TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A.

MANIEGO

TRANSFER TAX Transfer Tax – imposed on one’s right to make casual and gratuitous
transfer of one’s property to the other person, either by succession or
Origin of Transfer Tax in the Philippines?
donation.
Differences between Income Tax and Transfer Tax
- Privilege tax because it is imposed on the act of transmitting
Income Tax Transfer Tax one’s property to another for free
What is being taxed? -Income / Earnings -Transmission of - Direct tax because property left by the decedent or donor
property / rights transmitting the property, is the one being taxed
- National tax because it is collected by BIR
When payable? -while you are -taxable upon death - Progressive tax because the greater the valuation, the higher
earning, you are (estate tax) or upon the tax rate
paying lifetime of the donor - Ad valorem tax because valuation is based on the fair market
(donor’s tax) value of the property at the time of death or at the time of donation

Tax Rate -30% for corporation -estate tax: 5% to

-5% to 32% for 20% based on the net
individuals taxable income Onerous transfer – mode of property transfer with consideration
-donor’s tax: 2% to whether in cash or in kind
15% of net taxable
- bilateral transfer because it is mutual. (merong ibibigay, merong
gifts if made to
tatanggapin)
relatives and 30% if
made to stranger - example: sale, exchange

*Transfer tax involves transfer without consideration

Exemptions -subject to -subject to more
exemptions exemptions

Deductions -subject to deductions -subject to more Gratuitous transfer – mode of property transfer without
deductions consideration

- transfer of property is for free

Transfer – mode to transmit property, rights or obligations from one - no obligation on the part of the recipient
person to another. The intention is to pass the possession, the control, - no expectation on the part of the giver
the rights, which one person has, to the other person. - unilateral transfer (nagbibigay ka, walang kapalit) because it is
an act of generosity on the part of the giver

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 TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO

Donation Inter Vivos vs. Donation Mortis Causa

Donation Inter Vivos Donation Mortis Causa Estate Tax Donor’s Tax
Effectivity of transfer -upon death of -during lifetime of the
-gratuitous transfer -gratuitous transfer of property decedent donor and donee

-takes effect during the lifetime of -takes effect upon the death of the Taxpayer -estate of the -donor
the donor donor by will or operation of law deceased person

-subject to donor’s tax -subject to estate tax Basis of Tax -net estate -net gift

-gratuitous transfer of rights and
properties
-if the donor intends that donation
shall take effect while he is still
alive, the donee (or donee’s
representative) is also living to
accept the gift
-transferor retains the ownership Exempt amount -net estate of -net gift of P100,000
(full or naked) and control of the P200,000 and below and below
property before his death
Filing of Return and -within 6 months from -within 30 days after
-transfer is revocable by the Payment the decedent’s death the gift is made
transferor at will, or the donor
reserves the power to dispose of
the properties conveyed ESTATE TAX
- is important because there is succession
-transfer should be void if the
transferor should outlive the Succession is a mode to acquire the property, rights and obligations
transferee through the death of decedent by will or by operation of law.

Decedent – person who dies whose properties are transmitted to another

Could there be transfer which is partially gratuitous and partially Testator – decedent who made the last will and testament
onerous? Will – document that determines the disposition and distribution of the
YES, disguised sale where the consideration is inadequate to consider it a inheritance, following the formalities prescribed by law
sale. Partly sale, partly gift. Partial onerous, partial gift. Legatee – one who is given personal property through a will
Classes of Transfer Tax: Devisee – one who is given real property in a will
1. Estate Tax Heirs – persons to whom the property or property rights is to be
2. Donor’s Tax transferred
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 TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO

Compulsory heirs – by law, persons who have the right to receive Gross Estate – all properties owned by the decedent at the time of his
death, whether real or personal property, tangible or intangible property.
Legitime – portion of the property reserved by law to the compulsory
heirs Resident Non- Resident Non-
Citizen Resident Alien Resident
Testate Succession – by will Citizen Alien
Intestate Succession – by operation of law
Gross All All All Properties
Estate – properties or property rights of the decedent which is the Estate propertie properties properties within the
subject matter of succession s within within within Philippines
and and and only at the
Estate Tax – tax imposed on the right to transmit the property upon the without without without time of
death of the decedent at the at the at the decedent’s
time of time of time of death
- NOT a property tax because the imposition is not based on the
decedent’ decedent’s decedent’s
property but on the act of transmitting the property
s death death death
Why do we imposed tax on the estate of the deceased?

The government protects and provides services in the accumulation of
properties transferred gratuitously. These services resulted to benefits
received by the estate and the heirs.
The properties are not concentrated in one person. They are distributed.
By law, redistribution is still part of the services of the government.
There is a benefit received by the recipient.
If there is RECIPROCITY, intangible properties of non-resident
alien, within the Philippines must be excluded.
RECIPROCITY LAW: The laws of the foreign country of the alien allows
similar exemption on transfer taxes on intangible personal
property situated in that foreign country and owned by a Filipino citizen
not residing in the said foreign country.

The government has a share on the accumulated properties of the
decedent. Thus government has the right to collect estate tax.
Lifeblood doctrine and Bread and Butter doctrine. More properties
belonging to the estate, the presumption is that estate can share
more to the lifeblood of the State.
Net Estate = Gross Estate – Deductions
Gross Estate includes:
1. Decedent’s Interest – Properties owned to the extent of his
equity or interest at the time of the death of the decedent
*The best proof of interest in a property is a proof of
OWNERSHIP. (Certificate of Title)

*The rate is applicable on the net estate.

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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018
- all properties include real, personal, tangible or intangible
properties owned by the decedent at the time of the decedent’s
death EXCEPT:
a. Separate (exclusive) properties of the surviving spouse
b. Properties, interests, rights and all income accruing
after the death of the decedent and
c. Properties or transfers exempt by law from estate tax
VALUATION:
Real Property Personal Property
-fair market value vs. zonal -fair market value at the time of
valuation whichever is HIGHER. decedent’s death
2. Decedent’s accrued interests – all interests, earnings and
remaining valuable rights accruing to the decedent at the time of
his death even if received or collected after his death.
3. Properties already transferred but still owned – other
properties still owned by the decedent at the time of his death but
were already transferred during his lifetime by virtue of taxable
transfer such as: (hindi talaga binigay yun, decedent pa rin may-
ari, jiojoke ka lang haha :D)
a. Revocable Transfer – transfer of property with
retention or reservation of rights over the property by
the donor (decedent) while he still lives
-revocable means can be revoked, altered, amended, or
terminate the transfer
Examples: (1) donation where the donor has reserved
the power to alter, amend and revoke donation; (2)
NOTES BY: MARY EDREEN A. MANIEGO
donor retains the option to relinquish such power in
contemplation of death; (3) conditional transfers where
attached conditions are not completed by the done prior
to the donor’s death
b. Transfer in Contemplation of Death – the decedent
transferred the properties during his lifetime in
anticipation of his death.
- the thought of death must be the impelling cause of
transfer
Examples: (1) donation made concurrently with the
execution of a will; (2) donation was made due to the
decedent’s age and/or the decedent’s known serious
illness at the time of the gift; (3) the time between the
making of a gift and the death of the donor was relatively
close
*NOT in contemplation of death if the reason of transfer
is to reward services rendered or to have the family
enjoy the property
c. Transfer for insufficient consideration – property sold
or disposed for less than its prevailing market value
*The reckoning amount na isasama sa gross estate:
Excess = fair market value minus the insufficient
consideration
d. Property passing under general power of
appointment – the decedent must have had a power
exercisable in favor of himself, his estate or creditors of
his estate.
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018
*Special power of appointment – NOT exercisable in
favor of decedent, his estate, his creditors or creditors of
estate OR decedent appointed only among a restricted
or designated class of persons other than himself, his
estate, his creditors, or creditors of his estate
General Power Appointment – INCLUDED in the gross
estate because in substance he owns the property
Special Power of Appointment – EXCLUDED from the
gross estate because the decedent had already
relinquished interest over the property
e. Proceeds of life insurance policy payable to a
revocable beneficiary
-Life insurance proceeds is INCLUDED in gross estate:
1. beneficiary of the insurance is the
decedent’s estate, his administrator or his
executor or
2. beneficiary is revocable
***(if designation of beneficiary is not stated
or is not clear, Insurance Code assumes
REVOCABLE DESIGNATION)
*** The proceeds or benefits from SSS and
GSIS are EXCLUDED from gross estate. (maliit lang
naman kasi yan kaya wag ng isali )
NOTES BY: MARY EDREEN A. MANIEGO
*** Proceeds from group life insurance by the
employer are EXCLUDED as well.
EXEMPTIONS VS. EXCLUSIONS
Exemption Exclusion
-the items should have been included -hindi na talaga isasama
but the law exempts them to avoid
double taxation
Technically, wala talaga silang pagkakaiba. They can be used
interchangeably. They both reduces the gross estate.
EXEMPT TRANSFERS under Tax Code
- Involves 2 transmissions of property or rights
- Transmissions are stipulated in the last will and testament by the 1st
decedent
- The first transmission has been subjected to estate tax, while the 2nd
transfer is exempt from the transfer taxes (estate tax or donor’s tax
as the case may be) to prevent double taxation
1. The merger of usufruct in the owner of naked title
* Usufruct is the legal right to use and enjoy the benefits and profits of
property belonging to another
*2 transfers: (1) from decedent to usufructuary and (2) from
usufructuary to owner of the naked title
*The owner of the naked title becomes an absolute owner (full ownership)
if he acquired the usufruct if the same property belonging to other.
*The transfer exempt from estate tax is the usufruct merging in the
naked title, NOT the naked title merging in the usufruct.
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*Dapat unang mamatay yung usufructuary kesa sa owner of the naked
title para exempted.
*Both the usufructuary and owner of the naked title must be living at
the time of the 1st decedent’s death.
2. The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary
*There are 2 transmissions: (1) from the decedent to fiduciary heir and
(2) from fiduciary heir to fideicommissary
*The fiduciary heir is first heir who is trustee in relation to a beneficiary
and his obligation is to preserve the property and transmit it to the
fideicommissary.
*The fideicommissary is the second heir whose relationship to the
fiduciary heir must be 1 degree only.
*Fiduciary heir – entitled to rights of a usufructuary
*Fideicommissary – entitled to all the rights of a naked title
*Both the fiduciary heir and fideicommissary must be living at the time
of the 1st decedent’s death.
3. The transmission from the first heir, legatee or done in favor of
another beneficiary in accordance with the desire of the testator
(nakalagay sa will nya)
4. Transfers to Social Welfare, Cultural and Charitable Institutions
*Requirements to be exempted:
a. The donation given to a duly accredited institution;
b. No part of the net income inures to the benefit of any
individual;
NOTES BY: MARY EDREEN A. MANIEGO
c. Not more than 30% of the said bequests, devises, legacies
or transfers shall be used by such institutions for
administration purposes
EXCLUSIONS FROM THE GROSS ESTATE
1. Capital or exclusive property of the surviving spouse – properties
before the celebration of marriage if there is a marriage settlement that
the property regime is conjugal partnership of gains
2. Properties outside the Philippines owned by a non-resident
alien decedent – The decendent must be a non-resident alien and the
properties are situated outside the Philippines
3. Intangible personal property with Philippine situs of a non-
resident alien under Reciprocity Law – the intangible personal
property has Philippine situs, owned by a non-resident alien and subject
to reciprocity law
4. The proceeds or death benefits and other benefits from SSS and GSIS
are EXCLUDED from gross estate.
5. Retirement benefits (individuals working in private firms) – at least
50 years old and at least 10 years in service
6. War benefits – benefits received from US Veterans Administration or
benefits received from Philippines and US government for damages during
WW2
Exemptions / Exclusions Deductions
-not included in the gross estate -included in the gross estate but to
be subtracted from the gross
estate
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018
DEDUCTIONS FROM GROSS ESTATE
Requirements:
1. Documentary Support - supported by documents (receipts)
before they can be subtracted from the value of the gross estate
2. Actual expense is necessary except in Standard Deduction
3. It is material when you incur the expense to determine whether
the estate can claim the deduction
Purpose of Deduction: to protect the interest of innocent 3rd persons
who have claims over the properties of the decedent.
Classifications of Deductions against the Estate
1. Ordinary Deductions
- Taxes, Indebtedness, Losses, Expenses (TILE)
a. Taxes
Unpaid Taxes – taxes remained unpaid imposed against the
decedent
REQUIREMENTS TO BE DEDUCTIBLE:
1) Property taxes accrued prior to the decedent’s death
2) Unpaid taxes on income received by the decedent before
his death
3) Gift taxes on lifetime gifts (donation inter vivos) which
are unpaid upon death
TAXES NOT DEDUCTIBLE:
1) Income tax upon income received after the death of the
decedent
2) Property taxes not accrued before the decedent’s death
3) Estate Tax
NOTES BY: MARY EDREEN A. MANIEGO
b. Indebtedness
i. Claims Against the Decedent’s Estate
*claims means something that is owed or obligation to
pay (in the form of money or money equivalent) which
could have been enforced against the deceased during
his lifetime
-the source of the indebtedness may be a contract, tort
or quasi-delict or even by operation of law
REQUISITES in order for these claims against the
decedent’s estate be deductible:
1) The liability represents a personal obligation of
the deceased existing at the time of his death
EXCEPT unpaid obligations incurred incident to
his death such as unpaid funeral expenses and
unpaid medical expenses.
2) The liability was contracted in good faith and for
adequate and full consideration in money or
money’s worth.
3) The claim must be a debt or claim which is valid in
law and enforceable in court.
4) The indebtedness must not have been condoned
by the creditor or the action to collect from the
decedent must not have been prescribed.
5) The debt instrument must be duly notarized at
the time the indebtedness was incurred
6) Duly notarized certification from the creditor as
to the unpaid balance of the debt, including
interest as of the time of death
7) Proof of financial capacity to lend the amount
at the time the loan was granted, as well as its
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latest audited balance sheet with a detailed
schedule of its receivable showing the unpaid
balance of the debtor
8) A statement under oath executed by the
administrator or executor of the estate reflecting
the disposition of the proceeds of the loan if the
said loan was contracted within 3 years prior to
the death of the decedent
*Money claims after the death? CANNOT BE CLAIMED
AS A DEDUCTION
3) There is adequate or full consideration of the
mortgage contracted in good faith
4) If partially owned by the decedent, only a
proportionate amount is deductible
c. Losses – losses incurred during the settlement of the estate
arising from robbery, theft, embezzlement, fire, shipwreck,
storms and / or other casualties.
REQUIREMENTS:

ii. Claims against Insolvent Person 1) The amount of loss is not compensated for by any
*insolvent means that assets are inadequate to insurance or extra-judicial settlement and
discharge his liabilities 2) They have not been claimed as deduction from gross
income for income tax purposes at the time of the filing
REQUIREMENTS: of the estate tax return

1) The amount of claims has been initially included d. Expenses

as part of the decedent’s gross estate
2) The incapacity of the debtor to pay his debt is i. Funeral Expenses
proven, not merely alleged ***(WHICHEVER IS LOWEST among the actual
expenses, 5% of the gross estate or not exceeding
*Proof of incapacity to pay: The Court’s
P200,000)
Declaration of Insolvency

iii. Unpaid Mortgages 1) Actual funeral expenses (whether paid or still

payable) up to the time of interment
REQUIREMENTS: -actual expenses incurred in connection with the
burial, wake, interment, lot/cremation, tombstone,
1) The mortgage must be contracted during the mausoleum, including the food during the wake
lifetime of the decedent and the clothes of the deceased, publication,
2) The property mortgaged must be part of the including anything for the performance of any right
gross estate at fair market value

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- if the expenses are incurred after the
interment, expenses are not deductible.
(example: 9 days)
2) 5% of the gross estate; or
3) Statutory limit of P200,000
ii. Judicial Expenses – allowed deductions incurred for the
administration, inventory taking of assets and
settlement of the estate and distribution of the estate
among the heirs
- includes fees of executor/administrator, attorney’s
fees, court fees, accountant’s fees, appraiser’s fees,
clerk hire, costs of preserving and distributing the estate,
costs of storing or maintaining property of the estate and
brokerage fees for selling property of the estate
*Judicial expenses should be supported by a sworn
statement of account.
*Can you claim judicial expenses if the settlement
is extrajudicial? NO. You can claim only these expenses
if the settlement of the estate has been the object of a
testamentary proceeding.
2. Special Deductions
a. Standard Deduction – P1,000,000
*NO Requirements, NO Documentation, NO
Substantiation
b. Family Home -is the dwelling house, including the land on
which it is situated, where the husband and wife or a head of
the family and members of their family reside.
NOTES BY: MARY EDREEN A. MANIEGO
-fair market value not exceeding P1,000,000 is
deductible. The excess shall be subject to estate tax.
REQUIREMENTS:
1) Certified by the Barangay Captain of the locality as the
actual residential house of the decedent and his family
2) Included in the gross estate of the deceased and
3) The lower amount of the decedent’s interest in the
family home of P1,000,000
*If the decedent is unmarried head of family, allowable
deduction would be P1,000,000.
*Head of the family is unmarried (single/legally separated)
man or woman with parent/s, siblings and/or children
depending upon him for chief financial support
*The dependent parents of the head of the family must be
senior citizens.
*The dependent siblings and/or children must not be more
than 21 years old, not married or not gainfully
employed, or regardless of age his dependent siblings
and/or children is incapable of self-support due to mental
or physical defect.
c. Medical Expenses
REQUIREMENTS:
1) Should be incurred (whether paid or unpaid) by the
decedent (Filipino or resident alien) within 1 year
prior to his death which shall be duly substantiated
with receipts
2) NOT EXCEEDING P500,000
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d. Amounts received by heirs under R.A. 4917 VANISHING DEDUCTION – the shorter the period, the higher the
-Retirement Benefits (private firms) if: at least 10 years deduction.
service, not less than 50 years old at the time of retirement
Purpose: to lessen the heavy burden of paying estate tax due to the
and the benefits shall be availed of only once by the
short period of property transfers by reason of early deaths, the property
employee
previously subjected to estate or donor’s tax may be allowed to be
-Separation Benefits – due to death, sickness, physical
reduced by a certain determined amount called vanishing deduction.
disability or for any cause beyond the control of the
employee *There are 2 decedents. The 2nd decedent dies within 5 years from the
death of the 1st decedent.
3. Share of the Surviving Spouse
Procedure: Requirements
1. The property must be included in the gross estate.
a. Determine the Gross Conjugal or Community 2. The tax on the previous property must actually been paid
b. Determine the Obligations against the Conjugal or Community 3. The property must be situated in the Philippines
property 4. The 2nd decedent dies within 5 years from the death of the 1st
c. Subtract the obligations from the gross conjugal/community to decedent
arrive at a NET Conjugal/Community *Valuation: value of the property at the time of the death of the 1st
d. 50% of the NET Conjugal/Community is the SHARE of the decedent VS. value of the property at the time of the death of the 2nd
Surviving Spouse decedent, WHICHEVER IS LOWER.
*Justification of the Share of the Surviving Spouse: You only Amount of Vanishing Deduction to be Claimed
need to tax the estate of the decedent. (Hindi naman kasi sa Less than 1 year 100%
decedent yun. Ibigay mo yung nararapat sa asawa)
More than 1 year 80%
*Can the ordinary deductions, special deductions and share of the
to 2 years
surviving spouse be claimed if the decedent is a NON-RESIDENT
ALIEN? More than 2 60%
The non-resident alien decedent can claim ordinary deductions ONLY to years to 3 years
the part of the gross estate located in the Philippines. If properties
More than 3 40%
owned by the non-resident alien decedent are located outside of the
years to 4 years
Philippines and they are reported in the Philippines estate tax return,
pro-rata deductions can be claimed. More than 4 20%
years to 5 years
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*The property is depreciating and fewer benefits if shorter period.
Administrative Requirements in Estate Tax
1. Notice of Death – is required if the gross estate exceeds
P200,000.
- It should be filed in the Revenue District Office (RDO) where
the decedent is domiciled or if the decedent is a non-resident
alien, to the BIR Commissioner.
- It should be filed within 2 months from the decedent’s death.
50% surcharge is imposed in case of the following instances:
1. Failure to file any return and pay the amount of tax or installment
due on or before the due date;
2. Filing a return with a person or office other than those with whom
it is required to be filed;
3. Failure to pay the full or partial amount of tax shown on the
return or the full amount of tax due for which no return is required
to be filed on or before the due date;
4. Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment.

2. Estate Tax Return – must be filed within 6 months from the 1. Willful neglect to file the return within the period prescribed by
decedent’s death the Code or by rules and regulations;
- Can be extended by filing a request for extension for filing the 2. The return filed is false or fraudulent.
return, not exceeding 30 days, specifying the reason why - Over-declaration / under-declaration of exemptions / deductions
there should be an extension.
Interest at the rate of 20% per annum, in addition to surcharge,
- Payment should be done simultaneously with the filing of the
reckoning from the date that you are supposed to pay until the amount is
return. Payment should be done in the RDOs or authorized
paid.
banks.
- Payment can also be extended not to exceed 5 years in case
the estate is settled through the courts or 2 years in case the
estate is settled extra-judicially. The reckoning period of
assessment will start only after the extended period. If extended
assessment, extended collection also.

3. CPA Certificate – is required if the gross estate exceeds

P2,000,000.

Surcharges and Interests

Surcharge is a penalty because of delinquency or misrepresentation.

25% surcharge for each of the following violation:

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DONOR’S TAX
-if the donor intends that donation -transfer is revocable by the
DONATION – act of gratuitously transferring property or right from one shall take effect while he is still transferor at will, or the donor
person to another who accepts it. alive, the donee (or donee’s reserves the power to dispose of
- bilateral act because the donor gives a gift and the done receives it. representative) is also living to the properties conveyed
accept the gift
- unilateral contract because only the donor is obligated to deliver or
-transfer should be void if the
transfer ownership of a thing without a corresponding expectation
transferor should outlive the
of performance in return transferee
- gratuitous contract because only one party provides advantage
without receiving anything in return
- voluntary contract because giving is an exercise of the giver’s free
will Parties in Donation
- legal contract because the donor must be capacitated and the 1. Donor – person who gratuitously gives his property or rights
object of donation must be lawful, not contrary to law, moral and 2. Donee – person who accepts and receives the property or rights
public policy being donated
True or False: *Donor or donee may be natural or juridical person.
All properties are qualified to be donated. FALSE. It should be properties *Both parties must be living at the time of donation.
by the donor that could be disposed by him at the time of donation.
Therefore future properties cannot be the subject of donation because the Classifications of Donors (to ascertain whether the property donated is
donor does not yet own the property. subject to tax in the Philippines
Citizen or Resident Alien Non-resident Alien
Donation Inter Vivos vs. Donation Mortis Causa

Donation Inter Vivos Donation Mortis Causa -at the time of donation, the donor -at the time of donation, the donor
is a citizen of the Philippines or an is a foreigner and not a resident of
-takes effect during the lifetime of -takes effect upon the death of the alien with residency in the the Philippines
the donor donor Philippines

-subject to donor’s tax
-gratuitous transfer of rights and
properties
-subject to estate tax
-transferor retains the ownership
(full or naked) and control of the
property before his death
-subject to donor’s tax regardless
of where the gift was made or
where the property donated is
located, subject to the rule of tax
credit
-subject to donor’s tax only on
their donations of property located
in the Philippines

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*The juridical personality must be existing at the time of donation.
*Completion of donation – delivery of the gift
*Perfection of donation – acceptance of the gift
*The ownership, right and interest are to be transferred.
Delivery – transfer of possession and control
The economic benefit of the property is transferred from the donor to the
done
Accepted by the donee – The beneficial interest of the property has
already been given to the donee.
Donor’s tax can be imposed only if the donation is COMPLETED AND
PERFECTED.
DELIVERY AND ACCEPTANCE must be during the lifetime of both
parties.
*NO DONATION INTER VIVOS if either of the parties is dead since the
completion and perfection could not be made.
RULE OF RECIPROCITY
-applicable only to intangible personal property with situs within the
Philippines owned by a non-resident alien
There is reciprocity when:
1. A foreign country, of which the donor is a citizen and resident at
the time of donation, did not impose a donor’s tax
2. When the foreign country allowed similar exemption from transfer
tax with respect to the intangible personal property owned by a
Filipino citizen not residing within the said foreign country
NOTES BY: MARY EDREEN A. MANIEGO
Essentials of Donation:
1. Capacity of the donor
a. Title of ownership over the property or right being donated
b. Legal age (at least 18 years old)
c. Literacy (not a deaf-mute who do not know how to write)
d. Sanity or soundness of mind
*Donation can be accepted by a representative. Minors can be donees,
but the acceptance should be thru the legal representative.
2. Donative Intent
-declared purpose of the legal owner of a property/right to transfer
ownership to another for free
-such intent followed by a donative act is essential to constitute
a gift especially in cases of direct donation
-the intention to donate is known by observing the acts and forms
required by law to make it valid
*If there is a consideration, but less than adequate to the full
consideration, donative intent is presumed.
3. Delivery of the gift – can be actual or constructive delivery
(instrument/deed is delivered pag constructive). The object of
donation could be a real property, personal property or even rights.
4. Acceptance of the done
-acknowledgement by the donee of the thing or right (personal
property) donated
-required to be in writing if the value of property exceeds
P5,000, otherwise the donation is void. Both the donation and
acceptance must be in writing. (written document regardless of
whether the document is public or private)
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 TAXATION LAW 2 – ATTY. BARIBAL
*Donation required to be in public instrument – donation of real
property. The acceptance may be on the same instrument or in another
instrument but both must be in public instrument.
-if donation was made on a private document, acceptance MAY
be made on a public instrument.
-if donation was made on a public instrument, acceptance
cannot be made on a private instrument, acceptance MUST also
be in public instrument
Acceptance must be communicated to the donor (notice to the
donor) that the thing or property has already been accepted by the
donee, if the acceptance is made on another instrument.
Acceptance and Delivery should be simultaneous. (kaliwaan)
*If the transfer is less than the full or adequate value of the property, the
transfer is not really a sale.
VOID DONATIONS
1. Donation between persons who were guilty of adultery or
concubinage at the time of donation.
2. Donation between persons guilty of the same criminal offense in
consideration thereof.
3. Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
4. Donations made to incapacitated persons shall be void, though
simulated under the guise of another contract or through a person
who is interposed.
5. Every donation between husband and wife during the marriage
shall be void.
-EXCEPT MODERATE GIFTS (moderate gifts depend on the social
status of the husband and wife)
*What if without a valid marriage? The rule still applies.
FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
Renumerative Donation – thank you gift
- No prior knowledge on the part of the donee that by such
act/performance, there is a consideration from the donor
- No expectation on the part of the donee
- No prior pronouncement by the donor that a reward could be
given
Donor’s Tax vs. Gift Tax
Why are we imposing donor’s tax or gift tax?
- To supplement the estate tax for the loss of the government
revenue when estates are split by donations.
- To prevent the non-payment of estate tax since properties are
transferred without consideration while the property owner is still
alive.
Donor’s tax – NOT a property tax, but one which is imposed on the
transfer of property by way of gift inter vivos.
DONOR’S TAX
- Excise tax because it is imposed on the right to transfer
gratuitously, directly or indirectly, real or personal properties,
tangible or intangible out of the owner’s liberality in favor of
another that accepts the gift
- Ad Valorem tax because the basis of valuation to compute the
donor’s tax is the fair market value of property transferred at the
time of donation
- Inter Vivos tax because donor’s tax shall not apply unless and
until there is a completed and perfected gift during the lifetime of
the donor and the donee.
- Bound to be paid by the donor. Any agreement that the donee will
pay the donor’s tax is NOT binding.
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 TAXATION LAW 2 – ATTY. BARIBAL
Valuation of Donation
Personal Property
1. Brand new
2. Second-hand
3. Loaned/Pawned
4. Interest-earning receivables
and Bank Deposits
5. Non-interest bearing notes
receivables
6. Philippine peso currency
7. Foreign Currency
Real Property
Political contributions
Gross Gift – value of the property or right donated subject to donor’s tax
before any allowable deduction
FIRST SEMESTER S.Y. 2017-2018
Valuation
fair market value at the time of
donation
Current market price
Value of the gift at the time of
donation
Grossed-up loan value
Fair value plus accrued interest
Discounted value
Face value
Converted Philippine Peso Value
Assessed Value (City Assessor) or
Zonal Value (BIR) whichever is
higher
NOT subject to donor’s tax if:
1. The contribution is for
campaign purposes and
2. Duly reported to COMELEC
NOTES BY: MARY EDREEN A. MANIEGO
Net Gift – net economic benefit from the transfer that accrues to the
done
DEDUCTIONS FROM GROSS GIFTS:
1. Dowries
- Donation of parents to children on account of marriage, not for
any other purpose
Reduced by P10,000 (each parent) provided that:
a. The gift is on account of marriage
b. The donee must be their legitimate, recognized natural or
adopted children and
c. The giving of the gift is made before the celebration of
marriage or within 1 year thereafter
Exempted
Donation The first P100,000, NO RATE is applied.
Estate The first P200,000, NO RATE is applied
*Relative – spouse, descendants, ascendants, brothers, sisters, relative
by consanguinity within the 4th civil degree
*Stranger – not a relative
Tax Rate (Based on Net
Gift)
Relatives Graduated from 2% to 15%
Strangers 30%
2. Encumbrance assumed by the donee
 Encumbrance is a claim or obligation attached to a property. It
is allowed as a deduction from the gross gift if assumed by the
donee because such obligation is onerous on the part of the
donee; hence not part of the gift.
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018
3. Diminution of gift provided by the donor – refers to the
decrease in the value of property donated as a result of a condition
made by the donor to the donee to give portion of the donated
property to another person.
- There are 2 donees in this case, 1st donee is assigned as a trustee
to deliver a portion of original gift to the other donee.
- In general, the diminution would still be taxable, exempt when
given to a tax-exempt donee.
4. Donations to the National Government and the like – Gifts
made for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit or
to any political subdivision thereof shall be exempt from donor’s
tax.
5. Donations to non-profit organizations - (Donee Organizations)
Educational, charitable, religious, cultural, social welfare, accredited
non-government organization, trust or philanthropic organizations
or research institutions are exempt from donor’s tax if the donee
organization:
a. Must be an accredited non-stock and non-profit organization
b. Shall not use more than 30% of the gifts received for
administrative purposes
c. Governed by trustees with no compensation
d. Does not pay dividends
e. Devotes all of its revenue to the accomplishment and promotion
of its purposes enumerated in its Articles of Incorporation
Purpose of Deduction - encourage donation to these exempt institutions
because of a noble intention
NOTES BY: MARY EDREEN A. MANIEGO
Donor’s Tax Credits
- Applies when there are donor’s tax paid not only in the Philippines
but also outside of the Philippines
𝑵𝒆𝒕 𝑮𝒊𝒇𝒕𝒔 (𝑭𝒐𝒓𝒆𝒊𝒈𝒏 𝑪𝒐𝒖𝒏𝒕𝒓𝒚)
= × 𝑷𝒉𝒊𝒍𝒊𝒑𝒑𝒊𝒏𝒆 𝒅𝒐𝒏𝒐𝒓′ 𝒔 𝒕𝒂𝒙 𝒅𝒖𝒆
𝑻𝒐𝒕𝒂𝒍 𝑵𝒆𝒕 𝑮𝒊𝒇𝒕𝒔 𝑾𝒊𝒕𝒉𝒊𝒏 𝒂𝒏𝒅 𝑾𝒊𝒕𝒉𝒐𝒖𝒕
OR
= 𝑻𝒉𝒆 𝒂𝒄𝒕𝒖𝒂𝒍 𝒕𝒂𝒙 𝒑𝒂𝒊𝒅 𝒕𝒐 𝒇𝒐𝒓𝒆𝒊𝒈𝒏 𝒄𝒐𝒖𝒏𝒕𝒓𝒚
WHICHEVER IS LOWER.
ADMINISTRATIVE REQUIREMENTS IN DONOR’S TAX:
1. Donor’s Tax Return – is under oath and shall contain:
a. Each gift made during the calendar year which is to be included
in computing net gifts
b. The deductions claimed and allowable
c. Any previous net gifts made during the same calendar
d. The name of donee and
e. Such further information as may be required by rules and
regulations made pursuant to the law
2. Attachments to the Donor’s Tax Return
a. Sworn statement of the relationship of the donor to the donee
b. Proof of claimed tax credit, if applicable
c. Certified True Copy of Original/Transfer/Condominium
Certificate of Title (front and back pages) of the donated
property, if applicable
d. Certified True Copy of the latest Tax Declaration (front and back
pages) of lot and/or improvement, if applicable
e. Certificate of No Improvement, if applicable
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 TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO

f. Proof of Valuation 2. The return filed is false or fraudulent.

g. Proof of claimed deductions - Over-declaration / under-declaration of exemptions / deductions
h. Others
Interest at the rate of 20% per annum, in addition to surcharge,
*The filing of returns for donor’s tax is within 30 days after the date of reckoning from the date that you are supposed to pay until the amount is
gift is perfected and the tax due thereon must be paid on the date of paid.
filing.

*The return must be filed with the Revenue District Office, or duly
authorized collection agent in which the donor resided at the time of
transfer.

*Can be extended by a request to the Commissioner not exceeding 6

months.

Surcharges and Interests

Surcharge is a penalty because of delinquency or misrepresentation.

25% surcharge for each of the following violation:

1. Failure to file any return and pay the amount of tax or installment
due on or before the due date;
2. Filing a return with a person or office other than those with whom
it is required to be filed;
3. Failure to pay the full or partial amount of tax shown on the
return or the full amount of tax due for which no return is required
to be filed on or before the due date;
4. Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment.

50% surcharge is imposed in case of the following instances:

1. Willful neglect to file the return within the period prescribed by

the Code or by rules and regulations;
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BUSINESS TAX -Marginal income earners with a yearly gross sales/receipts not
exceeding P100,000. Examples: sari-sari stores, carinderia, turo-
Business – trade or commercial activities which are regularly engaged in
turo, drivers/operators of a single unit tricycle, agricultural
as a means of livelihood or with a viewpoint of obtaining profit.
growers/producers (farmers/fishermen) selling directly to ultimate
Elements of Business: consumers

1. Trade, economic, commercial activity 4. Privilege stores

2. Such activity is regularly performed -tiangges, temporary stalls for the purpose of selling variety of
3. The purpose is to acquire gain or profit goods or services for special events such as fiestas for not more
Business Tax - Privilege tax because it is imposed on the activity being than 15 days in a year.
performed regardless of whether you earn the income or not. But the
intention should be to profit or gain. 5. Casual stores
-occasional sale of goods or services by a person who is not
*You have to pay business tax even if you don’t earn income. You may engaged in business
not be subject to income tax but you are subject to business tax. -involves selling of personal properties or belongings not used in
*But if you earn income because you are engaged in business, you are business such as: (a) sale of house and/or lot classified as capital
liable to pay business tax and income tax as well. asset (not used in business); and (b) sale of personal assets not
used in business
TRUE or FALSE:
6. Compensation and other benefits from employment
All economic activities are subject to business tax. FALSE because there
-Compensation income and other benefits derived from an
are exceptions provided by the law.
employer-employee relationship are subject to income tax but
Economic Activities Not Subject to Business Tax: exempt from business tax
-Additional compensation in the form of commission income
1. Sale of goods or services outside the Philippines
received by an employee from his employer is not subject to VAT.
*The place of sale is presumed to be the place of consummation.
Kinds of Business Tax
2. Exempt commercial transactions within
1. VAT
- Sales of goods or services to senior citizens, sales of
2. Other Percentage Tax (OPT)
agricultural and marine food products in their original state,
3. Excise Tax
etc.
4. Documentary Stamp Tax (DST)
3. Subsistence or livelihood activities
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 TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018
VALUE ADDED TAX (VAT)
- Tax imposed when there is sale, barter, exchange, lease of goods
or properties or rendition of services, including transactions
deemed sale by law in the course of trade or business in the
Philippines.
- Importation of goods into the Philippines, whether or not in the
course of trade or business.
*VAT on importation of goods will be paid by the importer prior to
the release of the goods from the custody of Bureau of
Customs. The importer must also pay the custom duties and
tariffs.
*Valuation = purchase price of the goods to be determined by
the Bureau of Customs. Proof must be presented (receipts) but it
is not conclusive that what is in the receipt will be the value of the
goods. (may standard na ginagamit)
*The reason why the importation of goods needs not be in the
course of trade or business is to discourage importation and to
have EQUAL FOOTING between one who is buying from a local
merchant and one who is buying from other country.
*NO Threshold in the importation.
*There should be regularity of commercial or economic activity, including
transactions incidental to the said activity.
Tax base is commonly referred to as the gross selling price of the goods
or properties being sold, bartered or exchanged.
Gross sale vs. Gross receipt
Gross Sale Gross Receipt
-goods or properties -rendition of services
-involves lease
NOTES BY: MARY EDREEN A. MANIEGO
History of VAT
-initially introduced in 1988 on a limited coverage only
-expanded in 1996, wider coverage
Before the effectivity of VAT:
- every stage of sale, there is tax original and subsequent sales tax
- there are certain articles which are excise tax only, not VAT
- change in the percentage tax on name taxpayers
VAT is a privilege tax because it is imposed not on the goods nor
property but on the act of sale, barter, exchange, lease, importation. It is
the transferor, the seller, lessor, importer who has the burden to pay
the tax, although, it could be shifted to the consumer.
VAT is an ad valorem tax because the basis of determining the amount
of tax is the gross selling price, the gross sale or the gross receipt.
VAT is indirect tax because it can be shifted or passed to the consumers.
(Pero pwede ring hindi i-shift, nasa seller, transferor, lessor, importer
yun) *But even if you did not shift, you have to pay for that.
*The 12% VAT must show a separate computation in the invoice.
Advantages of VAT:
1. Simplified Tax Administration – because it has only 2 rates: either
0% or 12%, not scheduler, no table
-simplifies the application of sales tax
2. Equitable – whoever is the buyer, same rate
3. Easier computation
4. There is a registration. Since VAT can be shifted, you need
documents to determine what amount of tax has been shift or
passed.
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5. There is also the presence of INPUT VAT and OUTPUT VAT.
(You cannot dispense the documentation.)
The taxable person should pay VAT. He should be registered. Registration
remains until it is revoked or cancelled by the Bureau.
VAT registered person – one who registered
VAT registrable person – required to register but failed to register
If you are non-VAT registered because you are not required or subject to,
you are not going to pay the VAT but you will pay the OPT.
VAT Threshold effective January 2012: exceed P1,919,500
VAT ON SALES OF GOODS OR PROPERTIES:
1. Sales of goods or properties and rendition of services of VAT-
registered business, other than those zero-VAT rated, VAT-
exempt or those under OPT
2. Deemed sales consumptions or transfers by VAT-registered
business
Transactions Deemed Sales – business transactions which are not
actual sales but by “legal fiction” they are assumed or considered sales
due to the consumption or irregular disposal of goods/properties by a
VAT-registered seller.

Consequence of non-registration of persons required to register: not 1. Transfer, use or consumption of goods or properties not in the
exempted on the 12% VAT and you cannot avail the benefits of output course of business;
VAT and input VAT. 2. Distribution or transfer of goods or properties as profit share or
payment to creditors;
Output VAT vs. Input VAT 3. Consigned goods not sold within 60 days after consignment
Output VAT Input VAT date;
-tax added to the value of -tax added to the value of goods 4. Retirement or cessation from business with respect to all
goods/services collected from the or services purchased by a VAT-
goods at hand. The retirement from business includes:
buyers registered person from a VAT-
a. Change of ownership of the business
registered supplier
b. Dissolution of partnership and creation of a new partnership
-is to be treated as a current -is to be treated as a current asset which takes over the business and
liability of the taxpayer-seller to of the taxpayer-seller because it is c. Incorporation of single proprietorship.
the BIR because he is only a an advance payment of VAT 5. Changes in business tax status of a VAT-registered taxpayer
collecting agent of the tax
Zero-rated VAT – seller not subject to output tax but entitled to tax
credit or refund for the input VAT
Advantage of Output VAT: The tax forms part of the purchase price.
Advantage of Input VAT: Tax credit or Refund Sales subject to Zero-rated VAT:

1. Export Sales – there must be an actual shipment of goods from

the Philippines to a foreign country

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PRINCIPLE OF DESTINATION:
Goods and services are taxed only on the country where
they are consumed. Therefore, NO VAT on goods and services
destined for consumption outside the territorial border of the taxing
authority.
2. Foreign Currency Denominated Sales
3. Sale of Goods or Properties to Persons or Entities who are
tax exempt under international agreements
Is there a VAT on sale of real properties?
YES. Engaged in the sale, barter or exchange of real properties in the
ordinary course of trade or business. The threshold applies. The real
property must be primarily held for sale or lease. It shall include the pre-
selling of real properties.
The sale of capital asset is not subject to VAT because it is not normally
intended to be sold in the ordinary course of trade or business. The sale
of capital asset is subject to the 6% capital gains tax. If there would be
gain on the sale of capital asset, that would be included as part of the
taxable income. If there would be loss, that could be claimed as
deduction. (*remember the holding period)
The sale of ordinary asset is subject to VAT.
Residential Lot – threshold is P1,919,500
House and Lot – threshold is P3,199,200
Rental/Lease – threshold is P1,919,500
Sale of Low Cost Housing / Socialized Housing: NOT subject to VAT
What is the tax base involving the sale / lease of real properties?
NOTES BY: MARY EDREEN A. MANIEGO
The amount or consideration stated in the sales document or the
fair market value whichever is higher.
What is a fair market value?
Comparison between the zonal valuation and real property tax
declaration whichever is higher.
Zonal valuation is determined by the Bureau while the real property tax
declaration is determined by LGU.
Lease of Real Property:
- Also vatable if monthly rentals exceed P12,800 per unit and exceed
P1,919,500 per year.
*If monthly rentals exceed P12,800 but does not exceed
P1,919,500 per year, subject to OPT, not VAT
Lease of properties, for VAT purposes, is not limited to real property.
Property can also include patents, copyright, goodwill, trademark,
trade secrets including the right to use information, knowledge
(commercial, scientific, industrial).
Security deposit, in case of lease, or option money, if applied as part of
cost of rental, subject to VAT. But if the security deposit is used to
ensure the performance of an obligation from the lessee, NOT SUBJECT
TO VAT.
Allowable Deductions to the Gross Selling Price:
1. Sales Return and allowances – if a proper credit or refund was
made during the month or quarter
2. Sales discount – given within the same month/quarter if:
a. Determined and granted at the time of sale
b. Expressly indicated in the invoice
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c. The amount should form part of the gross sales duly recorded in 2. Nonlife Insurance – subject to 12% VAT
the books - If life insurance, not subject to VAT, but subject to the new OPT
d. Granting of discount does not depend on the happening of a rate of 2%, except if the life insurance premium is refunded within
future event 6 months and premiums collected outside Philippines from non-
resident person
VAT ON RENDITION OF SERVICES

- Services must be performed in the Philippines in the course of 3. Lending Services - registered
trade or business 4. Construction Services
- Services performed for a valuable consideration (the 5. Service Contractors
consideration must be commensurate to the services rendered)
6. Transportation Services
*The consideration may be in cash or in kind. - Domestic common carriers by land to transport passengers is
Should the consideration be received by the performer? Yes, actual or subject to OPT of 3%
constructive receipt - Transport of passengers by air or sea is subject to 12% VAT
- Transport of goods and cargoes by land, air and water is subject to
Constructive Receipt – consideration is placed at the control of the 12% VAT.
person who rendered the service without restriction by the payor.
Examples: deposit in banks which are made available to the seller of Land Water Air
services without restrictions; issuance by the debtor of a notice to offset Goods and Cargoes 12% VAT 12% VAT 12% VAT
any debt or obligation and acceptance thereof by the seller as payment Passengers 3% OPT 12% VAT 12% VAT
for services rendered; transfer of amounts retained by the contractee to
the account of the contractor. 7. Media Advertising – broadcasting by television, radio
SERVICES SUBJECT TO VAT: 8. Telecommunication Services – telephone, telegraph, wireless
and other communication facilities services
1. Professional Services – earnings from practice of 9. Franchise Services – corporation engaged in the business of
profession including services rendered by doctors of medicine granting franchises are subject to 12% VAT
and lawyers will be subject to 12% VAT 10. Hotels, Restaurants and Caterers – cafes, refereshment
- Professional services rendered by a general professional parlors, clubs, resorts, inns
partnership is subject to VAT 11. Movie houses, cinemas, theaters
- Services by actors, talents, singers, broadcasters, directors 12. Brokers (Real estate, commercial)
including professional athletes 13. Warehousing Sevices
- Services rendered by Vans and Finance Companies 14. Processing and Manufacturing Services

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15. Distribution Companies on Electricity Transmission

including cooperatives
True or False:
Businesses that perform services for a consideration in the ordinary
course of trade or business are subject to VAT. FALSE, determine the
threshold P1,919,500.
Businesses that perform services for a consideration in the ordinary
course of trade or business are subject to tax. TRUE, either VAT or
OPT.
SERVICES subject to ZERO-RATED VAT:
1. Export – performance of all kinds of services in the Philippines
- the place where the service was performed as the jurisdictional
basis for the imposition of VAT on supply of services
*Doctrine of Cross Border – no VAT shall be imposed to form
part of the cost of goods sold destined for consumption outside of
the territorial border of the taxing authority.
*Accordingly, services performed outside the Philippines are
zero-rated or effectively zero-rated VAT.
3. Foreign Rendition of Services by Domestic Corporation
- Transport of passengers and cargo by air or sea vessel from
Philippines to foreign country
- Services paid for in acceptable foreign currency and accounted in
accordance with the rules and regulations of the BSP
Could it be possible that the services are rendered in the
Philippines and yet zero-rated?
- YES. Transport of passengers and cargo by air or sea from
Philippines to foreign country
- Processing, re-packing of goods for other persons doing business
outside of the Philippines and then you export that, and you will be
paid foreign currency, that is zero-rated
Reason why export is zero-rated: encourage investment by
receiving payment in foreign currency; our foreign reserves increases;
hence better economy
VAT ON GOODS OR SERVICES SOLD TO GOVERNMENT
(Nagbenta ka sa government)

- Subject to either 12% VAT or OPT

2. Supply of services by a VAT-registered person to a person or entity
- The government shall deduct and withhold the following
who was granted INDIRECT TAX EXEMPTION under special laws
business taxes.
or international agreements
Seller VAT OPT
*PEZA or SBMA-Registered Enterprises – operating within the
VAT Registered Final VAT of 5% X
ECOZONE area (under the fiction of foreign country). The ecozone
Non-VAT X OPT of 3%
area may be considered as a special customs (or foreign) territory.
*World Health Organization (WHO)
Creditable Withholding Business Taxes (CWIT) to be deducted and
*Other organizations such as Asian Development Bank,
withhold also: 1% on purchase of goods or 2% on rendition of
International Rice Research Institute, United States Agency for
service.
International Development, US Navy Supply Depot (Department of
Navy), International Labor Organization *If entirely sold sa government, the seller can still claim input VAT.
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 TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018
If Actual Input VAT > 7%, the difference shall form part of the cost of
sale of the seller.
If Actual Input VAT < 7%, the difference is treated as income.
EXEMPTIONS FROM VAT – no output VAT to be paid
*The burden of proof lies on the taxpayer.
VAT-EXEMPT PERSONS:
1. Those whose sales or receipt are exempt under Section 109 of
NIRC
2. Those whose annual gross sales/receipts do not exceed
P1,919,500 and registered as non-VAT
3. Marginal Income Earners – those whose gross annual income do
not exceed P100,000
4. Not taxable entity – non-stock and non-profit organization which
has no income but collecting monthly dues from the members
*A non-stock, non-profit private organization becomes a taxable
person if it regularly conducts or pursues a commercial or an
economic activity.
5. Senior citizens – Filipino citizen who is a resident of the Philippines
and 60 years old or above
- Granted 20% discount and also VAT-exempt on their purchases of
goods and services as long as they can personally show a valid
senior citizen ID card.
- Purchases for his/her personal consumption
6. Persons with Disability – exempted from paying 12% VAT on
certain goods and services aside from the 20% regular discount
granted to them.
- A person with disability who is at the same time a senior citizen can
only claim one 20% discount and VAT-exempt at the same time
7. Sales of Duly Registered Cooperatives – registered with
Cooperative Development Authority (CDA)
NOTES BY: MARY EDREEN A. MANIEGO
8. Special Economic Zone Enterprises or Free Ports are exempted
because PEZA-registered entity are intended for sale/consumption
abroad which are by nature exempted under destination
principle. Also, they are exempted because it creates
employment.
9. Regional and Area Headquarters – established by multinational
corporations which do not earn or derive income from the
Philippines are VAT-exempt
10. Inventors Sales of Invented Products – should be registered under
the rules and regulations of DOF. They are exempted only for the
first 10 years from the date of the first sale.
11. Diplomatic agents are exempt from all dues and taxes, personal
or real, national, regional or municipal. But, they are subject to
indirect taxes of a kind which are normally incorporated in the price
of goods or services.
VAT-EXEMPT TRANSACTIONS:
1. Export Sales of non-VAT Registered Persons
*export sales of VAT Registered are zero-rated, NOT VAT-exempt
2. Sale or Importation of Agricultural and Marine Food Products in
their ORIGINAL STATE. Original state means that the nature of
the food products does not change or if they undergone simple
processes such as freezing, roasting, drying, broiling, roasting,
salting, smoking, stripping (FoR D BSSS)
*Balut, penoy, salted egg – simple process so exempted
*vacuum packing, packing, tetra-pak – hindi na simple process
*DOES NOT INCLUDE IMPORTATION OF MEAT
*DOES NOT INCLUDE Marinated Meat and Fish Products
3. Agricultural Contract Growers – persons producing for other’s
poultry, livestock or other agricultural and marine food products in
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their original state like toll hatching and toll processing or toll
dressing.
4. Fertilizers, Seeds, Seedlings, Fingerlings, Fish Prawn,
Livestock and Poultry Feeds except special feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets
5. International Air Carriers of Passengers
*If transport of cargo from Philippines to another country – subject
to tax equivalent to 3% of quarterly gross receipts
6. Medical, Dental, Hospital and Veterinary Services except
professional fees
7. Employees’ Services because of employer-employee
relationship
8. Private Educational Institutions duly accredited by DEPED,
CHED, TESDA
9. Sale of Low-Cost and Socialized Housing – offered by
government
- Commonly offered to income earners for 20 years, 25 years, 30
years depending on the their age
- Commonly offered to SSS and GSIS members
- Subject to installment payment on
- Lot area is relatively small that could be afforded by
10. Sale of Residential Lot not exceeding P1,919,500
11. Sale of Residential House and Lot not exceeding P3,199,200
12. Monthly Rentals not exceeding P12,800
13. Importation of Personal and Household effects
*Requisites:
a. importation of personal household effects
b. importation was made by residents of Philippines returning
from abroad and non-resident citizens coming to settle in the
Philippines
NOTES BY: MARY EDREEN A. MANIEGO
*It includes professional instruments and implements, wearing
apparel, domestic animals and personal household effects
belonging to persons coming to settle in the Philippines for their
own use and NOT for sale. EXCEPT vehicle, vessel, aircraft,
machinery, other goods for use in manufacture and merchandise
of any kind in commercial quantity.
14. Sale, Importation, Printing or Publication of Books and any
Newspaper, Magazine, Review or Bulletin which:
a. appear at regular intervals
b. with fixed prices for subscription and sale and
c. which is NOT devoted principally to the publication of
advertisements
ZERO-RATED Transactions EXEMPT Transactions
-It is still a taxable transaction -Totally NOT taxable
-Claiming of input VAT is -The claiming of input VAT
allowed whether credit or refund is
NOT allowed
Administrative Provisions:
If OUTPUT VAT > INPUT VAT, excess can be used as tax credit
If INPUT VAT > OUTPUT VAT, excess is Unutilized Input VAT.
The unutilized input VAT can be applied as a Tax refund or apply with
the Bureau for a TAX CREDIT CERTIFICATE (TCC)
TCC can be used as payment for other Internal Revenue Taxes.
Requisite to claim INPUT VAT: Proper Documentation *Pag
installment, once lang pwede magclaim ng input VAT.
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Presumptive Input VAT (PIV) – amount allowed as input tax on WHERE to register? RDO where the principal place of business is
purchases of a VAT-Registered person despite that there is no actual VAT located.
payment made on VAT-exempt transactions
In the Registration, the following should be declared:
PIV is 4% of the gross value in money of their purchases of
1. Name of Seller
primary agricultural products which are used as inputs in the
2. Principal Place of Business
production of:
3. Head Office and Branches (if there is any)
1. Sardines, mackerel 4. What kind of business
2. Milk 5. TIN of Seller and TIN of business
3. Refined sugar 6. Registration Fee
4. Cooking oil
Consequence of Non-Registration: You are still liable to pay VAT, but,
5. Packed noodle based instant meals
you cannot impose the 12% output VAT and you cannot deduct input
Processing means pasteurization, canning and activities which through VAT.
physical or chemical process ALTER the exterior texture, form or inner
Compliance Requirements on Registration:
substance of a product in such manner as to prepare it for special use
to which it could not have been put in its original form or Mandatory VAT Registration
condition.
1. Gross sales/receipts – more than P1,919,500 a year
2. Expected annual gross sales/receipts – more than P1,919,500
3. There are reasonable grounds to believe that his gross
Transitional Input VAT (TIV) – allowed on inventory on hand (goods,
sales/receipts for the next 12 months – more than P1,919,500
materials of supplies) of a person who, for the first time becomes liable to
VAT or elects to be VAT-registered. Optional VAT Registration
TIV is equivalent to 2% of the value of such inventory or the 1. Taxable business transactions do not exceed P1,919,500 per year
actual input VAT paid on such inventory, whichever is higher, which but still chose to register
shall be creditable against the output VAT. 2. Mixed transactions who opted to register
3. Franchise grantees of radio/TV broadcasting whose annual gross
*Goods exempt from VAT shall be excluded in the computation of
receipts do not exceed P10M
TIV.
*Registration is irrevocable for 3 consecutive years.
TIV (also PIV) is NOT allowed for TCC or VAT refund, but allowed as
creditable input tax. The Certificate of Registration issued by the Bureau is required be
posted on conspicuous place of business.
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Filing of the Return: MONTHLY and QUARTERLY OTHER PERCENTAGE TAX (OPT)

Monthly Filing – first 2 months (file within 20 days after the month’s - Follows the Destination Principle: The place of sale is presumed
end) to be the place of consumption.
- Business tax on business transactions specifically identified by
Quarterly Filing – last month of the quarter (file within 25 days after
law.
the quarter’s end)
- Privilege tax because it is imposed on the privilege to sell or
Invoices and Receipts: purchase, exchange or barter goods or services
- Ad valorem tax because the basis of determining the amount of
The taxpayer shall apply for the AUTHORITY TO PRINT with the BIR tax is the value or sales price of the goods or services sold.
before printing the invoice and receipts. The invoices and receipts should
be registered with the BIR. *Marginalized income earners are subject to income taxes but
exempt from payment of business taxes (VAT, OPT)
Point of Sale – cash register machines should be registered with
appropriate RDO Marginalized Income Earners – are individuals whose business activities
are principally for livelihood or subsistence that do not realize gross
The cash register receipts must show: sales or receipts within a year exceeding P100,000.
1. Proprietor’s Business Name Scope of OPT Transactions:
2. Business Address
3. VAT or non-VAT number and 1. Below VAT Threshold – gross sales/receipts do not exceed
4. Date and Amount of Transaction – must show the separate P1,919,500 (small business enterprise)
computation of VAT 2. VAT Threshold Exception – gross receipts of non-VAT TV/Radio
franchise grantees whose annual gross receipts do not exceed
Invoice must show: P10M
1. Business Name 3. Specific OPT – The business is subject to applicable OPT (not
2. Nature of Business necessarily 3%) even if the annual gross sales/receipts of the
3. Business Address business exceed P1,919,500.
4. VAT Registration, TIN a. Domestic Carriers and Keepers of Garages
5. Date and Amount of Transaction – should show separately the *common carriers to transport property or person from one
computation of VAT place to another and the services are offered to the public.
6. Quantity, Unit Cost - cars for rent, transportation contractors that transport
7. Description of what has been purchased passengers for hire and other domestic carriers by land for
8. Name of the Buyer the transport of passengers and keepers of garages

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EXCEPT owners of bancas and owners of animal-drawn 2-
wheeled vehicles. (kalesa, karitela)
*Examples: bus, van for hire, jeepney for hire
*Fiscal Adequacy – the expenses and collections of income-
generated must at least be equal.
*TOWING SERVICES ARE SUBJECT TO VAT.
*PUJ Operators are subject to OPT. The drivers under a
boundary system are not subject to VAT and OPT if they are
qualified as marginalized income earners.
b. International Air and Shipping Carriers
*gross receipts derived from the transport of cargoes with
Philippine origin
c. Franchises
*radio/TV broadcasting companies whose annual gross
receipts of the prior year do not exceed P10M are subject to 3%
OPT
*gas and water utilities are subject to percentage tax but at a
lower rate which is 2%. (mas mababa kasi necessity yan)
*electric utilities are now subject to VAT.
d. Overseas Dispatch or Message from the Philippines
*Communication by telephone, telegraph and other overseas
dispatch originating from the Philippines are subject to
percentage tax, 10%. EXCEPT users such as government,
diplomatic services, international organizations and news
services.
e. Bank and Non-Bank Financial Intermediaries (money
changers and pawnshops)
*But not including insurance companies
NOTES BY: MARY EDREEN A. MANIEGO
f. Finance Companies
g. Life Insurance Companies
*the life insurance must be duly registered with the Insurance
Commission
*The insurance company must be doing business in the
Philippines
h. Agents of Foreign Insurance Companies
i. Amusement Taxes
*proprietor or operator of amusement places such as
cockpits, cabarets, night or day clubs, professional basketball
games, boxing exhibitions, jai-alai and race tracts.
j. Tax on Winnings
*The operator in charge must deduct the percentage tax from
the winnings before paying the prizes to the winners.
k. Sale of Shares of Stock in Local Stock Exchange, or
through IPO
*Shares of stock sold must be LISTED and TRADED through the
local stock exchange.
Other Percentage with a higher rate: practice of profession of actors,
actresses, theaters, personalities, directors not exceeding the threshold.
Administrative Provisions:
Filing of the Return: MONTHLY and QUARTERLY
Monthly Filing – first 2 months (file within 20 days after the month’s
end)
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Quarterly Filing – last month of the quarter (file within 25 days after
the quarter’s end)
WHERE: If there are payments, go to accredited banks. If no payment
which is very remote, go to the District Office. If no district office,
treasure of the city or municipality where the principal place of business is
located.
EXCISE TAX – imposed on harmful or non-essential goods
manufactured or produced in the Philippines for domestic sale,
consumption or for any other disposition including imported goods.
*Indirect tax because it is imposed on the producer but passed on to the
consumer.
Goods subject to Excise Tax:
1. Alcoholic Products – distilled spirits (tuba, lambanog), wine,
fermented liquor
*The excise tax is based on alcohol content.
2. Tobacco Products – cigars (rolls of tobacco wrapped in tobacco
leaf), cigarettes
3. Petroleum Products – include gasoline, oil, kerosene, LPG, diesel
4. Automobiles and other Motor Vehicles – Based on the selling
price (Ad valorem)
*Only applies to 4-wheeled motor vehicle fueled by gasoline,
diesel, electricity or any motive power. DOES NOT INCLUDE
buses, trucks, cargo van, jeeps and single cab chasse.
5. Miscellaneous Imported Articles and Non-Essential Goods
*Non-essential goods include jewelry, real or imitation, pearls,
precious, semi-precious stone, perfumes and toilet waters, yachts
and other vessels intended for pleasure or sports
*Imported goods shall either be sold, consumed or disposed locally.
6. Mineral Products – include coals, metallic minerals, non-metalic
minerals
NOTES BY: MARY EDREEN A. MANIEGO
Administrative Provisions:
Filing of the Return and Payment of Excise Tax: paid by
manufacturer or producer before the removal of product from place
of production or place of extraction in case of minerals.
DOCUMENTARY STAMP TAX (DST)
Tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation,
right or property incident thereto.
DSTs are necessary for valid recording of the instrument.
*It is not the document that is being taxed, but the transaction.
*National tax
Without the stamp, the document remains valid, although it is not
acceptable for recording. The document will not be admissible as
evidence in any court.
Administrative Provisions:
The tax return shall be filed within 10 days after the close of the
month when the taxable document was made, signed, issued or
transferred.
The payment is always simultaneous with the filing.
Where: RDO, accredited banks, city or municipal treasurer
Who should pay: Party to the document
Failure to affix Documentary Stamps: Surcharge of 25% of the unpaid
amount and interest of 20% per annum until the amount is fully paid.
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Delinquency Interest vs. Deficiency Interest Remedies available to the Taxpayer:

Delinquency Interest Deficiency Interest 1. Dispute the assessment – by motion for reconsideration or
-If there was a notice for you to -Failure to file the return and motion for re-investigation within 30 days from the date you
pay a certain amount after pay the tax on the date received the assessment.
investigation, examination and prescribed by the Tax Code (even *If assessed by Regional Office of the Bureau, appeal to the Central
audit, and still failed to pay the if unintentional or inadvertent) Office of the Bureau.
amount. *When the Bureau issued a decision, you can appeal to CTA within
30 days. If the case reaches the CTA, all procedures become
REMEDIES judicial. Thus, the Rules of Court applies.
*If the Bureau did not render a decision within 180 days from the
Assessment – official action from the agency of the State for purposes of disputed assessment, and, within 30 days from the expiration of
notifying the taxpayer that there are still taxes to be paid, indicating the 180 days, appeal to the CTA.
therein how much and when it is due. 2. Compromise – enter into a settlement or consensual agreement
Deficiency Assessment – issued by the Bureau which is presumed to *The taxpayer must prove his financial incapability. The State shall
be correct. *The Court CANNOT restraint the Bureau in issuing collect 10% of the basic assessed tax
assessment.
3. Taxpayer may prove that the tax collector is illegally
Basis of Assessment: Tax Returns disclosing the assessment
* If there are officers or personnel of the Bureau found to have
Best Evidence Obtainable (pag walang return) – any paper, document,
illegally disclosed the information in a tax return, they will be
record from the taxpayer that could be the basis of the assessment.
administratively liable. (except if the information is an evidence in a
Purpose of Assessment: To determine the correct amount of the tax case already filed in court)
payable
Remedies available to the Government:
*Withdrawal of Return is NOT ALLOWED. The remedy is to file an
1. Distraint of Personal Property– should be equivalent to the
amended return within 2 years from the date of the filing of the
unpaid taxes. Then, public auction to convert the property into
original return, as long as there is no notice of audit or examination
money.
yet.
*Constructive distraint – the possession will remain to the
*The taxpayer has the burden of proof that his self-assessment is the taxpayer but the property should be preserved, remained unaltered
correct assessment. and not to be disposed in any manner without the authority
of BIR.

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2. Levy of Real Property – If sold in public auction, there is a
redemption period of 1 year wherein the taxpayer may redeem
his property.
*All unpaid taxes should be considered as a lien.
*If the taxpayer is alien, the remedy available to the State is
deportation of the alien taxpayer.
LOCAL TAXATION
The Congress has the inherent power to tax and delegates such power to
the LGUs. If what has been imposed by the LGUs is beyond its power and
limitation, then the imposition is not valid.
The delegation of taxing powers to LGUs is for the purpose of self-
sufficiency of LGUs and to strengthen and make LGU more
autonomous.
Allocated to LGUs: Powers, Responsibilities, Resources, and the Power to
Create their sources of revenue
Local taxes should be uniform, equitable, for public purpose, not contrary
to law, public policy, morals.
TAX POWERS OF PROVINCES:
1. Transfer of real property ownership – sale, donation, barter
*RD should not register any deed if the tax is not paid. Taxes
should be paid within 30 days from the execution of the deed.
2. Business of printing and publication
3. Franchise Tax – basis of payment of tax is gross receipts
4. Sand, gravel and other quarry resources
5. Professional Tax – tax on the practice of profession (requires a
government licensure exam for tax purposes), habitual and
regular activity. *It only applies to natural persons. (Notary)
NOTES BY: MARY EDREEN A. MANIEGO
6. Amusement Tax – concerts, cinemas, theaters
7. Annual fixed tax of manufacturers of certain products such
as distilled spirits and softdrinks
TAX POWERS OF MUNICIPALITIES
1. Business taxes of brewers, distillers, rectifiers and
compounders of liquors, distilled spirits and wines
2. Dealers of Essential Commodities – such as rice, corn,
agricultural and marine and fresh water products whether in
original state or not, cooking oil, cooking gas, laundry soap,
detergents and medicine, agricultural implements and farm inputs,
animal feeds, school supplies, cement
3. License fees for purposes of regulation to those who want to
engage in business or practice of profession
4. Sealing and Licensing of weights and measures subject to
the requirements by DOST
5. Operation of Fishing Vessels – fishery rentals, fees and charges
including the authority to grant fishery privileges within municipal
waters
6. To penalize the use of explosives – dynamite or any substance
illegally
TAX POWERS OF CITIES
- Tax powers imposed by both the provinces and
municipalities can be imposed by the cities
TAX POWERS OF BARANGAYS
1. Taxes on small stores or retailers - whose gross sales/receipts
for the preceding year does not exceed P50,000 in cities and
P30,000 in municipalities.
2. Barangay Clearance
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3. Service fees – for the use of barangay-owned properties or
services facilities
*All local taxes accrue on the 1st day of January.
*General Rule: The payment should be made on the first 20 days of
January.
Common Local Taxes:
1. Community Tax – poll tax imposed on residents of the Philippines
(without regard to their property or occupation) who must be 18
years old and above as well as to juridical persons (corporation)
*EXEMPT PERSONS: diplomatic and consular representatives,
transient visitors when their stay in the Philippines does not exceed
3 months
*Should be paid at the place of residence and should be paid from
January 1 to last day of February.
*Late payment of community tax is subject to 25% surcharge
on the basic amount of tax, or 50% if due to willful neglect; and
2% interest per month from the last day of required date of
payment.
*When the Tax Code imposes penalty, it does not make the tax
laws penal. The purpose is to encourage taxpayers to pay on
time. (Life Blood Doctrine)
2. Professional Tax
3. Real Estate Tax
*The tax is based on the assessment of the real property on a
certain locality.
*For real property tax purposes, real properties include: a) land
and improvements thereon; b) buildings; c) machinery
attached to the ground and d) self-powered, self-propelled
machinery which by their nature and purpose are designed for, or
NOTES BY: MARY EDREEN A. MANIEGO
necessary to manufacturing, mining, commercial, industrial or
agricultural purposes.
Fundamental Principles of Appraisal and Assessment of Real
Property, and Levy and Collection of its Tax:
a. The appraisal is based on the fair market value. Fair market
value depends on the locality.
b. The classification of real property shall be based on its actual
use.
c. The assessment of real property shall be based on a uniform
classification in every local political subdivision.
d. The appraisal, assessment and levy of real property tax shall be
imposed by the LGU and NOT by any private person.
e. The appraisal and assessment of real property shall be
equitable.
*If you do not agree with the assessment of the real property,
appeal to the Board of Assessment Appeal within 60 days
from receipt of assessment. If you are not satisfied with the
decision of the Board, appeal to the Central Board of
Assessment Appeal within 30 days from the receipt of
resolution.
*Real Property Tax can be paid in instalment:
1st payment: March 31
2nd payment: June 30
3rd payment: September 30
4th payment: December 31
*Late payment of real property tax is subject to 2% interest
per month on the unpaid amount from the date it becomes due to
the date of payment.
*Real Property owned by government, cooperatives and
charitable institutions – exempted from real property tax
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