Ta x assessment

- the process of determining the net amount of tax liability or tax due in accordance with the prevailing tax law.

Internal revenues are “self-assessing”

- It mandates by law TPs by themselves to make necessary assessment of their tax obligation and file the
necessary return and pay the tax obligation within the time frame as provided for by the regulations without any
need of a demand.
- The principle in civil law which is “no demand, no delay” is not applicable in relation to your onligation to pay a
tax.

Tax assessment can come prior to the filing of a return or after the filing of a return.

A tax return is a form prescribed for by the BIR depending on what is the kind of tax you are supposed to pay, where you
need to pick up the required data, compute the necessary tax obligation, which you are to submit to the BIR while
paying for the income tax liability as reflected in that return. (Income, estate, donor, VAT return etc.)

Once the period prescribed by law expires for a tax payer to file the necessary return in paying a tax, the BIR will do an
assessment or if you’re a tax payer who intentionally refuses to pay necessary tax, you don’t want to file an ITR or you
want to escape from our country, or you retire from business, then the BIR might do what is referred to as jeopardy
assessment.

 What is a jeopardy assessment?

Assessment being conducted by the BIR to do just that. Its not mandatory that it is based fully on records by the TP.

After a return is filed, there is a prescriptive period of 3 years and 10 years.

3 years - if you file the correct return and you computed the correct amount of tax, then the BIR is precluded from
making an assessment after the expiration of 3 years from the date where the said return is expected to be filed or from
the date of the actual filing of the return, whichever is later.

Ex. April 15 is the deadline and you submitted on April 16, then 3 years counted from April 16 even of you submit early,
the reckoning period would start from the deadline of the filing of the return or the actual filing, whichever is later.

10 years - However, if you intentionally increase your expenses to reduce your income, in effect it reduces your tax
liability, in other words, if you have filed a fraudulent return, then the period upon which the BIR will do an assessment
is for a period of 10 years, not from the filing of a return, but form the time of the discovery of the fraud.

By nature, taxes are imprescriptible but as a GR, if the government decides to delimit the application of its power, it is
allowed to do so and by law it limits the period by which the government can make an assessment or those number of
years- 3 and 10 years.

 Are assessments applicable to estate taxes, donor’s taxes, business taxes? Yes, because we assess the tax
obligation.

Business and Transfer Tax

Transfer taxes:

1. (Sale) Capital gains tax

2. Donor’s tax
3. Estate tax
Train Law amendments (simplified estate tax and donor’s tax)

3 modes of transferring property:

1. Sale
2. Donation
3. Succession
- Either by extra-judicial settlement of estate or judicial settlement of estate

The tax being imposed by law differs depending on the nature of transaction:

If it isa deed of sale of real property classified as a an asset, then its 6% CGT

Tax obligation in relation to donation and succession

If its donation, you would have to make the necessary presentation of the donee whether the donee is a stranger or a
relative.

If the donee is a stranger: 30% based on the FMV, zonal value whichever is higher times (13%?) or

If the donee is a relative, then there is a tax schedule. It would differ depending on the value of the amount that is (_).

If it is by succession, there is a tax schedule again depending on the value of the tax real estate. (200-500 is 5%; etc.)

BUT in TL, it already imposes a flat rate of 6%

With respect donation, regardless who would be the recipient, whether he is classified as a relative or a stranger, the
donor’s tax is still 6%.

For estate tax, regardless of the amount of real estate, for as long as it exceeds the amount by which the law exempts
from estate tax, it imposes a 6% estate tax.

For Estate tax, you would have to know what is gross estate. – it includes everything that the testator or decedent owns
at the time of his death.

GROSS: ESTATE
LESS: ALLOWABLE DEDUCTIONS
NET ESTATE
LESS: SHARE OF SURVIVING SPOUSE
TAXABLE NET ESTATE

The net estate where you should be deducting the share of your surviving spouse should consider those properties that
are conjugal and those properties that are exclusive. Deductions pertaining to exclusive properties should only be
applied in exclusive property, before you are to apply your SSS. The SSS should be computed based on the conjugal
estate.

 When are you required to pay estate tax?

- Upon the filing of the estate tax return

 When are you required to pay ETR?

- Previously: Within 6 months from the time of death. Present: within 1 year from the time of death.

The regulations allow you to pay the estate tax by installment within the period of 2 years from the time you are
supposed to pay the tax.
So after 1 year you are supposed to pay the tax, extendible for a period of 2 more years for you to pay the tax by
installment if estate is insufficient to pay cash for tax obligation. Without civil penalty and interest.

 What are the allowable deductions?

Resident decedent

1. Standard deduction of 5M

Removed from deductions are your:

- Medical expenses
- Legal expenses
- Judicial expenses

Threshold for judicial and funeral expenses before: 200,000

For medical expenses: up to 500,000 within 1 year counted from the time of death

2. Claims against estate

- For as long as there is sufficient substantiation requirement with respect this claims against estate and these are
confronted within a period of 3 years before death

3. Claims of the deceased against insolvent persons

4. Unpaid mortgages on any indebtedness in respect to property the value of which is included as part of the GE
5. Property previously taxed
- Recountable for a % of 100, 80, 60, 40, 20, and 0, spent over a period of 10 years with respect properties that
were transferred gratuitously from a person to the estate or to the decedent.
6. Transfer for public use
7. The amount of all bequests, legacies, devises, or transfers to or for the use of the government of the republic of
the Philippines or any political subdivision thereof for exclusively public purposes
8. Family home (previously: 1M + certification coming from the barangay captain of the municipality) Present: 10M
less said certification
9. Amounts received as insurance coverage or death benefits by the heirs of your decedent under RA4917

 Are proceeds from life insurance includible as part of GE?

-lt talks of life insurance coverage taken by the decedent upon his own life not taken by his employer or any other
person for the life of the decedent. It should be one that is taken by the decedent upon his own life and the proceeds of
the life insurance is for the benefit of a designated beneficiary who might be himself or any person designated by the
decedent whether revocable or irrevocable. So if revocable, and the beneficiary is the decedent himself, its part of the
GE. If the beneficiary is another person and its revocable, the proceeds of the life insurance is part of the GE but if the
beneficiary is another person and he is identified as such irrevocably, then that is not part of the proceeds, not part of
your GE.

 Are insurance taken by the company for the life of an employee who dies and the heirs were identified as
beneficiaries irrevocably. Is the insurance proceeds part of the GE of the decedent?

( if ER, necessarily, it is not included in the GE)

 Assuming the ER took a life insurance over the life of its president and the beneficiary is indicated as the estate of
the person upon which they took the life insurance. So the insurance company paid the estate of the decedent.
 Would that be part of GE for estate tax purposes? Is it subject to income tax if not part of the GE kasi ibang
kumuha ng insurance hindi yung namatay. Is it subject to income tax because it would be an income?

The proceeds of life insurance with respect to income tax is always tax exempt because it is a renumeration for the loss
of life. So necessarily its not income.

Share of surviving spouse

TN: What we need to know for purposes of estate tax: taxable net estate because that is the tax base and when you talk
about the tax base, that is the amount where you would be computing your tax implication and tax implication is
computed by simply multiplying 6% of your taxable net estate.

Estate tax is due on the date when you are required to file a return and now the period is 1 year from the time of death.
With respect payment, while you are required to pay estate tax when you are to file a return, you may nevertheless
request for an insolvent payment of estate tax for a period of 2 years from the time when you are statutorily required to
pay the tax by installment upon showing that the net estate has no money in it.

For taxable net estate, you are required to know what composes your gross estate define under sec. 82 of NIRC.
GE composes all that decedent owns including several items:
- Decedent’s interest
- Transfers in contemplation of death
- Revocable transfers etc.

Non- resident decedent

1. For NRD, they have but limited allowable deductions. For non resident estates, while the GE of that decedent
are those properties that are located within the Philippines, an allowable deduction of standard deduction
intead of 5M, it is 500,000 php.

2. Proportions of deductions specified in oaragraphs 2, 3 and 4 of subsection 8 or those deductions for resident
estates but it should be such part that (bears?) to the value of his entire GE wherever situated.

3. Property previously taxed

4. Transfer for public use
5. Shares of SS
6. Tax credit for estate tax paid to a foreign country
Assuming a foreign country imposes estate tax given on properties that are located within the Philippines, then you
would have to do the necessary computations in accordance with (_) to be able to claim for the TC.

