Final Exam Pointers SY 2024-2025 - 2nd Semester

Flashcards for Transfer Taxes, Estate Tax, Donor's Tax, and VAT.

Deadline and Filing Location for Estate Tax

Within one (1) year from the decedent's death, filed with any Authorized Agent Bank (AAB) of the Revenue District Office (RDO).

Tax Rate and Base for Donor’s Tax and Estate Tax

Donor’s Tax: 6% based on total gifts exceeding Php250,000. Estate Tax: 6% based on Net Taxable Estate.

Composition of Gross Estate (Citizen/Resident)

All property, real or personal, tangible or intangible, wherever situated.

Composition of Gross Estate (Nonresident/Non-Citizen)

Only the part of the gross estate situated in the Philippines.

Properties Included in Gross Estate but Not in Decedent’s Estate at Death

Revocable transfers, transfers in contemplation of death, transfers under a general power of appointment, and transfers for insufficient consideration.

Treatment of Life Insurance Proceeds in Gross Estate

Included if the beneficiary is the estate, executor, or administrator; or if designation is revocable. Excluded if the beneficiary is other than the estate and the designation is irrevocable.

Allowable Deductions to Gross Estate

Standard Deduction (P5,000,000 for citizen/resident, P500,000 for non-resident/non-citizen), Family Home (max P10 million), Share of Surviving Spouse (½ of the net conjugal estate).

Extension of Time for Payment of Estate Tax

Up to 5 years if settled judicially, up to 2 years if settled extrajudicially.

Treatment of Funeral, Judicial, and Medical Expenses Before and After TRAIN Law

Before TRAIN Law: Funeral expenses limited to 5% of gross estate or actual (whichever is lower, max Php200,000), medical expenses within one year prior to death (max Php500,000). After TRAIN Law: These specific deductions were removed.

Deadline and Filing Location for Donor’s Tax

Within thirty (30) days after the gift is made, filed with any Authorized Agent Bank (AAB) of the Revenue District Office (RDO).

Amount of Exemption from Donor’s Tax

Php250,000

How to Legally Avoid Donor’s Tax

Donations to political campaigns, gifts to the National Government or its entities, and gifts to qualified educational/charitable/religious/social welfare organizations (subject to limitations).

Treatment on Donation of Personal or Real Property

Personal property: if value exceeds P5,000, must be in writing. Real property: must be in writing and in a public document.

Are Onerous Donations Subject to Donor’s Tax?

Generally no, unless the transfer is for less than adequate consideration or the gift imposes a burden less than the value of the item given; excess is subject to donor's tax.

Treatment on Sale of Personal Property for Less Than Adequate Consideration

If the transfer is for less than an adequate consideration, it is subject to donor’s tax. Excess of fair market value over consideration is the basis.

Treatment on Sale of Real Property for Less Than Adequate Consideration

Treated as a donation to the extent of the difference between fair market value and the consideration paid, triggering donor’s tax consequences.

Consequence if Surviving Spouse Renounces Inheritance in Favor of Children

Not subject to donor’s tax unless specifically done in favor of identified heir/s to the exclusion or disadvantage of other co-heirs.

Consequence if Surviving Spouse Renounces Share of Conjugal Property

Subject to donor’s tax because the share of conjugal property is the surviving spouse's property.

What is VAT?

A tax on consumption levied on the sale, barter, exchange, or lease of goods, properties, and services in the Philippines and on importation of goods into the Philippines.

What does “in the course of trade or business” mean?

The regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto.

CIR v. Magsaysay Lines Inc. - Reason for VAT exemption

It was decided under the 1986 NIRC when the phrase "in the course of trade or business" had not yet been defined to include incidental transactions, unlike the present NIRC (1997), as amended.

What does the term “zero-rated sales” refer to?

Sale, barter, or exchange of goods, properties and/or services subject to 0% VAT. Input tax on purchases related to such sales is available as tax credit or refund.

What does the term “effectively zero-rated sales” refer to?

Local sale by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement (e.g., to a Direct Exporter).

Is the sale of service vehicle used in the catering business subject to VAT?

Yes, because the term "in the course of trade or business" includes "transactions incidental thereto".

Is the sale of land inherited from her father subject to VAT?

No, the sale is subject to VAT only if the real property sold is held primarily for sale or lease in the ordinary course of trade or business (ordinary asset).

Is the sale of land used in bakeshop business subject to VAT?

Yes, the sale of land used in a bakeshop business is generally subject to VAT.

Gross Selling Price (Basis of VAT on Taxable Sales of Real Property)

The consideration stated in the sales document or the fair market value, whichever is higher.

Is the donation of land used in bakeshop business subject to VAT?

Yes, the donation by a VAT-registered person is considered a "deemed sale" transaction and is subject to VAT.

Is the transfer of 500 boxes of instant noodles to Atty. Magaling as gift from client whom the latter helped understand the NIRC subject to VAT?

It depends. The transfer would be subject to VAT on the part of the client (donor) if the client is a VAT-registered business and the instant noodles were originally inventory or goods intended for sale. Additionally, the client (donor) may also be subject to Donor's Tax on the value of the gift, depending on whether the total value of gifts made to Atty. Magaling within the calendar year exceeds the P250,000 threshold.

Under the CREATE MORE Act, what does “directly attributable” mean?

Goods and services that are incidental to and reasonably necessary for the export activity of the export-oriented enterprise (including janitorial, security, financial, consultancy, marketing and promotion services, and administrative services).

Considering the effectivity of CREATE MORE Act, may the sale of seeds or seedlings to export-oriented enterprise (EOE) be considered directly attributable in the export operation of the EOE?

Likely yes. If the core business of the exporter is agricultural production for export the seedlings may be treated as the starting point of the production chain.

Significance of Determining if Sale to Export-Oriented Enterprise is Zero-Rated or VAT-Exempt

Zero-Rated Sales allows for tax credit or refund of input taxes, while VAT-Exempt Sales means input taxes may be claimed as a deductible expense.

What is the period to claim for refund or credit under Sec. 112?

Within two (2) years after the close of the taxable quarter when the sales were made.

Procedure for claiming refunds or tax credits of input Value Added Tax (VAT) for zero-rated or effectively zero-rated sales under Sec. 112 of the National Internal Revenue Code (NIRC) from the filing of an application with the CIR up to the CTA.

File an administrative claim with the CIR within two years. If no action within 90 days, file a judicial claim with the CTA within 30 days of the CIR decision or inaction.

Situational: January 31, 2023 – filed with the BIR for claim for refund or credit on unutilized input tax for 2021; BIR – made no action Question: Did the CTA acquire jurisdiction over the Petition?

CTA did not acquire jurisdiction because the judicial claim was prematurely filed. Must wait for 90-day period for CIR to act before filing with CTA.

What is the consequence of the failure to indicate the words “zero-rated” on the invoices and receipts issued by a taxpayer for his claim for refund or credit?

The claim for refund or tax credit will be denied.

Can the CTA offset the input taxes against deficiency output taxes even without the taxpayer-claimant choosing this option?

No, the CTA cannot effect the offsetting of input and output taxes as such an option is available to the taxpayer.

Is the sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez subject to VAT?

VAT exempt. Sales of agricultural products, such as fresh vegetables, in their original state, of a kind generally used as, or producing foods for human consumption is exempt from VAT.

Is the sale of house and lot and other residential dwellings of not more than P3,600,000.00 subject to VAT?

No, starting January 1, 2024, the adjusted new threshold for VAT-Exempt sale of house and lot and other residential dwellings is not more than P3,600,000.00.

Is the sale of lot of not more than P3,600,000.00 subject to VAT?

No, starting January 1, 2024, the adjusted new threshold for VAT-exempt sale of house and lot and other residential dwellings is not more than P3,600,000.00.

What is Letter of Authority (LoA)?

An official document given to a Revenue Officer which empowers him to examine and scrutinize a Taxpayer’s books of accounts and other accounting records.

Can LoA be issued for more than one (1) taxable year?

Generally a letter of authority should cover a taxable period not exceeding one taxable year.

What is the effect if LoA is issued to cover “unverified prior years,”?

It is invalid and any assessment made on the basis of that is likewise invalid.

What is the remedy of BIR if it intends to audit a taxpayer for more than one taxable year?

It should indicate the specific years (RMO 43-90).

How many days the Revenue Officer have to conduct the audit?

A Revenue Officer has only 120 days from the date of receipt of the LoA to conduct the audit and submit the required report of investigation.

What is the remedy of Revenue Officer if it failed to finish the audit within 120 days?

If the revenue officer is unable to submit his final report of investigation within the 120-day period, he must then submit a Progress Report to his head of office and surrender the LOA for revalidation.

What is Notice of Discrepancy (NoD)?

The Notice of Discrepancy (NoD), which replaces the Notice of Informal Conference (NIC), will be issued to the taxpayer if he is found to be liable for deficiency taxes during investigation conducted by a revenue officer. A Notice of Discrepancy is not yet a deficiency tax assessment.

What periods should the taxpayer observe to rebut the NoD?

The taxpayer must be able to present and explain its side on the discrepancies noted by the BIR within 5 days from receipt of the notice.

After the issuance NoD and the discrepancies were not resolved, what document will the taxpayer expect to receive?

If there is sufficient basis, a Preliminary Assessment Notice (PAN) is issued showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based, otherwise, the assessment is void.

Within what period the taxpayer must respond to the PAN?

The taxpayer must respond to the PAN within 15 days from date of receipt of the PAN. .

After the issuance PAN and the discrepancies were not resolved, what document will the taxpayer expect to receive?

The Formal Letter of Demand/Final Assessment Notice (FLD/FAN) shall be issued by the CIR or his duly authorized representatives. .

Within what period the taxpayer must respond to the FLD/FAN?

The taxpayer or its authorized representative or tax agent may protest administratively against the aforesaid FLD/FAN within thirty (30) days from date of receipt thereof. .

What’s the difference between Request for Reconsideration or Request for Reinvestigation?

Request For Reconsideration - refers to a plea of re-evaluation of an assessment on the basis of existing records without need of additional evidence. Request For Reinvestigation - refers to a plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation.

What is the remedy of the taxpayer if his protest is denied by the CIR?

If the protest is “denied” in whole or in part by the Commissioner, the taxpayer may appeal to the CTA-Division (via Petition for Review under Rule 42) within 30 days from date of receipt of the said decision

What is the remedy of the taxpayer if his protest is denied by the CIR’s Authorized Representative (i.e. Regional Director)?

Elevate his protest to the CIR (administrative protest) within 30 days from date of receipt of the final decision of the CIR's duly authorized representative, if still denied by the CIR, appeal to the CTA-Division within 30 days from date of receipt of said decision.

What is the remedy of the taxpayer if his pretest is not acted? (inaction)

File an appeal to CTA -Division within 30 days from lapsed of 180 days because it is deemed a denial (not a formal decision) for purposes of appeal or TP to wait the final decision of CIR even beyond the 180-day period.