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TAXATION
VER. 2010.06.12
copyrighted 2010
TAXATION
Nice to know
Should know
Must know and master
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without stars.
WARNING:
2.
Explain briefly.
SUGGESTED ANSWER: The nature of the states power to tax is
two-fold. It is both an inherent power and a legislative power.
It is inherent in nature being an attribute of sovereignty. This is so,
because without the taxes, the states existence would be imperiled.
There is thus, no need for a constitutional grant for the state to exercise
this power.
It is a legislative power because it involves the promulgation of
rules. Taxation is a set of rules, how much is the tax to be paid, who pays
the tax, to whom it should be paid, and when the tax should be paid.
3.
briefly.
2
SUGGESTED ANSWER: Taxes are the lifeblood of the nation.
Without revenue raised from taxation, the government will not
survive, resulting in detriment to society. Without taxes, the government
would be paralyzed for lack of motive power to activate and operate it.
(Commissioner of Internal Revenue v. Algue, Inc. et al., 158 SCRA 8, 16-17)
b.
Basis: Tax imposed under power of taxation while license
fee under police power.
c.
Amount: In taxation, no limit as to amount while license fee
limited to cost of the license and the expenses of police surveillance and
regulation.
d.
Time of payment:
Taxes normally paid after
commencement of business while license fee before.
e.
Effect of payment: Failure to pay a tax does not make the
business illegal while failure to pay license fee makes business illegal.
f.
Surrender: Taxes, being the lifeblood of the state, cannot
be surrendered except for lawful consideration while a license fee may be
surrendered with or without consideration. (Cooley on Taxation, pp. 11371138; Pacific Commercial Company v. Romualdez, et al., 49 Phil. 924)
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation is to
promote the general welfare and to protect the health, safety or morals of
the inhabitants. It is in the joint exercise of the power of taxation and police
power where regulatory taxes are collected.
Taxation may be made the implement of the states police power.
The motivation behind many taxation measures is the implementation of
police power goals.
[Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3,
2005) The reader should note that the August 3, 2005 Southern Cross case
products.
10.
Taxation distinguished from police power. Taxation is
distinguishable from police power as to the means employed to implement
these public goals. Those doctrines that are unique to taxation arose from
peculiar considerations such as those especially punitive effects (Southern
Cross Cement Corporation v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540, August 3, 2005) as the power to tax
involves the power to destroy and the belief that taxes are lifeblood of the
state. (Ibid.) taxes being the lifeblood of the government, their prompt and
certain availability is of the essence.
These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. (Ibid.)
SUGGESTED ANSWER:
a.
Enforced contribution.
b.
Generally payable in money.
c.
Proportionate in character.
d.
Levied on persons, property or exercise of a right or
privilege.
e.
Levied by the state having jurisdiction.
f.
Levied by the legislature.
g.
Levied for a public purpose.
h.
Paid at regular periods or intervals.
tax.
c.
Excise imposed upon the performance of an act, the
enjoyment of a privilege or the engaging in an occupation. Example
income tax, estate tax.
4
a.
Direct taxes. Those that are extracted from the very person
who, it is intended or desired, should pay them (Commissioner of Internal
Revenue v. Philippine Long Distance Telephone Company, G. R. No. 140230,
December 15, 2005); they are impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in, (Commissioner of
Internal Revenue v. Philippine Long Distance Telephone Company, supra)
17.
5
cover, among others, both direct and indirect taxes on all petroleum
products used in its operation. Presidential Decree No. 938 [NPCs
amended charter] amended the tax exemption by simplifying the same law
in general terms. It succinctly exempts NPC from all forms of taxes,
duties, fees The use of the phrase all forms of taxes demonstrates the
intention of the law to give NPC all the tax exemptions it has been enjoying
before.
The exemption granted under Section 135 (b) of the NIRC of 1997
and Article 4(2) of the Air Transport Agreement between RP and
Singapore cannot, without a clear showing of legislative intent, be
construed as including indirect taxes. Statutes granting tax exemptions
must be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority, and if an exemption is found to exist, it must
not be enlarged by construction. (Silkair (Singapore) PTE, Ltd., v. Commissioner
of Internal Revenue, G.R. No. 173594, February 6, 2008)
18.
What are the different kinds of taxes classified
as to purpose ?
SUGGESTED ANSWER:
a.
General, fiscal or revenue imposed for the purpose of
raising public funds for the service of the government.
b.
Special or regulatory imposed primarily for the regulation of
useful or non-useful occupation or enterprises and secondarily only for the
raising of public funds.
INHERENT LIMITATIONS
1. What are the inherent limitations on the power of
taxation ?
SUGGESTED ANSWERS:
a.
Public purpose. The revenues collected from taxation should
be devoted to a public purpose.
b.
No improper delegation of legislative authority to tax. Only the
legislature can exercise the power of taxes unless the same is delegated to
some other governmental body by the constitution or through a law which
does not violate any provision of the constitution.
c.
Territoriality. The taxing power should be exercised only
within territorial boundaries of the taxing authority.
d.
Recognition of government exemptions; and
e.
Observance of the principle of comity. Comity is the respect
accorded by nations to each other because they are equals. On the other
hand taxation is an act of sovereign. Thus, the power should be imposed
upon equals out of respect.
Some authorities include no double taxation.
2.
What are the principles to consider in the
determination of whether tax revenues are devoted for a
public purpose ?
SUGGESTED ANSWER:
a.
The tax revenues are for a public purpose if utilized for the
benefit of the community in general. An alternative meaning is that tax
proceeds should be utilized only to attain the objectives of government.
b.
Inequalities resulting from the singling out of one particular
class for taxation or exemption infringe no constitutional limitation.
REASON: It is inherent in the power to tax that the legislature is
free to select the subjects of taxation.
BASIS: The lifeblood theory.
c.
An individual taxpayer need not derive direct benefits from
the tax.
REASON: The paramount consideration is the welfare of the
greater portion of the population.
d.
A tax may be imposed, not so much for revenue purposes,
but under police power for the general welfare of the community. This
would still be for a public purpose.
e.
Public purpose continually expanding. Areas formerly left to
private initiative now lose their boundaries and may be undertaken by the
government if it is to meet the increasing social challenges of the times.
f.
Tax revenue must not be used for purely private purposes or
for the exclusive benefit of private persons.
g.
Private persons may be benefited but such benefit should be
merely incidental as its main object is the benefit of the community in
general.
h. Determined at the time of enactment of tax law and not at
the time of implementation.
6
i.
There is a presumption of public purpose even if the tax law
does not specifically provide for its purpose. (Santos & Co., v. Municipality
of Meycauayan, et al., 94 Phil. 1047)
3.
4.
Requisites for taxpayers, concerned citizens,
voters or legislators to have locus standi to sue.
a.In general, the case should involve constitutional issues. (David,
et al., v. President Gloria Macapagal-Arroyo, etc., et al., G. R. No. 171396, May 3,
2006)
b.
6.
Locus standi being merely a matter of procedure,
have been waived in certain instances where a party who is not
personally injured may be allowed to bring suit. The following are
examples of instances where suits have been brought by parties who have
not have been personally injured by the operation of a law or any other
7
government act but by concerned citizens, taxpayers or voters who actually
sue in the public interest:
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the
enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R.
No. 167919, February 14, 2007)
9.
Paradigm shift from exclusive Congressional
power to direct grant of taxing power to local legislative bodies.
10.
8
fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general
power to levy taxes and otherwise create sources of revenue. They no
longer have to wait for a statutory grant of these powers. The power of
the legislative authority relative to the fiscal powers of local governments
has been reduced to the authority to impose limitations on municipal
powers. Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5 is thus
to reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of municipal corporations.
It is understood, however, that taxes imposed by local government must
be for a public purpose, uniform within a locality, must not be
confiscatory, and must be within the jurisdiction of the local unit to pass.
(Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169)
14.
9
(Commissioner of Internal Revenue v. Baier-Nickel, G. R. No. 153793, August 29,
2006)
18.
Obama Airlines, Inc., a foreign airline company
which does not maintain any flight to and from the Philippines
sold air tickets in the Philippines, through a general sales
agent, relating to the carriage of passengers and cargo between
two points, both outside the Philippines.
a.
Is Obama, Inc., subject to income taxes on the sale
of the tickets ?
SUGGESTED ANSWER: Yes. The source of income which is
taxable is that activity which produced the income. The sale of tickets in
10
the Philippines is the activity that determines whether such income is
taxable in the Philippines.
The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The situs of the source of payments is
the Philippines. the flow of wealth proceeded from and occurred, within the
Philippine territory, enjoying the protection accorded by the Philippine
Government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government. [Commissioner of Internal
Revenue v. British Overseas Airways Corporation (BOAC), 149 SCRA 395]
Off-line air carriers having general sales agents in the Philippines
are engaged in or doing business in the Philippines and their income
from sales of passage documents here is income from within the
Philippines. Thus, the off-line air carrier liable for the 32% (now 30%) tax
on its taxable income. [South African Airways v. Commissioner of Internal
irrespective of the place of sale or issue and the place of payment of the
ticket or passage document. [NIRC of 1997, Sec. 28(A)(3)(a)]
The place of sale is irrelevant; as long as the uplifts of
passengers and cargo occur from the Philippines, income is included in
GPB. (South African Airways v. Commissioner of Internal Revenue, G.R. No.
180356, February 16, 2010)
19.
tax.
Revenue, G.R. No. 180356, February 16, 2010 citing Commissioner of Internal
Revenue v. British Overseas Airways Corporation (British Overseas Airways), No.
L-65773-74, April 30, 1987, 149 SCRA 395]
CONSTITUTIONAL LIMITATIONS
b.
Supposing that Obama, Inc., sells tickets outside of
the Philippines for passengers it carry from Gold City, South
Africa to the Philippines but returns to South Africa without any
cargo or passengers.
Would it then be subject to any
Philippine tax on such sales ?
c.
Would your answer be the same if Obama, Inc. sold
tickets outside of the Philippines for travelers who are going to
picked up by Obama, Inc., planes from the Diosdado Macapagal
Intl. Airport at Clark, Angeles, Pampanga, bound for Nairobi,
Kenya ? Reason out your answer.
SUGGESTED ANSWER: No more. This time Obama, Inc., would
be subject to the carriers tax based on Gross Philippine Billings. (GPB).
Gross Philippine Billings refers to the amount of gross revenue
derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted flight,
1.
3.
a.
b.
c.
11
d.
All appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives, but the Senate may propose
and concur with amendments;
e. The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object;
f.
Delegated power of the President to impose tariff rates, import
and export quotas, tonnage and wharfage dues:
1)
Delegation by Congress
2)
through a law
3)
subject to Congressional limits and
restrictions
4)
within the framework of national development program.
g.
Tax exemption of charitable institutions, churches, parsonages
and convents appurtenant thereto, mosques, and all lands, buildings and
improvements of all kinds actually, directly and exclusively used for
religious, charitable or educational purposes;
h.
No tax exemption without the concurrence of majority vote of
all members of Congress;
i.
No use of public money or property for religious purposes
except if priest is assigned to the armed forces, penal institutions,
government orphanage or leprosarium;
j.
Money collected on tax levied for a special purpose to be used
only for such purpose, balance if any, to general funds;
k.
The Supreme Court's power to review judgments or orders of
lower courts in all cases involving the legality of any tax, impose,
assessment or toll or the legality of any penalty imposed in relation to the
above;
l.
Authority of local government units to create their own sources
of revenue, to levy taxes, fees and other charges subject to guidelines and
limitations imposed by Congress consistent with the basic policy of local
autonomy;
m.
Automatic release of local government's just share in national
taxes;
n.
Tax exemption of all revenues and assets of non-stock, nonprofit educational institutions used actually, directly and exclusively for
educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by law
including restrictions on dividends and provisions for reinvestment of profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational
purposes subject to conditions prescribed by law.
5.
Equal protection of the law clause is subject to
If the groupings are characterized by
reasonable classification.
substantial distinctions that make real differences, one class may be treated
and regulated differently from another. The classification must also be
germane to the purpose of the law and must apply to all those belonging to
the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January
20, 1999)
6.
Requisites for valid classification. All that is
required of a valid classification is that it be reasonable, which means that
a.
the classification should be based on substantial distinctions
which make for real differences,
b.
that it must be germane to the purpose of the law;
c.
that it must not be limited to existing conditions only; and
d.
that it must apply equally to each member of the class.
The standard is satisfied if the classification or distinction is based
on a reasonable foundation or rational basis and is not palpably arbitrary.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715,
August 14, 2008]
7.
Equal protection does not demand absolute
equality. It merely requires that all persons shall be treated alike, under
like circumstances and conditions, both as to the privileges conferred and
liabilities enforced. (Santos v. People, et al, G. R. No. 173176, August 26, 2008)
It is imperative to duly establish that the one invoking equal
protection and the person to which she is being compared were indeed
similarly situated, i.e., that they committed identical acts for which they
were charged with the violation of the same provisions of the NIRC; and
that they presented similar arguments and evidence in their defense - yet,
they were treated differently. (Santos, supra)
8.
Tests to determine validity of classification.
The
United States Supreme Court has established different tests to determine
the validity of a classification and compliance with the equal protection
clause. The recognized tests are:
a.
The traditional (or rational basis) test.
b.
The strict scrutiny (or compelling interest) test.
c. The intermediate level of scrutiny (or quasi-suspect class) test.
9.
The traditional (or rational basis) test used in order
to determine the validity of classification. The classification is
valid if it is rationally related to a constitutionally permissible state interest.
The complainant must prove that the classification is invidous,
wholly arbitrary, or capricious, otherwise the classification is presumed
12
to be valid. (Lindsley v. Natural Carboinic Gas Co., 220 U.S. 61; McGowan v.
Maryland, 366 U.S. 420; United States Railroad Retirement Board v. Fritz, 449
U.S. 166)
9.
Benjie is a law-abiding citizen who pays his
real estate taxes promptly. Due to a series of typhoons and
adverse economic conditions, an ordinance is passed by
Soliman City granting a 50% discount for payment of unpaid
real estate taxes for the preceding year and the condonation
of all penalties on fines resulting from the late payment.
Arguing that the ordinance rewards delinquent tax
payers and discriminates against prompt ones, Benjie
demands that he be refunded an amount equivalent to onehalf of the real property taxes he paid. The municipal attorney
rendered an opinion that Benjie cannot be reimbursed
because the ordinance did not provide for such
reimbursement. Benjie files suit to declare the ordinance void
on the ground that it is a class legislation. Will his suit
prosper ? Explain your answer briefly.
SUGGESTED ANSWER: No. There is no class legislation
because there is no violation of the equal protection suit. There is a valid
classification between those who already paid their taxes and those who
have not. Furthermore, the taxing authority has the prerogative to select
the subjects and objects of taxation, including granting a 50% discount in
the payment of unpaid real estate taxes, and the condonation of all
penalties on fines resulting from late payment.
13
13.
17.
When withdrawal of a tax exemption impairs
the obligation of contracts. The Contract Clause has never been
thought as a limitation on the exercise of the States power of taxation
save only where a tax exemption has been granted for a valid
consideration. (Smart Communications, Inc. v. The City of Davao, etc., et al., G.
R. No. 155491, September 16, 2008) citing Tolentino v. Secretary of Finance, G.
R. No. 115455, August 25, 1994, 235 SCRA 630, 685) The author opines that
14
18.
The primary reason for the withdrawal of tax
exemption privileges granted to government owned and
controlled corporations and all other units of government was that such
privilege resulted to serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due them. (Philippine Ports
Authority v. City of Iloilo, G. R. No. 109791, July 14, 2003)
21.
In lieu of all taxes refers to national internal
revenue taxes and not to local taxes. The in lieu of all taxes
clause applies only to national internal revenue taxes and not to local
taxes. As appropriately pointed out in the separate opinion of Justice
Antonio T. Carpio in a similar case involving a demand for exemption
from local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to
taxes, other than income tax, imposed under the National Internal
Revenue Code. The "in lieu of all taxes" clause does not apply to local
taxes. The proviso in the first paragraph of Section 9 of Smart's franchise
states that the grantee shall "continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code." Also, the
second paragraph of Section 9 speaks of tax returns filed and taxes paid
to the "Commissioner of Internal Revenue or his duly authorized
representative in accordance with the National Internal Revenue Code."
Moreover, the same paragraph declares that the tax returns "shall be
subject to audit by the Bureau of Internal Revenue." Nothing is mentioned
in Section 9 about local taxes. The clear intent is for the "in lieu of all
taxes" clause to apply only to taxes under the National Internal Revenue
Code and not to local taxes. Even with respect to national internal
revenue taxes, the "in lieu of all taxes" clause does not apply to income
tax.
If Congress intended the "in lieu of all taxes" clause in Smart's
franchise to also apply to local taxes, Congress would have expressly
mentioned the exemption from municipal and provincial taxes. Congress
could have used the language in Section 9(b) of Clavecilla's old franchise,
as follows:
x x x in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever, municipal,
provincial or national, from which the grantee is hereby expressly
exempted, x x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local
taxes. Congress used the "in lieu of all taxes" clause only in reference to
national internal revenue taxes. The only interpretation, under the rule on
strict construction of tax exemptions, is that the "in lieu of all taxes" clause
in Smart's franchise refers only to national and not to local taxes. [Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008 citing Philippine Long Distance Telephone Company, Inc. v.
City of Davao, 447 Phil. 571, 594 (2003)]
NOTES AND COMMENTS: The author opines that the above finds
application to all telecommunications companies.
15
taxes does not pertain to VAT or any other tax. It cannot apply when
what is paid is a tax other than a franchise tax. Since the franchise tax on
the broadcasting companies with yearly gross receipts exceeding ten
million pesos has been abolished, the in lieu of all taxes clause has now
become functus officio, rendered inoperative. (Quezon City, et al., v. ABS-
(Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., et al., G.R. No.
127105, June 25, 1999)
24.
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b. Taxing all of the subjects or objects for the first time without
taxing all of them for the second time.
If any of the elements are absent then there is indirect duplicate
taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
nd
a.
Presence of the 2 element violates the equal protection clause.
If only the 1st element is present, taxing the same subject or object twice, by the
same taxing authority, etc., there is no violation of the equal protection clause
because all subjects and objects that are similarly situated are subject to the same
burdens and granted the same privileges without any discrimination whatsoever,
The presence of the 2nd element, taxing all of the subjects and objects for the
first time, without taxing all for the second time, results to discrimination among
subjects and objects that are similarly situated, hence violative of the equal
protection clause.
30.
16
OTHER CONCEPTS
1. Distinguish tax from debt.
TAX
DEBT
Basis
based on law
based on contract or
judgment
Failure to Pay
may result in
imprisonment
no imprisonment
Mode of
Payment
generally payable in
money
payable in money,
property or service
Assignability
not
assignable
Payment
unless it becomes a
debt is not subject to
compensation or setoff
may be a subject
Interest
draws interest if
stipulated or delayed
31.
The VAT while regressive is NOT violative of the
mandate to evolve a progressive system of taxation. Do you
agree ? The mandate to Congress is not to prescribe but to evolve a
Authority
imposed by public
authority
can be imposed by
private individuals
Prescription
Prescriptive periods
for tax under NIRC
assignable
2.
Compensation takes place by operation of law, where the
local government and the taxpayer are in their own right reciprocally
debtors and creditors of each other, and that the debts are both due and
demandable, in consequence of Articles 1278 and 1279 of the Civil Code.
17
to, and are the positive acts of government, to the making and enforcing
of which the personal consent of the individual taxpayer is not required.
(Republic v. Mambulao Lumber Co., 4 SCRA 622)
c.
Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Thus, it is correct to say that the offsetting of a taxpayers tax
refund with its alleged tax deficiency is unavailing under Art. 1279 of the
Civil Code. (South African Airways v. Commissioner of Internal Revenue, G.R.
No. 180356, February 16, 2010 reiterating Caltex Philippines, Inc. v.
Commission on Audit, which applied Francia v. Intermediate Appellate Court)
4. Exceptions:
allowed for local taxes.
When
set-off
or
compensation
a.
Where both claims already become overdue and
demandable as well as fully liquidated. Compensation takes place by
operation of law under Art. 1200 in relation to Arts. 1279 and 1290 all of
the Civil Code. (Domingo v. Garlitos, 8 SCRA 443)
b.
Compensation takes place by operation of law, where the
government and the taxpayer are in their own right reciprocally debtors
and creditors of each other, and that the debts are both due and
demandable. This is in consequence of Article 1278 and 1279 of the Civil
Code. (Domingo v. Garlitos, 8 SCRA 443)
c.
,The Supreme Court upheld the validity of a set-off between
the taxpayer and the government. In both cases, the claims of the
taxpayers therein were certain and liquidated. The claims were certain
since there were no doubts or disputes as to their refundability. In fact,
the government admitted the fact of over-payment.
(Commissioner of
Internal
Revenue
d.
In case of a tax overpayment, the BIRs obligation to refund
or off-set arises from the moment the tax was paid. REASON: Solutio
indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern, Inc 172
SCRA 364)
e.
While judgment should be rendered in favor of Republic
for unpaid taxes, judgment ought at the same time to issue for
Sampaguita Pictures commanding payment to the latter by the Republic
of the value of the backpay certificates which the Republic received.
(Republic v. Ericta, 172 SCRA 623)
5.
Gilbert obtained a judgment for a sum of
money against the municipality of Camiling. The judgment has
become final although execution has not issued. Upon
receiving an assessment for municipal sales taxes from the
6.
In case of doubt, tax laws must be construed
strictly against the State and liberally in favor of the taxpayer
because taxes, as burdens which must be endured by the taxpayer, should
not be presumed to go beyond what the law expressly and clearly declares.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293
SCRA 92, 99)
7.
Interpretation in the imposition of taxes, is not the
similar doctrine as that applied to tax exemptions. The rule in
the interpretation of tax laws is that a statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously.
A tax cannot be imposed without clear and express words for that
purpose. Accordingly, the general rule of requiring adherence to the letter
in construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In
answering the question of who is subject to tax statutes, it is basic that in
case of doubt, such statutes are to be construed most strongly against
the government and in favor of the subjects or citizens because burdens
are not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. [Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008 citing CIR v. Court of
Appeals, 338 Phil. 322, 330-331 (1997)]
As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the tax laws.
(Ibid., citing CIR v. Philippine American Accident Insurance Company, Inc., G.R.
No. 141658, March 18, 2005, 453 SCRA 668)
8.
Strict interpretation of tax exemption laws. Taxes
are what civilized people pay for civilized society. They are the lifeblood
of the nation. Thus, statutes granting tax exemptions are construed
stricissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of tax exemption must be clearly shown and based on
language in law too plain to be mistaken. Otherwise stated, taxation is
the rule, exemption is the exception. (Quezon City, et al., v. ABS-CBN
18
Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing Mactan Cebu
International Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996,
261 SCRA 667, 680) The burden of proof rests upon the party claiming the
9.
laws. The basis for the rule on strict construction to statutory provisions
granting tax exemptions or deductions is to minimize differential treatment
and foster impartiality, fairness and equality of treatment among
taxpayers. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No.
166408, October 6, 2008) He who claims an exemption from his share of
common burden must justify his claim that the legislature intended to
exempt him by unmistakable terms. For exemptions from taxation are not
favored in law, nor are they presumed. They must be expressed in the
clearest and most unambiguous language and not left to mere
implications. It has been held that exemptions are never presumed the
burden is on the claimant to establish clearly his right to exemption and
cannot be made out of inference or implications but must be laid beyond
reasonable doubt. In other words, since taxation is the rule and
exemption the exception, the intention to make an exemption ought to be
expressed in clear and unambiguous terms. (Quezon City, supra citing
Agpalo, R.E., Statutory Construction, 2003 ed., p. 302)
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which underlies
all quasi-contracts abhorring a persons unjust enrichment at the expense
of another. [Commissioner, supra citing Ramie Textiles, Inc. v. Hon. Mathay, Sr.,
178 Phil. 482 (1979); Puyat & Sons v. City of Manila, et al., 117 Phil. 985 (1963)]
given its essence, a claim for tax refund necessitates only preponderance
of evidence for its approbation like in any other ordinary civil case.
(Commissioner, supra)
The rule is that tax exemptions must be strictly construed such that
the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.
[Commissioner, supra citing Phil. Acetylene Co.
v. Commission of Internal
19
Revenue, et al., 127 Phil. 461, 472 (1967); Manila Electric Company v. Vera,
G.R. No. L-29987, 22 October 1975, 67 SCRA 351, 357-358; Surigao
Consolidated Mining Co. Inc. v. Commissioner of Internal Revenue, supra]
15.
Effect of a BIR reversal of a previous ruling
interpreting a law as exempting a taxpayer. A reversal of a BIR
ruling favorable to a taxpayer would not necessarily create a perpetual
exemption in his favor, for after all the government is never estopped from
collecting taxes because of mistakes or errors on the part of its agents.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293
SCRA 92, 99)
16.
a.
Tax amnesty is an immunity from all criminal, civil and
administrative liabilities arising from nonpayment of taxes (People v.
Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax
exemption is an immunity from civil liability only. It is an immunity or
privilege, a freedom from a charge or burden to which others are subjected.
(Florer v. Sheridan, 137 Ind. 28, 36 NE 365)
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda, supra) WHILE tax exemption has
prospective application.
17.
18.
20
in effect, the tax benefits are cancelled out. (Ibid.) Thus, the need for the
tax sparing provision.
2.
In Evangelista v. Collector, 102 Phil. 140, the Supreme Court
held citing Mertens that the term partnership includes a syndicate, group,
pool, joint venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is carried on.
1.
Rep. Act No. 1405, the Bank Deposits Secrecy Law
prohibits inquiry into bank deposits. As exceptions to Rep. Act
No. 1405, the Commissioner of Internal Revenue is only
authorized to inquire into the bank deposits of:
a.
a decedent to determine his gross estate; and
b.
any taxpayer who has filed an application for compromise of
his tax liability by reason of financial incapacity to pay his tax liability. [Sec.
5 (F), NIRC of 1997]
c.
A taxpayer who authorizes the Commissioner to inquire into
his bank deposits.
2.
Purpose of the NIRC of 1997. Revenue generation
has undoubtedly been a major consideration in the passage of
the Tax Code. (Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R. Nos. 167274-75, July 21, 2008)
3.
Purpose of shift from ad valorem system to
specific tax system in taxation of cigarettes. The shift from the
ad valorem system to the specific tax system is likewise meant to
promote fair competition among
the players in the industries
concerned, to ensure an equitable distribution of the tax burden and to
simplify tax administration by classifying cigarettes, among others, into
high, medium and low-priced based on their net retail price and
accordingly graduating tax rates. (Commissioner of Internal Revenue v.
Fortune Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
TAX ON INCOME
1.
The Tax Code has included under the term
corporation partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies. [Sec. 24 now Sec. 24 (B) of the
NIRC of 1997]
21
6.
The income from the rental of the house, bought
from the earnings of co-owned properties, shall be treated as
the income of an unregistered partnership to be taxable as a
corporation because of the clear intention of the brothers to join together in
a venture for making money out of rentals.
7.
8.
The term taxable income means the pertinent items of
gross income specified in the Tax Code, less the deductions and/or
personal and additional exemptions, if any, authorized for such types of
income by the Tax Code or other special laws. (Sec. 31, NIRC of 1997)
9.
or to a (c) capital
14.
If a corporation to which a stockholder is indebted
forgives the debt, the transaction has the effect of payment of a
dividend. (Sec. 50, Rev. Regs. No. 2)
15. Members of cooperatives not subject to tax on the
interest earned from their deposits with the cooperative. No less than
our Constitution guarantees the protection of cooperatives. Section 15, Article XII
of the Constitution considers cooperatives as instruments for social justice and
economic development. At the same time, Section 10 of Article II of the
Constitution declares that it is a policy of the State to promote social justice in all
phases of national development. In relation thereto, Section 2 of Article XIII of the
Constitution states that the promotion of social justice shall include the
commitment to create economic opportunities based on freedom of initiative and
self-reliance. Bearing in mind the foregoing provisions, we find that an
interpretation exempting the members of cooperatives from the imposition of the
final tax under Section 24(B)(1) of the NIRC (tax on interest earned by deposits)
is more in keeping with the letter and spirit of our Constitution. (Dumaguete
Cathedral Credit Coopertive [DCCC)] etc., v. Commissioner of Internal Revenue,
G.
R.
No.
182722,
January
22,
2010)
22
j.
Daily meal allowance for overtime work not exceeding twenty
five percent (25%) of the basic minimum wage.
The amount of de minimis benefits conforming to the ceiling herein
prescribed shall not be considered in determining the P30,000 ceiling of
other benefits provided under Section 32 (B)(7)(e) of the Code. However,
if the employer pays more than the ceiling prescribed by these regulations,
the excess shall be taxable to the employee receiving the benefits only if
such excess is beyond the P30,000.00 ceiling, provided, further, that any
amount given by the employer as benefits to its employees, whether
classified as de minimis benefits or fringe benefits, shall constitute as
deductible expense upon such employer. [Sec. 2.78.1 (A) (3), Rev. Regs.
2-98 as amended by Rev. Regs. No. 8-2000]
24.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to the
taxpayer which are not treated as part of gross income for purposes of
computing the taxpayers taxable income, due to the following reasons: (1)
It is exempted by the fundamental law; (2) It is exempted by statute; and
(3) It does not come within the definition of income (Sec. 61, Rev. Regs.
No. 2) WHILE deductions are the amounts which the law allows to be
subtracted from gross income in order to arrive at net income.
b.
Exclusions pertain to the computation of gross income WHILE
deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the taxpayer
which do not form part of gross income WHILE deductions are something
spent or paid in earning gross income.
An example of an exclusion from gross income are life insurance
proceeds, and an example of a deduction are losses.
25.
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
b.
Amounts received by the insured as a return of premiums paid
by him under life insurance, endowment or annuity contracts either during
23
the term, or at maturity of the term mentioned in the contract, or upon
surrender of the contract.
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal injuries or
sickness, plus the amounts of any damages received on whether by suit or
agreement on account of such injuries or sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No. 7641.
Retirement received from reasonable private benefit plan after compliance
with certain conditions. Amounts received for beyond control separation.
Foreign social security, retirement gratuities, pensions, etc. USVA benefits,
SSS benefits and GSIS benefits.
24
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
f.
Depreciation or a reasonable allowance for the exhaustion,
wear and tear (including reasonable allowance for obsolescence) of
property used in trade or business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
g. Depletion or deduction arising from the exhaustion of a nonreplaceable asset, usually a natural resource.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
h. Charitable and other contributions. Resident citizens,
resident alien individuals and nonresident alien individuals who are
engaged in trade and business, on their gross incomes other from
compensation income are allowed to deduct these expenses. Domestic
corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
i. Research and development expenditures treated as deferred
expenses paid or incurred by the taxpayer in connection with his trade,
business or profession, not deducted as expenses and chargeable to
capital account but not chargeable to property of a character which is
subject to depreciation or depletion.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
29.
expenditures.
25
a.
year;
trade or
business.
4)
Must not be bribes, kickbacks or other illegal
expenditures
b. Compliance with the substantiation test. Proof by evidence or
records of the deductions allowed by law including compliance with the
business test.
26
st
NIRC of 1997; 1 par., Sec. 2.33 (B), Rev. Regs. No. 3-98]
27
d. The same must be actually charged off the books of accounts of
the taxpayer as of the end of the taxable year; and
e. The debt must be actually ascertained to be worthless and
uncollectible during the taxable year;
f. The debts are uncollectible despite diligent effort exerted by the
taxpayer. [Sec. 34 (E) (1), NIRC of 1997; Sec. 3, Rev. Regs. No. 5-99
reiterated in Rev. Regs. No. 25-2002; Philippine Refining Corporation v.
Court of Appeals, et al., 256 SCRA 667]
g. Must have been reported as receivables in the income tax return
of the current or prior years. (Sec. 103, Rev. Regs. No. 2)
:
b.
If the said taxpayer did not benefit from the deduction of the
said bad debt written-off because it did not result to any reduction of his
income tax in the year of such deduction (i.e. where the result of his
business operation was a net loss even without deduction of the bad debts
written-off), then his subsequent recovery thereof shall be treated as a mere
recovery or a return of capital, hence, not treated as receipt of realized
taxable income. (Sec. 4, Rev. Regs. 5-99)
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of Finance
upon the recommendation of the Commissioner of Internal Revenue:
1)
Apportionment to units of production;
2)
3)
4)
44.
45.
exemption ?
SUGGESTED ANSWER: There shall be allowed a basic personal
exemption amounting to Fifty thousand pesos (P50,000) for each
individual taxpayer.
In the case of married individuals where only one of the spouse is
deriving gross income, only such spouse shall be allowed the personal
exemption. [Sec. 35 (A), NIRC of 1997 as amended by Rep. Act No. 9504; Sec.
2.79 (I) (1) (a), Rev. Regs. No. 2-98 as amended by Rev. Regs. No. 10-2008]
NOTES AND COMMENTS: It is clear from Rep. Act No. 9504 that
each of the spouses may claim the P50,000.00. Thus, the total familial
basic personal exemption for spouses is P100,000.00.
Furthermore, the distinctions between the concepts of single,
married and head of the family for purpose of availing of the basic
personal exemption has already been eliminated by Rep. Act No. 9504.
28
1)
2.79 (I) (1) (b), Rev. Regs. No. 2-98 as amended by Rev. Regs. No. 102008, arrangement and numbering supplied; Sec. 35 (B), NIRC of 1997 as
amended by Rep. Act No. 9504]
c.
It is to be noted that under the NIRC of 1997, as amended
by Rep. Act No. 9504, only qualified dependent children are considered
for additional exemptions. Grandparents, parents, as well, as brothers or
sisters, and other collateral relatives are not qualified dependents to be
claimed as additional exemptions.
However, if they are senior citizens they may qualify as additional
exemptions under the Senior Citizens Law but not under the NIRC of
1997, as amended by Rep. Act No. 9504.
Senior citizen shall be treated as dependents provided for in the
National Internal Revenue Code, as amended, and as such, individual
taxpayers caring for them, be they relatives or not shall be accorded the
privileges granted by the Code insofar as having dependents are
concerned. [last par. Sec. 5 (a), Rep. Act No. 7432, as amended by Rep. Act
9257, The Expanded Senior Citizens Act of 2003]
48.
29
c. Real property used in trade or business (i.e. buildings and/or
improvements), of a character which is subject to the allowance for
depreciation; or
d. Real property used in trade or business of the taxpayer. (Sec. 2. b,
Rev. Regs. No. 7-2003)
hands of the recipient even if the corporation which declared the real
property dividend is engaged in real estate business.
c. The real property received in an exchange shall be treated as
ordinary asset in the hands of the transferee in the case of a tax-free
exchange by taxpayer not engaged in real estate business to a taxpayer
who is engaged in real estate business, or to a taxpayer who, even if not
engaged in real estate business, will use in business the property received
in the exchange. (Sec. 3.f., Rev. Regs. No. 7-2003)
30
c. a domestic corporation. [Sec. 27 (D) (5), NIRC of 1997]
56. The basis for the final presumed capital gains tax
of six per cent (6%) is whichever is the higher of the
a. gross selling price, or
b. the current fair market value as determined below:
1) the fair market value or real properties located in each
zone or area as determined by the Commissioner of Internal
Revenue after consultation with competent appraisers both from
the private and public sectors; or
2) the fair market value as shown in the schedule of
values of the Provincial and City Assessors. [Sec. 24 (D) (1) in
relation to Sec. 6 (E), both of the NIRC of 1997]
It does not matter whether there was an actual gain or loss because
the tax is a presumed capital gains tax. It is the transaction that is taxed
not the gain.
31
ESTATE TAXES
1. In determining the gross estate of a decedent,
are his properties abroad to be included, and more
particularly, what constitutes gross estate ?
SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen
or a resident alien.
The gross estate of a Filipino citizen or a resident alien comprises
all his real property, wherever situated; all his personal property, tangible,
intangible or mixed, wherever situated, to the extent of his interest
existing therein at the time of his death.
The gross estate of a non-resident alien comprises all his real
property, situated in the Philippines; all his personal property, tangible,
intangible or mixed, situated in the Philippines, to the extent of his interest
existing therein at the time of his death.
2.
32
b)
his executor, or
c)
administrator irrespective of whether or not the
insured retained the power of revocation, OR
2)
The amounts are receivable by any beneficiary
designated in the policy of insurance as revocable beneficiary.
shall possess or enjoy the property or the income therefrom. [Sec. 85 (B),
NIRC of 1997]
b.
One, other than the decedent takes the insurance policy on
the life of the decedent
1)
The amounts are receivable by
a)
the decedents estate,
b)
his executor, or
c)
administrator
2)
irrespective of whether or not the insured retained the
power of revocation.
c.
Where the insurance was NOT taken by the decedent upon
his own life and the beneficiary is not the decedents estate, his executor
or administrator.
4.
Items deductible from the gross estate of a resident
or nonresident Filipino decedent or resident alien decedent:
a.
Expenses, losses, claims, indebtedness and taxes;
b.
Property previously taxed;
c.
Transfers for public use;
d.
The Family Home up to a value not exceeding P1 million;
e.
Standard deduction of P1 million;
f.
Medical expenses not exceeding P500,000.00;
g.
Amount of exempt retirement received by the heirs under Rep.
Act Mo. 4917;
h.
Net share of the surviving spouse in the conjugal partnership.
5.
There is no transfer in contemplation of death if
there is no showing that the transferor retained for his life or for any
period which does not in fact end before his death: (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the right,
either alone or in conjunction with any person, to designate the person who
33
death. [Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement and
fair market value of the property the amount of the mortgage assumed.
underlining supplied]
8.
DONORS TAXES
1.
5.
How are gifts of personal property to be valued for
donors tax purposes ?
SUGGESTED ANSWER: The market value of the personal property
at the time of the gift shall be considered the amount of the gift. (Sec. 102,
NIRC of 1997)
6.
What is the valuation of donated real property for
donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised at its
fair market value as of the time of the gift.
However, the appraised value of the real property at the time of the
gift shall be whichever is the higher of:
a.
the fair market value as determined by the Commissioner of
Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values fixed
by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B) both
stranger ?
2.
stranger ?
SUGGESTED ANSWER: A stranger is a is person who is not a:
a.
Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or
b.
Relative by consanguinity in the collateral line within the fourth
degree of relationship. [Sec. 99 (B), NIRC of 1997]
NOTES AND COMMENTS: All relatives by affinity, irrespective of
the degree, are considered as strangers.
3.
4.
For purposes of the donors tax, what is meant by
net gifts ?
SUGGESTED ANSWER: The net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property
is transferred as a gift, but imposing upon the donee the obligation to pay
the mortgage liability, then the net gift is measured by deducting from the
b.
Supposing that instead of a general renunciation, B
renounced her hereditary share in As estate to X who is a
special child, would your answer be the same ? Explain.
SUGGESTED ANSWER: My answer would be different. The
renunciation in favor of X would be subject to donors tax.
This is so because the renunciation was specifically and
categorically done in favor of X and identified heir to the exclusion or
disadvantage of Y and Z, the other co-heirs in the hereditary estate. (4th
par., Sec. 11, Rev. Regs. No. 2-2003)
34
8.
donors tax.
SUGGESTED ANSWER:
a.
The first P100,000.00 net donation during a calendar year is
exempt from donors tax [Sec. 99 (A), NIRC of 1997] made by a resident or
non resident;
b.
The donation by a resident or non-resident of a prize to an
athlete in an international sports tournament held abroad and sanctioned by
the national sports association is exempt from donors tax (Sec. 1, Rep. Act
No. 7549)
c.
Political contributions made by a resident or non-resident
individual if registered with the COMELEC irrespective of whether donated
to a political party or individual.
However, the Corporation Code prohibits corporations from making
political contributions. (Corp. Code, Title IV, Sec. 36.9)
d.
Dowries or gifts made on account of marriage and before
its celebration or within one year thereafter by residents who are parents
to each of their legitimate, recognized natural, or adopted children to the
extent of the first ten thousand pesos (P10,000.00);
e.
Gifts made by residents or non-residents 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 subdivisions of the
said Government;
f.
Gifts made by residents or non residents 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 percent (30%) of said gifts shall be used by such donee for
administration purposes. [Sec. 101 (A), NIRC of 1997, numbering and
arrangement supplied]
g.
Gifts made by non-resident aliens outside of the Philippines to
Philippine residents are exempt from donors taxes because taxation is
basically territorial. The transaction, which should have been subject to tax
was made by non-resident aliens and took place outside of the Philippines.
10.
A, who is engaged in the car buy and sell
business sold to B P7 million Jaguar for only P4 million. The
proper VAT on the sale was paid. If you are the BIR examiner
assigned to review the sale, would you issue a tax assessment
on the transaction ? Explain your answer briefly.
SUGGESTED ANSWER: Donors taxes would be due on the
insufficiency of consideration.
Where property, other than real property that has been subjected
to the final capital gains tax, is transferred for less than an adequate and
full consideration in money or moneys worth, then the amount by which
the fair market value of the property at the time of the execution of the
Contract to Sell or execution of the Deed of Sale which is not preceded by
a Contract to Sell exceeded the value of the agreed or actual
consideration or selling price shall be deemed a gift, and shall be included
in computing the amount of gifts made during the calendar year. (5th par.,
Sec. 11, Rev. Regs. No. 2-2003)
35
[Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R.
No. 153866, February 11, 2005 citing various authorities}
3.
indirect tax. If a special law merely exempts a party as a seller from its
direct liability for payment of the VAT, but does not relieve the same party
as a purchaser from its indirect burden of the VAT shifted to it by its VATregistered suppliers, the purchase transaction is not exempt.
REASON: The VAT is a tax on consumption, the amount of which
may be shifted or passed on by the seller to the purchaser of the goods,
properties or services. [Commissioner of Internal Revenue v. Seagate
Technology (Philippines), G. R. No. 153866, February 11, 2005)
4.
Illustration of effects of exemptions from VAT
A VAT exempt seller sells to a non-VAT
which is an indirect tax.
exempt purchaser. The purchaser is subject to VAT because the VAT is
merely added as part of the purchase price and not as a tax because the
burden is merely shifted. The seller is still exempt because it could pass
on the burden of paying the tax to the purchaser.
5.
The VAT is a tax on consumption.
Meaning of
consumption as used under the VAT system. Consumption is
"the use of a thing in a way that thereby exhausts it."
Applied to services, the term means the performance or
"successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" Unlike goods,
services cannot be physically used in or bound for a specific place when
their destination is determined. Instead, there can only be a
"predetermined end of a course" when determining the service "location
or position x x x for legal purposes." [Commissioner of Internal Revenue v.
Placer Dome Technical Services (Phils.), Inc. G. R. No. 164365, June 8, 2007]
6.
Illustration of the meaning of consumption as used
under the VAT system. For example the services rendered by a local
firm to its foreign client are performed or successfully completed upon its
sending to a foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines. Such
facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines.
[Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.),
Inc. G. R. No. 164365, June 8, 2007]
7.
a.
8.
a.
Cost deduction method. This is a single-stage tax which is
payable only by the original sellers.
(Abakada Guro Party List (etc.) v.
Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases)
36
9.
How the VAT is imposed on the increase in worth,
merit or improvement of the goods or services. The VAT utilizes
the concept of the output and input taxes.
Output VAT less Input VAT = VAT due on the increase in worth,
merit or improvement f the goods or services.
13.
a.
the transitional input tax and
b.
the presumptive input tax xxx.
It includes
c.
input taxes which can be directly attributed to transactions
subject to the VAT plus a ratable portion of any input tax which cannot be
directly attributed to either the taxable or exempt activity. (Rev. Regs. No.
4.110-1, 1st par., 2nd sentence,. And 2nd par., paraphrasing, arrangement
and numbering supplied )
37
18.
19.
21.
Sale of real properties primarily for sale to customers or held for lease in
the ordinary course of trade or business of the seller shall be subject to
VAT. (Rev. Regs. No. 16-2005, Sec. 4.106-3, 1st par.)
Thus, capital transactions of individuals are not subject to VAT.
Only real estate dealers are subject to VAT.
22.
On September 4, 2009, XYZ, Inc., a domestic
corporation engaged in the real estate business, sold a
38
building for P10,000,000.00. Is the sale subject to the valueadded tax (VAT)? If so, how much? Explain.
SUGGESTED ANSWER: Yes. 12% on the gross selling price
because the sale was made in the ordinary course of trade of business of
X, a domestic corporation engaged in the real estate business.
23.
24.
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to twelve percent (12%) of
gross receipts
c.
[NIRC of
1997, Sec. 108 (A), as amended by R.A. No. 9337, arrangement and
numbering supplied]
39
calls for the exercise or use of the physical or mental faculties. [NIRC of
1997, Sec. 108 (A), as amended by R.A. No. 9337; Rev. Regs. No. 16-2005, Sec.
4,108-2, 1st par., arrangement and numbering supplied]
par.)
st
16-2005, 1 par.)
28.
at zero. When applied to the tax base, such rate obviously results in no
tax chargeable against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund or a tax credit certificate for
30.
31.
The law clearly provides for an exception to the destination principle; that
is, for a zero percent VAT rate for services that are performed in the
Philippines, "paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the [BSP]."
40
authority. [Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.), Inc., G. R.. No. 150154, August 9, 2005] The Cross Border Doctrine
is also known as the destination principle.
Hence, actual or constructive export of goods and services
from the Philippines to a foreign country must be zero-rated for VAT;
while, those destined for use or consumption within the Philippines shall
be imposed the twelve percent (12%) VAT.
33.
transactions:
a.
A zero-rated sale is a taxable transaction but does not result
in an output tax WHILE an exempt transaction is not subject to the output
tax.
b.
The input tax on the purchases of a VAT registered person
who has zero-rated sales may be allowed as tax credits or refunded
WHILE the seller in an exempt transaction is not entitled to any input tax
on his purchases despite the issuance of a VAT invoice or receipt.
c.
Persons engaged in transactions which are zero rated being
subject to VAT are required to register WHILE registration is optional for
VAT-exempt persons.
34.
5, 2
38. Zero-rated sale of service, defined. A zerorated sale of service (by a VAT-registered person) is a taxable transaction
for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services related to such
zero-rated sale shall be available as tax credit or refund in accordance
with Rev. Regs. No. 16-2005. [Rev. Regs. No. 16-2005, Sec. Sec. 4.108-5 (a),
words in italics supplied)
39.
41
41.
A foreign Consortium composed of BWSCDenmark, Mitsui Engineering and Shipbuilding Ltd., and Mitsui
and Co., Ltd., which entered into a contract with NAPOCOR for
the operation and maintenance of two power barges
appointed BWSC-Denmark as its coordination manager.
BWSCMI was established as the subcontractor to perform the
actual work in the Philippines. The Consortium paid BWSCMI
in acceptable foreign exchange and accounted for in
accordance with the rules and regulations of the BSP.
Through a February 14, 1995 ruling the BIR declared that
BWSCMI may choose to register as a VAT persons subject to
VAT at zero rate. For 1996, it filed the proper VAT returns
showing zero rating. On December 29, 1997, believing that it
is covered by Rev. Regs. 5-96, dated February 20, 1996,
BWSCMI paid 10% output VAT for the period April-December
1996, through the Voluntary Assessment Program (VAP).
b.
Could it obtain a refund of the VAT it paid through
the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund of the
10% output VAT it paid the based on the non-retroactivity of the
prejudicial revocation of the BIR Rulings which held that its services are
subject to 0% VAT and which BWSCMI invoked in applying for refund of
the output VAT. (Commissioner of Internal Revenue v. Burmeister and
Wain Scandinavian Contractor Mindanao, Inc., supra)
42
b.
An exempt transaction shall not be the subject of any billing
for output VAT but it shall not also be allowed any input tax credits WHILE
an exempt party being zero-rated is allowed to claim input tax credits.
43
the Consumer Price Index, as published by the National Statistics
Office (NSO). (Sec. 116, Tax Code)
(2)
Services rendered by domestic common carriers by
land for the transport of passengers and keepers of garages.
(Sec. 117)
(3)
Services rendered by international air/shipping
carriers. (Sec. 118)
(4)
Service rendered by franchise grantees of radio
and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos
(P10,000,000.00) and by franchises of gas and water utilities.
(Sec. 119)
(5)
Service rendered for overseas dispatch message or
conversation originating from the Philippines. (Sc. 120)
(6)
Services rendered by any person, company or
corporation (except purely cooperative companies or associations
) doing life insurance business of any sort in the Philippines.
(Sec. 123)
(7)
Services rendered by fire, marine or miscellaneous
insurance agents of foreign insurance companies. (Sec. 124)
(8)
Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing exhibitions
professional basketball games, jai-Alai and race tracks. (Sec.
125). and
(9)
Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock exchange or
through initial public offering. (Sec. 127)
(F)
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into raw sugar;
Agricultural contract growers refers to those persons producing
for others poultry, livestock or other agricultural and marine food products
in their original state.
(G) Medical, dental, hospital and veterinary services except
those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic operates
a pharmacy or drug store, the sale of drugs and medicine is subject to
VAT.
(H) Educational services rendered by private educational
institutions, duly accredited by the Department of Education (DEPED), the
Commission on Higher Education (CHED), the Technical Education And
Skills Development Authority (TESDA) and those rendered by
government educational institutions;
Educational services shall refer to academic, technical or
vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA and those rendered by
government educational institutions and it does not include seminars, inservice training, review classes and other similar services rendered by
persons who are not accredited by the DepED, the CHED and/or the
TESDA.
(I)
Services rendered by individuals pursuant to an employeremployee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special laws,
except those under Presidential Decree No. 529 Petroleum Exploration
Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority (CDA) to their members as well as
sale of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce;
(M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development Authority:
Provided, That the share capital contribution of each member does not
exceed Fifteen thousand pesos (P15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the members;
Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
(O) Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business, or
real property utilized for low-cost and socialized housing as defined by
Republic Act No. 7279, otherwise known as the Urban Development and
Housing Act of 1992, and other related laws, such as RA No. 7835 and
RA No. 8765, residential lot valued at One million five hundred thousand
pesos (P 1,500,000) and below, house and lot, and other residential
dwellings valued at Two million five hundred thousand pesos (P
2,500,000) and below: Provided, That not later than January 31, 2009
and every three (3) years thereafter, the amounts herein stated shall be
44
adjusted to their present values using the Consumer Price Index, as
published by the National Statistics Office (NSO);
(Q) Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P 10,000) Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office (NSO);
(R) Sale, importation, printing or publication of books and any
newspaper, magazine, review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements;
(S)
Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for domestic
or international transport operations; Provided, that the exemption from
VAT on the importation and local purchase of passenger and/or cargo
vessels shall be limited to those of one hundred fifty (150) tons and
above, including engine and spare parts of said vessels; Provided,
further, that the vessels be imported shall comply with the age limit
requirement, at the time of acquisition counted from the date of the
vessels original commissioning, as follows: (i) for passenger and/or
cargo vessels, the age limit is fifteen years (15) years old, (ii) for tankers,
the age limit is ten (10) years old, and (iii) For high-speed passenger
cars, the age limit is five (5) years old, Provided, finally, that exemption
shall be subject to the provisions of section 4 of Republic Act No. 9295,
otherwise known as The Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations; Provided, that the
said fuel, goods and supplies shall be used exclusively or shall pertain to
the transport of goods and/or passenger from a port in the Philippines
directly to a foreign port without stopping at any other port in the
Philippines; provided, further, that if any portion of such fuel, goods or
supplies is used for purposes other than that mentioned in this paragraph,
such portion of fuel, goods and supplies shall be subject to 10% VAT
(now 12%);
(U) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries; and
its present value using the Consumer Price Index as published by the
National Statistics Office (NSO).
For purposes of the threshold of P1,500,000.00, the husband and
wife shall be cnsidered separate taxpayers. However, the aggregation
rule for each taxpayer shall apply. For instance, if a profesional, aside
from the practice ofhis profession, also derives revenue from other lines
of business which are otherwise subject to VAT, the same shall be
combined for purposes of determining whether the threshold has been
exceeded. Thus, the VAT-exempt sales shall to be icluded in determining
the threshold. [NIRC of 1997, Sec. 109 (1), as amended by R. A. No. 9337;
words in italics from Rev. Regs. No. 16-2005, Sec. 4.109-1 (B), words in
parentheses supplied]
45.
a.
Any person, whose sales or receipts are exempt under Sec.
109 (1) (V) of the Tax Code,
(V) Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of One million five hundred thousand
pesos (P1,500,000): Provided, That not later than January 31,
2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer
Price Index as published by the National Statistics Office (NSO),
from the payment of VAT and
b.
who is not a VAT-registered person
c.
shall pay a tax equivalent to three percent (3%) of his gross
monthly sales or receipts;
Provided, that cooperatives shall be exempt from the three (3%)
gross receipts tax herein imposed. (Rev. Regs. No. 16-2005, Sec. 4.116-1,
arrangement, numbering and words in italics supplied)
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents, until
controverted by competent evidence, are competent evidence, are prima
facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et
al., 296 SCRA 309, 317)
2.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on his
income from sources within the Philippines;
45
c.
Every alien residing in the Philippines on income derived from
sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or in the
exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC of 1997]
3.
Married individuals who are earning
compensation income allowed to file separate returns.
purely
4.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a consolidated return for the taxable
year to include the income of both spouses, but where it is
impracticable for the spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall be consolidated by
the Bureau for purposes of verification. [Section 51 (D) of the NIRC of
1997]
5.
Computation of income tax for married individuals
whether citizens, resident or non-resident aliens, who do not
derive income purely from compensation required file a
consolidated return for the taxable year but could not do so.
For married individuals, the husband and wife, subject to no. 2, supra,,
shall compute separately their individual income tax based on their
respective total taxable income: Provided, that if any income cannot be
definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their respective
taxable income. [2nd to the last par., Sec. 24 (A) (2), NIRC of 1997 as amended
by Rep. Act No. 9504]
6.
Individuals who are not required to file an income
tax return.
a.
An individual whose gross income does not exceed his total
personal and additional exemptions for dependents, Provided, That a
citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippines shall file an income tax return
regardless of the amount of gross income [Sec. 51 (A) (2), NIRC of 1997]
b.
An individual with respect to pure compensation income,
derived from such sources within the Philippines, the income tax on which
has been correctly withheld: Provided, That an individual deriving
compensation concurrently from two or more employers at any time
during the taxable year shall file an income tax return [Sec. 51 (A) (2), NIRC
of 1997, as amended by Rep. Act No. 9504, paraphrasing supplied]
c.
An individual whose sole income has been subject to final
withholding tax;
d.
A minimum wage earner (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned), an individual
who is exempt from income tax pursuant to the provisions of the Tax
Code and other laws, general or special. [Sec. 51 (A) (2), NIRC of 1997 in
relation to Sec. 22 (HH), both as amended by Rep. Act. 9504]
7.
Minimum wage earners are exempt from income
taxation. That minimum wage earners (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned) shall be exempt
from the payment of income tax on their taxable income: Provided,
further, That the holiday pay, overtime pay, night shift differential pay and
hazard pay received by such minimum wage earners shall likewise be
exempt from income tax. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec. 22 (HH),
both as amended by Rep. Act. 9504]
8.
An individual who is not required to file an income
tax return may nevertheless be required to file an information
return. [Sec. 51 (A) (3), NIRC of 1997]
9.
A corporation files its income tax return and pays its
income tax four (4) times during a single taxable year. Quarterly
returns are required to be filed for the first three quarters, then a final
adjustment return is filed covering the total taxable income for the whole
taxable year, be it calendar or fiscal.
46
are required to make this four time return. Thus, the taxpayer does not have
to raise large sums of money in order to pay the tax.
The liability for payment of the tax rests primarily on the payor or the
withholding agent.. Thus, in case of his failure to withhold the tax or in case
of under withholding, the deficiency tax shall be collected from the payor
withholding agent. The payee is not required to file an income tax return for
the particular income.
penalty and not because the tax is due from him. (Commissioner of Internal
1.
Surtaxes or surcharges, also known as the civil penalties, are
the amounts imposed in addition to the tax required.
They are in the nature of penalties and shall be collected at the same
time, in the same manner, and as part of the tax. [Sec.248 (A), NIRC of
1997]
and/or pay the difference between the tax withheld and the tax due on the
income. [1st and 2nd sentences, Sec. 257(B), Rev. Regs. No. 2-98]
Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999, the Anscor
case)
2.
47
SUGGESTED ANSWER:
a.
the 25% surcharge for late filing or late payment [Sec. 248 (A),
NIRC of 1997] (also known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud surcharge. [Sec. 248 (B), Ibid.]
3.
4.
Deficiency interest, defined. The interest assessed and
collected on any unpaid amount of tax at the rate of 20% per annum or
such higher rate as may be prescribed by regulations, from the date
prescribed for payment until the amount is fully paid. [Sec. 249 (A) (B),
NIRC of 1997]
5.
Delinquency interest, defined. The interest assessed
and collected on the unpaid amount until fully paid where there is failure on
the part of the taxpayer to pay the amount die on any return required to be
filed; or the amount of the tax due for which no return is required; or a
deficiency tax, or any surcharge or interest thereon, on the date appearing
in the notice and demand by the Commissioner of Internal Revenue.
[Sec.249 (c), NIRC of 1997]
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to
discourage delay in the payment of taxes due to the State and in this sense
the surcharge and interest charged are not penal but compensatory in
nature they are compensation to the State for the delay in payment, or for
the concomitant tuse of the funds by the taxpayer beyond the date he is
supposed to have paid them to the State. (Bank of the Philippine Islands v.
Commissioner of Internal Revenue, G. R. No. 137002, July 27, 2006)
7.
Compromise penalty is the amount agreed upon between
the taxpayer and the Government to be paid as a penalty in cases of a
compromise.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes
on time. Imposed surcharges and interests for such delay, the
48
4.
a.
Exclusive appellate jurisdiction to review by appeal, as
herein provided:
1.
Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties, in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue; (DIVISION)
2.
Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds or internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matter arising under the
National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a
denial; (The inaction on refunds in two years from the time tax was paid.
Thus, if the prescriptive period of two years is about to expire, the taxpayer
should interpose a petition for review with the CTA DIVISION)
3.
Decisions, orders or resolutions of the Regional Trial Courts in
local tax cases originally decided or resolved by them in the exercise of
their original or appellate jurisdiction; (If original DIVISION; if appellate EN
BANC)
4.
Decisions of the Commissioner of Customs in cases involving
liability for customs duties, fees or other money charges, seizure, detention
or release of property affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs; (DIVISION)
5.
Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the assessment
and taxation of real property originally decided by the provincial or city
board of assessment appeals; (EN BANC)
6.
Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the
Commissioner of Customs which are adverse to the Government under
Section 2315 of the Tariff and Customs Code; (This has reference to
forfeiture cases where the decision is to release the seized articles
DIVISION)
7.
Decisions of the Secretary of Trade and Industry, in case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision to
impose or not to impose said duties. (DIVISION)
b.
Jurisdiction over cases involving criminal offenses as
herein provided:
1.
Exclusive original jurisdiction over all criminal cases
arising from violations of the National Internal Revenue Code or Tariff and
Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or
felonies mentioned in this paragraph where the principal amount of taxes
and fees, exclusive of charges and penalties claimed, is less than One
million pesos (P1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the civil action will be
recognized.
2.
Exclusive appellate jurisdiction in criminal offenses:
a)
Over appeals from the judgments, resolutions or orders
of the Regional Trial Courts in tax cases originally decided by them,
in
their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their
appellate
jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in
their respective jurisdiction.
c.
Jurisdiction over tax collection cases:
1.
Exclusive original jurisdiction in tax collection cases involving
final and executory assessments for taxes, fees, charges and penalties:
Provided, however, That collection cases where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is less than
One million pesos (P1,000,000) shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and Regional Trial Court.
2.
Exclusive appellate jurisdiction in tax collection cases:
a)
Over appeals from judgments, resolutions, or orders of
the Regional Trial Courts in tax collection cases originally decided by
them, in their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their
appellate
jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit
Trial Courts, in their respective jurisdiction. (Sec. 7, R. A. No.
49
1125, as amended by R. A. No. 9282, emphasis and words in parentheses
supplied)
6.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision of the
Commissioner of Customs:
merely adopts the procedure for petitions for review and appeals long
established and practiced in other Philippine courts.
Accordingly,
doctrines, principles, rules, and precedents laid down in jurisprudence by
this Court as regards petitions for review and appeals in courts of general
jurisdiction should likewise bind the CTA, and it cannot depart therefrom.
(Santos v. People, et al, G. R. No. 173176, August 26, 2008)
5.
a.
Decisions of the Secretary of Trade and Industry or the
Secretary of Agriculture in anti-dumping and countervailing duty cases are
appealable to the Court of Tax Appeals within thirty (30) days from receipt
of such decisions.
b. In case of automatic review by the Secretary of Finance in
seizure or forfeiture cases where the value of the importation exceeds P5
million or where the decision of the Collector of Customs which fully or
partially releases the shipment seized is affirmed by the Commissioner of
Customs.
c. In case of automatic review by the Secretary of Finance of a
decision of a Collector of Customs acting favorably upon a customs protest.
of internal revenue
50
why no notice of assessment and letter of demand for additional taxes
should be directed to him.
e.
If the Commissioner is satisfied with the explanation of the
taxpayer, then the process is again ended.
If the taxpayer ignores the pre-assessment notice by not
responding or his explanations are not accepted by the Commissioner, then
a notice of assessment and a letter of demand is issued.
The notice of assessment must be issued by the Commissioner to
the taxpayer within a period of three (3) years from the time the tax return
was filed or should have been filed whichever is the later of the two events.
Where the taxpayer did not file a tax return or where the tax return filed is
false or fraudulent, then the Commissioner has a period of ten (10) years
from discovery of the failure to file a tax return or from discovery of the fraud
within which to issue an assessment notice. The running of the above
prescriptive periods may however be suspended under certain instances.
The notice of assessment must be issued within the prescriptive
period and must contain the facts, law and jurisprudence relied upon by the
Commissioner. Otherwise it would not be valid.
f.
The taxpayer should then file an administrative protest by filing
a request for reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to the
Court of Tax Appeals because there is no decision yet of the Commissioner
that could be the subject of a review.
To be valid the administrative protest must be filed within the
prescriptive period, must show the error of the Bureau of Internal Revenue
and the correct computations supported by a statement of facts, and the
law and jurisprudence relied upon by the taxpayer. There is no need to pay
under protest. If the protest was not seasonably filed the assessment
becomes final and collectible and the Bureau of Internal Revenue could use
its administrative and judicial remedies in collecting the tax.
g. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall be submitted, otherwise the assessment shall
become final and collectible and the BIR could use its administrative and
judicial remedies to collect the tax.
Once an assessment has become final and collectible, not even
the BIR Commissioner could change the same. Thus, the taxpayer could
not pay the tax, then apply for a refund, and if denied appeal the same to
the Court of Tax Appeals.
h. If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from the submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal to
the Court of Tax Appeals within thirty (30) days from receipt of the adverse
decision, or from the lapse of the one hundred eighty (180-) day period, with
2.
The word assessment when used in connection with
taxation, may have more than one meaning. More commonly the
word assessment means the official valuation of a taxpayers property for
purpose of taxation. The above definition of assessment finds application
under tariff and customs taxation as well as local government taxation.
For real property taxation, there may be a special meaning to the
burdens that are imposed upon real properties that have been
benefited by a public works expenditure of a local government. It is
sometimes called a special assessment or a special levy. (Commissioner of
Internal Revenue v. Pascor Realty and Development Corporation, et al., G.R. No.
128315, June 29, 1999)
3.
An assessment is a notice duly sent to the taxpayer
which is deemed made only when the BIR releases, mails or
sends such notice to the taxpayer. (Commissioner of Internal Revenue v.
Pascor Realty and Development Corporation, et al., G.R. No. 128315, June 29,
1999)
51
A tax that the taxpayer
himself assesses or computes and pays to the taxing authority. It is a tax
that self-assessed by the taxpayer without the intervention of an
assessment by the tax authority to create the tax liability.
The Tax Code follows the pay-as-you-file system of taxation under
which the taxpayer computes his own tax liability, prepares the return, and
pays the tax as he files the return. The pay-as-you-file system is a selfassessing tax return.
Internal revenue taxes are self-assessing. (Dissent of J. Carpio in
Philippine National Oil Company v. Court of Appeals, et al., G. R. No. 109976, April
26, 2005 and companion case)
4.
6.
General rule: When the Commissioner of Internal
Revenue may rely on estimates. The rule is that in the absence of
accounting records of a taxpayer, his tax liability may be determined by
estimation. The petitioner (Commissioner of Internal Revenue) is not
required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of taxes due is justified. To hold otherwise
would be tantamount to holding that skillful concealment is an invincible
However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously. (Ibid.)
7.
Meaning of "best evidence obtainable" under Sec. 6
(B), NIRC of 1997. This means that the original documents must be
produced. If it could not be produced, secondary evidence must be
adduced. (Hantex Trading Co., Inc. v. Commissioner of Internal Revenue, CA -
52
As a general rule, the BIR could not issue an assessment notice
without first issuing a pre-assessment notice because it is part of the due
process rights of a taxpayer to be given notice in the form of a preassessment notice, and for him to explain why he should not be the subject
of an assessment notice.
b. ten years from discovery of the failure to file the tax return or
discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of 1997[ ; or
c. within the period agreed upon between the government and
the taxpayer where there is a waiver of the prescriptive period for
assessment (Sec. 222 (b), NIRC of 1997).
Inc., (now Sime Darby International Tire Co., Inc.), et al., G.R. No. 104171, February
24, 1999, 303 SCRA 546; Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, G. R. No. 162852, December 16, 2004], as well as their assessments.
14.
Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because
this deprives the taxpayer of the assurance that it will not longer be
subjected to further investigation for taxes after the expiration of a
reasonable period of time. (Philippine Journalists, Inc. v. Commissioner of
Internal Revenue, G. R. No. 162852, December 16, 2004 with note to see Republic
v. Ablaza, 108 Phil. 1105. 1108)
53
v. Commissioner of Internal Revenue, G. R. No. 162852, December 16, 2004 citing
Commissioner of Internal Revenue v. B.F. Goodrich Phils, Inc (now Sime Darby
International Tire Co., Inc.),., et al., G.R. No. 104171, February 24, 1999, 303 SCRA
546]
15.
jeopardy
assessment
is a delinquency tax
assessment which was assessed without the benefit of complete or partial
audit by an authorized revenue officer, who has reason to believe that the
assessment and collection of a deficiency tax will be jeopardized by delay
because of the taxpayers failure to comply with the audit and investigation
requirements to present his books of accounts and/or pertinent records, or
to substantiate all or any of the deductions, exemptions, or credits claimed
in his return. [Sec. 3.1 (a), Rev. Regs. No. 6-2000)
Jeopardy assessment is an indication of the doubtful validity of the
assessment, hence it may be subject to a compromise. [Sec. 3.1 (a), Rev.
Regs. No. 6-2000]
16.
for
presumption
of
a.
b.
Lifeblood theory
Presumption of regularity (Commissioner of Internal Revenue v.
Hantex Trading Co., Inc., G, R. No. 136975, March 31, 2005) in the performance
of public functions. (Commissioner of Internal Revenue v. Tuazon, Inc., 173
SCRA 397)
c.
The likelihood that the taxpayer will have access to the
relevant information [Commissioner of Internal Revenue, supra citing United
States v. Rexach, 482 F.2d 10 (1973). The certiorari was denied by the United
States Supreme Court on November 19, 1973]
d.
The desirability of bolstering the record-keeping requirements
of the NIRC. (Ibid.)
rest on all the evidence introduced and its ultimate determination must find
support in credible evidence. [Commissioner of Internal Revenue, supra]
54
e.
When the taxpayer is out of the Philippines.
NOTES AND COMMENTS:
The holding in Commissioner of Internal Revenue v. Court of
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case) that
the waiver of the period for assessment must be in writing and have the
written consent of the BIR Commissioner is still doctrinal because of the
provisions of Sec. 223, NIRC of 1997 which provides for the suspension of
the prescriptive period:
revenue official found not to have complied with this Order resulting in
prescription of the right to assess/collect shall be administratively dealt
with. (Renumbering and emphasis supplied.)
If the above are not followed there is no valid waiver and
(Commissioner of Internal Revenue v. FMF
prescription would run.
Development Corporation, G. R. No. 167765, June 30, 2008 citing Philippine
Journalists, Inc. v. Commissioner of Internal Revenue G.R. No. 162852,
December 16, 2004, 447 SCRA 214, 228-229)
22.
The procedures in RMO No. 20-90 are NOT
merely directory and that the execution of a waiver is a
renunciation of a taxpayers right to invoke prescription. RMO
No. 20-90 must be strictly followed. A waiver of the statute of
limitations under the NIRC, to a certain extent being a derogation of the
taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed. The waiver of the
statute of limitations does not mean that the taxpayer relinquishes the right
to invoke prescription unequivocally, particularly where the language of the
document is equivocal.
Thus a waiver becomes unlimited in time, and invalid, because it
did not specify a definite date, agreed upon between the BIR and the
taxpayer, within which the former may assess and collect taxes. It also
would have no binding effect on the taxpayer if there was no consent by the
Commissioner. On this basis, no implied consent can be presumed, nor
can it be contended that the concurrence to such waiver is a mere formality.
(Commissioner of Internal Revenue v. FMF Development Corporation, G. R. No.
167765, June 30, 2008 citing Philippine Journalists, Inc. v. Commissioner of
Internal Revenue G.R. No. 162852, December 16, 2004, 447 SCRA 214, 229 in
turn citing Id. at 229, citing Commissioner of Internal Revenue v. Court of Appeals,
G.R. No. 115712, February 25, 1999, 303 SCRA 614, 620-622.)
55
unscrupulous tax agents. [Commissioner of Internal Revenue v. FMF
Development Corporation, G. R. No. 167765, June 30, 2008 citing Republic of the
Phils. v. Ablaza, 108 Phil. 1105, 1108 (1960)]
b.
Request for reinvestigation which refers to a plea for reevaluation of an assessment on the basis of newly-discovered evidence or
additional evidence that a taxpayer intends to present in the investigation. It
may also involve a question of fact or law or both. (Commissioner of Internal
Revenue v. Philippine Global Communication, Inc., G. R. No. 167146, October 31,
2006 citing Rev. Regs. No. 12-85)
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case)]
3.
What is that type of protest that suspends the
running of the statute of limitations for the beginning of
distraint or levy or a proceeding in court for collection ? Why ?
Supreme Court declared that the burden of proof that the request for
reinvestigation had been actually granted shall be on the Commissioner
of Internal Revenue. Such grant may be expressed in its communications
with the taxpayer or implied from the action of the Commissioner or his
authorized representative in response to the request for reinvestigation.
[Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v.
Commissioner of Internal Revenue, G. R. No. 174942, March 7, 2008]
2.
4.
What are the requirements for the validity of a
taxpayers protest ?
SUGGESTED ANSWER:
a.
It must be filed within the reglementary period of thirty (30)
days from receipt of the notice of assessment.
b.
The taxpayer must not only show the errors of the Bureau of
Internal Revenue but also the correct computation through
1)
A statement of the facts, the applicable law, rules and
regulations, or jurisprudence on which the taxpayers protest is
based,
2)
If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the applicable
law, rules and regulations, or jurisprudence in support of his protest
against some of the several issues on which the assessment is
based, the same shall be considered undisputed issue or issues, in
which case, the taxpayer shall be required to pay the corresponding
56
deficiency tax or taxes attributable thereto. (Sec. 3.1.5, Rev. Regs.
12-99)
c.
Within sixty (60) days from filing of the protest, the taxpayer
shall submit all relevant supporting documents. [4th par., Sec. 228 (e), NIRC of
title expressly indicated that it was a final notice prior to seizure of property.
The letter itself clearly stated that the taxpayer was being given this LAST
OPPORTUNITY to pay; otherwise, its properties would be subjected to
distraint and levy.
1997]
a.
Filing by the BIR of a civil suit for collection of the deficiency
tax is considered a denial of the request for reconsideration. (Commissioner
b.
An indication to the taxpayer by the Commissioner in clear
and unequivocal language of his final denial not the issuance of the
warrant of distraint and levy. What is the subject of the appeal is the final
decision not the warrant of distraint. (Ibid.)
c.
A BIR demand letter sent to the taxpayer after his protest of
the assessment notice is considered as the final decision of the
Commissioner on the protest. (Surigao Electric Co., Inc. v. Court of Tax Appeals,
JUDICIAL
REMEDIES
ASSESSMENTS
INVOLVING
PROTESTED
1.
Acts of BIR Commissioner that may be
considered as denial of a protest which serve as basis for
appeal to the Court of Tax Appeals.
d.
A letter of the BIR Commissioner reiterating to a taxpayer his
previous demand to pay an assessment is considered a denial of the
request for reconsideration or protest and is appealable to the Court of Tax
Appeals. (Commissioner v. Ayala Securities Corporation, 70 SCRA 204)
e.
Final notice before seizure considered as commissioners
decision of taxpayers request for reconsideration who received no other
response.
Commissioner of Internal Revenue v. Isabela Cultural
Corporation, G.R. No. 135210, July 11, 2001 held that not only is the Notice
the only response received: its content and tenor supports the theory that it
was the CIRs final act regarding the request for reconsideration. The very
3.
As a general rule, there must always be a decision of
the Commissioner of Internal Revenue or Commissioner of
Customs before the Court of Tax Appeals, would have
jurisdiction. If there is no such decision, the petition would be dismissed
for lack of jurisdiction unless the case falls under any of the following
exceptions.
4.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision yet by the
Commissioner of Internal Revenue:
a. Where the Commissioner has not acted on the disputed
assessment after a period of 180 days from submission of complete
57
supporting documents, the taxpayer has a period of 30 days from the
expiration of the 180 day period within which to appeal to the Court of Tax
Appeals. (last par., Sec. 228 (e), NIRC of 1997; Commissioner of Internal Revenue
b.
Tax laws, unlike remedial laws, are not to be applied
retroactively. Revenue laws are substantive laws and their application must
not be equated with remedial laws. (Acosta, supra)
3.
What is the prescriptive period for collecting internal
revenue taxes ?
5.
While this may be so, statutes may provide for periods of prescription,
2.
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be liberally
construed, and exemptions are not given retroactive application,
considering that taxes are the lifeblood of the government and in Holmes
memorable metaphor, the price we pay for civilization, tax laws must be
faithfully and strictly implemented. (Commissioner of Internal Revenue v.
Acosta, etc.,G. R. No. 154068, August 3, 2007)
However, statutes may provide
for prescriptive periods for the collection of particular kinds of taxes.
c.
Collection upon an extended assessment. Where a tax has
been assessed with the period agreed upon between the Commissioner
and the taxpayer in writing (which should initially be within three (3) years
from the time the return was filed or should have been filed), or any
extensions before the expiration of the period agreed upon, the tax may
be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (5) year
period. The period so agreed upon may be extended by subsequent
written agreements made before the expiration of the period previously
agreed upon. [Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997,
emphasis supplied]
d.
Collection upon a return that is not false or fraudulent, or
where the assessment is not an extended assessment. Except as
provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period;
Provided, That in case where a return is filed beyond the period prescribed
by law, the three (3) year period shall be computed from the day the return
was filed. For purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered filed on such last
day. (Sec. 203, NIRC of 1997, emphasis supplied)
58
When the BIR validly issues an assessment within the three (3)year period, it has another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The assessment of the tax is
deemed made and the three (3)-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released,
mailed or sent to the taxpayer. [Bank of Philippine Islands (Formerly Far East
Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing BPI v. Commissioner of Internal Revenue, G.R.
No. 139736, 17 October 2005, 473 SCRA 205, 222-223]
4. What is a compromise ?
SUGGESTED ANSWER: A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only
signify that there was no agreement that had effectively been reached
between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal
Revenue, G. R. No. 138485, September 10, 2001)
5.
What tax
compromise ?
SUGGESTED ANSWER:
The following cases may, upon
taxpayers compliance with the basis for compromise, be the subject matter
of compromise settlement:
a. Delinquent accounts;
b. Cases under administrative protest after issuance of the Final
Assessment Notice to the taxpayer which are still pending in the Regional
Offices, Revenue District Offices, Legal Service, Large Taxpayer Service
(LTS), Collection Service, Enforcement Service and other offices in the
National Office;
c.
Civil tax cases being disputed before the courts;
d.
Collection cases filed in courts;
e.
Criminal violations, other than those already filed in court, or
those involving criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002)
59
9.
The collection of a tax may not be suspended. Only
the Court of Tax Appeals may issue an order suspending the collection of a
tax.
proceeding may suspend the said collection and require the taxpayer either
to deposit the amount claimed or to file a surety bond for not more than
double the amount with the Court. (Sec. 11, Rep. Act No. 1125, as amended
by Sec. 9, Rep. Act No. 9282 )
The Supreme Court may enjoin the collection of taxes under its
general judicial power but it should be apparent that the source of the
power is not statutory but constitutional.
2.
60
c.
The fact of withholding is established by a copy of a statement
duly issued by the payee showing the amount paid and the amount of tax
withheld therefrom. (Banco Filipino Savings and Mortgage Bank v. Court of
Appeals, et al., G. R. No. 155682, March 27, 2007)
5.
The two (2) year period and the thirty (30) day
period should be applied on a whichever comes first basis.
Thus, if the 30 days is within the 2 years, the 30 days applies, if the 2 year
period is about to lapse but there is no decision yet by the Commissioner
which would trigger the 30-day period, the taxpayer should file an appeal,
despite the absence of a decision. (Commissioners, etc. v. Court of Tax
Appeals, et al., G. R. No. 82618, March 16, 1989, unrep.)
3.
What should be established by a taxpayer for the
grant of a tax refund ? Why ?
SUGGESTED ANSWER: A taxpayer needs to establish not only
that the refund is justified under the law, but also the correct amount that
should be refunded.
If the latter requisite cannot be ascertained with particularity, there is
cause to deny the refund, or allow it only to the extent of the sum that is
actually proven as due.
Tax refunds partake of the nature of tax exemptions and are thus
construed strictissimi juris against the person claiming the exemption. The
burden in proving the claim for refund necessarily falls on the taxpayer. (Far
East Bank Trust and Company, etc., v. Commissioner of Internal Revenue, et al., G.
R. No. 138919, May 2, 2006)
7.
?
SUGGESTED ANSWER: Under the principle of solutio indebiti
provided in Art. 2154, Civil Code, If something is received when there is
no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. The BIR received something when there
[was] no right to demand it, and thus, it has the obligation to return it.
[State Land Investment Corporation v. Commissioner of Internal
Revenue, G. R. No. 171956, January 18, 2008citing Citibank, N. A. v.
Court of Appeals and Commissioner of Internal Revenue, G.R. No.
107434, October 10, 1997, 280 SCRA 459, in turn citing Ramie Textiles,
Inc. v. Mathay, Sr., 89 SCRA 586 (1979)]. It is an ancient principle that no
one, not even the state, shall enrich oneself at the expense of another.
Indeed, simple justice requires the speedy refund of the wrongly held
taxes. (Ibid.)
8.
61
b.
To notify the Government that such taxes have been
questioned and the notice should be borne in mind in estimating the
revenue available for expenditures.
SUGGESTED ANSWER: Yes. The failure to first file a written claim for
refund or credit is not fatal to a petition for review involving a disputed
assessment
where
was
denied by the Bureau of Internal Revenue. To hold that the taxpayer has
now lost the right to appeal from the ruling on the disputed assessment and
require him to file a claim for a refund of the taxes paid as a condition
precedent to his right to appeal, would in effect require of him to go through
a useless and needless ceremony that would only delay the disposition of
the case, for the Commissioner would certainly disallow the claim for refund
in the same way as he disallowed the protest against the assessment. The
law, should not be interpreted as to result in absurdities. (vda. de San
12.
What is the irrevocability rule in claims for
refund and what is the rationale behind this ?
9.
9). An application for refund or credit under Sec. 229 of the NIRC of 1997 is
required where the case filed before the CTA is a refund case, which is not
premised upon a disputed assessment. There is no need for a prior
application for refund or credit, if the refund is merely a consequence of the
resolution of the BIRs denial of a protested assessment.
was
62
This is known as the irrevocability rule and is embodied in the last
sentence of Section 76 of the Tax Code. The phrase such option shall be
considered irrevocable for that taxable period means that the option to
carry over the excess tax credits of a particular taxable year can no
longer be revoked.
The rule prevents a taxpayer from claiming twice the excess
quarterly taxes paid: (1) as automatic credit against taxes for the taxable
quarters of the succeeding years for which no tax credit certificate has
been issued and (2) as a tax credit either for which a tax credit certificate
will be issued or which will be claimed for cash refund. (Systra Philippines,
63
has not been shown as they have been commingled with the interest
income of the other clients of the bank-trustee.
64
income taxes, (Revenue Memorandum Order No. 32-76 dated June 11,
1976) the refund or tax credit is granted. (Commissioner of Internal
Revenue v. Manila Electric Company, G. R. No. 121666, October 10,
2007)
2.
When is importation deemed terminated and
why is it important to know whether importation has already
ended?
SUGGESTED ANSWER: Importation is deemed terminated upon
payment of the duties, taxes and other charges due upon the agencies, or
secured to be paid, at the port of entry and the legal permit for withdrawal
shall have been granted.
In case the articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs. (Sec. 1202, TCCP)
The Bureau of Customs loses jurisdiction to enforce the TCCP and to make
seizures and forfeitures after importation is deemed terminated.
65
quota or to ban imports of any commodity, and (c) to impose additional duty
on all imports not exceeding 10% ad valorem, among others.
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No. 134114, July 6,
2001)
5. Special customs duties are additional import duties
imposed on specific kinds of imported articles under certain
conditions. The special customs duties under the Tariff and Customs
Code (TCCP) are the anti-dumping duty, the countervailing duty, the
discriminatory duty, and the marking duty, and under the Safeguard
Measures Act (SMA) additional tariffs as safeguard measures.
7.
Dumping duty is an additional special duty
amounting to the difference between the export price and the
normal value of such product, commodity or article (Sec. 301 (s)
(1), TCC, as amended by
12. In the determination of whether to impose the antidumping duty, the Tariff Commission, may consider among
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and other
related local industries. (Sec. 301 (a), TCC, as amended by Rep. Act No.
8752, Anti-Dumping Act of 1999)
(a), TCC, as amended by Rep. Act No. 8752, Anti-Dumping Act of 1999]
9.
Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product,
SUGGESTED ANSWER:
Countervailing duties are additional
customs duties imposed on any product, commodity or article of commerce
which is granted directly or indirectly by the government in the country of
66
origin or exportation, any kind or form of specific subsidy upon the
production, manufacture or exportation of such product commodity or
article, and the importation of such subsidized product, commodity, or
article has caused or threatens to cause material injury to a domestic
industry or has materially retarded the growth or prevents the establishment
of a domestic industry. (Sec. 302, TCCP as amended by Section 1, R.A.
No. 8751)
21.
The President of the Philippines imposes the
discriminatory duties.
24.
Safeguards
measures
that
may
be
imposed.
67
28.
?
31.
68
NOTES AND COMMENTS:
a.
Importation consists of bringing an article into the country
from the outside. Importation begins when the conveying vessel or
aircraft enters the jurisdiction of the Philippines with intention to unload
therein.
b.
When unlawful importation is complete. In the absence
of a bona fide intent to make entry and pay duties when the prohibited
article enters the Philippine territory. Importation is complete when the
taxable, dutiable commodity is brought within the limits of the port of
entry. Entry through a custom house is not the essence of the act.
(Jardeleza v. People, G.R. No. 165265, February 6, 2006)
69
There is fraud;
The importation is absolutely prohibited, or
The release of the property would be contrary to law.
(Transglobe International, Inc. v. Court of Appeals, et al., G.R. No. 126634, January
25, 1999)
40.
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or delivery
by the same person of any invoice, letter or paper all touching on the
importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or paper;
and
c.
an intention on the part of the importer/consignee to evade the
payment of the duties due. (Republic, etc., v. The Court of Appeals, et al.,
G.R. No. 139050, October 2, 2001)
70
Forfeiture of seized goods in the Bureau of Customs is a proceeding
against the goods and not against the owner. (Asian Terminals, Inc. v.
Bautista-Ricafort, G .R. No. 166901, October 27, 2006 citing Transglobe)
47.
The following letters of demand can not be
considered as a liquidation or an assessment of Shells import
tax liabilities that can be the subject of an administrative tax
protest proceeding before the Commissioner of Customs
whose decision is appealable to the Court of Tax Appeals:
a.
the One Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center (the Center) November 3 letter, signed by the Secretary
of Finance, informing it of the cancellation of the Tax Credit Certificates
(TCCs);
b.
the Commissioner of Customs November 19 letter requiring
Shell to replace the amount equivalent to the amount of the cancelled
TCCs used by Shell; and
c.
the Commissioner of Customs collection letters, issued
through Deputy Commissioner Atty. Valera, formally demanding the
amount covered by the cancelled TCCs.
None of these letters, however, can be considered as a liquidation
or an assessment of Shells import tax liabilities that can be the subject of
an administrative tax protest proceeding before the respondent whose
decision is appealable to the CTA. Shells import tax liabilities had long
been computed and ascertained in the original assessments, and Shell
paid these liabilities using the TCCs transferred to it as payment.
It is even an error to consider the letters as a reassessment
because they refer to the same tax liabilities on the same importations
covered by the original assessments. The letters merely reissued the
original assessments that were previously settled by Shell with the use of
the TCCs. However, on account of the cancellation of the TCCs, the tax
liabilities of Shell under the original assessments were considered
unpaid; hence, the letters and the actions for collection.
When Shell went to the CTA, the issues it raised in its petition were
all related to the fact and efficacy of the payments made, specifically the
71
genuineness of the TCCs; the absence of due process in the
enforcement of the decision to cancel the TCCs; the facts surrounding the
fraud in originally securing the TCCs; and the application of estoppel.
These are payment and collection issues, not tax protest issues within the
CTAs jurisdiction to rule upon.
Shell never protested the original assessments of its tax liabilities
and in fact settled them using the TCCs. These original assessments,
therefore, have become final, incontestable, and beyond any subsequent
protest proceeding, administrative or judicial, to rule upon.
To be very precise, Shells petition before the CTA principally
questioned the validity of the cancellation of the TCCs a decision that
was made not by the Commissioner of Customs, but by the Center. As
the CTA has no jurisdiction over decisions of the Center, Shells remedy
against the cancellation should have been a certiorari petition before the
regular courts, not a tax protest case before the CTA. Records do not
show that Shell ever availed of this remedy.
Alternatively, as held in Shell v. Republic of the Philippines, G.R.
No. 161953, March 6, 2008, 547 SCRA 701, the appropriate forum for
Shell under the circumstances of this case should be at the collection
cases before the RTC where Shell can put up the fact of its payment as a
defense. (Pilipinas Shell Petroleum Corporation v. Commissioner of
Customs, G. R. No. 176380, June 18, 2009)
48.
The assessment has long been final, and this recognition of finality
removes all perceived hindrances, based on this case, to the continuation
of the collection suits.
A suit for the collection of internal revenue taxes, where the
assessment has already become final and executory, the action to collect
is akin to an action to enforce the judgment. No inquiry can be made
therein as to the merits of the
In light of the conclusion that the present case does not involve a
decision of the Commissioner of Customs on a matter brought to him as a
tax protest, Atty. Valeras lack of authority to issue the collection letters
and to institute the collection suits is irrelevant. For this same reason, the
injunction against Atty. Valera cannot be invoked to enjoin the collection
of unpaid taxes due from Shell. (Pilipinas Shell Petroleum Corporation v.
Commissioner of Customs, supra)
4.
The Local Government Code explicitly authorizes
provinces and cities, notwithstanding any exemption granted
by any law or other special law to impose a tax on businesses
enjoying a franchise. Indicative of the legislative intent to carry out the
constitutional mandate of vesting broad tax powers to local government
units, the Local Government Code has withdrawn tax exemptions or
incentives theretofore enjoyed by certain entities. (City Government of San
Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)
5.
Philippine Long Distance Telephone Company, Inc.,
v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001,
upheld the authority of the City of Davao, a local government unit, to impose
and collect a local franchise tax because the Local Government has
withdrawn all tax exemptions previously enjoyed by all persons and
72
authorized local government units to impose a tax on business enjoying a
franchise tax notwithstanding the grant of tax exemption to them.
6.
Explain the concept of the paradigm shift in
local government taxation.
SUGGESTED ANSWER:
Paradigm shift from exclusive
Congressional power to direct grant of taxing power to local legislative
bodies. The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and
other charges pursuant to Article X, section 5 of the 1987 Constitution.
(Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675,
and companion case, April 28, 2004 citing National Power Corporation v.
City of Cabanatuan, G. R. No. 149110, April 9, 2003)
8.
9.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general
power to levy taxes and otherwise create sources of revenue. They no
longer have to wait for a statutory grant of these powers. The power of
the legislative authority relative to the fiscal powers of local governments
has been reduced to the authority to impose limitations on municipal
powers. Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5 is thus
to reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of municipal corporations.
It is understood, however, that taxes imposed by local government must
be for a public purpose, uniform within a locality, must not be
confiscatory, and must be within the jurisdiction of the local unit to pass.
(Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169)
73
11.
12. Requirements:
Any individual or corporation
employing a person subject to professional tax shall require payment by
that person of the tax on his profession before employment and annually
thereafter.
Any person subject to the professional tax shall write in deeds,
receipts, prescriptions, reports, books of account, plans and designs,
surveys and maps, as the case may be, the number of the official receipt
issued to him.
Exemption: Professionals exclusively employed in the government
shall be exempt from payment. (Sec. 139, LGC)
NOTE: For the purpose of collecting the tax, the provincial or city
treasurer or his duly authorized representative shall require from such
professionals their current annual registration cards issued by competent
authority before accepting payment of their professional tax for the current
year. The PRC shall likewise require the professionals presentation of
proof of payment before registration of professionals or renewal of their
licenses. (last par., Art. 228, Rules and Regulations Implementing the
Local Government Code of 1991)
13. Who are the professionals who, if they are in
practice of their profession, are subject to professional tax ?
SUGGESTED ANSWER:
The professionals subject to the
professional tax are only those who have passed the bar examinations, or
any board or other examinations conducted by the Professional Regulation
Commission (PRC). for example, a lawyer who is also a Certified Public
Accountant (CPA) must pay the professional tax imposed on lawyers and
that fixed for CPAs, if he is to practice both professions. [Sec. 238 (f), Rule
XXX, Rules and Regulations Implementing the Local Government Code of
1991]
14.
X City issued a notice of assessment against
ABC Condominium Corporation for unpaid business taxes. The
Condominium Corporation is a duly constituted condominium
corporation in accordance with the Condominium Act which
owns and holds title to the common and limited common areas
of the condominium.
Its membership comprises the unit
owners and is authorized under its By-Laws to collect regular
assessments from its members for operating expenses, capital
expenditures on the common areas and other special
assessments as provided for in the Master Deed with
?Declaration of Restrictions of the Condominium.
ABC Condominium Corporation insists that the X City
Revenue Code and the Local Government Code do not contain
provisions upon which the assessment could be based.
Resolve the controversy.
SUGGESTED ANSWER:
ABC is correct.
Condominium
corporations are generally exempt from local business taxation under the
Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise.
X City, is authorized under the Local Government Code, to impose a
tax on business, which is defined under the Code as trade or commercial
activity regularly engaged in as a means of livelihood or with a view to
profit. By its very nature a condominium corporation is not engaged in
business, and any profit that it derives is merely incidental, hence it may not
be subject to business taxes. (Yamane , etc. v. BA Lepanto Condominium
Corporation, G. R. No. 154993, October 25, 2005)
15.
Authority of Local Government Units (LGUs)
such as the City of Manila to impose business taxes. Section
143 of the LGC, is the very source of the power of municipalities and
cities to impose a local business tax, and to which any local business tax
imposed by cities or municipalities such as the City of Manila must
conform. It is apparent from a perusal thereof that when a municipality or
city has already imposed a business tax on manufacturers, etc. of liquors,
distilled spirits, wines, and any other article of commerce, pursuant to
Section 143(a) of the LGC, said municipality or city may no longer subject
the same manufacturers, etc. to a business tax under Section 143(h) of
the same Code. Section 143(h) may be imposed only on businesses that
74
are subject to excise tax, VAT, or percentage tax under the NIRC, and
that are not otherwise specified in preceding paragraphs. In the
same way, businesses such as respondents, already subject to a local
business tax under Section 14 of Tax Ordinance No. 7794 [which is
based on Section 143(a) of the LGC], can no longer be made liable for
local business tax under Section 21 of the same Tax Ordinance [which is
based on Section 143(h) of the LGC]. (The City of Manila, et al., v. CocaCola Bottlers Philippines, Inc., G. R. No. 181845, August 4, 2009)
are:
a.
Appraisal at current and fair market value;
b.
Classification for assessment on the basis of actual use;
c.
Assessment on the basis of uniform classification;
d.
Appraisal, assessment, levy and collection shall not be let to a
private person;
e.
Appraisal and assessment shall be equitable.
NOTES AND COMMENTS: Real properties shall be appraised at
the current and fair market value prevailing in the locality where the property
is situated and classified for assessment purposes on the basis of its actual
use. (Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005)
2.
The reasonable market value is determined by the
assessor in the form of a schedule of fair market values.
The schedule is then enacted by the local sanggunian.
3.
Fair market value is the price at which a property
may be sold by a seller who is not compelled to sell and bought
by a buyer who is not compelled to buy, taking into consideration all
uses to which the property is adopted and might in reason be applied.
The criterion established by the statute contemplates a hypothetical
sale. Hence, the buyers need not be actual and existing purchasers.
(Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R.
No. 154126, October 11, 2005 )
NOTES AND COMMENTS: In fixing the value of real property,
assessors have to consider all the circumstances and elements of value
and must exercise prudent discretion in reaching conclusions. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005)
4.
Approaches in estimating the fair market value of
real property for real property tax purposes ?
a.
Sales Analysis Approach. The sales price paid in actual
market transactions is considered by taking into account valid sales data
accumulated from among the Registrar of Deeds, notaries public,
appraisers, brokers, dealers, bank officials, and various sources stated
under the Local Government Code.
b.
Income Capitalization Approach. The value of an incomeproducing property is no more than the return derived from it. An analysis
of the income produced is necessary in order to estimate the sum which
might be invested in the purchase of the property.
c.
Reproduction cost approach is a formal approach used
exclusively n appraising man-made improvements such as buildings and
other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the
data gathered to arrive at the estimated fair market value to be included in
the ordinance containing the schedule of fair market values. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005 citing Local Assessment Regulations No. 1-92)
75
b.
Light Rail Transit (LRT) improvements such as buildings,
carriageways, passenger terminals stations, and similar structures do not
form part of the public roads since the former are constructed over the latter
in such a way that the flow of vehicular traffic would not be impaired. The
carriageways and terminals serve a function different from the public roads.
Furthermore, they are not open to use by the general public hence not
exempt from real property taxes. Even
granting
that
the
national
government owns the carriageways and terminal stations, the property is
not exempt because their beneficial use has been granted to LRTA a
taxable entity. (Light Rail Transit Authority v. Central Board of Assessment
Appeals, et al., G. R. No. 127316, October 12, 2000)
c.
Barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied
fuel oil to the power plant barges, and the accessory equipment mounted
on the barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that [d]ocks and
structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast are considered immovable
property by destination being intended by the owner for an industry or work
which may be carried on in a building or on a piece of land and which tend
directly to meet the needs of said industry or work. (FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and companion case)
7.
Unpaid realty taxes attach to the property and is
chargeable against the person who had actual or beneficial use
and possession of it regardless of whether or not he is the
owner. To impose the real property tax on the subsequent owner which
was neither the owner not the beneficial user of the property during the
designated periods would not only be contrary to law but also unjust.
76
Consequently, MERALCO the former owner/user of the property
was required to pay the tax instead of the new owner NAPOCOR. (Manila
Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
9.
Public hearings are mandatory prior to approval of
tax ordinance, but this still requires the taxpayer to adduce evidence to
show that no public hearings ever took place. (Reyes, et al., v. Court of
Appeals, et al., G.R. No. 118233, December 10, 1999) Public hearings are
required to be conducted prior to the enactment of an ordinance imposing
real property taxes. (Figuerres v. Court of Appeals, et al., G.R. No. 119172, March
25, 1999)
13.
FELS Energy, Inc., had a contract to supply
NPC with the electricity generated by FELS power barges. The
contract also stated that NPC shall be responsible for all real
estate taxes and assessments.
FELS then received an
assessment of real property taxes on its power barges from the
Provincial Assessor of Batangas.
If filed a motion for
reconsideration with the Provincial Assessor.
a.
Upon denial, FELS elevated the matter to the Local
Board of Assessment Appeals (LBAA), where it raised the
following issues:
1)
Since NPC is tax-exempt then FELs should
also be tax-exempt because of its contract with NPC.
2)
The power barges are not real property subject
to real property taxes.
b.
Upon the other hand the Local Treasurer insists that
the assessment has attained a state of finality hence the appeal
to the LBAA should be dismissed.
Rule on the conflicting contentions.
SUGGESTED ANSWER:
a.
All the contentions of FELS are without merit:
1)
NPC is not the owner of the power barges nor the
operator of the power barges. The tax exemption privilege granted
to NPC cannot be extended to FELS. the covenant is between NPC
and FELs and does not bind a third person not privy to the contract
such as the Province of Batangas.
2)
The Supreme Court of New York in Consolidated
Edison Company of New York, Inc., et al., v. The City of New York,
et al., 80 Misc. 2d 1065 (1975) cited in FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and
companion case, held that barges on which were mounted gas
turbine power plants designated to generate electrical power, the fuel
77
oil barges which supplied fuel oil to the power plant barges, and the
accessory equipment mounted on the barges were subject to real
property taxes.
Moreover, Article 415(9) of the Civil Code provides that
[d]ocks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake or coast
are considered immovable property by destination being intended by
the owner for an industry or work which may be carried on in a
building or on a piece of land and which tend directly to meet the
needs of said industry or work.
b.
The Treasurer is correct. The procedure do not allow a
motion for reconsideration to be filed with the Provincial Assessor.
To allow the procedure would indeed invite corruption in the system
of appraisal and assessment. it conveniently courts a graft-prone situation
where values of real property ay be initially set unreasonably high, and then
subsequently reduced upon the request of a property owner. In the latter
instance, allusions of possible cover, illicit trade-off cannot be avoided, and
in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system. (FELS Energy, Inc., v. Province of
Batangas, G. R. No. 168557, February 16, 2007 and companion case)
14.
A special levy or special assessment is an
imposition by a province, a city, a municipality within the
Metropolitan Manila Area, a municipality or a barangay upon real
property specially benefited by a public works expenditure of the LGU to
recover not more than 60% of such expenditure.
b.
The treasurer has a period of sixty (60) days from receipt of
the protest within to decide.
c.
Within thirty (30) days from receipt of treasurers decision or if
the treasurer does not decide, within thirty (30) days from the expiration of
the sixty (60) period for the treasurer to decide, the taxpayer should file an
appeal with the Local Board of Assessment Appeals.
d.
The Local Board of Assessment Appeals has 120 days from
receipt of the appeal within which to decide.
e.
The adverse decision of the Local Board of Assessment
Appeals should be appealed within thirty (30) days from receipt to the
Central Board of Assessment Appeals.
f.
The adverse decision of the Central Board of Assessment
Appeals shall be appealed to the Court of Tax Appeals (En Banc) by means
of a petition for review within thirty (30) days from receipt of the adverse
decision.
g.
The decision of the CTA may be the subject of a motion for
reconsideration or new trial after which an appeal may be interposed by
means of a petition for review on certiorari directed to the Supreme Court
on pure questions of law within a period of fifteen (15) days from receipt
extendible for a period of thirty (30) days.
78
whose protest is denied by the local treasurer is to appeal with the court of
competent jurisdiction, labeling the said review as an exercise of appellate
jurisdiction is inappropriate since the denial of the protest is not the
judgment or order of a lower court, but of a local government official.
(Yamane , etc. v. BA Lepanto Condominium Corporation, G. R. No.
154993, October 25, 2005)
c.
The decision of the Regional Trial Court should be appealed
by means of a petition for review directed to the Court of Tax Appeals
(Division).
d.
The decision of the Court of Tax Appeals (Division) may be
the subject of a review by the Court of Tax Appeals (en banc).
e.
The decision of the Court of Tax Appeals (en banc) may be
the subject of a petition for review on certiorari on pure questions of law
directed to the Supreme Court.
20. Charitable
institutions,
churches
and
parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings and improvements
that are actually, directly and exclusively used for religious,
charitable or educational purposes are exempt from taxation.
[Sec.28 (3) Article VI, 1987 Constitution]
taxation. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No.
144104, June 29, 2004)
25.
As a general principle, a charitable institution does
not lose its character as such and its exemption from taxes
simply because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies
from the government. So long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or
operating the institution. (Lung Center of the Philippines v. Quezon City, et al.,
etc., G. R. No. 144104, June 29, 2004)
79
lands, buildings and improvements actually, directly and exclusively used
for religious, charitable and educational purposes;
c.
Machineries and equipment, actually, directly and exclusively
used by local water districts; and government owned and controlled
corporations engaged in the supply and distribution of water and generation
and transmission of electric power;
d.
Real property owned by duly registered cooperatives;
e.
Machinery and equipment used for pollution control and
environmental protection.
80
operator of the project is the actual user of its machineries and
equipment.
BPPCs ownership and use of the machineries and
equipment are actual, direct, and immediate, while NAPOCORs is
contingent and, at this stage of the BOT Agreement, not sufficient to
support its claim for tax exemption. (National Power Corporation v. Central
Board of Assessment Appeals, et al., G, R. No. 171470, January 30, 2009)
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT