domondon notes on taxation

8/9/2019 Domondon Notes on Taxation

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TA6AT ON7 N ENERAL

1. h' %(e t% &%w! #o-!t( e) !t($#t&' %8%$-!t theSt%te %-) &$*e(%&&' $- +%/o( o+ the St%te

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f the "uestion as&s for an enumeration of the distinctionsbet!een the po!er of taxation and police po!er, the candidate shouldreformulate no$ 1 abo e$

1 . h%t $! the " ("o!e o+ the S 8%( A)? !t,e-tA#t

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thereby in some indefinite !ay$E ? Soriano III v. Lista, et al.,

10. Lo# ! !t%-)$ *e$-8 ,e(e&' % ,%tte( o+ "(o#e) (e7 h%/e *ee- w%$/e) $- #e(t%$- $-!t%-#e! whe(e %"%(t' who $! -ot "e(!o-%&&' $-? (e) ,%' *e %&&owe) to *($-8! $t. $/e !o,e e %,"&e!.

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o &) 'o ( %-!we( *e the !%,e $+ % P(e!$)e-t$%&P(o#&%,%t$o- %&&owe) +o( the &$,$te) w$th)(%w%& +(o, theC&%( S"e#$%& E#o-o,$# Go-e o( the 3oh- H%' E#o-o,$#Go-e o+ #o-! ,e( 8oo)! t% %-) ) t'F+(ee

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uro Party List, etc., v. Purisima, etc., et a l$, ,

*itu3, I$, separate opinionH

11FC. Pe(!o-%& $-? (' , !t *e !how- +o( ? )$#$%o-t(o/e(!' to *e ($"e +o( ? )$#$%& )ete(,$-%t$o-. n thiscase, aside from the 3eneral claim that the dispute has ripened intoa Budicial contro ersy by the mere enactment of the la! e en!ithout any further o ert act$ ? ABA1AA uro Party List, etc., v.Purisima, etc., et a l$,

11FD. Co-!t$t t$o-%&$t' o+ &%w $! e #e"t$o- to the)o#t($-e o+ ($"e +o( ? )$#$%& )ete(,$-%t$o-. Thisnot!ithstandin3, public interest re"uires the resolution of theconstitutional issues raised by petitioners$ The 3ra e nature of their alle3ations tends to cast a cloud on the presumption of constitutionality in fa or of the la!$ =nd !here an action of thele3islati e branch is alle3ed to ha e infrin3ed the Constitution, itbecomes not only the ri3ht but in fact the duty of the Budiciary tosettle the dispute$ F ABA1AA uro Party List, etc., v. Purisima, etc., et a l$, . -t%-8$*&e "e(!o-%& "(o"e(t' ,%' h%/e o*t%$-e) %* !$-e!! !$t ! $- % "%(t$# &%( "&%#e e/e- $+ &o#%te) e&!ewhe(e.Thus, the di idends earned from domestic corporations are

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considered as income from !ithin, irrespecti e !here the shares of stoc& of such domestic corporation is located$

19. The !$t ! o+ $-#o,e t% %t$o- $! )ete(,$-e) *' the-%t$o-%&$t'7 (e!$)e-#e o+ the t% "%'e( %-) !o (#e o+ $-#o,e.lease refer to 3eneral principles of income taxation under incometaxation$

20 $ The !$t ! o+ e #$!e t% e! $! the "&%#e whe(e the"($/$&e8e $! e e(#$!e) *e#% !e $t $! th%t "&%#e th%t 8$/e!"(ote#t$o-.

21. The !$t ! o+ t(%-!+e( t% e!7 ! #h %! e!t%te %-))o-o( ! t% e!7 $! )ete(,$-e) *' the -%t$o-%&$t' %-) (e!$)e-#e o+ the t% "%'e( %-) the "&%#e whe(e the "(o"e(t' $! &o#%te). leaserefer to estate and donor%s taxes$

22. 3 &$%-e % -o-F(e!$)e-t %&$e- %""o$-te) %! %#o,,$!!$o- %8e-t *' % )o,e!t$# #o("o(%t$o- w$th % !%&e!#o,,$!!$o- o+ 10I %&& !%&e! %#t %&&' #o-#& )e) %-)#o&&e#te) th(o 8h he( e++o(t!. The &o#%& #o,"%-' w$thhe&)the %,o -t o+ P10=7000 +(o, he( !%&e! #o,,$!!$o- %-)(e,$tte) the !%,e to the B R.

She +$&e) % #&%$, +o( (e+ -) %&&e8$-8 th%t he( !%&e!#o,,$!!$o- $! -ot t% %*&e *e#% !e the !%,e w%! %#o,"e-!%t$o- +o( he( !e(/$#e! (e-)e(e) $- e(,%-' %-)the(e+o(e #o-!$)e(e) %! $-#o,e +(o, !o (#e! o t!$)e thePh$&$""$-e!.

! he( #o-te-t$o- #o((e#t S8 cited in Baier !ic4el'

2;. BOAC7 % +o(e$8- %$(&$-e #o,"%-' wh$#h)oe! -ot ,%$-t%$- %-' +&$8ht to %-) +(o, the Ph$&$""$-e!!o&) %$( t$# et! $- the Ph$&$""$-e!7 th(o 8h % 8e-e(%& !%&e!%8e-t7 (e&%t$-8 to the #%(($%8e o+ "%!!e-8e(! %-) #%(8o*etwee- two "o$-t!7 *oth o t!$)e the Ph$&$""$-e!.

! BOAC ! *?e#t to $-#o,e t% e! o- the !%&e o+ thet$# et!

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N/T)S =N. C/MM)NTS5 The concept of imposition of the3ross hilippine billin3s that taxes only fli3hts that ori3inate from thehilippines apply only to resident forei3n corporations doin3 businessin the hilippines FSec$ 2+ ?=> ?'> ?a>, N C of 199 H =N. N/T T/incomes of nonJresident forei3n corporations that are taxed on the3ross income$ FSec$ 2+ ?(> ?1>H

25. No $,"(o"e( )e&e8%t$o- o+ &e8$!&%t$/e % tho($t'to t% . The po!er to tax is inherent in the State, such po!er bein3inherently le3islati e, based on the principle that taxes are a 3rant of the people !ho are taxed, and the 3rant must be made by theimmediate representati es of the peopleG and !here the peopleha e laid the po!er, there it must remain and be exercised$?Commissioner of Internal &evenue v. -ortune *o%acco Corporation, Jyear transitionperiod and the specific tax under para3raph C, subJpara3raph ?1>J?A>, as increased by 126 a situation not supported by the plain!ordin3 of Section 1A- of the Tax Code$ ?Commissioner of Internal &evenue v. -ortune *o%acco Corporation,

b$ espondent !as not informed in !ritin3 of the la! andthe facts on !hich the assessment of estate taxes !as made

pursuant to Section 22+ of the 199 Tax Code, as amended byepublic =ct ? $=$> No$ +A2A$ She !as merely notified of thefindin3s by the Commissioner, !ho had simply relied upon the oldpro isions of the la! and e enue e3ulation No$ 12J+- !hich !asbased on the old pro ision of the la!$ The Court held that in case of discrepancy bet!een the la! as amended and the implementin3re3ulation based on the old la!, the former necessarily pre ails$ Thela! must still be follo!ed, e en thou3h the existin3 tax re3ulation atthat time pro ided for a different procedure$ ?I%i"., Commissioner of Internal &evenue v. &eyes , No$ 1-J91, as !ell as the clarificatorye enue Memorandum Circular ? MC> A'J91, imposin3 a -6

lendin3 in estor%s tax under the 19 Tax Code, as amended by)xecuti e /rder ?)$/$> No$ 2 ', on pa!nshops$ The Commissioner anchored the imposition on the definition of lendin3 in estorspro ided in the 19 Tax Code !hich, accordin3 to him, !as broadenou3h to include pa!nshop operators$ :o!e er, the Court notedthat pa!nshops and lendin3 in estors !ere subBected to different tax

treatments under the Tax Code prior to its amendment by theexecuti e orderG that Con3ress ne er intended to treat pa!nshops inthe same !ay as lendin3 in estorsG and that the particularly in ol edsection of the Tax Code explicitly subBected lendin3 in estors anddealers in securities only to percenta3e tax$ =nd so the Courtaffirmed the in alidity of the challen3ed circulars, stressin3 thatDadministrati e issuances must not o erride, supplant or modify thela!, but must remain consistent !ith the la! they intend to carryout$E ?I%i"., citin3 Commissioner of Internal &evenue v. $ichel 2. Lhuillier Pa:nshop, Inc. , A-' hil$ 10A' ?200'>, at 10-2 in turn citin3 Commissioner of Internal &evenue v. Court of Appeals ,


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made to that date$ The Supreme Court resol ed in the ne3ati e$FI%i"., Commissioner of Internal &evenue v. CA, et al. , '10 hil$ '92 ?199->H

2=. The ( &eF,% $-8 "owe( , !t *e #o-+$-e) to )et%$&!+o( (e8 &%t$-8 the ,o)e o( "(o#ee)$-8! $- o()e( to #%((' $-toe++e#t the &%w %! $t h%! *ee- e-%#te).

a$ t cannot be extended to amend or expand the statutoryre"uirements or to embrace matters not co ered by the statute$FCommissioner of Internal &evenue v. -ortune *o%acco Corporation,

b$ =dministrati e re3ulations must al!ays be in harmony!ith the pro isions of the la! because any resultin3 discrepancybet!een the t!o !ill al!ays be resol ed in fa or of the basic la!$FCommissioner of Internal &evenue v. -ortune *o%acco Corporation, (ill should embrace only one subBect expressedin the title thereofG

2> Three ?'> readin3s on three separate daysG'> rinted copies in final form distributed three ?'>

days before passa3e$h$ residential po!er to 3rant reprie es, commutations and

pardons and remittal of fines and forfeiture after con iction by final Bud3ment$

. h%t %(e the !"e#$+$# o( )$(e#t #o-!t$t t$o-%&&$,$t%t$o-

S8 .ele3ation by Con3ress2> throu3h a la!'> subBect to Con3ressional limits and

restrictionsA> !ithin the frame!or& of national de elopment

pro3ram$3$ Tax exemption of charitable institutions, churches,

parsona3es and con ents appurtenant thereto, mos"ues, and alllands, buildin3s and impro ements of all &inds actually, directly and

exclusi ely used for reli3ious, charitable or educational purposesGh$ No tax exemption !ithout the concurrence of maBority

ote of all members of Con3ressGi$ No use of public money or property for reli3ious

purposes except if priest is assi3ned to the armed forces, penalinstitutions, 3o ernment orphana3e or leprosariumG

B$ Money collected on tax le ied for a special purpose tobe used only for such purpose, balance if any, to 3eneral fundsG

&$ The Supreme CourtOs po!er to re ie! Bud3ments or orders of lo!er courts in all cases in ol in3 the le3ality of any tax,impose, assessment or toll or the le3ality of any penalty imposed inrelation to the abo eG

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l$ =uthority of local 3o ernment units to create their o!nsources of re enue, to le y taxes, fees and other char3es subBect to3uidelines and limitations imposed by Con3ress consistent !ith thebasic policy of local autonomyG

m$ =utomatic release of local 3o ernmentOs Bust share innational taxesG

n$ Tax exemption of all re enues and assets of nonJstoc&,nonJprofit educational institutions used actually, directly andexclusi ely for educational purposesG

o$ Tax exemption of all re enues and assets of proprietary or cooperati e educational institutions subBect to limitations pro ided byla! includin3 restrictions on di idends and pro isions for rein estmentof profitsG

p$ Tax exemption of 3rants, endo!ments, donations or contributions used actually, directly and exclusiely for educationalpurposes subBect to conditions prescribed by la!$

FA. No )e-$%& o+ ) e "(o#e!! whe- the (e!"o-)e-t$! 8$/e- the o""o(t -$t' to +$&e %++$)%/$t! %-) othe( "&e%)$-8! ) ($-8 the "(e&$,$-%(' $-/e!t$8%t$o- . A(e!"o-)e-t #%--ot claim denial of due process !hen she !as3i en the opportunity to file her affida its and other pleadin3s andsubmit e idence before the ./I durin3 the preliminary in esti3ationof her case and before the nformation !as filed a3ainst her$

.ue process is merely an opportunity to be heard$ n addition,preliminary in esti3ation conducted by the ./I is merelyin"uisitorial$ t is not a trial of the case on the merits$ ts solepurpose is to determine !hether a crime has been committed and!hether the respondent therein is probably 3uilty of the crime$ t isnot the occasion for the full and exhausti e display of the parties%e idence$ :ence, if the in esti3atin3 prosecutor is already satisfiedthat he can reasonably determine the existence of probable cause

based on the parties% e idence thus presented, he may terminate theproceedin3s and resol e the case$ ?Santos v. People, et al,

;. E %& "(ote#t$o- o+ the &%w #&% !e $! ! *?e#t to(e%!o-%*&e #&%!!$+$#%t$o-. f the 3roupin3s are characteri#ed bysubstantial distinctions that ma&e real differences, one class may betreated and re3ulated differently from another$ The classification mustalso be 3ermane to the purpose of the la! and must apply to all thosebelon3in3 to the same class$ (*iu, et al., v. Court of Appeals, et al.,

;FA. The e %& "(ote#t$o- o+ the &%w! #&% !e o+ theCo-!t$t t$o- %&&ow! #&%!!$+$#%t$o-. Classification in la!, as inthe other departments of &no!led3e or practice, is the 3roupin3 of thin3s in speculation or practice because they a3ree !ith oneanother in certain particulars$ = la! is not in alid because of simpleine"uality$ The ery idea of classification is that of ine"uality, so thatit 3oes !ithout sayin3 that the mere fact of ine"uality in no manner determines the matter of constitutionality$

=ll that is re"uired of a alid classification is that it bereasonable, !hich means that the classification should be based onsubstantial distinctions !hich ma&e for real differences, that it mustbe 3ermane to the purpose of the la!G that it must not be limited toexistin3 conditions onlyG and that it must apply e"ually to eachmember of the class$ This Court has held that the standard issatisfied if the classification or distinction is based on a reasonablefoundation or rational basis and is not palpably arbitrary$ F ABA1A Auro Party List, etc., v. Purisima, etc., et a l$,


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the N CG and that they presented similar ar3uments and e idencein their defense J yet, they !ere treated differently$ (Santos, supra'

5. h%t %(e the (e $!$te! +o( the /%&$)$t' o+ %#&%!!$+$#%t$o-

S8 be 3ermane to the purpose of the la!,?c> not be limited to existin3 conditions only, and?d> apply e"ually to all members of the same class$ (*iu, et

al., v. Court of Appeals, et al.,


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officers of a statute fair on its face, resultin3 in its une"ualapplication to those !ho are entitled to be treated ali&e, is not adenial of e"ual protection unless there is sho!n to be present in it anelement of intentional or purposeful discrimination$ This may appear on the face of the action ta&en !ith respect to a particular class or person, or it may only be sho!n by extrinsic e idence sho!in3 adiscriminatory desi3n o er another not to be inferred from the actionitself$

(ut a discriminatory purpose is not presumed, there must be asho!in3 of Dclear and intentional discrimination$ FSantos v. People, et al,

10F4. E %& "(ote#t$o- !ho &) -ot *e !e) to "(ote#t#o,,$!!$o- o+ #($,e $ While all persons accused of crime are tobe treated on a basis of e"uality before the la!, it does not follo!that they are to be protected in the commission of crime$ t !ouldbe unconscionable, for instance, to excuse a defendant 3uilty of

murder because others ha e murdered !ith impunity$ The remedyfor une"ual enforcement of the la! in such instances does not lie inthe exoneration of the 3uilty at the expense of society x x x$rotection of the la! !ill be extended to all persons e"ually in thepursuit of their la!ful occupations, but no person has the ri3ht todemand protection of the la! in the commission of a crime$

4i&e!ise, FiHf the failure of prosecutors to enforce the criminalla!s as to some persons should be con erted into a defense for others char3ed !ith crime, the result !ould be that the trial of thedistrict attorney for nonfeasance !ould become an issue in the trialof many persons char3ed !ith heinous crimes and the enforcementof la! !ould suffer a complete brea&do!n$ ?Santos v. People, et al,


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1;. The Lo#%& o/e(-,e-t Co)e e "&$#$t&' % tho($ e!"(o/$-#e! %-) #$t$e!7 -otw$th!t%-)$-8 %-' e e,"t$o- 8(%-te)*' %-' &%w o( othe( !"e#$%& &%w to $,"o!e % t% o- * !$-e!!e!e-?o'$-8 % +(%-#h$!e. ndicatie of the le3islati e intent to carry outthe constitutional mandate of estin3 broad tax po!ers to local3o ernment units, the 4ocal =, Au#ust


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to 3rant tax exemptions$ /n the other hand, the po!er of local3o ernments, such as pro inces and cities for example ue#on City, to taxis prescribed by Section 1-1 in relation to Section 1' of the 4. The w$th)(%w%& o+ % t% e e,"t$o- !ho &) -ot *e#o-!t( e) %! "(oh$*$t$-8 + t (e 8(%-t! o+ e e,"t$o- +(o, %&&t% e!. ndeed, the 3rant of taxin3 po!ers to local 3o ernment unitsunder the 4ocal

t is enou3h to say that the parties to a contract cannot,throu3h the exercise of prophetic discernment, fetter the exercise of the taxin3 po!er of the State$ or not only are existin3 la!s readinto contracts in order to fix obli3ations as bet!een parties, but thereser ation of essential attributes of so erei3n po!er is also readinto contracts as a basic postulate of the le3al order$ The policy of protectin3 contracts a3ainst impairment presupposes the

maintenance of a 3o ernment !hich retains ade"uate authority tosecure the peace and 3ood order of society$

n truth, the Contract Clause has ne er been thou3ht as alimitation on the exercise of the State%s po!er of taxation sa e only!here a tax exemption has been 3ranted for a alid consideration$Smart Communications, nc$ $ The City of .a ao, etc$, et al$,


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?Quezon City, et al., v. ABS CB! Broa"castin# Corporation , of Cla ecillaOs old franchise, as fo llo!s5

x x x in lieu of any and all taxes of any &ind, nature or description le ied, established or collected by any authority!hatsoe er, municipal, provincial or national, from !hich the 3ranteeis hereby expressly exempted, x x x$ ?)mphasis supplied>$

:o!e er, Con3ress did not expressly exempt Smart fromlocal taxes$ Con3ress used the Pin lieu of all taxesP clause only inreference to national internal re enue taxes$ The only interpretation,under the rule on strict construction of tax exemptions, is that the Pinlieu of all taxesP clause in SmartOs franchise refers only to national

and not to local taxes$ FSmart Communications, nc$ $ The City of

.a ao, etc$, et al$, of the 19National nternal e enue Code ?N C>, as amended$/n Ianuary 1, 199@, $=$ No$ 1@, other!ise &no!n as the)xpanded *alue =dded Tax 4a!, too& effect and subBected to *=Tthose ser ices rendered by radio and7or broadcastin3 stations$Notably, under the same la!, Dtelephone and7or tele3raph systems,broadcastin3 stations and other franchise 3ranteesE !ere omittedfrom the list of entities subBect to franchise tax$ The impression !asthat these entities !ere subBect to 106 *=T but not to franchise tax$

Subse"uently, $=$ No$ +2A1 too& effect on Ianuary 1, 199containin3 more amendments to the N C$ adio and7or tele isioncompanies !hose annual 3ross receipts )o -ot e #ee)10,000,000$00 !ere 3ranted the option to choose bet!een payin3'6 national franchise tax or 106 *=T

/n the other hand, radio and7or tele ision companies !ithyearly 3ross receipts e #ee)$-8 10,000,000$00 !ere subBect to106 *=T, pursuant to Section 102 of the N C$

/n Ianuary 1, 199+, $=$ No$ +A2A !as passed confirmin3the 106 *=T liability of radio and7or tele ision companies !ithyearly 3ross receipts exceedin3 10,000,000$00$$=$ No$ 9'' !as subse"uently enacted and became effecti e on

Iuly 1, 200-$ The said la! further amended the N C by increasin3

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"(o/$!$o-! wh$#h we(e -e/e( $-#& )e) $- the /e(!$o-! o+ *oth the Ho !e %-) Se-%te ! #h %! $-!e(t$-8 the !t%-)F*'% tho($t' to the P(e!$)e-t to $-#(e%!e the VAT +(o, 10I to12IK )e&et$-8 e-t$(e&' the -o "%!!Fo- "(o/$!$o-! +o -) $-*oth the Ho !e %-) Se-%te B$&&!K $-!e(t$-8 the "(o/$!$o-$,"o!$-8 % =0I &$,$t o- the %,o -t o+ $-" t t% to *e#(e)$te) %8%$-!t the o t" t t% K %-) $-#& )$-8 the

%,e-),e-t! $-t(o) #e) o-&' *' Se-%te B$&& No. 1950(e8%()$-8 othe( $-)! o+ t% e! $- %))$t$o- to the /%& eF%))e) t% . Th !7 the(e w%! % /$o&%t$o- o+ the #o-!t$t t$o-%&,%-)%te th%t (e/e- e *$&&! !h%&& o($8$-%te e #& !$/e&' +(o,the Ho !e o+ Re"(e!e-t%t$/e!.

A(e the #o-te-t$o-! o+ ! #h we$8ht %! to #o-!t$t te8(%/e %* !e o+ )$!#(et$o- wh$#h ,%' $-/%&$)%te the &%w E "&%$- *($e+&'.

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b$ Tax amnesty applies only to past tax periods, hence of retroacti e application (Castane"a, supra > W: 4) tax exemption hasprospecti e application$

. De+$-e t% %/o$)%-#e %-) t% e/%!$o- .S8 an accompanyin3 state of mind !hich is describedas bein3 De ilE on Dbad faith,E D!illful,E or Edeliberate and notaccidentalEG and

'> a course of action or failure of action !hich isunla!ful$ ? Commissioner of Internal &evenue v. *he /state of Beni#no P. *o"a, 2r., , etc.,

; . D$!t$-8 $!h *etwee- the t% %/o$)%-#e%-) t% e/%!$o-.

