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########PRiMUS CUT AND PASTE:The BAR STAR NOTESin TAXATI0NWith selected Supreme
Court decisionsup to May 10, 2009
VER: 09
.05.12byABELARDO T. DOMONDON
How to use
the Notes: These Notes in the form of textual materials and representative review
questions were specially prepared by Prof. Domondon for the exclusive use of Bar
Candidates who attended his 2009
lectures on Taxation, and others he has personally
authorized. The purpose of these Notes is to test the candidates ability to answer
probable questions that may be asked in the September 33, 2009
Bar Examinations in
Taxation. The last version to be released is Ver. 09
.08.17 which may substantially
alter the contents of this Ver. 09
.05.12 Be sure to secure the last version to
replace this version.
DO NOT MEMORIZE the suggested answers. Some of the answers
were purposely made to be lengthy in order to serve as explanatory devices. This
is so because you do not have time anymore to refer back to your review materials.
The materials are arranged in accordance with the bar examination coverage.
The actual bar questions may not be so arranged. Likewise, these Notes are only
indicative of the areas from where Bar questions may be sourced. The questions
shown in these Notes may or may not be exactly worded in the actual Bar questions.
The reader is advised to take note of the areas marked with stars:
If
pressed for time, the reader should read only the items marked (( and (((. These
areas represent 80% to 9
0% of the sources of questions that would probably be given
in the 2009
Bar exams.
The reader should merely browse the areas marked ( and the
unmarked areas because they represent only 10% to 20% of the areas from where
questions may probably be sourced this year.WARNING: These materials are
copyrighted and/or based on the writers books on Taxation and future revisions.
It is prohibited to reproduce any part of these Notes in any form or any means,
electronic or mechanical, including photocopying without the written permission of
the author. These materials are authorized for the use only of Bar reviewees the
author has personally authorized. Unauthorized users shall not be prosecuted but
SHALL BE SUBJECT TO THE LAW OF KARMA SUCH THAT THEY WILL NEVER PASS THE BAR OR
WOULD BE UNHAPPY IN LIFE for stealing the intellectual property of the author.
Only copies with the signature of Prof. Domondon, or his authorized
representative and the corresponding number on this page are considered authorized
copies. Holders of authorized copies are requested not to lend their copies for
reproduction through Xerox or otherwise.GENERAL PRINCIPLES OF TAXATIONTAXATION, IN
GENERAL((1. Why are tax laws construed strictly against the State and liberally in
favor of the State ?
SUGGESTED ANSWER: 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., 29
3 SCRA 9
2, 9
9
) 2.
Why are tax exemptions are strictly construed against the taxpayer and
liberally in favor of the State ? SUGGESTED ANSWER: Taxes are necessary for the
continued existence of the State. 3.
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 Broadcasting Corporation, G. R. No.
166408, October 6, 2008 citing Mactan Cebu International Airport Authority v.
Marcos, G.R. No. 120082, September 11, 19
9
6, 261 SCRA 667, 680) The burden of
proof rests upon the party claiming the exemption to prove that it is in fact
covered by the exemption so claimed. (Quezon City, supra citing Agpalo, R.E.,
Wheaton 316] The reader should note that the August 3, 2005 Southern Cross case is
the decision on the motion for reconsideration of the July 8, 2004 Southern Cross
decision.
The so-called sin taxes on alcohol and tobacco manufacturers help
dissuade the consumers from excessive intake of these potentially harmful products.
(Southern Cross Cement Corporation v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540, August 3, 2005)
10.
Explain the
compensatory purpose of taxation. SUGGESTED ANSWER:
The compensatory purpose of taxation is to implement the social justice
provisions of the constitution through the progressive system of taxation, which
would result to equal distribution of wealth, etc.
Progressive income taxes
alleviate the margin between rich and poor. (Southern Cross Cement Corporation v.
Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540,
August 3, 2005)
11.
What are the distinctions between a tax and a license
fee ? SUGGESTED ANSWER: The following are the distinctions between a tax and a
license fee:
a.
PURPOSE: A tax is imposed for revenue purposes WHILE a
license fee is imposed for regulatory purposes. (Unless it is a joint exercise of
both the police power and the power of taxation)
b.
BASIS: A tax is imposed
under the power of taxation WHILE a license fee is imposed under police power.
c.
AMOUNT: There is no limit as to the amount of a tax WHILE the amount
of license fee that could be collected is limited to the cost of the license and
the expenses of police surveillance and regulation. d.
TIME OF PAYMENT: Taxes
are normally paid after the start of a business WHILE a license fee before the
commencement of business.
e.
EFFECT OF NON-PAYMENT: Failure to pay a tax
does not
make the business illegal WHILE failure to pay a license fee makes the
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.
12.
Distinguish taxation from
police power.
SUGGESTED ANSSWER: 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 citing U.
S. Chief Marshall who once said, the power to tax involves the power to destroy,
McCulloch v. Maryland, 4 Wheaton 316, cited in Sison v. Ancheta, G. R. No. L
59
431, July 25, 130 SCRA 654) and the belief that taxes are lifeblood of the state.
(Southern Cross Cement Corporation v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540, August 3, 2005 citing [T]axes being the
lifeblood of the government, their prompt and certain availability is of the
essence. Sison v. Ancheta, id., citing Vera v. Fernandez, G. R. No. L-31364,
March 30, 19
79
, 89
SCRA 19
9
] These considerations necessitated the evolution of
taxation as a distinct legal concept from police power. (Southern Cross Cement
Corporation, supra)
If the question asks for an enumeration of the distinctions
between the power of taxation and police power, the candidate should reformulate
no. 17 above.
(13.
What is the purpose of the Sugar Adjustment Act ?
SUGGESTED ANSWER: The Sugar Adjustment Act which increased existing taxes on
sugar was enacted to stabilize the sugar industry to prepare it for the loss of its
quota in the U.S. market was levied for a regulatory purpose to protect and
promote the sugar industry which is also for a public purpose. (Lutz v. Araneta,
9
8 Phil. 148)
The Philsugin fund, an imposition on sugar, to raise funds to
conduct research for the improvement of the sugar industry, is for the purpose of
stabilizing the sugar industry which one of the pillars of the Philippine economy
which affects the welfare of the State. The levy is not so much an exercise of the
power of taxation, nor the imposition of a special levy, but the exercise of police
power which is for the general welfare of the entire country, therefore for a
public purpose. (Republic v. Bacolod-Murcia Co., et al., G.R. No. L-19
824, July 9
,
19
66) 14.
Section 40 (g) of the Public Service Act authorizes the collection of
x x x fees as reimbursement of its expenses in the authorization, supervision
and/or regulation of the public services: x x x g) For each permit, authorizing the
increase in equipment, the installation of new units or authorizing the increase of
investment center to generate employment opportunities in and around the zone and
to attract and promote productive foreign investments. While it is true that
Section 12 (b) of Rep. Act No. 7227 mentions only raw materials, capital and
equipment, this does not necessarily mean that the tax and duty free buying
privilege is limited to these types of articles to the exclusion of consumer goods.
It must be remembered that in construing statutes, the proper course is to
start out and follow the true intent of the Legislature and to adopt that sense
which harmonizes best with the context and promotes to the fullest manner the
policy and objects of the Legislature.
The concept of inclusio unius est
exclusio alterius does not find application because the phrase tax and duty-free
importations of raw materials, capital and equipment was merely cited as an
example of incentives that the SSEZ is authorized to grant, in line with its being
a free port zone. Thus, the legislative intent is that consumer goods entering the
SSEZ which satisfy the needs of the zone and are consumed there are not subject to
duties and taxes in accordance with Philippine law. (Coconut Oil Refiners
Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July
29
, 2005)` Would your answer be the same if a Presidential Proclamation allowed
for the limited withdrawal from the Clark Special Economic Zone or the John Hay
Economic Zone of consumer goods tax and duty-free ?SUGGESTED ANSWER: The answer
would not be the same. This time the Presidential Proclamation would be invalid as
the statutory tax exempt privilege was granted only to the Subic Special Economic
Zone and not to John Hay or Clark. This is so because the Constitution mandates
that no law granting tax exemption shall be passed without the concurrence of a
majority of all the members of Congress. (Coconut Oil Refiners Association, Inc.,
etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29
, 2005 citing John
Hay Peoples Alternative Coalition, et al., v. Lim, etc., et al., G.R. No. 119
775,
October 24, 2003, 414 SCRA 356)
Furthermore, the law is very clear that the
exportation or removal of goods from the territory of the Subic Special Economic
Zone to other parts of the Philippine territory shall be subject to customs duties
and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines. (Ibid.)
11-A. Nature of actual case or controversy.
An actual
case or controversy involves a conflict of legal rights, an assertion of opposite
legal claims susceptible of judicial adjudication. (ABAKADA Guro Party List, etc.,
v. Purisima, etc., et al., G. R. No. 166715, August 14, 2008 citing Cruz, Isagani,
Philippine Constitutional Law, 19
9
5 edition, p. 23) 11-B. Criteria of being ripe
for judicial determination. A closely related requirement is ripeness, that is,
the question must be ripe for adjudication. And a constitutional question is ripe
for adjudication when the governmental act being challenged has a direct adverse
effect on the individual challenging it. (ABAKADA Guro Party List, etc., v.
Purisima, etc., et al., G. R. No. 166715, August 14, 2008 citing Bernas, Joaquin,
The 19
87 Constitution of the Republic of the Philippines: A Commentary, 19
9
6
edition, pp. 848-849
) Thus, to be ripe for judicial adjudication, the petitioner
must show a personal stake in the outcome of the case or an injury to himself that
can be redressed by a favorable decision of the Court. [ABAKADA Guro Party List,
etc., supra, v. Purisima, etc., citing Cruz v. Secretary of Environment and
Natural Resources, 400 Phil. 9
04 (2000), Vitug, J., separate opinion] 11-C.
Personal injury must be shown for judicial controversy to be ripe for
judicial determination. In this case, aside from the general claim that the
dispute has ripened into a judicial controversy by the mere enactment of the law
even without any further overt act. (ABAKADA Guro Party List, etc., v. Purisima,
etc., et al., G. R. No. 166715, August 14, 2008 citing La Bugal-BLaan Tribal
Association, Inc. v. Ramos, G.R. No. 127882, 01 December 2004, 445 SCRA 1)
Thus,
where petitioners fail either to assert any specific and concrete legal claim or to
demonstrate any direct adverse effect of the law on them or are unable to show a
personal stake in the outcome of this case or an injury to themselves their
petition is procedurally infirm. (ABAKADA Guro Party List, etc., supra)
11-D.
Constitutionality of law is exception to the doctrine of ripe for judicial
determination. This notwithstanding, public interest requires the resolution of
the constitutional issues raised by petitioners. The grave nature of their
had simply relied upon the old provisions of the law and Revenue Regulation No. 1285 which was based on the old provision of the law. The Court held that in case of
discrepancy between the law as amended and the implementing regulation based on the
old law, the former necessarily prevails. The law must still be followed, even
though the existing tax regulation at that time provided for a different procedure.
(Ibid., Commissioner of Internal Revenue v. Reyes, G.R. No. 159
69
4, 27 January
2006, 480 SCRA 382 in turn citing Philippine Petroleum Corp. v. Municipality of
Pililla, Rizal, 19
8 SCRA 82, 88, 3 June 19
9
1, likewise citing Shell Philippines,
Inc. v. Central Bank of the Philippines, 162 SCRA 628, 634, 27 June 19
88)
c.
The tax authorities gave the term tax credit in Sections 2(i) and 4 of
Revenue Regulation 2-9
4 a meaning utterly disparate from what R.A. No. 7432
provides. Their interpretation muddled up the intent of Congress to grant a mere
discount privilege and not a sales discount. The Court, striking down the revenue
regulation, held that an administrative agency issuing regulations may not enlarge,
alter or restrict the provisions of the law it administers, and it cannot engraft
additional requirements not contemplated by the legislature. (Ibid., Commissioner
of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159
647, 15 April
2005, 456 SCRA 414)
d.
Commissioner Jose Ong issued Revenue Memorandum Order
(RMO) No. 15-9
1, as well as the clarificatory Revenue Memorandum Circular (RMC) 439
1, imposing a 5% lending investors tax under the 19
77 Tax Code, as amended by
Executive Order (E.O.) No. 273, on pawnshops. The Commissioner anchored the
imposition on the definition of lending investors provided in the 19
77 Tax Code
which, according to him, was broad enough to include pawnshop operators. However,
the Court noted that pawnshops and lending investors were subjected to different
tax treatments under the Tax Code
prior to its amendment by the executive order; that Congress never intended to
treat pawnshops in the same way as lending investors; and that the particularly
involved section of the Tax Code explicitly subjected lending investors and dealers
in securities only to percentage tax. And so the Court affirmed the invalidity of
the challenged circulars, stressing that administrative issuances must not
override, supplant or modify the law, but must remain consistent with the law they
intend to carry out. (Ibid., citing Commissioner of Internal Revenue v. Michel J.
Lhuillier Pawnshop, Inc., 453 Phil. 1043 (2003), at 1052 in turn citing
Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 108358, 20 January
19
9
5, 240 SCRA 368, 372; Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles v.
Home Development Mutual Fund, G.R. No. 131082, 19
June 2000; 333 SCRA 777, 786)
e.
The then acting Commissioner issued RMC 7-85, changing the prescriptive
period of two years to ten years for claims of excess quarterly income tax
payments, thereby creating a clear inconsistency with the provision of Section 230
of the 19
77 Tax Code. The Court nullified the circular, ruling that the BIR did
not simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress. [Ibid., Philippine Bank of Communications v.
Commissioner of Internal Revenue, 361 Phil. 9
16 (19
9
9
)]
f.
The Supreme Court
ruled as invalid RMO 4-87 which had construed the amnesty coverage under E.O. No.
41 (19
86) to include only assessments issued by the BIR after the promulgation of
the executive order on 22 August 19
86 and not assessments made to that date. The
Supreme Court resolved in the negative. [Ibid., Commissioner of Internal Revenue
v. CA, et al., 310 Phil. 39
2 (19
9
5)]
27.
The rule-making power must be
confined to details for regulating the mode or proceedings in order to carry into
effect the law as it has been enacted.
a.
It cannot be extended to amend or
expand the statutory requirements or to embrace matters not covered by the statute.
[Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G. R. Nos.
167274-75, July 21, 2008 citing Landbank of the Philippines v. Court of Appeals,
327 Phil. 1047, 1052 (19
9
6)] An administrative agency issuing regulations may not
enlarge, alter or restrict the provisions of the law it administers, and it cannot
engraft additional requirements not contemplated by the legislature. (Ibid.,
Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No.
159
647, 15 April 2005, 456 SCRA 414)
The plain meaning rule or verba legis
in statutory construction should be applied such that where the words of a statute
are clear, plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation. (Ibid.)
b.
Administrative
regulations must always be in harmony with the provisions of the law because any
resulting discrepancy between the two will always be resolved in favor of the basic
law. [Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G. R. Nos.
167274-75, July 21, 2008 citing Landbank of the Philippines v. Court of Appeals,
327 Phil. 1047, 1052 (19
9
6)]CONSTITUTIONAL LIMITATIONS
1.
What are the
constitutional limitations on the power of taxation ?
SUGGESTED ANSWER: The
general or indirect constitutional limitations as well as the specific or direct
constitutional limitations.
((2.
What are the general or indirect
constitutional limitations on the power of taxation ?
SUGGESTED ANSWER: The
general or indirect constitutional limitations are the following:
a.
Due
process clause;
b.
Equal protection clause;
c.
Freedom of the press;
d.
Religious freedom;
e.
No taking of private property without
just compensation;
f.
Non-impairment clause; g.
Law-making process:
1)
Bill should embrace only one subject
expressed
in the title
thereof;
2)
Three (3) readings on three separate days;
3)
Printed copies in final form distributed three (3) days before passage.
h.
Presidential power to grant reprieves, commutations and pardons and
remittal of fines and forfeiture after conviction by final judgment.
((3.
What are the specific or direct constitutional limitation ?
SUGGESTED
ANSWER:
a.
No imprisonment for non-payment of a poll tax; b.
Taxation
shall be uniform and equitable;
c.
Congress shall evolve a progressive
system of taxation;
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, non-profit 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. 3-A. No denial of due process when the
respondent is given the opportunity to file affidavits and other pleadings during
the preliminary investigation. A respondent cannot claim denial of due process
when she was given the opportunity to file her affidavits and other pleadings and
submit evidence before the DOJ during the preliminary investigation of her case and
before the Information was filed against her. Due process is merely an
7227, to retailers inside the SSEZ without granting the same to those outside the
SSEZ. Is there a violation of the equal protection clause ?
SUGGESTED ANSWER:
There is no violation of equal protection because there exists a valid
classification as shown below:
a.
Significant distinctions exist between
the two groups. Those outside of the SSEZ maintain their business within
Philippine customs territory while those within the SSEZ operate within the socalled separate customs territory. To grant the same privileges would clearly
defeat the statues intent to carve a territory out of the military reservations in
Subic Bay where free flow of goods and capital is maintained.
b.
The
classification is germane to the purpose of Rep. Act No. 7227. As held in Tiu, the
real concern of the law is to convert the lands formerly occupied by the US
military bases into economic or industrial areas. In furtherance of such
objective, Congress deemed it necessary to extend economic incentives, in terms of
a complete package of tax incentives and other benefits, to the establishments
within the zone to attract and encourage foreign and local investors. c.
The
classification is not limited to the existing conditions when the law was
promulgated but to future conditions as well, inasmuch as the law envisioned the
former military reservation to ultimately develop into a self-sustaining investment
center.
d.
The classification applies equally to all retailers found within
the secured area. As ruled in Tiu, the individuals and businesses within the
secured area, being in like circumstances or contributing directly to the
achievement of the end purposes of the law, are not categorized further. They are
all similarly treated, both in privileges granted and in obligations required.
(Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G.
R. No. 132527, July 29
, 2005 citing Tiu, et al., v. Court of Appeals, et al., G.R.
No. 127410, January 20, 19
9
9
, 301 SCRA 278)((( 7.
Is the statutory grant of tax
and duty-free importation into the Subic Special Economic Zone violative the
preferential use concept of the Constitution ?SUGGESTED ANSWER: No. The mere
fact that the law authorizes the importation and trade of foreign goods does not
suffice to declare it unconstitutional on this ground.
While the Constitution
does not encourage the unlimited entry of foreign goods, services and investments
into the country, it does not prohibit them either. In fact, it allows an exchange
on the basis of equality and reciprocity, frowning only in foreign competition that
is unfair. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc.,
et al., G. R. No. 132527, July 29
, 2005 citing Tanada v. Angara, G. R. No. 11829
5,
May 2, 19
9
7, 272 SCRA 18)
8.
Equality and uniformity of taxation may mean
the same as equal protection. In such a case, the terms would mean that all
subjects and objects of taxation which are similarly situated shall be subject to
the same burdens and granted the same privileges without any discrimination
whatsoever. 9
.
Uniformity may have a restrictive meaning different from equality
and equal protection. It would mean then that the same rate shall be imposed for
the same subjects and objects within the territorial boundaries of a taxing
authority. 10.
It is inherent in the power to tax that the State be free
to select the subjects of taxation, and it has been repeatedly held that,
"inequalities which result from a singling out of one particular class of taxation,
or exemption, infringe no constitutional limitation." (Commissioner of Internal
Revenue, et al., v. Santos, et al., 277 SCRA 617)
10-A. The law providing
financial rewards to tax collectors is constitutional. Public service is its own
reward. Nevertheless, public officers may by law be rewarded for exemplary and
exceptional performance. A system of incentives for exceeding the set expectations
of a public office is not anathema to the concept of public accountability. In
fact, it recognizes and reinforces dedication to duty, industry, efficiency and
loyalty to public service of deserving government personnel.
The U.S. Supreme
Court validated a law which awards to officers of the customs as well as other
parties an amount not exceeding one-half of the net proceeds of forfeitures in
violation of the laws against smuggling. [ABAKADA Guro Party List, etc., v.
Purisima, etc., et al., G. R. No. 166715, August 14, 2008 citing United States v.
Matthews, 173 U.S. 381 (189
9
)]
The offer of a portion of such penalties to the
collectors is to stimulate and reward their zeal and industry in detecting
fraudulent attempts to evade payment of duties and taxes. [ABAKADA Guro Party List,
etc., supra citing Dorsheimer v. United States, 74 U.S. 166 (1868)]
In the same
vein, employees of the BIR and the BOC may by law be entitled to a reward when, as
a consequence of their zeal in the enforcement of tax and customs laws, they exceed
their revenue targets. Public service is its own reward. Nevertheless, public
officers may by law be rewarded for exemplary and exceptional performance. A system
of incentives for exceeding the set expectations of a public office is not anathema
to the concept of public accountability. In fact, it recognizes and reinforces
dedication to duty, industry, efficiency and loyalty to public service of deserving
government personnel. (ABAKADA Guro Party List, etc., supra)
10-B. Rewards law
establishes safeguards to ensure that the reward system will not create bounty
hunters. The Attrition Act of 2005 RA 9
335 establishes safeguards to ensure that
the reward will not be claimed if it will be either the fruit of bounty hunting or
mercenary activity or the product of the irregular performance of official duties.
One of these precautionary measures is embodied in Section 8 of the law:
SEC. 8. Liability of Officials, Examiners and Employees
of the BIR and the
BOC.
The officials, examiners, and
employees of the [BIR] and the
[BOC] who violate this Act or
who are guilty of negligence, abuses or acts of
malfeasance or
misfeasance or fail to exercise extraordinary diligence in
the performance of their duties shall be held liable for
any
loss or
injury suffered by any business establishment or
taxpayer as a result of such
violation, negligence, abuse,
malfeasance, misfeasance or failure to exercise
extraordinary
diligence. (ABAKADA Guro Party List, etc., v. Purisima, etc., et
al., G. R. No. 166715, August 14, 2008) 10-C. The rewards law to tax collectors
does not violate equal protection. Equality guaranteed under the equal protection
clause is equality under the same conditions and among persons similarly situated;
it is equality among equals, not similarity of treatment of persons who are
classified based on substantial differences in relation to the object to be
accomplished. When things or persons are different in fact or circumstance, they
may be treated in law differently. The guaranty of equal protection of the laws is
not a guaranty of equality in the application of the laws upon all citizens of the
[S]tate. It is not, therefore, a requirement, in order to avoid the constitutional
prohibition against inequality, that every man, woman and child should be affected
alike by a statute. Equality of operation of statutes does not mean indiscriminate
operation on persons merely as such, but on persons according to the circumstances
surrounding them. It guarantees equality, not identity of rights.
The
Constitution does not require that things which are different in fact be treated in
law as though they were the same. The equal protection clause does not forbid
discrimination as to things that are different. It does not prohibit legislation
which is limited either in the object to which it is directed or by the territory
within which it is to operate. [ABAKADA Guro Party List, etc., v. Purisima, etc.,
et al., G. R. No. 166715, August 14, 2008]
The equal protection clause
recognizes a valid classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary.#[22] With respect to RA 9
335, its
expressed public policy is the optimization of the revenue-generation capability
and collection of the BIR and the BOC. Since the subject of the law is the revenuegeneration capability and collection of the BIR and the BOC, the incentives and/or
sanctions provided in the law should logically pertain to the said agencies.
Moreover, the law concerns only the BIR and the BOC because they have the common
distinct primary function of generating revenues for the national government
through the collection of taxes, customs duties, fees and charges.
Both the BIR
and the BOC are bureaus under the DOF. They principally perform the special
function of being the instrumentalities through which the State exercises one of
its great inherent functions taxation. Indubitably, such substantial distinction
is germane and intimately related to the purpose of the law. Hence, the
classification and treatment accorded to the BIR and the BOC under RA 9
335 fully
satisfy the demands of equal protection. [ABAKADA Guro Party List, etc. supra)]
10-D. The prosecution of one guilty person while others equally guilty are
not prosecuted, however, is not, by itself, a denial of the equal protection of the
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
)
17-C. Reconciliation of the local governments authority to tax and the
Congressional general taxing power. Congress has the inherent power to tax, which
includes the power to grant tax exemptions. On the other hand, the power of local
governments, such as provinces and cities for example Quezon City, to tax is
prescribed by Section 151 in relation to Section 137 of the LGC which expressly
provides that notwithstanding any exemption granted by any law or other special
law, the City or a province may impose a franchise tax. It must be noted that
Section 137 of the LGC does not prohibit grant of future exemptions.
The Supreme
Court in a series of cases has sustained the power of Congress to grant tax
exemptions over and above the power of the local governments delegated power to
tax. (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 16) Indeed, the
grant of taxing powers to local government units under the Constitution and the LGC
does not affect the power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy. The legal effect of the constitutional
grant to local governments simply means that in interpreting statutory provisions
on municipal taxing powers, doubts must be resolved in favor of municipal
corporations. [Ibid., referring to Philippine Long Distance Telephone Company,
Inc. (PLDT) vs. City of Davao]
18.
The withdrawal of a tax exemption should
not be construed as prohibiting future grants of exemption from all taxes. Indeed,
the grant of taxing powers to local government units under the Local Government
Code does not affect the power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy. The legal effect of the constitutional
grant to local governments simply means that in interpreting statutory provisions
on municipal taxing powers, doubts must be resolved in favor of municipal
corporations. (Philippine Long Distance Telephone Company, Inc., v. City of Davao,
et al., etc., G. R. No. 143867, August 22, 2001)
18-A. Tax exemptions in
franchises are always subject to withdrawal. Moreover, Smarts franchise was
granted with the express condition that it is subject to amendment, alteration, or
repeal. (19
87 CONSTITUTION, Art. XII, Sec. 11) It is enough to say that the
parties to a contract cannot, through the exercise of prophetic discernment, fetter
the exercise of the taxing power of the State. For not only are existing laws read
into contracts in order to fix obligations as between parties, but the reservation
of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains adequate authority to
secure the peace and good order of society.
In truth, 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. 15549
1,
September 16, 2008 citing Tolentino v. Secretary of Finance, G. R. No. 115455,
August 25, 19
9
4, 235 SCRA 630, 685. The author opines that since practically all
franchises granted to telecommunications companies are similarly worded that the
above doctrine finds application to the others) 19
.
When Congress approved a
provision that, Any advantage, favor, privilege, exemption, or immunity granted
under existing franchises, or may hereafter be granted, shall ipso facto become
part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of
in the franchise of ABS-CBN has become functus officio with the abolition of the
franchise tax on broadcasting companies with yearly gross receipts exceeding Ten
Million Pesos. The clause in lieu of all 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. ABSCBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008. This is
practically the same holding in an earlier case involving another
telecommunications company. Smart Communications, Inc. v. The City of Davao, etc.,
et al., G. R. No. 15549
1, September 16, 2008. The author opines that since
practically all franchises granted to telecommunications companies are similarly
worded that the above doctrine finds application to the others.) 19
-D. Historical
background on why ABS-CBN is subject to VAT and not to the franchise tax. At the
time of the enactment of its franchise on May 3, 19
9
5, ABS-CBN was subject to 3%
franchise tax under Section 117(b) of the 19
77 National Internal Revenue Code
(NIRC), as amended. On January 1, 19
9
6, R.A. No. 7716, otherwise known as the
Expanded Value Added Tax Law, took effect and subjected to VAT those services
rendered by radio and/or broadcasting stations. Notably, under the same law,
telephone and/or telegraph systems, broadcasting stations and other franchise
grantees were omitted from the list of entities subject to franchise tax. The
impression was that these entities were subject to 10% VAT but not to franchise
tax. Subsequently, R.A. No. 8241 took effect on January 1, 19
9
7 containing more
amendments to the NIRC. Radio and/or television companies whose annual gross
receipts do not exceed P10,000,000.00 were granted the option to choose between
paying 3% national franchise tax or 10% VAT
On the other hand, radio and/or
television companies with yearly gross receipts exceeding P10,000,000.00 were
subject to 10% VAT, pursuant to Section 102 of the NIRC.
On January 1, 19
9
8, R.A.
No. 8424 was passed confirming the 10% VAT liability of radio and/or television
companies with yearly gross receipts exceeding P10,000,000.00.R.A. No. 9
337 was
subsequently enacted and became effective on July 1, 2005. The said law further
amended the NIRC by increasing the rate of VAT to 12%. The effectivity of the
imposition of the 12% VAT was later moved from January 1, 2006 to February 1, 2006.
In consonance with the above survey of pertinent laws on the matter, ABS-CBN is
subject to the payment of VAT. It does not have the option to choose between the
payment of franchise tax or VAT since it is a broadcasting company with yearly
gross receipts exceeding Ten Million Pesos (P10,000,000.00).
(Quezon City, et
al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008. The
author opines that since practically all franchises granted to telecommunications
companies are similarly worded that the above doctrine finds application to the
others.)
20.
Double taxation in its generic sense, this means taxing the
same subject or object twice during the same taxable period. In its particular
sense, it may mean direct duplicate taxation, which is prohibited under the
constitution because it violates the concept of equal protection, uniformity and
equitableness of taxation. Indirect duplicate taxation is not anathematized by the
above constitutional limitations. (( 21.
What are the elements of direct
duplicate taxation ?
SUGGESTED ANSWER:
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 periodb.
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:
a.
Presence of the 2nd 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.
22. Double taxation a valid defense against the
legality of a tax measure if the double taxation is direct duplicate taxation,
because it would violate the equal protection clause of the constitution.
23.
When an item of income is taxed in the Philippines and the same income
is taxed in another country, this would be known as international juridical double
taxation which is the imposition of comparable taxes in two or more states on the
same taxpayer in respect of the same subject matter and for identical grounds.
(Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., et al., G.R. No.
127105, June 25, 19
9
9
) (( 24. What are the methods for avoiding double taxation
(indirect duplicate taxation) ?
SUGGESTED ANSWER: The following are the
methods of avoiding double taxation:
a.
Tax treaties which exempts foreign
nationals from local taxation and local nationals from foreign taxation under the
principle of reciprocity.
b.
Tax credits where foreign taxes are allowed as
deductions from local taxes that are due to be paid. c.
Allowing foreign taxes
as a deduction from gross income. 25.
Tax credit generally refers to an amount
that is subtracted directly from ones total tax liability, an allowance against
the tax itself, or a deduction from what is owned.
A tax credit reduces the tax
due, including whenever applicable the income tax that is determined after
applying the corresponding tax rates to taxable income. (Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G. R. No. 159
647, April 15, 2005) 26.
A tax deduction is defined as a subtraction fro income for tax purposes, or
an amount that is allowed by law to reduce income prior to the application of the
tax rate to compute the amount of tax which is due. A tax deduction reduces the
income that is subject to tax in order to arrive at taxable income. (Commissioner
of Internal Revenue v. Central Luzon Drug Corporation, G. R. No. 159
647, April 15,
2005) ( 27. The petitioners allege that the R-VAT law is constitutional because the
Bicameral Conference Committed has exceeded its authority in including provisions
which were never included in the versions of both the House and Senate such as
inserting the stand-by authority to the President to increase the VAT from 10% to
12%; deleting entirely the no pass-on provisions found in both the House and Senate
Bills; inserting the provision imposing a 70% limit on the amount of input tax to
be credited against the output tax; and including the amendments introduced only by
Senate Bill No. 19
50 regarding other kinds of taxes in addition to the value-added
tax. Thus, there was a violation of the constitutional mandate that revenue bills
shall originate exclusively from the House of Representatives.
Are the
contentions of such weight as to constitute grave abuse of discretion which may
invalidate the law ? Explain briefly.
SUGGESTED ANSWER: No. There was no
grave abuse of discretion because all the changes and modifications made by the
Bicameral Conference Committee were germane to subjects of the provisions referred
to it for reconciliation.
The Bicameral Conference Committee merely exercised
the judicially recognized long-standing legislative practice of giving said
conference committee ample latitude for compromising differences between the Senate
and the House. [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No.
168056, September 1, 2005 and companion cases citing Philippine Judges Association
v. Pardo, G. R. No. 105371, November 11, 19
9
3, 227 SCRA 703; Tolentino v. Secretary
of Finance, et al., G. R. No. 115455, August 25, 19
9
4, 235SCRA 630]
( 28.
The VAT is assailed as being regressive and therefore violative of the mandate to
evolve a progressive system of taxation. Do you agree ? Explain your answer.
SUGGESTED ANSWER: No. The VAT does not violate the progressive system of
taxation. The mandate to Congress is not to prescribe but to evolve a progressive
system of taxation. Otherwise, sales taxes which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of the
constitutional provision. Sales taxes are also regressive. . [Abakada Guro Party
List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and
companion cases citing Tolentino v. Secretary of Finance, et al., G. R. No. 115455,
August 25, 19
9
4, 235 SCRA 630]
29
.
All revenues and assets
of non-stock, non-profit educational institutions that are actually, directly and
exclusively used for educational purposes shall be exempt from taxation.
30.
Nos. 167274-75, July 21, 2008 citing Record of the Senate, pp. 224-225)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 19
9
7] 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. 3.
Certain business organizations do not fall under the category of
corporations under the Tax Code, and therefore not subject to tax as
corporations, include:a.
General professional partnerships;b.
Joint
venture or consortium formed for the purpose of undertaking construction projects
engaging in petroleum, coal, geothermal, and other energy operations, pursuant to
an operation or consortium agreement under a service contract with the Government.
[1st sentence, Sec. 22 (B), BIRC of 19
9
7]((4. Co-heirs who own inherited
properties which produce income should not automatically be considered as partners
of an unregistered corporation subject to income tax for the following reasons:a.
The sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived. There must be an unmistakable
intention to form a partnership or joint venture. (Obillos, Jr. v. Commissioner of
Internal Revenue, 139
SCRA 436)b. There is no contribution or investment of
additional capital to increase or expand the inherited properties, merely
continuing the dedication of the property to the use to which it had been put by
their forebears. (Ibid.)c.
Persons who contribute property or funds to a common
enterprise and agree to share the gross returns of that enterprise in proportion to
their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock
capital, and no community of interest as principal proprietors in the business
itself from which the proceeds were derived. (Elements of the Law of Partnership
by Floyd R. Mechem, 2nd Ed., Sec. 83, p. 74 cited in Pascual v. Commissioner of
Internal Revenue, 166 SCRA 560)5. The common ownership of property does not
itself create a partnership between the owners, though they may use it for purpose
of making gains, and they may, without becoming partners, are among themselves as
to the management and use of such property and the application of the proceeds
therefrom.. (Spurlock v,. Wilson, 142 S.W. 363, 160 No. App. 14, cited in Pascual
v. Commissioner of Internal Revenue, 166 SCRA 560)
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.
Income is gain derived and severed
from capital, from labor or from both combined. For example, to tax a stock
dividend would be to tax a capital increase rather than the income. (Commissioner
of Internal Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 19
9
9
)
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 19
9
7)
9
.
The cancellation and forgiveness of
indebtedness may amount to (a) payment of income; (b) gift; or to a (c) capital
transaction depending upon the circumstances. 10.
If an individual performs
services for a creditor who, in consideration thereof, cancels the debt, it is
income to the extent of the amount realized by the debtor as compensation for his
services.
11.
An insolvent debtor does not realize taxable income from the
cancellation or forgiveness. (Commissioner v. Simmons Gin Co., 43 Fd 327 CCA 10th)
12.
The insolvent debtor realizes income resulting from the cancellation or
forgiveness of indebtedness when he becomes solvent. (Lakeland Grocery Co., v.
Commissioner 36 BTA (F) 289
) 13.
If a creditor merely desires to benefit a
debtor and without any consideration therefor cancels the amount of the debt it is
a gift from the creditor to the debtor and need not be included in the latters
income.
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.
The Global system of income taxation is a system
employed where the tax system views indifferently the tax base and generally treats
in common all categories of taxable income of the individual. (Tan v. del Rosario,
Jr., 237 SCRA 324, 331)
16. The Schedular system of income taxation is a
system employed where the income tax treatment varies and is made to depend on the
kind or category of taxable income of the taxpayer. (Tan v. del Rosario, Jr., 237
SCRA 324, 331)
17. Under the National Internal Revenue Code the global
system is applicable to taxable corporations and the schedular
to individuals.
(((18.
What are general principles of income taxation
in the Philippines OR the situs of income taxation in the Philippines OR the source
rule of income taxation as applied in the Philippines ?
SUGGESTED ANSWER:
a.
A citizen of the Philippines residing therein is taxable on all income
derived from sources within and without the Philippines.
b.
A nonresident
citizen is taxable only on income derived from sources within the Philippines.
c.
An individual citizen of the Philippines who is working and deriving
income from abroad as an overseas contract worker is taxable only on income from
sources within the Philippines: Provided, That a seaman who is a citizen of the
Philippines and who receives compensation for services rendered abroad as a member
of the complement of a vessel engaged exclusively in international trade shall be
treated as an overseas contract worker. d.
An alien individual, whether
resident or not of the Philippines, is taxable only on income derived from sources
within the Philippines. e.
A domestic corporation is taxable on all income
derived from sources within and without the Philippines.
f.
A foreign
corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines. (Sec. 23, NIRC
of 19
9
7)
19
.
Compensation income is considered as having been earned in the
place where the service was rendered and not considered as sourced from the place
of origin of the money.
20.
Payment for services, other than compensation
income, is considered as having been earned at the place where the activity or
service was performed. 21.
A non-resident alien, who has stayed in the
Philippines for an aggregate period of more than 180 days during any calendar year,
shall be considered as a non-resident alien doing business in the Philippines.
Consequently, he shall be subject to income tax on his income derived from sources
from within the Philippines. [Sec. 25 (A) (1), NIRC] He is allowed to avail of the
itemized deductions including the personal and additional exemptions subject to the
rule on reciprocity.
(( 22.
What are considered as de minimis
benefits not subject to withholding tax on compensation income of both managerial
and rank and file employees ? SUGGESTED ANSWER: a.
Monetized unused vacation
leave credits of employees not exceeding ten (10) days during the year;
b.
Medical cash allowance to dependents of employees not exceeding P750.00 per
employee per semester or P125 per month; c.
Rice subsidy of P1,000.00 or one
(1) sack of 50-kg. rice per month amounting to not more than P1,000.00;
d.
Uniforms and clothing allowance not exceeding P3,000.00 per annum;
e. Actual
yearly medical benefits not exceeding P10,000.00 per annum;f.
Laundry allowance
not exceeding P300 per month; g.
Employees achievement awards, e.g. for length
of service or safety achievement, which must be in the form of a tangible persona
property other than cash or gift certificate, with an annual monetary value not
exceeding P10,000.00 received by an employee under an established written plan
which does not discriminate in favor of highly paid employees;
h.
Gifts given
during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;
i.
Flowers, fruits, books, or similar items given to
employees under special circumstances, e.g. on account of illness, marriage, birth
of a baby, etc.; and
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. 2-9
8 as
amended by Rev. Regs. No. 8-2000] 23.
Income subject to final tax refers to
an income collected through the withholding tax system. The payor of the income
withholds the tax and remits it to the government as a final settlement of the
income tax as a final settlement of the income tax due on said income. The
recipient is no longer required to include the income subjected to a final tax as
part of his gross income in his income tax return.
(( 24.
Distinguish
exclusions from deductions.
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.
What are excluded from gross income ?
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 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.
((( 26.
What
are the conditions for excluding retirement benefits from gross income, hence taxexempt ?
SUGGESTED ANSWER: a.
Retirement benefits received under Republic Act
No. 7641 and those received by officials and employees of private firms, whether
individual or corporate, in accordance with the employers reasonable private
benefit plan approved by the BIR. b.
Retiring official or employee 1)
In the
service of the same employer for at least ten (10) years; 2)
Not less than
fifty (50) years of age at time of retirement; 3)
Availed of the benefit of
exclusion only once. [Sec. 32 (B) (6) (a), NIRC of 19
9
7] The retiring official or
employee should not have previously availed of the privilege under the retirement
plan of the same or another employer. [1st par., Sec. 2.78 (B) (1), Rev. Regs. No.
2-9
8]
(( 27.
What kind of separation (retirement) pay is excluded from
gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Any amount
received by an official, employee or by his heirs,
b.
From the employer c.
As a consequence of separation of such official or employee from the service
of the employer because of
1)
Death, sickness or other physical disability;
or
2)
For any cause beyond the control of said official or employee [Sec. 32
(B) (6) (b), NIRC of 19
9
7], such as retrenchment, redundancy and cessation of
business. [1st par., Sec. 2.78 (B), (1) (b), Rev. Regs. No. 2-9
8]28.
What
are the Itemized deductions from gross income and who may avail of them ?a.
Ordinary and necessary trade, business or professional expenses.
b.
The
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; or2) 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 19
9
7]
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.
56.
Holding period not applied to the taxation of the presumed capital gains derived
from the sale of real property considered as capital assets.
(( 57. The
tax liability, of individual taxpayers (not corporate), if any, on gains from sales
or other dispositions of real property, classified as capital assets, to the
government or any of its political subdivisions or agencies or to government owned
or controlled corporations shall be determined, at the option of the taxpayer, by
including the proceeds as part of gross income to be subjected to the allowable
deductions and/or personal and additional exemptions, then to the schedular tax
[Sec. 24 (D) (1), in relation to Sec. 24 (A) (1), both of the NIRC of 19
9
7] or the
final presumed capital gains tax of six percent (6%). [Sec. 24 (D) (1) in
relation to Sec. 6 (E), both of the NIRC of 19
9
7]
58. The
seller of the real property, classified as a capital asset, pays the presumed
capital gains tax whether:
a. an individual [Sec. 24 (D) (1), NIRC of
19
9
7];
1) Citizen, whether resident or not [Ibid.];
2) Resident alien [Ibid.];
3) Nonresident alien engaged in trade or
business in the Philippines [Sec. 25 (A) (3) in relation to Sec. 24 (D) (1), both
of the NIRC of 19
9
7];
4) Nonresident alien not engaged in trade or
business in the Philippines [Sec. 25 (B) in relation to Sec. 24 (D) (1), both of
the NIRC of 19
9
7];
b. an estate or trust (Ibid.);
c. a
domestic corporation. [Sec. 27 (D) (5), NIRC of 19
9
7]
(( 59
. Excepted
from the payment of the presumed capital gains tax are those presumed to have been
realized from the disposition by natural persons of their principal place of
residence
a.
the proceeds of which is fully utilized in acquiring or
constructing a new principal residence; b.
within eighteen (18) calendar
months from the date of sale or disposition
c.
the BIR Commissioner shall
have been duly notified by the taxpayer within thirty (30) days from the date of
sale or disposition through a prescribed return of his intention to avail of the
tax exemption; and
d.
the said tax exemption can only be availed of once
every ten (10) years. [Sec. 24 (D) (2), NIRC of 19
9
7]
60.
A final
withholding tax (FWT) of 20% on passive income is collected from the interest
income of banks. It likewise has to pay a 5% gross receipts tax (GRT)
on gross receipts which includes their passive income. XYZ Bank now claims that
the GRT should be computed after deducting the 20% passive income tax on the ground
that the monies or receipts that do not redound to the benefit of the taxpayer are
not part of its gross receipts. To impose the GRT without deducting the 20% would
be double taxation. It also contends that since the 20% was withheld at source and
is paid directly to the government, then the bank has not received the same. Thus,
it should not be included in the gross receipts subject to tax. Resolve the issue
of whether the 20% FWT on the banks passive income form part of the taxable gross
receipts for the purpose of computing the 5% GRT.
SUGGESTED ANSWER: No. The
word gross must be used in its plain and ordinary meaning. It is defined as
whole, entire, total, without deduction. Thus, the 20% should not be deducted
for purposes of computing the 5% gross receipts tax. Receipt may either be actual
or constructive. There is prior to the withholding a constructive receipt of the
interest, otherwise there would be no interest from where the 20% tax may be
withheld from.
There is no double taxation because there are two kinds of
taxes, the 20% FWT which is an income tax and the 5% GRT which is a percentage tax.
(Commissioner of Internal Revenue v. Citytrust Investment Phils., Inc., G. R. No.
139
786, September 27, 2006 and companion case) NOTES AND COMMENTS:
a.
Commissioner of Internal Revenue v. Manila Jockey Club, 108 Phil. 821 (19
60)
is different from Commissioner of Internal Revenue v. Citytrust Investment Phils.,
Inc., G. R. No. 139
786, September 27, 2006 and companion case. Manila Jockey Club
paid amusement taxes on its commission in the total amount of bets called wager
funds and did not include the 5% of the fund which went to the Board on Races and
to the owners of horses and jockeys. The Supreme Court rules that the gross
receipts of Manila Jockey Club should not include the 5% because although
delivered to the Club, such money has been especially earmarked by law or
regulation for other persons. Manila Jockey does not apply because what happened
there was earmarking and not withholding. Earmarking is not the same as
withholding. Amounts earmarked do not form part of gross receipts because these
are by law or regulation reserved for some person other than the taxpayer, although
delivered or received. On the contrary, amounts withheld form part of gross
receipts because there are in constructive possession and not subject to any
reservation, the withholding agent being merely a conduit in the collection
process. (Commissioner of Internal Revenue v. Citytrust Investment Phils., Inc.,
G. R. No. 139
786, September 27, 2006 and companion case)
b.
There are
distinctions between the 20% FWT on interest income and the 5% GRT on banks. Since
the two are different there is no double taxation.
1)
FWT is an income
tax under Title II of the Code (Tax on Income) while GRT is a percentage tax under
Title V of the Tax Code.
2)
Percentage tax is a national tax measured
by a certain percentage of the gross selling price or gross value in money of goods
sold, bartered or imported; or of the gross receipts or earnings derived by any
person engaged in the sale of services while an income tax is a national tax
imposed on the net or gross income realized in a taxable year.
3)
Income
tax is subject to withholding while percentage is not. (Commissioner of Internal
Revenue v. Citytrust Investment Phils., Inc., G. R. No. 139
786, September 27, 2006
and companion case)
61.
MBC was incorporated in 19
61 and engaged in
commercial banking operations since 19
87. On May 22, 19
87, it ceased operations
that year by reason of insolvency and its assets and liabilities were placed under
the charge of a government-appointed receiver. On June 23, 19
9
9
, the BSP
authorized MBC to operate as a thrift bank.
In 2000, It filed its tax return
for the year 19
9
9
paying the amount of P33 million computed in accordance with the
minimum corporate income tax (MCIT). It sought the BIRs ruling on whether it is
entitled to the four (4) year grace period for paying on the basis of MCIT reckoned
from 19
9
9
. BIR then ruled that cessation of business activities as a result of
being placed under involuntary receivership may be an economic reason for
suspending the imposition of the MCIT.
As a result of the ruling MBC filed an
application for refund of the P33 million. Due to the BIRs inaction, MBC filed a
petition for review with the CTA. The CTA denied the petition on the ground that
MBC is not a newly organized corporation. In a volte facie the BIR now maintains
that MBC should pay the MCIT beginning January 1, 19
9
8 as it did not close its
business operations in 19
87 but merely suspended the same. Even if placed under
receivership, the corporate existence was never affected. Thus, it falls under the
category of an existing corporation recommencing its banking operations.
Should
the refund be granted ? SUGGESTED ANSWER: Yes. The MCIT shall be imposed
beginning in the fourth taxable year immediately following the year in which the
corporation commenced its business operations. [Sec. 27 (E) (1), NIRC of 19
9
7]
The date of commencement of operations of a thrift bank is the date it was
registered with the SEC or the date when the Certificate of Authority to Operate
was issued to it by the Monetary Board, whichever comes later. (Sec. 6, Rev. Regs.
No. 4-9
5)
Clearly then. MBC is entitled to the grace period of four years from
June 23, 19
9
9
when it was authorized by the BSP to operate as a thrift bank before
the MCIT should be applied to it. (Manila Banking Corporation v. Commissioner of
Internal Revenue, G. R. No. 168118, August 26, 2006) NOTES AND COMMENTS:
a.
The MCIT and when should be imposed and the four (4) year grace period. A
minimum corporate income tax of two percent (2%) of the gross income as of the end
of the taxable year, as defined herein, is hereby imposed on a corporation taxable
under this Title, beginning on the fourth taxable year immediately following the
year in which such corporation commenced its business operations, when the minimum
corporate income tax is greater than the tax computed under Subsection (A) of this
section for the taxable year. [Sec. 27 (E) (1), NIRC of 19
9
7] b.
Period when
a corporation becomes subject to the MCIT. (5) Specific rules for determining the
period when a corporation becomes subject to the MCIT (minimum corporate income
tax) For purposes of the MCIT, the taxable year in which business operations
commenced shall be the year in which the domestic corporation registered with the
Bureau of Internal Revenue (BIR). Firms which were registered with BIR in 19
9
4
and earlier years shall be covered by the MCIT beginning January 1, 19
9
8. x x x
(Rev. Regs. No. 9
-9
8)
Manila Banking Corporation v. Commissioner of Internal
Revenue, G. R. No. 168118, August 26, 2006 did not apply Rev. Regs. No. 9
-9
8
because Rev. Regs. No. 4-9
5 specifically refers to thrift banks.)
c.
Purpose of the four (4) year grace period. The intent of Congress relative
to the MCIT is to grant a four (43) year suspension of tax payment to newly
organized corporations. Corporations still starting their business operations have
to stabilize their venture in order to obtain a stronghold in the industry. It does
not come as a surprise then when many companies reported losses in their initial
years of operations.
Thus, in order to allow new corporations to grow and
develop at the initial stages of their operations, the lawmaking body saw the need
to provide a grace period of four years from their registration before they pay
their minimum corporate income tax. (Manila Banking Corporation v. Commissioner of
Internal Revenue, G. R. No. 168118, August 26, 2006)ESTATE TAXES(( 1. The gross
estate for purposes of estate taxation of Filipino citizens, whether residents or
nonresidents and resident alien includes the value at the time of his death of all
his real property, wherever situated, personal property, whether tangible,
intangible or mixed, wherever situated, to the extent of the interest existing
therein of the decedent at the time of his death.(( 2.
The gross estate for
purposes of estate taxation of non-resident aliens includes the value at the time
of his death of all the real property situated in the Philippines, personal
property whether tangible, intangible or mixed, situated in the Philippines, to the
extent of the interest therein of the decedent at the time of his death.
3.
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. 49
17;
h.
Net share of the surviving spouse in the conjugal
partnership.
4.
Not every inter-vivos transfer in anticipation of death is
considered transfer in contemplation of death for purposes of determining the
property to be included in the gross estate of a decedent. 5.
To be considered a
transfer in contemplation of death the decedent has at any time made a transfer,
by trust or otherwise, in contemplation of or intended to take effect in possession
or enjoyment at or after death [Sec. 85 (B), NIRC of 19
9
7]. It is clear that the
properties are not transferred in contemplation of or intended to take effect in
possession or enjoyment at or after death.
6.
There is no transfer in
contemplation of death if there is no showing 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 shall possess or enjoy the property or the income therefrom. [Sec. 85 (B),
NIRC of 19
9
7]
(( 7.
The approval of the court sitting in probate, or as a
settlement tribunal over the estate of the deceased is not a mandatory requirement
for the collection of the estate. The probate court is determining issues which
are not against the property of the decedent, or a claim against the estate as
such, but is against the interest or property right which the heir, legatee,
devisee, etc. has in the property formerly held by the decedent. The notices of
levy were regularly issued within the prescriptive period. The tax assessment
having become final, executory and enforceable, the same can no longer be contested
by means of a disguised protest. (Marcos, II v. Court of Appeals, et al., 273
SCRA 47)DONORS TAXES
(( 1. What is the donors tax rate if the donee is a
stranger ? SUGGESTED ANSWER:
When the donee or beneficiary is a stranger,
the tax payable by the donor shall be 30% of the net gifts.
(( 2.
For
purposes of the donors tax who is a 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. 9
9
(B), NIRC
of 19
9
7]
NOTES AND COMMENTS: All relatives by affinity, irrespective of the
degree, are considered as strangers.
3.
What is the tax base for
donations ? SUGGESTED ANSWER: The net gifts made during the calendar year. [Sec.
9
9
(A), NIRC of 19
9
7]
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 fair market
value of the property the amount of the mortgage assumed. (last par., Sec. 11,
Rev. Regs.No.2-2003)
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 19
9
7)
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 of the NIRC of 19
9
7]
( 7. A died leaving as his only heirs,
his surviving spouse B, and three minor children, X, Y and Z. Since B does not
want to participate in the distribution of the estate, she renounced her hereditary
share in the estate.
a.
Is the renunciation subject to donors tax ?
Explain.
SUGGESTED ANSWER: No. The general renunciation by an heir,
including the surviving spouse, as in the case B, of her share in the hereditary
estate left by the decedent is not subject to donors tax. (4th par., Sec. 11, Rev.
Regs. No. 2-2003)
This is so because the general renunciation by B was not
specifically and categorically done in favor of identified heir/s to the exclusion
or disadvantage of the other co-heirs in the hereditary estate.
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)
((( 8.
Give some donations that are exempt from donors tax. SUGGESTED ANSWER: a.
The first P100,000.00 net donation during a calendar year is exempt from
donors tax [Sec. 9
9
(A), NIRC of 19
9
7] 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
the same party as a purchaser from its indirect burden of the VAT shifted to it by
its VAT-registered 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)
Illustration: A VAT exempt seller sells to a non-VAT 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. 4.
The VAT is a tax on consumption. Explain the meaning of
consumption as used under the VAT system. Give an example.SUGGESTED ANSWER:
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."
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. American Express G.R.
No. 152609
, 29
June 2005, 462 SCRA 19
7 cited in Commissioner of Internal Revenue v.
Placer Dome Technical Services (Phils.), Inc. G. R. No. 164365, June 8, 2007]
(5.
Who are liable for the value-added tax ?
SUGGESTED ANSWER:
a.
Any person who, in the course of his trade or business,
1)
Sells, barters, exchanges or leases goods
or
properties,
or
2)
renders services, and
b.
any person who
imports goods xxx
However, in the case of importation of taxable goods,
the importer, whether an individual or corporation and whether or not made in the
course of his trade or business, shall be liable to VAT xxx.
(Rev. Regs. No. 162005,Sec. 4.105-1, paraphrasing supplied)
6.
What are the various VAT
methods and systems ?
SUGGESTED ANSWER: 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 citing Deoferio, Jr. V. A. and Mamalateo, V.C., The Value Added Tax
in the Philippines (First Edition 2000)] This was subsequently modified and a
mixture of cost deduction method and tax credit method was used to determine
the value-added tax payable. (Ibid.)
b.
Tax credit method. This method
relies on invoices, an entity can credit against or subtract from the VAT charged
on its sales or outputs the VAT paid on its purchases, inputs and imports.
[Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No.
153866, February 11, 2005 citing various cases and authorities; Abakada Guro Party
List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and
companion cases) If at the end of a taxable period, the output taxes charged by a
seller are equal to the input taxes passed on by the suppliers, no payment is
required. It is when the output taxes exceed the input taxes that the excess has
to be paid. If however, the input taxes exceed the output taxes, the excess shall
be carried over to the succeeding quarter or quarters. Should the input taxes
result from zero-rated or effectively zero-rated transactions or from acquisition
of capital goods, any excess over the output taxes shall instead be refunded to the
taxpayer or credited against other internal revenue taxes. [Commissioner of
Internal Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February
11, 2005 citing various cases and authorities] 7.
The VAT being imposed on the
increase in worth merit or improvement of the goods or services. How is this
done ?
SUGGESTED ANSWER: The VAT utilizes the concept of the output and input
taxes.
8.
Define output tax.
SUGGESTED ANSWER: The value-added tax
due on the sale or lease or taxable goods, properties or services by any VATregistered person.
9
.
Define input tax.
SUGGESTED ANSWER: The VAT
due on or paid by a VAT-registered person on importation of good or local purchases
of goods or services, including lease or use of properties, in the course of his
trade or business.
(Rev. Regs. No. 4.110-1, 1st par.)
10.
What are included
in the input tax.
SUGGESTED ANSWER: It shall also include:
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 )
11.
May the right to credit the input tax be
limited by legislation ?
SUGGESTED ANSWER: Yes because it is a mere creation
of law. Prior to the enactment of multi-stage sales taxation, the sales taxes paid
at every level of distribution are not recoverable from the taxes payable. With
the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales,
it was only then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons against the output tax
was established. Thiscontinued with the Expanded VAT Law (R.A. No. 7716), and The
Tax Reform Act of 19
9
7 (R.A. No. 8424). The right to credit input tax as against
the output tax is clearly a privilege created by law, a privilege that also the law
can limit. It should be stressed that a person has no vested right in statutory
privileges. (ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207,
October 15, 2005, and companion cases, on the motion for reconsideration)
12.
What is the concept of transitional input tax credits on beginning
inventories ?
SUGGESTED ANSWER: Taxpayers who become VAT-registered persons
upon exceeding the minimum turnover of P1,500,000.00 in any 12-month period, or who
voluntarily register even if their turnover does not exceed P1,500,000.00 (except
franchise grantees of radio and television broadcasting whose threshold is
P10,000,000.00) shall be entitled to a transitional input tax on the inventory on
hand as of the effectivity of their VAT registration, on the following:
a.
goods purchased for resale in their present condition;
b.
materials purchased for further processing, but which have not yet undergone
processing;
c.
goods which have been manufactured by the taxpayer;
d.
goods in process for sale; or
e.
goods and supplies for use in
the course of the taxpayers trade or business as a VAT-registered person. [Rev.
Regs. No. 16-2005, Sec.4.111-1, (a), 1st par., arrangement and numbering supplied]
14.
What is the concept of presumptive input tax credits ?
SUGGESTED
ANSWER:
Persons or firms engaged in the processing of sardines, mackerel, and
milk, and in manufacturing refined sugar, cooking oil and packed noodle-based
instant meals, shall be allowed a presumptive input tax, creditable against the
output tax, equivalent to four percent (4%) of the gross value in money of their
purchases of primary agricultural products which are used as inputs to their
production.
As used in this paragraph, the term processing shall mean
pasteurization, canning and activities which through physical or chemical process
alter the exterior texture or form or inner substance of a product in such a manner
as to prepare it for special use to which it could not have been put in its
original form or condition. [Rev. Regs. No. 16-2005, Sec.4.111-1, (b)]
15.
Does the VAT registration fee violate religious freedom ?
SUGGESTED ANSWSER:
The VAT registration fee imposed on non-VAT enterprises which includes among
others, religious sects which sells and distributes religious literature is not
violative of religious freedom, although a fixed amount is not imposed for the
exercise of a privilege but only for the purpose of defraying part of the cost of
registration.
The registration fee is thus more of an administrative fee, one
not imposed on the exercise of a privilege, much less a constitutional right.
(Tolentino v. Secretary of Finance, et al., and companion cases, 235 SCRA 630)
((16. Explain the proper interpretation of the term In the Course of Trade
or Business.
SUGGESTED ANSWSER: VAT is not a singular-minded tax
on every transactional level. Its assessment bears direct relevance
goods on hand,
1)
whether capital goods, stock-in-trade, supplies
or materials as of the date of such retirement, or cessation,
2)
whether or not the business is continued by the new owner or successor. xxx
[Rev. Regs. No. 16-2005, Sec. 4.106-7, paraphrasing, arrangement and numbering
supplied]
18.
What transactions considered retirement or cessation of business
deemed sale subject to VAT ?
SUGGESTED ANSWER:a.
Change of ownership of
the business. There is change in the ownership of the business where a single
proprietorship incorporates; or 1) the proprietor of a single proprietorship sells
his entire business.
b.
Dissolution of a partnership and creation of a
new partnership which takes over the business. [Rev. Regs. No. 16-2005, Sec.
4.106-7 (a), (4) paraphrasing, arrangement and numbering supplied]
19
.
What
sale of or lease of real properties subject to VAT ? SUGGESTED ANSWER: 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.
20.
On Jan. 10, 2008,
X, a domestic corporation engaged in the real estate business, sold a building for
P10,000,000.00. Is the sale subject to the value-added 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.
21.
What sale of real
property exempt from VAT ?
SUGGESTED ANSWER: The following sales of real
properties are exempt from VAT, namely:
a.
Sale of real properties not
primarily held for sale to customers or held for lease in the ordinary course of
trade or business;
b.
Sale of real properties utilized for lowcost housing as defined by RA No. 7279
, otherwise known as the Urban and
Development Housing Act of 19
9
2 and other related laws, such as RA No. 7835 and RA
No. 8763.
xxx
xxx
xxx
c.
Sale of
real properties utilized for socialized housing as defined under RA No. 7279
, and
other related laws wherein the price ceiling per unit is P225,000.00 or as may from
time to time be determined by the HUDCC and the NEDA and other related laws.
xxx
xxx
xxx
d.
Sale of residential lot
valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or
house & lot and other residential dwellings valued at Two Million Give Hundred
Thousand Pesos (P2,500,000.00) and below where the instrument of
sale/transfer/disposition was executed on or after November 1, 2005, provided, That
not later than January 31, 2009
and every three (3) years thereafter, the amounts
stated herein shall be adjusted to its present value using the Consumer Price
Index, as published by the National Statistics Office (NSO); provided, further,
that such adjustment shall be published through revenue regulations to be issued
not later than March 31 of each year.
If two or more adjacent residential
lots are sold or disposed in favor of one buyer, for the purpose of utilizing the
lots as one residential lot, the sale shall be exempt from VAT only if the
aggregate value of the lots do not exceed P1,500,000.00. Adjacent residential
lots, although covered by separate titles and/or separate tax declarations, when
sold or disposed of to one and the same buyer, whether covered by one or separate
Deed of Conveyance, shall be presumed as a sale of one residential lot. [Rev.
Regs. No. 4.109
-1 (B), (p), paraphrasing and numbering supplied]
22. What
is the VAT on services and lease of properties ?
SUGGESTED ANSWER:
a.
There shall be levied, assessed, and collected,
b.
a valueadded tax equivalent to ten percent (10%) of gross receipts
c.
derived from the sale or exchange of services,
1)
including
the use or lease of properties.
d.
Provided, That the President, upon
the recommendation of the # HYPERLINK "http://www.dof.gov.ph" #Secretary of
Finance#, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied:
1)
Value-added tax collection as a percentage of Gross Domestic
product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or
2)
National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). [NIRC of 19
9
7, Sec. 108
(A), as amended by R.A. No. 9
337, arrangement and numbering supplied]
23.
Sale or exchange of services, defined.
The term sale or exchange
of services means the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, whether in kind or in cash,
including those performed or rendered by the following:
a.
construction and service contractors;
b.
stock, real
estate, commercial, customs and immigration brokers;
c.
lessors of property, whether personal or real;
d.
persons engaged in warehousing services
e.
lessors or
distributors of cinematographic films;
f.
persons
engaged in milling, processing, manufacturing or repacking goods for others;
g.
proprietors, operators or keepers of
hotels, motels, rest-houses, pension houses, inns, resorts; theaters, and movie
houses;
h.
proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers;
i.
dealers in
securities;
j.
lending investors;
k.
transportation contractors on their transport
of goods or cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport of goods or
cargoes;
l.
common carriers by air and
sea relative to their transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines;
m.
sales
of electricity by generation companies, transmission, and/or distribution
companies;
n.
franchise grantees of electric utilities,
telephone and telegraph, radio and television broadcasting and all other franchise
grantees except 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 franchise grantees of gas and water utilities;
o.
non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies; and
p.
similar services regardless
of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. [NIRC of 19
9
7, Sec. 108 (A), as amended by R.A. No.
9
337; Rev. Regs. No. 16-2005, Sec. 4,108-2, 1st par., arrangement and numbering
supplied]24.
X Corporation rendered technical services through its work
engineers to PNB and SSS in the construction of their buildings. The work
engineers acted as overseers of X Corporation, rendering their professional
services as employees of X corporation. Should X Corporation be subjected to VAT
or should it be subjected to tax on the professional services of those employees
themselves? Decide the case with reason. SUGGESTED ANSWER: X Corporation is
subject to VAT.
25.
Also included in the phrase sale or exchange of services.
a.
The lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
b.
The lease
or the use of, or the right to use any industrial, commercial or scientific
equipment;
c.
The supply of scientific, technical, industrial or
commercial knowledge or information;
d.
The supply of any
assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such property, or right as is
mentioned in subparagraph (2) hereof or any such knowledge or information as is
mentioned in subparagraph (3) hereof; or
e.
The supply of services by a
non-resident person or his employee in connection with the use of property or
rights belonging to, or the installation or operation of any brand, machinery or
other apparatus purchased from such non-resident person;
f.
The supply
of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial
undertaking, venture, project of scheme;
g.
The lease of motion picture
(1)
Sale or lease of goods or properties or the performance of
services of non-VAT-registered persons, other than the transactions mentioned in
paragraphs (A) to (U) of Sec. 109
(1) of the Tax Code, the annual sales and/or
receipts of which does not exceed the amount of One Million Five Hundred thousand
Pesos (P1,500,000.00), 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). (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 # HYPERLINK
"http://www.deped.gov.ph/" #Department of Education (DEPED)#, the # HYPERLINK
"http://www.ched.gov.ph" #Commission on Higher Education (CHED)#, the # HYPERLINK
"http://www.tesda.gov.ph/" #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, in-service 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
employer-employee 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 19
49
; and;
(L)
Sales by
agricultural cooperatives duly registered with the # HYPERLINK
"http://www.cda.gov.ph" #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 multi-purpose cooperatives duly registered and in
good standing with the # HYPERLINK "http://www.cda.gov.ph" #Cooperative Development
Authority#;
(N)
Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the # HYPERLINK "http://www.cda.gov.ph"
#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 19
9
2, 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 adjusted to their
present values using the Consumer Price Index, as published by the # HYPERLINK
"http://www.census.gov.ph" #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 # HYPERLINK "http://www.census.gov.ph"
#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. 9
29
5, 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
(((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 # HYPERLINK "http://www.census.gov.ph" #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 19
9
7, Sec. 109
(1), as amended by R. A. No.
9
337; words in italics from Rev. Regs. No. 16-2005, Sec. 4.109
-1 (B), words in
parentheses supplied] 44.
X is engaged in the importation and sale of books and
magazines. Is the importation of books and magazines subject to the 10% VAT?
Explain.
SUGGESTED ANSWER: No. 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;
45.
Is
there any tax to be paid by persons exempt from VAT ?
SUGGESTED ANSWER: Yes.
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 #
HYPERLINK "http://www.census.gov.ph" #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., 29
6 SCRA 309
, 317)
2.
Married individuals, whether citizens, resident or non-resident
aliens, who do not derive income purely from compensation shall file a 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 19
9
7]
3.
Individuals required to file an income tax return.
a.
Every Filipino
citizen residing in the Philippines;
b.
Every Filipino citizen residing
outside the Philippines on his income from sources within the Philippines;
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
19
9
7]
4. 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;
b.
An individual with respect to pure compensation income for
services in whatever form paid, including, but not limited to fees, salaries,
wages, commissions, and similar items, derived from 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: Provided, further, That an
individual whose pure compensation income derived from sources within the
Philippines exceeds Sixty thousand pesos (P60,000.00), shall also file an income
tax return;
c.
An individual whose sole income has been subject to final
withholding tax; d.
An individual who is exempt from income tax pursuant to the
provisions of the NIRC of 19
9
7, and other laws, general or special. [Sec. 51 (A)
(2), NIRC of 19
9
7]
NOTES AND COMMENTS: Amendments under Rep. Act No. 9
504 are
not incouded.
5.
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 19
9
7]
6.
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.
7.
An individual earning from the practice of his
profession or who engages in trade or business files his income tax return and pays
his income tax four (4) times during a single taxable year. Quarterly returns are
required to be filed for the first three quarters, then an annual income tax return
is filed covering the total taxable income for the whole of the previous calendar
year. 8.
The purpose of the above four (4) times a year requirement is to make
available sufficient funds to meet the budgetary requirements, on a quarterly basis
thereby increasing government liquidity. It also eases hardships on the part of
individuals who 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.
9
.
An
individual earning purely compensation income files only one annual income tax
return covering the total taxable compensation income for the whole of the
previous calendar year. 10.
Under the withholding tax system, taxes imposed
or prescribed by the NIRC of 19
9
7 are to be deducted and withheld by the payors
from payments made to payees for the former to pay directly to the Bureau of
Internal Revenue. It is also known as collection of the tax at source.
11.
A withholding agent is explicitly made personally liable under the Tax Code
for the payment of the tax required to be withheld, in order to compel the
withholding agent to withhold the tax under any and all circumstances. In effect,
the responsibility for the collection of the tax as well as the payment thereof is
concentrated upon the person over whom the Government has jurisdiction.
(Filipinas Synthetic Fiber Corporation v. Court of Appeals, et al., G.R. Nos.
11849
8 & 124377, October 12, 19
9
9
) The system facilitates tax collection.
12.
The two (2) types of withholding at source are the 1) final withholding tax;
and 2) creditable withholding tax.
13. Under the final withholding tax
system the amount of income tax withheld by the withholding agent is constituted as
a full and final payment of the income due from the payee on the said income. [1st
sentence, 1st par., Sec. 2.57 (A), Rev. Regs. No. 2-9
8]
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.
14.
Under
the creditable withholding tax system, taxes withheld on certain income payments
are intended to equal or at least approximate the tax due from the payee on the
said income. The income recipient is still required to file an income tax return
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. 2-9
8] 15.
The two kinds of
creditable withholding taxes are (a) taxes withheld on income payments covered by
the expanded withholding tax; and (b) taxes withheld on compensation income.
16.
Payments to the following are exempt from the requirement of
withholding or when no withholding taxes required:
a.
National
Government and its instrumentalities including provincial, city, or municipal
governments;
b.
Persons enjoying exemption from payment of income taxes
pursuant to the provisions of any law, general or special, such as but not limited
to the following: 1)
Sales of real property by a corporation which is registered with and certified by
the HLURB or HUDCC as engaged in socialized housing project where the selling price
of the house and lot or only the lot does not exceed P180,000.00 in Metro Manila
and other highly urbanized areas and P150,000.00 in other areas or such adjusted
amount of selling price for socialized housing as may later be determined and
adopted by the HLURB;
2) Corporations registered with the Board of Investments
and enjoying exemptions from income under the Omnibus Investment Code of 19
9
7;
3)
Corporations exempt from income tax under Sec. 30, of the Tax Code,
like the SSS, GSIS, the PCSO, etc. However, income payments arising from any
activity which is conducted for profit or income derived from real or personal
property shall be subject to a withholding tax. (Sec. 57.5, Rev. Regs. No. 2-9
8)
17.
A erroneously withheld the amount of 15% from the selling price of
books authored by W when the correct rate should have been 10% only. Since W
is out of the country, A applied for a refund of the excess withholding of 5%.
May A properly apply for the refund ? Explain.
SUGGESTED ANSWER: Yes. In
applications for refund, the withholding agent is a taxpayer because if he does not
pay the tax shall be collected from him. (Commissioner of Internal Revenue v.
Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA 377, 383-386),
NOTES AND COMMENTS:
a.
For tax amnesty purposes, the withholding agent
is not a taxpayer because he is made to pay the tax where he fails to withhold as
a penalty and not that the tax is due from him. (Commissioner of Internal Revenue
v. Court of Appeals, et al., G.R. No. 108576, January 20, 19
9
9
, the Anscor case)
PENALTIES, INTERESTS AND SURCHARGES 1.
What are surtaxes or surcharges ?
SUGGESTED ANSWER: 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 19
9
7] 2.
What are the two (2) kinds of
civil penalties ? SUGGESTED ANSWER: a.
the 25% surcharge for late filing or late
payment [Sec. 248 (A), NIRC of 19
9
7] (also known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud surcharge. [Sec. 248 (B), Ibid.]
3.
Define deficiency income tax. SUGGESTED ANSWER: Deficiency income tax
is the amount by which the tax imposed under the NIRC of 19
9
7 exceeds the amount
shown as the tax due by the taxpayer upon his return. [Sec. 56 (B) (1), NIRC of
19
9
7] 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 19
9
7] 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 19
9
7]
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, defined. 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 taxpayer not invokes good faith with
the BIR countering by saying that good faith is not a valid defense for violation
of a special law. Furthermore, the BIR further raises the defense that the
government is not bound by the errors of its agents. Who is correct ? ANSWER: The
taxpayer is correct. The settled rule is that good faith and honest belief that one
is not subject to tax on the basis of previous interpretation of government
agencies tasked to implement the tax, are sufficient justification to delete the
imposition of surcharges. (Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of
Internal Revenue, G. R. No. 166786, September 11, 2006)REPUBLIC ACT NO. 1125,
CREATING THE COURT OF TAX APPEALS INCLUDING JURISDICTION OF THE CTA, AS AMENDED
1.
The Court of Tax Appeals is the special tax court created under
Republic Act No. 1125, as amended, and is composed of a Presiding Justice and
eight (8) Associate Justices, organized into three (3) divisions.
2.
Why
was the Court of Tax Appeals created ?
SUGGESTED ANSWER: a.
To prevent delay
in the disposition of tax cases by the then Courts of First Instance (now RTCs), in
view of the backlog of civil, criminal, and cadastral cases accumulating in the
dockets of such courts; and
b.
To have a body with special knowledge which
ordinary Judges of the then Courts of First Instance (now RTCs), are not likely to
possess, thus providing for an adequate remedy for a speedy determination of tax
cases. (Ursal v. Court of Tax Appeals, et al., 101 Phil. 209
; Lacsamana, et al.,
etc., v. CTA, et al., 102 Phil. 9
31)
3.
The legal remedies under the
NIRC of 19
9
7 and other laws available to an aggrieved taxpayer may be classified
into the tax remedies with respect to:
a.
assessment;
b.
collection,
and
c.
refund of internal revenue taxes. The remedies may also be classified
into the administrative or the judicial remedies.
((4. The legal remedies
under the NIRC of 19
9
7 available to an aggrieved taxpayer at the administrative
level with respect to assessment of internal revenue taxes are the following:
a.
Upon receipt of a pre-assessment notice, the taxpayer shall respond to
the same within fifteen (15) days from receipt which is the period provided for by
implementing rules and regulations. [3rd par., Sec. 228 (e), NIRC of 19
9
7] b.
Upon the issuance of an assessment notice, the taxpayer shall protest
administratively by filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations.
c. Within sixty (60) days
from the filing of the protest, all relevant supporting documents shall be
submitted; otherwise the assessment shall become final. (4th par., Ibid.)
((5.
The legal remedies under the NIRC of 19
9
7 available to an aggrieved taxpayer at the
judicial level with respect to assessment of internal revenue taxes: a. If the
protest is denied in whole or in part, or b. is not acted upon within one hundred
eighty (180) days from submission of documents, c. 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 said decision, or from the lapse of the one hundred
eighty (180) day period; otherwise, the decision shall become final, executory
and demandable. [last par., Sec. 228 (e), NIRC of 19
9
7]d. On appeal, the taxpayer
should apply for the issuance of a writ of preliminary injunction to enjoin the BIR
from collecting the tax subject of the appeal.e. A decision of a division of the
Court of Tax Appeals adverse to the taxpayer or the government may be the subject
of a motion for reconsideration or new trial, a denial of which is appealable to
the Court of Tax Appeals en banc by means of a petition for review. f. A
decision of the Court of Tax Appeals en banc adverse to the taxpayer or the
government may be appealed to the Supreme Court through a petition for review on
certiorari filed with fifteen (15) days from notice, and extendible for justifiable
reasons for thirty (30) days only.
6. The legal remedy under the NIRC of
19
9
7 available to an aggrieved taxpayer at the administrative level with respect to
refund or recovery of tax erroneously or illegally collected, is to file a claim
for refund or credit with the Commissioner of Internal Revenue. (1st par., Sec.
229
, NIRC of 19
9
7)
((7.
What is the legal remedy under the NIRC of 19
9
7 at
the judicial level with respect to refund or recovery of tax erroneously or
illegally collected ?
SUGGESTED ANSWER. The legal remedy under the NIRC of 19
9
7
at the judicial level with respect to refund or recovery of tax erroneously or
illegally collected, is the filing of a suit or proceeding with the Court of Tax
Appealsa. before the expiration of two (2) years from the date of payment of the
tax regardless of any supervening cause that may arise after payment (2nd par.,
Sec. 229
, NIRC of 19
9
7), orb. within thirty (30) days from receipt of the denial
by the Commissioner of the application for refund or credit. (Sec. 11, R.A. No.
1125)((8. 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, 19
89
, unrep.)((9
.
Where the taxpayer is a corporation the two year prescriptive period from date of
payment for refund of income taxes should be the date when the corporation filed
its final adjustment return not on the date when the taxes were paid on a quarterly
receipt of the adverse decision, or from the lapse of the one hundred eighty (180-)
day period, with an application for the issuance of a writ of preliminary
injunction to enjoin the BIR from collecting the tax subject of the appeal. If the
taxpayer fails to so appeal, the denial of the Commissioner or the inaction of the
Commissioner would result to the notice of assessment becoming final and
collectible and the BIR could then utilize its administrative and judicial remedies
to collect the tax.i. A decision of a division of the Court of Tax Appeals
adverse to the taxpayer or the government may be the subject of a motion for
reconsideration or new trial, a denial of which is appealable to the Court of Tax
Appeals en banc by means of a petition for review. . The Court of Tax Appeals, has
a period of twelve (12) months from submission of the case for decision within
which to decide.j. If the decision of the Court of Tax Appeals en banc affirms the
denial of the protest by the Commissioner or the assessment in case of failure by
the Commissioner to decide the taxpayer must file a petition for review on
certiorari with the Supreme Court within fifteen (15) days from notice of the
judgment on questions of law. An extension of thirty (30) days may for
justifiable reasons be granted. If the taxpayer does not so appeal, the decision
of the Court of Tax Appeals would become final and this has the effect of making
the assessment also final and collectible. The BIR could then use its
administrative and judicial remedies to collect the tax.(( 11.
Requisites for
Formal Letter of Demand and Assessment Notice. The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayers
deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent to the taxpayer
only by registered mail or by personal delivery.
11-A..
What is the burden
of taxpayers seeking tax refunds or credits ? SUGGESTED ANSWER: It has always
been the rule that those seeking tax refunds or credits bear the burden of proving
the factual basis of their claims and of showing, by words too plain to be
mistaken, that the legislature intended to entitle them to such claims. (Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal
Revenue, G. R. No. 145526, March 16, 2007, See Commissioner of Internal Revenue v.
Seagate Technology (Philippines) G. R. No. 153866, 11 February 2005, 451 SCRA 132)
12.
What is the nature of proceedings before the Court of Tax Appeals ?
SUGGESTED ANSWER:
First, a judicial claim for refund or tax credit in
the CTA is by no means an original action, but rather an appeal by way of petition
for review of a previous, unsuccessful administrative claim.
Therefore, as in
every appeal or petition for review, a petitioner has to convince the appellate
court that the quasi-judicial agency a quo did not have any reason to deny its
claims.
Second, cases filed in the CTA are litigated de novo. Thus, a
petitioner should prove every minute aspect of its case by presenting, formally
offering and submitting its evidence to the CTA.
Since it is crucial for a
petitioner in a judicial claim for refund or tax credit to show that its
administrative claim should have been granted in the first place, part of the
evidence to be submitted to the CTA must necessarily include whatever is required
for the successful prosecution of an administrative claim. (Atlas Consolidated
Mining and Development Corporation v. Commissioner of Internal Revenue, G. R. No.
145526, March 116, 2007)
((13. What is the jurisdiction of the Court of Tax
Appeals ?
SUGGESTED ANSWER: 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
Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.
(Sec. 7, R. A. No. 1125, as amended by R. A. No. 9
282, emphasis and words in
parentheses supplied)
The petition for review to be filed with the
CTA en banc as the mode for appealing a decision, resolution, or order of the CTA
Division, under Section 18 of Republic Act No. 1125, as amended, is not a totally
new remedy, unique to the CTA, with a special application or use therein. To the
contrary, the CTA 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)
13-A. General rule: The denial of
a motion to quash is an interlocutory order which is not the proper subject of an
appeal or a petition for certiorari. According to Section 1, Rule 41 of the
Revised Rules of Court, governing appeals from the Regional Trial Courts (RTCs) to
the Court of Appeals, an appeal may be taken only from a judgment or final order
that completely disposes of the case or of a matter therein when declared by the
Rules to be appealable. Said provision, thus, explicitly states that no appeal may
be taken from an interlocutory order. (Santos v. People, et al, G. R. No. 173176,
August 26, 2008)
14.
Applicability of Proton Pilipinas Corporation vs.
Republic, etc., G. R. No. 165027, October 16, 2006. The case was decided on
factual antecedents before R. A. No. 9
282 which grants criminal jurisdiction to the
Court of Tax Appeals if the value of the tax is P1 million or more.
Interpreting
the provisions of Republic Act No. 8249
, which provides that the civil action for
recovery of civil liability should be jointly determined in the criminal proceeding
by the Sandiganbayan or appropriate courts, the prohibition of reservation of the
criminal aspect, the Supreme Court said that tax collection cases may be tried
separately, and not before the Sandiganbayan in Rep. Act No. 3019
cases. This is
so because, Rep. Act No. 3019
is silent on the definition of civil liability and
the application of Art. 104 of the Revised Penal Code does not cover taxes.
Consequently, the Supreme Court ruled that on the tax collection case the RTC would
have jurisdiction.
Interpretation by the author in the light of Rep. Act.
9
282. If it is a criminal case cognizable by the Sandiganbayan, then this court
retains jurisdiction, with the civil jurisdiction being cognizable by the CTA or
the lower courts depending on the amount. If the issue is a purely tax case, even
if it involves cases cognizable by the Sandiganbayan, then jurisdiction vests upon
the CTA or the lower courts depending on the amount of the tax. (( 15.
On
January 24, 19
9
5, the then Secretary of Finance, through the recommendation of the
then Commissioner of Internal Revenue issued Revenue Regulations [Rev. Reg.] No. 19
5, providing the Rules and Regulations to Implement the Tax Incentives Provisions
Under Paragraphs (b) and (c) of Section 12, [R.A.] No. 7227, [o]therwise known as
the Bases Conversion and Development Act of 19
9
2. Subsequently, Rev. Reg. No. 129
7 was issued providing for the Regulations Implementing Sections 12(c) and 15 of
[R.A.] No. 7227 and Sections 24(b) and (c) of [R.A.] No. 79
16 Allocating Two
Percent (2%) of the Gross Income Earned by All Businesses and Enterprises Within
the Subic, Clark, John Hay, Poro Point Special Economic Zones and other Special
Economic Zones under PEZA. On September 27, 19
9
9
, Rev. Reg. No. 16-9
9
was issued
Amending [RR] No. 1-9
5, as amended, and other related Rules and Regulations to
Implement the Provisions of paragraphs (b) and (c) of Section 12 of [R.A.] No.