Previously,if GV of GE exceeds 2M, Sworn statement duly certified by CPA is required but now such amount is increased
to 5M.

 What is gross estate?

For resident decedent, it would include all properties owned by that decedent wherever situated or located but for on-
resident decedent, it would only cover properties that are situated within the Philippines.

 Mr. X sold property for 1M to Mr. Y. the capital asset of the real property is 1M so it is subject to 6% capital gains
tax. Mr Y paid 60,000 CGT to BIR. Within the same year from which the transaction occurred, let us assume that
this is in the year 2019. So upon buying the property, Mr. Y decided to die. The GE of Mr. Y (10M) included to the
1M worth of property that he bought in the GE. June 30 – deed of sale; July 2- died.
  is the concept of Property previously taxed applicable to said scenario (1M property)?

(When is the concept of PPT applicable for purposes of getting your NE?)

No, because for the PPT to be applicable, the transfer should be one that is a gratuitous transfer (by succession or
donation). The earlier transfer should be one gratuitous transfer.

A person transferred several properties to several individuals. After two 2days, the person met an accident and he died.
Are those 2 transfers in contemplation of death? One person was diagnosed with stage 4 cancer according to medical
science, that kind of cancer would only survive for a month. Within the same month, that person decided to transfer all
his properties. Are those transfers considered TICOD?

Those transfers to be considered as TICOD should be surrounded by circumstances that clearly presents those transfers
as being n real contemplation of an impending death.

 (2013 B Q A) Mr. Agustin, 75 y/o and suffering from an incurable disease, decided to sell for valuable and
sufficient consideration house and lot to his family. He died 1 yr later. In the settlement of Mr. Agustin’s estate
the BIR argued that the House and lot were TICOD and should therefore, be included as part of the GE for estate
tax purpose. Is the BIR correct?

No, because the totality of the circumstances doesn’t sufficiently show any TICOD. The fact that at the time of the sale
Mr. Agustin was already old suffering from incurable disease, and that the same was so close to his death are not
conclusive that the sale was made in consideration of death. The sale was for a valuable and sufficient consideration in
which case, there is no more gratuitous transfer that may be subject to estate tax.

 How is the standard deduction for estate tax purposes differentiated from the optional standard deduction for
income tax purposes?

Standard deduction is automatic when computing your net estate, you would have to deduct a standard deduction of
5M whereas your optional standard deduction is optional to the TP. You may claim for your individual allowable
deduction or you may claim for your optional standard deduction.

Standard deduction is a fixed amount of 5M whereas optional standard deduction is fixed at 40% of the tax payer’s
gross sales from loss receipts or loss income.

Standard deduction is allowed as a deduction available to (estates?) of the citizens or residents of the Philippines
whereas the optional standard deduction is available to income TP who are engaged in trade or business or exercise of
profession.

 Assuming that the death occurred prior to the effectivity of the train law. The judicial expense is by reason, is
attributable to the misunderstandings of the heirs of the decedent. They filed a case against each other on how
to divide said judicial expense to settle the estate. One paid for Attorney’s fees at 50,000 php. One paid for
 80,000 php as attorney’s fees. Both of them paid a total of 180,000 php. Can you claim that as part of the judicial
expenses?

No, judicial expense should be those that are extended for the preservation an dthe settlement of the estate. Not one
against the other.

 In extra-judicial settlement of estate the lawyers asks for a notarial fee not less then 5,000 php or 2% of the GE

, is that included in judicial expenses?

Yes, but that is not problem if the decedent decided to die after the effectivity of the TL. If the death occurred prior to
January 1, 2018, then it is part of the judicial expenses.

Donor’s Tax

TN: Sec. 29 of the TL amending sec. 100 of the NIRC: “where property other than real property referred in section 24(d)
, is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which
the FMV of the property exceeded the value of consideration shall, for the purpose of the tax imposed by this Chapter,
be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. Provided
however, that a sale, exchange or other transfer of property made in the ordinary course of business ( a transaction
which is a bona fide, at arm’s length, and free from any donative intent,) will be considered as made for an adequate
and full consideration in money or money’s worth.”

If the transaction is in ordinary course of business (arm’s length), regardless of the disparity between the monetary
value of what was bought and the amount of money that was given, the difference is not to be treated as a donation.
Basta arm’s length transaction, walang donation na pinag uusapan.

 What is donation?
Donation is a gratuitous transfer of property from one person to another whether in cash or in kind.

Gifts exempted from paying donor’s tax:

1. Gifts given to the government for the use of the national government or by its any of its agencies not
conducted for profit or to any political subdivision thereof is exempt from donor’s tax.
2. Gifts in favor of educational or charitable, religious, cultural, and social welfare corporation, institutions under
NGO, trust, or research…provided however that this conditions are met:

(a) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is
not conducted for profits, or to any political subdivisions of the said Government; and
(b) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
foundation, trust or philanthropic organization or research institution or organization: Provided, however, That
not more than thirty per centum of said gifts shall be used by such donee for administration purposes…
non stock entity paying dividends governed by trustees who recieve low compensation and devoting all its income
whether student fees, or gifts, donations, subsidies or other forms of (_) to the accomplishments and purposes
enumerated in its AOI.
Previously, dowry or gifts on account of the marriage of the children of the donor is exempt up to 10,000 php but
with the advent of TL, there’s no tax exemption for purposes of dowry. Now, whether resident or non resident,
walang tax exemption ang dowry.

Relatives for purposes of computing the donor’s tax: Your borther, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or relative by consanguinity in the collateral line within the fourth degree of
relationship are considered your relatives other than that, are considered strangers.

The tax exempt amount for donor’s tax previously is 100,000 php now, its 200,000 php in exchange of the dowry
that s deleted

One mode of tax avoidance is to divide your donation over a certain period of time if only not to exceed the tax
exempt amount for purposes of donation

 For purposes of taxation, is there a need for an acceptance before the tax man would come to you and ask you to
pay the necessary donor’s tax?

No, once it is determined that there is a donated property even if there is no express acceptance, pwede kang
singilin ng donor’s tax.

The taxable period for donor’s tax is the calendar period. So from January 1 to December 31.
The tax exempt amount of (250,000) is an accumulated amount. If January you were given 10,000php, February
50,000php, March 100,000php, it must be accumulated.

Previously, the graduated rate of donor’s tax is from 2% to 15%. So as the value of the property donated is
increased, you will have to check at what bracket is it falling. But now it is already fixed at a percentage rate of 6%

In succession, the standard deduction is 5M

In relation to your business taxes, in particular, the VAT: Revenue Regulation # 26-2018 dated December 21, 2018.
 Two categories of taxes being collected with respect business taxes:
1. VAT
(a) 12% subject
(b) 0% subject
2. Percentage tax

For exempt transactions, any claim of VAT that you might have paid, you cannot claim the same as TC to get your VAT
tax due; but for zero-rated transactions, any VAT that you might have paid, you may claim it as a TC.

 How is VAT computed?

Gross sales, net of returns and allowances, times 12% = Output VAT
Minus input VAT = VAT due
Input VAT = VAT transferred to you from your supplier.

Assuming your monkey business is VAT exempt but there are input VAT na sinama sayo, you cannot claim thos einout
VAT as a deduction. But if its zero rated, you can claim that input VAT as deduction.

It’s either you are to be imposed a VAT “OR” Percentage tax.

 When will you be considered a VAT TP?

1. If you opted to be a VAT TP and you registered as such
2. If the sale, leased of goods or properties or the performance of service exceeds 3 million pesos

Previously, since January 1, 2012, if your gross revenue exceeds 1,999,999php you will be VAT liable. But now, 3M.

 Your salary as an employee, can it be subject as VAT?OR if you’re elected as the governor of Benguet, can your
salary be subject to VAT?
It can be because under the present regulation, it expressly provides that the salaries received as an employee for
services rendered by an individual pursuant to an EE-ER relationship, is not subject to VAT. If that is amended then the
answer is yes.

Under (s) Section 22 of the NIRC: the term trade or business includes the performance of the functions of the public
office.

Business income is subject to business taxes (VAT/% tax)

As to Lease: Amounts of rental for you to be subject to VAT and 3 % percentage tax