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=. - #%!e o+ % t% o/e("%',e-t7 whe(e the B R !o*&$8%t$o- to (e+ -) o( !etFo++ %($!e! +(o, the ,o,e-t the t%w%! "%$) -)e( the "($-#$"&e o+ solutio indebeti . (Commissioner of Internal &evenue v. /sso Stan"ar" /astern, Inc, 1 2 S C= '@A>

>. B t -ote Nestle Phil. v. Court of Appeals, et al., .R.No. 1 ;11;7 3 &'


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.ecree No$ 9'+ FN C%s amended charterH amended the taxexemption by simplifyin3 the same la! in 3eneral terms$ t succinctlyexempts N C from Dall forms of taxes, dutiesF,H fees E The use of the phrase Dall formsE of taxes demonstrates the intention of the la!to 3i e N C all the tax exemptions it has been enBoyin3 before$

The exemption 3ranted under Section 1'- ?b> of the N C of 199 and =rticle A?2> of the =ir Transport =3reement bet!een andSin3apore cannot, !ithout a clear sho!in3 of le3islati e intent, beconstrued as includin3 indirect taxes$ Statutes 3rantin3 taxexemptions must be construed in strictissimi juris a3ainst thetaxpayer and liberally in fa or of the taxin3 authority, and if anexemption is found to exist, it must not be enlar3ed by construction$?Sil4air (Sin#apore' P*/, Lt"., v. Commissioner of Internal &evenue,

c$ ersons !ho contribute property or funds to a commonenterprise and a3ree to share the 3ross returns of that enterprise inproportion to their contribution, but !ho se erally retain the title totheir respecti e contribution, are not thereby rendered partners$ They

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d$ =n alien indi idual, !hether resident or not of thehilippines, is taxable only on income deri ed from sources !ithin thehilippines$

e$ = domestic corporation is taxable on all income deri edfrom sources !ithin and !ithout the hilippines$

f$ = forei3n corporation, !hether en3a3ed or not in trade or business in the hilippines, is taxable only on income deri ed fromsources !ithin the hilippines$ ?Sec$ 2', N C of 199 >

19. Co,"e-!%t$o- $-#o,e $! #o-!$)e(e) %! h%/$-8 *ee-e%(-e) $- the "&%#e whe(e the !e(/$#e w%! (e-)e(e) and notconsidered as sourced from the place of ori3in of the money$

20. P%',e-t +o( !e(/$#e!7 othe( th%- #o,"e-!%t$o-$-#o,e7 $! #o-!$)e(e) %! h%/$-8 *ee- e%(-e) %t the "&%#e whe(ethe %#t$/$t' o( !e(/$#e w%! "e(+o(,e).

21. = nonJresident alien, !ho has stayed in the hilippinesfor an a33re3ate period of more than 1+0 days durin3 any calendar year, shall be considered as a nonJresident alien doin3 business in

the hilippines$ Conse"uently, he shall be subBect to income tax onhis income deri ed from sources from !ithin the hilippines$ FSec$ 2-?=> ?1>, N CH

:e is allo!ed to a ail of the itemi#ed deductions includin3 thepersonal and additional exemptions subBect to the rule on reciprocity$

22. h%t %(e #o-!$)e(e) %! de #ini#is*e-e+$t! -ot ! *?e#t to w$thho&)$-8 t% o- #o,"e-!%t$o-$-#o,e o+ *oth ,%-%8e($%& %-) (%- %-) +$&e e,"&o'ee!

S8 sac& of -0J&3$ rice

per month amountin3 to not more than 1,000$00Gd$ 8niforms and clothin3 allo!ance not exceedin3 ',000$00

per annumGe$ =ctual yearly medical benefits not exceedin3 10,000$00

per annumGf$ 4aundry allo!ance not exceedin3 '00 per monthG3$ )mployees achie ement a!ards, e$3$ for len3th of

ser ice or safety achie ement, !hich must be in the form of atan3ible persona property other than cash or 3ift certificate, !ith an

annual monetary alue not exceedin3 10,000$00 recei ed by an

employee under an established !ritten plan !hich does notdiscriminate in fa or of hi3hly paid employeesG

h$ of the basic minimum !a3e$

The amount of "e minimis benefits conformin3 to the ceilin3herein prescribed shall not be considered in determinin3 the '0,000ceilin3 of Dother benefitsE pro ided under Section '2 ?(>? >?e> of theCode$ :o!e er, if the employer pays more than the ceilin3prescribed by these re3ulations, the excess shall be taxable to theemployee recei in3 the benefits only if such excess is beyond the'0,000$00 ceilin3, pro ided, further, that any amount 3i en by theemployer as benefits to its employees, !hether classified as "eminimis benefits or frin3e benefits, shall constitute as deductibleexpense upon such employer$ FSec$ 2$ +$1 ?=> ?'>, e $ e3s$ 2J9+as amended by e $ e3s$ No$ +J2000H

2 . -#o,e ! *?e#t to +$-%& t% (e+e(! to %- $-#o,e#o&&e#te) th(o 8h the w$thho&)$-8 t% !'!te,. The payor of theincome !ithholds the tax and remits it to the 3o ernment as a finalsettlement of the income tax as a final settlement of the income taxdue on said income$ The recipient is no lon3er re"uired to include theincome subBected to a final tax as part of his 3ross income in hisincome tax return$

2;. D$!t$-8 $!h e #& !$o-! +(o, )e) #t$o-!.S8 tis exempted by statuteG and ?'> t does not come !ithin the definitionof income ?Sec$ @1, e$ e3s$ No$ 2> W: 4) deductions are theamounts !hich the la! allo!s to be subtracted from 3ross income inorder to arri e at net income$

b$ )xclusions pertain to the computation of 3ross incomeW: 4) deductions pertain to the computation of net income$

c$ )xclusions are somethin3 recei ed or earned by thetaxpayer !hich do not form part of 3ross income W: 4) deductionsare somethin3 spent or paid in earnin3 3ross income$

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=n example of an exclusion from 3ross income are lifeinsurance proceeds, and an example of a deduction are losses$

25. h%t %(e e #& )e) +(o, 8(o!! $-#o,e S8 Not less than fifty ?-0> years of a3e at time of retirementG

'> = ailed of the benefit of exclusion only once$FSec$ '2 ?(> ?@> ?a>, N C of 199 H The retirin3 official or employee should not ha e pre iously a ailed of the pri ile3eunder the retirement plan of the same or another employer$ F1 stpar$, Sec$ 2$ + ?(> ?1>, e $ e3s$ No$ 2J9+H

2=. h%t $-) o+ !e"%(%t$o- @(et$(e,e-t "%' $!e #& )e) +(o, 8(o!! $-#o,e7 he-#e t% Fe e,"t

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deduct this expense$ Nonresident citi#ens and forei3n corporations ontheir 3ross incomes from !ithin may also deduct this expense$

Nonresident alien indi iduals not en3a3ed in trade or business in the hilippines are not allo!ed to deduct this expense$

e$ B%) )e*t! due to the taxpayer, actuallyascertained to be !orthless and char3ed off !ithin the taxable year,connected !ith profession, trade or business, not sustained bet!eenrelated parties$

esident citi#ens, resident alien indi iduals and nonresidentalien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deductthese expenses$ .omestic corporations, estates and trusts may alsodeduct this expense$ Nonresident citi#ens and forei3n corporations ontheir 3ross incomes from !ithin may also deduct this expense$


f$ De"(e#$%t$o- or a reasonable allo!ance for theexhaustion, !ear and tear ?includin3 reasonable allo!ance for obsolescence> of property used in trade or business$

esident citi#ens, resident alien indi iduals and nonresident

alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deductthese expenses$ .omestic corporations, estates and trusts may alsodeduct this expense$ Nonresident citi#ens and forei3n corporations ontheir 3ross incomes from !ithin may also deduct this expense$


3$ De"&et$o- or deduction arisin3 from the exhaustion of anonJreplaceable asset, usually a natural resource$

esident citi#ens, resident alien indi iduals and nonresidentalien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct

these expenses$ .omestic corporations, estates and trusts may alsodeduct this expense$ Nonresident citi#ens and forei3n corporations ontheir 3ross incomes from !ithin may also deduct this expense$


h$ Ch%($t%*&e and other #o-t($* t$o-! $ esidentciti#ens, resident alien indi iduals and nonresident alien indi iduals!ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$.omestic corporations, estates and trusts may also deduct thisexpense$ Nonresident citi#ens and forei3n corporations on their 3rossincomes from !ithin may also deduct this expense$


i$ Re!e%(#h %-) )e/e&o",e-t expenditures treated asdeferred expenses paid or incurred by the taxpayer in connection !ithhis trade, business or profession, not deducted as expenses andchar3eable to capital account but not char3eable to property of acharacter !hich is subBect to depreciation or depletion$

esident citi#ens, resident alien indi iduals and nonresident

alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deductthese expenses$ .omestic corporations, estates and trusts may alsodeduct this expense$ Nonresident citi#ens and forei3n corporations ontheir 3ross incomes from !ithin may also deduct this expense$


B$ Co-t($* t$o-! to "e-!$o- t( !t! $ esident citi#ens,resident alien indi iduals and nonresident alien indi iduals !ho areen3a3ed in trade and business, on their 3ross incomes other fromcompensation income are allo!ed to deduct these expenses$.omestic corporations, estates and trusts may also deduct this

expense$ Nonresident citi#ens and forei3n corporations on their 3rossincomes from !ithin may also deduct this expense$Nonresident alien indi iduals not en3a3ed in trade or

business in the hilippines are not allo!ed to deduct this expense$&$ -! (%-#e "(e,$ ,! for health and hospitali#ation$

esident citi#ens, resident alien indi iduals and nonresident alienindi iduals !ho are en3a3ed in trade and business, on their 3rossincomes other from compensation income are allo!ed to deductthese expenses$ Nonresident citi#ens and nonresident alien indi idualen3a3ed in trade or business in the hilippine on their 3ross incomesfrom !ithin may also deduct these premiums$

Nonresident alien indi iduals not en3a3ed in trade or business in the hilippines are not allo!ed to deduct these premiums$

l$ Pe(!o-%& %-) %))$t$o-%& e e,"t$o-! $ esident citi#ens,and resident alien on their 3ross incomes and from compensationincome are allo!ed to deduct these premiums$ Nonresident citi#enson their 3ross incomes from !ithin may also deduct this expense$Nonresident alien indi iduals en3a3ed in trade or business in thehilippines are allo!ed to deduct these exemptions under reciprocity$


29. D$!t$-8 $!h o()$-%(' e "e-!e! +(o, #%"$t%&e "e-)$t (e!.

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S8 Must be paid or incurred in carryin3 on a

trade or business$A> Must not be bribes, &ic&bac&s or other ille3al

expendituresb$ Compliance !ith the substantiation test$ roof by e idence

or records of the deductions allo!ed by la! includin3 compliance !iththe business test$

1. h%t %(e the (e $!$te! +o( the)e) #t$*$&$t' o+ o()$-%(' %-) -e#e!!%(' t(%)e7 * !$-e!!7 o( "(o+e!!$o-%& e "e-!e!7 &$ e e "e-!e! "%$) +o( &e8%& %-)% )$t$-8 !e(/$#e!

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e$ The fiduciary of a trust and the fiduciary of another trustif the same person is a 3rantor !ith respect to each trustG or

f$ = fiduciary of a trust and a beneficiary of such$ FSec$ '@?(>, N C of 199 H

;0 $ h%t %(e the (e $!$te! +o( /%&$) )e) #t$o- o+ *%) )e*t! +(o, 8(o!! $-#o,e S8 e aluation methodG andA> Sin&in3 fund method$

;


30/86

c$ roperty held by the taxpayer primarily for sale tocustomers in the ordinary course of his trade or business, or d$ roperty used in the trade or business, of a character !hich issubBect to the allo!ance for depreciationG or real property used in thetrade or business of the taxpayer$ FSec$ '9 ?=> ?1>, N C of 199 ,capitali#ed !ords, numberin3 and arran3ement suppliedG Sec$ 2$a,e $ e3s$ No$ J200'H

;=FA. E %,"&e! o+ #%"$t%& %!!et! :a$ Stoc& and securities held by taxpayers other than dealers in

securitiesG b$ Ie!elry not used for trade and businessG c$ esidential houses and lands o!ned and used as suchG d$ =utomobiles not used in trade and businessG

e$ aintin3s, sculptures, stamp collections, obBects of arts!hich are not used in trade or businessG

f$ nherited lar3e tracts of a3ricultural land !hich !eresubdi ided pursuant to the 3o ernment mandate under land reform,then sold to tenants$ (&o6as v. Court of *a6 Appeals, etc. L ,

April , of a character !hich is subBect to the allo!ance for

depreciationG or

d$ eal property used in trade or business of the taxpayer$?Sec$ 2$ b, e $ e3s$ No$ J200'>

;9. $ E %,"&e! o+ o()$-%(' %!!et! he-#e -ot #%"$t%&%!!et!:

a$ The machinery and e"uipment of a manufacturin3concern subBect to depreciationG b$ The tractors, trailers and truc&s of a haulin3 companyG

c$ The condominium buildin3 o!ned by a realty company theunits of !hich are for rent or for saleG

d$ The !ood, paint, arnish, nails, 3lue, etc$ !hich are thera! materials of a furniture factoryG

e$ nherited parcels of land of substantial areas located inthe heart of Metro Manila, !hich !ere subdi ided into smaller lotsthen sold on installment basis after introducin3 comparati elyaluable impro ements not for the purpose of simply li"uidatin3 theestate but to ma&e them more saleable G the employment of anattorneyJinJfact for the purpose of de elopin3, mana3in3,administerin3 and sellin3 the lotsG sales made !ith fre"uency andcontinuityG annual sales income from the sales !as considerableG and

the heir !as not a stran3er to the real estate business$ (*uazon, 2r. v.Lin#a", H SC&A ;=?'

f$ nherited a3ricultural property improed by introduction of 3ood roads, concrete 3utters, draina3e and li3htin3 systems con ertsthe property to an ordinary asset$ The property forms part of the stoc&in trade of the o!ner, hence an ordinary asset$ This is so, as theo!ner is no! en3a3ed in the business of subdi idin3 real estate$?Calasanz v. Commissioner of Internal &evenue, 1AA SC = at p$ @ 2>

50. T% t(e%t,e-t o+ (e%& "(o"e(t$e! th%t h%/e *ee-t(%-!+e((e). eal properties classified as capital or ordinary assetin the hands of the seller7transferor may chan3e their character in the

hands of the buyer7transferee$ The classification of such property inthe hands of the buyer7transferee shall be determined in accordance!ith the follo!in3 rules5

a$ eal property transferred throu3h succession or donationto the heir or donee !ho is not en3a3ed in the real estate business!ith respect to the real property inherited or donated, and !ho doesnot subse"uently use such property in trade or business, shall beconsidered as a capital asset in the hands of the heir or donee$

b$ eal property recei ed as di idend by stoc&holders !hoare not en3a3ed in the real estate business and !ho not subse"uentlyuse such real property in trade or business shall be treated as capitalassets in the hands of the recipient e en if the corporation !hich

declared the real property di idend is en3a3ed in real estate business$

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c$ The real property recei ed in an exchan3e shall be treatedas ordinary asset in the hands of the transferee in the case of a taxJfree exchan3e by taxpayer not en3a3ed in real estate business to ataxpayer !ho is en3a3ed in real estate business, or to a taxpayer !ho,e en if not en3a3ed in real estate business, !ill use in business theproperty recei ed in the exchan3e$ ?Sec$ '$f$, e $ e3s$ No$ J200'>

51. The t% $! $,"o!e) "o- #%"$t%& 8%$-!"(e! ,e) to h%/e *ee- (e%&$ e) +(o, the !%&e7 e #h%-8e7o( othe( )$!"o!$t$o- o+ (e%& "(o"e(t' &o#%te) $- thePh$&$""$-e!7 #&%!!$+$e) %! #%"$t%& %!!et!. FSec$ 2A ?.> ?1 >,N C of 199 H e enue e3ulations No$ J200' has defined realproperty as ha in3 Dthe same meanin3 attributed to that term under

=rticle A1- of epublic =ct No$ '+@, other!ise &no!n as the U Civil Co"e of the Philippines.7 ?Sec$ 2$c, e $ e3s$ No$ J200'>

52. T(%-!%#t$o-! #o/e(e) *' the "(e! ,e) #%"$t%&8%$-! t% o- (e%& "(o"e(t': a$ sale, b$ exchan3e, c$ or other disposition, includin3 pacto "e retro sales and other forms of conditional sales$ FSec$ 2A ?.> ?1>, N C of 199 ,numberin3 and arran3ement suppliedH

d$ DSale, exchan3e, or other dispositionE includes ta&in3 by the3o ernment throu3h condemnation proceedin3s$ ( utierrez v. Court of *a6 Appeals, et al., 101 hil$ 1' onzales v. Court of *a6

Appeals, et al., 121 hil$ +@1>

5 . - #%!e the ,o(t8%8o( e e(#$!e! h$! ($8ht o+ (e)e,"t$o- !ithin one ?1> year from the issuance of the certificate of sale, in a foreclosure of mort3a3e sale of real property, no capital3ains tax shall be imposed because no capital 3ains has been deri edby the mort3a3or and no sale or transfer of real property !as reali#ed$FSec$ ' ?1>, e $ e3s$ No$ AJ99H

5;. - #%!e o+ -o-F(e)e,"t$o- o+ the "(o"e(t' !o&) upon aforeclosure of mort3a3e sale, the presumed capital 3ains tax shall beimposed, based on the bid price of the hi3hest bidder but only uponthe expiration of the one year period of redemption pro ided for under Sec$ @ of =ct No$ '1'-, as amended by =ct No$ A11+, and shall bepaid !ithin thirty ?'0> days from the expiration of the said oneJyear redemption period$ FSec$ ' ?2>, e $ e3s$ No$ AJ99H

55. The *%!$! +o( the +$-%& "(e! ,e) #%"$t%& 8%$-!t% o+ !$ "e( #e-t @ the fair mar&et alue or real properties located ineach #one or area as determined by the Commissioner of nternal e enue after consultation !ith competent

appraisers both from the pri ate and public sectorsG or 2> the fair mar&et alue as sho!n in the schedule of

alues of the ro incial and City =ssessors$ FSec$ 2A ?.> ?1>in relation to Sec$ @ ?)>, both of the N C of 199 H

t does not matter !hether there !as an actual 3ain or lossbecause the tax is a DpresumedE capital 3ains tax$ t is the transactionthat is taxed not the 3ain$

5 ?1>,in relation to Sec$ 2A ?=> ?1>, both of the N C of 199 H or the finalpresumed capital 3ains tax of six percent ?@6>$ FSec$ 2A ?.> ?1> inrelation to Sec$ @ ?)>, both of the N C of 199 H

5>. The !e&&e( o+ the (e%& "(o"e(t'7 #&%!!$+$e) %! % #%"$t%&%!!et7 "%'! the "(e! ,e) #%"$t%& 8%$-! t% !hether5 a$ an indi idual FSec$ 2A ?.> ?1>, N C of 199 HG

1> Citi#en, !hether resident or not F I%i".HG 2> esident alien F I%i".HG

'> Nonresident alien en3a3ed in trade or business in thehilippines FSec$ 2- ?=> ?'> in relation to Sec$ 2A ?.> ?1>, bothof the N C of 199 HG A> Nonresident alien not en3a3ed in trade or businessin the hilippines FSec$ 2- ?(> in relation to Sec$ 2A ?.> ?1>,both of the N C of 199 HG

b$ an estate or trust ? I%i".>G c$ a domestic corporation$ FSec$ 2 ?.> ?->, N C of 199 H

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59. E #e"te) +(o, the "%',e-t o+ the "(e! ,e)

#%"$t%& 8%$-! t% %(e tho!e "(e! ,e) to h%/e *ee- (e%&$ e)+(o, the )$!"o!$t$o- *' -%t (%& "e(!o-! o+ the$( "($-#$"%&"&%#e o+ (e!$)e-#e

a$ the proceeds of !hich is fully utili#ed in ac"uirin3 or constructin3 a ne! principal residenceG

b$ !ithin ei3hteen ?1+> calendar months from the date of sale or disposition

c$ the ( Commissioner shall ha e been duly notified bythe taxpayer !ithin thirty ?'0> days from the date of sale or dispositionthrou3h a prescribed return of his intention to a ail of the taxexemptionG and

d$ the said tax exemption can only be a ailed of oncee ery ten ?10> years$ FSec$ 2A ?.> ?2>, N C of 199 H

N/T)S =N. C/MM)NTS5

a$ Co##issioner of nternal Revenue v. Manila &oc e! Club, 10> Ph$&. >21 @19 ncome tax is subBect to !ithholdin3 !hilepercenta3e is not$ ? Commissioner of Internal &evenue v.Citytrust Investment Phils., Inc., =7 $t#e%!e) o"e(%t$o-! th%t 'e%( *' (e%!o- o+ $-!o&/e-#' %-) $t!%!!et! %-) &$%*$&$t$e! we(e "&%#e) -)e( the #h%(8e o+ %8o/e(-,e-tF%""o$-te) (e#e$/e(. O- 3 -e 2 7 19997 the BSP% tho($ e) MBC to o"e(%te %! % th($+t *%- .

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- 20007 t +$&e) $t! t% (et (- +o( the 'e%( 1999 "%'$-8 the%,o -t o+ P ,$&&$o- #o," te) $- %##o()%-#e w$th the,$-$, , #o("o(%te $-#o,e t% @MC T . t !o 8ht the B R!( &$-8 o- whethe( $t $! e-t$t&e) to the +o ( @; 'e%( 8(%#e "e($o)+o( "%'$-8 o- the *%!$! o+ MC T (e# o-e) +(o, 1999. B R the-( &e) th%t #e!!%t$o- o+ * !$-e!! %#t$/$t$e! %! % (e! &t o+ *e$-8"&%#e) -)e( $-/o& -t%(' (e#e$/e(!h$" ,%' *e %- e#o-o,$#(e%!o- +o( ! !"e-)$-8 the $,"o!$t$o- o+ the MC T.

A! % (e! &t o+ the ( &$-8 MBC +$&e) %- %""&$#%t$o- +o( (e+ -) o+ the P ,$&&$o-. D e to the B R! $-%#t$o-7 MBC +$&e) %"et$t$o- +o( (e/$ew w$th the CTA.

The CTA )e-$e) the "et$t$o- o- the 8(o -) th%t MBC $! -ot% -ew&' o(8%-$ e) #o("o(%t$o-. - % /o&te +%#$e the B R -ow,%$-t%$-! th%t MBC !ho &) "%' the MC T *e8$--$-8 3%- %(' 17199> %! $t )$) -ot #&o!e $t! * !$-e!! o"e(%t$o-! $- 19>= * t,e(e&' ! !"e-)e) the !%,e. E/e- $+ "&%#e) -)e( (e#e$/e(!h$"7the #o("o(%te e $!te-#e w%! -e/e( %++e#te). Th !7 $t +%&&! -)e( the #%te8o(' o+ %- e $!t$-8 #o("o(%t$o- (e#o,,e-#$-8 $t!*%- $-8 o"e(%t$o-!.

Sho &) the (e+ -) *e 8(%-te)

S8, N C of 199 H

The date of commencement of operations of a thrift ban& is thedate it !as re3istered !ith the S)C or the date !hen the Certificate of

=uthority to /perate !as issued to it by the Monetary (oard,!hiche er comes later$ ?Sec$ @, e $ e3s$ No$ AJ9->

Clearly then$ M(C is entitled to the 3race period of four yearsfrom Iune 2', 1999 !hen it !as authori#ed by the (S to operate asa thrift ban& before the MC T should be applied to it$ ? $anila Ban4in# Corporation v. Commissioner of Internal &evenue, N/T)S =N. C/MM)NTS5a$ The MC T %-) whe- !ho &) *e $,"o!e) %-) the +o (

@; 'e%( 8(%#e "e($o). D= minimum corporate income tax of t!opercent ?26> of the 3ross income as of the end of the taxable year, asdefined herein, is hereby imposed on a corporation taxable under thisTitle, be3innin3 on the fourth taxable year immediately follo!in3 theyear in !hich such corporation commenced its business operations,!hen the minimum corporate income tax is 3reater than the taxcomputed under Subsection ?=> of this section for the taxable year$EFSec$ 2 ?)> ?1>, N C of 199 H

b$ Pe($o) whe- % #o("o(%t$o- *e#o,e! ! *?e#t to theMC T. D?-> Specific rules for determinin3 the period !hen a

corporation becomes subBect to the MC T ?minimum corporateincome tax> J

or purposes of the MC T, the taxable year in !hich businessoperations commenced shall be the year in !hich the domesticcorporation re3istered !ith the (ureau of nternal e enue ?( >$

irms !hich !ere re3istered !ith ( in 199A and earlier yearsshall be co ered by the MC T be3innin3 Ianuary 1, 199+$ x x xE ? e $e3s$ No$ 9J9+>

$anila Ban4in# Corporation v. Commissioner of Internal &evenue,

c$ P ("o!e o+ the +o ( @; 'e%( 8(%#e "e($o). The intentof Con3ress relati e to the MC T is to 3rant a four ?A'> L year suspension of tax payment to ne!ly or3ani#ed corporations$Corporations still startin3 their business operations ha e to stabili#etheir enture in order to obtain a stron3hold in the industry$ t does notcome as a surprise then !hen many companies reported losses intheir initial years of operations$

Thus, in order to allo! ne! corporations to 3ro! and de elop at

the initial sta3es of their operations, the la!ma&in3 body sa! the needto pro ide a 3race period of four years from their re3istration beforethey pay their minimum corporate income tax$ ? $anila Ban4in# Corporation v. Commissioner of Internal &evenue,

ESTATE TA6ES

1. The 8(o!! e!t%te +o( " ("o!e! o+ e!t%tet% %t$o- o+ 4$&$"$-o #$t$ e-!7 whethe( (e!$)e-t! o( -o-(e!$)e-t! %-) (e!$)e-t %&$e- includes the alue at the time of his death of all his real property, !here er situated, personal property,

!hether tan3ible, intan3ible or mixed, !here er situated, to the extentof the interest existin3 therein of the decedent at the time of his death$

2. The 8(o!! e!t%te +o( " ("o!e! o+ e!t%tet% %t$o- o+ -o-F(e!$)e-t %&$e-! includes the alue at the time of his death of all the real property situated in the hilippines, personalproperty !hether tan3ible, intan3ible or mixed, situated in thehilippines, to the extent of the interest therein of the decedent at thetime of his death$

$ te,! )e) #t$*&e +(o, the 8(o!! e!t%te o+ % (e!$)e-to( -o-(e!$)e-t 4$&$"$-o )e#e)e-t o( (e!$)e-t %&$e- )e#e)e-t:

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a$ )xpenses, losses, claims, indebtedness and taxesGb$ roperty pre iously taxedGc$ Transfers for public useGd$ The amily :ome up to a alue not exceedin3 1

millionGe$ Standard deduction of 1 millionGf$ Medical expenses not exceedin3 -00,000$00G3$ =mount of exempt retirement recei ed by the heirs

under ep$ =ct Mo$ A91 Gh$ Net share of the sur i in3 spouse in the conBu3alpartnership$

;. Not e ery interJ i os transfer in anticipation of death isconsidered Dtransfer in contemplation of deathE for purposes of determinin3 the property to be included in the 3ross estate of adecedent$

5. To be considered a t(%-!+e( $- #o-te,"&%t$o- o+ )e%th E Dthe decedent has at any time made a transfer, by trust or other!ise, in contemplation of or intended to ta&e effect in possession

or enBoyment at or after deathE FSec$ +- ?(>, N C of 199 H$ t isclear that the properties are not transferred in contemplation of or intended to ta&e effect in possession or enBoyment at or after death$

the possession or enBoyment of, or the ri3ht to the income from the property, or ?2> theri3ht, either alone or in conBunction !ith any person, to desi3nate theperson !ho shall possess or enBoy the property or the incometherefrom$E FSec$ +- ?(>, N C of 199 H

=. The %""(o/%& o+ the #o (t !$tt$-8 $- "(o*%te7 o( %! % !ett&e,e-t t($* -%& o/e( the e!t%te o+ the )e#e%!e) $!-ot % ,%-)%to(' (e $(e,e-t +o( the #o&&e#t$o- o+ thee!t%te. The probate court is determinin3 issues !hich are nota3ainst the property of the decedent, or a claim a3ainst the estate assuch, but is a3ainst the interest or property ri3ht !hich the heir,le3atee, de isee, etc$ has in the property formerly held by thedecedent$

The notices of le y !ere re3ularly issued !ithin the prescripti eperiod$

The tax assessment ha in3 become final, executory andenforceable, the same can no lon3er be contested by means of a

dis3uised protest$ ($arcos, II v. Court of Appeals, et al $, 2 ' SC =A >

DONOR S TA6ES

1. h%t $! the )o-o( ! t% (%te $+ the )o-ee $! %!t(%-8e(

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d$ .o!ries or 3ifts made on account of marria3e andbefore its celebration or !ithin one year thereafter by residents !hoare parents to each of their le3itimate, reco3ni#ed natural, or adopted children to the extent of the first ten thousand pesos? 10,000$00>G e$


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or example the ser ices rendered by a local firm to itsforei3n client are performed or successfully completed upon itssendin3 to a forei3n client the drafts and bills it has 3athered fromser ice establishments here$ ts ser ices, ha in3 been performed inthe hilippines, are therefore also consumed in the hilippines$Such facilitation ser ice has no physical existence, yet ta&es placeupon rendition, and therefore upon consumption, in the hilippines$FCommissioner of Internal &evenue v. American /6press


38/86

2 ' imposin3 a 106 multiJsta3e tax on all sales, it !as only thenthat the creditin3 of the input tax paid on purchase or importation of 3oods and ser ices by *=TJre3istered persons a3ainst the output tax!as established$ This continued !ith the )xpanded *=T 4a! ? $=$No$ 1@>, and The Tax eform =ct of 199 ? $=$ No$ +A2A>$ Theri3ht to credit input tax as a3ainst the output tax is clearly a pri ile3ecreated by la!, a pri ile3e that also the la! can limit$ t should bestressed that a person has no ested ri3ht in statutory pri ile3es$

(ABA1A A uro Party List, etc. et al. vs. /rmita,

12. h%t $! the #o-#e"t o+ t(%-!$t$o-%& $-" t t%#(e)$t! o- *e8$--$-8 $-/e-to($e!

S8, 1 st par$, arran3ement andnumberin3 suppliedH

1;. h%t $! the #o-#e"t o+ "(e! ,"t$/e $-" t t%#(e)$t!

S8

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/e!!e&!. The /e!!e&! we(e #o-!t( #te) +o( the NDC*etwee- 19>1 %-) 19>;7 the- $-$t$%&&' &e%!e) to L o-Ste/e)o($-8 Co,"%-'7 %&!o $t! who&&'Fow-e) ! *!$)$%('.S *!e e-t&'7 the /e!!e&! we(e t(%-!+e((e) %-) &e%!e)7 o-% *%(e*o%t *%!$!7 to the NMC. The NMC !h%(e! %-) the/e!!e&! we(e o++e(e) +o( " *&$# *$))$-8. A,o-8 the!t$" &%te) te(,! %-) #o-)$t$o-! +o( the " *&$# % #t$o- w%!

th%t the w$--$-8 *$))e( w%! to "%' % /%& e %))e) t% o+ 10I o- the /%& e o+ the /e!!e&!. M%8!%'!%' L$-e!7 -#.7o++e(e) to * ' the !h%(e! %-) the /e!!e&! +o( P170007000.00. The *$) w%! ,%)e *' M%8!%'!%' L$-e!7" ("o(te)&' +o( % -ew #o,"%-' !t$&& to *e +o(,e)#o,"o!e) o+ $t!e&+7 B%&$w%8 N%/$8%t$o-7 -#.7 %-) 4 ML$,$te) o+ the M%()e- (o " *%!e) $- Ho-8 o-8 . The *$)w%! %""(o/e) *' the Co,,$ttee o- P($/%t$ %t$o-7 %-) %Not$#e o+ Aw%() w%! $!! e) to M%8!%'!%' L$-e!.

! the !%&e ! *?e#t to VAT S8H$

What is clear therefore, based on the aforecited Burisprudence, is that Pcourse of businessP or Pdoin3 businessP

connotes re3ularity of acti ity$ n the instant case, the sale !as anisolated transaction$ The sale !hich !as in oluntary and madepursuant to the declared policy of days follo!in3 the date such 3oods !ere consi3ned$Consi3ned 3oods returned by the consi3nee !ithin the @0Jday periodare not deemed sold$

d$ etirement from or cessation of business, !ithrespect to all 3oods on hand,

1> !hether capital 3oods, stoc&JinJtrade, supplies or materials as of the date of such retirement, or cessation,2> !hether or not the business is continued by the

ne! o!ner or successor$ xxx F e $ e3s$ No$ 1@J200-,Sec$ A$10@J , paraphrasin3, arran3ement and numberin3suppliedH

1>. h%t t(%-!%#t$o-! #o-!$)e(e) (et$(e,e-t o( #e!!%t$o- o+ * !$-e!! )ee,e) !%&e ! *?e#t to VAT

S8, ?A> paraphrasin3, arran3ement andnumberin3 suppliedH

19. h%t !%&e o+ o( &e%!e o+ (e%& "(o"e(t$e! ! *?e#tto VAT

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41/86

i$ dealers in securi tiesG B$ lendin3 in estorsG&$ transportation contractors on their transport of 3oods or

car3oes, includin3 persons !ho transport 3oods or car3oes for hireand other domestic common carriers by land relati e to their transport of 3oods or car3oesG

l$ common carriers by air and sea relat i e to their transport of passen3ers, 3oods or car3oes from one place in the

hilippines to another place in the hilippinesGm$ sales of electricity by 3eneration companies,transmission, and7or distribution companiesG

n$ franchise 3rantees of electric utilities, telephoneand tele3raph, radio and tele ision broadcastin3 and all other franchise 3rantees except franchise 3rantees of radio and7or tele ision broadcastin3 !hose annual 3ross receipts of theprecedin3 year do not exceed Ten Million esos ? 10,000,000$00>,and franchise 3rantees of 3as and !ater utilitiesG

o$ nonJlife insurance companies ?excepttheir crop insurances>, includin3 surety, fidelity, indemnity andbondin3 companiesG and

p$ similar ser ices re3ardless of !hether or not theperformance thereof calls for the exercise or use of the physical or mental faculties . FN C of 199 , Sec$ 10+ ?=>, as amended by $=$No$ 9'' G e$ e3s$ No$ 1@J200-, Sec$ A,10+J2, 1 st par$,arran3ement and numberin3 suppliedH

2;. 6 Co("o(%t$o- (e-)e(e) te#h-$#%&!e(/$#e! th(o 8h $t! wo( e-8$-ee(! to PNB %-) SSS $-the #o-!t( #t$o- o+ the$( * $&)$-8!. The wo( e-8$-ee(!%#te) %! o/e(!ee(! o+ 6 Co("o(%t$o-7 (e-)e($-8 the$( "(o+e!!$o-%& !e(/$#e! %! e,"&o'ee! o+ 6 #o("o(%t$o-.Sho &) 6 Co("o(%t$o- *e ! *?e#te) to VAT o( !ho &) $t *e! *?e#te) to t% o- the "(o+e!!$o-%& !e(/$#e! o+ tho!ee,"&o'ee! the,!e&/e! De#$)e the #%!e w$th (e%!o-.

S8 hereof or any such &no!led3e or information as ismentioned in subpara3raph ?'> hereofG or

e$ The supply of ser ices by a nonJresident person or his

employee in connection !ith the use of property or ri3hts belon3in3to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonJresident personG

f$ The supply of technical ad ice, assistance or ser icesrendered in connection !ith technical mana3ement or administrationof any scientific, industrial or commercial underta&in3, enture,proBect of schemeG

3$ The lease of motion picture films, film tapes anddiscsG

h$ The lease or the use of or the ri3ht to use radio,tele ision, satellite transmission and cable tele ision time$ ? e$e3s$ No$ 1@J200-, Sec$ A$10+J2, 2 nd par$>

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42/86

2>. S$t ! o+ t% %t$o- o+ e(oF(%te) VAT !e(/$#e!! #h %! +%#$&$t%t$-8 the #o&&e#t$o- o+ (e#e$/%*&e! +(o,#(e)$t #%() ,e,*e(! !$t %te) $- the Ph$&$""$-e! %-)"%',e-t to !e(/$#e e!t%*&$!h,e-t! $- the Ph$&$""$-e!. Theplace !here the ser ice is rendered determines the Burisdiction?Commissioner of Internal &evenue v. American /6pressInternational, Inc. (Philipppine Branch', p$ ''H, for the State necessarily hasto ha e a Dsubstantial connectionE F Commissioner, supra citin3, Blac47s La: ictionary ?+th ed$, 1999>, p$ 1-0'Hto it in order to enforce a #ero rate$ F Commissioner, supra citin3 .e

4eon, *he -un"amentals of *a6ation ?12th

ed$, 199+>, p$ 'H Theplace of payment is immaterial F Commissioner, supra citin3.eoferio, Ir$ and Mamalateo, *he alue A""e" *a6 in thePhilippines ?2000>, p$ 9'H, much less is the place !here the output of the ser ice !ill be further or ultimately used$

This is so because the la! neither ma&es a "ualification nor adds a condition in determinin3 the tax situs of a #eroJrated ser ice$?Commissioner, supra >

29. h%t $! the )e!t$-%t$o- "($-#$"&e theVAT

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43/86

(an& is #eroJrated, hence, no tax is char3eable to it as purchaser$ero ratin3 is primarily intended to be enBoyed by the seller, !hichchar3es no output *=T but can claim a refund of or a tax creditcertificate for the input *=T pre iously char3ed to it by suppliers$?Commissioner of Internal &evenue v. $anila $inin# Corporation,

5. S%&e! to e#o o-e7 ! #h %! PEGA7 #o-!$)e(e)e "o(tF!%&e. Notably, !hile an eco#one is 3eo3raphically !ithinthe hilippines, it is deemed a separate customs territory and isre3arded in la! as forei3n soil$ Sales by suppliers from outside theborders of the eco#one to this separate customs territory aredeemed as exports and treated as export sales$ These sales are#eroJrated or subBect to a tax rate of #ero percent$ ? Commissioner of Internal &evenue v. Se4isui 2ushi Philippines, Inc.,

, exportprocessin3 #ones ?) s>, free trade #ones and tourist7recreationalcenters$ The national territory of the hilippines outside of the proclaimed borders of the )C/ /N) shall be referred to as theCustoms Territory$ F Commissioner of Internal &evenue v. *oshi%aInformation /9uipment (Phils.', Inc., is a taxable transactionfor *=T purposes, but shall not result in any output tax$ :o!e er,the input tax on purchases of 3oods, properties or ser ices related tosuch #eroJrated sale shall be a ailable as tax credit or refund inaccordance !ith &ev. &e#s. !o. ;


44/86

NAPOCOR +o( the o"e(%t$o- %-) ,%$-te-%-#e o+ two"owe( *%(8e! %""o$-te) B SCFDe-,%( %! $t!#oo()$-%t$o- ,%-%8e(. B SCM w%! e!t%*&$!he) %! the! *#o-t(%#to( to "e(+o(, the %#t %& wo( $- thePh$&$""$-e!. The Co-!o(t$ , "%$) B SCM $- %##e"t%*&e+o(e$8- e #h%-8e %-) %##o -te) +o( $- %##o()%-#e w$ththe ( &e! %-) (e8 &%t$o-! o+ the BSP.

Th(o 8h % 4e*( %(' 1;7 1995 ( &$-8 the B R )e#&%(e)th%t B SCM ,%' #hoo!e to (e8$!te( %! % VAT "e(!o-!! *?e#t to VAT %t e(o (%te. 4o( 199

N/T)S =N. C/MM)NTS5a$ Do -ot #o-+ !e the B SCM #%!e w$th the

A,e($#%- E "(e!! #%!e. =merican )xpress nternational, nc$

? hilippine (ranch>H is a *=TJre3istered person that facilitates thecollection and payment of recei ables belon3in3 to its -o-F(e!$)e-t+o(e$8- #&$e-t F=merican )xpress nternational, nc$ ?:on3&on3(ranch>H, for !hich it 3ets paid in acceptable forei3n currencyin!ardly remitted and accounted for in accordance !ith (S rulesand re3ulations$ ?Commissioner of Internal &evenue v. Burmeister an" Kain Scan"inavian Contractor $in"anao, Inc., Sale or importation of a3ricultural and marine foodproducts in their ori3inal state, li estoc& and poultry of a &ind

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45/86

3enerally used as, or yieldin3 or producin3 foods for humanconsumptionG and breedin3 stoc& and 3enetic materials therefor$

4i estoc& shall include co!s, bulls and cal es, pi3s, sheep,3oats and rabbits$ oultry shall include fo!ls, duc&s, 3eese andtur&ey, 4i estoc& or poultry does not include fi3htin3 coc&s, racehorses, #oo animals and other animals 3enerally considered as pets$

Marine food products shall include fish and crustaceans, suchas, but not limited to, eels, trout, lobster, shrimps, pra!ns, oysters,

mussels and clams$Meat, fruit, fish, e3etables and other a3ricultural and marinefood roducts classified under this para3raph shall be considered intheir ori3inal state e en if they ha e under3one the simpleprocesses of preparation or preser ation for the mar&et, such asfree#in3, dryin3, saltin3, broilin3, roastin3, smo&in3 or strippin3,includin3 those usin3 ad anced technolo3ical means of pac&a3in3,such as shrin& !rappin3 in plastics, acuum pac&in3, tetraJpac&, andother similar pac&a3in3 methods$ olished and7or hus&ed rice, corn3rits, ra! cane su3ar and molasses, ordinary salt, and copra shall beconsidered in their ori3inal state$

Su3ar !hose content of sucrose by !ei3ht, in the dry state,has a polarimeter readin3 of 99$-o and abo e are presumed to berefined su3ar$

Cane su3ar produced from the follo!in3 shall be presumed,for internal re enue purposes, to be refined su3ar5

?1> product of a refinin3 process,?2> products of a su3ar refinery, or

?'> product of a production line of a su3ar millaccredited by the ( to be producin3 su3ar !ith polarimeter readin3 of 99$-o and abo e, and for !hich the "uedanissuedtherefor, and erified by the Su3ar e3ulatory =dministration,identifies the same to be of a polarimeter readin3 of 99$-o andabo e$

(a3asse is not included in the exemption pro ided for under this section$

?(> Sale or importation of fertili#ersG seeds, seedlin3s andfin3erlin3sG fish, pra!n, li estoc& and poultry feeds, includin3in3redients, !hether locally produced or imported, used in themanufacture of finished feeds ?except specialty feeds for racehorses, fi3htin3 coc&s, a"uarium fish, #oo animals and other animals3enerally considered as pets>G

DSpecialty feedsE refers to nonJa3ricultural feeds or food for race horses, fi3htin3 coc&s, a"uarium fish, #oo animals and other animals 3enerally considered as pets$

?C> mportation of personal and household effectsbelon3in3 to the residents of the hilippines returnin3 from abroad

and nonresident citi#ens comin3 to resettle in the hilippines5ro ided, That such 3oods are exempt from customs duties under the Tariff and Customs Code of the hilippinesG

?.> mportation of professional instruments andimplements, !earin3 apparel, domestic animals, and personalhousehold effects ?except any ehicle, essel, aircraft, machinery,other 3oods for use in the manufacture and merchandise of any &indin commercial "uantity> belon3in3 to persons comin3 to settle in the

hilippines, for their o!n use and not for sale, barter or exchan3e,accompanyin3 such persons, or arri in3 !ithin ninety ?90> daysbefore or after their arri al, upon the production of e idencesatisfactory to the Commissioner of nternal e enue, that suchpersons are actually comin3 to settle in the hilippines and that thechan3e of residence is bona fideG

?)> Ser ices subBect to percenta3e tax under Title * of the TaxCode, as enumerated belo!5

?1> Sale or lease of 3oods or propert ies or theperformance of ser ices of nonJ*=TJre3istered persons,other than the transactions mentioned in para3raphs ?=> to?8> of Sec$ 109 ?1> of the Tax Code, the annual sales and7or receipts of !hich does not exceed the amount of /neMillion i e :undred thousand esos ? 1,-00,000$00>,ro ided, That not later than Ianuary '1, 2009 and e erythree ?'> years thereafter, the amount herein stated shall beadBusted to its present alue usin3 the Consumer ricendex, as published by the National Statistics /ffice ?NS/>$?Sec$ 11@, Tax Code>

?2> Ser ices rendered by domestic common carriersby land for the transport of passen3ers and &eepers of 3ara3es$ ?Sec$ 11 >

?'> Ser ices rendered by international air7shippin3carriers$ ?Sec$ 11+>

?A> Ser ice rendered by franchise 3rantees of radioand7or tele ision broadcastin3 !hose annual 3ross receiptsof the precedin3 year do not exceed Ten Million esos? 10,000,000$00> and by franchises of 3as and !ater utilities$ ?Sec$ 119>

?-> Ser ice rendered for o erseas dispatch messa3eor con ersation ori3inatin3 from the hilippines$ ?Sc$ 120>

?@> Ser ices rendered by any person, company or corporation ?except purely cooperati e companies or associations > doin3 life insurance business of any sort in thehilippines$ ?Sec$ 12'>

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? > Ser ices rendered by fire, marine or miscellaneous insurance a3ents of forei3n insurancecompanies$ ?Sec$ 12A>

?+> Ser ices of proprietors, lessees or operators of coc&pits, cabarets, ni3ht or day clubs, boxin3 exhibitionsprofessional bas&etball 3ames, BaiJ=lai and race trac&s$?Sec$ 12->$ and

?9> eceipts on sale, barter or exchan3e of shares of

stoc& listed and traded throu3h the local stoc& exchan3e or throu3h initial public offerin3$ ?Sec$ 12 >? > Ser ices by a3ricultural contract 3ro!ers and millin3 for

others of palay into rice, corn into 3rits and su3ar cane into ra!su3arG

D=3ricultural contract 3ro!ersE refers to those personsproducin3 for others poultry, li estoc& or other a3ricultural andmarine food products in their ori3inal state$

? Medical, dental, hospital and eterinary ser ices exceptthose rendered by professionalsG

4aboratory ser ices are exempted$ f the hospital or clinicoperates a pharmacy or dru3 store, the sale of dru3s and medicineis subBect to *=T$

?:> )ducational ser ices rendered by pri ate educationalinstitutions, duly accredited by the .epartment of )ducation?.) ).> , the Commission on :i3her )ducation ?C:).> , theTechnical )ducation =nd S&ills .e elopment =uthority ?T)S.=> andthose rendered by 3o ernment educational institutionsG

D)ducational ser icesE shall refer to academic, technical or ocational education pro ided by pri ate educational institutionsduly accredited by the .ep)., the C:). and T)S.= and thoserendered by 3o ernment educational institutions and it does notinclude seminars, inJser ice trainin3, re ie! classes and other similar ser ices rendered by persons !ho are not accredited by the.ep)., the C:). and7or the T)S.=$

? > Ser ices rendered by indi iduals pursuant to anemployerJemployee relationshipG

?I> Ser ices rendered by re3ional or area head"uartersestablished in the hilippines by multinational corporations !hich actas super isory, communications and coordinatin3 centers for their affiliates, subsidiaries or branches in the =siaJ acific e3ion and donot earn or deri e income from the hilippinesG

?Y> Transactions !hich are exempt under internationala3reements to !hich the hilippines is a si3natory or under specialla!s, except those under residential .ecree No$ -29 L etroleum)xploration Concessionaires under the etroleum =ct of 19A9G andG

?4> Sales by a3ricultural cooperati es duly re3istered !iththe Cooperati e .e elopment =uthority ?C.=> to their members as!ell as sale of their produce, !hether in its ori3inal state or processed form, to nonJmembersG their importation of direct farminputs, machineries and e"uipment, includin3 spare parts thereof, tobe used directly and exclusi ely in the production and7or processin3of their produceG

?M> Sales by nonJa3ricultural, nonJelectric and nonJcredit

cooperati es duly re3istered !ith the Cooperati e .e elopment =uthority 5 ro ided, That the share capital contribution of eachmember does not exceed ifteen thousand pesos ? 1-,000> andre3ardless of the a33re3ate capital and net surplus ratablydistributed amon3 the membersG

mportation by nonJa3ricultural, nonJelectric and nonJcreditcooperati es of machineries and e"uipment, includin3 spare partsthereof, to be used by them are subBect to *=T$

?/> )xport sales by persons !ho are not *=TJre3isteredG? > Sale of real properties not primarily held for sale to

customers or held for lease in the ordinary course of trade or business, or real property utili#ed for lo!Jcost and sociali#ed housin3as defined by epublic =ct No$ 2 9, other!ise &no!n as the 8rban.e elopment and :ousin3 =ct of 1992, and other related la!s, suchas = No$ +'- and = No$ + @-, residential lot alued at /nemillion f i e hundred thousand pesos ? 1,-00,000> and belo!, houseand lot, and other residential d!ellin3s alued at T!o million fi ehundred thousand pesos ? 2,-00,000> and belo!5 ro ided, Thatnot later than Ianuary '1, 2009 and e ery three ?'> years thereafter,the amounts herein stated shall be adBusted to their present aluesusin3 the Consumer rice ndex, as published by the NationalStatistics /ffice ?NS/> G

? > 4ease of a residential unit !ith a monthly rental notexceedin3 Ten thousand pesos ? 10,000> ro ided, That not later than Ianuary '1, 2009 and e ery three ?'> years thereafter, theamount herein stated shall be adBusted to its present alue usin3 theConsumer rice ndex as published by the National Statistics /ffice?NS/> G

? > Sale, importation, printin3 or publication of boo&s andany ne!spaper, ma3a#ine, re ie! or bulletin !hich appears atre3ular inter als !ith fixed prices for subscription and sale and!hich is not de oted principally to the publication of paidad ertisementsG

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47/86

?S> Sale, importation or lease of passen3er or car3oessels and aircraft, includin3 en3ine, e"uipment and spare partsthereof for domestic or international transport operationsG ro ided,that the exemption from *=T on the importation and local purchaseof passen3er and7or car3o essels shall be limited to those of onehundred fifty ?1-0> tons and abo e, includin3 en3ine and spare partsof said esselsG ro ided, further, that the essels be imported shallcomply !ith the a3e limit re"uirement, at the time of ac"uisition

counted from the date of the essel%s ori3inal commissionin3, asfollo!s5 ?i> for passen3er and7or car3o essels, the a3e limit isfifteen years ?1-> years old, ?ii> for tan&ers, the a3e limit is ten ?10>years old, and ?iii> or hi3hJspeed passen3er cars, the a3e limit isfi e ?-> years old, ro ided, finally, that exemption shall be subBectto the pro isions of section A of epublic =ct No$ 929-, other!ise&no!n as DThe .omestic Shippin3 .e elopment =ct of 200A$E

?T> mportation of fuel, 3oods and supplies by personsen3a3ed in international shippin3 or air transport operationsGro ided, that the said fuel, 3oods and supplies shall be usedexclusi ely or shall pertain to the transport of 3oods and7or passen3er from a port in the hilippines directly to a forei3n port!ithout stoppin3 at any other port in the hilippinesG pro ided,further, that if any portion of such fuel, 3oods or supplies is used for purposes other than that mentioned in this para3raph, such portionof fuel, 3oods and supplies shall be subBect to 106 *=T ?no! 126>G

?8> Ser ices of ban&s, nonJban& financial intermediariesperformin3 "uasiJban&in3 functions, and other nonJban& financialintermediariesG and

?*> Sale or lease of 3oods or properties or the performanceof ser ices other than the transactions mentioned in the precedin3para3raphs, the 3ross annual sales and7or receipts do not exceedthe amount of /ne million fi e hundred thousand pesos? 1,-00,000>5 ro ided, That not later than Ianuary '1, 2009 ande ery three ?'> years thereafter, the amount herein stated shall beadBusted to its present alue usin3 the Consumer rice ndex aspublished by the National Statistics /ffice ?NS/> $

or purposes of the threshold of 1,-00,000$00, the husbandand !ife shall be cnsidered separate taxpayers$ :o!e er, thea33re3ation rule for each taxpayer shall apply$ or instance, if aprofesional, aside from the practice ofhis profession, also deri esre enue from other lines of business !hich are other!ise subBect to*=T, the same shall be combined for purposes of determinin3!hether the threshold has been exceeded$ Thus, the *=TJexemptsales shall to be icluded in determinin3 the threshold$ FN C of 199 , Sec$ 109 ?1>, as amended by $ =$ No$ 9'' G !ords in italics

from e$ e3s$ No$ 1@J200-, Sec$ A$109J1 ?(>, !ords inparentheses suppliedH

;;. 6 $! e-8%8e) $- the $,"o(t%t$o- %-) !%&e o+ *oo ! %-) ,%8% $-e!. ! the $,"o(t%t$o- o+ *oo ! %-),%8% $-e! ! *?e#t to the 10I VAT E "&%$-.

S85ro ided, That not later than Ianuary '1, 2009 and e erythree ?'> years thereafter, the amount herein stated shall beadBusted to its present alue usin3 the Consumer ricendex as published by the National Statistics /ffice ?NS/> ,from the payment of *=T and

b$ !ho is not a *=TJre3istered personc$ shall pay a tax e"ui alent to three percent ?'6> of his

3ross monthly sales or receiptsGro ided, that cooperati es shall be exempt from the three

?'6> 3ross receipts tax herein imposed$ ? e $ e3s$ No$ 1@J200-,

Sec$ A$11@J1, arran3ement, numberin3 and !ords in italics supplied>

RETURNS AND THHOLD N

1. -#o,e t% (et (-! bein3 " *&$# )o# ,e-t! , untilcontroerted by competent e idence, are competent e idence, are

prima facie correct !ith respect to the entries therein$ (&opali *ra"in# v. !L&C, et al., 29@ SC = '09, '1 >

2. DM%(($e) $-)$/$) %&!7 whethe( #$t$ e-!7 (e!$)e-t o( -o-F(e!$)e-t %&$e-!7 who )o -ot )e($/e $-#o,e " (e&' +(o,#o,"e-!%t$o- !h%&& +$&e % (et (- +o( the t% %*&e 'e%( to $-#& )e

the $-#o,e o+ *oth !"o !e!7 but !here it is impracticable for the

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spouses to file one return, each spouse may file a separate return of income but the returns so filed shall be consolidated by the (ureaufor purposes of erification$E FSection -1 ?.> of the N C of 199 H

$ -)$/$) %&! (e $(e) to +$&e %- $-#o,e t% (et (-.a$ ) ery ilipino citi#en residin3 in the hilippinesGb$ ) ery ilipino citi#en residin3 outside the hilippines on

his income from sources !ithin the hilippinesG

c$ ) ery alien residin3 in the hilippines on income deri edfrom sources !ithin the hilippinesG andd$ ) ery nonresident alien en3a3ed in trade or business or

in the exercise of profession in the hilippines$ FSec$ -1 ?=> ?1>, N Cof 199 H

;. -)$/$) %&! who %(e -ot (e $(e) to +$&e %- $-#o,e t%(et (- $

a$ =n indi idual !hose 3ross income does not exceed histotal personal and additional exemptions for dependents, Provi"e",That a citi#en of the hilippines and any alien indi idual en3a3ed inbusiness or practice of profession !ithin the hilippines shall file anincome tax return re3ardless of the amount of 3ross incomeG

b$ =n indi idual !ith respect to pure compensation incomefor ser ices in !hate er form paid, includin3, but not limited to fees,salaries, !a3es, commissions, and similar items, deri ed fromsources !ithin the hilippines, the income tax on !hich has beencorrectly !ithheld, Provi"e", That an indi idual deri in3 compensationconcurrently from t!o or more employers at any time durin3 thetaxable year shall file an income tax return5 Provi"e", further, That anindi idual !hose pure compensation income deri ed from sources!ithin the hilippines exceeds Sixty thousand pesos ? @0,000$00>,shall also file an income tax returnG

c$ =n indi idual !hose sole income has been subBect tofinal !ithholdin3 taxG

d$ =n indi idual !ho is exempt from income tax pursuant tothe pro isions of the N C of 199 , and other la!s, 3eneral or special$FSec$ -1 ?=> ?2>, N C of 199 H

N/T)S =N. C/MM)NTS5 =mendments under ep$ =ct No$9-0A are not incouded$

5. A- $-)$/$) %& who $! -ot (e $(e) to +$&e %- $-#o,et% (et (- ,%' -e/e(the&e!! *e (e $(e) to +$&e %- $-+o(,%t$o-(et (-. FSec$ -1 ?=> ?'>, N C of 199 H


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!%$) $-#o,e $ F1st sentence, 1 st par$, Sec$ 2$- ?=>, e $ e3s$ No$ 2J9+H

The liability for payment of the tax rests primarily on the payor or the !ithholdin3 a3ent$$ Thus, in case of his failure to !ithhold thetax or in case of under !ithholdin3, the deficiency tax shall becollected from the payor !ithholdin3 a3ent$ The payee is not re"uiredto file an income tax return for the particular income$

1;. U-)e( the #(e)$t%*&e w$thho&)$-8 t% !'!te,7 t%e!w$thhe&) o- #e(t%$- $-#o,e "%',e-t! %(e $-te-)e) to e %& o( %t&e%!t %""(o $,%te the t% ) e +(o, the "%'ee o- the !%$)$-#o,e. The income recipient is still re"uired to file an income taxreturn and7or pay the difference bet!een the tax !ithheld and the taxdue on the income$ F1 st and 2 nd sentences, Sec$ 2- ?(>, e $ e3s$No$ 2J9+H

15. The two $-)! o+ #(e)$t%*&e w$thho&)$-8 t% e! are ?a>taxes !ithheld on income payments co ered by the expanded!ithholdin3 taxG and ?b> taxes !ithheld on compensation income$

1 Corporations exempt from income tax under Sec$'0, of the Tax Code, li&e the SSS,

1=. A e((o-eo !&' w$thhe&) the %,o -t o+ 15I +(o, the!e&&$-8 "($#e o+ *oo ! % tho(e) *' whe- the #o((e#t (%te!ho &) h%/e *ee- 10I o-&'. S$-#e $! o t o+ the #o -t('7 A%""&$e) +o( % (e+ -) o+ the e #e!! w$thho&)$-8 o+ 5I. M%' A"(o"e(&' %""&' +o( the (e+ -) E "&%$-.

S8


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the date prescribed for payment until the amount is fully paid$ FSec$2A9 ?=> ?(>, N C of 199 H

5. De&$- e-#' $-te(e!t7 )e+$-e). The interest assessedand collected on the unpaid amount until fully paid !here there isfailure on the part of the taxpayer to pay the amount die on any returnre"uired to be filedG or the amount of the tax due for !hich no return isre"uiredG or a deficiency tax, or any surchar3e or interest thereon, on

the date appearin3 in the notice and demand by the Commissioner of nternal e enue$ FSec$2A9 ?c>, N C of 199 H

=. Co,"(o,$!e "e-%&t'7 )e+$-e). The amount a3reedupon bet!een the taxpayer and the . A! % (e! &t o+ )$/e(8e-t ( &$-8! o- whethe( $t $!! *?e#t to t% o( -ot7 the t% "%'e( w%! -ot %*&e to "%' h$! t% e!o- t$,e. ,"o!e) ! (#h%(8e! %-) $-te(e!t! +o( ! #h )e&%'7 thet% "%'e( -ot $-/o e! 8oo) +%$th w$th the B R #o -te($-8 *'!%'$-8 th%t 8oo) +%$th $! -ot % /%&$) )e+e-!e +o( /$o&%t$o- o+ %!"e#$%& &%w. 4 (the(,o(e7 the B R + (the( (%$!e! the )e+e-!e th%tthe 8o/e(-,e-t $! -ot *o -) *' the e((o(! o+ $t! %8e-t!. ho $!#o((e#t

=NSW) 5 The taxpayer is correct$ The settled rule is that3ood faith and honest belief that one is not subBect to tax on the basisof pre ious interpretation of 3o ernment a3encies tas&ed toimplement the tax, are sufficient Bustification to delete the impositionof surchar3es$ ? $ichel 2. Lhuillier Pa:nshop, Inc. v. Commissioner of Internal &evenue,

REPUBL C ACT NO. 11257 CREAT N THECOURT O4 TA6 APPEALS NCLUD N

3UR SD CT ON O4 THE CTA7 AS AMENDED

1. The Co (t o+ T% A""e%&! $! the !"e#$%& t% #o (t#(e%te) -)e( Re" *&$# A#t No. 1125 , as amended, and iscomposed of a residin3 Iustice and ei3ht ?+> =ssociate Iustices,

or3ani#ed into three ?'> di isions$

2. *h! "as the Court of ax Appeals created ? S8, are not li&elyto possess, thus pro idin3 for an ade"uate remedy for a speedydetermination of tax cases$ ? +rsal v. Court of *a6 Appeals, et al., 101hil$ 209G Lacsamana, et al., etc., v. C*A, et al., 102 hil$ 9'1>

. The &e8%& (e,e)$e! -)e( the N RC o+ 199= %-)othe( &%w! a ailable to an a33rie ed taxpayer may be classified intothe tax remedies !ith respect to5

a$ assessmentGb$ collection, andc$ refund of internal re enue taxes$The remedies may also be classified into the administrati e or

the Budicial remedies$

;. The &e8%& (e,e)$e! -)e( the N RC o+ 199= %/%$&%*&eto %- %88($e/e) t% "%'e( %t the %),$-$!t(%t$/e &e/e& !ith respect toassessment of internal re enue taxes are the follo!in35

a$ 8pon receipt of a preJassessment notice, the taxpayer shall respond to the same !ithin fifteen ?1-> days from receipt !hichis the period pro ided for by implementin3 rules and re3ulations$ F' rdpar$, Sec$ 22+ ?e>, N C of 199 H

b$ 8pon the issuance of an assessment notice, thetaxpayer shall protest administrati ely by filin3 a re"uest for reconsideration or rein esti3ation !ithin thirty ?'0> days from receiptof the assessment in such form and manner as may be prescribed byimplementin3 rules and re3ulations$

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c$ Within sixty ?@0> days from the filin3 of the protest, allrele ant supportin3 documents shall be submittedG other!ise theassessment shall become final$ ?A th par$, I%i".>

5. The &e8%& (e,e)$e! -)e( the N RC o+ 199= %/%$&%*&eto %- %88($e/e) t% "%'e( %t the ? )$#$%& &e/e& !ith respect toassessment of internal re enue taxes5

a$ f the protest is denied in !hole or in part, or

b$ is not acted upon !ithin one hundred ei3hty ?1+0> daysfrom submission of documents,c$ the taxpayer ad ersely affected by the decision or inaction

may appeal to the Court of Tax =ppeals !ithin thirty ?'0> days fromreceipt of the said decision, or from the lapse of the one hundredei3hty ?1+0> L day periodG other!ise, the decision shall become final,executory and demandable$ Flast par$, Sec$ 22+ ?e>, N C of 199 H

d$ /n appeal, the taxpayer should apply for the issuance of a!rit of preliminary inBunction to enBoin the ( from collectin3 the taxsubBect of the appeal$

e$ = decision of a di ision of the Court of Tax =ppealsad erse to the taxpayer or the 3o ernment may be the subBect of a

motion for reconsideration or ne! trial, a denial of !hich isappealable to the Court of Tax =ppeals en %anc by means of apetition for re ie!$

f$ = decision of the Court of Tax =ppeals en %anc ad erse tothe taxpayer or the 3o ernment may be appealed to the SupremeCourt throu3h a petition for re ie! on certiorari filed !ith fifteen ?1->days from notice, and extendible for Bustifiable reasons for thirty ?'0>days only$

=. h%t $! the &e8%& (e,e)' -)e( the NRC o+ 199= %tthe ? )$#$%& &e/e& w$th (e!"e#t to (e+ -) o( (e#o/e(' o+ t%e((o-eo !&' o( $&&e8%&&' #o&&e#te)

S8, or

b$ !ithin thirty ?'0> days from receipt of the denial by theCommissioner of the application for refund or credit$ ?Sec$ 11, $=$No$ 112->

>. The t!o ?2> year period and the thirty ?'0> day periodshould be applied on a !hicheer comes first basis$ Thus, if the '0days is !ithin the 2 years, the '0 days applies, if the 2 year period isabout to lapse but there is no decision yet by the Commissioner !hich

!ould tri33er the '0Jday period, the taxpayer should file an appeal,despite the absence of a decision$ (Commissioners, etc. v. Court of *a6 Appeals, et al., . &. !o. < ; , $arch ; , ; , unrep.'

9. Where the taxpayer is a corporation the t!o year prescripti e period from Ddate of paymentE for refund of income taxesshould be the date !hen the corporation filed its final adBustmentreturn not on the date !hen the taxes !ere paid on a "uarterly basis$(Philippine Ban4 of Communications v. Commissioner of Internal &evenue, et al., .&. !o. ;;


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explanation,, and he belie es that proper taxes should be assessed,the Commissioner of nternal e enue or his duly authori#edrepresentati e shall then notify the taxpayer of the findin3s in the formof a preJassessment notice$ The preJassessment notice re"uires thetaxpayer to explain !ithin fifteen ?1-> days from receipt !hy no noticeof assessment and letter of demand for additional taxes should bedirected to him$

e$ f the Commissioner is satisfied !ith the explanation of the

taxpayer, then the process is a3ain ended$f the taxpayer i3nores the preJassessment notice by notrespondin3 or his explanations are not accepted by theCommissioner, then a notice of assessment and a letter of demand isissued$

The notice of assessment must be issued by theCommissioner to the taxpayer !ithin a period of three ?'> years fromthe time the tax return !as filed or should ha e been filed !hiche er is the later of the t!o e ents$ Where the taxpayer did not file a taxreturn or !here the tax return filed is false or fraudulent, then theCommissioner has a period of ten ?10> years from disco ery of thefailure to file a tax return or from disco ery of the fraud !ithin !hich toissue an assessment notice$ The runnin3 of the abo e prescripti eperiods may ho!e er be suspended under certain instances$

The notice of assessment must be issued !ithin theprescripti e period and must contain the facts, la! and Burisprudencerelied upon by the Commissioner$ /ther!ise it !ould not be alid$

f$ The taxpayer should then file an administrati e protest byfilin3 a re"uest for reconsideration or rein esti3ation !ithin thirty ?'0>days from receipt of the assessment notice$

The taxpayer could not immediately interpose an appeal tothe Court of Tax =ppeals because there is no decision yet of theCommissioner that could be the subBect of a re ie!$

To be alid the administrati e protest must be filed !ithin theprescripti e period, must sho! the error of the (ureau of nternal

e enue and the correct computations supported by a statement of facts, and the la! and Burisprudence relied upon by the taxpayer$There is no need to pay under protest$ f the protest !as notseasonably filed the assessment becomes final and collectible andthe (ureau of nternal e enue could use its administrati e and

Budicial remedies in collectin3 the tax$3$ Within sixty ?@0> days from filin3 of the protest, all releant

supportin3 documents shall be submitted, other!ise the assessmentshall become final and collectible and the ( could use itsadministrati e and Budicial remedies to collect the tax$

/nce an assessment has become final and collectible, note en the ( Commissioner could chan3e the same$ Thus, the

taxpayer could not pay the tax, then apply for a refund, and if deniedappeal the same to the Court of Tax =ppeals$

h$ f the protest is denied in !hole or in part, or is not actedupon !ithin one hundred ei3hty ?1+0> days from the submission of documents, the taxpayer ad ersely affected by the decision or inaction may appeal to the Court of Tax =ppeals !ithin thirty ?'0> daysfrom receipt of the ad erse decision, or from the lapse of the onehundred ei3hty ?1+0J> day period, !ith an application for the issuance

of a !rit of preliminary inBunction to enBoin the ( from collectin3 thetax subBect of the appeal$ f the taxpayer fails to so appeal, the denial of the

Commissioner or the inaction of the Commissioner !ould result to thenotice of assessment becomin3 final and collectible and the ( couldthen utili#e its administrati e and Budicial remedies to collect th

domondon notes on taxation

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