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TAXATION
VER. 2010.06.12
copyrighted 2010
TAXATION
Nice to know
Should know
Must know and master
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without stars.
2.
What is the nature of the States power to tax ?
Explain briefly.
SUGGESTED ANSWER: The nature of the states power to tax is
two-fold. It is both an inherent power and a legislative power.
It is inherent in nature being an attribute of sovereignty. This is so,
because without the taxes, the states existence would be imperiled.
There is thus, no need for a constitutional grant for the state to exercise
this power.
It is a legislative power because it involves the promulgation of
rules. Taxation is a set of rules, how much is the tax to be paid, who pays
the tax, to whom it should be paid, and when the tax should be paid.
3.
briefly.
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. Unauthorized
e.
Effect of payment: Failure to pay a tax does not make the
business illegal while failure to pay license fee makes business illegal.
f.
Surrender: Taxes, being the lifeblood of the state, cannot be
surrendered except for lawful consideration while a license fee may be
surrendered with or without consideration. (Cooley on Taxation, pp. 11371138; Pacific Commercial Company v. Romualdez, et al., 49 Phil. 924)
SUGGESTED ANSWER: a.
Reciprocal duties of protection and
support between the state and its citizens and residents. Also called
symbiotic relation between the state and its citizens.
b.
Jurisdiction by the state over persons and property
within its territory.
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation is to
promote the general welfare and to protect the health, safety or morals of
the inhabitants. It is in the joint exercise of the power of taxation and police
power where regulatory taxes are collected.
Taxation may be made the implement of the states police power.
The motivation behind many taxation measures is the implementation of
police power goals.
[Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3,
2005) The reader should note that the August 3, 2005 Southern Cross case
10.
Taxation distinguished from police power. Taxation is
distinguishable from police power as to the means employed to implement
these public goals. Those doctrines that are unique to taxation arose from
peculiar considerations such as those especially punitive effects (Southern
Cross Cement Corporation v. Cement Manufacturers Association of the
3
Philippines, et al., G. R. No. 158540, August 3, 2005) as the power to tax
involves the power to destroy and the belief that taxes are lifeblood of the
state. (Ibid.) taxes being the lifeblood of the government, their prompt and
certain availability is of the essence.
These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. (Ibid.)
g.
h.
tax.
c.
Excise imposed upon the performance of an act, the
enjoyment of a privilege or the engaging in an occupation. Example
income tax, estate tax.
4
Philippine Long Distance Telephone Company, supra) to someone else not as
17.
5
not be enlarged by construction. (Silkair (Singapore) PTE, Ltd., v. Commissioner
of Internal Revenue, G.R. No. 173594, February 6, 2008)
18.
as to purpose ?
SUGGESTED ANSWER:
a.
General, fiscal or revenue imposed for the purpose of
raising public funds for the service of the government.
b.
Special or regulatory imposed primarily for the regulation of
useful or non-useful occupation or enterprises and secondarily only for the
raising of public funds.
INHERENT LIMITATIONS
1. What are the inherent limitations on the power of
taxation ?
SUGGESTED ANSWERS:
a.
Public purpose. The revenues collected from taxation should
be devoted to a public purpose.
b.
No improper delegation of legislative authority to tax. Only the
legislature can exercise the power of taxes unless the same is delegated to
some other governmental body by the constitution or through a law which
does not violate any provision of the constitution.
c.
Territoriality. The taxing power should be exercised only within
territorial boundaries of the taxing authority.
d.
Recognition of government exemptions; and
e.
Observance of the principle of comity. Comity is the respect
accorded by nations to each other because they are equals. On the other
hand taxation is an act of sovereign. Thus, the power should be imposed
upon equals out of respect.
Some authorities include no double taxation.
2.
What are the principles to consider in the
determination of whether tax revenues are devoted for a
public purpose ?
SUGGESTED ANSWER:
a.
The tax revenues are for a public purpose if utilized for the
benefit of the community in general. An alternative meaning is that tax
proceeds should be utilized only to attain the objectives of government.
b.
Inequalities resulting from the singling out of one particular
class for taxation or exemption infringe no constitutional limitation.
REASON: It is inherent in the power to tax that the legislature is
free to select the subjects of taxation.
BASIS: The lifeblood theory.
c.
An individual taxpayer need not derive direct benefits from
the tax.
REASON: The paramount consideration is the welfare of the
greater portion of the population.
d.
A tax may be imposed, not so much for revenue purposes,
but under police power for the general welfare of the community. This
would still be for a public purpose.
e.
Public purpose continually expanding. Areas formerly left to
private initiative now lose their boundaries and may be undertaken by the
government if it is to meet the increasing social challenges of the times.
f.
Tax revenue must not be used for purely private purposes or
for the exclusive benefit of private persons.
g.
Private persons may be benefited but such benefit should be
merely incidental as its main object is the benefit of the community in
general.
h. Determined at the time of enactment of tax law and not at the
time of implementation.
i.
There is a presumption of public purpose even if the tax law
does not specifically provide for its purpose. (Santos & Co., v. Municipality of
Meycauayan, et al., 94 Phil. 1047)
3.
4.
Requisites for taxpayers, concerned citizens,
voters or legislators to have locus standi to sue.
a.
b.
6.
Locus standi being merely a matter of procedure,
have been waived in certain instances where a party who is not
personally injured may be allowed to bring suit. The following are
examples of instances where suits have been brought by parties who have
not have been personally injured by the operation of a law or any other
government act but by concerned citizens, taxpayers or voters who actually
sue in the public interest:
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the
enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R.
No. 167919, February 14, 2007)
9.
Paradigm shift from exclusive Congressional
power to direct grant of taxing power to local legislative bodies.
The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other
charges pursuant to Article X, section 5 of the 1987 Constitution. (Batangas
Power Corporation v. Batangas City, et al. G. R. No. 152675, and companion case,
April 28, 2004 citing National Power Corporation v. City of Cabanatuan, G. R. No.
149110, April 9, 2003)
10.
8
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)
14.
Juliane a non-resident alien appointed as a
commission agent by a domestic corporation with a sales
commission of 10% all sales actually concluded and collected
through her efforts. The local company withheld the amount of
P107,000 from her sales commission and remitted the same to
the BIR.
She filed a claim for refund alleging that her sales
commission is not taxable because the same was a
compensation for her services rendered in Germany and
therefore considered as income from sources outside the
Philippines.
Is her contention correct ?
SUGGESTED ANSWER:
Yes.
The important factor which
determines the source of income of personal services is not the residence of
the payor, or the place where the contract for service is entered into, or the
place of payment, but the place where the services were actually performed.
Since the activity of securing the sales were in Germany, then the
income did not originate from sources from within the Philippines.
(Commissioner of Internal Revenue v. Baier-Nickel, G. R. No. 153793, August 29,
2006)
9
be subject to withholding tax. Considering that all the activities (sales)
occurred within the Philippines, the income is considered as income from
within, subject to Philippine income taxation. Ensite, Ltd. being a foreign
corporation is to be taxed on its income derived from sources within the
Philippines.
18.
b.
Supposing that Obama, Inc., sells tickets outside of
the Philippines for passengers it carry from Gold City, South
Africa to the Philippines but returns to South Africa without any
cargo or passengers. Would it then be subject to any
Philippine tax on such sales ?
SUGGESTED ANSWER: It would not be subject to any tax. It is not
subject to any income tax because the activity which generated the income
(the sale of the tickets) was performed outside of the Philippines.
10
It is not subject to the carriers tax based on gross Philippine billings
because there were no lifts that originated from the Philippines. Gross
Philippine Billings refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the
place of sale or issue and the place of payment of the ticket or passage
document. [NIRC of 1997, Sec. 28(A)(3)(a)]
c.
Would your answer be the same if Obama, Inc. sold
tickets outside of the Philippines for travelers who are going to
picked up by Obama, Inc., planes from the Diosdado Macapagal
Intl. Airport at Clark, Angeles, Pampanga, bound for Nairobi,
Kenya ? Reason out your answer.
SUGGESTED ANSWER: No more. This time Obama, Inc., would
be subject to the carriers tax based on Gross Philippine Billings. (GPB).
Gross Philippine Billings refers to the amount of gross revenue
derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the
ticket or passage document. [NIRC of 1997, Sec. 28(A)(3)(a)]
The place of sale is irrelevant; as long as the uplifts of
passengers and cargo occur from the Philippines, income is included in
GPB. (South African Airways v. Commissioner of Internal Revenue, G.R. No.
180356, February 16, 2010)
19.
tax.
CONSTITUTIONAL LIMITATIONS
1.
e.
f.
g.
3.
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
11
limitations imposed by Congress consistent with the basic policy of local
autonomy;
m.
Automatic release of local government's just share in national
taxes;
n.
Tax exemption of all revenues and assets of non-stock, nonprofit educational institutions used actually, directly and exclusively for
educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by law
including restrictions on dividends and provisions for reinvestment of profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational purposes
subject to conditions prescribed by law.
8.
Tests to determine validity of classification.
The
United States Supreme Court has established different tests to determine
the validity of a classification and compliance with the equal protection
clause. The recognized tests are:
a.
The traditional (or rational basis) test.
b.
The strict scrutiny (or compelling interest) test.
c. The intermediate level of scrutiny (or quasi-suspect class) test.
5.
Equal protection of the law clause is subject to
reasonable classification.
If the groupings are characterized by
Maryland, 366 U.S. 420; United States Railroad Retirement Board v. Fritz, 449
U.S. 166)
substantial distinctions that make real differences, one class may be treated
and regulated differently from another. The classification must also be
germane to the purpose of the law and must apply to all those belonging to
the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January
20, 1999)
6.
Requisites for valid classification. All that is
required of a valid classification is that it be reasonable, which means that
a.
the classification should be based on substantial distinctions
which make for real differences,
b.
that it must be germane to the purpose of the law;
c.
that it must not be limited to existing conditions only; and
d.
that it must apply equally to each member of the class.
The standard is satisfied if the classification or distinction is based
on a reasonable foundation or rational basis and is not palpably arbitrary.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715,
August 14, 2008]
7.
Equal protection does not demand absolute
equality. It merely requires that all persons shall be treated alike, under
like circumstances and conditions, both as to the privileges conferred and
liabilities enforced. (Santos v. People, et al, G. R. No. 173176, August 26, 2008)
It is imperative to duly establish that the one invoking equal
protection and the person to which she is being compared were indeed
similarly situated, i.e., that they committed identical acts for which they
were charged with the violation of the same provisions of the NIRC; and
that they presented similar arguments and evidence in their defense - yet,
they were treated differently. (Santos, supra)
9.
The traditional (or rational basis) test used in order
to determine the validity of classification. The classification is
valid if it is rationally related to a constitutionally permissible state interest.
The complainant must prove that the classification is invidous,
wholly arbitrary, or capricious, otherwise the classification is presumed
to be valid. (Lindsley v. Natural Carboinic Gas Co., 220 U.S. 61; McGowan v.
11. The intermediate level of scrutiny (or quasisuspect class) test used in order to determine the validity of
he classification. Classification based on gender or legitimacy are not
suspect, but neither are they judged by the traditional or rational basis
test.
Intentional discriminations against members of a quasi-suspect
class violate equal protection unless they are substantially related to
important government objectives. (Craig v. Boren, 429 U.S. 190)
Thus, a state law granting a property tax exemption to widows, but
not widowers, has been held valid for it furthers the state policy of
cushioning the financial impact of spousal loss upon the sex for whom that
loss usually imposes a heavier burden. (Kahn v. Shevin, 416 U.S. 351)
12
9.
13.
13
Manila; (5) for the same taxing periods per calendar year; and (6) of the
same kind or character a local business tax imposed on gross sales or
receipts of the business. (The City of Manila, et al., v. Coca-Cola Bottlers
Philippines, Inc., G. R. No. 181845, August 4, 2009)
18.
The primary reason for the withdrawal of tax
exemption privileges granted to government owned and
controlled corporations and all other units of government was that such
privilege resulted to serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due them. (Philippine Ports
17.
When withdrawal of a tax exemption impairs
the obligation of contracts. The Contract Clause has never been
thought as a limitation on the exercise of the States power of taxation
save only where a tax exemption has been granted for a valid
consideration. (Smart Communications, Inc. v. The City of Davao, etc., et al., G.
R. No. 155491, September 16, 2008) citing Tolentino v. Secretary of Finance, G.
R. No. 115455, August 25, 1994, 235 SCRA 630, 685) The author opines that
14
granted to telecommunications companies are similarly worded that the above
doctrine finds application to the others.)
21.
23.
24.
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b. Taxing all of the subjects or objects for the first time without
taxing all of them for the second time.
If any of the elements are absent then there is indirect duplicate
taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
a.
Presence of the 2nd element violates the equal protection clause.
st
If only the 1 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.
15
28.
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. 159647, April 15, 2005)
30.
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. 1950
31.
The VAT while regressive is NOT violative of the
mandate to evolve a progressive system of taxation. Do you
agree ? The mandate to Congress is not to prescribe but to evolve a
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, 1994, 235 SCRA 630]
OTHER CONCEPTS
1. Distinguish tax from debt.
16
other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Thus, it is correct to say that the offsetting of a taxpayers tax
refund with its alleged tax deficiency is unavailing under Art. 1279 of the
Civil Code. (South African Airways v. Commissioner of Internal Revenue, G.R.
No. 180356, February 16, 2010 reiterating Caltex Philippines, Inc. v.
Commission on Audit, which applied Francia v. Intermediate Appellate Court)
TAX
DEBT
Basis
based on law
based on contract or
judgment
Failure to Pay
may result in
imprisonment
no imprisonment
Mode of
Payment
generally payable in
money
payable in money,
property or service
Assignability
not
assignable
Payment
unless it becomes a
debt is not subject to
compensation or setoff
may be a subject
Interest
draws interest if
stipulated or delayed
Authority
imposed by public
authority
can be imposed by
private individuals
Prescription
Prescriptive periods
for tax under NIRC
a.
Where both claims already become overdue and
demandable as well as fully liquidated. Compensation takes place by
operation of law under Art. 1200 in relation to Arts. 1279 and 1290 all of
the Civil Code. (Domingo v. Garlitos, 8 SCRA 443)
b.
Compensation takes place by operation of law, where the
government and the taxpayer are in their own right reciprocally debtors
and creditors of each other, and that the debts are both due and
demandable. This is in consequence of Article 1278 and 1279 of the Civil
Code. (Domingo v. Garlitos, 8 SCRA 443)
c.
,The Supreme Court upheld the validity of a set-off between
the taxpayer and the government. In both cases, the claims of the
taxpayers therein were certain and liquidated. The claims were certain
since there were no doubts or disputes as to their refundability. In fact,
the government admitted the fact of over-payment.
(Commissioner of
assignable
2.
Compensation takes place by operation of law, where the
local government and the taxpayer are in their own right reciprocally debtors
and creditors of each other, and that the debts are both due and
demandable, in consequence of Articles 1278 and 1279 of the Civil Code.
(Domingo v. Garlitos, 8 SCRA 443)
c.
Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each
Internal
Revenue
d.
In case of a tax overpayment, the BIRs obligation to refund
or off-set arises from the moment the tax was paid. REASON: Solutio
indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern, Inc 172
SCRA 364)
e.
While judgment should be rendered in favor of Republic
for unpaid taxes, judgment ought at the same time to issue for
Sampaguita Pictures commanding payment to the latter by the Republic of
the value of the backpay certificates which the Republic received.
(Republic v. Ericta, 172 SCRA 623)
5.
17
SUGGESTED ANSWER: Yes. The parties in this case are
mutually debtors and creditors of each other, and since both of the claims
became overdue, demandable and fully liquidated, compensation takes
place by operation of law. Such was the holding in Domingo v. Garlitos, 8
SCRA 443, a case decided by the Supreme Court whose factual
antecedents are similar to the problem.
6.
In case of doubt, tax laws must be construed strictly
against the State and liberally in favor of the taxpayer because
taxes, as burdens which must be endured by the taxpayer, should not be
presumed to go beyond what the law expressly and clearly declares.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al.,
293 SCRA 92, 99)
7.
Interpretation in the imposition of taxes, is not the
similar doctrine as that applied to tax exemptions. The rule in
the interpretation of tax laws is that a statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously. A
tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In
answering the question of who is subject to tax statutes, it is basic that in
case of doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens are
not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. [Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008 citing CIR v. Court of
Appeals, 338 Phil. 322, 330-331 (1997)]
As burdens, taxes should not be
9.
Rationale for strict interpretation of tax exemption
laws. The basis for the rule on strict construction to statutory provisions
granting tax exemptions or deductions is to minimize differential treatment
and foster impartiality, fairness and equality of treatment among
taxpayers. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R.
No. 166408, October 6, 2008) He who claims an exemption from his share
of common burden must justify his claim that the legislature intended to
exempt him by unmistakable terms. For exemptions from taxation are not
favored in law, nor are they presumed. They must be expressed in the
clearest and most unambiguous language and not left to mere
implications. It has been held that exemptions are never presumed the
burden is on the claimant to establish clearly his right to exemption and
cannot be made out of inference or implications but must be laid beyond
reasonable doubt. In other words, since taxation is the rule and
exemption the exception, the intention to make an exemption ought to be
expressed in clear and unambiguous terms. (Quezon City, supra citing
Agpalo, R.E., Statutory Construction, 2003 ed., p. 302)
unduly exacted nor assumed beyond the plain meaning of the tax laws.
(Ibid., citing CIR v. Philippine American Accident Insurance Company, Inc., G.R.
No. 141658, March 18, 2005, 453 SCRA 668)
8.
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,
1996, 261 SCRA 667, 680) The burden of proof rests upon the party
18
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which underlies all
quasi-contracts abhorring a persons unjust enrichment at the expense of
another. [Commissioner, supra citing Ramie Textiles, Inc. v. Hon. Mathay, Sr.,
178 Phil. 482 (1979); Puyat & Sons v. City of Manila, et al., 117 Phil. 985 (1963)]
v.
Firemans Fund Insurance Co., G.R. No. L-30644, 9 March 1987, 148 SCRA 315,
324-325; Ramie Textiles, Inc. v. Mathay, supra; Gonzales Puyat & Sons v. City of
Manila, supra)
so, given its essence, a claim for tax refund necessitates only
preponderance of evidence for its approbation like in any other ordinary
civil case. (Commissioner, supra)
The rule is that tax exemptions must be strictly construed such that
the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.
[Commissioner, supra citing Phil. Acetylene Co. v. Commission of Internal
Revenue, et al., 127 Phil. 461, 472 (1967); Manila Electric Company v. Vera,
G.R. No. L-29987, 22 October 1975, 67 SCRA 351, 357-358; Surigao
Consolidated Mining Co. Inc. v. Commissioner of Internal Revenue, supra]
15.
Effect of a BIR reversal of a previous ruling
interpreting a law as exempting a taxpayer. A reversal of a BIR
ruling favorable to a taxpayer would not necessarily create a perpetual
exemption in his favor, for after all the government is never estopped from
collecting taxes because of mistakes or errors on the part of its agents.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al.,
293 SCRA 92, 99)
17.
18.
a.
Tax amnesty is an immunity from all criminal, civil and
administrative liabilities arising from nonpayment of taxes (People v.
Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax
exemption is an immunity from civil liability only. It is an immunity or
privilege, a freedom from a charge or burden to which others are subjected.
(Florer v. Sheridan, 137 Ind. 28, 36 NE 365)
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda, supra) WHILE tax exemption has
prospective application.
19
19.
reduce the tax while tax evasion is the use of illegal means to escape the
payment of taxes.
20.
factors:
a.
1.
Rep. Act No. 1405, the Bank Deposits Secrecy Law
prohibits inquiry into bank deposits. As exceptions to Rep. Act
No. 1405, the Commissioner of Internal Revenue is only
authorized to inquire into the bank deposits of:
a.
a decedent to determine his gross estate; and
b.
any taxpayer who has filed an application for compromise of
his tax liability by reason of financial incapacity to pay his tax liability. [Sec. 5
(F), NIRC of 1997]
c.
A taxpayer who authorizes the Commissioner to inquire into
his bank deposits.
2.
Purpose of the NIRC of 1997. Revenue generation
has undoubtedly been a major consideration in the passage
of the Tax Code. (Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R. Nos. 167274-75, July 21, 2008)
3.
Purpose of shift from ad valorem system to
specific tax system in taxation of cigarettes. The shift from the
ad valorem system to the specific tax system is likewise meant to
promote fair competition among
the players in the industries
concerned, to ensure an equitable distribution of the tax burden and to
simplify tax administration by classifying cigarettes, among others, into
high, medium and low-priced based on their net retail price and
accordingly graduating tax rates. (Commissioner of Internal Revenue v.
Fortune Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
TAX ON INCOME
1.
The Tax Code has included under the term
corporation partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies. [Sec. 24 now Sec. 24 (B) of the
NIRC of 1997]
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.
20
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 1997]
4.
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
8.
The term taxable income means the pertinent items of
gross income specified in the Tax Code, less the deductions and/or
personal and additional exemptions, if any, authorized for such types of
income by the Tax Code or other special laws. (Sec. 31, NIRC of 1997)
9.
may amount to (a) payment of income; (b) gift; or to a (c) capital transaction
depending upon the circumstances.
21
commitment to create economic opportunities based on freedom of initiative and
self-reliance. Bearing in mind the foregoing provisions, we find that an
interpretation exempting the members of cooperatives from the imposition of the
final tax under Section 24(B)(1) of the NIRC (tax on interest earned by deposits)
is more in keeping with the letter and spirit of our Constitution. (Dumaguete
Cathedral Credit Coopertive [DCCC)] etc., v. Commissioner of Internal Revenue,
G.
R.
No.
182722,
January
22,
2010)
22
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.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to the
taxpayer which are not treated as part of gross income for purposes of
computing the taxpayers taxable income, due to the following reasons: (1)
It is exempted by the fundamental law; (2) It is exempted by statute; and
(3) It does not come within the definition of income (Sec. 61, Rev. Regs.
No. 2) WHILE deductions are the amounts which the law allows to be
subtracted from gross income in order to arrive at net income.
b.
Exclusions pertain to the computation of gross income WHILE
deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the taxpayer
which do not form part of gross income WHILE deductions are something
spent or paid in earning gross income.
An example of an exclusion from gross income are life insurance
proceeds, and an example of a deduction are losses.
25.
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
b.
Amounts received by the insured as a return of premiums paid
by him under life insurance, endowment or annuity contracts either during
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.
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 1997] 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. 2-98]
27.
23
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
d. Ordinary losses, losses from casualty, theft or
embezzlement; and net operating losses.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
e. Bad debts due to the taxpayer, actually ascertained to
be worthless and charged off within the taxable year, connected with
profession, trade or business, not sustained between related parties.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
f.
Depreciation or a reasonable allowance for the exhaustion,
wear and tear (including reasonable allowance for obsolescence) of property
used in trade or business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
g. Depletion or deduction arising from the exhaustion of a nonreplaceable asset, usually a natural resource.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
24
allowed to deduct these premiums. Nonresident citizens on their gross
incomes from within may also deduct this expense. Nonresident alien
individuals engaged in trade or business in the Philippines are allowed to
deduct these exemptions under reciprocity.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
29.
expenditures.
31.
25
The propriety of an accrual must be judged by the fact that a taxpayer
knew, or could reasonably be expected to have known, at the closing of its
books for the taxable year. Accrual method of accounting presents largely a
question of fact; such that the taxpayer bears the burden of proof of
establishing the accrual of an item of income or deduction. (Commissioner
of Internal Revenue v, Isabela cultural Corporation, G. R. No. 172231,
February 12, 2007)
d. Under the cash method income is to be construed as income
for tax purposes only upon actual receipt of the cash payment. It is also
referred to as the cash receipts and disbursements method because both
the receipt and disbursements are considered. Thus, income is recognized
only upon actual receipt of the cash payment but no deductions are allowed
from the cash income unless actually disbursed through an actual payment
in cash.
a.
When the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the employer; or
b.
When the fringe benefit is for the convenience or advantage of
the employer. [Sec. 32(A), NIRC of 1997; 1st par., Sec. 2.33 (A), Rev. Regs.
No. 3-98]
c.
Fringe benefits which are authorized and exempted from
income tax under the Tax Code or under any special law;
d.
Contributions of the employer for the benefit of the employee
to retirement, insurance and hospitalization benefit plans;
e.
Benefits given to the rank and file employees, whether granted
under a collective bargaining agreement or not; and
f.
De minimis benefits as defined in the rules and regulations to
be promulgated by the Secretary of Finance upon recommendation of the
Commissioner of Internal Revenue. [1st par., Sec. 32 (C), NIRC of 1997; Sec.
2.33 (C), Rev. Regs. No. 3-98]
26
c.
Two corporations more than fifty percent (50%) in value of the
outstanding stock of which is owned, directly or indirectly, by or for the same
individual;
d.
A grantor and a fiduciary of any trust; or
e.
The fiduciary of a trust and the fiduciary of another trust if the
same person is a grantor with respect to each trust; or
f.
A fiduciary of a trust and a beneficiary of such. [Sec. 36 (B),
NIRC of 1997]
b.
If the said taxpayer did not benefit from the deduction of the
said bad debt written-off because it did not result to any reduction of his
income tax in the year of such deduction (i.e. where the result of his
business operation was a net loss even without deduction of the bad debts
written-off), then his subsequent recovery thereof shall be treated as a mere
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of Finance upon
the recommendation of the Commissioner of Internal Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
44.
45.
exemption ?
27
NOTES AND COMMENTS: It is clear from Rep. Act No. 9504 that
each of the spouses may claim the P50,000.00. Thus, the total familial
basic personal exemption for spouses is P100,000.00.
Furthermore, the distinctions between the concepts of single,
married and head of the family for purpose of availing of the basic
personal exemption has already been eliminated by Rep. Act No. 9504.
c.
It is to be noted that under the NIRC of 1997, as amended by
Rep. Act No. 9504, only qualified dependent children are considered for
additional exemptions. Grandparents, parents, as well, as brothers or
sisters, and other collateral relatives are not qualified dependents to be
claimed as additional exemptions.
However, if they are senior citizens they may qualify as additional
exemptions under the Senior Citizens Law but not under the NIRC of
1997, as amended by Rep. Act No. 9504.
48.
28
owned by an individual engaged in business, shall be treated as capital
asset. (last par., Sec. 3.b., Rev. Regs. No. 7-2003)
52.
29
and no sale or transfer of real property was realized. [Sec. 3 (1), Rev. Regs.
No. 4-99]
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.
30
ESTATE TAXES
1. In determining the gross estate of a decedent,
are his properties abroad to be included, and more
particularly, what constitutes gross estate ?
SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen
or a resident alien.
The gross estate of a Filipino citizen or a resident alien comprises
all his real property, wherever situated; all his personal property, tangible,
intangible or mixed, wherever situated, to the extent of his interest existing
therein at the time of his death.
The gross estate of a non-resident alien comprises all his real
property, situated in the Philippines; all his personal property, tangible,
intangible or mixed, situated in the Philippines, to the extent of his interest
existing therein at the time of his death.
2.
31
b.
One, other than the decedent takes the insurance policy on
the life of the decedent
1)
The amounts are receivable by
a)
the decedents estate,
b)
his executor, or
c)
administrator
2)
irrespective of whether or not the insured retained the
power of revocation.
c.
Where the insurance was NOT taken by the decedent upon
his own life and the beneficiary is not the decedents estate, his executor
or administrator.
4.
Items deductible from the gross estate of a resident
or nonresident Filipino decedent or resident alien decedent:
a.
Expenses, losses, claims, indebtedness and taxes;
b.
Property previously taxed;
c.
Transfers for public use;
d.
The Family Home up to a value not exceeding P1 million;
e.
Standard deduction of P1 million;
f.
Medical expenses not exceeding P500,000.00;
g.
Amount of exempt retirement received by the heirs under Rep.
Act Mo. 4917;
h.
Net share of the surviving spouse in the conjugal partnership.
5.
There is no transfer in contemplation of death if
there is no showing that the transferor retained for his life or for any
period which does not in fact end before his death: (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the right,
either alone or in conjunction with any person, to designate the person who
shall possess or enjoy the property or the income therefrom. [Sec. 85 (B),
NIRC of 1997]
32
property was transferred to him by gift within the same period prior to his
death; and
20% of the value if the prior decedent died more than four years but
not more than five years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death. [Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement and
underlining supplied]
8.
DONORS TAXES
1.
stranger ?
SUGGESTED ANSWER:
When the donee or beneficiary is a
stranger, the tax payable by the donor shall be 30% of the net gifts.
5.
How are gifts of personal property to be valued for
donors tax purposes ?
SUGGESTED ANSWER: The market value of the personal property
at the time of the gift shall be considered the amount of the gift. (Sec. 102,
NIRC of 1997)
6.
What is the valuation of donated real property for
donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised at its
fair market value as of the time of the gift.
However, the appraised value of the real property at the time of the
gift shall be whichever is the higher of:
a.
the fair market value as determined by the Commissioner of
Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values fixed
by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B) both
of the NIRC of 1997]
stranger ?
2.
3.
4.
For purposes of the donors tax, what is meant by
net gifts ?
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
33
disadvantage of Y and Z, the other co-heirs in the hereditary estate. (4th
par., Sec. 11, Rev. Regs. No. 2-2003)
8.
donors tax.
SUGGESTED ANSWER:
a.
The first P100,000.00 net donation during a calendar year is
exempt from donors tax [Sec. 99 (A), NIRC of 1997] made by a resident or
non resident;
b.
The donation by a resident or non-resident of a prize to an
athlete in an international sports tournament held abroad and sanctioned by
the national sports association is exempt from donors tax (Sec. 1, Rep. Act
No. 7549)
c.
Political contributions made by a resident or non-resident
individual if registered with the COMELEC irrespective of whether donated
to a political party or individual.
However, the Corporation Code prohibits corporations from making
political contributions. (Corp. Code, Title IV, Sec. 36.9)
d.
Dowries or gifts made on account of marriage and before
its celebration or within one year thereafter by residents who are parents
to each of their legitimate, recognized natural, or adopted children to the
extent of the first ten thousand pesos (P10,000.00);
e.
Gifts made by residents or non-residents to or for the use of
the National Government or any entity created by any of its agencies
which is not conducted for profit, or to any political subdivisions of the
said Government;
f.
Gifts made by residents or non residents in favor of an
educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, That not more
than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes. [Sec. 101 (A), NIRC of 1997, numbering and
arrangement supplied]
g.
Gifts made by non-resident aliens outside of the Philippines to
Philippine residents are exempt from donors taxes because taxation is
basically territorial. The transaction, which should have been subject to tax
was made by non-resident aliens and took place outside of the Philippines.
10.
A, who is engaged in the car buy and sell
business sold to B P7 million Jaguar for only P4 million. The
proper VAT on the sale was paid. If you are the BIR examiner
assigned to review the sale, would you issue a tax assessment
on the transaction ? Explain your answer briefly.
SUGGESTED ANSWER: Donors taxes would be due on the
insufficiency of consideration.
Where property, other than real property that has been subjected to
the final capital gains tax, is transferred for less than an adequate and full
consideration in money or moneys worth, then the amount by which the
fair market value of the property at the time of the execution of the
Contract to Sell or execution of the Deed of Sale which is not preceded by
a Contract to Sell exceeded the value of the agreed or actual
consideration or selling price shall be deemed a gift, and shall be included
in computing the amount of gifts made during the calendar year. (5th par.,
Sec. 11, Rev. Regs. No. 2-2003)
34
terms of its nature as a tax on consumption. [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11,
2005 citing various authorities}
4.
Illustration of effects of exemptions from VAT
which is an indirect tax.
A VAT exempt seller sells to a non-VAT
sending to a foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines. Such
facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines.
[Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.),
Inc. G. R. No. 164365, June 8, 2007]
7.
a.
8.
a.
Cost deduction method. This is a single-stage tax which is
payable only by the original sellers.
(Abakada Guro Party List (etc.) v.
Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases)
6.
Illustration of the meaning of consumption as used
under the VAT system. For example the services rendered by a local
9.
How the VAT is imposed on the increase in worth,
merit or improvement of the goods or services. The VAT utilizes
firm to its foreign client are performed or successfully completed upon its
5.
The VAT is a tax on consumption.
Meaning of
consumption as used under the VAT system. Consumption is
"the use of a thing in a way that thereby exhausts it."
Applied to services, the term means the performance or "successful
completion of a contractual duty, usually resulting in the performer's
release from any past or future liability x x x" Unlike goods, services
cannot be physically used in or bound for a specific place when their
destination is determined. Instead, there can only be a "predetermined
end of a course" when determining the service "location or position x x x
for legal purposes." [Commissioner of Internal Revenue v. Placer Dome
35
Output VAT less Input VAT = VAT due on the increase in worth,
merit or improvement f the goods or services.
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 )
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]
36
Transfer,
use
or
consumption
business or properties originally intended for sale or for use in the course
of business. xxx
b.
21.
Sale of real properties primarily for sale to customers or held for lease in
the ordinary course of trade or business of the seller shall be subject to
VAT. (Rev. Regs. No. 16-2005, Sec. 4.106-3, 1st par.)
Thus, capital transactions of individuals are not subject to VAT.
Only real estate dealers are subject to VAT.
22.
On September 4, 2009, XYZ, Inc., a domestic
corporation engaged in the real estate business, sold a
building for P10,000,000.00. Is the sale subject to the valueadded tax (VAT)? If so, how much? Explain.
SUGGESTED ANSWER: Yes. 12% on the gross selling price
because the sale was made in the ordinary course of trade of business of
X, a domestic corporation engaged in the real estate business.
37
23.
24.
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to twelve percent (12%) of
gross receipts
c.
derived from the sale or exchange of services,
1)
including the use or lease of properties. [NIRC of
1997, Sec. 108 (A), as amended by R.A. No. 9337, arrangement and
numbering supplied]
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;
38
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 films, film tapes and discs;
h.
The lease or the use of or the right to use radio,
television, satellite transmission and cable television time. (Rev. Regs. No.
16-2005, Sec. 4.108-2, 2nd par.)
30.
System.
31.
The law clearly provides for an exception to the destination principle; that
is, for a zero percent VAT rate for services that are performed in the
Philippines, "paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the [BSP]."
33.
transactions:
39
a.
A zero-rated sale is a taxable transaction but does not result
in an output tax WHILE an exempt transaction is not subject to the output
tax.
b.
The input tax on the purchases of a VAT registered person
who has zero-rated sales may be allowed as tax credits or refunded
WHILE the seller in an exempt transaction is not entitled to any input tax
on his purchases despite the issuance of a VAT invoice or receipt.
c.
Persons engaged in transactions which are zero rated being
subject to VAT are required to register WHILE registration is optional for
VAT-exempt persons.
34.
5,
Toshiba Information Equipment (Phils.), Inc., G. R.. No. 150154, August 9, 2005]
38. Zero-rated sale of service, defined. A zerorated sale of service (by a VAT-registered person) is a taxable transaction
for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services related to such
zero-rated sale shall be available as tax credit or refund in accordance
with Rev. Regs. No. 16-2005. [Rev. Regs. No. 16-2005, Sec. Sec. 4.108-5
(a), words in italics supplied)
40
American Express renders assistance to its foreign clients by
receiving the bills of service establishments located in the country and
forwarding them to their clients abroad. The services are performed or
successfully completed upon send to its foreign clients 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. Thus, its services are exempt from the destination principle
and are zero-rated.
The BIR could not change the law. [Commissioner, of Internal
Revenue v. American Express International, Inc. (Philippine Branch), G. R. No.
152609, June 29, 2005]
41. A foreign Consortium composed of BWSCDenmark, Mitsui Engineering and Shipbuilding Ltd., and
Mitsui and Co., Ltd., which entered into a contract with
NAPOCOR for the operation and maintenance of two power
barges appointed BWSC-Denmark as its coordination
manager. BWSCMI was established as the subcontractor to
perform the actual work in the Philippines. The Consortium
paid BWSCMI in acceptable foreign exchange and accounted
for in accordance with the rules and regulations of the BSP.
Through a February 14, 1995 ruling the BIR declared that
BWSCMI may choose to register as a VAT persons subject to
VAT at zero rate. For 1996, it filed the proper VAT returns
showing zero rating. On December 29, 1997, believing that it
is covered by Rev. Regs. 5-96, dated February 20, 1996,
BWSCMI paid 10% output VAT for the period April-December
1996, through the Voluntary Assessment Program (VAP).
On January 7, 1999, BWSCMI was able to obtain a Ruling
from the BIR reconfirming that it is subject to VAT at zerorating. On this basis, BWSCMI applied for a refund of the
output VAT it paid.
a.
Is BWSCMI subject to the 10% VAT or is it zero
rated ?
SUGGESTED ANSWER: Yes. BWSCMI is not zero rated and is
subject to the 10% VAT. It is rendering service for the Consortium which
is not doing business in the Philippines. Zero-rating finds application only
where the recipient of the services are other persons doing business
outside of the Philippines. BWSCMI provides services to the Consortium
which by virtue of its contract with NAPOCOR is doing business within the
Philippines. (Commissioner of Internal Revenue v. Burmeister and Wain
2007)
b.
Could it obtain a refund of the VAT it paid through
the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund of the
10% output VAT it paid the based on the non-retroactivity of the prejudicial
revocation of the BIR Rulings which held that its services are subject to
0% VAT and which BWSCMI invoked in applying for refund of the output
VAT. (Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., supra)
41
b.
An exempt transaction shall not be the subject of any billing
for output VAT but it shall not also be allowed any input tax credits WHILE
an exempt party being zero-rated is allowed to claim input tax credits.
42
(7)
Services rendered by fire, marine or miscellaneous
insurance agents of foreign insurance companies. (Sec. 124)
(8)
Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing exhibitions
professional basketball games, jai-Alai and race tracks. (Sec.
125). and
(9)
Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock exchange or
through initial public offering. (Sec. 127)
(F)
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into raw sugar;
Agricultural contract growers refers to those persons producing for
others poultry, livestock or other agricultural and marine food products in
their original state.
(G) Medical, dental, hospital and veterinary services except
those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic operates
a pharmacy or drug store, the sale of drugs and medicine is subject to
VAT.
(H)
Educational services rendered by private educational
institutions, duly accredited by the Department of Education (DEPED), the
Commission on Higher Education (CHED), the Technical Education And
Skills Development Authority (TESDA) and those rendered by government
educational institutions;
Educational services shall refer to academic, technical or
vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA and those rendered by
government educational institutions and it does not include seminars, inservice training, review classes and other similar services rendered by
persons who are not accredited by the DepED, the CHED and/or the
TESDA.
(I)
Services rendered by individuals pursuant to an employeremployee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special laws,
except those under Presidential Decree No. 529 Petroleum Exploration
Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority (CDA) to their members as well as
sale of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries and
43
five (5) years old, Provided, finally, that exemption shall be subject to the
provisions of section 4 of Republic Act No. 9295, otherwise known as The
Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations; Provided, that the said
fuel, goods and supplies shall be used exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines directly
to a foreign port without stopping at any other port in the Philippines;
provided, further, that if any portion of such fuel, goods or supplies is used
for purposes other than that mentioned in this paragraph, such portion of
fuel, goods and supplies shall be subject to 10% VAT (now 12%);
(U) Services of banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial intermediaries; and
45.
a.
Any person, whose sales or receipts are exempt under Sec.
109 (1) (V) of the Tax Code,
(V) Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed
the amount of One million five hundred thousand pesos
(P1,500,000): Provided, That not later than January 31, 2009 and
every three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price Index as
published by the National Statistics Office (NSO), from the
payment of VAT and
b.
who is not a VAT-registered person
c.
shall pay a tax equivalent to three percent (3%) of his gross
monthly sales or receipts;
Provided, that cooperatives shall be exempt from the three (3%)
gross receipts tax herein imposed. (Rev. Regs. No. 16-2005, Sec. 4.116-1,
arrangement, numbering and words in italics supplied)
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents, until
controverted by competent evidence, are competent evidence, are prima
facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et al.,
296 SCRA 309, 317)
2.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on his
income from sources within the Philippines;
c.
Every alien residing in the Philippines on income derived from
sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or in the
exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC of 1997]
3.
Married individuals who are earning
compensation income allowed to file separate returns.
purely
4.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a consolidated return for the taxable
year to include the income of both spouses, but where it is
impracticable for the spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall be consolidated by
the Bureau for purposes of verification. [Section 51 (D) of the NIRC of
1997]
5.
Computation of income tax for married individuals
whether citizens, resident or non-resident aliens, who do not
derive income purely from compensation required file a
consolidated return for the taxable year but could not do so.
For married individuals, the husband and wife, subject to no. 2, supra,,
shall compute separately their individual income tax based on their
respective total taxable income: Provided, that if any income cannot be
definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their respective
44
taxable income. [2nd to the last par., Sec. 24 (A) (2), NIRC of 1997 as amended
by Rep. Act No. 9504]
6.
Individuals who are not required to file an income
tax return.
a.
An individual whose gross income does not exceed his total
personal and additional exemptions for dependents, Provided, That a citizen
of the Philippines and any alien individual engaged in business or practice of
profession within the Philippines shall file an income tax return regardless of
the amount of gross income [Sec. 51 (A) (2), NIRC of 1997]
b.
An individual with respect to pure compensation income,
derived from such sources within the Philippines, the income tax on which
has been correctly withheld: Provided, That an individual deriving
compensation concurrently from two or more employers at any time during
the taxable year shall file an income tax return [Sec. 51 (A) (2), NIRC of 1997,
as amended by Rep. Act No. 9504, paraphrasing supplied]
c.
An individual whose sole income has been subject to final
withholding tax;
d.
A minimum wage earner (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned), an individual who
is exempt from income tax pursuant to the provisions of the Tax Code and
other laws, general or special. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec.
22 (HH), both as amended by Rep. Act. 9504]
7.
Minimum wage earners are exempt from income
taxation. That minimum wage earners (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned) shall be exempt
from the payment of income tax on their taxable income: Provided, further,
That the holiday pay, overtime pay, night shift differential pay and hazard
pay received by such minimum wage earners shall likewise be exempt
from income tax. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec. 22 (HH), both as
amended by Rep. Act. 9504]
adjustment return is filed covering the total taxable income for the whole
taxable year, be it calendar or fiscal.
8.
An individual who is not required to file an income
tax return may nevertheless be required to file an information
return. [Sec. 51 (A) (3), NIRC of 1997]
9.
A corporation files its income tax return and pays its
income tax four (4) times during a single taxable year. Quarterly
returns are required to be filed for the first three quarters, then a final
45
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. 2-98]
The liability for payment of the tax rests primarily on the payor or the
withholding agent.. Thus, in case of his failure to withhold the tax or in case
of under withholding, the deficiency tax shall be collected from the payor
withholding agent. The payee is not required to file an income tax return for
the particular income.
penalty and not because the tax is due from him. (Commissioner of Internal
1.
Surtaxes or surcharges, also known as the civil penalties, are
the amounts imposed in addition to the tax required.
They are in the nature of penalties and shall be collected at the same
time, in the same manner, and as part of the tax. [Sec.248 (A), NIRC of
1997]
and/or pay the difference between the tax withheld and the tax due on the
income. [1st and 2nd sentences, Sec. 257(B), Rev. Regs. No. 2-98]
Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999, the Anscor
case)
2.
SUGGESTED ANSWER:
a.
the 25% surcharge for late filing or late payment [Sec. 248 (A),
NIRC of 1997] (also known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud surcharge. [Sec. 248 (B), Ibid.]
3.
4.
Deficiency interest, defined. The interest assessed and
collected on any unpaid amount of tax at the rate of 20% per annum or such
higher rate as may be prescribed by regulations, from the date prescribed
for payment until the amount is fully paid. [Sec. 249 (A) (B), NIRC of 1997]
5.
Delinquency interest, defined. The interest assessed
and collected on the unpaid amount until fully paid where there is failure on
the part of the taxpayer to pay the amount die on any return required to be
filed; or the amount of the tax due for which no return is required; or a
deficiency tax, or any surcharge or interest thereon, on the date appearing in
the notice and demand by the Commissioner of Internal Revenue. [Sec.249
(c), NIRC of 1997]
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to
discourage delay in the payment of taxes due to the State and in this sense
46
the surcharge and interest charged are not penal but compensatory in
nature they are compensation to the State for the delay in payment, or for
the concomitant tuse of the funds by the taxpayer beyond the date he is
supposed to have paid them to the State. (Bank of the Philippine Islands v.
Commissioner of Internal Revenue, G. R. No. 137002, July 27, 2006)
7.
Compromise penalty is the amount agreed upon between
the taxpayer and the Government to be paid as a penalty in cases of a
compromise.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes
on time. Imposed surcharges and interests for such delay, the
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 ?
SUGGESTED 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)
4.
a.
Exclusive appellate jurisdiction to review by appeal, as
herein provided:
1.
Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties, in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue; (DIVISION)
2.
Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds or internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matter arising under the
National Internal Revenue Code or other laws administered by the Bureau of
Internal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a
denial; (The inaction on refunds in two years from the time tax was paid.
Thus, if the prescriptive period of two years is about to expire, the taxpayer
should interpose a petition for review with the CTA DIVISION)
3.
Decisions, orders or resolutions of the Regional Trial Courts in
local tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction; (If original DIVISION; if appellate EN
BANC)
4.
Decisions of the Commissioner of Customs in cases involving
liability for customs duties, fees or other money charges, seizure, detention
or release of property affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs; (DIVISION)
5.
Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the assessment
and taxation of real property originally decided by the provincial or city board
of assessment appeals; (EN BANC)
6.
Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the Commissioner
of Customs which are adverse to the Government under Section 2315 of the
47
Tariff and Customs Code; (This has reference to forfeiture cases where the
decision is to release the seized articles DIVISION)
7.
Decisions of the Secretary of Trade and Industry, in case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and 302, respectively,
of the Tariff and Customs Code, and safeguard measures under Republic
Act No. 8800, where either party may appeal the decision to impose or not
to impose said duties. (DIVISION)
b.
Jurisdiction over cases involving criminal offenses as
herein provided:
1.
Exclusive original jurisdiction over all criminal cases
arising from violations of the National Internal Revenue Code or Tariff and
Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or
felonies mentioned in this paragraph where the principal amount of taxes
and fees, exclusive of charges and penalties claimed, is less than One
million pesos (P1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the civil action will be
recognized.
2.
Exclusive appellate jurisdiction in criminal offenses:
a)
Over appeals from the judgments, resolutions or orders
of the Regional Trial Courts in tax cases originally decided by them, in
their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their appellate
jurisdiction over tax cases originally decided by the Metropolitan Trial
Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in
their respective jurisdiction.
c.
Jurisdiction over tax collection cases:
1.
Exclusive original jurisdiction in tax collection cases involving
final and executory assessments for taxes, fees, charges and penalties:
Provided, however, That collection cases where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is less than One
million pesos (P1,000,000) shall be tried by the proper Municipal Trial Court,
Metropolitan Trial Court and Regional Trial Court.
2.
Exclusive appellate jurisdiction in tax collection cases:
a)
Over appeals from judgments, resolutions, or orders of
the Regional Trial Courts in tax collection cases originally decided by
them, in their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their appellate
jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts, in their respective jurisdiction. (Sec. 7, R. A. No. 1125, as
amended by R. A. No. 9282, emphasis and words in parentheses supplied)
5.
It is the Regional Trial Court that has
jurisdiction to rule upon the constitutionality of a tax law or a
regulation issued by the taxing authorities. Where
what
is
assailed is the validity or constitutionality of a law, or a rule or regulation
issued by the administrative agency in the performance of its quasilegislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued
by an administrative agency contravenes the law or the constitution is
within the jurisdiction of the regular courts.
Indeed, the Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts. This is within the scope of
judicial power, which includes the authority of the courts to determine in an
appropriate action the validity of the acts of the political departments.
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part
of any branch or instrumentality of the Government. (British American
Tobacco v. Camacho et al., G. R. No. 163583, August 20, 2008 with an
intervenor)
48
No. 103445, December 18, 2007 which ruled that it is the Court of Tax
Appeals that has jurisdiction relative to matters involving the constitutionality
of regulations issued by the BIR. The reason was that this falls under the
concept of decisions of the BIR Commissioner on other matter arising
under the provisions of laws administered by the Commission. Issuance of
revenue regulations are authorized under the NIRC.
British American Tobacco reversed Asia International Auctioneers
upon the concept of the judiciarys expanded power.
6.
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.
of internal revenue
Revenue or his duly authorized representative shall then notify the taxpayer
of the findings in the form of a pre-assessment notice. The pre-assessment
notice requires the taxpayer to explain within fifteen (15) days from receipt
why no notice of assessment and letter of demand for additional taxes
should be directed to him.
e.
If the Commissioner is satisfied with the explanation of the
taxpayer, then the process is again ended.
If the taxpayer ignores the pre-assessment notice by not responding
or his explanations are not accepted by the Commissioner, then a notice of
assessment and a letter of demand is issued.
The notice of assessment must be issued by the Commissioner to
the taxpayer within a period of three (3) years from the time the tax return
was filed or should have been filed whichever is the later of the two events.
Where the taxpayer did not file a tax return or where the tax return filed is
false or fraudulent, then the Commissioner has a period of ten (10) years
from discovery of the failure to file a tax return or from discovery of the fraud
within which to issue an assessment notice. The running of the above
prescriptive periods may however be suspended under certain instances.
The notice of assessment must be issued within the prescriptive
period and must contain the facts, law and jurisprudence relied upon by the
Commissioner. Otherwise it would not be valid.
f.
The taxpayer should then file an administrative protest by filing
a request for reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to the
Court of Tax Appeals because there is no decision yet of the Commissioner
that could be the subject of a review.
To be valid the administrative protest must be filed within the
prescriptive period, must show the error of the Bureau of Internal Revenue
and the correct computations supported by a statement of facts, and the law
and jurisprudence relied upon by the taxpayer. There is no need to pay
under protest. If the protest was not seasonably filed the assessment
becomes final and collectible and the Bureau of Internal Revenue could use
its administrative and judicial remedies in collecting the tax.
g. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall be submitted, otherwise the assessment shall
become final and collectible and the BIR could use its administrative and
judicial remedies to collect the tax.
Once an assessment has become final and collectible, not even the
BIR Commissioner could change the same. Thus, the taxpayer could not
pay the tax, then apply for a refund, and if denied appeal the same to the
Court of Tax Appeals.
h. If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from the submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the adverse
49
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.
2.
The word assessment when used in connection
with taxation, may have more than one meaning. More commonly
the word assessment means the official valuation of a taxpayers property
for purpose of taxation. The above definition of assessment finds application
under tariff and customs taxation as well as local government taxation.
For real property taxation, there may be a special meaning to the
burdens that are imposed upon real properties that have been
benefited by a public works expenditure of a local government. It is
sometimes called a special assessment or a special levy. (Commissioner of
Internal Revenue v. Pascor Realty and Development Corporation, et al., G.R. No.
128315, June 29, 1999)
3.
An assessment is a notice duly sent to the taxpayer
which is deemed made only when the BIR releases, mails or
sends such notice to the taxpayer. (Commissioner of Internal Revenue v.
Pascor Realty and Development Corporation, et al., G.R. No. 128315, June 29,
1999)
4.
Self-assessed tax, defined. A tax that the taxpayer
himself assesses or computes and pays to the taxing authority. It is a tax
that self-assessed by the taxpayer without the intervention of an assessment
by the tax authority to create the tax liability.
The Tax Code follows the pay-as-you-file system of taxation under
which the taxpayer computes his own tax liability, prepares the return, and
pays the tax as he files the return. The pay-as-you-file system is a selfassessing tax return.
Internal revenue taxes are self-assessing. (Dissent of J. Carpio in
Philippine National Oil Company v. Court of Appeals, et al., G. R. No. 109976, April
26, 2005 and companion case)
6.
General rule: When the Commissioner of Internal
Revenue may rely on estimates. The rule is that in the absence of
accounting records of a taxpayer, his tax liability may be determined by
estimation. The petitioner (Commissioner of Internal Revenue) is not
required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of taxes due is justified. To hold otherwise
would be tantamount to holding that skillful concealment is an invincible
50
barrier to proof. (Commissioner of Internal Revenue v. Hantex Trading Co., Inc.
G. R. No. 136975, March 31, 2005)
However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously. (Ibid.)
7.
Meaning of "best evidence obtainable" under Sec. 6
(B), NIRC of 1997. This means that the original documents must be
produced. If it could not be produced, secondary evidence must be
adduced. (Hantex Trading Co., Inc. v. Commissioner of Internal Revenue, CA G.R. SP No. 47172, September 30, 1998)
9.
method. The BIR may require third parties, public or private to supply
information to the BIR, and thus, obtain on a regular basis from any person
other than the person whose internal revenue tax liability is subject to audit
or investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities including the
Bangko Sentral ng Pilipinas and government-owned or controlled
corporations, any information such as, but not limited to, costs and volume
of production, receipts or sales and gross incomes of taxpayers, and the
names , addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters or
multinational companies, joint accounts, associations, joint ventures or
consortia and registered partnerships, and their members; xxx [Sec. 5 (B),
NIRC of 1997)
10.
b. ten years from discovery of the failure to file the tax return or
discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of 1997[ ; or
c. within the period agreed upon between the government and
the taxpayer where there is a waiver of the prescriptive period for
assessment (Sec. 222 (b), NIRC of 1997).
51
24, 1999, 303 SCRA 546; Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, G. R. No. 162852, December 16, 2004], as well as their assessments.
International Tire Co., Inc.),., et al., G.R. No. 104171, February 24, 1999, 303 SCRA
546]
14.
Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because
this deprives the taxpayer of the assurance that it will not longer be
subjected to further investigation for taxes after the expiration of a
reasonable period of time. (Philippine Journalists, Inc. v. Commissioner of
Internal Revenue, G. R. No. 162852, December 16, 2004 with note to see Republic
v. Ablaza, 108 Phil. 1105. 1108)
for
presumption
of
SUGGESTED ANSWER:
a.
Lifeblood theory
b.
Presumption of regularity (Commissioner of Internal Revenue v.
Hantex Trading Co., Inc., G, R. No. 136975, March 31, 2005) in the performance
52
of public functions. (Commissioner of Internal Revenue v. Tuazon, Inc., 173
SCRA 397)
c.
The likelihood that the taxpayer will have access to the
relevant information [Commissioner of Internal Revenue, supra citing United
the waiver of the period for assessment must be in writing and have the
written consent of the BIR Commissioner is still doctrinal because of the
provisions of Sec. 223, NIRC of 1997 which provides for the suspension of
the prescriptive period:
States v. Rexach, 482 F.2d 10 (1973). The certiorari was denied by the United
States Supreme Court on November 19, 1973]
d.
The desirability of bolstering the record-keeping requirements
of the NIRC. (Ibid.)
rest on all the evidence introduced and its ultimate determination must find
support in credible evidence. [Commissioner of Internal Revenue, supra]
53
Development Corporation, G. R. No. 167765, June 30, 2008 citing Philippine
Journalists, Inc. v. Commissioner of Internal Revenue G.R. No. 162852,
December 16, 2004, 447 SCRA 214, 228-229)
22.
The procedures in RMO No. 20-90 are NOT
merely directory and that the execution of a waiver is a
renunciation of a taxpayers right to invoke prescription. RMO
No. 20-90 must be strictly followed. A waiver of the statute of
limitations under the NIRC, to a certain extent being a derogation of the
taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed. The waiver of the
statute of limitations does not mean that the taxpayer relinquishes the right
to invoke prescription unequivocally, particularly where the language of the
document is equivocal.
Thus a waiver becomes unlimited in time, and invalid, because it did
not specify a definite date, agreed upon between the BIR and the taxpayer,
within which the former may assess and collect taxes. It also would have no
binding effect on the taxpayer if there was no consent by the Commissioner.
On this basis, no implied consent can be presumed, nor can it be contended
that the concurrence to such waiver is a mere formality. (Commissioner of
Internal Revenue v. FMF Development Corporation, G. R. No. 167765, June 30,
2008 citing Philippine Journalists, Inc. v. Commissioner of Internal Revenue G.R.
No. 162852, December 16, 2004, 447 SCRA 214, 229 in turn citing Id. at 229,
citing Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 115712,
February 25, 1999, 303 SCRA 614, 620-622.)
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, 1999 (Carnation case)]
2.
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 reevaluation 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 reevaluation of an assessment on the basis of newly-discovered evidence or
additional evidence that a taxpayer intends to present in the investigation. It
may also involve a question of fact or law or both. (Commissioner of Internal
Revenue v. Philippine Global Communication, Inc., G. R. No. 167146, October 31,
2006 citing Rev. Regs. No. 12-85)
54
3.
JUDICIAL
REMEDIES
ASSESSMENTS
INVOLVING
PROTESTED
4.
What are the requirements for the validity of a
taxpayers protest ?
SUGGESTED ANSWER:
a.
It must be filed within the reglementary period of thirty (30)
days from receipt of the notice of assessment.
b.
The taxpayer must not only show the errors of the Bureau of
Internal Revenue but also the correct computation through
1)
A statement of the facts, the applicable law, rules and
regulations, or jurisprudence on which the taxpayers protest is
based,
2)
If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the applicable
law, rules and regulations, or jurisprudence in support of his protest
against some of the several issues on which the assessment is
based, the same shall be considered undisputed issue or issues, in
which case, the taxpayer shall be required to pay the corresponding
deficiency tax or taxes attributable thereto. (Sec. 3.1.5, Rev. Regs.
12-99)
c.
Within sixty (60) days from filing of the protest, the taxpayer
shall submit all relevant supporting documents. [4th par., Sec. 228 (e), NIRC of
1997]
1.
Acts of BIR Commissioner that may be
considered as denial of a protest which serve as basis for
appeal to the Court of Tax Appeals.
a.
Filing by the BIR of a civil suit for collection of the deficiency
tax is considered a denial of the request for reconsideration. (Commissioner
of Internal Revenue v. Union Shipping Corporation, 185 SCRA 547)
b.
An indication to the taxpayer by the Commissioner in clear
and unequivocal language of his final denial not the issuance of the warrant
of distraint and levy. What is the subject of the appeal is the final decision
not the warrant of distraint. (Ibid.)
c.
A BIR demand letter sent to the taxpayer after his protest of
the assessment notice is considered as the final decision of the
Commissioner on the protest. (Surigao Electric Co., Inc. v. Court of Tax
Appeals, et al., 57 SCRA 523)
d.
A letter of the BIR Commissioner reiterating to a taxpayer his
previous demand to pay an assessment is considered a denial of the
request for reconsideration or protest and is appealable to the Court of Tax
Appeals. (Commissioner v. Ayala Securities Corporation, 70 SCRA 204)
e.
Final notice before seizure considered as commissioners
decision of taxpayers request for reconsideration who received no other
response.
Commissioner of Internal Revenue v. Isabela Cultural
Corporation, G.R. No. 135210, July 11, 2001 held that not only is the Notice
the only response received: its content and tenor supports the theory that it
was the CIRs final act regarding the request for reconsideration. The very
title expressly indicated that it was a final notice prior to seizure of property.
The letter itself clearly stated that the taxpayer was being given this LAST
OPPORTUNITY to pay; otherwise, its properties would be subjected to
distraint and levy.
55
3.
As a general rule, there must always be a decision
of the Commissioner of Internal Revenue or Commissioner of
Customs before the Court of Tax Appeals, would have
jurisdiction. If there is no such decision, the petition would be dismissed
for lack of jurisdiction unless the case falls under any of the following
exceptions.
4.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision yet by the
Commissioner of Internal Revenue:
a. Where the Commissioner has not acted on the disputed
assessment after a period of 180 days from submission of complete
supporting documents, the taxpayer has a period of 30 days from the
expiration of the 180 day period within which to appeal to the Court of Tax
Appeals. (last par., Sec. 228 (e), NIRC of 1997; Commissioner of Internal Revenue
v. Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)
5.
While this may be so, statutes may provide for periods of prescription,
2.
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be liberally
construed, and exemptions are not given retroactive application,
considering that taxes are the lifeblood of the government and in Holmes
memorable metaphor, the price we pay for civilization, tax laws must be
faithfully and strictly implemented. (Commissioner of Internal Revenue v.
Acosta, etc.,G. R. No. 154068, August 3, 2007)
However, statutes may provide
for prescriptive periods for the collection of particular kinds of taxes.
b.
Tax laws, unlike remedial laws, are not to be applied
retroactively. Revenue laws are substantive laws and their application must
not be equated with remedial laws. (Acosta, supra)
3.
What is the prescriptive period for collecting
internal revenue taxes ?
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
56
after the discovery of the falsity, fraud or omission. [Sec. 222 (a), NIRC of
1997]
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 1997, 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 1997, emphasis
supplied]
d.
Collection upon a return that is not false or fraudulent, or
where the assessment is not an extended assessment. Except as
provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period; Provided,
That in case where a return is filed beyond the period prescribed by law, the
three (3) year period shall be computed from the day the return was filed.
For purposes of this Section, a return filed before the last day prescribed by
law for the filing thereof shall be considered filed on such last day. (Sec.
203, NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three (3)year period, it has another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The assessment of the tax is
deemed made and the three (3)-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released,
mailed or sent to the taxpayer. [Bank of Philippine Islands (Formerly Far East
Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing BPI v. Commissioner of Internal Revenue, G.R.
No. 139736, 17 October 2005, 473 SCRA 205, 222-223]
4. What is a compromise ?
SUGGESTED ANSWER: A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only
signify that there was no agreement that had effectively been reached
between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal
Revenue, G. R. No. 138485, September 10, 2001)
5.
What tax
compromise ?
SUGGESTED ANSWER:
The following cases may, upon
taxpayers compliance with the basis for compromise, be the subject matter
of compromise settlement:
a. Delinquent accounts;
b. Cases under administrative protest after issuance of the Final
Assessment Notice to the taxpayer which are still pending in the Regional
Offices, Revenue District Offices, Legal Service, Large Taxpayer Service
(LTS), Collection Service, Enforcement Service and other offices in the
National Office;
57
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)
6.
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; and
g. Estate tax cases where compromise is requested on the
ground of financial incapacity of the taxpayer. (Sec. 2, Rev. Regs. No. 302002)
9.
The collection of a tax may not be suspended. Only
the Court of Tax Appeals may issue an order suspending the collection of a
tax.
10.
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.
11.
58
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)
2.
3.
What should be established by a taxpayer for the
grant of a tax refund ? Why ?
SUGGESTED ANSWER: A taxpayer needs to establish not only
that the refund is justified under the law, but also the correct amount that
should be refunded.
If the latter requisite cannot be ascertained with particularity, there is
cause to deny the refund, or allow it only to the extent of the sum that is
actually proven as due.
Tax refunds partake of the nature of tax exemptions and are thus
construed strictissimi juris against the person claiming the exemption. The
burden in proving the claim for refund necessarily falls on the taxpayer. (Far
East Bank Trust and Company, etc., v. Commissioner of Internal Revenue, et al., G.
R. No. 138919, May 2, 2006)
4.
What is The legal remedy under the NIRC of
1997 at the judicial level with respect to refund or recovery of
tax erroneously or illegally collected ?
SUGGESTED ANSWER: Filing of a suit or proceeding with the
Court of Tax Appeals
a.
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 1997), or
b.
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)
5.
The two (2) year period and the thirty (30) day
period should be applied on a whichever comes first basis.
Thus, if the 30 days is within the 2 years, the 30 days applies, if the 2 year
period is about to lapse but there is no decision yet by the Commissioner
which would trigger the 30-day period, the taxpayer should file an appeal,
despite the absence of a decision. (Commissioners, etc. v. Court of Tax
Appeals, et al., G. R. No. 82618, March 16, 1989, unrep.)
It is only when the return, covering the whole year, is filed that the
taxpayer will be able to ascertain whether a tax is still due or refund can be
claimed based on the adjusted and audited figures. (Bank of the Philippine
Islands v. Commissioner of Internal Revenue, G.R. No. 144653, August 28, 2001)
59
7.
cases ?
SUGGESTED ANSWER: Under the principle of solutio indebiti
provided in Art. 2154, Civil Code, If something is received when there is
no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. The BIR received something when there
[was] no right to demand it, and thus, it has the obligation to return it.
[State Land Investment Corporation v. Commissioner of Internal Revenue,
G. R. No. 171956, January 18, 2008citing Citibank, N. A. v. Court of
Appeals and Commissioner of Internal Revenue, G.R. No. 107434,
October 10, 1997, 280 SCRA 459, in turn citing Ramie Textiles, Inc. v.
Mathay, Sr., 89 SCRA 586 (1979)]. It is an ancient principle that no one,
not even the state, shall enrich oneself at the expense of another. Indeed,
simple justice requires the speedy refund of the wrongly held taxes. (Ibid.)
9.
SUGGESTED ANSWER: Yes. The failure to first file a written claim for
refund or credit is not fatal to a petition for review involving a disputed
assessment
where
was
denied by the Bureau of Internal Revenue. To hold that the taxpayer has
now lost the right to appeal from the ruling on the disputed assessment and
require him to file a claim for a refund of the taxes paid as a condition
precedent to his right to appeal, would in effect require of him to go through
a useless and needless ceremony that would only delay the disposition of
the case, for the Commissioner would certainly disallow the claim for refund
in the same way as he disallowed the protest against the assessment. The
law, should not be interpreted as to result in absurdities. (vda. de San
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 (8 and 9). An application for refund or credit under Sec. 229 of
the NIRC of 1997 is required where the case filed before the CTA is a
refund case, which is not premised upon a disputed assessment. There is
no need for a prior application for refund or credit, if the refund is merely a
consequence of the resolution of the BIRs denial of a protested
assessment.
was
60
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. 119286,
October 13, 2004)
12.
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. 176290, September 21, 2007 citing
Philam Asset Management, Inc. v. Commissioner of Internal Revenue, G.R. Nos.
156637/162004, 14 December 2005, 477 SCRA 761)
61
62
on the authenticity of the particular documents presented is raised during
the hearing of the case. (Emphasis supplied)
2.
When is importation deemed terminated and
why is it important to know whether importation has already
ended?
63
SUGGESTED ANSWER: Importation is deemed terminated upon
payment of the duties, taxes and other charges due upon the agencies, or
secured to be paid, at the port of entry and the legal permit for withdrawal
shall have been granted.
In case the articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs. (Sec. 1202, TCCP)
The Bureau of Customs loses jurisdiction to enforce the TCCP and to make
seizures and forfeitures after importation is deemed terminated.
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No. 134114, July 6,
2001)
5. Special customs duties are additional import duties
imposed on specific kinds of imported articles under certain
conditions. The special customs duties under the Tariff and Customs
Code (TCCP) are the anti-dumping duty, the countervailing duty, the
discriminatory duty, and the marking duty, and under the Safeguard
Measures Act (SMA) additional tariffs as safeguard measures.
7.
Dumping duty is an additional special duty
amounting to the difference between the export price and the
normal value of such product, commodity or article (Sec. 301 (s)
(1), TCC, as amended by
9.
Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product,
commodity, or article in the ordinary course of trade when destined for
consumption in the country of export. [Sec. 301 (s) (3 ), TCC, as amended
by Rep. Act No. 8752, Anti-Dumping Act of 1999]
12. In the determination of whether to impose the antidumping duty, the Tariff Commission, may consider among
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and other
related local industries. (Sec. 301 (a), TCC, as amended by Rep. Act No.
8752, Anti-Dumping Act of 1999)
64
24.
Safeguards
measures
that
may
be
imposed.
65
28.
?
SUGGESTED ANSWER: It has a triple meaning.
a.
the documents filed at the Customs house;
b.
the submission and acceptance of the documents; and
c.
Customs declaration forms or customs entry forms required
to be accomplished by passengers of incoming vessels or passenger
planes as envisaged under Sec. 2505 of the TCCP (Failure to declare
baggage). (Jardeleza v. People, G.R. No. 165265, February 6, 2006)
66
SUGGESTED ANSWER: Smuggling is committed by any person
who:
a.
fraudulently imports or brings into the country any article
contrary to law;
b.
assists in so doing any article contrary to law; or
c.
receives, conceals, buys, sells or in any manner facilitates
the transportation, concealment or sale of such goods after importation,
knowing the same to have been imported contrary to law. (Jardeleza v.
People, G.R. No. 165265, February 6, 2006 citing Rodriguez v. Court of
Appeals, G. R. No. 115218, September 18, 1995, 248 SCRA 288, 296)
NOTES AND COMMENTS:
a.
Importation consists of bringing an article into the country
from the outside. Importation begins when the conveying vessel or
aircraft enters the jurisdiction of the Philippines with intention to unload
therein.
b.
When unlawful importation is complete. In the absence
of a bona fide intent to make entry and pay duties when the prohibited
article enters the Philippine territory. Importation is complete when the
taxable, dutiable commodity is brought within the limits of the port of entry.
Entry through a custom house is not the essence of the act. (Jardeleza v.
People, G.R. No. 165265, February 6, 2006)
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.
NOTES AND COMMENTS: The Bureau of Customs could search
and seize articles without need of a judicial warrant unless the place to be
searched is a dwelling place. In such a case customs requires a judicial
warrant.
67
There is fraud;
The importation is absolutely prohibited, or
The release of the property would be contrary to law.
(Transglobe International, Inc. v. Court of Appeals, et al., G.R. No. 126634, January
25, 1999)
40.
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or delivery
by the same person of any invoice, letter or paper all touching on the
importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or paper;
and
c.
an intention on the part of the importer/consignee to evade the
payment of the duties due. (Republic, etc., v. The Court of Appeals, et al.,
G.R. No. 139050, October 2, 2001)
68
Customs Code. .(Transglobe International, Inc. v. Court of Appeals, et al.,
G.R. No. 126634, January 25, 1999)
Forfeiture of seized goods in the Bureau of Customs is a proceeding
against the goods and not against the owner. (Asian Terminals, Inc. v.
Bautista-Ricafort, G .R. No. 166901, October 27, 2006 citing Transglobe)
44.
47.
The following letters of demand can not be
considered as a liquidation or an assessment of Shells
import tax liabilities that can be the subject of an
administrative
tax
protest
proceeding
before
the
Commissioner of Customs whose decision is appealable to
the Court of Tax Appeals:
a.
the One Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center (the Center) November 3 letter, signed by the Secretary
of Finance, informing it of the cancellation of the Tax Credit Certificates
(TCCs);
b.
the Commissioner of Customs November 19 letter requiring
Shell to replace the amount equivalent to the amount of the cancelled
TCCs used by Shell; and
c.
the Commissioner of Customs collection letters, issued
through Deputy Commissioner Atty. Valera, formally demanding the
amount covered by the cancelled TCCs.
None of these letters, however, can be considered as a liquidation
or an assessment of Shells import tax liabilities that can be the subject of
an administrative tax protest proceeding before the respondent whose
decision is appealable to the CTA. Shells import tax liabilities had long
been computed and ascertained in the original assessments, and Shell
paid these liabilities using the TCCs transferred to it as payment.
It is even an error to consider the letters as a reassessment
because they refer to the same tax liabilities on the same importations
covered by the original assessments. The letters merely reissued the
original assessments that were previously settled by Shell with the use of
the TCCs. However, on account of the cancellation of the TCCs, the tax
liabilities of Shell under the original assessments were considered unpaid;
hence, the letters and the actions for collection.
When Shell went to the CTA, the issues it raised in its petition were
all related to the fact and efficacy of the payments made, specifically the
genuineness of the TCCs; the absence of due process in the enforcement
69
of the decision to cancel the TCCs; the facts surrounding the fraud in
originally securing the TCCs; and the application of estoppel. These are
payment and collection issues, not tax protest issues within the CTAs
jurisdiction to rule upon.
Shell never protested the original assessments of its tax liabilities
and in fact settled them using the TCCs. These original assessments,
therefore, have become final, incontestable, and beyond any subsequent
protest proceeding, administrative or judicial, to rule upon.
To be very precise, Shells petition before the CTA principally
questioned the validity of the cancellation of the TCCs a decision that
was made not by the Commissioner of Customs, but by the Center. As
the CTA has no jurisdiction over decisions of the Center, Shells remedy
against the cancellation should have been a certiorari petition before the
regular courts, not a tax protest case before the CTA. Records do not
show that Shell ever availed of this remedy.
Alternatively, as held in Shell v. Republic of the Philippines, G.R.
No. 161953, March 6, 2008, 547 SCRA 701, the appropriate forum for
Shell under the circumstances of this case should be at the collection
cases before the RTC where Shell can put up the fact of its payment as a
defense. (Pilipinas Shell Petroleum Corporation v. Commissioner of
Customs, G. R. No. 176380, June 18, 2009)
48.
The assessment has long been final, and this recognition of finality
removes all perceived hindrances, based on this case, to the continuation
of the collection suits.
A suit for the collection of internal revenue taxes, where the
assessment has already become final and executory, the action to collect
is akin to an action to enforce the judgment. No inquiry can be made
therein as to the merits of the
In light of the conclusion that the present case does not involve a
decision of the Commissioner of Customs on a matter brought to him as a
tax protest, Atty. Valeras lack of authority to issue the collection letters
and to institute the collection suits is irrelevant. For this same reason, the
injunction against Atty. Valera cannot be invoked to enjoin the collection of
unpaid taxes due from Shell. (Pilipinas Shell Petroleum Corporation v.
Commissioner of Customs, supra)
4.
The Local Government Code explicitly authorizes
provinces and cities, notwithstanding any exemption granted
by any law or other special law to impose a tax on businesses
enjoying a franchise. Indicative of the legislative intent to carry out the
constitutional mandate of vesting broad tax powers to local government
units, the Local Government Code has withdrawn tax exemptions or
incentives theretofore enjoyed by certain entities. (City Government of San
Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)
5.
Philippine Long Distance Telephone Company, Inc.,
v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001,
upheld the authority of the City of Davao, a local government unit, to impose
and collect a local franchise tax because the Local Government has
withdrawn all tax exemptions previously enjoyed by all persons and
authorized local government units to impose a tax on business enjoying a
franchise tax notwithstanding the grant of tax exemption to them.
70
6.
8.
9.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
71
b.
Tax rate: In Accordance with a taxing ordinance which should
not exceed P300.00.
c.
Tax base: Reasonable classification by the sanggunian.
d.
Exception: Payment to one province or city no longer subject
to any other national or local tax, license or fee for the practice of such
profession in any part of the Philippine professionals exclusively employed in
the government.
e.
Date of payment: or on before January 31 or engaging in the
profession.
f.
Place of payment: Province or city where the professional
practices his profession or where he maintains his principal office in case he
practices his profession in several places.
12. Requirements:
Any individual or corporation
employing a person subject to professional tax shall require payment by that
person of the tax on his profession before employment and annually
thereafter.
Any person subject to the professional tax shall write in deeds,
receipts, prescriptions, reports, books of account, plans and designs,
surveys and maps, as the case may be, the number of the official receipt
issued to him.
Exemption: Professionals exclusively employed in the government
shall be exempt from payment. (Sec. 139, LGC)
NOTE: For the purpose of collecting the tax, the provincial or city
treasurer or his duly authorized representative shall require from such
professionals their current annual registration cards issued by competent
authority before accepting payment of their professional tax for the current
year. The PRC shall likewise require the professionals presentation of proof
of payment before registration of professionals or renewal of their licenses.
(last par., Art. 228, Rules and Regulations Implementing the Local
Government Code of 1991)
13. Who are the professionals who, if they are in
practice of their profession, are subject to professional tax ?
SUGGESTED ANSWER:
The professionals subject to the
professional tax are only those who have passed the bar examinations, or
any board or other examinations conducted by the Professional Regulation
Commission (PRC). for example, a lawyer who is also a Certified Public
Accountant (CPA) must pay the professional tax imposed on lawyers and
that fixed for CPAs, if he is to practice both professions. [Sec. 238 (f), Rule
XXX, Rules and Regulations Implementing the Local Government Code of
1991]
14.
X City issued a notice of assessment against
ABC Condominium Corporation for unpaid business taxes.
15.
Authority of Local Government Units (LGUs)
such as the City of Manila to impose business taxes. Section
143 of the LGC, is the very source of the power of municipalities and cities
to impose a local business tax, and to which any local business tax
imposed by cities or municipalities such as the City of Manila must
conform. It is apparent from a perusal thereof that when a municipality or
city has already imposed a business tax on manufacturers, etc. of liquors,
distilled spirits, wines, and any other article of commerce, pursuant to
Section 143(a) of the LGC, said municipality or city may no longer subject
the same manufacturers, etc. to a business tax under Section 143(h) of
the same Code. Section 143(h) may be imposed only on businesses that
are subject to excise tax, VAT, or percentage tax under the NIRC, and
that are not otherwise specified in preceding paragraphs. In the
same way, businesses such as respondents, already subject to a local
business tax under Section 14 of Tax Ordinance No. 7794 [which is based
on Section 143(a) of the LGC], can no longer be made liable for local
business tax under Section 21 of the same Tax Ordinance [which is based
72
on Section 143(h) of the LGC]. (The City of Manila, et al., v. Coca-Cola
Bottlers Philippines, Inc., G. R. No. 181845, August 4, 2009)
are:
a.
Appraisal at current and fair market value;
b.
Classification for assessment on the basis of actual use;
c.
Assessment on the basis of uniform classification;
d.
Appraisal, assessment, levy and collection shall not be let to a
private person;
e.
Appraisal and assessment shall be equitable.
NOTES AND COMMENTS: Real properties shall be appraised at the
current and fair market value prevailing in the locality where the property is
situated and classified for assessment purposes on the basis of its actual
use. (Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R.
No. 154126, October 11, 2005)
2.
The reasonable market value is determined by the
assessor in the form of a schedule of fair market values.
The schedule is then enacted by the local sanggunian.
3.
Fair market value is the price at which a property
may be sold by a seller who is not compelled to sell and bought
by a buyer who is not compelled to buy, taking into consideration all
uses to which the property is adopted and might in reason be applied.
The criterion established by the statute contemplates a hypothetical
sale. Hence, the buyers need not be actual and existing purchasers. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005 )
NOTES AND COMMENTS: In fixing the value of real property,
assessors have to consider all the circumstances and elements of value and
must exercise prudent discretion in reaching conclusions. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,
October 11, 2005)
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
4.
Approaches in estimating the fair market value of
real property for real property tax purposes ?
a.
Sales Analysis Approach. The sales price paid in actual
market transactions is considered by taking into account valid sales data
accumulated from among the Registrar of Deeds, notaries public,
appraisers, brokers, dealers, bank officials, and various sources stated
under the Local Government Code.
b.
Income Capitalization Approach. The value of an incomeproducing property is no more than the return derived from it. An analysis of
the income produced is necessary in order to estimate the sum which might
be invested in the purchase of the property.
c.
Reproduction cost approach is a formal approach used
exclusively n appraising man-made improvements such as buildings and
other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the
data gathered to arrive at the estimated fair market value to be included in
the ordinance containing the schedule of fair market values. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,
October 11, 2005 citing Local Assessment Regulations No. 1-92)
73
approach provided under the rules implementing the statute. It unduly
interferes with the duties statutorily placed upon the local assessor by
completely dispensing with his analysis and discretion which the Local
Government Code and the regulations require to be exercised. An
ordinance that contravenes any statute is ultra vires and void.
b.
The consideration approach in the ordinance is illegal since
the appraisal, assessment, levy and collection of real property tax shall not
be let to any private person, it will also completely destroy the fundamental
principle in real property taxation that real property shall be classified,
valued and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it. Allowing the parties to a
private sale to dictate the fair market value of the property will dispense with
the distinctions of actual use stated in the Local Government Code and in
the regulations.
c.
The invalidity is not cured by the prhase whichever is higher
because an integral part of that system still permits valuing real property in
disregard of its actual use.
d.
The ordinance would result to real property assessments more
than once every three (3) years and that is not the congressional intent as
shown in the provisions of the Local Government Code and the regulations.
Consequently, the real property tax burden should not be interpreted to
include those beyond what the Code or the regulations expressly clearly
state.
e.
The proviso would provide a chilling effect on real property
owners or administrators to enter freely into contracts reflecting the
increasing value of real properties in accordance with prevailing market
conditions.
While the Local Government Code provides that the assessment of
real property shall not be increased once every three (3) years, the
questioned proviso subjects the property to a higher assessment every time
a sales transaction is made. Real property owners would therefore
postpone sales until after the lapse of the three (3) year period, or if they do
so within the said period they shall be compelled to dispose of the property
at a price not exceeding the last prior conveyance in order to avoid a higher
tax assessment.
In the above two scenarios real property owners are effectively
prevented from obtaining the best price possible for their properties and
unduly hampers the equitable distribution of wealth. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126, October 11,
2005)
6.
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 296)
b.
Light Rail Transit (LRT) improvements such as buildings,
carriageways, passenger terminals stations, and similar structures do not
form part of the public roads since the former are constructed over the latter
in such a way that the flow of vehicular traffic would not be impaired. The
carriageways and terminals serve a function different from the public roads.
Furthermore, they are not open to use by the general public hence not
exempt from real property taxes. Even
granting
that
the
national
government owns the carriageways and terminal stations, the property is not
exempt because their beneficial use has been granted to LRTA a taxable
entity. (Light Rail Transit Authority v. Central Board of Assessment Appeals, et al.,
G. R. No. 127316, October 12, 2000)
c.
Barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied
fuel oil to the power plant barges, and the accessory equipment mounted on
the barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that [d]ocks and
structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast are considered immovable
property by destination being intended by the owner for an industry or work
which may be carried on in a building or on a piece of land and which tend
directly to meet the needs of said industry or work. (FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and companion case)
7.
Unpaid realty taxes attach to the property and is
chargeable against the person who had actual or beneficial use
and possession of it regardless of whether or not he is the
owner. To impose the real property tax on the subsequent owner which
was neither the owner not the beneficial user of the property during the
designated periods would not only be contrary to law but also unjust.
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)
NOTES AND COMMENTS: 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.
74
9.
Public hearings are mandatory prior to approval of
tax ordinance, but this still requires the taxpayer to adduce evidence to
show that no public hearings ever took place. (Reyes, et al., v. Court of
Appeals, et al., G.R. No. 118233, December 10, 1999) Public hearings are
required to be conducted prior to the enactment of an ordinance imposing
real property taxes. (Figuerres v. Court of Appeals, et al., G.R. No. 119172, March
25, 1999)
13.
FELS Energy, Inc., had a contract to supply
NPC with the electricity generated by FELS power barges.
The contract also stated that NPC shall be responsible for all
75
subsequently reduced upon the request of a property owner. In the latter
instance, allusions of possible cover, illicit trade-off cannot be avoided, and
in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system. (FELS Energy, Inc., v. Province of
14.
A special levy or special assessment is an
imposition by a province, a city, a municipality within the
Metropolitan Manila Area, a municipality or a barangay upon real
property specially benefited by a public works expenditure of the LGU to
recover not more than 60% of such expenditure.
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)
20. Charitable
institutions,
churches
and
parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings and improvements
76
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)
25.
As a general principle, a charitable institution does
not lose its character as such and its exemption from taxes
simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives
subsidies from the government. So long as the money received is
devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons
managing or operating the institution. (Lung Center of the Philippines v. Quezon
City, et al., etc., G. R. No. 144104, June 29, 2004)
27.
77
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 1987] 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)
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT