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GENERAL PRINCIPLES

Distinguish a tax amnesty from a tax exemption.

Tax amnesty is immunity from all criminal, civil and administrative liabilities arising
from nonpayment of taxes. It is a general pardon given to all taxpayers. It applies only
to past tax periods, hence of retroactive application. (People v. Castaneda, G.R. No.
L- 46881, 1988). On the other hand, tax exemption is immunity from the civil liability
only. It is an immunity or privilege, a freedom from a charge or burden to which
others are subjected. (Florer v. Sheridan, 137 Ind. 28, 36 NE 365). It is generally
prospective in application. (BAR 2001)

What is the rational basis test?

The rational basis test is applied to gauge the constitutionality of an assailed law in
the face of an equal protection challenge. It has been held that in areas of social and
economic policy, a statutory classification that neither proceeds along suspect lines
nor infringes constitutional rights must be upheld against equal protection challenge if
there is any reasonably conceivable state of facts that could provide a rational basis for
the classification. Under the rational basis test, it is sufficient that the legislative
classification is rationally related to achieving some legitimate State interest (British
American Tobacco v. Camacho and Parayno, GR No. 163583, April 15, 2009).

Distinguish tax evasion from tax avoidance.

Tax evasion is a scheme used outside of those lawful means to escape tax liability and,
when availed of, it usually subjects the taxpayer to further or additional civil or
criminal liabilities. Tax avoidance, on the other hand, is a tax saving device within the
means sanctioned by law, hence legal.

Explain the requirement of uniformity as a limitation in the imposition and/or


collection of taxes.

Uniformity in the imposition and/or collection of taxes means that all taxable articles,
or kinds of property of the same class shall be taxed at the same rate. The requirement
of uniformity is complied with when the tax operates with the same force and effect
in every place where the subject of it is found (Churchill & Tait v. Conception, 34
Phil. 969). Different articles maybe taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times. Accordingly,
singling out one particular class for taxation purposes does not infringe the
requirement of uniformity.
NATIONAL INTERNAL REVENUE CODE

Income Tax v. Withholding Tax

IT is the tax on all yearly profits arising from property, professions, trades or
offices, or as a tax on a persons income, emoluments, profits, and the like.
WT is a method of collecting IT in advance. In the operation of the WT
system, the payee is the taxpayer, the person on whom the tax is imposed, while the
payor, a separate entity, acts no more as an agent of the govt for the collection of the
tax in order to ensure its payment. Obviously, the amount hereby used to settle the
tax liability is deemed sourced from the proceeds constitutive of the tax base. (LG
Electronics Phil vs. CIR, GR No 165451, Dec 3, 2015)

Global Tax Treatment v. Schedular System


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. This system provides for
different tax treatment of different types of income.
Define a "corporation"

Under the NIRC, the term "corporation" shall include partnerships, no matter how
created or organized, joint stock companies, joint accounts, association, or insurance
companies, but does not include:

a. General professional partnership - partnership formed by persons for the sole


purpose of exercising their common profession, no part of the income of which is
derived from engaging in any trade or business.
b. Joint venture formed for the purpose of undertaking construction projects; and
c. Joint venture formed for the purpose of engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating consortium agreement under
a service contract with the Government (Sec. 22B, NIRC)
Explain the concept and rationale of the IAET.

The IAET equal to 10% of the improperly accumulated taxable income is imposed on
corporations formed or availed of for the purpose of avoiding the income tax with
respect to its shareholders or the shareholders of any corporation, by permitting the
earnings and profits of the corporation to accumulate instead of dividing them among
or distributing them to the shareholders.

The rationale is that if the earnings and profits were distributed, the shareholders
would then be liable to income tax thereon, whereas if the distribution were not made
to them, they would incur no tax in respect to the undistributed earnings and profits
of the corporation. (Sec. 29, NIRC, Sec. 2, RR 2-2001)

Who are exempt from IAET?

The IAET shall not apply to the following corporations:

a. Banks and other non-bank financial intermediaries;


b. Insurance companies;
c. Publicly-held corporations;
d. Taxable partnerships;
e. General professional partnerships;
f. Non-taxable joint ventures; and
g. Enterprises duly registered with the Philippine Economic Zone Authority (PEZA)
under RA 7916, and enterprises registered pursuant to the Bases Conversion and
Development Act of 1992 under RA 7227, as well as other enterprises duly
registered under special economic zones declared by law which enjoy payment of
special tax rate on their registered operations or activities in lieu of other taxes,
national or local. (Sec. 29, NIRC and Sec. 4, RR 2-2001)

What is meant by the tax benefit rule?

Tax benefit rule states that the taxpayer is obliged to declare as taxable income
subsequent recovery of bad debts in the year they were collected to the extent of the
tax benefit enjoyed by the taxpayer when the bad debts were written-off and claimed
as a deduction from income. It also applies to taxes previously deducted from gross
income but which were subsequently refunded or credited. The taxpayer is also
required to report as taxable income the subsequent tax refund or tax credit granted
to the extent of the tax benefit the taxpayer enjoyed when such taxes were previously
claimed as deduction from income.
When the donee or beneficiary is a stranger, the tax payable by the donor shall
be 30% of the net gifts. For purposes of this tax, who is a stranger?

A stranger is a person who is not a:


(1) Brother, sister (whether whole or half-blood), spouse, ancestor, and lineal
descendant;
(2) Relative by consanguinity in the collateral line within the fourth degree of
relationship.

Transactions deemed sale


1. Transfer, use, or consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of business.
(ie. When a VAT-registered person withdraws goods from his business for
his personal use)
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered
persons.
NOTE: Property dividends which constitute stocks in trade or
properties primarily held for sale or lease declared out of retained
earnings on or after January 1, 1996 and distributed by the company to
its shareholders shall be subject to VAT based on the zonal value or fair
market value at the time of distribution, whichever is applicable. (Sec
106.7. RR 16-2005)
b. Creditors in payment of debt
3. Consignment of goods if actual sale is not made within 60 days ff the date
of such goods.
NOTE: Consigned good returned by the consignee within the 60 day
period are not deemed sold.
4. Retirement from or cessation of business with respect to all goods on hand,
whether capital goods, stock in trade, supplies and materials as of the date
of such retirement or cessation, whether or not the business is continued by
the new owner or successor.
NOTE: The transactions are deemed sale because in reality there is no
sale, but still the law provides that the ff transactions are considered as sale
and are thus subject to VAT:

WHAT IS THE IRREVOCABILITY RULE?


Once 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 has
been made, such option shall be considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed
therefor. (CIR v. Team (Philippines) Operations Corporation, 2014; Sec. 76, NIRC)

LOCAL GOVERNMENT CODE


What is the nature of the taxing power of the provinces, municipalities and
cities? How will the local government units be able to exercise their taxing
powers?

The taxing power of the provinces, municipalities and cities is directly conferred by
the Constitution by giving them the authority to create their own sources of revenue.
The local government units do not exercise the power to tax as an inherent power or
by a valid delegation of the power by Congress, but pursuant to a direct authority
conferred by the Constitution. (Mactan Cebu International Airport Authority v.
Marcos, 261 SCRA 667 [1996]; NPC v. City of Cabanatuan, 401 SCRA 259 [2003]).
The local government units exercise the power to tax by levying taxes, fees and
charges consistent with the basic policy of local autonomy, and to assess and collect
all these taxes, fees and charges which will exclusively accrue to them. The local
government units are authorized to pass tax ordinances (levy) and to pursue actions
for the assessment and collection of the taxes imposed in said ordinances. (Section
129, and 132, Local Government Code).
REAL PROPERTY TAXATION

Under the Local Government Code, what properties are exempt from real
property taxes?
The following properties are exempt from real property taxes: (Sec. 234, LGC)

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious, charitable or educational
purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or -controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power;
(d) All real property owned by duly registered cooperatives as provided for under R.
A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection. (BAR 2002)

BENEFICIAL USE PRINCIPLE

Sec. 234(a) exempts real property owned by the Republic from real estate taxes,
unless the beneficial use of the property is, for consideration, transferred to a
taxable person.
This exemption must be read in relation with Sec. 133 (o) of the LGC, which
prohibits LGUs from imposing taxes or fees of any kind on the national
government, its agencies, and instrumentalities.
The provisions allow the Republic to grant the beneficial use of its property to an
agency or instrumentality of the national government. Such grant does not
necessarily result in the loss of the tax exemption.
The tax exemption on the property of the Republic or its instrumentality ceases
only if, as stated in Sec. 234 (a) of the LGC: "Beneficial use thereof has been
granted, for a consideration or otherwise, to a taxable person."
Based on the foregoing, GSIS, as a government instrumentality, is not a taxable
juridical person under Sec. 133 (o) of the LGC. (GSIS v. City Treasurer of Manila,
2009)

TARIFF AND CUSTOMS CODE


What is smuggling?
This is committed by a person who:
(1) Fraudulently imports or brings into the Philippines, or assist in doing so, any
article contrary to law, or
(2) Receives, buy, sell, or in any manner facilitate the transportation, concealment,
or sale of such article after importation, knowing the same to have been
imported, contrary to law. (Sec. 3601, TCC)

JUDICIAL REMEDIES

What are the differences between a Request for Reconsideration and a Request
for Reinvestigation?

Request for Reconsideration plea for evaluation of assessment on the basis of


existing records without need of presentation of additional evidence. It does not
suspend the period to collect the deficiency tax.
Request for Reinvestigation plea for re-evaluation on the basis of newly discovered
evidence which are to be introduced for examination for the first time. It suspends
the prescriptive period to collect.

What are the requisites of a valid assessment?

An assessment is a written notice and demand made by the Bureau on the taxpayer
for the settlement of a tax liability that is due, definitely set and fixed therein.
The requisites of a valid assessment are:

1. It must be made within the prescriptive period to assess; (Section 203, NIRC)
2. There must be a preliminary assessment previously issued, except in those
instances allowed by law; (Section 228, NIRC)
3. The taxpayer must be informed in writing about the law and facts on which the
assessment is based; (Section 228, NIRC) and
4. It must be served upon the taxpayer or any of his authorized representatives.
(Estate of Juliana Diaz vda. De Gabriel v. CIR, 421 SCRA 266[2004]).
JURISDICTION TO REVIEW BIR RULINGS

The ruling is subject to review by the Secretary of Finance. (Philam Life v. Secretary
of Finance, 2014)

CASES ORIGINATING FROM THE COMMISSIONER OF INTERNAL


REVENUE THAT ARE WITHIN THE JURISDICTION OF THE CTA

1. Cases involving disputed assessments;


2. Refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or
3. Other matters arising under the NIRC or other laws administered by the BIR (Sec.
7[a][1][2], RA 1125, as amended)

MAY THE CTA PASS ON QUESTIONS RELATING TO THE VALIDITY


OF RULES AND REGULATIONS ISSUED BY ADMINISTRATIVE
AGENCIES?

Yes, the CTA can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue regulation or
revenue memorandum circular on which the said assessment is based. (Philam Life v.
Secretary of Finance, November 24, 2014)