Академический Документы
Профессиональный Документы
Культура Документы
TAXATION
VER. 2010.06.12
copyrighted 2010
TAXATION
Nice to know
Should know
Must know and master
It is further suggested that the reader should merely browse those
without stars.
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
TAXATION, IN GENERAL
1. State briefly and concisely the nature of taxation.
Alternatively, define taxation.
SUGGESTED ANSWER: The inherent power of the sovereign
exercised through the legislature to impose burdens upon subjects and
objects within its jurisdiction for the purpose of raising revenues to carry
out the legitimate objects of government.
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.
SUGGESTED ANSWER: Taxes are the lifeblood of the nation.
Without revenue raised from taxation, the government will not
2
survive, resulting in detriment to society. Without taxes, the government
would be paralyzed for lack of motive power to activate and operate it.
(Commissioner of Internal Revenue v. Algue, Inc. et al., 158 SCRA 8, 16-17)
c.
Amount: In taxation, no limit as to amount while license fee
limited to cost of the license and the expenses of police surveillance and
regulation.
d.
Time of payment:
Taxes normally paid after
commencement of business while license fee before.
e.
Effect of payment: Failure to pay a tax does not make the
business illegal while failure to pay license fee makes business illegal.
f.
Surrender: Taxes, being the lifeblood of the state, cannot be
surrendered except for lawful consideration while a license fee may be
surrendered with or without consideration. (Cooley on Taxation, pp. 11371138; Pacific Commercial Company v. Romualdez, et al., 49 Phil. 924)
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation is to
promote the general welfare and to protect the health, safety or morals of
the inhabitants. It is in the joint exercise of the power of taxation and police
power where regulatory taxes are collected.
Taxation may be made the implement of the states police power.
The motivation behind many taxation measures is the implementation of
police power goals.
[Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3,
2005) The reader should note that the August 3, 2005 Southern Cross case
SUGGESTED ANSWER:
a.
Enforced contribution.
b.
Generally payable in money.
c.
Proportionate in character.
d.
Levied on persons, property or exercise of a right or
privilege.
e.
Levied by the state having jurisdiction.
f.
Levied by the legislature.
g.
Levied for a public purpose.
h.
Paid at regular periods or intervals.
tax.
c.
Excise imposed upon the performance of an act, the
enjoyment of a privilege or the engaging in an occupation. Example
income tax, estate tax.
4
a.
Direct taxes. Those that are extracted from the very person
who, it is intended or desired, should pay them (Commissioner of Internal
Revenue v. Philippine Long Distance Telephone Company, G. R. No. 140230,
December 15, 2005); they are impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in, (Commissioner of
Internal Revenue v. Philippine Long Distance Telephone Company, supra)
17.
Silkair (Singapore) PTE, Ltd., an international
carrier, purchased aviation gas from Petron Corporation,
which it uses for its operations. It now claims for refund or tax
credit for the excise taxes it paid claiming that it is exempt from
the payment of excise taxes under the provisions of Sec. 135 of
the NIRC of 1997 which provides that petroleum products are
exempt from excise taxes when sold to Exempt entities or agencies
covered by tax treaties, conventions, and other international agreements for their
use and consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes
petroleum products sold to Philippine carriers, entities or agencies
5
cover, among others, both direct and indirect taxes on all petroleum
products used in its operation. Presidential Decree No. 938 [NPCs
amended charter] amended the tax exemption by simplifying the same law
in general terms. It succinctly exempts NPC from all forms of taxes,
duties, fees The use of the phrase all forms of taxes demonstrates the
intention of the law to give NPC all the tax exemptions it has been enjoying
before.
The exemption granted under Section 135 (b) of the NIRC of 1997
and Article 4(2) of the Air Transport Agreement between RP and
Singapore cannot, without a clear showing of legislative intent, be
construed as including indirect taxes. Statutes granting tax exemptions
must be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority, and if an exemption is found to exist, it must
not be enlarged by construction. (Silkair (Singapore) PTE, Ltd., v. Commissioner
of Internal Revenue, G.R. No. 173594, February 6, 2008)
18.
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
2.
6
j. Public use is no longer confined to the traditional notion of use
by the public but held synonymous with public interest, public benefit,
public welfare, and public convenience. (Commissioner of Internal Revenue v.
Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)
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:
7
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the
enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R.
No. 167919, February 14, 2007)
9.
Paradigm shift from exclusive Congressional
power to direct grant of taxing power to local legislative bodies.
10.
8
to levy taxes and otherwise create sources of revenue. They no longer
have to wait for a statutory grant of these powers. The power of the
legislative authority relative to the fiscal powers of local governments has
been reduced to the authority to impose limitations on municipal powers.
Moreover, these limitations must be consistent with the basic policy of
local autonomy. The important legal effect of Section 5 is thus to reverse
the principle that doubts are resolved against municipal corporations.
Henceforth, in interpreting statutory provisions on municipal fiscal powers,
doubts will be resolved in favor of municipal corporations.
It is
understood, however, that taxes imposed by local government must be for
a public purpose, uniform within a locality, must not be confiscatory, and
must be within the jurisdiction of the local unit to pass. (Quezon City, et al.,
v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing
City Government of Quezon City, et al. v. Bayan Telecommunications, Inc., G.R.
No. 162015, March 6, 2006, 484 SCRA 169)
13.
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)
15.
18.
Obama Airlines, Inc., a foreign airline company
which does not maintain any flight to and from the Philippines
sold air tickets in the Philippines, through a general sales
agent, relating to the carriage of passengers and cargo
between two points, both outside the Philippines.
a.
Is Obama, Inc., subject to income taxes on the sale
of the tickets ?
SUGGESTED ANSWER: Yes. The source of income which is
taxable is that activity which produced the income. The sale of tickets in
the Philippines is the activity that determines whether such income is taxable
in the Philippines.
10
The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The situs of the source of payments is
the Philippines. the flow of wealth proceeded from and occurred, within the
Philippine territory, enjoying the protection accorded by the Philippine
Government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government. [Commissioner of Internal
Revenue v. British Overseas Airways Corporation (BOAC), 149 SCRA 395]
Off-line air carriers having general sales agents in the Philippines
are engaged in or doing business in the Philippines and their income from
sales of passage documents here is income from within the Philippines.
Thus, the off-line air carrier liable for the 32% (now 30%) tax on its taxable
income. [South African Airways v. Commissioner of Internal Revenue, G.R. No.
180356, February 16, 2010 citing Commissioner of Internal Revenue v. British
Overseas Airways Corporation (British Overseas Airways), No. L-65773-74, April
30, 1987, 149 SCRA 395]
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.
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
19.
tax.
CONSTITUTIONAL LIMITATIONS
1.
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;
11
e. The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object;
f.
Delegated power of the President to impose tariff rates, import
and export quotas, tonnage and wharfage dues:
1)
Delegation by Congress
2)
through a law
3)
subject to Congressional limits and
restrictions
4)
within the framework of national development program.
g.
Tax exemption of charitable institutions, churches, parsonages
and convents appurtenant thereto, mosques, and all lands, buildings and
improvements of all kinds actually, directly and exclusively used for religious,
charitable or educational purposes;
h.
No tax exemption without the concurrence of majority vote of
all members of Congress;
i.
No use of public money or property for religious purposes
except if priest is assigned to the armed forces, penal institutions,
government orphanage or leprosarium;
j.
Money collected on tax levied for a special purpose to be used
only for such purpose, balance if any, to general funds;
k.
The Supreme Court's power to review judgments or orders of
lower courts in all cases involving the legality of any tax, impose,
assessment or toll or the legality of any penalty imposed in relation to the
above;
l.
Authority of local government units to create their own sources
of revenue, to levy taxes, fees and other charges subject to guidelines and
limitations imposed by Congress consistent with the basic policy of local
autonomy;
m.
Automatic release of local government's just share in national
taxes;
n.
Tax exemption of all revenues and assets of non-stock, nonprofit educational institutions used actually, directly and exclusively for
educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by law
including restrictions on dividends and provisions for reinvestment of profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational purposes
subject to conditions prescribed by law.
5.
Equal protection of the law clause is subject to
reasonable classification.
If the groupings are characterized by
substantial distinctions that make real differences, one class may be treated
and regulated differently from another. The classification must also be
germane to the purpose of the law and must apply to all those belonging to
the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January
20, 1999)
6.
Requisites for valid classification. All that is
required of a valid classification is that it be reasonable, which means that
a.
the classification should be based on substantial distinctions
which make for real differences,
b.
that it must be germane to the purpose of the law;
c.
that it must not be limited to existing conditions only; and
d.
that it must apply equally to each member of the class.
The standard is satisfied if the classification or distinction is based
on a reasonable foundation or rational basis and is not palpably arbitrary.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715,
August 14, 2008]
7.
Equal protection does not demand absolute
equality. It merely requires that all persons shall be treated alike, under
like circumstances and conditions, both as to the privileges conferred and
liabilities enforced. (Santos v. People, et al, G. R. No. 173176, August 26, 2008)
It is imperative to duly establish that the one invoking equal
protection and the person to which she is being compared were indeed
similarly situated, i.e., that they committed identical acts for which they
were charged with the violation of the same provisions of the NIRC; and
that they presented similar arguments and evidence in their defense - yet,
they were treated differently. (Santos, supra)
8.
Tests to determine validity of classification.
The
United States Supreme Court has established different tests to determine
the validity of a classification and compliance with the equal protection
clause. The recognized tests are:
a.
The traditional (or rational basis) test.
b.
The strict scrutiny (or compelling interest) test.
c. The intermediate level of scrutiny (or quasi-suspect class) test.
9.
The traditional (or rational basis) test used in order
to determine the validity of classification. The classification is
valid if it is rationally related to a constitutionally permissible state interest.
The complainant must prove that the classification is invidous,
wholly arbitrary, or capricious, otherwise the classification is presumed
to be valid. (Lindsley v. Natural Carboinic Gas Co., 220 U.S. 61; McGowan v.
Maryland, 366 U.S. 420; United States Railroad Retirement Board v. Fritz, 449
U.S. 166)
12
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)
9.
real estate taxes for the preceding year and the condonation
of all penalties on fines resulting from the late payment.
Arguing that the ordinance rewards delinquent tax
payers and discriminates against prompt ones, Benjie
demands that he be refunded an amount equivalent to onehalf of the real property taxes he paid. The municipal attorney
rendered an opinion that Benjie cannot be reimbursed
because the ordinance did not provide for such
reimbursement. Benjie files suit to declare the ordinance void
on the ground that it is a class legislation. Will his suit
prosper ? Explain your answer briefly.
SUGGESTED ANSWER: No. There is no class legislation
because there is no violation of the equal protection suit. There is a valid
classification between those who already paid their taxes and those who
have not. Furthermore, the taxing authority has the prerogative to select
the subjects and objects of taxation, including granting a 50% discount in
the payment of unpaid real estate taxes, and the condonation of all
penalties on fines resulting from late payment.
13
mistaken performance of the statutory duty, although a violation of the
statute, is not without more a denial of the equal protection of the laws.
The unlawful administration by officers of a statute fair on its face,
resulting in its unequal application to those who are entitled to be treated
alike, is not a denial of equal protection unless there is shown to be
present in it an element of intentional or purposeful discrimination. This
may appear on the face of the action taken with respect to a particular
class or person, or it may only be shown by extrinsic evidence showing a
discriminatory design over another not to be inferred from the action itself.
(Santos v. People, et al, G. R. No. 173176, August 26, 2008)
13.
17.
When withdrawal of a tax exemption impairs
the obligation of contracts. The Contract Clause has never been
thought as a limitation on the exercise of the States power of taxation
save only where a tax exemption has been granted for a valid
consideration. (Smart Communications, Inc. v. The City of Davao, etc., et al., G.
R. No. 155491, September 16, 2008) citing Tolentino v. Secretary of Finance, G.
R. No. 115455, August 25, 1994, 235 SCRA 630, 685) The author opines that
18.
The primary reason for the withdrawal of tax
exemption privileges granted to government owned and
controlled corporations and all other units of government was that such
privilege resulted to serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due them. (Philippine Ports
Authority v. City of Iloilo, G. R. No. 109791, July 14, 2003)
14
21.
In lieu of all taxes refers to national internal
revenue taxes and not to local taxes. The in lieu of all taxes
clause applies only to national internal revenue taxes and not to local
taxes. As appropriately pointed out in the separate opinion of Justice
Antonio T. Carpio in a similar case involving a demand for exemption from
local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to
taxes, other than income tax, imposed under the National Internal
Revenue Code. The "in lieu of all taxes" clause does not apply to local
taxes. The proviso in the first paragraph of Section 9 of Smart's franchise
states that the grantee shall "continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code." Also, the
second paragraph of Section 9 speaks of tax returns filed and taxes paid
to the "Commissioner of Internal Revenue or his duly authorized
representative in accordance with the National Internal Revenue Code."
Moreover, the same paragraph declares that the tax returns "shall be
subject to audit by the Bureau of Internal Revenue." Nothing is mentioned
in Section 9 about local taxes. The clear intent is for the "in lieu of all
taxes" clause to apply only to taxes under the National Internal Revenue
Code and not to local taxes. Even with respect to national internal revenue
taxes, the "in lieu of all taxes" clause does not apply to income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's
franchise to also apply to local taxes, Congress would have expressly
mentioned the exemption from municipal and provincial taxes. Congress
could have used the language in Section 9(b) of Clavecilla's old franchise,
as follows:
x x x in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever, municipal,
provincial or national, from which the grantee is hereby expressly
exempted, x x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local
taxes. Congress used the "in lieu of all taxes" clause only in reference to
national internal revenue taxes. The only interpretation, under the rule on
strict construction of tax exemptions, is that the "in lieu of all taxes" clause
in Smart's franchise refers only to national and not to local taxes. [Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008 citing Philippine Long Distance Telephone Company, Inc. v.
City of Davao, 447 Phil. 571, 594 (2003)]
NOTES AND COMMENTS: The author opines that the above finds
application to all telecommunications companies.
15
NOTES AND COMMENTS: This is practically the same holding in an
earlier case
involving another telecommunications company. Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008. The author opines that since practically all franchises
granted to telecommunications companies are similarly worded that the above
doctrine finds application to the others.)
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.
If only the 1st element is present, taxing the same subject or object twice, by the
same taxing authority, etc., there is no violation of the equal protection clause
because all subjects and objects that are similarly situated are subject to the same
burdens and granted the same privileges without any discrimination whatsoever,
The presence of the 2nd element, taxing all of the subjects and objects for
the first time, without taxing all for the second time, results to discrimination among
subjects and objects that are similarly situated, hence violative of the equal
protection clause.
(Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., et al., G.R. No.
127105, June 25, 1999)
30.
16
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]
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
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.
OTHER CONCEPTS
1. Distinguish tax from debt.
Basis
TAX
DEBT
based on law
based on contract or
judgment
c.
Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
17
Thus, it is correct to say that the offsetting of a taxpayers tax
refund with its alleged tax deficiency is unavailing under Art. 1279 of the
Civil Code. (South African Airways v. Commissioner of Internal Revenue, G.R.
No. 180356, February 16, 2010 reiterating Caltex Philippines, Inc. v.
Commission on Audit, which applied Francia v. Intermediate Appellate Court)
4. Exceptions:
allowed for local taxes.
When
set-off
or
compensation
a.
Where both claims already become overdue and
demandable as well as fully liquidated. Compensation takes place by
operation of law under Art. 1200 in relation to Arts. 1279 and 1290 all of
the Civil Code. (Domingo v. Garlitos, 8 SCRA 443)
b.
Compensation takes place by operation of law, where the
government and the taxpayer are in their own right reciprocally debtors
and creditors of each other, and that the debts are both due and
demandable. This is in consequence of Article 1278 and 1279 of the Civil
Code. (Domingo v. Garlitos, 8 SCRA 443)
c.
,The Supreme Court upheld the validity of a set-off between
the taxpayer and the government. In both cases, the claims of the
taxpayers therein were certain and liquidated. The claims were certain
since there were no doubts or disputes as to their refundability. In fact,
the government admitted the fact of over-payment.
(Commissioner of
Internal
Revenue
d.
In case of a tax overpayment, the BIRs obligation to refund
or off-set arises from the moment the tax was paid. REASON: Solutio
indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern, Inc 172
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
SCRA 364)
unduly exacted nor assumed beyond the plain meaning of the tax laws.
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.
(Ibid., citing CIR v. Philippine American Accident Insurance Company, Inc., G.R.
No. 141658, March 18, 2005, 453 SCRA 668)
5.
Gilbert obtained a judgment for a sum of
money against the municipality of Camiling. The judgment
has become final although execution has not issued. Upon
receiving an assessment for municipal sales taxes from the
Municipal Treasurer, Gilbert executed a partial assignment of
his judgment sufficient to cover the assessment in favor of
the Municipality. May the Municipal Treasurer validly accept
the assignment? Why?
SUGGESTED ANSWER: Yes. The parties in this case are
mutually debtors and creditors of each other, and since both of the claims
8.
Strict interpretation of tax exemption laws. Taxes
are what civilized people pay for civilized society. They are the lifeblood of
the nation. Thus, statutes granting tax exemptions are construed
stricissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of tax exemption must be clearly shown and based on
language in law too plain to be mistaken. Otherwise stated, taxation is the
rule, exemption is the exception. (Quezon City, et al., v. ABS-CBN
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
9.
laws. The basis for the rule on strict construction to statutory provisions
granting tax exemptions or deductions is to minimize differential treatment
and foster impartiality, fairness and equality of treatment among
taxpayers. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R.
No. 166408, October 6, 2008) He who claims an exemption from his share
of common burden must justify his claim that the legislature intended to
exempt him by unmistakable terms. For exemptions from taxation are not
favored in law, nor are they presumed. They must be expressed in the
clearest and most unambiguous language and not left to mere
implications. It has been held that exemptions are never presumed the
burden is on the claimant to establish clearly his right to exemption and
cannot be made out of inference or implications but must be laid beyond
reasonable doubt. In other words, since taxation is the rule and
exemption the exception, the intention to make an exemption ought to be
expressed in clear and unambiguous terms. (Quezon City, supra citing
Agpalo, R.E., Statutory Construction, 2003 ed., p. 302)
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which underlies all
quasi-contracts abhorring a persons unjust enrichment at the expense of
another. [Commissioner, supra citing Ramie Textiles, Inc. v. Hon. Mathay, Sr.,
178 Phil. 482 (1979); Puyat & Sons v. City of Manila, et al., 117 Phil. 985 (1963)]
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]
19
nature of an exemption, a legislative grace, which cannot be allowed
unless granted in the most explicit and categorical language. The
taxpayer must show that the legislature intended to exempt him from the
tax by words too plain to be mistaken. [Commissioner, supra with a note to
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda, supra) WHILE tax exemption has
prospective application.
see Surigao Consolidated Mining Co. Inc. v. CIR, supra at 732-733; Philex
Mining Corp. v. Commissioner of Internal Revenue, 365 Phil. 572, 579 (1999);
Davao Gulf Lumber Corp. v. Commissioner of Internal Revenue, 354 Phil. 891892 (1998); . Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd., 314
Phil. 220, 228 (1995)]
15.
Effect of a BIR reversal of a previous ruling
interpreting a law as exempting a taxpayer. A reversal of a BIR
ruling favorable to a taxpayer would not necessarily create a perpetual
exemption in his favor, for after all the government is never estopped from
collecting taxes because of mistakes or errors on the part of its agents.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al.,
293 SCRA 92, 99)
16.
20.
factors:
a.
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)
20
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.
TAX ON INCOME
Law of Partnership by Floyd R. Mechem, 2nd Ed., Sec. 83, p. 74 cited in Pascual v.
Commissioner of Internal Revenue, 166 SCRA 560)
1.
The Tax Code has included under the term
corporation partnerships, no matter how created or organized,
purpose of making gains, and they may, without becoming partners, are
among themselves as to the management and use of such property and the
application of the proceeds therefrom.. (Spurlock v,. Wilson, 142 S.W. 363,
160 No. App. 14, cited in Pascual v. Commissioner of Internal Revenue, 166
SCRA 560)
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.
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.
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
21
corporation because of the clear intention of the brothers to join together in a
venture for making money out of rentals.
7.
Income is gain derived and severed from capital, from labor
or from both combined. For example, to tax a stock dividend would be to
tax a capital increase rather than the income. (Commissioner of Internal
Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999)
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.
289)
22
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.
23
f.
Retirement benefits received under Republic Act No. 7641.
Retirement received from reasonable private benefit plan after compliance
with certain conditions. Amounts received for beyond control separation.
Foreign social security, retirement gratuities, pensions, etc. USVA benefits,
SSS benefits and GSIS benefits.
26. What
24
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
g. Depletion or deduction arising from the exhaustion of a nonreplaceable asset, usually a natural resource.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
h. Charitable and other contributions. Resident citizens,
resident alien individuals and nonresident alien individuals who are engaged
in trade and business, on their gross incomes other from compensation
income are allowed to deduct these expenses. Domestic corporations,
estates and trusts may also deduct this expense. Nonresident citizens and
foreign corporations on their gross incomes from within may also deduct this
expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
i. Research and development expenditures treated as deferred
expenses paid or incurred by the taxpayer in connection with his trade,
business or profession, not deducted as expenses and chargeable to capital
account but not chargeable to property of a character which is subject to
depreciation or depletion.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
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.
j. Contributions to pension trusts. 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.
29.
expenditures.
SUGGESTED ANSWER: Ordinary expenses are those which are
common to incur in the trade or business of the taxpayer WHILE capital
expenditures are those incurred to improve assets and benefits for more
than one taxable year. Ordinary expenses are usually incurred during a
taxable year and benefits such taxable year. Necessary expenses are those
which are appropriate or helpful to the business.
25
31.
1)
fixing of a right to income or liability to pay; and
2)
the availability of the reasonable accurate determination
of such income or liability.
The test does not demand that the amount of such income or liability
be known absolutely, only that a taxpayer has at his disposal the information
necessary to compute the amount with reasonable accuracy.
The all-events test is satisfied where computation remains uncertain;
if its basis is unchangeable, the test is satisfied where a computation may
be unknown, but is not as much as unknowable, within the taxable year.
The amount of liability does not have to be determined exactly,; it must be
determined with reasonable accuracy implies something less than an
exact or completely accurate amount.
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.
26
f.
Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs or other similar
organizations;
g.
Expenses for foreign travel;
h.
Holiday and vacation expenses;
i.
Educational assistance to the employee or his dependents;
and
j.
Life or health insurance and other non-life insurance premiums
or similar amounts in excess of what the law allows. [Sec. 33 (B), NIRC of
1997; 1st par., Sec. 2.33 (B), Rev. Regs. No. 3-98]
27
SUGGESTED ANSWER: The tax benefit rule posits that the
recovery of bad debts previously allowed as deduction in the preceding year
or years shall be included as part of the taxpayers gross income in the year
of such recovery to the extent of the income tax benefit of said deduction.
NOTES AND COMMENTS:
a.
If in the year the taxpayer claimed deduction of bad debts
written-off, he realized a reduction of the income tax due from him on
account of the said deduction, his subsequent recovery thereof from his
debtor shall be treated as a receipt of realized taxable income. (Sec. 4, Rev.
Regs. 5-99)
b.
If the said taxpayer did not benefit from the deduction of the
said bad debt written-off because it did not result to any reduction of his
income tax in the year of such deduction (i.e. where the result of his
business operation was a net loss even without deduction of the bad debts
written-off), then his subsequent recovery thereof shall be treated as a mere
recovery or a return of capital, hence, not treated as receipt of realized
taxable income. (Sec. 4, Rev. Regs. 5-99)
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of Finance upon
the recommendation of the Commissioner of Internal Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
44.
45.
exemption ?
NOTES AND COMMENTS: It is clear from Rep. Act No. 9504 that
each of the spouses may claim the P50,000.00. Thus, the total familial
basic personal exemption for spouses is P100,000.00.
Furthermore, the distinctions between the concepts of single,
married and head of the family for purpose of availing of the basic
personal exemption has already been eliminated by Rep. Act No. 9504.
28
1)
2)
3)
regardless of age
is incapable of self-support
because of mental or physical defect. [2nd par., Sec.
2.79 (I) (1) (b), Rev. Regs. No. 2-98 as amended by Rev. Regs. No. 102008, arrangement and numbering supplied; Sec. 35 (b), NIRC of 1997,
as amended by Rep. Act No. 9504]
c.
It is to be noted that under the NIRC of 1997, as amended by
Rep. Act No. 9504, only qualified dependent children are considered for
additional exemptions. Grandparents, parents, as well, as brothers or
sisters, and other collateral relatives are not qualified dependents to be
claimed as additional exemptions.
However, if they are senior citizens they may qualify as additional
exemptions under the Senior Citizens Law but not under the NIRC of
1997, as amended by Rep. Act No. 9504.
Senior citizen shall be treated as dependents provided for in the
National Internal Revenue Code, as amended, and as such, individual
taxpayers caring for them, be they relatives or not shall be accorded the
privileges granted by the Code insofar as having dependents are
concerned. [last par. Sec. 5 (a), Rep. Act No. 7432, as amended by Rep. Act
9257, The Expanded Senior Citizens Act of 2003]
48.
a.
securities;
b.
c.
d.
e.
Paintings, sculptures, stamp collections, objects of arts which
are not used in trade or business;
f.
Inherited large tracts of agricultural land which were subdivided
pursuant to the government mandate under land reform, then sold to
tenants. (Roxas v. Court of Tax Appeals, etc. L-25043, April 26, 1968)
g. Real property used by an exempt corporation in its exempt
operations, such as a corporation included in the enumeration of Section 30
of the Code, shall not be considered used for business purposes, and
therefore considered as capital asset. (last sentence, 3rd par., Sec. 3.b,
Rev. Regs. No. 7-2003)
h. Real property, whether single detached, townhouse, or
condominium unit, not used in trade or business as evidenced by a
certification from the Barangay Chairman or from the head of administration,
in case of condominium unit, townhouse or apartment, and as validated
from the existing available records of the Bureau of Internal Revenue,
owned by an individual engaged in business, shall be treated as capital
asset. (last par., Sec. 3.b., Rev. Regs. No. 7-2003)
29
for the purpose of simply liquidating the estate but to make them more
saleable ; the employment of an attorney-in-fact for the purpose of
developing, managing, administering and selling the lots; sales made with
frequency and continuity; annual sales income from the sales was
considerable; and the heir was not a stranger to the real estate business.
(Tuazon, Jr. v. Lingad, 58 SCRA 170)
f. Inherited agricultural property improved by introduction of good
roads, concrete gutters, drainage and lighting systems converts the property
to an ordinary asset. The property forms part of the stock in trade of the
owner, hence an ordinary asset. This is so, as the owner is now engaged in
the business of subdividing real estate. (Calasanz v. Commissioner of Internal
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
31
of the gross income as of the end of the taxable year, as defined herein, is
hereby imposed on a corporation taxable under this Title, beginning on the
fourth taxable year immediately following the year in which such corporation
commenced its business operations, when the minimum corporate income
tax is greater than the tax computed under Subsection (A) of this section for
the taxable year. [Sec. 27 (E) (1), NIRC of 1997]
b.
Period when a corporation becomes subject to the MCIT.
(5) Specific rules for determining the period when a corporation becomes
subject to the MCIT (minimum corporate income tax) For purposes of the MCIT, the taxable year in which business
operations commenced shall be the year in which the domestic corporation
registered with the Bureau of Internal Revenue (BIR).
Firms which were registered with BIR in 1994 and earlier years shall
be covered by the MCIT beginning January 1, 1998. x x x (Rev. Regs. No.
9-98)
Manila Banking Corporation v. Commissioner of Internal Revenue, G.
R. No. 168118, August 26, 2006 did not apply Rev. Regs. No. 9-98 because
Rev. Regs. No. 4-95 specifically refers to thrift banks.)
c.
Purpose of the four (4) year grace period. The intent of
Congress relative to the MCIT is to grant a four (43) year suspension of
tax payment to newly organized corporations. Corporations still starting their
business operations have to stabilize their venture in order to obtain a
stronghold in the industry. It does not come as a surprise then when many
companies reported losses in their initial years of operations.
Thus, in order to allow new corporations to grow and develop at the
initial stages of their operations, the lawmaking body saw the need to
provide a grace period of four years from their registration before they pay
their minimum corporate income tax. (Manila Banking Corporation v.
Commissioner of Internal Revenue, G. R. No. 168118, August 26, 2006)
ESTATE TAXES
1. 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,
2.
William Smith, an American citizen, was
a permanent resident of the Philippines. He died in San
Francisco, California. He left 10,000 shares of San Miguel
Corporation, a condominium unit at the Twin Towers
Building at Pasig, Metro Manila and a house and lot in
Miami, Florida.
What assets shall be included in the Estate Tax Return to
be filed with the BIR ?
SUGGESTED ANSWER: All of the assets should be included in the
Estate Tax Return to be filed with the BIR.
Smith, an American citizen and a permanent resident of the
Philippines is considered, for Philippine estate tax purposes, a resident
alien. Consequently, the assets to be included in the Estate Tax Return to
be filed with the BIR should be all property, real or personal, tangible,
intangible or mixed, wherever situated, to the extent of the interest that
Smith has at the time of his death. Thus, all of the properties enumerated
in the problem irrespective of where they are situated are includible in the
gross estate of Smith.
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.
32
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]
6.
8.
The approval of the court sitting in probate, or
as a settlement tribunal over the estate of the deceased is not a
mandatory requirement for the collection of the estate. The
probate court is determining issues which are not against the property of the
decedent, or a claim against the estate as such, but is against the interest or
property right which the heir, legatee, devisee, etc. has in the property
formerly held by the decedent.
The notices of levy were regularly issued within the prescriptive
period.
33
The tax assessment having become final, executory and enforceable,
the same can no longer be contested by means of a disguised protest.
(Marcos, II v. Court of Appeals, et al., 273 SCRA 47)
DONORS TAXES
1.
stranger ?
SUGGESTED ANSWER:
When the donee or beneficiary is a
stranger, the tax payable by the donor shall be 30% of the net gifts.
2.
stranger ?
SUGGESTED ANSWER: A stranger is a is person who is not a:
a.
Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or
b.
Relative by consanguinity in the collateral line within the fourth
degree of relationship. [Sec. 99 (B), NIRC of 1997]
NOTES AND COMMENTS: All relatives by affinity, irrespective of the
degree, are considered as strangers.
3.
4.
For purposes of the donors tax, what is meant by
net gifts ?
SUGGESTED ANSWER: The net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the donee the obligation to pay the
mortgage liability, then the net gift is measured by deducting from the fair
market value of the property the amount of the mortgage assumed. (last
par., Sec. 11, Rev. Regs.No.2-2003)
b.
Supposing that instead of a general renunciation,
B renounced her hereditary share in As estate to X who is a
special child, would your answer be the same ? Explain.
SUGGESTED ANSWER: My answer would be different. The
renunciation in favor of X would be subject to donors tax.
This is so because the renunciation was specifically and
categorically done in favor of X and identified heir to the exclusion or
disadvantage of Y and Z, the other co-heirs in the hereditary estate. (4th
par., Sec. 11, Rev. Regs. No. 2-2003)
8.
donors tax.
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:
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)
34
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
35
3.
indirect tax. If a special law merely exempts a party as a seller from its
direct liability for payment of the VAT, but does not relieve the same party
as a purchaser from its indirect burden of the VAT shifted to it by its VATregistered suppliers, the purchase transaction is not exempt.
REASON: The VAT is a tax on consumption, the amount of which
may be shifted or passed on by the seller to the purchaser of the goods,
properties or services. [Commissioner of Internal Revenue v. Seagate
Technology (Philippines), G. R. No. 153866, February 11, 2005)
4.
Illustration of effects of exemptions from VAT
which is an indirect tax.
A VAT exempt seller sells to a non-VAT
exempt purchaser. The purchaser is subject to VAT because the VAT is
merely added as part of the purchase price and not as a tax because the
burden is merely shifted. The seller is still exempt because it could pass
on the burden of paying the tax to the purchaser.
5.
The VAT is a tax on consumption.
Meaning of
consumption as used under the VAT system. Consumption is
"the use of a thing in a way that thereby exhausts it."
Applied to services, the term means the performance or "successful
completion of a contractual duty, usually resulting in the performer's
release from any past or future liability x x x" Unlike goods, services
cannot be physically used in or bound for a specific place when their
destination is determined. Instead, there can only be a "predetermined
end of a course" when determining the service "location or position x x x
for legal purposes." [Commissioner of Internal Revenue v. Placer Dome
Technical Services (Phils.), Inc. G. R. No. 164365, June 8, 2007]
6.
Illustration of the meaning of consumption as used
under the VAT system. For example the services rendered by a local
firm to its foreign client are performed or successfully completed upon its
sending to a foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines. Such
facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines.
[Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.),
Inc. G. R. No. 164365, June 8, 2007]
7.
a.
1)
Sells, barters, exchanges or leases goods or
properties, or
2)
renders services, and
b.
any person who imports goods xxx
However, in the case of importation of taxable goods, the importer,
whether an individual or corporation and whether or not made in the
course of his trade or business, shall be liable to VAT xxx . (Rev. Regs. No.
16-2005,Sec. 4.105-1, paraphrasing supplied)
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)
9.
How the VAT is imposed on the increase in worth,
merit or improvement of the goods or services. The VAT utilizes
the concept of the output and input taxes.
Output VAT less Input VAT = VAT due on the increase in worth,
merit or improvement f the goods or services.
36
or importation of goods and services by VAT-registered persons against
the output tax was established. This continued with the Expanded VAT
Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424).
The right to credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can limit. It should be
stressed that a person has no vested right in statutory privileges.
(ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207, October 15,
2005, and companion cases, on the motion for reconsideration)
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 )
18.
37
The NMC shares and the vessels were offered for public
bidding. Among the stipulated terms and conditions for the
public auction was that the winning bidder was to pay "a
value added tax of 10% on the value of the vessels."
Magsaysay Lines, Inc., offered to buy the shares and the
vessels for P168,000,000.00. The bid was made by Magsaysay
Lines, purportedly for a new company still to be formed
composed of itself, Baliwag Navigation, Inc., and FIM Limited
of the Marden Group based in Hongkong . The bid was
approved by the Committee on Privatization, and a Notice of
Award was issued to Magsaysay Lines.
Is
the
sale
subject
to
VAT
?
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.
23.
The following sales of real properties
are exempt from VAT, namely:
a.
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business;
38
b.
Sale of real properties utilized for low-cost housing as
defined by RA No. 7279, otherwise known as the Urban and
Development Housing Act of 1992 and other related laws, such as RA
No. 7835 and RA No. 8763.
xxx
xxx
xxx
c.
Sale of real properties utilized for socialized housing as
defined under RA No. 7279, and other related laws wherein the price
ceiling per unit is P225,000.00 or as may from time to time be determined
by the HUDCC and the NEDA and other related laws.
xxx
xxx
xxx
d.
Sale of residential lot valued at One Million Five Hundred
Thousand Pesos (P1,500,000.00) and below, or house & lot and other
residential dwellings valued at Two Million Give Hundred Thousand Pesos
(P2,500,000.00)
and
below
where
the
instrument
of
sale/transfer/disposition was executed on or after November 1, 2005,
provided, That not later than January 31, 2009 and every three (3) years
thereafter, the amounts stated herein shall be adjusted to its present value
using the Consumer Price Index, as published by the National Statistics
Office (NSO); provided, further, that such adjustment shall be published
through revenue regulations to be issued not later than March 31 of each
year.
If two or more adjacent residential lots are sold or disposed in favor
of one buyer, for the purpose of utilizing the lots as one residential lot, the
sale shall be exempt from VAT only if the aggregate value of the lots do
not exceed P1,500,000.00. Adjacent residential lots, although covered by
separate titles and/or separate tax declarations, when sold or disposed of
to one and the same buyer, whether covered by one or separate Deed of
Conveyance, shall be presumed as a sale of one residential lot. [Rev.
Regs. No. 4.109-1 (B), (p), paraphrasing and numbering supplied]
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]
25.
b.
stock, real estate, commercial, customs and immigration
brokers;
c.
lessors of property, whether personal or real;
d.
persons engaged in warehousing services
e.
lessors or distributors of cinematographic films;
f.
persons engaged in milling, processing, manufacturing or
repacking goods for others;
g.
proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; theaters, and movie houses;
h.
proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers;
i.
dealers in securities;
j.
lending investors;
k.
transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport of
goods or cargoes;
l.
common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines;
m.
sales of electricity by generation companies, transmission,
and/or distribution companies;
n.
franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise
grantees except franchise grantees of radio and/or television broadcasting
whose annual gross receipts of the preceding year do not exceed Ten
Million Pesos (P10,000,000.00), and franchise grantees of gas and water
utilities;
o.
non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and
The term
sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or
consideration, whether in kind or in cash, including those performed or
rendered by the following:
a.
construction and service contractors;
p.
similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties. [NIRC of 1997, Sec. 108 (A), as amended by R.A. No. 9337; Rev.
Regs. No. 16-2005, Sec. 4,108-2, 1st par., arrangement and numbering supplied]
39
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.)
28.
at zero. When applied to the tax base, such rate obviously results in no
tax chargeable against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund or a tax credit certificate for
the VAT previously charged by suppliers. [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), G. R. No. 153866,
February 11, 2005]
Under a zero-rating scheme, the sale or exchange of a particular
service is completely freed from the VAT, because the seller is entitled to
recover, by way of a refund or as an input tax credit, the tax that is
included in the cost of purchases attributable to the sale or exchange.
The tax paid or withheld is not deducted from the tax base. (Commissioner,
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]."
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.
40
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.
37.
Ecozone, defined.
An ECOZONE or a Special
Economic Zone has been described as
[S]elected areas with highly
developed or which have the potential to be developed into agro-industrial,
industrial, tourist, recreational, commercial, banking, investment and
financial centers whose metes and bounds are fixed or delimited by
Presidential Proclamations. An ECOZONE may contain any or all of the
following: industrial estates (IEs), export processing zones (EPZs), free
trade zones and tourist/recreational centers. The national territory of the
Philippines outside of the proclaimed borders of the ECOZONE shall be
38. Zero-rated sale of service, defined. A zerorated sale of service (by a VAT-registered person) is a taxable transaction
for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services related to such
zero-rated sale shall be available as tax credit or refund in accordance
with Rev. Regs. No. 16-2005. [Rev. Regs. No. 16-2005, Sec. Sec. 4.108-5
(a), words in italics supplied)
39.
41
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)
42
b.
An exempt transaction shall not be the subject of any billing
for output VAT but it shall not also be allowed any input tax credits WHILE
an exempt party being zero-rated is allowed to claim input tax credits.
feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals generally considered as pets);
Specialty feeds refers to non-agricultural feeds or food for race
horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets.
(C)
Importation of personal and household effects belonging to
the residents of the Philippines returning from abroad and nonresident
citizens coming to resettle in the Philippines: Provided, That such goods
are exempt from customs duties under the Tariff and Customs Code of
the Philippines;
(D)
Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household effects
(except any vehicle, vessel, aircraft, machinery, other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own use
and not for sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner of Internal
Revenue, that such persons are actually coming to settle in the Philippines
and that the change of residence is bona fide;
(E) Services subject to percentage tax under Title V of the Tax
Code, as enumerated below:
(1)
Sale or lease of goods or properties or the
performance of services of non-VAT-registered persons, other
than the transactions mentioned in paragraphs (A) to (U) of Sec.
109 (1) of the Tax Code, the annual sales and/or receipts of which
does not exceed the amount of One Million Five Hundred
thousand Pesos (P1,500,000.00), Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the amount
herein stated shall be adjusted to its present value using the
Consumer Price Index, as published by the National Statistics
Office (NSO). (Sec. 116, Tax Code)
(2)
Services rendered by domestic common carriers by
land for the transport of passengers and keepers of garages.
(Sec. 117)
(3)
Services rendered by international air/shipping
carriers. (Sec. 118)
(4)
Service rendered by franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos (P10,000,000.00)
and by franchises of gas and water utilities. (Sec. 119)
(5)
Service rendered for overseas dispatch message or
conversation originating from the Philippines. (Sc. 120)
(6)
Services rendered by any person, company or
corporation (except purely cooperative companies or associations
43
) doing life insurance business of any sort in the Philippines.
(Sec. 123)
(7)
Services rendered by fire, marine or miscellaneous
insurance agents of foreign insurance companies. (Sec. 124)
(8)
Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing exhibitions
professional basketball games, jai-Alai and race tracks. (Sec.
125). and
(9)
Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock exchange or
through initial public offering. (Sec. 127)
(F)
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into raw sugar;
Agricultural contract growers refers to those persons producing for
others poultry, livestock or other agricultural and marine food products in
their original state.
(G) Medical, dental, hospital and veterinary services except
those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic operates
a pharmacy or drug store, the sale of drugs and medicine is subject to
VAT.
(H)
Educational services rendered by private educational
institutions, duly accredited by the Department of Education (DEPED), the
Commission on Higher Education (CHED), the Technical Education And
Skills Development Authority (TESDA) and those rendered by government
educational institutions;
Educational services shall refer to academic, technical or
vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA and those rendered by
government educational institutions and it does not include seminars, inservice training, review classes and other similar services rendered by
persons who are not accredited by the DepED, the CHED and/or the
TESDA.
(I)
Services rendered by individuals pursuant to an employeremployee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special laws,
except those under Presidential Decree No. 529 Petroleum Exploration
Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority (CDA) to their members as well as
sale of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce;
(M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N)
Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development Authority:
Provided, That the share capital contribution of each member does not
exceed Fifteen thousand pesos (P15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the members;
Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts thereof,
to be used by them are subject to VAT.
(O) Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business, or
real property utilized for low-cost and socialized housing as defined by
Republic Act No. 7279, otherwise known as the Urban Development and
Housing Act of 1992, and other related laws, such as RA No. 7835 and
RA No. 8765, residential lot valued at One million five hundred thousand
pesos (P 1,500,000) and below, house and lot, and other residential
dwellings valued at Two million five hundred thousand pesos (P
2,500,000) and below: Provided, That not later than January 31, 2009
and every three (3) years thereafter, the amounts herein stated shall be
adjusted to their present values using the Consumer Price Index, as
published by the National Statistics Office (NSO);
(Q) Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P 10,000) Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office (NSO);
(R)
Sale, importation, printing or publication of books and any
newspaper, magazine, review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements;
(S)
Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for domestic
or international transport operations; Provided, that the exemption from
VAT on the importation and local purchase of passenger and/or cargo
vessels shall be limited to those of one hundred fifty (150) tons and above,
including engine and spare parts of said vessels; Provided, further, that
44
the vessels be imported shall comply with the age limit requirement, at the
time of acquisition counted from the date of the vessels original
commissioning, as follows: (i) for passenger and/or cargo vessels, the
age limit is fifteen years (15) years old, (ii) for tankers, the age limit is ten
(10) years old, and (iii) For high-speed passenger cars, the age limit is
five (5) years old, Provided, finally, that exemption shall be subject to the
provisions of section 4 of Republic Act No. 9295, otherwise known as The
Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations; Provided, that the said
fuel, goods and supplies shall be used exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines directly
to a foreign port without stopping at any other port in the Philippines;
provided, further, that if any portion of such fuel, goods or supplies is used
for purposes other than that mentioned in this paragraph, such portion of
fuel, goods and supplies shall be subject to 10% VAT (now 12%);
(U) Services of banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial intermediaries; and
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
45
consolidated return for the taxable year but could not do so.
For married individuals, the husband and wife, subject to no. 2, supra,,
shall compute separately their individual income tax based on their
respective total taxable income: Provided, that if any income cannot be
definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their respective
taxable income. [2nd to the last par., Sec. 24 (A) (2), NIRC of 1997 as amended
by Rep. Act No. 9504]
6.
Individuals who are not required to file an income
tax return.
a.
An individual whose gross income does not exceed his total
personal and additional exemptions for dependents, Provided, That a citizen
of the Philippines and any alien individual engaged in business or practice of
profession within the Philippines shall file an income tax return regardless of
the amount of gross income [Sec. 51 (A) (2), NIRC of 1997]
b.
An individual with respect to pure compensation income,
derived from such sources within the Philippines, the income tax on which
has been correctly withheld: Provided, That an individual deriving
compensation concurrently from two or more employers at any time during
the taxable year shall file an income tax return [Sec. 51 (A) (2), NIRC of 1997,
as amended by Rep. Act No. 9504, paraphrasing supplied]
c.
An individual whose sole income has been subject to final
withholding tax;
d.
A minimum wage earner (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned), an individual who
is exempt from income tax pursuant to the provisions of the Tax Code and
other laws, general or special. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec.
22 (HH), both as amended by Rep. Act. 9504]
7.
Minimum wage earners are exempt from income
taxation. That minimum wage earners (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned) shall be exempt
from the payment of income tax on their taxable income: Provided, further,
That the holiday pay, overtime pay, night shift differential pay and hazard
pay received by such minimum wage earners shall likewise be exempt
from income tax. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec. 22 (HH), both as
amended by Rep. Act. 9504]
8.
An individual who is not required to file an income
tax return may nevertheless be required to file an information
return. [Sec. 51 (A) (3), NIRC of 1997]
9.
A corporation files its income tax return and pays its
income tax four (4) times during a single taxable year. Quarterly
returns are required to be filed for the first three quarters, then a final
adjustment return is filed covering the total taxable income for the whole
taxable year, be it calendar or fiscal.
46
3)
Corporations exempt from income tax under Sec. 30,
of the Tax Code, like the SSS, GSIS, the PCSO, etc. However,
income payments arising from any activity which is conducted for
profit or income derived from real or personal property shall be
subject to a withholding tax. (Sec. 57.5, Rev. Regs. No. 2-98)
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]
47
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to
discourage delay in the payment of taxes due to the State and in this sense
the surcharge and interest charged are not penal but compensatory in
nature they are compensation to the State for the delay in payment, or for
the concomitant tuse of the funds by the taxpayer beyond the date he is
supposed to have paid them to the State. (Bank of the Philippine Islands v.
Commissioner of Internal Revenue, G. R. No. 137002, July 27, 2006)
7.
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
48
or release of property affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs; (DIVISION)
5.
Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the assessment
and taxation of real property originally decided by the provincial or city board
of assessment appeals; (EN BANC)
6.
Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the Commissioner
of Customs which are adverse to the Government under Section 2315 of the
Tariff and Customs Code; (This has reference to forfeiture cases where the
decision is to release the seized articles DIVISION)
7.
Decisions of the Secretary of Trade and Industry, in case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and 302, respectively,
of the Tariff and Customs Code, and safeguard measures under Republic
Act No. 8800, where either party may appeal the decision to impose or not
to impose said duties. (DIVISION)
b.
Jurisdiction over cases involving criminal offenses as
herein provided:
1.
Exclusive original jurisdiction over all criminal cases
arising from violations of the National Internal Revenue Code or Tariff and
Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or
felonies mentioned in this paragraph where the principal amount of taxes
and fees, exclusive of charges and penalties claimed, is less than One
million pesos (P1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the civil action will be
recognized.
2.
Exclusive appellate jurisdiction in criminal offenses:
a)
Over appeals from the judgments, resolutions or orders
of the Regional Trial Courts in tax cases originally decided by them, in
their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their appellate
jurisdiction over tax cases originally decided by the Metropolitan Trial
5.
49
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)
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
50
becomes final and collectible and the Bureau of Internal Revenue could use
its administrative and judicial remedies in collecting the tax.
g. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall be submitted, otherwise the assessment shall
become final and collectible and the BIR could use its administrative and
judicial remedies to collect the tax.
Once an assessment has become final and collectible, not even the
BIR Commissioner could change the same. Thus, the taxpayer could not
pay the tax, then apply for a refund, and if denied appeal the same to the
Court of Tax Appeals.
h. If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from the submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the adverse
decision, or from the lapse of the one hundred eighty (180-) day period, with
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
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)
51
necessary, traders and brokers accounts and books and the taxpayers
books of accounts. The Commissioner is not bound to follow any set of
patterns. The existence of unreported income may be shown by any
particular proof that is available in the circumstances of the particular
situation. (Commissioner of Internal Revenue v. Hantex Trading Co., Inc. G. R.
No. 136975, March 31, 2005)
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
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
52
to assess a national internal revenue tax or to commence court
proceedings for the collection thereof without an assessment. [Bank of
Philippine Islands (Formerly Far East Bank and Trust Company) v. Commissioner
of Internal Revenue, G. R. No. 174942, March 7, 2008]
b. ten years from discovery of the failure to file the tax return or
discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of 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).
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)
16.
53
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
of public functions. (Commissioner of Internal Revenue v. Tuazon, Inc., 173
SCRA 397)
c.
The likelihood that the taxpayer will have access to the
relevant information [Commissioner of Internal Revenue, supra citing United
States v. Rexach, 482 F.2d 10 (1973). The certiorari was denied by the United
States Supreme Court on November 19, 1973]
d.
The desirability of bolstering the record-keeping requirements
of the NIRC. (Ibid.)
rest on all the evidence introduced and its ultimate determination must find
support in credible evidence. [Commissioner of Internal Revenue, supra]
54
c.
waiver.
22.
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.)
Supreme Court declared that the burden of proof that the request for
reinvestigation had been actually granted shall be on the Commissioner of
Internal Revenue. Such grant may be expressed in its communications
with the taxpayer or implied from the action of the Commissioner or his
authorized representative in response to the request for reinvestigation.
[Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v.
Commissioner of Internal Revenue, G. R. No. 174942, March 7, 2008]
55
prove otherwise. In the absence of proof of any irregularities in the
performance of duties, an assessment duly made by a Bureau of Internal
Revenue examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax
assessments. (Commissioner of Internal Revenue v. Bank of Philippine Islands.,
G, R. No. 134062, April 17, 2007 citing Sy Po v. Court of Appeals, G. R. No. L81446, 18 August 1988, 164 SCRA 524, 530, citations omitted)
2.
3.
What is that type of protest that suspends the
running of the statute of limitations for the beginning of
distraint or levy or a proceeding in court for collection ? Why ?
SUGGESTED ANSWER: It is that type of protest when the taxpayer
requests for a reinvestigation which is granted by the Commissioner (Sec.
223, NIRC of 1997), that suspends the running of the statute of limitations
for collection of the tax. (Commissioner of Internal Revenue v. Philippine Global
Communication, Inc., G. R. No. 167146, October 31, 2006 citing Sec. 271, now Sec.
223, NIRC of 1997) When a taxpayer demands a reinvestigation, the time
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]
JUDICIAL
REMEDIES
ASSESSMENTS
INVOLVING
PROTESTED
1.
Acts of BIR Commissioner that may be
considered as denial of a protest which serve as basis for
appeal to the Court of Tax Appeals.
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
56
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.
effective December 15, 2005) because the collection of the tax may jeopardize
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.
57
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
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]
58
Resort should therefore be made to the three (3) year period referred
to in Sec. 203 of the NIRC of 1997 which reads, Except as provided in
Section 222, internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such
taxes x x x (paraphrasing and emphasis supplied)
4. What is a compromise ?
SUGGESTED ANSWER: A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only
signify that there was no agreement that had effectively been reached
between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal
Revenue, G. R. No. 138485, September 10, 2001)
5.
What tax
compromise ?
SUGGESTED ANSWER:
The following cases may, upon
taxpayers compliance with the basis for compromise, be the subject matter
of compromise settlement:
a. Delinquent accounts;
b. Cases under administrative protest after issuance of the Final
Assessment Notice to the taxpayer which are still pending in the Regional
Offices, Revenue District Offices, Legal Service, Large Taxpayer Service
(LTS), Collection Service, Enforcement Service and other offices in the
National Office;
c.
Civil tax cases being disputed before the courts;
d.
Collection cases filed in courts;
e.
Criminal violations, other than those already filed in court, or
those involving criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002)
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.
59
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.
b.
The tax was excessively collected. There is a law that
authorizes the collection of a tax but the tax collected was more than what
the law allows.
c.
The tax was paid through a mistaken belief that the taxpayer
should pay the tax (solution indebeti)
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
60
East Bank Trust and Company, etc., v. Commissioner of Internal Revenue, et al., G.
R. No. 138919, May 2, 2006)
4.
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
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.)
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)
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,
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
61
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.
12.
What is the irrevocability rule in claims for
refund and what is the rationale behind this ?
SUGGESTED ANSWER: A corporation entitled to a tax credit or
refund of the excess estimated quarterly income taxes paid has two
options: (1) to carry over the excess credit or (2) to apply for the issuance
of a tax credit certificate or to claim a cash refund. If the option to carry
over the excess credit is exercised, the same shall be irrevocable for that
taxable period.
In exercising its option, the corporation must signify in its annual
corporate adjustment return (by marking the option box provided in the
BIR form) its intention either to carry over the excess credit or to claim a
refund. To facilitate tax collection, these remedies are in the alternative
and the choice of one precludes the other. [Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007 citing
Philippine Bank of Communications v. Commissioner of Internal Revenue, 361
Phil. 916 (1999)]
62
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)
assessed and paid. After all, it is axiomatic that a claimant has the burden of
proof to establish the factual basis of his or her claim for tax credit or refund.
Tax refunds, like tax exemptions, are construed strictly against the taxpayer.
(Paseo Realty & Development Corporation v. Court of Appeals, et al., G. R. No.
119286, October 13, 2004)
63
Tax refunds partake of the nature of tax exemptions and are thus
construed strictissimi juris against the person or entity claiming the
exemption. The burden in proving the amount to be refunded necessarily
falls on the bank-trustee, and there is an apparent failure to do so.
A necessary consequence of the special exemption enjoyed alone
by employees trusts would be a necessary segregation in the accounting
of such income, interest or otherwise, earned from those trusts from that
earned by the other clients of the bank-trustee. (Far East Bank and Trust
Company, etc., v. Commissioner, etc., et al., G.R. No. 138919, May 2,
2006) The amounts that are the exempt earnings of the employees trust
has not been shown as they have been commingled with the interest
income of the other clients of the bank-trustee.
64
SUGGESTED ANSWER: Yes. Section 69 of the National Internal
Revenue Code of 1986, now Sec. 76 provides, if the sum of the quarterly
tax payments made during a taxable year is not equal to the total tax due
on the entire taxable income of that year as shown in its final adjustment
return, the corporation has the option to either: (a) pay the excess tax still
due, or (b) be refunded the excess amount paid. The returns submitted
are merely pre-audited which consist mainly of checking mathematical
accuracy of the figures in the return. After such checking, the purpose of
which being to insure prompt action on corporate annual income tax
returns showing refundable amounts arising from overpaid quarterly
income taxes, (Revenue Memorandum Order No. 32-76 dated June 11,
1976) the refund or tax credit is granted. (Commissioner of Internal
Revenue v. Manila Electric Company, G. R. No. 121666, October 10,
2007)
2.
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
65
a. Where a product, commodity or article of commerce is exported
into the Philippines at a price less than its normal value when destined for
domestic consumption in the exporting country,
b. and such exportation is causing or is threatening to cause material
injury to a domestic industry, or materially retards the establishment of a
domestic industry producing the like product. [Sec. 301 (a), TCC, as amended
imposed ?
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)
66
value, which shall be the price actually paid or payable for the goods when
sold for export to the Philippines, adjusted by adding certain cost elements
to the extent that they are incurred by the buyer but are not included in the
price actually paid or payable for the imported goods, and may include the
following:
a.
Cost of containers and packing,
b.
Insurance, and
c.
Freight. (Sec. 201, TCC as amended by Sec. 1, Rep. Act No.
9135)
21.
The President of the Philippines imposes the
discriminatory duties.
24.
Safeguards
measures
that
may
be
imposed.
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)
67
68
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.
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)
69
40.
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or delivery
by the same person of any invoice, letter or paper all touching on the
importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or paper;
and
c.
an intention on the part of the importer/consignee to evade the
payment of the duties due. (Republic, etc., v. The Court of Appeals, et al.,
G.R. No. 139050, October 2, 2001)
70
[Emphasis supplied.] (Pilipinas Shell Petroleum Corporation v. Commissioner
of Customs, G. R. No. 176380, June 18, 2009)
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
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)
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
71
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.
6.
Explain the concept of the paradigm shift in
local government taxation.
SUGGESTED ANSWER:
Paradigm shift from exclusive
Congressional power to direct grant of taxing power to local legislative
bodies. The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other
charges pursuant to Article X, section 5 of the 1987 Constitution. (Batangas
Power Corporation v. Batangas City, et al. G. R. No. 152675, and
companion case, April 28, 2004 citing National Power Corporation v. City of
Cabanatuan, G. R. No. 149110, April 9, 2003)
8.
72
(Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169 in
turn referring to Mactan Cebu International Airport Authority, v. Marcos, G.R. No.
120082, September 11, 1996, 261 SCRA 667, 680)
9.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general power
to levy taxes and otherwise create sources of revenue. They no longer
have to wait for a statutory grant of these powers. The power of the
legislative authority relative to the fiscal powers of local governments has
been reduced to the authority to impose limitations on municipal powers.
Moreover, these limitations must be consistent with the basic policy of
local autonomy. The important legal effect of Section 5 is thus to reverse
the principle that doubts are resolved against municipal corporations.
Henceforth, in interpreting statutory provisions on municipal fiscal powers,
doubts will be resolved in favor of municipal corporations.
It is
understood, however, that taxes imposed by local government must be for
a public purpose, uniform within a locality, must not be confiscatory, and
must be within the jurisdiction of the local unit to pass. (Quezon City, et al.,
v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing
City Government of Quezon City, et al. v. Bayan Telecommunications, Inc., G.R.
No. 162015, March 6, 2006, 484 SCRA 169)
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 ?
73
SUGGESTED ANSWER:
The professionals subject to the
professional tax are only those who have passed the bar examinations, or
any board or other examinations conducted by the Professional Regulation
Commission (PRC). for example, a lawyer who is also a Certified Public
Accountant (CPA) must pay the professional tax imposed on lawyers and
that fixed for CPAs, if he is to practice both professions. [Sec. 238 (f), Rule
XXX, Rules and Regulations Implementing the Local Government Code of
1991]
14.
X City issued a notice of assessment against
ABC Condominium Corporation for unpaid business taxes.
The Condominium Corporation is a duly constituted
condominium
corporation
in
accordance
with
the
Condominium Act which owns and holds title to the common
and limited common areas of the condominium.
Its
membership comprises the unit owners and is authorized
under its By-Laws to collect regular assessments from its
members for operating expenses, capital expenditures on the
common areas and other special assessments as provided for
in the Master Deed with ?Declaration of Restrictions of the
Condominium.
ABC Condominium Corporation insists that the X City
Revenue Code and the Local Government Code do not contain
provisions upon which the assessment could be based.
Resolve the controversy.
SUGGESTED ANSWER:
ABC is correct.
Condominium
corporations are generally exempt from local business taxation under the
Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise.
X City, is authorized under the Local Government Code, to impose a
tax on business, which is defined under the Code as trade or commercial
activity regularly engaged in as a means of livelihood or with a view to profit.
By its very nature a condominium corporation is not engaged in business,
and any profit that it derives is merely incidental, hence it may not be subject
to business taxes.
(Yamane , etc. v. BA Lepanto Condominium
Corporation, G. R. No. 154993, October 25, 2005)
15.
Authority of Local Government Units (LGUs)
such as the City of Manila to impose business taxes. Section
143 of the LGC, is the very source of the power of municipalities and cities
to impose a local business tax, and to which any local business tax
imposed by cities or municipalities such as the City of Manila must
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
74
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
concerned or the posting in the provincial capitol or other places as required
by law. (Lopez v. City of Manila, et al., G.R. No. 127139, February 19, 1999)
Proposed fair market values of real property in a local
government unit as well as the ordinance containing the schedule
must be published in full for three (3) consecutive days in a newspaper of
local circulation, where available, within ten (10) days of its approval, and
posted in at lease two (2) prominent places in the provincial capitol, city,
municipal or barangay hall for a minimum of three (3) consecutive weeks.
(Figuerres v. Court of Appeals, et al,. G.R. No. 119172, March 25, 1999)
4.
Approaches in estimating the fair market value of
real property for real property tax purposes ?
a.
Sales Analysis Approach. The sales price paid in actual
market transactions is considered by taking into account valid sales data
accumulated from among the Registrar of Deeds, notaries public,
appraisers, brokers, dealers, bank officials, and various sources stated
under the Local Government Code.
b.
Income Capitalization Approach. The value of an incomeproducing property is no more than the return derived from it. An analysis of
the income produced is necessary in order to estimate the sum which might
be invested in the purchase of the property.
c.
Reproduction cost approach is a formal approach used
exclusively n appraising man-made improvements such as buildings and
other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the
data gathered to arrive at the estimated fair market value to be included in
the ordinance containing the schedule of fair market values. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,
October 11, 2005 citing Local Assessment Regulations No. 1-92)
75
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)
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)
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.
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
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)
76
a.
b.
c.
13.
FELS Energy, Inc., had a contract to supply
NPC with the electricity generated by FELS power barges.
The contract also stated that NPC shall be responsible for all
real estate taxes and assessments. FELS then received an
assessment of real property taxes on its power barges from the
Provincial Assessor of Batangas.
If filed a motion for
reconsideration with the Provincial Assessor.
a.
Upon denial, FELS elevated the matter to the Local
Board of Assessment Appeals (LBAA), where it raised the
following issues:
1)
Since NPC is tax-exempt then FELs should
also be tax-exempt because of its contract with NPC.
2)
The power barges are not real property subject
to real property taxes.
b.
Upon the other hand the Local Treasurer insists that
the assessment has attained a state of finality hence the appeal
to the LBAA should be dismissed.
Rule on the conflicting contentions.
SUGGESTED ANSWER:
a.
All the contentions of FELS are without merit:
1)
NPC is not the owner of the power barges nor the
operator of the power barges. The tax exemption privilege granted to
NPC cannot be extended to FELS. the covenant is between NPC
and FELs and does not bind a third person not privy to the contract
such as the Province of Batangas.
2)
The Supreme Court of New York in Consolidated
Edison Company of New York, Inc., et al., v. The City of New York,
et al., 80 Misc. 2d 1065 (1975) cited in FELS Energy, Inc., v. Province
of Batangas, G. R. No. 168557, February 16, 2007 and companion
case, held that barges on which were mounted gas turbine power
plants designated to generate electrical power, the fuel oil barges
which supplied fuel oil to the power plant barges, and the accessory
equipment mounted on the barges were subject to real property
taxes.
Moreover, Article 415(9) of the Civil Code provides that
[d]ocks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake or coast
are considered immovable property by destination being intended by
the owner for an industry or work which may be carried on in a
building or on a piece of land and which tend directly to meet the
needs of said industry or work.
b.
The Treasurer is correct. The procedure do not allow a motion
for reconsideration to be filed with the Provincial Assessor.
To allow the procedure would indeed invite corruption in the system
of appraisal and assessment. it conveniently courts a graft-prone situation
where values of real property ay be initially set unreasonably high, and then
subsequently reduced upon the request of a property owner. In the latter
instance, allusions of possible cover, illicit trade-off cannot be avoided, and
in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system. (FELS Energy, Inc., v. Province of
Batangas, G. R. No. 168557, February 16, 2007 and companion case)
14.
A special levy or special assessment is an
imposition by a province, a city, a municipality within the
Metropolitan Manila Area, a municipality or a barangay upon real
property specially benefited by a public works expenditure of the LGU to
recover not more than 60% of such expenditure.
77
to such reduction or readjustment, who must decide within sixty (60) days
from receipt.
b.
The denial by the local treasurer of the protest would fall within
the Regional Trial Courts original jurisdiction, the review being the initial
judicial cognizance of the matter. Despite the language of Section 195 of
the Local Government Code which states that the remedy of the taxpayer
whose protest is denied by the local treasurer is to appeal with the court of
competent jurisdiction, labeling the said review as an exercise of appellate
jurisdiction is inappropriate since the denial of the protest is not the
judgment or order of a lower court, but of a local government official.
(Yamane , etc. v. BA Lepanto Condominium Corporation, G. R. No. 154993,
October 25, 2005)
c.
The decision of the Regional Trial Court should be appealed
by means of a petition for review directed to the Court of Tax Appeals
(Division).
d.
The decision of the Court of Tax Appeals (Division) may be the
subject of a review by the Court of Tax Appeals (en banc).
e.
The decision of the Court of Tax Appeals (en banc) may be
the subject of a petition for review on certiorari on pure questions of law
directed to the Supreme Court.
20. Charitable
institutions,
churches
and
parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings and improvements
that are actually, directly and exclusively used for religious,
charitable or educational purposes are exempt from taxation.
[Sec.28 (3) Article VI, 1987 Constitution]
78
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)
a.
Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has been
granted to a taxable person for a consideration or otherwise;
b.
Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries, and all
lands, buildings and improvements actually, directly and exclusively used for
religious, charitable and educational purposes;
c.
Machineries and equipment, actually, directly and exclusively
used by local water districts; and government owned and controlled
corporations engaged in the supply and distribution of water and generation
and transmission of electric power;
d.
Real property owned by duly registered cooperatives;
e.
Machinery and equipment used for pollution control and
environmental protection.
79
G. R. No.
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT