business taxation notes

2. I. BASIC PRINCIPLES, CONCEPT, AND
DEFINITION
Estate Tax is a tax on the right of the
deceased person to transmit his/her estate to
his/her lawful heirs and beneficiaries at the time of
death and on certain transfers, which are made by
law as equivalent to testamentary disposition. It is
not a tax on property. It is a tax imposed on the
privilege of transmitting property upon the death of
the owner.
It is a tax levied on the net value of the estate of a
deceased person before distribution to the heirs.
Rate of Estate Tax. - There shall be levied,
assessed, collected and paid upon the transfer of
the net estate as determined in accordance with
Sections 85 and 86 of every decedent, whether
resident or nonresident of the Philippines, a tax at
the rate of six percent (6%) based on the value of
such net estate.
Under NIRC, it is a great example of a schedular tax
system, because the less the amount is, the less tax
you will pay. In comparison, under TRAIN Law,
regardless of the value, the tax rate is 6% of net
estate.
Net Estate is the remaining estate of a
person who has died, calculated by taking the value
of all assets and subtracting all debts of the person
who died, including funeral costs, expenses of
administering the estate, and any other allowable
deductions.
II. CLASSIFICATION OF DECEDENT
Decedent is a legal term used to refer to a
deceased person. Decedents have financial
obligations, even after their death, such as the filing
of taxes. Attorneys and trustees are responsible for
carrying out a decedent's wishes as outlined in their
wills and trusts.
➢ Resident and Citizen - All properties, real
and personal, tangible and intangible,
wherever situated.
➢ Non-Resident Alien - All real and personal
properties situated in the Philippines.
III. COMPOSITION OF GROSS ESTATE
Gross Estate, the value of the gross estate of
the decedent shall be determined by including the
value at the time of his death of all property, real or
personal, tangible or intangible, wherever situated:
Provided, however, that in the case of a nonresident
decedent who at the time of his death was not a
citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines shall
be included in his taxable estate.
A. Items to be included in determining
Gross Estate
1) Decedent's Interest - To the extent of the
interest therein of the decedent at the time
of his death
2) Transfer in Contemplation of Death - This
refers to the value of any disposition,
whether by trust or otherwise, that is
intended to take place only after the
decedent’s death
3) Revocable Transfer - The value of any
transferred property in which the decedent
retained the power to amend, alter or
revoke the transfer during the decedent’s
lifetime.
4) Property Passing Under General Power of
Appointment - This refers to the value of any
transfer where the decedent retained the
power to enjoy the fruits or income of the
asset during the decedent’s lifetime. Since
this means that the transfer done by

3. decedent is not absolute and transfer of all
rights of ownership will only take place upon
the decedent’s death, the value of the asset
transferred should still be considered part of
the decedent’s gross estate.
5) Proceeds of Life Insurance - The value of
insurance proceeds from insurance policies
taken out by the decedent upon his or her
own life should be included in the gross
estate of the decedent when the designation
of the beneficiary is revocable or when the
decedent has made himself or herself or the
decedent’s estate, executor or administrator
as the beneficiary regardless of whether the
designation is irrevocable.
6) Prior Interests. - this shall apply to the
transfers trusts, estates, interest, rights,
powers and relinquishment of powers, as
severally enumerated and described therein,
whether made, created, arising, existing,
exercised or relinquished before or after the
effectivity of this Code.
7) Transfers for Insufficient Consideration. -
This refers to the excess of the FMV at the
time of death over the value of the
consideration received by the decedent for
any disposition by sale that the decedent
made during the decedent’s lifetime that is
less than a bona fide sale for an adequate
and full consideration in money or money’s
worth.
B. Allowable Deductions from Gross
Estate
1. Standard Deduction
If the Decedent is either a Citizen or Resident
of the Philippines, A deduction in the amount of Five
Million (P5,000,000) shall be allowed without the
need of substantiation. If the Decedent is a Non-
Resident Alien, Only Five Hundred Thousand Pesos
(P500,000) shall be allowed without need of
substantiation.
2. Claims Against the Estate
Claims against the estate or indebtedness in
respect of property may arise out of:
a) Contract
b) Tort
c) Operation of Law
A. What are the Requisites for Deductibility of
Claims against the Estate?
a) The liability represents a personal obligation of
the deceased existing at the time of his death
b) The liability was contracted in good faith and for
adequate and full consideration in money
c) The indebtedness must not have been
condoned by the creditor.
B. What are the Substantiation Requirements of
Claims Against Estate?
a) Notarized debt instrument
b.) Notarized certification of unpaid balance plus
interest
c.) Proof of financial capacity
d.) Statement of executor or administrator
3. Claims of the deceased against insolvent persons
Claims of deceased against insolvent
persons as defined under R.A. 10142, where the
value of the decedent’s interest therein is included
in the value of the gross estate.
4. Unpaid Mortgages, Taxes and Casualty losses
A. In case unpaid Mortgages is being claimed by
the estate, verification must be made as to who was
the beneficiary of the loan proceeds. The value of
the unpaid loan must be included as a receivable of
the estate.
B. Taxes which have accrued as of the death of the
decedent which were unpaid as of the time of death.
This deduction will not include:
a) Income Tax received after death
b) Property Tax not accrued before death
c) Estate Tax due from transmission of his estate
C. Casualty Losses arising from fires, storms,
shipwreck, other casualties, robbery, theft or
embezzlement provided that:
a) Losses are not compensated for by insurance

4. b) Losses have not been claimed as a deduction
for income tax purpose, and
c) Losses were incurred not later than the last day
for the payment.
D. How to Compute the Allowable Deduction in
Total Losses and Indebtedness of a Decedent Who is
a Non- Resident Alien of the Philippines?
If the Decedent is a Non-Resident Alien, the
Allowable Deduction in:
a. Claim against the estate
b. Claims of the deceased against insolvent
persons where the value of interest therein is
included in the value of the gross estate
c. Unpaid mortgages, taxes and casualty losses
Shall be computed using the following formula:
Phil. Gross Estate ÷ World Gross Estate x (Total
Losses and Indebtedness) = Allowable Deduction
5. Property Previously Taxed
These deductions shall be allowed only
where a donor’s tax or estate tax was finally
determined and paid by or on behalf of such donor,
or the estate of such prior decedent.
a. One hundred percent (100%) of the Value if the
prior decedent died within one (1) year prior to the
death of the decedent, or if the property was
transferred to him by gift, within the same period.
b. Eighty percent (80%) of the Value if the prior
decedent died more than one (1) years but not more
than two (2) years prior to the death of the decedent,
or if the property was transferred to him by gift,
within the same period.
c. Sixty Percent (60%) of the Value if the prior
decedent died more than two (2) years but not more
than three (3) years prior to the death of the
decedent, or if the property was transferred to him
by gift, within the same period.
d. Forty Percent (40%) of the Value if the prior
decedent died more than three (3) years but not
more than four (4) years prior to the death of the
decedent, or if the property was transferred to him
by gift, within the same period.
e. Twenty Percent (20%) of the Value if the prior
decedent died more than four (4) years but not
more than five (5) years prior to the death of the
decedent, or if the property was transferred to him
by gift, within the same period. Where a deduction
has lien on the property, the property previously
taxed shall be reduced by the amount of mortgage.
Where property referred to consist of two (2) or
more items, the aggregate value of such items shall
be used for the purpose of computing the deduction.
6. Transfer for Public Use
The amount of all bequest, legacies, devises
or transfer to or for the use of the Government of
the Philippines for public purposes.
7. The Family Home
The Family Home is the dwelling house and
lot where husband, wife, or head of the family and
member of their family reside. Unmarried Head of a
Family is an unmarried or legally separated man or
woman living with parents, siblings, and/or children
that is dependent upon him or her for their chief
support.
Where such brothers, sisters or children are:
a. Not more than 21 years of age
b. Unmarried
c. Not gainfully employed
d. Incapable of self-support because of mental or
physical defect
A. What are the Conditions for the allowance of family
home as deduction from the gross estate?
a) The family home must be the actual residential home
of the decedent and his family at the time of his death,
as certified by the Barangay Captain where the family
home is situated.
b) The total value of the family home must be included
as part of the gross estate of the decent.
c) Allowable deduction must be equivalent to the fair
market value of the family home, or the extent of the
decedent interest (whether conjugal/community or
exclusive property) whichever is lower, but not
exceeding P10,000,000.
For the purpose of availing of a family home deduction,
a person may constitute only one (1) family home.

5. 8. Amount received by heirs
under Republic Act No. 4917 Any amount
received by the heirs from the decedent’s employer as a
consequence of the death of the decedent-employee is
allowed as a deduction.
Provided that the amount of the Separation Benefit is
included as part of the gross estate of the Decedent.
9. Net Share of Surviving Spouse
After deducting the allowable deductions to the
conjugal or community properties included in the gross
Estate, The Share of the surviving spouse must be
removed to ensure that only the decedent’s interest in
the estate is taxed.
One of these deductions is the standard deduction,
which is an automatic P5-million deduction from the
gross estate. So, if the value of the gross estate is less
than that amount, then the heir won't have to pay any
estate tax (but they still have to file).
Another of the larger deductions is the family home.
Under the TRAIN law, up to P10 million can be deducted
from the value of the family's house. Note that the full
P10 million is not automatically deducted. For instance,
if the family home only has a value of P9 million, then
only P9 million will be deducted – not the entire P10
million allowable.
C. Exclusions from Gross Estate and
Exemptions of certain acquisitions and
Transmissions
The exclusions from Gross Estate refers to
properties, rights, or transfers that are specifically
declared by the law as free from the burden of estate tax.
It also depending on whether the decedent is a citizen or
resident of the Philippines or a non-resident alien.
The following shall not be taxed:
(A) The merger of usufruct in the owner of the
naked title;
(B) The transmission or delivery of the inheritance
or legacy by the fiduciary heir or legatee to the
fideicommissary;
(C) The transmission from the first heir, legatee or
donee in favor of another beneficiary, in accordance
with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to
social welfare, cultural and charitable institutions,
no part of the net income of which insures to the
benefit of any individual: Provided, however, that
not more than thirty percent (30%) of the said
bequests, devises, legacies or transfers shall be used
by such institutions for administration purposes.
D. Tax Credit for Estate Taxes paid to a
foreign country
the amount of estate tax paid to a foreign
country could be claimed as credit against the
Philippines estate tax subject to limit. It such taxes
pertain to property which are included in the gross
estate for Philippine’s estate tax computation
- applicable only to Citizen and Resident Alien
decedent
- Not allowed to non-resident alien
Domestic corporations are allowed to claim a credit for
any income taxes paid to a foreign country, provided
that the taxes are not claimed as deductions. Foreign
corporations are not allowed foreign tax credits.
Credits for foreign taxes are determined on a country-by-
country basis. The amount of foreign tax credit in respect
of the tax paid in a country shall not exceed the same
proportion of the tax against which the tax credit is taken,
which the taxpayer’s income from the country bears to
its entire taxable income. There is, however, a further
limitation based on the total amount of foreign-sourced
income that the taxpayer earns. The total amount of
foreign tax credits shall not exceed the same proportion
of the tax against which the tax credit is taken that the
taxpayer’s foreign-sourced income bears to its entire
taxable income
E. Filing of Estate Tax Returns and
payment of Estate Tax
a. Who Shall File?
The Estate Tax Return (BIR Form 1801) shall
be filed in triplicate by:
1. The executor, or administrator, or any of the legal
heir/s of the decedent, whether resident or non-
resident of the Philippines, under any of the
following situations:
a. In all cases of transfers subject to estate tax;
b. Regardless of the gross value of the estate, where
the said estate consists of registered or registrable

6. property such as real property, motor vehicle,
shares of stock or other similar property for which a
clearance from the BIR is required as a condition
precedent for the transfer of ownership thereof in
the name of the transferee; or
2. If there is no executor or administrator appointed,
qualified, and acting within the Philippines, then any
person in actual or constructive possession of any
property of the decedent.
Taxpayers who are filing BIR Form 1801 are
excluded in the mandatory coverage from using the
eBlRForms (Section 2 of RR No. 9-2016)
b. When and Where to File and Pay
The Estate Tax Return (BIR Form 1801) shall
be filed within one (1) year from the decedent's
death. In meritorious cases, the Commissioner shall
have the authority to grant a reasonable extension
not exceeding thirty (30) days for filing the return.
The return shall be filed with any Authorized Agent
Bank (AAB) of the Revenue District Office (RDO)
having jurisdiction over the place of domicile of the
decedent at the time of his death. If the decedent
has no legal residence in the Philippines, the return
shall be filed with the Office of the Commissioner
(RDO No. 39, South Quezon City).
In case of a non-resident decedent with executor or
administrator in the Philippines, the return shall be
filed with the AAB of the RDO where such
executor/administrator is registered or is domiciled,
if not yet registered with the BIR.
When the return is filed with an AAB, taxpayer must
accomplish and submit BIR-prescribed deposit slip,
which the bank teller shall machine validate as
evidence that payment was received by the AAB.
The AAB receiving the tax return shall stamp mark
the word “Received’’ on the return and also
machine validate the return as proof of filing the
return and payment of the tax by the taxpayer,
respectively. The machine validation shall reflect the
date of payment, amount paid and transaction code,
the name of the bank, branch code, teller’s code and
teller’s initial. Bank debit memo number and date
should be indicated in the return for taxpayers
paying under the bank debit system.
Payments may also be made thru the epayment
channels of AABs thru either their online facility,
credit/debit/prepaid cards, and mobile payments.
In case the available cash of the estate is insufficient
to pay the total estate tax due, payment by
installment shall be allowed within two (2) years
from the statutory date for its payment without civil
penalty and interest upon approved by the
concerned BIR Official.
The due date on filing and payment of the
return/tax shall depend on the applicable law at the
time of the decedent’s death.
c. Extension to File and Pay
When the Commissioner of Internal
Revenue finds that the payment on the due date of
the estate tax or of any part thereof would impose
undue hardship upon the estate or any of the heirs,
he may extend the time for payment of such tax or
any part thereof not to exceed five (5) years, in case
the estate is settled through the courts, or two (2)
years in case the estate is settled extra-judicially. In
such case, the amount in respect of which the
extension is granted shall be paid on or before the
date of the expiration of the period of the extension,
and the running of the Statute of Limitations for
assessment as provided in Section 203 of the
National Internal Revenue Code shall be suspended
for the period of any such extension.
Where the taxes are assessed by reason of
negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no
extension will be granted by the Commissioner.
If an extension is granted, the Commissioner of
Internal Revenue or his duly authorized
representative may require the executor, or
administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceedingly
double the amount of tax and with such sureties as
the Commissioner deems necessary, conditioned

7. upon the payment of the said tax in accordance in
the terms of extension.
The application for extension of time to file the
estate tax return must be filed with the Revenue
District Officer (RDO) where the estate is required to
secure its Taxpayer Identification Number (TIN) and
file the tax returns of the estate. The application
shall be approved by the Commissioner or his duly
authorized representative.
I. BASIC PRINCIPLES, CONCEPT, AND
DEFINITION
A. DONATION
is an act of liberality whereby a person
(donor) disposes gratuitously of a thing or right in
favor of another (donee) who accepts it.
B. KINDS OF DONATION
Donation inter vivos - a donation made between
living persons. Its perfection is at the moment when
the donor knows the acceptance of the donee. It is
subject to donor’s tax.
Donation mortis causa – a donation which takes
effect upon the death of the donor. It is subject to
estate tax.
C. DONOR’s TAX
it is an excise tax imposed on the privilege of
transferring property by way of a gift inter vivos
based on pure act of liberality without any or less
than adequate consideration and without any legal
compulsion to give.
D. WHAT IS SUBJECT TO DONOR’S TAX:
The subject of donor’s tax is the gift or
donation. Article 725 of the Civil Code defines a gift
or donation as “an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of
another who accepts it.”
E. LAW GOVERNING IMPOSITION OF DONOR’S
TAX
The law in force at the time of the
perfection/completion of the donation.
II. REQUISITES OF A VALID
DONATION
1. Capacity of the donor
The donor must be legally competent to
make a donation.
A donation that made by a minor, anyone who is
younger than 18 an insane or by under hypnotic
spell, force or intimidation is consider
unenforceable.

8. a. Minors and other who cannot enter into a
contract may become the donees. The acceptance,
however, shall be done through their parents or
legal representative.
b. Donation may even made to conceived and
unborn children and the same may be accepted by
those persons who would legally represent them if
they were already born.
c. Donation made to trustee for the benefit of a
beneficiary is gift to the latter and not to the former.
2. Donative intent or intent on the part of the donor
to make a gift
Donative intent must be present in a direct
gift of property in order that the donor’s tax can be
assessed and collected.
3. Delivery, whether actual or constructive, of the
subject matter
The property that intent to transfer to the
donees, whether constructive or actual that allows
the gift perfected or completed the donation.
There is a delivery if the subject matter is within the
dominium and control of the donee.
4. Acceptance of the gift by the donee
It must made during the lifetime of the
donor or donee.
5. Conform of formal requisite of donation
The contract of donation is according to the
form that is required by law.
a. Movable
may be made orally or writing.
An oral donation requires simultaneously
delivery of the thing or of the document
representing the right donation.
If the value of the personal property donated
exceeds P5,000, the donation and the acceptance
shall be made in writing.
If the value of the personal property donated
exceeds P5,000, the donation and the acceptance
shall be not made in writing the donation
considered void.
b. Immovable
it must be always made in public document or
public instrument specifying the property being
donated.
The public document shall specify therein the
property donated and the value of the charges
which the donee must satisfy.
The acceptance may be made in the same
deed of donation or in a separate public instrument,
but it shall not take effect unless it is done during
the lifetime of the donor.
If the acceptance is made in a separate
instrument, the donor shall be notified thereof in
authentic form, and this step shall be noted in both
instruments.
c. Intangible Personal Property
it must be made in a public instrument.
A public instrument is written document a notated
by a lawyer therefore notarized.
d. Tangible Personal Property
if the amount exceeding P5,000 it can be
written, if the amount is less than P5,000 it can be
oral.
When it comes to oral donation it must have
simultaneously delivery of the thing or the
document that are represent the right to donate (if
the amount is not exceeding P5,000.)
NOTE: Any donation does not conform to this formal
requisite of donation or this legal form is not valid
and an enforceable and therefore not subject to tax.
III. TRANSFERS WHICH MAY BE
CONSIDERED AS DONATION
A. Sale, Exchange, or Transfer of Property for Less
than Adequate and Full Consideration
Where property, other than real property is
transferred for less than an adequate and full
consideration in money or money's worth, then the
amount by which the fair market value of the
property exceeded the value of the consideration
shall, for the purpose of the tax imposed maybe
deemed a gift, and shall be included in computing
the amount of gifts made during the calendar year.

9. Exception: 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,
free from any donative intent), will be considered as
made for an adequate and full consideration in
money or money’s worth.
B. Condonation or Remission of Debt
If the creditor condoned the indebtedness of
the debtor, if the debtor giving a service to creditor
that services are considered taxable income to the
debtor.
If there no rendered services but the creditors
simply condoned the debt are considered taxable
gift.
If a corporation for gift to stockholder death the
transaction has effect of payment of dividend.
C. Situs of Taxation
where the transfer took place, only transfer
take in the PH are subject to donor’s tax unless the
donor are Filipino citizens who are resident of a
foreign country.
NOTE: Donor taxes are in the nature of taxes
imposed upon the privilege to do something which
in this case is to transfer property.
D. Renunciation of Inheritance; Exception
A gift that is incomplete because the power
is reserve to the owner, it could be complete when
either:
1. The donor renounces his power over that
property or to his rights to exercised reserve power
2. Because of the happening of some event or
contingency or the fulfillment of some condition
other than because of the donor’s death
Note: There should be a passage of control not only
to the property but also over to the economic
benefit
a. Renunciation of share of surviving spouse
if the surviving spouse renounces in the
conjugal or community after the dissolution of
marriage in favor of the heirs of the deceased
spouse. It is already subject to donor’s tax.
The renunciation of share of spouse in inheritance
from his/her decease spouse is not a taxable gift.
b. Renunciation of inheritance into co-heir
A general renunciation of inheritance in
favor of co-heir is not a donation for the purposes of
taxation unless specifically and categorically done in
favor of identified heir/s to the exclusion or
disadvantage of the other co-heirs in the hereditary
estate.
c. Renunciation of inheritance to another person
who is not a co-heir.
There is a donation subject to donor’s tax
since there is change in the distribution of estate
unless specifically and categorically done in favor of
identified heir to the exclusion or disadvantage of
the other co-heirs in the hereditary estate.
IV. CLASSIFICATION OF DONOR
1. Resident or citizen
any donation whether within or without it is
taxable worldwide.
2. Non-resident alien
taxable only on PH donation except in
intangible personal property subject to reciprocity
rule. The PH exempt the donation of intangible
personal property by NRA donors if there, countries
also exempt the donation of intangible personal
properties by Filipino non-resident therein.
3. Domestic Corporation/ Foreign Corporation
a corporation whether DC or FC is included
since the corporation are capable to entering a
contract of donation. A corporation can enter to
contract through a board resolution.
NOTE: Under the TRAIN LAW there is no need to
classify donee because donation to any donee is
subject to 6% flat rate donor’s tax.
V. DETERMINATION OF GROSS GIFTS
A. Composition of Gross Gift
1. In the case of a Citizen / Resident alien donor:
a. Real property within and without the
Philippines

10. b. Tangible Personal Property within and without
the Philippines
c. Intangible Personal Property within and
without the Philippines
2. In the case of a not Citizen / Non- Resident donor;
a. Real Property within the Philippines
b. Tangible Personal Property within the
Philippines
c. Intangible personal property within the
Philippines
* Properties considered located in the Philippines
1. Franchise which must be exercised in the
Philippines
2. Share, obligations or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines
3. Share, obligations or bonds issued by any foreign
corporation eighty-five percentum of the
business which is located in the Philippines
4. Shares and obligations or bonds which have
acquired business situs in the Philippines
5. Shares and rights in any partnership, business or
industry established in the Philippines
6. Any personal property, whether tangible or
intangible located in the Philippines
7.
B. Valuation of Gifts made in property
If the gift is made in property, the fair market
value thereof at the time of the gift shall be
considered the amount of the gift.
In case of real property, the provisions of
Section 88(B) shall apply to the valuation thereof.
1. Personal Property
The fair market value thereof at the time of
the gift is considered the amount of the gift.
2. Real Property
The current fair market value as shown in
the schedule of values fixed by provincial and city
assessors or the fair market value as determined by
the Commissioner of Internal Revenue, whichever is
higher, is considered as the fair market value as in
the case of the estate tax
3. Cash
If the gift is in money, then the amount
thereof is the valuation
C. Exemption of certain gifts
The following gifts or donation shall be
exempted:
A. Gifts made by a Resident
(1) Gifts made to or used of the National
Government or any entity created by any of its
agencies which is not conducted or profit, or to any
political subdivision of the said Government
(2) Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or
research institution or organization: Provided,
however, that not more than thirty percent (30%) of
said gifts shall be used by such donee for
administration purposes. For the purpose of the
exemption, a 'non-profit educational and/or
charitable corporation, institution, accredited
nongovernment organization, trust or
philanthrophic organization and/or research
institution or organization' is a school, college or
university and/or charitable corporation, accredited
nongovernment organization, trust or
philanthrophic organization and/or research
institution or organization, incorporated as a
nonstock entity, paying no dividends, governed by
trustees who receive no compensation, and
devoting all its income, whether students' fees or
gifts, donation, subsidies or other forms of
philanthrophy, to the accomplishment and
promotion of the purposes enumerated in its
Articles of Incorporation
B. Gifts Made by a Nonresident not a Citizen of
the Philippines
(1) 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 profit, or to any
political subdivision of the said Government.
(2) Gifts in favor of an educational and/or
charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or
philanthrophic organization or research institution
or organization: Provided, however, that not more

11. than thirty percent (30% of said gifts shall be used
by such donee for administration purposes.
VI. TAX CREDIT FOR DONOR’S TAXES
PAID TO A FOREIGN COUNTRY
The tax imposed by this Title upon a donor
who was a citizen or a resident at the time of
donation shall be credited with the amount of any
donor’s tax of any character and description
imposed by the authority of a foreign country.
Limitations on Credit – The amount of the credit
taken under this Section shall be subject to each of
the following limitations:
(a) The amount of the credit in respect to the
tax paid to any country shall not exceed the same
proportion of the tax against which such credit is
taken, which the net gifts situated within such
country taxable under this Title bears to his entire
net gifts; and
(b) The total amount of the credit shall not
exceed the same proportion of the tax against which
such credit is taken, which the donor’s net gifts
situated outside the Philippines taxable under this
Title bears to his entire net gifts. (As amended by RA
No. 10963 (December 19, 2017)).
VII. FILING OF RETURN AND PAYMENT
(A) Requirements
Any individual who makes any transfer by
gift (except those which, under Section 101, are
exempt from the tax provided for in this Chapter)
shall, for the purpose of the said tax, make a return
under oath in duplicate. The return shall set forth:
(1) Each gift made during the calendar year which
is to be included in computing net gifts
(2) The deductions claimed and allowable
(3) Any previous net gifts made during the same
calendar year
(4) The name of the donee; and
(5) Such further information as may be required by
rules and regulations made pursuant to law.
(B) Time and Place of Filing and Payment
The return of the donor required in this
Section shall be filed within thirty (30) days after the
date the gift is made and the tax due thereon shall
be paid at the time of filing. Except in cases where
the Commissioner otherwise permits, the return
shall be filed and the tax paid to an authorized agent
bank, the Revenue District Officer, Revenue
Collection Officer or duly authorized Treasurer of
the city or municipality where the donor was
domiciled at the time of the transfer, or if there be
no legal residence in the Philippines, with the Office
of the Commissioner. In the case of gifts made by a
nonresident, the return may be filed with the
Philippine Embassy or Consulate in the country
where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner.

12. I. LOCAL GOVERNMENT TAXATION
A. Fundamental Principles
The following fundamental principles shall
govern the exercise of the taxing and other revenue-
raising powers of local government units:
(a) Taxation shall be uniform in each local government
unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable
on the taxpayer's ability to pay;
(2) be levied and collected only for public
purposes;
(3) not be unjust, excessive, oppressive, or
confiscatory;
(4) not be contrary to law, public policy, national
economic policy, or in the restraint of trade;
(c) The collection of local taxes, fees, charges and other
impositions shall in no case be let to any private person;
(d) The revenue collected pursuant to the provisions of
this Code shall inure solely to the benefit of, and be
subject to the disposition by, the local government unit
levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable,
evolve a progressive system of taxation.
B. Nature and Source of Taxing Power
1. Grant of Local Taxing Power under the
Local Government Code
Each local government unit shall exercise its
power to create its own sources of revenue and to levy
taxes, fees, and charges subject to the provisions herein,
consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the
local government units.
2. Authority to Prescribe Penalties for Tax
Violations
The sanggunian may impose a surcharge not
exceeding twenty-five (25%) of the amount of taxes, fees
or charges not paid on time and an interest at the rate
not exceeding two percent (2%) per month of the unpaid
taxes, fees or charges including surcharges, until such
amount is fully paid but in no case shall the total interest
on the unpaid amount or a portion thereof exceed thirty-
six (36) months.
3. Authority to think Local Tax Exemptions
Local government units may, through ordinances
duly approved, grant tax exemptions, incentives or
reliefs under such terms and conditions as they may
deem necessary.
4. Withdrawal of Exemptions
by Section 193 of the same Code, all tax
exemption privileges then enjoyed by all persons,
whether natural or juridicial, save those expressly
mentioned therein, were withdrawn, necessarily
including those taxes from which PLDT is exempted
under the "in-lieu-of-all taxes" clause in its charter.
SEC. 193. Withdrawal of Tax Exemption
Privileges – Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled
corporations, except local water districts,
cooperatives duly registered under R.A. 6938, non-
stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the
effectivity of this Code.
5. Authority to Adjust Local Tax Rates
Authority of Local Government Units to Adjust
Rates of Tax Ordinances.
Local government units shall have the authority to adjust
the tax rates as prescribed herein not oftener than once
every five (5) years, but in no case shall such adjustment
exceed ten percent (10%) of the rates fixed under this
Code. Should local government units decide to adjust
their tax rates, Section 191 of the Local Government
Code limits the amount of each adjustment and the
frequency by which this authority may be exercised.
Local government units can only adjust tax rates once
every five (5) years. Moreover, the amount of
adjustment should not exceed ten percent (10%) o the
rates fixed under the Local Government Code.
6. Residual Taxing Power of Local
Governments
Section 132. Local Taxing Authority. - The power
to impose a tax, fee, or charge or to generate revenue
under this Code shall be exercised by the sanggunian of
the local government unit concerned through an
appropriate ordinance. Taxing 1. Power to create
revenues exercised thru LGUs.
C. Scope of Taxing Power

13. The provisions herein shall govern the exercise
by provinces, cities, municipalities, and barangays of
their taxing and other revenue-raising powers
D. Specific Taxing Power of Local Government
Units
The power to impose a tax, fee, or charge or to
generate revenue under this Code shall be exercised by
the sanggunian of the local government unit concerned
through an appropriate ordinance. Each local
government unit (LGU) has the power to create its own
sources of revenue and to levy taxes, fees and charges.
The grant of power to create sources of revenue is
consistent with the basic policy of local autonomy. The
taxes, fees and charges shall accrue exclusively to the
LGU. 59. SEC.
E. Common Revenue Raising Powers
❖ Service Fees and Charges - Local government units
may impose and collect such reasonable fees and
charges for services rendered.
❖ Public Utility Charges - Local government units may
fix the rates for the operation of public utilities
owned, operated and maintained by them within
their jurisdiction.
❖ Toll Fees or Charges - The sanggunian concerned
may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for the
use of any public road, pier, or wharf, waterway,
bridge, ferry or telecommunication system funded
and constructed by the local government unit
concerned: Provided, That no such toll fees or
charges shall be collected from officers and enlisted
men of the Armed Forces of the Philippines and
members of the Philippine National Police on
mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who
are sixty-five (65) years or older.
When public safety and welfare so requires, the
sanggunian concerned may discontinue the collection of
the tolls, and thereafter the said facility shall be free and
open for public use.
F. Community Tax
Cities or municipalities may levy a community tax
❖ Individuals Liable to Community Tax
Every inhabitant of the Philippines eighteen (18)
years of age or over who has been regularly employed on
a wage or salary basis for at least thirty (30) consecutive
working days during any calendar year, or who is
engaged in business or occupation, or who owns real
property with an aggregate assessed value of One
thousand pesos (P1,000.00) or more, or who is required
by law to file an income tax return shall pay an annual
additional tax of Five pesos (P5.00) and an annual
additional tax of One peso (P1.00) for every One
thousand pesos (P1,000.00) of income regardless of
whether from business, exercise of profession or from
property which in no case shall exceed Five thousand
pesos (P5,000.00).
In the case of husband and wife, the additional tax herein
imposed shall be based upon the total property owned
by them and the total gross receipts or earnings derived
by them.
❖ Juridical Persons Liable to Community Tax
Every corporation no matter how created or
organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines shall pay
an annual community tax of Five hundred pesos (P500.00)
and an annual additional tax, which, in no case, shall
exceed Ten thousand pesos (P10,000.00) in accordance
with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of
real property in the Philippines owned by it during the
preceding year based on the valuation used for the
payment of real property tax under existing laws, found
in the assessment rolls of the city or municipality where
the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross
receipts or earnings derived by it from its business in the
Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another
corporation however shall, for the purpose of the
additional tax, be considered as part of the gross receipts
or earnings of said corporation.
❖ Exemptions
The following are exempt from the community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines
does not exceed three (3) months.
G. Common Limitations on the Taxing Powers
of Local Government Units
Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to
the levy of the following:

14. (a) Income tax, except when levied on banks and
other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and
other acquisitions mortis causa, except as otherwise
provided herein;
(d) Customs duties, registration fees of vessel and
wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained
by the local government unit concerned;
(e) Taxes, fees, and charges and other impositions
upon goods carried into or out of, or passing
through, the territorial jurisdictions of local
government units in the guise of charges for
wharfage, tolls for bridges or otherwise, or other
taxes, fees, or charges in any form whatsoever upon
such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic
products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the
Board of Investments as pioneer or non-pioneer for
a period of six (6) and four (4) years, respectively
from the date of registration;
(h) Excise taxes on articles enumerated under the
national Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales,
barters or exchanges or similar transactions on
goods or services except as otherwise provided
herein;
(j) Taxes on the gross receipts of transportation
contractors and persons engaged in the
transportation of passengers or freight by hire and
common carriers by air, land or water, except as
provided in this Code;
(k) Taxes on premiums paid by way or reinsurance
or retrocession;
(l) Taxes, fees or charges for the registration of
motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except
tricycles;
(m) Taxes, fees, or other charges on Philippine
products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic
Act Numbered Sixty-nine hundred thirty-eight (R.A.
No. 6938) otherwise known as the "Cooperative
Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and
local government units.
H. Requirements for a Valid Tax Ordinance
1.Filing of Proposal
The whole Sangguniang or nearly 1 member of
the Sangguniang can, he can consult with the people, he
decided to propose that it's ok for us to make this new
basketball court taxable. They will propose, they will
make an ordinance for that.
2.Publication or Posting
Within 10 days from the time your proposal is
filed. It must be posted for 3 consecutive days in a
newspaper of local circulation, and it shall be posted
simultaneously not less 4 conspicuous public places
within the territorial jurisdiction of the LGU. f the LGU.
3.Notification
The notice included, the Sangguniang will inform
the person concerned about when and where the public
hearing for this ordinance will be held.
4.Mandatory Public Hearing
It shall be held no less than 10 days from the time
that the notices sent out posted or publish.
5.Reading of the Proposal
at the hearing, during the hearing that proposal
will be read, the minimum times that that proposal will
be read is 3 times. A third reading is actually necessary
for an ordinance to take effect but there is an exception
there is no need to reach the 3RD reading if the majority
members of the Sangguniang agree with the content of
the proposal.

15. 6.Approval of Ordinances
When the Councils say it's ok, let's not have a
third reading approval as long as it's a majority.
If ever that is not dispensed and 3rd reading the
ordinance must be approved by majority of the members
of the Sanggunian present provided that, there is a
quorum.
7.Review of the Approved Ordinance by
Higher Sanggunian
The local chief executive will be brought and
shown, when the Mayor says that's ok, you can pass it on
to the next Sanggunian or he can veto the ordinance.
The veto power can be the entire ordinance or a portion,
or section of that ordinance. This veto power of the local
chief executive is always the usual consideration is the
prejudice or the public welfare in general, if the public
welfare is jeopardized, he can veto.
The local chief executive may only veto an ordinance or
resolution only once.
8.Publication and posting of Tax ordinance and revenue
measures
Within 10 days after the certified true copies of
the tax ordinance or revenue measures are approved,
they must be published again, 3 consecutive days in
newspaper local circulation if there is no newspaper local
circulation, all you have to do is post at least two
conspicuous public, accessible places
9.Effectivity
Unless otherwise stated in the ordinance itself
when to take effect
I. Taxpayer’s Remedies
1. Protest
(a) Notice of assessment - When the local treasurer or his
duly authorized representative finds that correct taxes,
fees, or charges have not been paid, he shall issue a
notice of assessment stating the nature of the tax, fee or
charge, the amount of deficiency, the surcharges,
interests and penalties.
(b) Written protests - Within 60 days from the receipt of
the notice of assessment, the taxpayer may file a written
protest. With the local treasurer contesting the
assessment; otherwise, the assessment shall become
final executory.
(c) Decision - The local treasurer shall decide the protest
within 60 from the time of its filing. if the local treasurer
finds the protests to be wholly or partly meritorious, he
shall issue a notice cancelling wholly or partially the
assessment to be wholly or partly correct, he shall deny
the protest wholly or partly with notice to the taxpayer
(d) Appeal - The taxpayer shall have 30 days from the
prescribed of the denial of the protest or from the lapse
of the 60 period jurisdiction; otherwise, the assessment
becomes conclusive and unappealable.
2. Refund
(1) No case of proceeding shall be maintained in
nah court for the recovery of any tax, fee, or charge
erroneously or illegally collected until a written claim for
refund or credit has been filed with the local treasurer.
(2) No case or proceeding shall be entertained in
any court after the expiration of two years from the date
of the payment of such tax, fee, or charge, or from the
date the taxpayer is entitled to such a refund or credit.
3. Action before the Secretary of Justice
The decision of the Secretary of Justice as well as
that of the Solicitor General, when approved by the
Secretary of Justice, shall be final and binding upon the
parties involved. Appeals may, however, be taken to the
President where the amount of the claim or the value of
the property exceeds one million pesos. The decision of
the President shall be final.
The authority of the President to review the ruling of the
DOJ is part and parcel of his extensive power of control
over the executive department and its officers, from
Cabinet Secretary to the lowliest clerk
J. Assessment and Collection of Local Taxes
1. Remedies of Local Government Units
I. Local Government's Lien
Local taxes, fees, charges and other revenue
constitute a lien, superior to all liens, charges or
encumbrances in favor of any person, enforceable by
appropriate administrative or judicial action, not only
upon any property or rights therein which may be subject
to the lien but also upon property used in business,
occupation, practice of profession or calling, or exercise
of privilege with respect to which the lien is imposed. The
lien may only be extinguished upon full payment of the
delinquent local taxes fees and charges including related
surcharges and interest.
II. Administrative action

16. means any judicial decision, official
administrative pronouncement, published or private
ruling, regulatory procedure, notice or announcement
(including any notice or announcement of intent to
adopt such procedures or regulations) by any legislative
body, court, governmental authority or regulatory body
having appropriate jurisdiction.
a. Distraint is "the seizure of someone’s property in
order to obtain payment of rent or other money
owed",[1] especially in common law countries [2]
Distraint is the act or process "whereby a person (the
distrainor), traditionally even without prior court
approval, seizes the personal property of another
located upon the distrainor's land in satisfaction of a
claim, as a pledge for performance of a duty, or in
reparation of an injury." [3] Distraint typically involves
the seizure of goods (chattels) belonging to the tenant by
the landlord to sell the goods for the payment of the rent.
In the past, distress was often carried out without court
approval. Today, some kind of court action is usually
required, [4] the main exception being certain tax
authorities – such as HM Revenue and Customs in the
United Kingdom and the Internal Revenue Service in the
United States – and other agencies that retain the legal
power to levy assets (by either seizure or distraint)
without a court order.
b. Levy is a legal seizure of your property to satisfy
a tax debt. Levies are different from liens. A lien is a legal
claim against property to secure payment of the tax debt,
while a levy actually takes the property to satisfy the tax
debt.
2. Prescriptive Period
- are time limits that set forth the maximum
period of time after an event that legal proceedings
based on that event may be initiated. In civil law systems,
Prescriptive periods, also known as Periods of
prescription, are set by the civil or criminal code. In
common law systems, similar provisions are set by
statute and known as Statutory Limitation.