7227, otherwise known as the Bases Conversion and Development Act of 19
9
2
Relative to the Tax Incentives Granted to Enterprises Registered in the Subic
Special Economic and Freeport Zone.On June 3, 2003, the Commissioner of Internal
Revenue issued Revenue Memorandum Circular (RMC) No. 31-2003 setting the Uniform
Guidelines on the Taxation of Imported Motor Vehicles through the Subic Free Port
Zone and Other Freeport Zones that are Sold at Public Auction, which provided for
the tax treatments on the transactions involved in the importation of motor
vehicles through the SSEFZ and other legislated Freeport zones and subsequent sale
thereof through public auction. This was later amended by RMC No. 32-2003.Asia
International Auctioneers and others filed a complaint before the RTC of Olongapo
City, to declare Void, Ultra Vires, and Unconstitutional [RMC] No. 31-2003 dated
June 3, 2003 and [RMC] No. 32-2003 dated June 5, 2003, Rev. Reg. Nos. 1-9
5, 12-9
7
and 16-9
9
dated January 24, 19
9
5, August 7, 19
9
7 and September 27, 19
9
9
,
respectively, They contended that jurisdiction over the case at bar properly
pertains to the regular courts as this is an action to declare as
unconstitutional, void and against the provisions of [R.A. No.] 7227 the RMCs
issued by the CIR. They do do not challenge the rate, structure or figures of
the imposed
taxes, rather they challenge the authority of the respondent Commissioner to
impose and collect the said taxes. They also claim that the challenge on the
authority of the CIR to issue the RMCs does not fall within the jurisdiction of the
Court of Tax Appeals (CTA). Does the RTC have jurisdiction ?SUGGESTED ANSWER: No.
It is the Court of Tax Appeals that has exclusive jurisdiction.In the case at bar,
the assailed revenue regulations and revenue memorandum circulars are actually
rulings or opinions of the CIR on the tax treatment of motor vehicles sold at
public auction within the SSEZ to implement Section 12 of R.A. No. 7227 which
provides that exportation or removal of goods from the territory of the [SSEZ] to
the other parts of the Philippine territory shall be subject to customs duties and
taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines. They were issued pursuant to the power of the CIR under Section 4 of
the National Internal Revenue Code, viz:Section 4. Power of the Commissioner to
Interpret Tax Laws and to Decide Tax Cases.-- The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the Secretary of
Finance.The power to decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under this Code or other laws or portions thereof administered by
the Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals. (as amended by the
NIRC of 19
9
7, emphases supplied, Asia International Auctioneers, Inc., etc et
al., .v. Parayno, Jr., etc.,, et al., G. R. No. 103445, December 18, 2007)
NOTES
AND COMMENTS: The author disputes this doctrine. The decisions of the Commission
under other matter refers to the quasi-judicial decisions and not to the quasilegislative powers of the Commissioner. ((16. What is the characteristic of a BIR
denial of a protest such as would enable the taxpayer to appeal the same to the
Court of Tax Appeals ? SUGGESTED ANSWER: The Commissioner of Internal Revenue
should always indicate to the taxpayer in clear and unequivocal language whenever
his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment.
On the basis of his statement
indubitably showing that the Commissioners communicated action is his final
decision on the contested assessment, the aggrieved taxpayer would then be able to
take recourse to the tax court at the opportune time. Without needless difficulty,
the taxpayer would be able to determine when his right to appeal to the tax court
accrues. (Commissioner of Internal Revenue v. Bank of the Philippines Islands, G.
R. No. 134062, April 17, 2007 citing Oceanic Wireless Network, Inc. v. Commissioner
of Internal Revenue, G. R. No. 148380, 9
December 2005, 477 SCRA 205, 211-212,
citing Surigao Electric Co., Inc. v. Court of Tax Appeals, G. R. No. L-254289
, 28
June 19
74, 57 SCRA 523) NOTES AND COMMENTS:
a.
Reasons for the rule
requiring CIRs unequivocal language on his action on the protest.
1)
It would obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment and, consequently, the
collection of the amount demanded as taxes by repeated requests for recomputation
and reconsideration.
2)
On the part of the Commissioner of Internal
Revenue, this would encourage his office to conduct a careful and thorough study of
every questioned assessment and render a correct and define decision thereon in the
first instance.
3)
This would also deter the Commissioner of Internal
Revenue from unfairly making the taxpayer grope in the dark and speculate as to
which action constitutes the decision appealable to the tax court.
4)
Of greater import, this rule of conduct would meet a pressing need for fair
Corporation, G.R. No. 135210, July 11, 2001)b. Where the Commissioner has not
acted on an application for refund or credit and the two year period from the time
of payment is about to expire, the taxpayer has to file his appeal with the Court
of Tax Appeals before the expiration of two years from the time the tax was paid.
It is disheartening enough to a taxpayer to be kept waiting for an indefinite
period for the ruling,. It would make matters more exasperating for the taxpayer
if the doors of justice would be closed for such a relief until after the
Commissioner, would have, at his personal convenience, given his go signal.
(Commissioner of Customs, et al, v. Court of Tax Appeals, et al., G.R. No. 82618,
March 16, 19
89
, unrep.)
(( 20.
Instances where the Court of Tax Appeals
would have jurisdiction even if there is no decision of the Commissioner of
Customs:
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.
(( 21. As a general rule,
No court shall have the authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge. (Sec. 218, NIRC)
No appeal taken to the CTA from the decision of the Commissioner of Internal
Revenue or the Commissioner of Customs or the Regional Trial Court, provincial,
city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and
Industry and Secretary of Agriculture, as the case may be shall suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the aforementioned
government agencies may jeopardize the interest of the Government and/or the
taxpayer the Court at any stage of the 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. 9
282 ) 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.
The Supreme Court
did not grant the provisional remedy prayed for in Southern Cross Cement
Corporation v. The Philippine Cement Manufacturers Corp., et al., G. R. No. 158540,
July 8, 2004 for it would be tantamount to enjoining the collection of taxes, a
peremptory judicial act which is traditionally frowned upon unless there is a clear
statutory basis for it. Evident is the clear legislative intent that the
imposition of safeguard measures, despite the availability of judicial review,
should not be enjoined notwithstanding any timely appeal of the imposition. This
so because the Safeguard Measures Act states that the filing of a petition for
review before the CTA does not stop, suspend, or otherwise toll the imposition or
collection of the appropriate tariff duties or the adoption of other appropriate
safeguard measures. 22.
General rule: 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 barrier to proof. [Commissioner
of Internal Revenue v. Hantex Trading Co., Inc. G. R. No. 1369
75, March 31, 2005
citing United States v. Johnson, 319
U.S. 1233 (19
43)] However, the rule does not
apply where the estimation is arrived at arbitrarily and capriciously.
[Commissioner of Internal Revenue v. Hantex Trading Co., Inc., citing United States
v. Rindskopf, 105 U.S.418 (1881)] 23. Meaning of "best evidence obtainable"
under Sec. 6 (B), NIRC of 19
9
7. This means that the original documents must
be produced. If it could not be produced, secondary evidence must be adduced.
are due from the said taxpayer bank without any findings of law or fact but
supported only with a computation. On December 10, 19
88, the taxpayer bank counsel
filed a letter that as soon as this is explained and clarified in a proper notice
of assessment, we shall inform you of the taxpayers decision on whether to pay or
protest the assessment. The taxpayer bank insists that the assessment was not
valid. Of course, BIR took the opposite view contending further that there was no
seasonable protest, hence the tax is sue and
collectible.
Who is correct ?
SUGGESTED ANSWER: The BIR is correct. Under the old law Sec. 270, it is
enough merely that the BIR Commissioner shall notify the taxpayer of his findings
The taxpayer bank counsels December 10, 19
88 letter is not a seasonable
protest because it was filed thirty (30) days after receipt of the assessment on
October 28, 19
88. (Commissioner of Internal Revenue v. Bank of Philippine Islands,
G. R. No. 134062, April 17, 2007) NOTES AND COMMENTS: The statement, The
taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise the assessment shall be void is an amendment to Sec.
270 (now renumbered to Sec. 228) which took effect only on January 1, 19
9
8 upon the
effectivity of the Tax Reform Act of 19
9
7.
33.
What are the prescriptive
periods for making assessments of internal revenue taxes ?
SUGGESTED ANSWER:
a.
Three (3) years from the last day within which to file a return or when the
return was actually filed, whichever is later (Sec. 203, NIRC of 19
9
7). The CIR
has three (3) years from the date of actual filing of the tax return to assess a
national internal revenue tax or to commence court proceedings for the collection
thereof without an assessment. [Bank of Philippine Islands (Formerly Far East Bank
and Trust Company) v. Commissioner of Internal Revenue, G. R. No. 1749
42, March 7,
2008] 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 19
9
7) ; orc.
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 19
9
7).
(( 34.
Purpose of period of limitations in taxation. For the purpose of
safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of
taxes. [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, 19
9
9
,
303 SCRA 546; Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.
R. No. 162852, December 16, 2004;], as well as their assessments.
The law
prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because
tax officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have
a feeling of security against unscrupulous tax agents who will always find an
excuse to inspect the books of taxpayers, not to determine the latters real
liability, but to take advantage of every opportunity to molest peaceful, lawabiding citizens. Without such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to
harassment by unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law. [Republic of the Philippines
v. Ablaza, 108 Phil. 1105, 1108, cited in Bank of Philippine Islands (Formerly Far
East Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No. 1749
42,
March 7, 2008] 35.
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)
Laws on
prescription should be liberally construed in favor of the taxpayer. Reason: for
the purpose of safeguarding taxpayers from an unreasonable examination,
investigation or assessment, our tax laws provide a statute of limitation on the
Internal Revenue examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax assessments.
(Commissioner of Internal Revenue v. Bank of Philippine Islands., G, R. No. 134062,
April 17, 2007 citing Sy Po v. Court of Appeals, G. R. No. L-81446, 18 August 19
88,
164 SCRA 524, 530, citations omitted)
40. What are the reasons for presumption
of correctness of assessments ?
SUGGESTED ANSWER:
a.
Lifeblood
theory
b.
Presumption of regularity (Commissioner of Internal Revenue v.
Hantex Trading Co., Inc., G, R. No. 1369
75, March 31, 2005) in the performance of
public functions. (Commissioner of Internal Revenue v. Tuazon, Inc., 173 SCRA 39
7)
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 (19
73). The certiorari was denied by the United States Supreme
Court on November 19
, 19
73)
d.
The desirability of bolstering the recordkeeping requirements of the NIRC. (Ibid.)
( 41. Give instances where prima
facie correctness of a tax assessment does not apply. SUGGESTED ANSWER: The prima
facie correctness of a tax assessment does not apply upon proof that an assessment
is utterly without foundation, meaning it is arbitrary and capricious. Where the
BIR has come out with a naked assessment i.e., without any foundation character,
the determination of the tax due is without rational basis. [Commissioner of
Internal Revenue v. Hantex Trading Co., Inc., G, R. No. 1369
75, March 31, 2005
citing United States v. Janis, 49
L. Ed. 2d 1046 (19
76); 428 US 433 (19
76)] In
such a situation, the determination of the Commissioner contained in a deficiency
notice disappears. [Commissioner of Internal Revenue, supra citing a U.S. Court of
Appeals ruling, in Clark and Clark v. Commissioner of Internal Revenue, 266 F. 2d
69
8 (19
59
)] Hence, the determination by the CTA must rest on all the evidence
introduced and its ultimate determination must find support in credible evidence.
[Commissioner of Internal Revenue, supra]
(( 42.
What are the instances
that suspends the running of the prescriptive periods (Statute of Limitations)
within which to make an assessment and the beginning of distraint or levy or of a
proceeding in court for the collection, in respect of any tax deficiencies?
SUGGESTED ANSWER: a. When the Commissioner is prohibited from making the
assessment, or beginning distraint, or levy or proceeding in court and for sixty
(60) days thereafter;
b. When the taxpayer requests for and is granted a
reinvestigation by the commissioner;
c. When the taxpayer could not be
located in the address given by him in the return filed upon which the tax is being
assessed or collected; d. When the warrant of distraint and levy is duly served
upon the taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and
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, 19
9
9
(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 19
9
7 which provides for
the suspension of the prescriptive period:
(( 43.
The signatures of both
the Commissioner and the taxpayer, are required for a waiver of the prescriptive
period, thus a unilateral waiver on the part of the taxpayer does not suspend the
prescriptive period. [Commissioner of Internal Revenue v. Court of Appeals, et
al., G.R. No. 115712, February 25, 19
9
9
(Carnation case)] 44.
The act of
requesting a reinvestigation alone does not suspend the running of the prescriptive
period. The request for reinvestigation must be granted by the CIR. The 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. 1749
42, March 7, 2008]
45.
Philippine Journalists, Inc. (PJI) filed its Annual Income Tax Return
for the calendar year ended December 31, 19
9
4 which showed a net income of P30
million and the tax due as P10 million. An examination of PJIs books of account
and other accounting records for the period January 1, 19
9
4 to December 31, 19
9
4
showed deficiency VAT, Income Tax and Withholding Tax in the total amount of P1`27
million. During the September 22, 19
9
7 informal conference with the Revenue
District Officer, PJIs Comptroller executed a waiver of statute of limitations
provided for under sections 223 and 224 of the NIRC. On October 5, 19
9
8, the BIR
issued a Pre-Assessment Notice which was followed by Assessment/Demand No.33-1000757-9
4 stating a total deficiency taxes in the amount of P111 million for income
tax, VAT and expanded withholding taxes, inclusive of interest and compromise
penalty.
On March 16, 19
9
9
, the BIR sent to PJI a Preliminary Collection Letter
to pay the assessment within 10 days from receipt. On November 10,19
9
9
, a Final
Notice Before Seizure was issued giving PJI 10 days from receipt within which to
pay. PJI received the final notice on November 24, 19
9
9
and on November 26, 19
9
9
PJI asked that it be clarified on how the tax liability of P111 million was arrived
at and requested for an extension of 30 days from receipt of the clarification
within which to reply. PJI, through a follow-up letter, asserted it never received
Assessment/Demand No. 33-1-000757-9
4. On March 28, 2000 PJI received a Warrant of
Distraint and/or Levy. PJI then appealed to the CTA. The following issues are for
resolution in the appeal:
a.
Does the CTA have jurisdiction over the
appeal ?
b.
Was the Waiver of the Statute of Limitations valid ? c.
Were
the Assessment/Demand and the Warrant of Distraint and/or Levy valid ?
Will
the appeal prosper? Explain briefly your answer. SUGGESTED ANSWER: Yes, it will
prosper.
a.
The CTA has jurisdiction to determine if the warrant of distraint
and levy issued by the BIR is valid and to rule if the Waiver of the Statute of
Limitations was validly effected. This is so because the CTA has exclusive
appellate jurisdiction to review by appeal decisions of the Commissioner of
Internal Revenue in cases involving other matters arising under the National
Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue. [Sec. 7 (a) (1). R. A. No. 1125, as amended by R. A. No. 9
282) Thus it
was previously ruled that the CTA had jurisdiction to act on a petition to
invalidate and annul the distraint orders of the Commissioner. [Ynares-Santiago, J.
Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G. R. No. 162852,
December 16, 2004 citing Panrtoja v. David, 111
Phil. 19
7; 1 SCRA 608 (19
61)] Likewise upheld by the Supreme Court was the
decision of the CTA declaring several waivers executed by the taxpayer as null and
void, thus invalidating the assessments issued by the BIR. (Ibid., citing
Commissioner of Internal Revenue v. Court of Appeals, G. R. No. 115712, 25 February
19
9
9
, 303 SCRA 614)
b.
The Waiver of the Statute of Limitations is not valid
because it did not specify a definite agreed date between the BIR and PJI, within
which the former may assess and collect revenue taxes.
Furthermore, the waiver
is also defective from the government side because it was signed only by a revenue
district officer, and not the Commissioner, as so required. Finally, PJI was not
furnished a copy of the waiver.
c.
The waiver document is incomplete
and defective and thus the three-year prescriptive period within which to assess
was not tolled or extended and continued to run until April 17, 19
9
8.
Consequently, Assessment/Demand No. 33-1-000757-9
4 issued on December 9
, 19
9
8 was
invalid because it was issued beyond the three (3) year period. In the same
manner, the Warrant of Distraint and/or Levy which PJI received on March 28, 2000
is also null and void for having been issued pursuant to an invalid assessment.
(Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G. R. No.
162852, December 16, 2004)
(( 46.
What are the two ways of protesting an
assessment notice for an internal revenue tax ? Alternatively, what are the two
types of protests ? Explain briefly.
SUGGESTED ANSWER: a.
Request for
reconsideration which refers to a plea for re-evaluation of an assessment on the
basis of existing records without need of additional evidence. It may involve both
a question of fact or of law or both.
b.
Request for reinvestigation which
refers to a plea for re-evaluation of an assessment on the basis of newlydiscovered 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) (( 47.
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 ?
SUGGESTED ANSWER: It is that type of protest when the taxpayer requests for
a reinvestigation which is granted by the Commissioner (Sec. 223, NIRC of 19
9
7),
that suspends the running of the statute of limitations for collection of the tax.
(Commissioner of Internal Revenue v. Philippine Global Communication, Inc., G. R.
No. 167146, October 31, 2006 citing Sec. 271, now Sec. 223, NIRC of 19
9
7) When a
taxpayer demands a reinvestigation, the time employed in reinvestigation should be
deducted from the total period of limitation. [Commissioner of Internal Revenue,
supra citing Republic v. Lopez, 117 Phil. 575, 578; 7 SCRA 566, 568-569
(19
63)]
Undoubtedly, a reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax assessment
which will be limited to the evidence already at hand; this justifies why the
former can suspend the running of the statute of limitations on collection of the
assessed tax, while the latter cannot. (Commissioner of Internal Revenue v.
Philippine Global Communication, Inc., G. R. No. 167146, October 31, 2006 citing
Bank of Philippine Islands v. Commissioner of Internal Revenue, G. R. No. 139
736,
17 October 2005, 473 SCRA 205, 230-231) (( 48.
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 deficiency tax or taxes attributable thereto.
(Sec. 3.1.5, Rev. Regs. 12-9
9
)
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 19
9
7]
49
.
What is the procedure for suspension of
collection of taxes ?
SUGGESTED ANSWER: Where the collection of the amount of
the taxpayers liability, sought by means of a demand for payment, by levy,
distraint or sale of property of the taxpayer, or by whatever means, as provided
under existing laws, may jeopardize the interest of the government or the taxpayer,
an interested party may file a motion for the suspension of the collection of the
tax liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with the Court
of Tax Appeals.
The motion for suspension of the collection of the tax may be
filed together with the petition for review or with the answer, or in a separate
motion filed by the interested party at any stage of the proceedings. (Sec. 3,
Rule 10, RRCTA effective December 15, 2005)
(( 50. 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)
(( 50-A.
What tax
cases may be the subject of a 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) (( 51. What tax cases could
not be the subject of compromise ?SUGGESTED ANSWER:a. Withholding tax cases unless
the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayers
obligation to withhold.;b. Criminal tax fraud cases, confirmed as such by the
Commissioner of Internal Revenue or his duly authorized representative;
c.
Criminal violations already filed in court; d. Delinquent accounts with duly
approved schedule of installment payments;e. Cases where final reports of
reinvestigation or reconsideration have been issued resulting to reduction in the
original assessment and the taxpayer is agreeable to such decision by signing the
required agreement form for the purpose. On the other hand, other protested cases
shall be handled by the Regional Evaluation Board (REB) or the National Evaluation
Board (NEB) on a case to case basis;f. Cases which become final and executory
after final judgment of a court where compromise is requested on the ground of
doubtful validity of the assessment; andg. Estate tax cases where compromise is
requested on the ground of financial incapacity of the taxpayer. (Sec. 2, Rev.
Regs. No. 30-2002)(( 52. The Commissioner may compromise the payment of any
internal revenue tax when:a. A reasonable doubt as to the validity of the claim
against the taxpayer exists provided that the minimum compromise entered into is
equivalent to forty percent (40%) of the basic tax; orb. The financial position of
the taxpayer demonstrates a clear inability to pay the assessed tax provided that
the minimum compromise entered into is equivalent to ten percent (10%) of the basic
assessed tax
In the above instances the Commissioner is allowed to enter into
a compromise only if the basic tax involved does not exceed One million pesos
(P1,000,000.00), and the settlement offered is not less than the prescribed
percentages. [Sec. 204 (A), NIRC of 19
9
7]
In instances where the Commissioner
is not authorized, the compromise shall be subject to the approval of the
Evaluation Board composed of the Commissioner and the four (4) Deputy
Commissioners.
(( 53. The Commissioner of Internal Revenue is authorized to
abate or cancel a tax liability, when:
a. The tax or any portion thereof
appears to be unjustly or excessively assessed; or
b. The administration and
collection costs involved do not justify the collection of the amount due. [Sec.
204 (B), NIRC of 19
9
7]
54.
What is the prescriptive period for collecting
internal revenue taxes ?
SUGGESTED ANSWER: There are four (4) prescriptive
periods for the collection of an internal revenue tax:
a.
Collection upon a
false or fraudulent return or no return without assessment. In case of a false or
fraudulent return with the intent to evade tax or of failure to file a return, a
proceeding in court for the collection of such tax may be filed without assessment,
at any time within ten (10) years after the discovery of the falsity, fraud
or omission. [Sec. 222 (a), NIRC of 19
9
7)
b.
Collection upon a false or
fraudulent return or no return with assessment. Any internal revenue tax which has
been assessed (because the return is false or fraudulent with intent to evade tax
or of failure to fail a return), within a period of ten (10) years from discovery
of the falsity, fraud or omission may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
[Sec. 222 (c), in relation to Sec. 222 (a) NIRC of 19
9
7, emphasis supplied) 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 19
9
7, 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 19
9
7, emphasis supplied)
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.
1749
42, March 7, 2008 citing
BPI v. Commissioner of Internal Revenue, G.R. No.
139
736, 17 October 2005, 473 SCRA 205, 222-223) NOTES AND COMMENTS:
a.
Both
the former Sec. 269
, NIRC of 19
77 and Sec.222 of NIRC of 19
9
7 do not refer to a
regular return. It is clear that in enacting Sec. 222, entitled Exceptions as
to the period of limitation of assessment and collection of taxes, the NIRC of
19
9
7 has eliminated sub-paragraph c of the former Sec. 269
of the NIRC, also
entitled Exceptions as to the period of limitation of assessment and collection of
taxes. Said Sec. 269
(c), reads Any internal revenue tax which has been assessed
within the period of limitation above-prescribed may be collected by distraint or
levy or by a proceeding in court within three years following the assessment of the
tax.
A perusal of Sec. 222 of the NIRC is clear that it covers only three
scenarios only. 1) No assessment was made upon a false or fraudulent return or
omission to file a return; 2) an assessment was made upon a false or fraudulent
return or omission to file a return; and 3) an extended assessment issued within a
period agreed upon by the Commissioner and the taxpayer. The same scenarios are
those referred to in the former Sec. 269
which provided for a prescriptive period
for collection of three (3) years. It is clear therefore that neither Sec. 222
nor the former Sec. 269
provide for an instance where the assessment was made upon
a regular return or one that is not false or fraudulent, or that there was an
agreement to extend the period for assessment. Resort should therefore be made to
the three (3) year period referred to in Sec. 203 of the NIRC of 19
9
7 which reads,
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 x x
x (paraphrasing and emphasis supplied) 55.
What is solutio indebeti as applied
to tax cases ?
SUGGESTED ANSWER: This is erroneous payment of taxes and occurs
when the taxpayer pays under a mistake of fact, as for the instance in a case where
he is not aware of an existing exemption in his favor at the time the payment was
made. Such payment is held to be not voluntary and therefore, can be recovered or
refunded. (Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation, G. R. No. 14729
5, February 16, 2007)
NOTES AND COMMENTS:
Technicalities and legalisms, however exalted, should not be misused by the
government to keep money not belonging to it, thereby enriching itself at the
expense of its law-abiding citizens. State Land Investment Corporation v.
Commissioner of Internal Revenue, G. R. No. 1719
56, January 18, 2008 citing BPIFamily Savings Bank, Inc. v. Court of Appeals, G.R. No. 122480, April 12, 2000, 330
SCRA 507.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 supra citing Citibank, N. A. v. Court of Appeals and Commissioner
of Internal Revenue, G.R. No. 107434, October 10, 19
9
7, 280 SCRA 459
, in turn
citing Ramie Textiles, Inc. v. Mathay, Sr., 89
SCRA 586 (19
79
). 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.)
56.
What are the reasons
for requiring the filing of an administrative application for refund or credit with
the BSUGGESTED (( 56.
The filing of an administrative claim for refund with the
BIR, before filing a case with the Court of Tax Appeals, is necessary for the
following reasons:a. To afford the Commissioner an opportunity to correct his
errors or that of subordinate officers. (Gonzales v. Court of Tax Appeals, et al.,
14 SCRA 79
)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. (Bermejo v. Collector, G.R. No. L-3028, July 28, 19
50)
((57.
As a general rule the filing of an application for refund or credit with
the Bureau of Internal Revenue is an administrative precondition before a suit may
be filed with the Court of Tax Appeals. Is there any exception ?
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 an
assessment was disputed but the protest 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
Agustin., etc., v. Commissioner of Internal Revenue, G.R. No. 138485, September 10,
2001 citing Roman Catholic Archbishop of Cebu v. Collector of Internal Revenue, 4
SCRA 279
)NOTE: Reconciliation between above two numbers (56 and 57). An
application for refund or credit under Sec. 229
of the NIRC of 19
9
7 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.58. What is the nature of the taxpayers remedy of
either to ask for a refund of excess tax payments or to apply the same in payment
of succeeding taxable periods taxes ?SUGGESTED ANSWER: Sec. 69
of the 19
77 NIRC
(now Sec. 76 of the NIRC of 19
9
7) provides that any excess of the total quarterly
payments over the actual income tax computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to the corporation, or (b) may be
credited against the estimated quarterly income tax liabilities for the quarters of
the succeeding taxable year. To ease the administration of tax collection, these
remedies are in the alternative and the choice of one precludes the other. Since
the Bank has chosen the tax credit approach it cannot anymore avail of the tax
refund. (Philippine Bank of Communications v. Commissioner of Internal Revenue, et
al., G.R. No. 112024, January 28, 19
9
9
) NOTES AND COMMENTS:
a.
The choice,
is given to the taxpayer, whether to claim for refund under Sec. 76 or have its
excess taxes applied as tax credit for the succeeding taxable year, such election
is not final. Prior verification and approval by the Commissioner of Internal
Revenue is required. The availment of the remedy of tax
credit is not absolute and mandatory. It does not confer an absolute right on the
part of the taxpayer to avail of the tax credit scheme if it so chooses. Neither
does it impose a duty on the part of the government to sit back and allow an
important facet of tax collection to be at the sole control and discretion of the
taxpayer. (Paseo Realty & Development Corporation v. Court of Appeals, et al., G.
R. No. 119
286, October 13, 2004)
((59
. What is the irrevocability rule in
claims for refund and what is the rationale behind this ?
SUGGESTED ANSWER:
A corporation entitled to a tax credit or refund of the excess estimated quarterly
income taxes paid has two options: (1) to carry over the excess credit or (2) to
apply for the issuance of a tax credit certificate or to claim a cash refund. If
the option to carry over the excess credit is exercised, the same shall be
irrevocable for that taxable period.
In exercising its option, the corporation
must signify in its annual corporate adjustment return (by marking the option box
provided in the BIR form) its intention either to carry over the excess credit or
to claim a refund. To facilitate tax collection, these remedies are in the
alternative and the choice of one precludes the other. [Systra Philippines, Inc.,
v. Commissioner of Internal Revenue, G. R. No. 17629
0, September 21, 2007 citing
Philippine Bank of Communications v. Commissioner of Internal Revenue, 361 Phil.
9
16 (19
9
9
)]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, Inc., supra citing De Leon, Hector, The National
Internal Revenue Code, Seventh Edition, 2000, p. 430)60.
In the year 2000 Systra
derived excess tax credits and exercised the option to carry them over as tax
credits for the next taxable year. However, the tax due for the next taxable year
is lower than excess tax credits. It now applies for a refund of the unapplied tax
credits. May its refund be granted ? If the refund is denied, does Systra lose
the unapplied tax credits ? Explain briefly your answer. SUGGESTED ANSWER:
Systras claim for refund should be denied. Once the carry over option was made,
actually or constructively, it became forever irrevocable regardless of whether the
excess tax credits were actually or fully utilized Under Section 76 of the Tax
Code, a claim for refund of such excess credits can no longer be made. The excess
credits will only be applied against income tax due for the taxable quarters of
the succeeding taxable years.
Despite the denial of its claim for refund,
Systra does not lose the unapplied tax credits. The amount will not be forfeited
in favor of the government but will remain in the taxpayers account. Petitioner
may claim and carry it over in the succeeding taxable years, creditable against
future income tax liabilities until fully utilized. (Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R. No. 17629
0, September 21, 2007 citing
Philam Asset Management, Inc. v. Commissioner of Internal Revenue, G.R. Nos.
156637/162004, 14 December 2005, 477 SCRA 761) Supposing in the above problem that
Systra permanent ceased operations, what happens to the unapplied credits ?
SUGGESTED ANSWER: Where, the corporation permanently ceases its operations
before full utilization of the tax credits it opted to carry over, it may then be
allowed to claim the refund of the remaining tax credits. In such a case, the
remaining tax credits can no longer be carried over and the irrevocability rule
ceases to apply. Cessante ratione legis, cessat ipse lex. (Footnote no. 23, Systra
Philippines, Inc., v. Commissioner of Internal Revenue, G. R. No. 17629
0, September
21, 2007)
NOTES AND COMMENTS: The holding in State Land Investment Corporation
v. Commissioner of Internal Revenue, G. R. No. 1719
56, January 18, 2008 that the
taxpayer is entitled to a refund because during the succeeding year there was no
tax due against which the excess tax credits may be applied is not doctrinal. This
is so because it interpreted the provisions of then Sec. 69
of the NIRC, which did
not provide for the irrevocability rule now contained in Sec. 76 of the NIRC of
19
9
7.
60-A. In early April 19
9
9
XYZ Bank advanced the amount of P180 million
to the BIR its income tax payment for the banks 19
9
9
operations in response for
the governments call to generate more revenues for national development. In
separate letters dated April 19
and 29
, 19
9
9
and May 14, 19
9
9
XYZ requested for the
issuance of a Tax Credit Certificate (TCC) to be utilized against future tax
obligations of the bank.
By the end of 19
9
9
, a credit balance in the amount
of P73 million remain which was carried over for the years 2000 to 2004 but was not
availed of because XYZ incurred losses during the period. On July 28, 2005 PNB
reiterated its request for the issuance of a TCC for the P73 million balance. The
BIR rejected the request on the ground of among others prescription having been
applied for beyond the two-year reglementary period for filing claims for refund as
set forth in Sec. 229
of the NIRC of 19
9
7.
Has the claim prescribed ? Explain
briefly your answer.
SUGGESTED ANSWER: The claim has not prescribed. Sec. 229
of the Tax Code, as couched, particularly its statute of limitations component, is
in context intended to apply to suits for any national internal revenue tax
sum erroneously paid by the taxpayer, while a tax credit involves the application
of the reimbursable amount against any sum that may be due and collectible from the
taxpayer.
On the practical side, the taxpayer to whom the tax is refunded would
have the option, among others, to invest for profit the returned sum, an option not
proximately available if the taxpayer chooses instead to receive a tax credit.
(Commissioner of Customs v. Philippine Phosphate Fertilizer Corporation, G. R. No.
144440, September 1, 2004)
NOTES AND COMMENTS: It may be that there is no
essential difference between a tax refund and a tax credit since both are moves of
recovering taxes erroneously or illegally paid to the government. (Commissioner of
Customs v. Philippine Phosphate Fertilizer Corporation, G. R. No. 144440, September
1, 2004)
(( 65.
What are the three (3) conditions for the grant of a claim
for refund of creditable withholding tax ?
SUGGESTED ANSWER:
a.
The
claim is filed with the Commissioner of Internal Revenue within the two-year period
from the date of the payment of the tax. b.
It is shown on the return of the
recipient that the income payment received was declared as part of the gross
income; and 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) NOTES AND COMMENTS:
a.
Proof of fact of
withholding. Sec. 10. Claim for tax credit or refund. (a) Claims for Tax
Credit or Refund of Income tax deducted and withheld on income payments shall be
given due course only when it is shown on the return that the income payment
received has been declared as part of the gross income and the fact of withholding
is established by a copy of the Withholding Tax Statement duly issued by the payor
to the payee showing the amount paid and the amount of the tax withheld therefrom
xxx (Rev. Regs. No. 6-85, as amended) The document which may be accepted as
evidence of the third condition, that is, the fact of withholding, must emanate
from the payor itself, and not merely from the payee, and must indicate the name of
the payor, the income payment basis of the tax withheld, the amount of the tax
withheld and the nature of the tax paid. . (Banco Filipino Savings and Mortgage
Bank v. Court of Appeals, et al., G. R. No. 155682, March 27, 2007)
65-A. 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. 1389
19
, May 2, 2006)
(( 66.
What are the requisites for the refund of
illegally deducted taxes from the income of an employees trust fund ? SUGGESTED
ANSWER: What has to be established, as a matter of evidence, is that the amount
sought to be refunded to the bank-trustee corresponds to the tax withheld on the
interest income earned from the exempt employees trust. The need to be
determinate is important, specially if the bank trustee, in the ordinary course of
its banking business, earns interest income not only from its investments of
employees trusts, but on a whole range of accounts which do not enjoy the same
broad exemption as employees trusts. (Far East Bank Trust and Company, etc., v.
Commissioner of Internal Revenue, et al., G. R. No. 1389
19
, May 2, 2006)
NOTES
AND COMMENTS:
a.
Employees trust fund, defined. An employees trust fund
is a trust established by an employer to provide retirement, pension, or other
benefits to employees - it is a separate taxable entity established for the
exclusive benefit of the employees. (Development Bank of the Philippines v.
Commission on Audit, 422 SCRA 459
) b.
Income of employees trust is tax exempt.
Any provision of law to the contrary notwithstanding, the retirement benefits
received by official and employees of private firms, whether individual or
corporate, in accordance with a reasonable private benefit plan maintained by the
employer shall be exempt from all taxes and shall not be liable to amendment, levy
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)
((( 31. The
Collector of Customs sitting in seizure and forfeiture proceedings has exclusive
jurisdiction to hear and determine all questions touching on the seizure and
forfeiture of dutiable goods. RTCs are precluded from assuming cognizance over
such matters even through petitions of certiorari, prohibition or mandamus. (The
Bureau of Customs, et
al., v. Ogario, et al., G.R. No. 138081, March 20, 2000) What is the rationale
for this doctrine ?
SUGGESTED ANSWER: a.
Regional Trial Courts have no
jurisdiction to replevin a property which is subject to seizure and forfeiture
proceedings for violation of the Tariff and Customs Code otherwise, actions for
forfeiture of property for violation of the Customs laws could easily be undermined
by the simple device of replevin. (De la Fuente v. De Veyra, et al., 120 SCRA 455)
b.
The doctrine of exclusive customs jurisdiction over customs cases to
the exclusion of the RTCs is anchored upon the policy of placing no unnecessary
hindrance on the governments drive, not only to prevent smuggling and other frauds
upon Customs,
c.
but more importantly, to render effective and efficient the
collection of import and export duties due the State, which enables the government
to carry out the functions it has been instituted to perform. (Jao, et al., v.
Court of Appeals, et al., and companion case, 249
SCRA 35, 43)
d.
The issuance
by regular courts of writs of preliminary injunction in seizure and forfeiture
proceedings before the Bureau of Customs may arouse suspicion that the issuance or
grant was for consideration other than the strict merits of the case. (Zuno v.
Cabredo, 402 SCRA 75 [2003]) e. Under the doctrine of primary jurisdiction, the
Bureau of Customs has exclusive administrative jurisdiction to conduct searches,
seizures and forfeitures of contraband without interference from the courts. It
could conduct searches and seizures without need of a judicial warrant except if
the search is to be conducted in a dwelling place.
Where an administrative
office has obtained a technical expertise in a specific subject, even the courts
must defer to this expertise. 32.
A claiming to be the owner of a vessel which
is the subject of customs warrant of seizure and detention sought the intercession
of the RTC to restrain the Bureau of Customs from interfering with his property
rights over the vessel. Would the suit prosper?
SUGGESTED ANSWER: No. His
remedy was not with the RTC but with the CTA, as issues of ownership of goods in
the custody of customs officials are within the power of the CTA to determine.
The Collector of Customs has exclusive jurisdiction over seizure and
forfeiture proceedings and trial courts are precluded from assuming cognizance over
such matters even through petitions for certiorari, prohibition or mandamus.
(Commissioner of Customs v. Court of Appeals, et al., G. R. Nos. 111202-05, January
31, 2006)
33.
The customs authorities do not have to prove to the satisfaction
of the court that the articles on board a vessel were imported from abroad or are
intended to be shipped abroad before they may exercise the power to effect customs
searches, seizures, or arrests provided by law and continue with the administrative
hearings. (The Bureau of Customs, et al., v. Ogario, et al., G.R. No. 138081, March
20, 2000)
34. The Tariff and Customs Code allows the Bureau of Customs to resort
to the administrative remedy of seizure, such as by enforcing the tax lien on the
imported article when the imported articles could be found and be subject to
seizure and forfeiture. 35. The Tariff and Customs Code allows the Bureau of
Customs to resort to the judicial remedy of filing an action in court when the
imported articles could not anymore be found. 36.
Instances where there is no
right of redemption of seized and forfeited articles: a. There is fraud;
b. The
importation is absolutely prohibited, or c. 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, 19
9
9
) 37. In Aznar v. Court of Tax Appeals, 58 SCRA 519
,
reiterated in Farolan, Jr. v. Court of Tax appeals, et al., 217 SCRA 29
8, the
Supreme Court clarified that the fraud contemplated by law must be actual and not
constructive. It must be intentional, consisting of deception, willfully and
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. 1549
9
3,
October 25, 2005)REAL PROPERTY TAXATION ((1. What are the fundamental principles
of real property taxation ?
SUGGESTED ANSWER: The fundamental principles
of real property taxation 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.
Who determines the
fair market value of properties ?
SUGGESTED ANSWER: 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.
What is the fair market
value of properties ?
ANSWER: 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 citing Army and Navy Club, Manila v.
Trinidad, 44 Phil. 383 )
NOTE: 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 citing
Reyes v. Almanzor, 19
6 SCRA 322, 327 (19
9
1)]) Preparation of fair market values:
a.
The city or municipal assessor shall prepare a schedule of fair market
values for the different classes of real property situated in their respective
Local Government Units for the enactment of an ordinance by the sanggunian
concerned; and
b. The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality concerned or
the posting in the provincial capitol or other places as required by law. (Lopez v.
City of Manila, et al., G.R. No. 127139
, February 19
, 19
9
9
)Proposed fair market
values of real property in a local government unit as well as the ordinance
containing the schedule must be published in full for three (3) consecutive days in
a newspaper of local circulation, where available, within ten (10) days of its
approval, and posted in at lease two (2) prominent places in the provincial
capitol, city, municipal or barangay hall for a minimum of three (3) consecutive
weeks.
(Figuerres v. Court of Appeals, et al,. G.R. No. 119
172, March 25, 19
9
9
)
(4. What are the approaches in estimating the fair market value of real
property for real property tax purposes ? ANSWER:
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 income-producing 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
honest desire to obtain title to the property and announces his adverse claim
against the State and all other interested parties, but also the intention to
contribute needed revenues to the government. Such an act strengthens ones bona
fide claim of acquisition of ownership. (Buenaventura, et al., v. Republic, G. R.
No. 166865, March 2, 2007 citing Heirs of Simplicio Santiago v. Heirs of Mariano E.
Santiago, G. R. No. 151440, 17 June 2003, 404 SCRA 19
3, 19
9
200)
(((7.
Give
examples of personal property under the civil law that may be considered as real
property for purposes of taxes.
SUGGESTED ANSWER: Personal property under the
civil law may be considered as real property for purposes of taxes where the
property is essential to the conduct of the business.
a.
Underground tanks
are essential to the conduct of the business of a gasoline station without which it
would not be operational. (Caltex Phils., Inc. v. Central Board of Assessment
Appeals, et al., 114 SCRA 29
6)
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.
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 (19
75)
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 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.
8.
The restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that
taxes are the lifeblood of the nation, and as such their collection cannot be
curtailed by injunction or any like action; otherwise, the state or, in this case,
the local government unit, shall be crippled in dispensing the needed services to
the people, and its machinery gravely disabled. (Manila Electric Company v.
Barlis, G.R. No. 114231, May 18, 2001)
Thus, the trial court has no jurisdiction
to entertain a petition for prohibition absent payment under protest of the tax
assessed. (Ibid.)
NOTES AND COMMENTS: While the above May 18, 2001 decision
was set aside by the Supreme Court when it granted the petitioners second motion
for reconsideration on June 29
, 2004, the author submits that the above doctrine
in the May 18, 2001 decision is still valid, because what was reversed in the
second motion for reconsideration was the garnishment of Meralcos assets. The
remand to the lower court was for the resolution of whether or not an assessment
was issued to Meralco. ((9
.
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.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)NOTE: The above May 18, 2001 decision was set aside
by the Supreme Court when it granted the petitioners second motion for
reconsideration on June 29
, 2004. The author submits that the above ruling in the
May 18, 2001 decision is still valid, not on the basis of the May 18, 2001 decision
but in the light of pronouncements of the Supreme Court in other cases. Thus, do
not cite the doctrine as emanating from the May 18, 2001 decision.
(10.
Secretary of Justice can take cognizance of a case involving the constitutionality
or legality of tax ordinances where there are factual issues involved. (Figuerres
v. Court of Appeals, et al., G.R. No. 119
172, March 25, 19
9
9
)
Taxpayer files
appeal to the Secretary of Justice, within 30 days from effectivity thereof. In
case the Secretary decides the appeal, a period also of 30 days is allowed for an
aggrieved party to go to court. But if the Secretary does not act thereon, after
the lapse of 60 days, a party could already seek relief in court within 30 days
from the lapse of the 60 day period.
These three separate periods are clearly
given for compliance as a prerequisite before seeking redress in a competent court.
Such statutory periods are set to prevent delays as well as enhance the orderly and
speedy discharge of judicial functions. For this reason the courts construe these
provisions of statutes as mandatory. (Reyes, et al., v. Court of Appeals, et al.,
G.R. No. 118233, December 10, 19
9
9
) 11.
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, 19
9
9
) 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. 119
172, March 25, 19
9
9
)
12.
The concurrent and simultaneous remedies afforded local government
units in enforcing collection of real property taxes: a.
Distraint of personal
property;
b.
Sale of delinquent real property, and
c.
Collection of real
property tax through ordinary court action.
13.
The remedy of levy can be
pursued by putting up for sale the real property subject of tax, i.e., the
delinquent property upon which the tax lien attaches, regardless of the present
owner or possessor thereof. However this remedy is only one of the other remedies.
(Manila
Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)NOTE: The above May 18,
2001 decision was set aside by the Supreme Court when it granted the petitioners
second motion for reconsideration on June 29
, 2004. The author submits that the
above ruling in the May 18, 2001 decision is still valid, not on the basis of the
May 18, 2001 decision, in the light of pronouncements of the Supreme Court in other
cases. Thus, do not cite the doctrine as emanating from the May 18, 2001 decision.
14.
The LGU could also avail of the remedy of distraint and levy of
personal property subjecting any personal property of the taxpayer to execution.
thus, the issuance of the warrants of garnishment over MERALCOs bank deposits was
not improper or irregular. (Manila Electric Company v. Barlis, et al., G.R. No.
114231, May 18, 2001)
NOTE: The above May 18, 2001 decision was set aside by the
Supreme Court when it granted the petitioners second motion for reconsideration on
June 29
, 2004. The author submits that the above ruling in the May 18, 2001
decision is still valid, not on the basis of the May 18, 2001 decision, in the
light of pronouncements of the Supreme Court in other cases. Thus, do not cite the
doctrine as emanating from the May 18, 2001 decision. ((58.
Notice and
publication, as well as the legal requirements for a tax delinquency sale, are
mandatory, and the failure to comply therewith can invalidate the sale. The
prescribed notices must be sent to comply with the requirements of due process.
(De Knecht, et al,. v. Court of Appeals; De Knecht, et al., v. Honorable Sayo, 29
0
SCRA 223,236)
16.
The reason behind the notice requirement is that tax sales
are administrative proceedings which are in personam in nature. (Puzon v.
Abellera, 169
SCRA 789
, 79
5; De Asis v. I.A.C., 169
SCRA 314)
(17. 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
of fifteen (15) days from receipt extendible for a period of thirty (30) days.
22.
A City Ordinance adopting a method of assessment was nullified by the
Supreme Court. A taxpayer who has paid his real property taxes on the basis of the
nullified ordinance now posits that the return of the real property tax erroneously
collected and paid is a necessary consequence of the Supreme Courts nullification
of the ordinance and there is no need to claim for a refund. Is this correct ?
SUGGESTED ANSWER: No. The entitlement to a tax refund does not necessarily
call for the automatic payment of the sum claimed. The amount of the claim being a
factual matter, it must still be proven in the normal course and in accordance with
the administrative procedure for obtaining a refund of real property taxes, as
provided under the Local Government Code. (Allied Banking Corporation, etc., v.
Quezon City Government, et al., G. R. No. 154126, September 15, 2006) NOTE: In
the above Allied Banking case, the Supreme Court provided for the starting date of
computing the two-year prescriptive period within which to file the claim with the
Treasurer, which is from finality of the Decision. The procedure to be followed is
that shown below. 23.
Procedure for refund of real property taxes based on
validity of the tax measure or solutio indebeti.
a.
Payment under protest
not required, claim must be directed to the local treasurer, within two (2) years
from the date the taxpayer is entitled to such reduction or readjustment, who must
decide within sixty (60) days from receipt.
b.
The denial by the local
treasurer of the protest would fall within the Regional Trial Courts original
jurisdiction, the review being the initial judicial cognizance of the matter.
Despite the language of Section 19
5 of the Local Government Code which states that
the remedy of the taxpayer 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. 1549
9
3, 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. (((24. Charitable institutions,
churches and parsonages
or convents appurtenant thereto, mosques, non-profit 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, 19
87 Constitution] (((25. The constitutional tax exemptions refer
only to real property that are actually, directly and exclusively used for
religious, charitable or educational purposes, and that the only constitutionally
recognized exemption from taxation of revenues are those earned by non-profit, nonstock educational institutions which are actually, directly and exclusively used
for educational purposes. (Commissioner of Internal Revenue v. Court of Appeals, et
al., 29
8 SCRA 83) The constitutional tax exemption covers property taxes only. What
is exempted is not the institution itself, those exempted from real estate taxes
are lands, buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes. (Lung Center of the Philippines v.
Quezon City, et al., etc., G. R. No. 144104, June 29
, 2004 citing Justice Davide)
(((31. The 19
35 Constitution stated that the lands, buildings, and
improvements are used exclusively but the present Constitution requires that the
lands, buildings and improvements are actually, directly and exclusively used.
The change should not be ignored. Reliance on past decisions would have sufficed
were the words actually as well as :directly are not added. There must be proof
therefore of the actual and direct use to be exempt from taxation. (Lung Center of
the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29
, 2004
citing Province of Abra v. Hernando, 107 SCRA 105)
(((26. What is meant by
actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes
for which the charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property is used for
tax-exempt purposes.
If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purpose but is subject to
taxation,. The words dominant use or principal use cannot be substituted for
the words used exclusively without doing violence to the Constitution and the
law. Solely is synonymous with exclusively. (Lung Center of the Philippines v.
Quezon City, et al., etc., G. R. No. 144104, June 29
, 2004)27. Portions of the
land of a charitable institution, such as a hospital, leased to private entities as
well as those parts of the hospital leased to private individuals are not exempt
from real property taxes. On the other hand, the portion of the land occupied by
the hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes. (Lung Center of the Philippines v.
Quezon City, et al., etc., G. R. No. 144104, June 29
, 2004)28.
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)
(((29
. What property are exempt from the payment of real property tax under
the Local Government Code ?
SUGGESTED ANSWER: a.
Real property owned by the
Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted to a taxable person for a consideration or
otherwise; b.
Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries, and all 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.
((30. The Manila International Airport
Authority (MIAA) was subject to real property taxes by the municipality of
Paranaque on its airport lands, and buildings on the ground that the Local
Government Code has withdrawn exemptions previously enjoyed by government-owned and
controlled corporations. MIAA contends otherwise as it claims it is not a
government owned or controlled corporation. Who is correct.
SUGGESTED ANSWER:
MIAA is correct because it is not a government owned or controlled corporation but
an instrumentality of the government that is exempt from taxation.
It is not a
stock corporation because its capital is not divided into shares, neither is it a
non-stock corporation because there are no members. It is instead an
instrumentality of the government upon which the local governments are not allowed
to levy taxes, fees or other charges.
An instrumentality refers to any agency
of the National Government, not integrated within the department framework vested
with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. This term includes regulatory agencies chartered
institutions and government-owned or controlled corporations. [Sec. 2 (10),
Introductory Provisions, Administrative Code of 19
87] It is an instrumentality
exercising not only governmental but also corporate powers. It exercises
governmental powers of eminent domain, police power authority, and levying of fees
and charges.
Finally, the airport lands and buildings are property owned by
the government that are devoted to public use and are properties of the public
domain. (Manila International Airport Authority v. City of Pasay, et al., G. R.
No. 163072, April 2, 2009
citing Manila International Airport Authority v. Court of
Appeals, et al., G. R. No. 155650, July 20, 2006)
31.
A
telecommunications company was granted by Congress on July 20, 19
9
2, after the
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