ESSENTIAL NOTATIONS IN TAXATION: ‘A PRE-BAR REVIEW GUIDE (2015) by Justice Japar B. Dimaampao if GENERAL PRINCIPLES Q. Briefly explain the DOCTRINE OF SYMBIOTIC RELATIONSHIP. This doctrine is enunciated in the case of CIR v. ALGUE, INC., 158 SCRA 9, which states that: “Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard- earned income to the taxing authorities, every person who is able to must contribute his share in the burden of running the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their material and moral values.” a. State at least four (4) recent decisional rules on the lifeblood doctrine. a) ¢) d) (Taxes are the lifeblood of the government and, consequently, tax laws must be faithfully and strictly implemented as they are not. ‘intended to be liberally construed. Hence, We are left with no other recourse but to deny respondent's judicial claim for refund for noncompliance with the provisions of Section 112 of the NIRC. (CIR v. Dash Engineering Philippines, Inc., 712 SCRA 347) The restriction upon the power of courts to impeach tax assessment without a prior payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the needed services to the people, and its machinery gravely disabled. (Camp John Hay Development Corporation v. CBAA, 706 SCRA 547) (S)tipulations cannot defeat the right of the State to collect the right taxes due on an individual or juridical person because taxes are the lifeblood of our nation so its collection should be actively pursued without unnecessary impediment. (First Lepanto Taisho Insurance Corporation v. CIR, 695 SCRA 639) Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has suffered the economic adversities arising from poor tax collections, forcing the government to continue borrowing to fund the budget deficits. (We) cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax refunds or credits. The tax refund claims in the present cases are not a pittance. Many other companies stand to gain if (We) were to rule otherwise. (CIR v. San Roque aaa tie aes deel aaron naQ. Explain the pronouncement of the Supreme Court that the power of taxation is purely legislative Essentially, this means that in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage(subjects) and situs (place) of taxation. It has the authority to prescribe a certain tax at a specific rate for a particular public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and where it shall be imposed (CREBA v. Romulo, 614 SCRA 605, 626). Expound on the theory that the power of taxation is considered as a principal attribute of sovereignty. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people (CIR v. BPI, 521 SCRA 373, 387-388). Q. Briefly discuss the dictum that “the power to tax involves the power to destroy.” In Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667, 679, the Supreme Court stressed that taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. The power to tax includes the power to destroy if it is used validly as an implement of the police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare xxx (Cruz, Constitutional Law, 2000 Ed., p. 87). Q. Describe the Scope of the Power to Tax The power of taxation is the most absolute of all powers of the government (Sison v. Ancheta, 130 SCRA 654). It has the broadest scope of all the powers of. government because in the absence of limitations, it is considered as unlimited, plenary, comprehensive and supreme. However, the power of taxation should be exercised with caution to minimize injury to the proprietary rights of the taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill “the hen that lays the golden egg” (Roxas v. CTA, 23 SCRA 276). Q. Discuss the meaning and implication of the LIFEBLOOD DOCTRINE. 1. By enforcing the tax lien, the BIR availed itself of the most expeditious way to collect the tax. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need (CIR v. Pineda, 21 SCRA 105). 2. The government is not bound by the errors committed by its agents. In the performance of its government functions, the State cannot be estopped by the neglect of its agents and officers. Taxes are the lifeblood of the nation throughwhich the government agencies continue to operate and with which the state effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the government's financial position (CIR v. CTA, 234 SCRA 348). 3. The BIR is authorized to collect estate tax deficiency through the summary remedy of levying upon the sale of real properties of a decedent, without the cognition and authority of the court sitting in probate over the supposed will of the decedent, because the collection of the estate tax is executive in character. As such, the estate tax is exempted from the application of the statute of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim “Taxes are the lifeblood of the government and should be collected without unnecessary hindrance.” However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself (MARCOS Il v. CA, 273 SCRA 47). 4, Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Philex’s claim that it had no obligation to pay the excise tax liabilities within the prescribed period since it still has pending claims for VAT input credit/refund with the BIR is UNTENABLE (Philex Mining Corporation v. CIR, 294 SCRA 687). Qa When is Taxation considered an implement of Police Power? 1. In Walter Lutz v. J. Antonio Araneta, 98 Phil. 148, the SC upheld the validity of the tax law increasing the existing tax on the manufacture of sugar. “The protection and promotion of the sugar industry is a matter of public concern; the legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objective and methods alike are constitutionally valid, there is no reason why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the State’s police power.” 2. In Tio v. Videogram Regulatory Board, 151 SCRA 208, the levy of a 30% tax under PD 1987, was imposed primarily for answering the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic videotapes, and therefore VALID. While the direct beneficiaries of the said decree is the movie industry, the citizens are held to be its indirect beneficiaries. Q. May the power of taxation be used as an implement of the power of eminent domain? YES. The Supreme Court in the case of CIR v. Central Luzon Drug Corp., 456 SCRA 414, 445 held: “Tax measures are but “enforced contributions exacted on pain of penal sanctions” and “clearly imposed for a public purpose. In recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth. While it is declared commitment under Section 1 of RA 7432, social justice “cannot be invoked to trample on the rights of property owners who under our Constitution and laws are also entitled to protection. The social justice consecrated in our [Constitution [is] not intended to take away rights from a person and give them to another who is not entitled thereto. For this reason, a just compensation for income that is taken away from respondent (Central Luzon Drug Corp.) becomesnecessary. It is in the tax credit (now tax deduction) that our legislators find support to realize social justice, and no administrative body can alter that fact.” Invariably, in the recent case of Manila Memorial Park, Inc. v. Secretary of the DSWD, 711 SCRA 302, the Supreme Court ruled that the 20% senior citizen discount is an exercise of police power. In holding so, the Court explained that the 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be gainfully employed, more prone to illness and other disabilities, and, thus, in need of subsidy in purchasing basic commodities. (T)he 20% discount may be property viewed as belonging to the category of price regulatory measures which affect the profitability of establishments subjected thereto. On this face, therefore, the subject regulation is a police power measure. Q. What are the essentials of the principle of administrative feasibility? It requires that (a) each tax should be clear and plain to the taxpayers; (b) capable of enforcement by an adequate and well-trained staff of officials; (c) convenient as to time and manner of payment; and (d) not duly burdensome upon or discouraging to business activity. Q. What does the principle of Fiscal Adequacy as a characteristic of a sound tax system require? It requires that the sources of revenues must be adequate to meet government expenditures and their variations (Abakada Guro, et al. v. Ermita, 469 SCRA 1; Chavez vs Ongpin, 186 SCRA 331). Q. Are taxes subject of set-off? 1. The income tax liability of Francia cannot be compensated with the amount owed by the government as compensation for his expropriated property. A taxpayer may not set-off taxes due from claims he may have against the government. 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 debt, demand, contract or judgment as is allowed to be set-off. The collection of a tax cannot await the results of a lawsuit against the government (Francia v. IAC, 162 SCRA 753). 2, The claim of Philex for VAT refund is still pending litigation, and still has to be determined by the CTA. A fortiori, the liquidated debt of Philex to the government cannot, therefore, be set off against the unliquidated claim which Philex conceived as existing in its favor. Debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity (Philex v. CIR, 294 SCRA 687). Q. Distinguish direct tax from indirect tax. Direct tax refers to one assessed upon the property, person, business income, etc., of those who pay them, whereas indirect tax includes those levied on commodities before they reach the consumer, and are paid by those upon whom they ultimately fall, not as taxes, but as part of the market price of the commodity (Cooley, Tax. 61).Q. Explain the nature of coconut levy funds and building permit. The coconut levy funds partake of the nature of taxes and can only be used for public purpose, and importantly, for the purpose for which it was exacted, i.e., the development, rehabilitation and stabilization of the coconut industry. They cannot be used to benefit — whether directly or indirectly — private individuals, be it by way of a commission, or as the subject Agreement interestingly words it, compensation. (Cojuangco, Jr. v. Republic, 686 SCRA 472) It has been held that a building permit is a regulatory imposition. For one, in processing an application for a building permit, the Building Official shall see to it that the applicant satisfies and conforms with the approved standard requirements on zoning and land use, lines and grades, structural design, sanitary and sewerage, environmental health, electrical and mechanical safety. For another, clearances from various government authorities exercising and enforcing regulatory functions affecting buildings/structures may be required before a building permit may be issued. (Angeles University Foundation v. City of Angeles, 675 SCRA 359) INHERENT LIMITATIONS ON THE POWER TO TAX Q. What is meant by “public purpose” as an inherent limitation on the power of taxation? The term “public purpose” is not defined. It is an elastic concept that can be hammered to fit modern standards. Jurisprudence states that “public purpose” should be given a broad interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform (Planters Products, Inc. v. Fertiphil Corporation, 548 SCRA 485 [2008]). Public v. Private interest In the case of Pascual v. Secretary of Public Works, 110 PHIL 331, the SC held that the appropriation for construction of feeder roads on land belonging to a private person is not valid, and donation to the government of the said land 5 months after the approval and effectivity of the Act for the purpose of giving a semblance of legality to the appropriation does not cure the basic defect. Incidental advantage to the public or to the State, which results from the promotion of private enterprises, does not justify the use of public funds. Tax Situs of Shares of Stock The SC held that the actual situs of the shares of stock left by non-resident alien decedent is in the Philippines. The owner residing in California has extended activities here with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the Philippine government had the jurisdiction to tax the same. (Wells Fargo Bank v. Collector, 70 Phil. 325) Exemption from Taxation of Government Agencies The Constitution is silent on whether Congress is prohibited from taxing the properties of the agencies of the government. In MCIAA v. Marcos, 261 SCRA 667, the Supreme Court held that nothing can prevent Congress from decreeing that eveninstrumentalities or agencies of the government performing governmental functions may be subject to tax. Tax exemption of property owned by the Republic of the Philippines refers to property owned by the government and its agencies which to do not have separate and distinct personalities. “The government does not part with its title by reserving them, but simply gives notice to the world that it desires them for a certain purpose.” As its title remains with the Republic, the reserved land is clearly covered by tax exemption. However, the exemption does not extend to improvements on the public land. Consequently, the warehouse constructed on the reserved land by NDC should properly be assessed real estate tax as such improvement does not appear to belong to the public (NDC v, Cebu City, 215 SCRA 382). Q. Is Manila International Airport Authority considered an instrumentality of the National Government exempt from local taxation? YES. In Manila International Airport Authority v. Court of Appeals (495 SCRA 591, 615), the Supreme Court held that the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. A government instrumentality like MIAA falls under Section 133(0) of the Local Government Code, which states — xxx, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx (0) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units. This has been echoed in the recent case of Mactan-Cebu International Airport Authority (MCIAA) v. City of Lapu-Lapu, G.R. No. 181756, June 15, 2015, wherein the Supreme Court ruled that MCIAA, being an instrumentality of the national government, is exempt from real property tax with respect to the airport lands and airport building, airfield, runway and taxiway. Q. Is Philippine Reclamation Authority (PRA) exempt from real property tax? YES. It is exempt from real property tax. First. PRA is not a government: owned or controlled corporation but an instrumentality of the National Government vested with corporate powers and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. Second. Real properties of PRA are owned by the Republic of the Philippines. Section 234(a) of the Local Government Code exempts from real estate tax any “[rJeal property owned by the Republic of the Philippines.” [Republic v. City of Paranaque, 677 SCRA 246 (2012)] Q. Explicate the Destination Principle in the imposition of value added tax. According to the Destination Principle, goods and services are taxed only in the country where these are consumed. In connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT while those destined for use or consumption within the Philippines shall be imposed with 10% VAT (Now 12% under R.A. No.9337). Export processing zones are to be managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales by persons from the Philippine customs territory to those inside the export processing zones are already taxed as exports (Atlas Consolidated Mining and Development Corporation v. CIR, 524 SCRA 73, 103). CONSTITUTIONAL LIMITATIONS ON THE TAXING POWER Q. When does the power of taxation impinge the due process clause? The due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution, as where it can be shown to amount to a confiscation of property (Reyes v. Almanzor, 196 SCRA 322). There is a need for proof of persuasive character as would lead to a violation thereof. Absent such a showing, the presumption of validity must prevail. Q. Is classification allowed in taxation? The taxing power has the authority to make reasonable and natural classification for purposes of taxation, but the government’s act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed (Sison v. Ancheta, 130 SCRA 654). The equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of taxation, and a classification is reasonable where: (1) it is based on substantial distinctions which make real differences; (2) these are germane to the purposes of the law; (3) the classification applies not only to present conditions but also to future conditions; (4) the classification applies only to those who belong to the same class. In the case of Ormoc Sugar Company, Inc. v. the Treasurer of Ormoc City, 22 SCRA 603, the SC held an ordinance unconstitutional for taxing only sugar produced and exported by the Ormoc Sugar Co., Inc.. The classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any substantially established sugar central, of the same class as plaintiff, from the coverage of the tax. The equal protection clause does not require universal application of the laws on all persons or things without distinction. What the clause requires is equality among equals as determined according to a valid classification. By classification is meant the group of persons or things similar to each other in certain particulars and different from all others in these same particulars (Abakada Guro Party List v. Ermita, supra). Q. A law withdrawing the exemption granted to the press was challenged as discriminatory by giving broadcast media favored treatment. IT IS NOT DISCRIMINATORY. If the press is now required to pay VAT, it is not because it is being singled out but only because of the removal of the exemption previously granted by law. Further, the press is taxed on its transactions involvingprinting and publication, which are different from the transactions of broadcast media. There is a reasonable basis for the classification (Tolentino v. Secretary of Finance, 235 SCRA 630). Q. What js the controlling doctrine on exemption from taxation of real property of religious, charitable and educational institutions? In the case of Lung Center of the Philippines v. Quezon City and Constantino P. Rosas, City Assessor of Quezon City, 433 SCRA 119, the prevailing rule on the application of tax exemption to properties incidentally used for religious, charitable and educational purposes, as enunciated in the case of Herrera v. QC-BAA, 3 SCRA 187, has now been abandoned. In resolving the issue of whether or not the portions of the real property of Lung Center that are leased to private entities are exempt from real property taxes, the Supreme Court reexamined the intent of the constitutional provision granting tax exemption of properties ACTUALLY, DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE AND EDUCATIONAL PURPOSES. Thus, the records of the Constitutional Commission reveal that what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. Citing the case of St. Louis Young Men’s Christian Association v. Gehner, 47 5.W.2d 776 which held that if real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation, the Supreme Court explained that “What is meant by actual, direct and exclusive use of the property for charitable institutions is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.” In sum, the Court ruled that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from taxes. In the most recent case of CIR v. St. Luke's Medical Center, Inc., 682 SCRA 66, the Supreme Court held that St. Luke's is not automatically exempt from real property tax even if it meets the test of charity. To be exempt, Section 28(3), Article VI of the Constitution requires that a charitable institutions use the property “actually, directly and exclusively” for charitable purposes. Q. What is the requisite proof for exemption from realty taxation? To be exempt from realty taxation, there must be proof of actual and direct and exclusive use of the lands, buildings and improvements for religious or charitable purposes (Province of Abra v. Hernando, 107 SCRA 104). DOUBLE TAXATION Q. What is double taxation? When does it arise? How is it prevented? Double taxation means taxing the same thing or activity twice during the same tax period (Villanueva v. City of Iloilo, 26 SCRA 578). It takes place when a person is a resident of a contracting state and derives income from, or owns capitalin, the other contracting state, and both states impose tax on that income or capital. Tax conventions such as the RP-US Tax Treaty are drafted with a view towards the elimination of international juridical double taxation. In CIR v. S.C. Johnson and Son, Inc., 309 SCRA 87, however, it was held that since the RP-US Tax treaty does not give a matching credit of 20% for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, S.C. Johnson (Phils.) is not entitled to the 10% rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances. The imposition of local business tax based on gross revenue will inevitably result in the constitutionally proscribed double taxation — taxing of the same person twice by the same jurisdiction for the same thing — inasmuch as petitioner's gross revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid, Gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in consonance with the International Financial Reporting Standards, which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends), which is measured at the fair value of the consideration or receivable. (Ericsson Telecommunications, Inc. v. City of Pasig, 538 SCRA 99, 114-115 [2007]) Q.___ Define international juridical double taxation. It is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. (P. Baker, Double Taxation Conventions and International Law [1994], p. 11, citing the Committee on Fiscal Affairs of the Organization for Economic Cooperation and Development [OECD]). TAX EVASION Q. Does an affidavit executed by revenue officers constitute a tax assessment? An affidavit executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, is not an assessment that can be questioned before the CTA. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period (CIR v. PASCOR Realty and Development Corp., 309 SCRA 402). Q. _ Is prior assessment necessary before a taxpayer may be charged with tax evasion? NO. In case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without an assessment. An assessment is not necessary before a taxpayer may be prosecuted if there is a prima facie showing of a willful and deliberate attempt to file a fraudulent return with the intent to evade and defeat tax. A criminal complaint is instituted not to demand payment, but topenalize the taxpayer for violation of the Tax Code (Ungab v. Cusi, 97 SCRA 877; CIR v. PASCOR Realty and Development Corp., supra). TAX EVASION AND TAX AVOIDANCE DISTINGUISHED Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. On the other hand, tax avoidance is a legal means used by the taxpayer to reduce taxes (Benny v. Commr., 25 T.C.78). The intention to minimize taxes, when used in the context of fraud, must be proven by clear and convincing evidence amounting to more than mere preponderance. Mere understatement of tax in itself does not prove fraud (Yutivo Sons Hardware Co. v. CTA, 1 SCRA 160). A taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. Therefore, a man may perform an act that he honestly believes to be sufficient to exempt him from taxes. He does not incur fraud thereby even if the act is thereafter found to be insufficient (Court Holding Co. v. Commr., 2 T.Cl. 531). Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil”, in “bad faith”, “willful”, or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful (Commissioner of Internal Revenue v. The Estate of Benigno P. Toda, Jr., G.R. No. 147188, September 14, 2004, 438 SCRA 290). ‘TAXPAYER'S SUIT Q. What is a taxpayer’s suit? When is it proper? A taxpayer’s suit requires illegal expenditure of taxpayers’ money. Jurisprudence dictates that a taxpayer may be 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 public funds are wasted through the enforcement of an invalid or unconstitutional law or ordinance. (Remulla v. Maliksi, 706 SCRA 35, 18 September 2013) In Maceda v. Macaraig, 197 SCRA 771, the SC sustained the right of Sen. Maceda as taxpayer to file a petition questioning the legality of the tax refund to NPC by way of tax credit certificates, and the use of tax certificates by oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs. However, in Gonzales v. Marcos, 65 SCRA 624, the SC held that the taxpayer had no legal personality to assail the validity of E.0. 30 creating the Cultural Center of the Philippines as the assailed order does not involve the use of public funds. The funds came by way of donations and contributions, not by taxation. Q. Are government contracts covered by the taxpayer’s suit? YES. In the recent case of Abaya v. Ebdane, Jr. (515 SCRA 720, 757-758), the Supreme Court stressed that the prevailing doctrine in the taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government orgovernment-owned and controlled corporations allegedly in contravention of law. 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 unconditional law. Significantly, a taxpayer need not be a party to the contract to challenge its validity. DECISIONAL RULINGS ON REFORMED EVAT LAW (RA 9337) No undue delegation of legislative power + The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual maters outside of the control of the executive. No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed. Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other than the legislature itself. The Secretary of Finance is an agent of Congress in making his recommendation to the President on the existence of either of the conditions + In making his recommendation to the President on the existence of either of the two conditions, in the present case, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect. The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the latter.VAT rates are uniform «Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Section 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and transaction. Neither does the law make any distinction as to the type of industry or trade that will bear the 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. VAT rates are equitable * R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1,500,000.00. Also, basic marine and agricultural food products in their original state are still not subject to the tax, thus ensuring that prices at the grassroots level will remain accessible. Creditable input tax is a mere statutory privilege « The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege. The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The state may change or take away rights, which were created by the law of the state, although it may not take away property, which was vested by virtue of such rights. Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. x x x It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan to the government. In the same breath, Congress also justified its move by saying that the provision was designed to raise an annual revenue of 22.6 billion. The legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other tax incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not deterred. Again, for whatever is the purpose of the 60-month amortization, this involves executive economic policy and legislative wisdom in which the Court cannot intervene. 5% creditable withholding tax is a method of collection ‘+ With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads: ***Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. The government in this case is constituted as a withholding agent with respect to their payments for goods and services. x x x The Courtobserves, however, that the law used the word final. In tax usage, final, as opposed to creditable, means full. Thus, it is provided in Section 114(C): “final value-added tax at the rate of five percent (5%)”. VAT is, by its nature, regressive * The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. In other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit margin marked by a business, such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or businesses with low-profit margins that is always hardest hit. Imposition of regressive tax like VAT is not constitutionally prohibited «The Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall “evolve a progressive system of taxation.” The Court stated in the Tolentino case, thus: The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall ‘evolve a progressive system of taxation.’ The constitutional provision has been interpreted to mean simply that ‘direct taxes are ... to be preferred [and] as much as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 [Second ed. 1977]) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. Vil, $17 (1) of the 1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers’ ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. I, INCOME TAXATION Q. Distinguish Global Tax Treatment from Schedular System of Income Taxation? ‘A global system of taxation is one where the taxpayer is required to report all income earned during a taxable period in one income tax return, which income shall be taxed under the same rule of income taxation. The Schedular system requires a separate return for each type of income and the tax is computed on a per return or per schedule basis. Schedular system provides for different tax treatment of different types of income.Q. What is Income? Income refers to “an amount of money coming to a person within a specified time, whether as payment for services, interest or profit from investment.” It means cash or its equivalent. It is gain derived and severed from capital, from labor or from both combined. Stock dividends issued by the corporation are considered unrealized gains, and cannot be subjected to income tax until those gains have been realized. Before the realization, stock dividends are nothing but a representation of an interest in the corporate properties. As capital, it is not yet subject to income tax. Capital is wealth or fund; whereas income is profit or gain or the flow of wealth. The determining factor for the imposition of income tax is whether any gain or profit was derived from a transaction (CIR v. CA, 301 SCRA 152). Q. What are the requisites of taxable income? 1. There must be gain or profit; 2. That the gain or profit is realized or received, actually or constructively; 3. It is not exempted by law or treaty from income tax Q. What are the sources of income? The sources of income are: “the property, activity or service that produces the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines” (CIR v. BOAC, 149 SCRA 395). ST. LUKE'S MEDICAL_CENTER, INC., ORGANIZED AS A NON-STOCK AND NON-PROFIT CHARITABLE INSTITUTION IS NOT IPSO FACTO ENTITLED TO A TAX EXEMPTION There is no dispute that St. Luke's is organized as a non-stock and non- profit charitable institution. However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the organization of St. Luke’s. Even if St. Luke’s meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution must be “organized and operated exclusively” for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be “operated exclusively” for social welfare. [Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc., 682 SCRA 66 (26 September 2012)] TAX TREATMENT OF INCOME DERIVED FROM THE PEACE BONDS The transactions executed for the sale of the PEACe Bonds are: 1. The issuance of the 35 billion Bonds by the Bureau of Treasury to RCBC/CODE-NGO at 10.2 billion; and 2. The sale and distribution by RCBC Capital (underwriter) on behalf of CODE-NGO of the PEACEe Bonds to undisclosed investors at 11.996 billion.It may seem that there was only one leader — RBC on behalf of CODE-NGO to whom the PEACe Bonds were issued at the time of origination. However, a reading of the underwriting agreement and RCBC term sheet reveals that the settlement dates for the sale and distribution by RCBC Capital (as underwriter for CODE-NGO) of the PEACe Bonds to various undisclosed investors at a purchase price of approximately 11.996 would fall on the same day, October 18, 2001, when the PEACe Bonds were supposedly issued to CODE-NGO/RCBC. In reality, therefore, the entire 10.2 billion borrowing received by the Bureau of Treasury in exchange for the 35 billion worth of PEACe Bonds was sourced directly from the undisclosed number of investors to whom RCBC Capital/CODE-NGO distributed the PEACe Bonds — all at the time of origination or issuance. At this point, however, we do not know as to how many investors the PEACe Bonds were sold to by RCBC Capital. Should there have been a simultaneous sale to 20 or more lenders/ investors, the PEACe Bonds are deemed deposit substitutes within the meaning of Section 22(Y) of the 1997 National Internal Revenue Code and RCBC Capital/ CODE-NGO would have been obliged to pay the 20% final withholding tax on the interest or discount from the PEACe Bonds. Further, the obligation to withhold the 20% final tax on the Corresponding interest from the PEACe Bonds would likewise be required of any lender/investor had the latter turned around and sold said PEACe Bonds, whether in whole or part, simultaneously to 20 or more lenders or investors. (Banco De Oro, et al. v. Republic, G.R. No. 198756, 13 January 2015) Q. _ State the rule on construction of tax exemptions. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed (Commissioner v. Mitsubishi Metal Corp., 181 SCRA 215). Q. Is terminal leave pay taxable? No. In the case of Re: Request of Atty. Bernardo Zialcita (Adm. Matter No. 90-6-015-SC, October 18, 1990; 190 SCRA 851), the SC held that terminal leave pay is the cash value of an employee's accumulated leave credits, hence, it cannot be considered compensation for services rendered; it cannot be viewed as salary. It falls within the enumerated exclusions from gross income, and is therefore not subject to tax. EXEMPTION FROM CORPORATE INCOME OF PAGCOR Under P.D. 1869, as amended, PAGCOR is subject to income tax only with respect to its operation of related services. Accordingly, the income tax exemption ordained under Section 27(c) of R.A. No. 8424 clearly pertains only to PAGCOR's income from operation of related services. Such income tax exemption could not have been applicable to PAGCOR's income from gaming operations as it is already exempt therefrom under P.D. 1869, as amended. Indeed. The grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. This is the most sound and logical interpretation because PAGCOR could not have been exempted from paying taxes which it was not liable to pay in the first place. This is clear from the wordings of P.D, 1869, as amended, imposing a franchise tax of five percent (5%) on its gross venue or earnings derived by PAGCOR from its operation under the Franchise in lieu of all taxes of any kind or form, aswell as fees, charges or levies of whatever nature, which necessarily include corporate income tax. In other words, there was no need for Congress to grant tax exemption to PAGCOR with respect to its income from gaming operations as the same is already exempted from all taxes of any kind or form, income or otherwise, whether national or local, under its Charter, save only for the five (5%) franchise tax. The exemption attached to the income from gaming operations exists independently from the enactment of R.A. No. 8424, To adopt an assumption otherwise would be downright ridiculous, if not deleterious, since PAGCOR would be in a worse position if the exemption was granted (then withdrawn) than when it was not granted at all in the first place. (PAGCOR v. BIR, G.R. No. 215427, December 10, 2014) Qa What are taxable unregistered partnerships? The SC in Evangelista v. CIR, 102 Phil. 140, held that Sec. 24 [now Section 22(B)] covered unregistered partnerships and even associations or joint accounts which had no legal personalities apart from their individual members. xxx ‘Accordingly, a pool of machinery insurers was a partnership taxable as a corporation (Afisco Insurance Corp. v. CA, 302 SCRA 1). Q. — Obillos sold his rights over two parcels of land to his four children so that they can build their residence, but the latter after one (1) year sold them and paid the capital gains. Acting on the theory that the children had formed an unregistered taxable partnership or joint venture, the BIR required the brothers to pay corporate income tax. Resolve. The children should not be treated as having formed an unregistered partnership and taxed corporate income tax on their shares of the profits from the sale. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things in a temporary state (Obillos Jr. v. CIR, 139 SCRA 438, 439). Q. May a withholding agent file a written claim for refund? YES. In CIR v. Procter and Gamble PMC , 204 SCRA 377, the SC held that a withholding agent is subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law. A “person liable for tax” has been held to be a “person subject to tax” and properly considered a “taxpayer” x x x By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes. Qa. The BIR disallowed PRC’s claim for deduction for failure to prove the worthlessness of the debts. Is the disallowance correct? YES. There was no iota of documentary evidence (e.g. collection letters, reports from investigating fieldsman, police report/affidavit, etc.) to give support to the allegation of worthlessness. For debts to be considered “worthless,” and qualify as “bad debts” making them deductible, the taxpayer should show that:— a There is valid and subsisting debt; b. The debt must be actually ascertained to be worthless and uncollectible during the taxable year; c. The debt must be charged off during the taxable year; d. The debt must arise from the business or trade of the taxpayer; e The taxpayer must also show that it is indeed uncollectible even in the future (PRC v. CA, 256 SCRA 667). ef) It must not arise from transactions between related taxpayers (RR 5-99, RR 25-2002). Q. Is theoretical interest on capital deductible? NO. It is not deductible as it does not represent a charge arising under an interest-bearing obligation (Sec. 79, Rev. Reg. No. 2, cited in the case of PICOP v. CA, 250 SCRA 434). Q. Howare assets classified for income taxpayers? The assets of a taxpayer are classified for income tax purposes into ordinary and capital assets. However, there is no rigid rule or formula by which it can be determined with finality whether property sold by a taxpayer was held primarily for sale to costumers in the ordinary course of his trade or business or whether it was sold as a capital asset. A property initially classified as a capital asset may thereafter be treated as an ordinary asset if a combination of factors indubitably tend to show that the activity was in furtherance of or in the course of the taxpayer's trade or business. Thus, a sale of inherited property usually gives capital gain or loss even though the property has to be subdivided or improved or both to make it saleable. However, if the inherited property {s substantially improved or very actively sold or both, it may be treated as held primarily for sale to customers in the ordinary course of the heir’s business (Calasanz v. CIR, 144 SCRA 664). Q. _ Is.an equity investment a capital or ordinary asset? ‘An equity investment is a capital, not ordinary, asset of the investor the sale or exchange of which results in either a capital gain or a capital loss. The gain or loss is ordinary when the property sold or exchanged is not a capital asset (China Banking Corporation v. CA, 336 SCRA 178). OPTIONAL STANDARD DEDUCTION (OSD) FOR INDIVIDUAL AND CORPORATE TAXPAYERS A. Individual Taxpayers The OSD allowed to individual taxpayers shall be a maximum of forty percent (40%) of gross sales or gross receipts during the taxable year. It should be emphasized that the “cost of sales” in case of individual seller of goods, or the “cost of services” in the case of individual seller of services, is not allowed to be deducted for purposes of determining the basis of the OSD pursuant to this Section inasmuch as the law (RA 9504) is specific as to the basis thereof which states that for individuals, the basis of the 40% OSD shall be the “gross sales” or “gross receipts” and not “gross income” (Revenue Regulations No. 16-2008).B. Corporate Taxpayers In the case of corporate taxpayers subject to tax under Sections 27(A) and 28(A)(1) of the Code, as amended, the OSD allowed shall be in an amount not exceeding forty percent (40%) of their gross income. For purposes of these Regulations, “Gross Income” shall mean the gross sales less sales returns, discounts and allowances and cost of goods sold. “Gross sales” shall include only sales contributory to income taxable under Sec. 27(A) of the Code. “Cost of goods sold” shall include the purchase price or cost to produce the merchandise and all expenses directly incurred in bringing them to their present location and use (Revenue Regulations No. 16-2008). DE MINIMIS BENEFITS Revenue Regulations No. 5-2011 further amended Revenue Regulation Nos. 5- 2008, 5-2010, 10-2000 and 3-98, with respect to “De Minimis Benefits”. Rice subsidy of 21,500 or one sack of 50 kg. rice per month amounting to not more than P1,500 and uniform and clothing allowance not exceeding P5,000 per annum (RR 8-2012) are considered as “de minimis” benefits, which are not subject to the fringe benefits tax (per Section 2.33(c) of Revenue Regulations No. 3-98) and Income Tax as well as withholding tax on corporation income of both managerial and rank and file employees (per Section 2.78.1 (A)(3)(c) and (d) of Revenue Regulations No. 298). Monetary value of fruits, flowers or books given on special occasions are deleted. Any other benefit not included in the enumeration shall not be considered “de minimis” benefits and are therefore subject to income tax and withholding tax on compensation income. Collective bargaining agreement benefits and benefits derived from productivity incentive schemes not exceeding P10,000.00 per annum (RR-2015). MINIMUM WAGE EARNERS ARE NOT REQUIRED TO FILE AN INCOME TAX RETURN ‘Minimum wage earner shall refer to a worker in the private sector paid the statutory minimum wage, or to 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. He is not required to file an income tax return (Sec. 5, R.A. No. 9504). Q. Explain the nature of personal exemptions. Personal exemptions are the theoretical personal, living and family expenses of an individual allowed to be deducted from the gross or net income of an individual taxpayer. These are arbitrary amounts which have been calculated by our lawmakers to be roughly equivalent to the minimum of subsistence, taking into account the personal status and additional qualified dependents of the taxpayer. They are fixed amounts in the sense that the amounts have been predetermined by our lawmakers as provided under Section 35 (A) and (B). Unless and until our lawmakers make new adjustments on these personal exemptions, the amounts allowed to be deducted by a taxpayer are fixed as predetermined by Congress (Pansacola v. Commissioner of Internal Revenue, 507 SCRA 81).ALLOWANCE OF PERSONAL EXEMPTION FOR INDIVIDUAL TAXPAYERS There shall be allowed a basic personal exemption amounting to Fifty Thousand Pesos (P50,000) for each individual taxpayer. In the case of married individual where only one of the spouses is deriving gross income, only such spouse shall be allowed the personal exemption (Sec. 4(A), R.A. No. 9504). ADDITIONAL EXEMPTION FOR DEPENDENTS There shall be allowed an additional exemption of Twenty-Five Thousand Pesos (R25,000) for each dependent not exceeding four (4). The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals. In the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children: Provided, That the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions. ‘A ‘dependent’ means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect (Sec. 4(B), R.A. No. 9504). Q. Are advertising expenses incurred to protect Brand Franchise deductible? Advertising is generally of two kinds: (1) advertising to stimulate the current sale of merchandise or use of services and (2) advertising designed to stimulate the future sale of merchandise or use of services. The second type involves expenditures incurred, in whole or in part, to create or maintain some form of goodwill for the taxpayer's trade or business or for the industry or profession of which the taxpayer is a member. If the expenditures are for the advertising of the first kind, then, except as to the question of the reasonableness of amount, there is no doubt such expenditures are deductible as business expenses. If, however, the expenditures are for advertising of the second kind, then normally they should be spread out over a reasonable period of time. The protection of branch franchise is analogous to the maintenance of goodwill or title to one’s property. This is a capital expenditure which should be spread out over a reasonable period of time. Respondent corporation's venture to protect its brand franchise was tantamount to efforts to establish a reputation. This was akin to the acquisition of capital assets and therefore expenses related thereto were not to be considered as business expenses but as capital expenditures. [Commissioner of International Revenue v. General Foods (Phils.), Inc., 401 SCRA 545, (2003)] Ill, TAX REMEDIES Q. What are the remedies available to an aggrieved taxpayer under the Tax Code?1. Administrative (Extra-Judicial) 2. Judicial Two administrative remedies accorded to the taxpayer under the Tax Code: a.) administrative protest, which is a protest against the assessment and is filed before payment; and, b.) claim for refund filed with the CIR after payment. THE SENDING OF A PRELIMINARY ASSESSMENT NOTICE (PAN) TO TAXPAYER TO INFORM HIM OF THE ASSESSMENT MADE |S BUT PART OF THE DUE PROCESS REQUIREMENT IN THE ISSUANCE OF A. DEFICIENCY TAX ASSESSMENT, THE ABSENCE OF WHICH RENDERS NUGATORY ANY ASSESSMENT MADE BY THE TAX AUTHORITIES e The use of the word “shall” in subsection 3.1.2 of Revenue Regulations 12-99 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star's right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void. [Commissioner of Internal Revenue v. Metro Star Superama, Inc., 637 SCRA 633, (2010)] ASSESSMENT IS A WRITTEN NOTICE AND DEMAND. In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR examiner's findings is not an assessment since it is yet indefinite. We rule that the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points: 1. It was not addressed to the taxpayers. 2. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein. 3. The letter was never mailed or sent to the taxpayers by the Commissioner. In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100, as penalized under Section 255, and for violation of Section 253, in relation to Section 252 %(b) and (d) of the Tax Code. [Adamson v. Court of Appeals, 588 SCRA 27 (2009)] MOTION FOR RECONSIDERATION OF THE DENIAL OF THE ADMINISTRATIVE PROTEST DOES NOT TOLL THE 30-DAY PERIOD TO APPEAL TO THE COURT OF TAX APPEALS In the case at bar, petitioner's administrative protest was denied by Final Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent's denial of its protest to the CTA. Sincepetitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. [Fishwealth Canning Corporation v. Commissioner of Internal Revenue, 610 SCRA 524 (2010)] Q. When may tax refund be claimed? The taxpayer may file a claim for refund or credit with the BIR within 2 years after payment of the tax, before any suit in the CTA is commenced. The 2-year prescriptive period should be computed from the time of filing of the Adjustment Return (or Annual Income Tax Return) and final payment of the tax for the year (PBCom v. CIR, 301 SCRA 241; BPI v. CIR, 363 SCRA 840; CIR v. TMX Sales, 205 SCRA 184). The “date of payment” in ACCRAIN’s case was when its tax liability, if any, fell due upon its filing of its final adjustment return (ACCRA Investments Corporation v. CA, 204 SCRA 957). The prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished (CIR v. PHILAMLIFE Insurance Co., 244 SCRA 446). Therefore, the filing of quarterly income tax returns and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year (CIR v. TMX Sales, Inc., supra). In the case of a corporate dissolution, the two year prescriptive period should be counted 30 days after the approval by the SEC of its plan for dissolution (BPI v. CIR, supra) Q. Does taxpayer's deficiency income tax constitute a bar to his claim for refund of income tax? No. In the case of CIR v. Citytrust Banking Corporation, 499 SCRA 477, 482, the Supreme Court accorded judicial imprimatur to the following ratiocination of the CTA: “[W]e refuse to take cognizance of petitioner's deficiency tax assessment because to do so would create utter confusion among taxpayers. It is of common knowledge that the laws or rules governing claims for refund are separate and distinct from those applicable to assessment appeals. For example, the period of time to appeal a refund case is within (2) years from the date of payment, while the filing of an assessment appeal requires the observance of thirty (30) days from the date of receipt of denial of protest. Using this example for illustration, let us take a taxpayer who has an erroneously paid capital gains tax in August 1992. Sometime in August 1994, an assessment was issued against him for deficiency income tax for the same taxable year. Supposing, he immediately protested the said assessment but the BIR did not immediately act on his protest, will he still wait for the [BIR’s] decision before he can go to [the CTA] to file his claim for refund? What about if the two-year period to appeal his refund is (nearing expiration], will he still wait indefinitely for the decision on his protest, so he can file both suits simultaneously with this Court? Of course, the answer will be No.Now, let us reverse the scenario. Supposing, the [BIR's] assessment came first but this time no protest was made by the taxpayer. [H]ence, the assessment became final and executory and so, the [BIR] filed a collection case in the regular trial court. During the pendency of the collection suit, taxpayer discovered that he made an erroneous payment of a different kind of tax. To avoid multiplicity of suits, will the [BIR] allow the taxpayer to ventilate his Claim for refund in the same collection case? Of course, the [BIR] will object on the ground of jurisdiction.” +> In claims for refund, it is necessary that the tax be paid in full, and that the claim for refund in the BIR as well as the proceedings in the CTA be commenced within two years counted from the payment of the tax. +> “A taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must (1) file a written claim for refund with the CIR within 2 years from the date of his payment of the tax, and (2) appeal to the CTA within 30 days from receipt of the CIR’s decision or ruling denying his claim for refund (Sec. 11, RA 1125). The 30- day period to appeal should be within the 2-year period. If, however, the CIR takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the CTA BEFORE the end of the two-year period without awaiting the decision of the CIR” (Gibbs v. CTA, 107 Phil 232). TAX REFUNDS ARE NOT FOUNDED PRINCIPALLY ON LEGISLATIVE GRACE Tax refunds are not founded principally on legislative grace but on the legal principle which underlies all quasi-contracts abhorring a person’s unjust enrichment at the expense of another. The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact but also mistake in law. Under the Tax Code itself, apparently in recognition of the pervasive quasi- contract principle, a claim for tax refund may be based on the following: (a) erroneously or illegally assessed or collected internal revenue taxes; (b) penalties imposed without authority; and (c) any sum alleged to have been excessive or in any manner wrongfully collected. (CIR v. Fortune Tobacco Corporation, 559 SCRA 160 [2008}). THE TWO-YEAR PRESCRIPTIVE PERIOD FOR THE FILING OF TAX REFUND IS RECKONED FROM THE FILING OF THE FINAL ADJUSTED RETURN. HOW SHOULD THE TWO-YEAR PERIOD BE COMPUTED? Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book | of the Administrative Code of 1987 deal with the same subject matter—the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code andthe Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIll, Book | of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori (CIR v. Primetown Property Group, Inc., 531 SCRA 436 [2007]). THE PROPER PARTY TO SEEK A REFUND OF INDIRECT TAX IS THE STATUTORY TAXPAYER Excise taxes, which apply to articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines, is basically an indirect tax. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production or from the customs custody, the tax, in reality, is actually passed on to the end consumer as part of the transfer value or selling price of the goods, sold, bartered or exchanged. In early cases, we have ruled that for indirect taxes (such as valued-added tax or VAT), the proper party to question or seek a refund of the tax is the statutory taxpayer, the person ‘on whom the tax is imposed by law and who paid the same even when he shifts the burden thereof to another. Thus, in Contex Corporation v. Commissioner of Internal Revenue, we held that while it is true that petitioner corporation should not have been liable for the VAT inadvertently passed on to it by its supplier since their transaction is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund. Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter. [Silkair (Singapore) Pte. Ltd. v. Commissioner of Internal Revenue, 664 SCRA 33 (2012)] Commissioner of Internal Revenue v. PERF Realty Corporation 557 SCRA 165 (2008) The CTA, citing Section 10 of Revenue Regulations 6-85 and Citibank, N.A. v. Court of Appeals, determined the requisites for a claim for refund, thus: 1) That the claim for refund was filed within the two (2) year period as prescribed under Section 230 of the National Internal Revenue Code; 2) That the income upon which the taxes were withheld were included in the return of the recipient; 3) That the fact of withholding is established by a copy of a statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. Section 76 offers two options: (1) filing for tax refund and (2) availing of tax credit. The two options are alternative and the choice of one precludes the other. However, in Philam Asset Management, Inc. v. Commissioner of Internal Revenue, 447 SCRA 772 (2005), the Court ruled that failure to indicate a choice, however, will not bar a valid request for a refund, should this option be chosen by the taxpayer later on. The requirement is only for the purpose of easing tax administration particularly the self-assessment and collection aspects. Commencement of 30-day within which to appeal to the CTA ‘A. Where the Commissioner has not acted on the taxpayer's protest within a period of 180 days from submission of all relevant documents, then the taxpayer has a period of 30 days from the lapse of said 180 days within which to file a petition for review with the CTA.B. Should the Commissioner deny the taxpayer’s protest, then he has a period of 30 days from receipt of said denial within which to file a petition for review with the CTA. “ The subject of a JUDICIAL REVIEW is the decision of the CIR on the protest against assessment, not the assessment itself (CIR v. Villa, 22 SCRA 3). APPLICATION FOR THE ISSUANCE OF A TAX CREDIT CERTIFICATE OR REFUND OF CREDITABLE INPUT TAX DUE OR PAID ATTRIBUTABLE TO ‘ZERO-RATED SALES MUST BE FILED WITH THE COMMISSIONER OF INTERNAL REVENUE WITHIN TWO YEARS AFTER THE CLOSE OF THE TAXABLE QUARTER Applying the two-year period to judicial claims would render nugatory Section 112(D) (now Section 112 (C)) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112(C) of the NIRC, as amended, envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. Indeed, the 120-day period is crucial in filing an appeal with the CTA. [See Commissioner of Internal Revenue v. AICHI Forging Company of Asia, Inc., 632 SCRA 422, (2010)] In fine, the taxpayer can file its ad rative claim for refund or credit at any time within the two-year prescriptive period. If it files its claim on the last day of said period, it is still filed on time. The CIR will have 120 days from such filing to decide the claim. If the CIR decides the claim on the 120 day, or does not decide it on that day, the taxpayer still has 30 days to file its judicial claim with the CTA; otherwise, the judicial claim would be, properly speaking, dismissed for being filed out of time and not, as the CTA En Banc puts it, prescribed. The inaction of the CIR on the claim during the 120-day period is, by express provision of law, “deemed a denial” of such claim, and the failure of the taxpayer to file its judicial claim within 30 days from the expiration of the 120-day period shall render the "deemed a denial” decision of the CIR final and inappealable. The right to appeal to the CTA from a decision or “deemed a denial’ decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise_of such statutory privilege requires strict_compliance_with the conditions attached by the statute for its exercise. Thus, respondent's failure to comply with the statutory conditions is fatal to its claim. This is so, notwithstanding the fact that the CIR, for his part, failed to raise the issue of non-compliance with the mandatory periods at the earliest opportunity. (Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., 739 SCRA 147, 148-149, October 22, 2014) COMPLIANCE WITH THE 120-DAY WAITING PERIOD IS MANDATORY AND JURISDICTIONAL Section 112(C) provides that the Commissioner shall decide the application for refund or credit “within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A).”” The reference in Section 112(C) of the submission of documents “in support of the application filed in accordance with Subsection (A)” means that the application in Section25 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. [Commissioner of Internal Revenue v. San Roque Power Corporation, 690 SCRA 336, (12 February 2013] THE OPTION TO CARRY-OVER AND APPLY THE EXCESS QUARTERLY INCOME TAX AGAINST INCOME TAX DUE FOR THE TAXABLE QUARTERS OF THE SUCCEEDING TAXABLE YEARS SHALL BE CONSIDERED IRREVOCABLE FOR THAT TAXABLE PERIOD Section 76 provides that a taxpayer has the option to file a claim for refund or to carry-over its excess income tax payments. The option to carry-over, however, is irrevocable. Thus, once a taxpayer opted to carry-over its excess income tax payments, it can no longer seek refund of the unutilized excess income tax payments. The taxpayer, however, may apply the unutilized excess income tax payments as a tax credit to the succeeding taxable years until such has been fully applied pursuant to Section 76 of the NIRC. [Belle Corporation v. Commissioner of Internal Revenue, 644 SCRA 433 (2011) Commissioner of Internal Revenue v. Philippine National Bank 474 SCRA 303 Tax payment in advance does not amount to erroneous or illegal collection 1. Section 230 of the Tax Code (now Section 229), as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected. Black defines the term erroneous or illegal tax as one levied without statutory authority. In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not proceed from, or is a consequence of overpayment of tax erroneously or illegally collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180 Million in the concept of tax payment in advance, thus eschewing the notion that there was error or illegality in the payment. What in effect transpired when PNB wrote its July 28, 1997 letter was that respondent sought the application of amounts advanced to the BIR to future annual income tax liabilities, in view of its inability to carry-over the remaining amount of such advance payment to the four (4) succeeding taxable years, not having incurred income tax liability during that period. Prescriptive period for tax credit is 10 years 2. In Commissioner v. Phil-Am Life, the Court ruled that an availment of a tax credit due for reasons other than the erroneous or wrongful collection of taxes may have a different prescriptive period. Absent any specific provision in the Tax Code or special laws, that period would be ten (10) years under Article 1144 of the Civil Code. Significantly, Commissioner v. Phil-Am Life is partly a reiteration of a previous holding that even if the two (2)-year prescriptive period, if applicable, had already lapsed, the same is not jurisdictional any may be suspended for reasons of equity and other special circumstances.+ Q. State the remedies available to the government to enforce collection of taxes, fees and charges. 1. Distraint of personal property such as goods, chattels, or effects, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property [Sec. 207(A)] Levy or seizure of real properties and interest in or rights to real property (Sec. 207(B), NIRC) Tax Lien (Sec. 219, NIRC) Civil or Criminal action (Sec. 205, NIRC) Compromise (Sec. 204, NIRC) Forfeiture (Sec. 224, NIRC) Civil Penalties (Sec. 248, NIRC) soya The Commissioner has the power to approve the filing of tax collection cases (Republic v. Hizon, 320 SCRA 574). The BIR is authorized to issue a warrant of garnishment against the bank account of a taxpayer despite the pendency of a protest (Yabes v. Flojo, 15 SCRA 278). Nowhere in the Tax Code is the Commissioner required to rule first on the protest before he can institute collection proceedings on the tax assessed. The legislative policy is to give the Commissioner much latitude in the speedy and prompt collection of taxes because taxes are the lifeblood of the government (Republic v. Lim Tian Teng Sons., Inc., 16 SCRA 584). In Marcos Il v. CA, 273 SCRA 47, the SC ruled that the approval of the court sitting in probate is not a mandatory requirement in the collection of estate taxes. The 3-year prescriptive period for assessment of the tax liability commences to run after the last day prescribed by law for the filing of the return; but if the return was amended substantially, the period starts from the filing of the amended return (CIR v. Phoenix Assurance, Co. Ltd., 14 SCRA 52). Cases Which Cannot Be Compromised 1, Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold; 2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative; 3. Criminal violation already filed in court; 4, Delinquent accounts with duly approved schedule of installment payments; 5. Cases where final reports of reinvestigation or reconsiderations have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis;7 6. Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment; and 7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer (Rev. Regs. No. 30-2002). Commissioner of Internal Revenue v. Hantex Trading Co., Inc. 454 SCRA 301 Meaning of best evidence obtainable The “best evidence” envisaged in Section 16 of the 1977 NIRC (now Sec. 6) includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data, document and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. BIR is not bound by the technical rules of evidence The best evidence obtainable may consist of hearsay evidence, such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the investigation, hence, inadmissible in a regular proceeding in the regular courts. Moreover, the general rule is that administrative agencies such as the BIR are not bound by the technical rules of evidence. It can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. It can choose to give weight or disregard such evidence, depending ‘on its trustworthiness. Photocopies of records/documents inadmissible in evidence The best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The BIR, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer. Estimation may be the basis of tax liability The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by estimation. The petitioner is not required to compute such tax liabilities with mathematical exactness. Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. However, the rule does not apply where the estimation is arrived at arbitrarily and capriciously.4 PRESCRIPTION (Suspension of the Statutory Period for Collection) Section 229 (now 228) of the Tax Code mandates that a request for reconsideration must be made within 30 days from the taxpayer’s receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and therefore demandable (Republic v. Hizon, supra). ‘+ A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 224 of the Tax Code of 197 (Sec. 223, NIRC as amended by RA 8424), as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon (BPI v. CIR, 473 SCRA 205). ‘ With the issuance of RR No. 12-85 on 27 November 1985 providing the above- quoted distinctions between a request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977 (now Sec. 223), the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter can not. IV. THE NEW COURT OF TAX APPEALS EXPANDED JURISDICTION OF THE CTA 1, Exclusive original jurisdiction over criminal cases arising from violations of the NIRC or the Tariff and Customs Code and other laws administered by the BIR and the BOC where the principal amount of taxes and penalties involved is P1 million or more and appellate jurisdiction in lieu of the Court of Appeals over decisions of the Regional Trial Court where the amount is less than P1 million; 2. Exclusive original jurisdiction over tax collection cases where the principal amount of taxes and penalties involved is P1 million or more and the appellate jurisdiction over decisions of the Regional Trial Court where the amount is less than P1 million; 3. Appellate jurisdiction over decisions of the Regional Trial Courts in local tax cases; and 4, Appellate jurisdiction over decisions of the Central Board of Assessment ‘Appeals over cases involving the assessment of taxation of real property.2 JURISDICTION OVER BOTH CIVIL AND CRIMINAL ASPECTS The vesting of jurisdiction over both the civil and criminal aspects of a tax case in one court will likewise effectively enhance and maximize the development of jurisprudence and judicial precedence on tax matters which is of vital importance to revenue administration. The concentration of tax cases in one court will enhance the disposition of these cases since it will take them out of the jurisdiction of regular courts which, admittedly, do not have the expertise in the field of taxation. QUTLINE OF JURISDICTION Section 7. 282 |. Exclusive Appellate Jurisdiction to review by appeal - (1) (G3) (4) (5) 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 NIRC or other laws administered by the BIR [via a petition for review under Rule 42]. Inaction by 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 NIRC or other laws administered by the BIR, where the NIRC provides a specific period for action, in which case the inaction shall be deemed a denial [via a petition for review under Rule 42]. Decisions, orders or resolutions of the RTC in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction [via a petition for review under Rule 43]. Decisions of the Commissioner of Customs in cases involving liability of customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs [via a petition for review under Rule 42]. 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 [via a petition for review under Rule 43]. Decisions of the Secretary of Finance in customs cases elevated to them 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 [via a petition for review under Rule 42] Decisions of the Secretary of Trade and Industry in cases of non- agricultural product, commodity or article, and the Secretary of Agriculture in cases of agricultural product, commodity or article involving dumping and countervailing duties under Sections 301 and 302 of the Tariff and Customs Code, respectively, and safeguard measures30 under RA. 8808, where either party may appeal the decision to impose or not to impose said duties [via a petition for review under Rule 42]. Who may appeal? ‘Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture or the Regional Trial Court, may file an appeal with the CTA: (a.) within thirty (30) days after receipt of such decision or ruling; OR (b.) after the expiration of the period fixed by law for action referred to in Section 7 (a)(2) of RA. 9282, in which case the inaction shall be deemed a denial. What are the modes of appeal? (1.) Appeal may be made by filing a petition for review before the CTA under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure, within 30 days from the receipt of the decision or ruling or from the expiration of the period fixed by law for the official concerned to act in cases of inaction. A division of the CTA shall hear the appeal. All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 of RA 9282 shall be raffled to its divisions. A party adversely affected by a ruling, order or decision of a division of the CT A may file a motion for reconsideration or new trial before the same division. (2.) Appeals with respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction, may be made by filing a petition for review under a procedure analogous to that provided for under Rule 43 of the 1997 Rules of Civil Procedure with the CTA which shall hear the case en banc A party adversely affected by a resolution of a division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc, (3.) A Petition for Review on Certiorari may be filed by a party adversely affected by a decision or ruling of the CTA en banc, through a verified petition before the Supreme Court pursuant to Rule 45 of the 1997 Rules of Civil Procedure. Q. What may be appealed? It is the decision of the CIR on the protest of the taxpayer against assessment, not the assessment itself, which is appealable to the CTA. A letter of the Commissioner reminding a taxpayer of his obligation to pay taxes which reiterates a previous demand for the settlement of an assessment is in effect a decision on the disputed assessment. This letter is tantamount to a denial of the request for reconsideration or protest of the taxpayer (CIR v. Ayala Securities Corp., 70 SCRA 204).3 Q. What may constitute Administrative Decision on a Disputed Assessment? The decision of the Commissioner or his duly authorized representative shall: (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void, in which case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final decision (Sec. 3, 3.1.6, Revenue Regulations 12-99). Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue 477 SCRA 205 RULINGS 1. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. 2. We laid down the rule that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment, thus: ... we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear an unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. 3. The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC) enumerated in Section 7. 4. The authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in this case, In Commissioner of Internal Revenue vy. Isabela Cultural Corporation, 361 SCRA 71, the Supreme Court held that a final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate payment of a tax deficiency assessment previously made, is tantamount to a denial of the taxpayer’s request for reconsideration. Such letter amounts to a final decision on a disputed assessment and is thus appealable to the Court of Tax Appeals.32 THE CTA HAS JURISDICTION OVER DISPUTE BETWEEN PNB. AND BIR RELATIVE TO DEFICIENCY WITHHOLDING TAX ASSESSMENT PNB sought the suspension of the proceedings in CTA Case No. 4249, after it contested the deficiency withholding tax assessment against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242. The CTA, however, correctly sustained its jurisdiction and continued the proceedings in CTA Case No. 4249; and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or adjudicate BIR’s assessment against PNB. Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and controversies. It has been incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the Revised Administrative Code of the Philippines. On the other hand, R.A. No. 1125 is a special law dealing with a specific subject matter — the creation of the CTA, which shall exercise exclusive appellate jurisdiction over the tax disputes and controversies enumerated therein. Following the rule on statutory construction involving a general and a special law previously discussed, then P.D. No. 242 should not affect R.A. No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and controversies falling under Section 7 of R.A. No. 1125, even though solely among government offices, agencies, and instrumentalities, including government-owned and controlled corporations, remain in the exclusive appellate jurisdiction of the CTA. Such a construction resolves the alleged inconsistency or conflict between the two statutes, and the fact that P.D. No. 242 is the more recent law is no longer significant (Philippine National Oil Company v. Court of Appeals, 457 SCRA 32, 76-81). A FORMAL LETTER OF DEMAND WITH ASSESSMENT NOTICES STATING THAT IT IS BIR'S FINAL DECISION BASED ON INVESTIGATION IS APPEALABE TO THE CTA Allied Banking Corporation received the Formal Letter of Demand with Assessment Notices, which partly reads: “It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.” A careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with Allied Banking Corporation that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned. [Allied Banking Corporation v. Commissioner of Internal Revenue, 611 SCRA 692 (2010)]3 THE RULING OF THE SECRETARY OF FINANCE UNDER THE NIRC IS APPEALABLE TO THE CTA Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction over the CA petition as “other matters”arising under the NIRC or other laws administered by the BIR. To leave undetermined the mode of appeal from the Secretary of Finance would be an injustice to taxpayers prejudiced by his adverse rulings. To remedy this situation, We imply from the purpose of RA 1125 and its amendatory laws that the CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of President but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi-judicial body with specialization over the controversy. As the specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment cases, there can be no other court of appellate jurisdiction that can decide the issues raised in the CA petition, which involves the tax treatment of the shares of stocks sold. (Philippine American Life and General Insurance Company v. Secretary of Finance, 741 SCRA 578, November 24, 2014) TAXPAYER HAS TWO OPTIONS IN CASE THE BIR COMMISSIONER FAILED TO ACT ON THE DISPUTED ASSESSMENT WITHIN THE 180-DAY PERIOD FROM THE DATE OF SUBMISSION OF DOCUMENTS In RCBC v. CIR, the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 18-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. {Lascona Land Co., Inc. v. Commissioner of Internal Revenue, 667 SCRA 455 (2012)] ve ESTATE AND DONOR’S TAX The gifts referred to in Section 1540 of the Revised Administrative Code are those donations inter vivos that take effect immediately or during the lifetime of the donor but are made in consideration or in contemplation of death. Gifts inter vivos, the transmission of which is not made in contemplation of the donor’s death, should not be included within the said legal provision for it would amount to imposing a direct tax on property and not on the transmission thereof. The law considers such transmissions in the form of gifts inter vivos, as advances on inheritance and nothing therein violates any constitutional provision, inasmuch as said legislation is within the power of the Legislature (Vidal de Roces v. Posadas, 58 Phil. 111, 113). Q. What are deductible funeral expenses? The term “FUNERAL EXPENSES” is not confined to its ordinary or usual meaning. They include: (a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial;(b) (c) (d) (e) (f) (g) 34 Expenses for the deceased’s wake, including food and drinks; Publication charges for death notices; Telecommunication expenses incurred in informing relatives of the deceased; Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; Interment and/or cremation fees and charges; and All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. a. What are the requisites for deductibility of claims against the estate? Requisites for Deductibility of Claims Against the Estate: (a) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i.e., expenses incurred up to the time of interment) and unpaid medical expenses which are classified under a different category of deductions pursuant to these Regulations; The liability was contracted in good faith and for adequate and full consideration in money or money’s wort The claim must be a debt or claim which is valid in law and enforceable ‘in court; The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed. What are the conditions for the allowance of family home as deduction from the gross estate? Conditions for the allowance of FAMILY HOME as deduction from the gross estate: 1, The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the family home is situated; The total value of the family home must be included as part of the gross estate of the decedent; and Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P1,000,000.— Vi. VALUE ADDED TAX TOLL FEES COLLECTED BY TOLL OPERATORS ‘MAY BE SUBJECTED TO VALUE-ADDED TAX «Section 108(A) of the Code clearly states that services of all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions under Section 109 of the Code. xxx The grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The Court's role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute. Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress. The Court has no discretion on the matter but simply applies the law. The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value Added Tax law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition. [Diaz v. Secretary of Finance, 654 SCRA 96, (2011)] TRANSITIONAL INPUT TAX CREDIT OPERATES TO BENEFIT NEWLY VAT-REGISTERED PERSONS It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT- registered taxpayer is obliged to remit a significant portion of ‘the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments. There is another point that weighs against the CTA’s interpretation. Under Section 105 of the Old NIRC, the rate of the transitional input tax credit is “8% (now 2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher.” If indeed the transitional input tax credit is premised on the previous payment of VAT, then it does not make sense to afford the taxpayer the benefit of such credit based on “8% (now 2%) of the value of such inventory” should the same prove higher than the actual VAT paid. This intent that the CTA alluded to could have been implemented with ease had the legislature shared such intent by providing the actual VAT paid as the sole basis for the rate of the transitional input tax credit. [Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, et al., 583 SCRA 168 (2009)]36 PRIOR PAYMENT OF VALUE-ADDED TAXES 1S NOT ‘A PREREQUISITE BEFORE A TAXPAYER COULD AVAIL OF THE TRANSITIONAL INPUT TAX CREDIT A transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior payment of taxes is not required before a taxpayer could avail of transitional input tax credit. It is settled that tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from one's total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment.[Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, 689 SCRA 76 (22 January 2013)] REVENUE REGULATIONS 16-2011 INCREASE THE THRESHOLD AMOUNTS e Sale of residential lot from P1,500,000 to P1,919,500 (Selling Price) Sale of house and lot from P2,500,000 to P3,199,200 (Selling Price) © Lease of residential unit from P10,000 to P12,800/month e Sale or lease of goods or properties or performance of services from 1,500,000 to P1,919,500 (Gross Annual Sales or Receipts) Vil. LOCAL TAXATION Q. Explain the doctrine of supremacy of the National Government over local governments. Local governments have no power to tax instrumentalities of the National Government. Settled is the rule that the states have no power by taxation or otherwise, to retard, impede, burden or any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 597). Taxing Power of LGUs In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit enacting it and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government shall be construed strictly against the person claiming it (Sec. 5(b), RA 7160). In interpreting statutory provisions on municipal taxing powers, doubts should be resolved in favor of municipal corporations (PLDT v. Province of Laguna, 467 SCRA 93). Section 193 of the Local Government Code buttresses the withdrawal of extant tax exemption privileges. The general rule is that tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the LGC except with respect to those entities expressly enumerated. In the same vein, the express withdrawal upon effectivity of the LGC of all exemptions except only as provided therein, can no longer be invokedby MERALCO to disclaim liability for the local tax (Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667; City Government of San Pablo, Laguna v. Reyes, 305 SCRA 362). Q. Section 12 of RA 7082 embodies the so-called “‘in-lieu-of-all taxes” clause, whereunder PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be “in lieu of all taxes”. Invoking its authority under Section 137 of RA 7160, the Province of Laguna, through its Local Legislative Assembly enacted Provincial Ordinance No. 01-92, imposing a franchise tax upon all businesses enjoying a franchise, PLDT included. PLDT invoked the “in-lieu-of-all-taxes” clause and Section 23 of RA No. 7925 also known as the “most-favored treatment” clause providing for an equality of treatment in the telecommunications industry. RESOLVE. PLOT jis subject to franchise tax. The Supreme Court rejected PLDT’s contention that “in-lieu-of-all taxes” clause does not refer to “tax exemption” but to “tax exclusion” and hence, the strictissimi juris rule does not apply. The en banc explains that these two terms actually mean the same thing, such that the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusion Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected. Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions. Exclusion is, thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions. To construe otherwise the ‘in lieu of all taxes’ provision invoked is to be inconsistent with the theory that R.A. No. 7925, § 23 grants tax exemption because of a similar grant to Globe and Smart (PLOT v. City of Bacolod, 463 SCRA 528, 540). Q. Discuss the meaning of the doctrine of preemption in local government taxation. Preemption in the matter of taxation simply refers to an instance where the national government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field. This doctrine rests upon the intention of Congress. Conversely, should Congress allow municipal corporations to cover fields of taxation it already occupies, then the doctrine of preemption will not apply (Victorias Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25 SCRA 192). LOCAL GOVERNMENT UNIT (LGU) HAS NO POWER TO IMPOSE BUSINESS TAXES ON PERSONS OR ENTITIES ENGAGED IN THE SALE OF PETROLEUM PRODUCTS Section 133 prescribes the limitations on the capacity of local government. units to exercise their taxing powers otherwise granted to them under the LGC. Apparently, paragraph (h) of the Section mentions two kinds of taxes which cannot38 be imposed by local government units, namely: “excise taxes on articles enumerated under the National Internal Revenue Code [(NIRC)], as amended”; and “taxes, fees or charges on petroleum products.” The language of Section 133(h) makes plain that the prohibition with respect to petroleum products extends not only to excise taxes thereon, but all “taxes, fees and charges.” The earlier reference in paragraph (h) to excise taxes comprehends a wider range of subjects of taxation: all articles already covered by excise taxation under the NIRC, such as alcohol products, tobacco products, mineral products, automobiles, and such non-essential goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels intended for pleasure or sports. In contrast, the later reference to “taxes, fees and charges” pertains only to one class of articles of the many subjects of excise taxes, specifically, “petroleum products.” While local government units are authorized to burden all such other class of goods with “taxes, fees and charges,” excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes with respect to petroleum products. (Petron Corporation v. Tiangco, 551 SCRA 484 [2008]) AN APPEAL SHALL NOT SUSPEND THE COLLECTION OF REALTY TAXES EXCEPT WHERE THE TAXPAYER HAS SHOWN A CLEAR AND UNMISTAKABLE RIGHT TO REFUSE OR HOLD IN ABEYANCE THE PAYMENT OF TAXES We are not unaware of the doctrine that taxes are the lifeblood of the government, without which it can not properly perform its functions; and that appeal shall not suspend the collection of realty taxes. However, there is an exception to the foregoing rule, i.e., where the taxpayer has shown a clear and unmistakable right to refuse or to hold in abeyance the payment of taxes. In this case we note that respondent contested the revised assessment on the following grounds: that the subject assessment pertained to properties that have been previously declared; that the assessment covered periods of more than 10 years which is not allowed under the LGC; that the fair market value or replacement cost used by petitioner included items which should be properly excluded; that prompt payments of discounts were not considered in determining the fair market value; and that the subject assessment should take effect a year after or on January 1, 2008. To our mind, the resolution of these issues would have a direct bearing on the assessment made by petitioner. Hence, it is necessary that the issues must first be passed upon before the properties of respondent are sold in public auction. (Talento v. Escalada, Jr., 556 SCRA 491, 500-501 [2008)). A TAX ORDINANCE MAY BE ASSAILED BEFORE THE YS FROM EFFECTIVITY THEREOF Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason, the courts construe these provisions of statutes as mandatory. [Cagayan Electric Power and Light Co., Inc. v. City of Cagayan De Oro, 685 SCRA 609, (14 November 2012)]39 THERE IS NO EXPRESS PROVISION IN THE LGC PROHIBITING COURTS FROM ISSUING AN INJUNCTION TO RESTRAIN LOCAL GOVERNMENTS FROM COLLECTING TAXES A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the government should be collected promptly, without unnecessary hindrance or delay. In line with this principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the Code. An exception to this rule obtains only when in the opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the government and/or the taxpayer. Unlike the National Internal Revenue Code, the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. Such statutory lapse or intent, however it may be viewed, may have allowed preliminary injunction where local taxes are involved but cannot negate the procedural rules and requirements under Rule 58. [Angeles City v. Angeles Electric Corporation, 622 SCRA 43 (2010)] LOCAL BUSINESS TAX SHALL BE BASED ON GROSS RECEIPTS The imposition of local business tax based on gross revenue will inevitably result in the constitutionally proscribed double taxation—taxing of the same person twice by the same jurisdiction for the same thing—inasmuch as petitioner’s gross revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received, This is in consonance with the International Financial Reporting Standards, which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends), which is measured at the fair value of the consideration or receivable. (Ericsson Telecommunications, Inc. v. City of Pasig, 538 SCRA 99 [2007]) Qa Can the National Power Corporation (NPC), a government-owned and controlled corporation, claim tax exemption under Section 234 of the Local Government Code for the taxes due from Mirant Pagbilao Corporation (Mirant) whose tax liabilities the NPC has contractually assumed? The stipulation between NPC and Mirant does not bind third persons who are not privy to the contract between these parties. There is no privity between the local government units and the NPC, even though both are public corporations. The tax due will not come from one pocket and go to another pocket of the same governmental entity. Only the parties to the agreement can exact and demand the enforcement of the rights and obligations it established—only Mirant can demand compliance from the NPC for the payment of the real property tax the NPC assumed to pay. The local government units cannot demand payment from the NPC.40 The government-owned or controlled corporation claiming exemption must be the entity actually, directly, and exclusively using the real properties, and the use must be devoted to the generation and transmission of electric power. Although the plant's machineries are devoted to the generation of electric power, by the NPC's own admission and as previously pointed out, Mirant—a private corporation—uses and operates them. That Mirant operates the machineries solely in compliance with the will of the NPC only underscores the fact that NPC does not actually, directly, and exclusively use them. The test of exemption is the use, not the ownership of the machineries devoted to the generation and transmission of electric power. [National Power Corporation v. Province of Quezon and Municipality of Pagbilao, 593 SCRA 47 (2009)] Vil. TARIFF AND CUSTOMS CODE * Seizure and forfeiture proceedings are within the exclusive jurisdiction of the Collector of Customs to the exclusion of regular courts. Regional Trial Courts are devoid of competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings (Jao v. CA, 249 SCRA 36). * The customs authorities do not have to prove to the satisfaction of the court that the articles on board a vessel were imported from abroad or are intended to be shipped abroad before they may exercise the power to effect customs’ searches, seizures or arrests provided by law and continue with the administrative hearings. As held in Ponce v. Vinuya: “The governmental agency concerned, the Bureau of Customs, is vested with exclusive authority. Even if it be assumed that in the exercise of such exclusive competence a taint of illegality may be correctly imputed, the most that can be said is that under certain circumstances the grave abuse of discretion conferred may oust it of such jurisdiction. It does not mean however that correspondingly a CFI (now RTC) is vested with competence when clearly in the light of the above decisions the law has not seen fit to do so. The proceeding before the Collector of Customs is not final. An appeal lies to the Commissioner of Customs and thereafter to the Court of Tax Appeals. It may even reach (the Supreme Court) through the appropriate petition for review. The proper ventilation of the legal issues raised is thus indicated. Certainly a CFI (now RTC) is not therein included. It is devoid of jurisdiction” (Rallos v. Gako, 344 SCRA 175). Classification of Customs Duties 1. Regular Duties — those imposed and collected merely as a source of revenue. a. Ad valorem Duty — Based on the value of imported article. b. Specific Duty — Based on dutiable weight of goods. c. Alternating Duties — Which alternates ad valorem and specific d. Compound Duty — Consisting of ad valorem and specific. 2. Special Duties — those imposed in additional to the ordinary customs duties usually to protect local industries against foreign competition. a. Anti-Dumping Duty — Imposed upon foreign products with value lower than their fair market value to the detriment of locala products; it is the difference between the export price and the normal value of such product, commodity or article. + Imposing authority — The Secretary of Trade and Industry (non- agricultural products) OR Secretary of Agriculture (agricultural products) after formal investigation and affirmative finding of the Tariff Commission. b. Countervailing Duty ~ Imposed upon foreign goods enjoying subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated; it is equivalent to the value of the subsidy. + Imposing authority — Secretary of Trade and Industry (non- agricultural products); Secretary of Agriculture (agricultural products) after formal investigation and affirmative finding of the Tariff Commission. c. Marking Duty — Imposed upon those not properly marked as to place of origin of the goods. + Imposing authority — Commissioner of Customs. d. Discriminatory Duty — Imposed upon goods coming from countries that discriminate against Philippine products. «Imposing authority — President of the Philippines. Flexible Tariff Clause * Under Sec. 28, Article VI, 1987 Constitution — the Congress may, by law, authorize the President to fix, within specified limits, and subject to such limitations and restrictions as it may impose: a. Tariff rates, imports and export quotas, tonnage and wharfage dues; b. Other duties or imposts within the framework of the national development program of the Government. + Under the Tariff and Customs Code Sec. 401 — in the interest of national economy, general welfare and/or national security, the President, upon recommendation by NEDA, is empowered: a. To increase, reduce or remove existing protective rates of import duty, provided that the increase shall not be higher than 100% ad valorem; b, To establish import quota or to ban imports to any commodity; ¢. To impose additional duty on all imports not exceeding 10% ad valorem; d. To modify the forms of duty, whether ad valorem or specific. Exemption from payment of all duties and taxes of officer or employee returning from regular assignment abroad for reassignment to the home office Any officer or employee returning from a regular assignment abroad for reassignment to the home office x x x shall be exempt from the payment of all duties and taxes on his personal and household effects, including one (1) used motor car duly registered in his name for at least six (6) months: Provided, however, That the exemption shall apply only to the value of the motor car and to the aggregate assessed value of said personal and household effects, the latter not to42 exceed fifty percent (50%) of the total amount received by such officer or employee in salary and allowances during his latest assignment abroad but not to exceed four (4) years: Provided, further, That this exception shall not be availed of more often than once every four (4) years (Republic Act No. 7157, Section 81). IMPORTER’S FAILURE TO FILE REQUIRED ENTRIES WITHIN A NON-EXTENDIBLE PERIOD OF 30 DAYS FROM DATE OF DISCHARGE OF THE LAST PACKAGE CONSTITUTES IMPLIED ABANDONMENT OF ITS IMPORTATIONS An importer’s failure to file the required entries within a non-extendible period of 30 days from date of discharge of the last package from the carrying vessel constitutes implied abandonment of its importations. After the lapse of this 30-day period, the abandoned shipments become government property. Under the Tariff and Customs Code (TCC), imported articles must be entered within a non-extendible period of 30 days from the date of discharge of the last package from a vessel. Otherwise, the BOC will deem the imported goods impliedly abandoned in favor of the government. Chevron argued that the import entry declarations (IED) it filed within the 30-day period for some of its oil shipments is the entry contemplated by the TCC, and not the import entry and internal revenue declaration (IEIRD), which it failed to file within the same period, The SC disagreed, holding that both the IED and IEIRD should be filed within 30 days from the date of discharge of the last package from the vessel or aircraft (Chevron Phils. Inc. v. Commissioner of the Bureau of Customs, 561 SCRA 710, 721-722, 728, 742). God Bless ---