for campaign purposes;

governed by the Election Code

Exemption (Sec 101) Exempted gifts

Gift Resident Non-resident; Non-Citzen

Dowries or gifts: On account of marriage and before its

celebration; OR Given within 1 year from marriage To legitimate, recognized natural or

adopted children Not exceeding P10,000

Exempted Not Exempted

Made to and for the use of National Government or any entity created by any of its agencies which is not conducted for profit, or to any of its political subdivision

Exempted Exempted

Gifts in favor of : The following corporations, institutions,

accredited NGO, trust or philanthropic or research organization dedicated to Educational, Charitable, Religious, Cultural, Social Welfare purposes

Provided that: Not more than 30% of such gifts shall be

used for administration purposes Non-stock entity, not paying dividends Governed by trustees who do not receive

compensation Devoting all its income to the

accomplishment and promotin of its purposes

Exempted Exempted

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Tax Credit for Donor’s Tax Paid to Foreign Countryo Requisites:

Donor’s tax imposed by a foreign country Paid by a donor who was a citizen or resident at the time of donation

o Limitations1. The amount of credit in respect to tax paid to any country shall not exceed the same

proportion of tax against which such credit is take, which the net gifts situated within such country bears to the entire net gift

2. The total amount of credit shall not exceed the same proportion of tax against which such credits is taken, which the donor’s net gifts situated outside the Phils bears to his entire net gifts

Filing of Return and Payment of Tax (Sec 103) Filing of Return

o Shall be under oatho In duplicateo Return shall contain:

Each gift made during the calendar year Deductions claimed and allowable Previous net gifts during the same calendar year Name of the done Other information as required by the rules and regulations

Time and Place of Paymento Time : within 30 days after the date the gift is made; tax must be paid thereino Place :

Authorized agent bank Revenue District Officer Collection Officer Duly authorized Treasurer of the city or municipality where the donor was domiciled at

the time of transfer Office of the Commissioner , if no legal residence in the Phils If non-resident, the return may be filed with :

the Philippine Embassy or Consulate in the country where he is domiciled at the time of transfer; OR

direct with the Office of the Commissioner

Gross Estate and Gifts (Sec 104) include: 1. Real and Personal Property

Whether tangible or intangible or mixed Wherever situated Where decedent or donor is a non-resident alien at the time of death or donation, real or

personal property outside the Philippines is not included2. Franchise, shares, obligations or bonds, shares or rights in business – are situated in the

Philippines when: Issued by any corporation organized and constituted in the Philippines; OR Issued by foreign corporations where 85% of its business is located in the Phils; OR Issued by foreign corporations acquiring business situs in the Philippines

3. Intangible Assets – however, no tax shall be imposed where: Decedent or donor was a citizen and resident of a foreign country which did not impose a

transfer tax for intangible property of citizens of the Philippines not residing in that foreign country; OR

The laws of the foreign country of the decedent or donor allows a similar exemption from transfer or death taxes in respect to intangibles owned by citizens of the Philippines not residing in that foreign country

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REMEDIES Remedies in General

1. Conveyance to Purchaser (Sec 202) – where taxpayer fails to redeem property, the RDO shall execute a deed conveying to purchaser so much of the property sold, free from all liens; such deed shall recite all the proceedings upon which the validity of the sale depends

2. Assessment and Collection (Sec 203) General Rule : Internal Revenue taxes shall be assessed within 3 years :

o If filed within the period prescribed by law - after the last day prescribed by law for filing, provided that a return filed before the last day prescribed shall be considered filed on the last day

o If return is filed beyond the period prescribed by law – from the day the return was filed Exception : Sec 222

3. Compromise (Sec 204) – May be entered into when there is :

Ground Minimum Compromise RateReasonable doubt as to the validity of the claim against the taxpayer 10% of basic assessed tax

Taxpayer’s clear inability to pay as shown by his financial capacity 40% of basic assessed tax

Shall be subject to approval of the Evaluation Board composed of the Commissioner and his 4 Deputies when:o Basic tax exceeds P1,000,000; ORo Settlement offered is less than the prescribed minimum compromise rate

All criminal violations may be compromised except:o Those already filed in court; ORo Those involving fraud

4. Abatement (Sec 204) – where: Tax appears to be unjustly or excessively assessed; OR Administration and collection costs do not justify the collection of the amount due

5. Credit or Refund Taxes (Sec 204) Allowed when taxpayer files in writing with the Commissioner a claim within 2 years after

the payment thereof A return showing an overpayment shall be considered a written claim for credit or refund Tax Credit Certificate validly issued :

o May be applied against any revenue tax, excluding withholding taxeso Subject to Sec 230 of the NIRC o Certificate showing creditable balance must be surrendered for cancellation

No tax refund shall be given resulting from availment of incentives granted for which no actual payment was made

Commissioner shall submit to every six months a report on the exercise of his powers under Sec 204 :o To the Chairmen of the Committee on Ways and Means of both the Senate and the

House of Representativeso Stating the following facts:

Names and addresses of taxpayers subject of compromise or abatement Amount involved Amount compromised or abated Reasons for the exercise of such power

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o Such report shall be presented to the Oversight Committeee in Congress to determine whether such powers were reasonably exercised and that the government was not unduly deprived of revenues

Civil Remedies (Government) The following remedies for collection of internal revenue taxes, fees or charges, alternatively or ll

simultaneously (Sec 205) :1. Distraint of goods, chattels or effects and other personal property, including stocks and

other securities, debts, credits, bank accounts and interest in and rights to personal property o Shall not be availed of where the amount of tax involved is not more than P100.00o Constructive Distraint (Sec 206)

May be done by Commissioner to the property of a taxpayer who is: Delinquent Retiring from any business subject to tax Intending to :

- leave the Philippines- remove his property- hide or conceal his property- any act tending to obstruct the proceedings for collecting the tax

Shall be effected by requiring the taxpayer or any person having possession thereof to : Sign a receipt covering the distrained property Preserve the same intact and unaltered Not dispose of the same without express authority of Commissioner

In case the taxpayer or person in possession refuses or fails to sign, the revenue officer shall proceed to : Prepare a list of such property and Leave a copy in the premises in the presence of two (2) witnesses

Summary Remedies (Sec 207)a. Upon delinquency of taxpayer, the Commissioner or his representative (if tax due

is in excess of P1,000,000) or the RDO (if tax due is P1,000,000 or less) shall distraint any goods, chattels and personal property sufficient to satisfy the tax, its increment due to delinquency and expenses of distraint and subsequent sale

b. Within 10 days from receipt of the warrant, a report on the distraint shall be of submitted to the RDO and Revenue Regional Director; Secretary of Finance upon recommendation of Commissioner shall have the power to lift distraint

Procedure a. Distraint and Garnishment (Sec 208)

Officer serving the warrant shall make an account of the property distrained, a copy shall be left with the owner or person in possession

Manner of Distrainto Stocks and other securities - by serving a copy of the warrant upon :

- Taxpayer; AND- President, manager, treasurer or responsible officer of the

corporation, company or associationo Debts and Credits – leaving with the person owing the debts or having

possession or control over the credits a copy of the warrant of distraint; such shall be sufficient authority to pay the Commissioner the amount of such

o Bank Accounts – serving a warrant of garnishment upon the taxpayer and upon president, manager, treasurer or responsible officer of the bank which shall turn over to Commissioner the amount sufficient to satisfy the claim

b. Sale of Property and Disposition (Sec 209)

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Revenue officer shall cause a notice to be exhibited in not less than 2 public places in the municipality or city where the distraint is made; one place for posting shall be the Office of the Mayor of the city or municipality where property is distrained

Notice shall specify the time and place of sale The time of sale shall not be less than 20 days after notice At the time and place fixed in such notice, the properties shall be sold at

public auction to the highest bidder for cash with the approval of the Commissioner

For sale of stocks and securities, the officer making the sale shall execute a bill of sale and furnish a copy to the issuing corporation or association which shall make the corresponding entry in its books

Any residue over the claim and other expenses shall be returned to the owner of the property sold; no charges shall be imposed upon services of the local internal revenue officer or his deputy

c. Release of Distrained Property (Sec 210) – the properties shall be restored by to the owner if all proper charges are paid to the officer conducting the sale prior to its consummation

d. Report of Sale to BIR (Sec 211) – a report on the proceedings shall be submitted in writing within 2 days after sale

e. Purchase by Government (Sec 212) Commissioner or his deputy may purchase the property in behalf of the

national government when the amount bid for the property is :- Not equal to the amount of the tax- Very much less than the actual market value of the articles offered for

sale Such property may be resold by the Commissioner or his deputy, its net

proceeds shall be remitted to the National Treasury The forfeiture of chattels and removable fixtures shall be enforced by the

seizure and sale or destruction of the specific forfeited property (Sec 224)

2. Levy upon real property and interest in rights to real property Summary Remedies (Sec 207)

Real property may be levied upon before, simultaneously or after the distraint of personal property; if levy done after distraint,the revenue officer shall proceed with levy within 30 days after the execution of the distraint

Internal revenue officer designated shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty; such certificate shall operate as a legal execution throughout the Philippines

Written notice shall be given to the: a) Register of Deeds of the province or city where the property is located b) Delinquent taxpayer c) If taxpayer absent from the Phils, notice is given to :

His agent or manager of the business; OR The occupant of the property in question

Within 10 days after receipt of warrant, a report on the levy shall be submitted to the Commissioner or his representative; consolidated report may be required as necessary; Commissioner shall have the authority to lift warrants of levy issued

Procedure :a. Advertisement and Sale (Sec 213)

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Within 20 days after levy, the officer shall proceed to advertise the property for a period of at least 30 days

Advertisement shall be done by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in the barrio or district in which the real estate lies

Publication shall be done once a week for 3 weeks in a newspaper of general circulation

The advertisement shall contain a statement of the: amount of taxes and penalties place of sale name of taxpayer

Taxpayer may discontinue the proceedings anytime before the date of sale by paying the taxes, interest and penalties

Sale shall be held at the main entrance of the municipal building or city hall or on the premises to be sold

Within 5 days after sale, a return shall be entered upon the records of the BIR The excess of the proceeds over the claims shall be turned over to the owner of

the property

b. Redemption (Sec 214) Within 1 year from the date of sale, the delinquent taxpayer shall have the right to

redeem the property by paying the : taxes, penalties interest thereon from the date of delinquency, interest on said purchase price at 15% per annum from the date of purchase

to the date of redemption RDO shall pay over to the purchaser the amount of such property redeemed and

said property shall be free from the lien of such taxes and penalties The owner shall not be deprived of the possession of such and shall be entitled

to rents and other income during the redemption period.

c. Forfeiture to Government (Sec 215) In case there is no bidder or if highest bidder is for an insufficient amount, the

revenue officer shall declare the property forfeited to the government Within 2 days, he shall make a return of his proceedings and the forfeiture shall

be recorded Register of Deeds shall register the transfer of the property forfeited to the

Government without the necessity of an order from a competent court Within 1 year from the forfeiture, the taxpayer may redeem said property by

paying the Commissioner the full amount of taxes and penalties together with interests;

If property is not redeemed, the forfeiture shall become absolute The forfeiture of real property shall be enforced by a judgment of condemnation

and sale in a legal action or proceeding, civil or criminal, as the case may require (Sec 224)

d. Resale of Real Estate (Sec 216) Commissioner shall have charge of any real estate obtained by the government Upon giving of not less than 20 days notice, may sell and dispose of the same of

public auction or with prior approval of the Secretary of Finance May dispose the same at private sale Proceeds shall be deposited with the National Treasury

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3. Civil or Criminal Action – o shall be (Sec 220) :

brought in the name of the Government conducted by legal officers of the BIR approved by the Commissioner before any action or enforcement is made

o The remedy for enforcement of statutory penalties shall be by criminal or civil action subject to the approval by the Commissioner (Sec 221)

Further Distraint or Levy (Sec 217) – may be repeated if necessary until the full amount due, including expenses, is collected

No court shall have the authority to grant an injunction to restrain the collection of any internal revenue tax, fee or charges (Sec 218)

When a taxpayer is liable for taxes and neglects or refuses to pay the same after demand, the amount shall be a lien in favor of Government from the time when assessment was made until paid; the lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner with the Register of Deeds (Sec 219)

Prescription of Action o Period to Prescribe (Sec 222)

Condition Prescription Period Other Discussions

a) False or fraudulent return with intent to evade tax or failure to file a return

Assessment or filing of action for collection without assessment may be made within 10 years after discovery

In a fraud assessment which has become final and executor, the fact of fraud shall be judicially taken cognizance

b) Before period has prescribed, Commissioner and taxpayer has agreed in writing to its assessment after such time

Within the time agreed upon

Period so agreed upon may be extended by subsequent written agreement before the expiration of the period previously agreed upon

c) Internal revenue tax assessed within the period per par (a)

Distraint or levy by a competent court within 5 years following the assessment

d) Internal revenue tax assessed per par (b)

Tax may be collected by distraint or levy within the period agreed upon before the expiration of 5 years

Period so agreed may be extended by subsequent written agreements

*** No examination and investigation or inquiry shall be made into any tax return filed in accordance with the provisions of any tax amnesty, law or decree.

o Suspension of Running of Statute of Limitation (Sec 223) – the prescription period per Sec 203 and Sec 222 shall be suspended : During the period when the Commissioner is prohibited from making the assessment or

beginning distraint or levy and for 60 days thereafter When taxpayer requests for reinvestigation granted by the Commissioner

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When taxpayer cannot be located in the address given by him, except when the taxpayer had informed the Commissioner of any change in address

When the warrant of distraint or levy is duly served, no property could be located When the taxpayer is out of the Philippines

Sale or Destruction of Property (Sec 225)o Sales of forfeited chattels and removable fixtures shall be effected in the same manner and

under the same conditions as the public notice and manner of sale as are prescribed for sales of personal property distsrained for non-payment of taxes.

o Distilled spirits, liquors, cigars, cigarettes, tobacco products and apparatus, upon forfeiture, lmay be destroyed by order of the Commissioner when the sale for consumption would be injurious to public health or prejudicial to the enforcement of the law

o All other articles subject to excise tax, which were manufactured or removed in violation of the NIRC, as well as dies for printing of internal revenue stamps may be sold or destroyed in the discretion of the Commissioner.

o Forfeited property shall not be destroyed until at least 20 days after seizure.

Judgment Recovered Against any Internal Revenue Officer (Sec 227) o When an action is brought against any Internal Revenue Officer to recover damages, the

judgment, damages or costs shall be paid by the Commissioner upon the following conditions: Such action was brought in relation to the performance of his official duty The Commissioner is notified of such action in time to make defense through the

Solicitor General Approval of the Secretary of Finance

o No such judgment, damages or costs shall be paid or reimbursed in behalf of a person who has acted negligently or in bad faith or with wilful oppression.

Remedies (Taxpayer) Protesting of Assessment (Sec 228)

o Preassessment Pre-assessment notice shall not be required in the following:

When the finding is the result of mathematical error in the computation of the tax appearing on the face of the return; or

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

When a taxpayer who opted to claim a refund or tax credit of excess of creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

When the excise tax due on exciseable articles has not been paid; or When the article locally purchased or imported by an exempt person, such as, but not

limited to vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons

Commissioner shall be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment is void.

The taxpayer is required to respond to such notice within a period provided in the implementing rules and regulations; upon failure to respond, Commissioner shall issue an assessment based on his findings.

o Assessment Assessment may be protested administratively by filing within 30 days from receipt

thereof of : Request for reconsideration; OR

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Request for reinvestigation, provided all relevant supporting documents shall be submitted within 60 days from filing of such, otherwise, the assessment shall be final

Appeal to the CTA may be made within 30 days from : The receipt of the denial, in whole or in part, of the protest The lapse of 180 days from the submission of documents

***Otherwise, the decision shall become final, executor and demandable. Recovery of Tax Erroneously or Illegally Collected (Sec 229)

o No suit for recovery shall be filed until a claim for refund or credit has been duly filed with the Commissioner

o Such suit may be maintained, whether or not such has been paid under protest or duresso No suit or proceeding shall be filed after the expiration of 2 years from the date of payment of

the tax or penalty regardless of supervening cause that may ariseo Commissioner may refund or credit without a written claim when such appears to be on the

face of the return filed.

Prescription for Cash Refund and of Tax Credit (Sec 230)Action Prescription Period Other Discussions

Refund (refund check or warrant)

Within 5 years from the date such was mailed or delivered

If unclaimed, it shall be forfeited in favour of Government and such amount will revert to the general fund

Tax Credit (tax credit certificate)

Utilize within 5 years from the date of issue, unless revalidated

Tax credit certificate unutilized as of January 1, 1998 shall be presented for revalidation on or before June 30, 1998

Action to Contest Forfeiture of Chattel (Sec 231) – In case of seizure of personal property under forfeiture, the owner desiring to contest the validity of the forfeiture may, bring an action against the person seizing the property or having possession thereof to recover the same :

o At any time before sale or destructiono Upon giving of proper bondo Enjoin the sale or within 6 months after sale, bring an action to recover the proceeds at

the sale

Read Statutory Offenses and Penalties (Sec 247 to Sec 252)

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