Professional Documents
Culture Documents
TAXATION
VER. 2010.06.12
copyrighted 2010
TAXATION
!!! 2.
What is the nature of the States power to tax ?
Explain briefly.
If pressed for time, the author suggests that the reader should
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WARNING:
These materials are copyrighted and/or based on the writers books
on Taxation and future revisions. It is prohibited to reproduce any part of
these Notes in any form or any means, electronic or mechanical, including
! 1.
SUGGESTED ANSWER:
The inherent power of the sovereign
exercised through the legislature to impose burdens upon subjects and
objects within its jurisdiction for the purpose of raising revenues to carry
out the legitimate objects of government.
! 3.
briefly.
!2
ANSWERS: Marshalls view refers to a valid tax while the Holmes view
refers to an invalid tax.
a.
The imposition
of a valid tax could not be judicially restrained merely because it would
prejudice taxpayers property.
b.
An illegal tax could
be judicially declared invalid and should not work to prejudice a
taxpayers property.
taxation.
SUGGESTED ANSWER: a.
Reciprocal duties of protection and
support between the state and its citizens and residents. Also called
symbiotic relation between the state and its citizens.
b.
Jurisdiction by the state over persons and property
within its territory.
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation is to
promote the general welfare and to protect the health, safety or morals of
the inhabitants. It is in the joint exercise of the power of taxation and police
power where regulatory taxes are collected.
Taxation may be made the implement of the states police power.
The motivation behind many taxation measures is the implementation of
police power goals.
[Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3,
2005) The reader should note that the August 3, 2005 Southern Cross case
10.
Taxation distinguished from police power. Taxation is
distinguishable from police power as to the means employed to implement
these public goals. Those doctrines that are unique to taxation arose from
peculiar considerations such as those especially punitive effects (Southern
Cross Cement Corporation v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540, August 3, 2005) as the power to tax
!3
involves the power to destroy and the belief that taxes are lifeblood of the
state. (Ibid.) taxes being the lifeblood of the government, their prompt and
certain availability is of the essence.
These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. (Ibid.)
h.
SUGGESTED ANSWER:
a.
A valid tax should be within the jurisdiction of the taxing authority.
b.
That the assessment and collection of certain kinds (The
same as the inherent limitations of the power of taxation) should be for a
public purpose.
c.
The rule of taxation should be uniform.
d.
That either the person or property of taxes guarantees
against injustice to individuals, especially by way or notice and
opportunity for hearing be provided.
e.
The tax must not impinge on the inherent and Constitutional
limitations on the power of taxation.
SUGGESTED ANSWER:
a.
Personal, poll or capitalization imposed on all residents, whether
citizen or not. Example Community Tax.
tax.
b.
c.
Excise imposed upon the performance of an act, the
enjoyment of a privilege or the engaging in an occupation. Example
income tax, estate tax.
!4
American Express International, Inc. (Philippine Branch), G. R. No.
152609, June 29, 2005 citing various cases and authorities) Example
value added tax (VAT), documentary stamp tax, excise tax, percentage
tax, etc.
!!17.
a.
The excise tax on aviation fuel is an indirect tax. The proper
party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another. (Philippine
Geothermal, Inc. v. Commissioner of Internal Revenue, G.R. No. 154028, July 29,
2005, 465 SCRA 308, 317-318)
The NIRC provides that the excise tax
! 18.
!5
classified as to purpose ?
SUGGESTED ANSWER:
a.
General, fiscal or revenue imposed for the purpose of raising public
funds for the service of the government.
b.
Special or regulatory imposed primarily for the regulation of useful or
non-useful occupation or enterprises and secondarily only for the raising
of public funds.
INHERENT LIMITATIONS
!! 1. What are the inherent limitations on the power of
taxation ?
SUGGESTED ANSWERS:
a.
Public purpose. The revenues collected from taxation should
be devoted to a public purpose.
b.
No improper delegation of legislative authority to tax. Only the
legislature can exercise the power of taxes unless the same is delegated to
some other governmental body by the constitution or through a law which
does not violate any provision of the constitution.
c.
Territoriality. The taxing power should be exercised only within
territorial boundaries of the taxing authority.
d.
Recognition of government exemptions; and
e.
Observance of the principle of comity. Comity is the respect
accorded by nations to each other because they are equals. On the other
hand taxation is an act of sovereign. Thus, the power should be imposed
upon equals out of respect.
Some authorities include no double taxation.
!! 2.
What are the principles to consider in the
determination of whether tax revenues are devoted for a
public purpose ?
SUGGESTED ANSWER:
a.
The tax revenues are for a public purpose if utilized for the
benefit of the community in general. An alternative meaning is that tax
proceeds should be utilized only to attain the objectives of government.
b.
Inequalities resulting from the singling out of one particular
class for taxation or exemption infringe no constitutional limitation.
REASON: It is inherent in the power to tax that the legislature is
free to select the subjects of taxation.
BASIS: The lifeblood theory.
c.
An individual taxpayer need not derive direct benefits from
the tax.
REASON: The paramount consideration is the welfare of the
greater portion of the population.
d.
A tax may be imposed, not so much for revenue purposes,
but under police power for the general welfare of the community. This
would still be for a public purpose.
e.
Public purpose continually expanding. Areas formerly left to
private initiative now lose their boundaries and may be undertaken by the
government if it is to meet the increasing social challenges of the times.
f.
Tax revenue must not be used for purely private purposes or
for the exclusive benefit of private persons.
g.
Private persons may be benefited but such benefit should be
merely incidental as its main object is the benefit of the community in
general.
h. Determined at the time of enactment of tax law and not at
the time of implementation.
i.
There is a presumption of public purpose even if the tax law
does not specifically provide for its purpose. (Santos & Co., v. Municipality of
Meycauayan, et al., 94 Phil. 1047)
!6
SUGGESTED ANSWER: The levy is for a public purpose. It
cannot be denied that the coconut industry is one of the major industries
supporting the national economy. It is, therefore, the states concern to
make it a strong and secure source not only of the livelihood of the
significant segment of the population, but also of export earnings, the
sustained growth of which is one of the imperatives of economic growth.
(Philippine Coconut Producers Federation, Inc. (Cocofed v. Presidential
Commission on Good Government, 178 SCRA 236, 252)
!! 4.
Requisites for taxpayers, concerned citizens,
voters or legislators to have locus standi to sue.
a.In general, the case should involve constitutional issues. (David,
et al., v. President Gloria Macapagal-Arroyo, etc., et al., G. R. No. 171396, May 3,
2006)
b.
6.
Locus standi being merely a matter of procedure,
have been waived in certain instances where a party who is not
personally injured may be allowed to bring suit. The following are
examples of instances where suits have been brought by parties who have
not have been personally injured by the operation of a law or any other
government act but by concerned citizens, taxpayers or voters who actually
sue in the public interest:
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the
enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R.
No. 167919, February 14, 2007)
!7
SUGGESTED ANSWER: No. There is no undue delegation of
legislative power but only of the discretion as to the execution of the law.
This is constitutionally permissible.
Congress does not abdicate its functions or unduly delegate power
when it describes what job must be done, who must do it, and what is the
scope of his authority. In the above case the Secretary of Finance
becomes merely the agent of the legislative department, to determine and
declare the even upon which its expressed will takes place. The President
cannot set aside the findings of the Secretary of Finance, who is not under
the conditions acting as the execute alter ego or subordinate. . [Abakada
Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1,
2005 and companion cases citing various cases]]
10.
No. 166408, October 6, 2008 citing City Government of Quezon City, et al. v.
Bayan Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA
169 in turn referring to Mactan Cebu International Airport Authority, v. Marcos,
G.R. No. 120082, September 11, 1996, 261 SCRA 667, 680)
9.
Paradigm shift from exclusive Congressional
power to direct grant of taxing power to local legislative bodies.
has the inherent power to tax, which includes the power to grant tax
exemptions. On the other hand, the power of local governments, such as
provinces and cities for example Quezon City, to tax is prescribed by
Section 151 in relation to Section 137 of the LGC which expressly
provides that notwithstanding any exemption granted by any law or other
special law, the City or a province may impose a franchise tax. It must be
!8
noted that Section 137 of the LGC does not prohibit grant of future
exemptions.
The Supreme Court in a series of cases has sustained the power of
Congress to grant tax exemptions over and above the power of the local
governments delegated power to tax. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing City
Government of Quezon City, et al. v. Bayan Telecommunications, Inc., G.R. No.
162015, March 6, 2006, 484 SCRA 16)
!!14.
Juliane a non-resident alien appointed as a
commission agent by a domestic corporation with a sales
commission of 10% all sales actually concluded and collected
through her efforts. The local company withheld the amount of
!! 16.
!9
!!18.
Obama Airlines, Inc., a foreign airline company
which does not maintain any flight to and from the Philippines
sold air tickets in the Philippines, through a general sales
agent, relating to the carriage of passengers and cargo
between two points, both outside the Philippines.
a.
Is Obama, Inc., subject to income taxes on the sale
of the tickets ?
SUGGESTED ANSWER: Yes. The source of income which is
taxable is that activity which produced the income. The sale of tickets in
the Philippines is the activity that determines whether such income is
taxable in the Philippines.
The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The situs of the source of payments is
the Philippines. the flow of wealth proceeded from and occurred, within the
Philippine territory, enjoying the protection accorded by the Philippine
Government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government. [Commissioner of Internal
Revenue v. British Overseas Airways Corporation (BOAC), 149 SCRA 395]
Off-line air carriers having general sales agents in the Philippines
are engaged in or doing business in the Philippines and their income
from sales of passage documents here is income from within the
Philippines. Thus, the off-line air carrier liable for the 32% (now 30%) tax
on its taxable income. [South African Airways v. Commissioner of Internal
Revenue, G.R. No. 180356, February 16, 2010 citing Commissioner of Internal
Revenue v. British Overseas Airways Corporation (British Overseas Airways), No.
L-65773-74, April 30, 1987, 149 SCRA 395]
b.
Supposing that Obama, Inc., sells tickets outside of
the Philippines for passengers it carry from Gold City, South
Africa to the Philippines but returns to South Africa without any
cargo or passengers.
Would it then be subject to any
Philippine tax on such sales ?
SUGGESTED ANSWER: It would not be subject to any tax. It is not
subject to any income tax because the activity which generated the income
(the sale of the tickets) was performed outside of the Philippines.
It is not subject to the carriers tax based on gross Philippine
billings because there were no lifts that originated from the Philippines.
Gross Philippine Billings refers to the amount of gross revenue derived
from carriage of persons, excess baggage, cargo and mail originating
from the Philippines in a continuous and uninterrupted flight, irrespective
of the place of sale or issue and the place of payment of the ticket or
passage document. [NIRC of 1997, Sec. 28(A)(3)(a)]
c.
Would your answer be the same if Obama, Inc. sold
tickets outside of the Philippines for travelers who are going to
picked up by Obama, Inc., planes from the Diosdado Macapagal
!10
tax.
19.
CONSTITUTIONAL LIMITATIONS
1.
2.
The general or indirect constitutional limitations on
the power of taxation are:
a.
b.
c.
d.
e.
f.
g.
3.
a.
No imprisonment for non-payment of a poll tax;
b.
Taxation shall be uniform and equitable;
c.
Congress shall evolve a progressive system of taxation;
d.
All appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives, but the Senate may propose
and concur with amendments;
e. The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object;
f.
Delegated power of the President to impose tariff rates, import
and export quotas, tonnage and wharfage dues:
1)
Delegation by Congress
2)
through a law
3)
subject to Congressional limits and
restrictions
4)
within the framework of national development program.
g.
Tax exemption of charitable institutions, churches, parsonages
and convents appurtenant thereto, mosques, and all lands, buildings and
improvements of all kinds actually, directly and exclusively used for
religious, charitable or educational purposes;
h.
No tax exemption without the concurrence of majority vote of
all members of Congress;
i.
No use of public money or property for religious purposes
except if priest is assigned to the armed forces, penal institutions,
government orphanage or leprosarium;
j.
Money collected on tax levied for a special purpose to be
used only for such purpose, balance if any, to general funds;
k.
The Supreme Court's power to review judgments or orders of
lower courts in all cases involving the legality of any tax, impose,
assessment or toll or the legality of any penalty imposed in relation to the
above;
l.
Authority of local government units to create their own sources
of revenue, to levy taxes, fees and other charges subject to guidelines and
limitations imposed by Congress consistent with the basic policy of local
autonomy;
m.
Automatic release of local government's just share in national
taxes;
n.
Tax exemption of all revenues and assets of non-stock, nonprofit educational institutions used actually, directly and exclusively for
educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by law
including restrictions on dividends and provisions for reinvestment of profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational
purposes subject to conditions prescribed by law.
!11
5.
Equal protection of the law clause is subject to
reasonable classification.
If the groupings are characterized by
substantial distinctions that make real differences, one class may be treated
and regulated differently from another. The classification must also be
germane to the purpose of the law and must apply to all those belonging to
the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January
20, 1999)
!! 6.
Requisites for valid classification. All that is
required of a valid classification is that it be reasonable, which means that
a.
the classification should be based on substantial distinctions
which make for real differences,
b.
that it must be germane to the purpose of the law;
c.
that it must not be limited to existing conditions only; and
d.
that it must apply equally to each member of the class.
The standard is satisfied if the classification or distinction is based
on a reasonable foundation or rational basis and is not palpably arbitrary.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715, August
14, 2008]
7.
Equal protection does not demand absolute
equality. It merely requires that all persons shall be treated alike, under
8.
Tests to determine validity of classification.
The
United States Supreme Court has established different tests to determine
the validity of a classification and compliance with the equal protection
clause. The recognized tests are:
a.
The traditional (or rational basis) test.
b.
The strict scrutiny (or compelling interest) test.
c. The intermediate level of scrutiny (or quasi-suspect class) test.
9.
The traditional (or rational basis) test used in order
to determine the validity of classification. The classification is
Maryland, 366 U.S. 420; United States Railroad Retirement Board v. Fritz, 449
U.S. 166)
suspect, but neither are they judged by the traditional or rational basis
test.
Intentional discriminations against members of a quasi-suspect
class violate equal protection unless they are substantially related to
important government objectives. (Craig v. Boren, 429 U.S. 190)
Thus, a state law granting a property tax exemption to widows, but
not widowers, has been held valid for it furthers the state policy of
cushioning the financial impact of spousal loss upon the sex for whom
that loss usually imposes a heavier burden. (Kahn v. Shevin, 416 U.S.
351)
all subjects and objects of taxation which are similarly situated shall be
subject to the same burdens and granted the same privileges without any
discrimination whatsoever.
held that, "inequalities which result from a singling out of one particular
class of taxation, or exemption, infringe no constitutional
limitation." (Commissioner of Internal Revenue, et al., v. Santos, et al., 277
SCRA 617)
!! 9.
Benjie is a law-abiding citizen who pays his
real estate taxes promptly. Due to a series of typhoons and
!12
treated on a basis of equality before the law, it does not follow that they
are to be protected in the commission of crime.
It would be
unconscionable, for instance, to excuse a defendant guilty of murder
because others have murdered with impunity.
Likewise, if the failure of prosecutors to enforce the criminal laws
as to some persons should be converted into a defense for others
charged with crime, the result would be that the trial of the district attorney
for nonfeasance would become an issue in the trial of many persons
charged with heinous crimes and the enforcement of law would suffer a
complete breakdown. (Santos v. People, et al, G. R. No. 173176, August 26,
2008)
! 13.
!13
! 17.
When withdrawal of a tax exemption impairs
the obligation of contracts. The Contract Clause has never been
18.
The primary reason for the withdrawal of tax
exemption privileges granted to government owned and
controlled corporations and all other units of government was that
such privilege resulted to serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due them. (Philippine Ports
Authority v. City of Iloilo, G. R. No. 109791, July 14, 2003)
! 21.
In lieu of all taxes refers to national internal
revenue taxes and not to local taxes. The in lieu of all taxes
clause applies only to national internal revenue taxes and not to local
taxes. As appropriately pointed out in the separate opinion of Justice
Antonio T. Carpio in a similar case involving a demand for exemption from
local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to
taxes, other than income tax, imposed under the National Internal
Revenue Code. The "in lieu of all taxes" clause does not apply to local
taxes. The proviso in the first paragraph of Section 9 of Smart's franchise
states that the grantee shall "continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code." Also, the
second paragraph of Section 9 speaks of tax returns filed and taxes paid
!14
to the "Commissioner of Internal Revenue or his duly authorized
representative in accordance with the National Internal Revenue Code."
Moreover, the same paragraph declares that the tax returns "shall be
subject to audit by the Bureau of Internal Revenue." Nothing is mentioned
in Section 9 about local taxes. The clear intent is for the "in lieu of all
taxes" clause to apply only to taxes under the National Internal Revenue
Code and not to local taxes. Even with respect to national internal
revenue taxes, the "in lieu of all taxes" clause does not apply to income
tax.
If Congress intended the "in lieu of all taxes" clause in Smart's
franchise to also apply to local taxes, Congress would have expressly
mentioned the exemption from municipal and provincial taxes. Congress
could have used the language in Section 9(b) of Clavecilla's old franchise,
as follows:
x x x in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever, municipal,
provincial or national, from which the grantee is hereby expressly
exempted, x x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local
taxes. Congress used the "in lieu of all taxes" clause only in reference to
national internal revenue taxes. The only interpretation, under the rule on
strict construction of tax exemptions, is that the "in lieu of all taxes" clause
in Smart's franchise refers only to national and not to local taxes. [Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008 citing Philippine Long Distance Telephone Company, Inc. v.
City of Davao, 447 Phil. 571, 594 (2003)]
NOTES AND COMMENTS: The author opines that the above finds
application to all telecommunications companies.
taxes does not pertain to VAT or any other tax. It cannot apply when
what is paid is a tax other than a franchise tax. Since the franchise tax on
the broadcasting companies with yearly gross receipts exceeding ten
million pesos has been abolished, the in lieu of all taxes clause has now
become functus officio, rendered inoperative. (Quezon City, et al., v. ABSCBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008)
NOTES AND COMMENTS: This is practically the same holding in an
earlier case
involving another telecommunications company. Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008. The author opines that since practically all franchises
granted to telecommunications companies are similarly worded that the above
doctrine finds application to the others.)
!! 24.
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b. Taxing all of the subjects or objects for the first time without
taxing all of them for the second time.
If any of the elements are absent then there is indirect duplicate
taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
a.
Presence of the 2nd element violates the equal protection clause.
If only the 1st element is present, taxing the same subject or object twice, by the
same taxing authority, etc., there is no violation of the equal protection clause
because all subjects and objects that are similarly situated are subject to the same
burdens and granted the same privileges without any discrimination whatsoever,
The presence of the 2nd element, taxing all of the subjects and objects for the
first time, without taxing all for the second time, results to discrimination among
subjects and objects that are similarly situated, hence violative of the equal
protection clause.
!15
b.
Tax credits where foreign taxes are allowed as deductions
from local taxes that are due to be paid.
c.
Allowing foreign taxes as a deduction from gross income.
29.
31.
The VAT while regressive is NOT violative of the
mandate to evolve a progressive system of taxation. Do you
agree ? The mandate to Congress is not to prescribe but to evolve a
progressive system of taxation. Otherwise, sales taxes which perhaps are
the oldest form of indirect taxes, would have been prohibited with the
proclamation of the constitutional provision.
Sales taxes are also
regressive. . [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No.
168056, September 1, 2005 and companion cases citing Tolentino v. Secretary of
Finance, et al., G. R. No. 115455, August 25, 1994, 235 SCRA 630]
OTHER CONCEPTS
!!1. Distinguish tax from debt.
TAX
DEBT
Basis
based on law
based on contract or
judgment
Failure to Pay
may result in
imprisonment
no imprisonment
Mode of
Payment
generally payable in
money
payable in money,
property or service
Assignability
not
assignable
Payment
unless it becomes a
debt is not subject to
compensation or setoff
assignable
may be a subject
!16
Interest
draws interest if
stipulated or delayed
Authority
imposed by public
authority
can be imposed by
private individuals
Prescription
Prescriptive periods
for tax under NIRC
2.
Compensation takes place by operation of law, where the
local government and the taxpayer are in their own right reciprocally
debtors and creditors of each other, and that the debts are both due and
demandable, in consequence of Articles 1278 and 1279 of the Civil Code.
(Domingo v. Garlitos, 8 SCRA 443)
c.
Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Thus, it is correct to say that the offsetting of a taxpayers tax
refund with its alleged tax deficiency is unavailing under Art. 1279 of the
Civil Code. (South African Airways v. Commissioner of Internal Revenue, G.R.
No. 180356, February 16, 2010 reiterating Caltex Philippines, Inc. v.
Commission on Audit, which applied Francia v. Intermediate Appellate Court)
a.
Where both claims already become overdue and
demandable as well as fully liquidated. Compensation takes place by
operation of law under Art. 1200 in relation to Arts. 1279 and 1290 all of
the Civil Code. (Domingo v. Garlitos, 8 SCRA 443)
b.
Compensation takes place by operation of law, where the
government and the taxpayer are in their own right reciprocally debtors
and creditors of each other, and that the debts are both due and
demandable. This is in consequence of Article 1278 and 1279 of the Civil
Code. (Domingo v. Garlitos, 8 SCRA 443)
c.
,The Supreme Court upheld the validity of a set-off between
the taxpayer and the government. In both cases, the claims of the
taxpayers therein were certain and liquidated. The claims were certain
since there were no doubts or disputes as to their refundability. In fact,
the government admitted the fact of over-payment.
(Commissioner of
Internal
Revenue
d.
In case of a tax overpayment, the BIRs obligation to refund
or off-set arises from the moment the tax was paid. REASON: Solutio
indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern, Inc 172
SCRA 364)
e.
While judgment should be rendered in favor of Republic
for unpaid taxes, judgment ought at the same time to issue for
Sampaguita Pictures commanding payment to the latter by the Republic
of the value of the backpay certificates which the Republic received.
(Republic v. Ericta, 172 SCRA 623)
!! 5.
Gilbert obtained a judgment for a sum of
money against the municipality of Camiling. The judgment has
become final although execution has not issued.
Upon
receiving an assessment for municipal sales taxes from the
Municipal Treasurer, Gilbert executed a partial assignment of
his judgment sufficient to cover the assessment in favor of
the Municipality. May the Municipal Treasurer validly accept
the assignment? Why?
6.
In case of doubt, tax laws must be construed
strictly against the State and liberally in favor of the taxpayer
because taxes, as burdens which must be endured by the taxpayer, should
not be presumed to go beyond what the law expressly and clearly declares.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al.,
293 SCRA 92, 99)
7.
Interpretation in the imposition of taxes, is not the
similar doctrine as that applied to tax exemptions. The rule in
!17
imposing a tax unless it does so clearly, expressly, and unambiguously. A
tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In
answering the question of who is subject to tax statutes, it is basic that in
case of doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens are
not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. [Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008 citing CIR v. Court of
Appeals, 338 Phil. 322, 330-331 (1997)]
As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the tax laws.
8.
Strict interpretation of tax exemption laws. Taxes are
what civilized people pay for civilized society. They are the lifeblood of
the nation.
Thus, statutes granting tax exemptions are construed
stricissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of tax exemption must be clearly shown and based on
language in law too plain to be mistaken. Otherwise stated, taxation is
the rule, exemption is the exception. (Quezon City, et al., v. ABS-CBN
(Ibid., citing CIR v. Philippine American Accident Insurance Company, Inc., G.R.
No. 141658, March 18, 2005, 453 SCRA 668)
9.
Rationale for strict interpretation of tax exemption
laws. The basis for the rule on strict construction to statutory provisions
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which underlies
all quasi-contracts abhorring a persons unjust enrichment at the expense
of another. [Commissioner, supra citing Ramie Textiles, Inc. v. Hon. Mathay, Sr.,
178 Phil. 482 (1979); Puyat & Sons v. City of Manila, et al., 117 Phil. 985 (1963)]
Firemans Fund Insurance Co., G.R. No. L-30644, 9 March 1987, 148 SCRA 315,
324-325; Ramie Textiles, Inc. v. Mathay, supra; Gonzales Puyat & Sons v. City of
Manila, supra)
!18
of taxpayers. [Commissioner, supra citing AB Leasing and Finance Corporation
v. Commissioner of Internal Revenue, 453 Phil. 297 in turn citing BPI-Family
Savings Bank, Inc. v. Court of Appeals, 330 SCRA 507, 510, 518 (2000)] And so,
given its essence, a claim for tax refund necessitates only preponderance
of evidence for its approbation like in any other ordinary civil case.
(Commissioner, supra)
claims an exemption from the burden of taxation must justify his claim by
showing that the legislature intended to exempt him by words too plain to
be mistaken.
[Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R. Nos. 167274-75, July 21, 2008 citing Surigao Consolidated
Mining Co. Inc. v. Commissioner of Internal Revenue and Court of Tax Appeals,
119 Phil. 33, 37 (1963)]
The rule is that tax exemptions must be strictly construed such that
the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.
[Commissioner, supra citing Phil. Acetylene Co.
v. Commission of Internal
Revenue, et al., 127 Phil. 461, 472 (1967); Manila Electric Company v. Vera, G.R.
No. L-29987, 22 October 1975, 67 SCRA 351, 357-358; Surigao Consolidated
Mining Co. Inc. v. Commissioner of Internal Revenue, supra]
15.
Effect of a BIR reversal of a previous ruling
interpreting a law as exempting a taxpayer. A reversal of a BIR
16.
to start with a clean slate. A tax amnesty, much like a tax exemption, is
never favored nor presumed in law. The grant of a tax amnesty, similar to
a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority. (Philippine Banking Corporation, etc.,
v. Commissioner of Internal Revenue, G. R. No. 170574, January 30, 2009)
17.
18.
a.
Tax amnesty is an immunity from all criminal, civil and
administrative liabilities arising from nonpayment of taxes (People v.
Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax
exemption is an immunity from civil liability only. It is an immunity or
privilege, a freedom from a charge or burden to which others are subjected.
(Florer v. Sheridan, 137 Ind. 28, 36 NE 365)
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda, supra) WHILE tax exemption has
prospective application.
a.
Tax avoidance is legal while tax evasion is illegal.
b.
The objective of tax avoidance in most instances is merely to
reduce the tax that is due while is tax evasion the object is to entirely
escape the payment of taxes.
!19
c.
Tax evasion warrants the imposition of civil, administrative and
criminal penalties while tax avoidance does not.
TAX ON INCOME
2.
Purpose of the NIRC of 1997. Revenue generation
has undoubtedly been a major consideration in the passage of
the Tax Code. (Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R. Nos. 167274-75, July 21, 2008)
3.
Purpose of shift from ad valorem system to
specific tax system in taxation of cigarettes. The shift from the
1.
The Tax Code has included under the term
corporation partnerships, no matter how created or organized,
!20
the Law of Partnership by Floyd R. Mechem, 2nd Ed., Sec. 83, p. 74 cited in Pascual
v. Commissioner of Internal Revenue, 166 SCRA 560)
6.
The income from the rental of the house, bought
from the earnings of co-owned properties, shall be treated as
the income of an unregistered partnership to be taxable as a
corporation because of the clear intention of the brothers to join together in
a venture for making money out of rentals.
7.
Income is gain derived and severed from capital, from labor
or from both combined. For example, to tax a stock dividend would be to
tax a capital increase rather than the income. (Commissioner of Internal
Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999)
8.
The term taxable income means the pertinent items of
gross income specified in the Tax Code, less the deductions and/or
personal and additional exemptions, if any, authorized for such types of
income by the Tax Code or other special laws. (Sec. 31, NIRC of 1997)
9.
or to a (c) capital
!21
he shall be subject to income tax on his income derived from sources from
within the Philippines. [Sec. 25 (A) (1), NIRC]
He is allowed to avail of the itemized deductions including the
personal and additional exemptions subject to the rule on reciprocity.
22.
SUGGESTED ANSWER:
a.
Monetized unused vacation leave credits of employees not
exceeding ten (10) days during the year;
b.
Medical cash allowance to dependents of employees not
exceeding P750.00 per employee per semester or P125 per month;
c.
Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per
month amounting to not more than P1,000.00;
d. Uniforms and clothing allowance not exceeding P3,000.00 per
annum;
e. Actual yearly medical benefits not exceeding P10,000.00 per
annum;
f.
Laundry allowance not exceeding P300 per month;
g.
Employees achievement awards, e.g. for length of service or
safety achievement, which must be in the form of a tangible persona
property other than cash or gift certificate, with an annual monetary value
not exceeding P10,000.00 received by an employee under an established
written plan which does not discriminate in favor of highly paid employees;
h.
Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per annum;
i.
Flowers, fruits, books, or similar items given to employees
under special circumstances, e.g. on account of illness, marriage, birth of a
baby, etc.; and
j.
Daily meal allowance for overtime work not exceeding twenty
five percent (25%) of the basic minimum wage.
24.
25.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to the
taxpayer which are not treated as part of gross income for purposes of
computing the taxpayers taxable income, due to the following reasons: (1)
It is exempted by the fundamental law; (2) It is exempted by statute; and
(3) It does not come within the definition of income (Sec. 61, Rev. Regs.
No. 2) WHILE deductions are the amounts which the law allows to be
subtracted from gross income in order to arrive at net income.
b.
Exclusions pertain to the computation of gross income WHILE
deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the taxpayer
which do not form part of gross income WHILE deductions are something
spent or paid in earning gross income.
An example of an exclusion from gross income are life insurance
proceeds, and an example of a deduction are losses.
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
b.
Amounts received by the insured as a return of premiums paid
by him under life insurance, endowment or annuity contracts either during
the term, or at maturity of the term mentioned in the contract, or upon
surrender of the contract.
!22
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal injuries or
sickness, plus the amounts of any damages received on whether by suit or
agreement on account of such injuries or sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No. 7641.
Retirement received from reasonable private benefit plan after compliance
with certain conditions. Amounts received for beyond control separation.
Foreign social security, retirement gratuities, pensions, etc. USVA benefits,
SSS benefits and GSIS benefits.
26.
What are the conditions for excluding
retirement benefits from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Retirement benefits received under Republic Act No. 7641
and those received by officials and employees of private firms, whether
individual or corporate, in accordance with the employers reasonable
private benefit plan approved by the BIR.
b.
Retiring official or employee
1)
In the service of the same employer for at least ten (10)
years;
2)
Not less than fifty (50) years of age at time of
retirement;
3)
Availed of the benefit of exclusion only once. [Sec. 32
(B) (6) (a), NIRC of 1997] The retiring official or employee should not
have previously availed of the privilege under the retirement plan of
the same or another employer. [1st par., Sec. 2.78 (B) (1), Rev.
Regs. No. 2-98]
27.
What kind of separation (retirement) pay is
excluded from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Any amount received by an official, employee or by his heirs,
b.
From the employer
c.
As a consequence of separation of such official or employee
from the service of the employer because of
1)
Death, sickness or other physical disability; or
2)
For any cause beyond the control of said official or
employee [Sec. 32 (B) (6) (b), NIRC of 1997], such as
retrenchment, redundancy and cessation of business. [1st par.,
Sec. 2.78 (B), (1) (b), Rev. Regs. No. 2-98]
a.
Ordinary and necessary trade, business or professional
expenses.
b. The amount of interest paid or incurred within a taxable year
on indebtedness in connection with the taxpayers profession, trade or
business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
c. Taxes paid or incurred within the taxable year in connection with
the taxpayers profession.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
d.
Ordinary losses, losses from casualty, theft or
embezzlement; and net operating losses.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
e.
Bad debts due to the taxpayer, actually ascertained to
be worthless and charged off within the taxable year, connected with
profession, trade or business, not sustained between related parties.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
!23
f.
Depreciation or a reasonable allowance for the exhaustion,
wear and tear (including reasonable allowance for obsolescence) of
property used in trade or business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
g. Depletion or deduction arising from the exhaustion of a nonreplaceable asset, usually a natural resource.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
h. Charitable and other contributions. Resident citizens,
resident alien individuals and nonresident alien individuals who are
engaged in trade and business,
on their gross incomes other from
compensation income are allowed to deduct these expenses. Domestic
corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
i. Research and development expenditures treated as deferred
expenses paid or incurred by the taxpayer in connection with his trade,
business or profession, not deducted as expenses and chargeable to
capital account but not chargeable to property of a character which is
subject to depreciation or depletion.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
j. Contributions to pension trusts. Resident citizens, resident
alien individuals and nonresident alien individuals who are engaged in trade
and business, on their gross incomes other from compensation income are
29.
expenditures.
30.
What are the requisites for the deductibility of
business expenses ?
SUGGESTED ANSWER:
The following are the requisites for
deductibility of business expenses:
a.
Compliance with the business test:
1)
Must be ordinary and necessary;
2)
Must be paid or incurred within the taxable
year;
3)
Must be paid or incurred in carrying on a
trade or
business.
4)
Must not be bribes, kickbacks or other illegal
expenditures
!24
b. Compliance with the substantiation test. Proof by evidence or
records of the deductions allowed by law including compliance with the
business test.
31.
What are the requisites for the deductibility of
ordinary and necessary trade, business, or professional
expenses, like expenses paid for legal and auditing services ?
SUGGESTED ANSWER:
a.
the expense must be ordinary and necessary;
b.
it must have been paid or incurred during the taxable year
dependent upon the method of accounting upon the basis of which the net
income is computed.
c.
it must be supported by receipts, records or other pertinent
papers. (Commissioner of Internal Revenue v, Isabela cultural Corporation,
G. R. No. 172231, February 12, 2007)
32.
TMG Corporation is
issuing the accrual
method of accounting. In 2005 XYZ Law Firm and ABC Auditing
Firm rendered various services which were billed by these
firms only during the following year 2006. Since the bills for
legal and auditing services were received only in 2006 and paid
in the same year, TMG deducted the same from its 2006 gross
income. The BIR disallowed the deduction ?
Who is correct, TMG or BIR ? Explain.
SUGGESTED ANSWER: The BIR is correct. TMG should have
deducted the professional and legal fees in the year they were incurred in
2005 and not in 2006 because at the time the services were rendered in
2005, there was already an obligation to pay them. (Commissioner of
Internal Revenue v, Isabela Cultural Corporation, G. R. No. 172231,
February 12, 2007)
NOTES AND COMMENTS:
a.
Accounting methods for tax purposes comprise a set of
rules for determining when and how to report income and deductions.
(Commissioner of Internal Revenue v, Isabela cultural Corporation, G. R.
No. 172231, February 12, 2007)
The two (2) principal accounting methods for recognition of income
are the (a) accrual method; and the (b) cash method.
b.
Recognition of income and expenses under the accrual
method of accounting. Amounts of income accrue where the right to
receive them becomes fixed, where there is created an enforceable liability.
Liabilities, are incurred when fixed and determinable in nature without
regard to indeterminacy merely of time of payment.. (Commissioner of
Internal Revenue v, Isabela cultural Corporation, G. R. No. 172231,
February 12, 2007)
!25
e.
Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
f.
Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs or other similar
organizations;
g.
Expenses for foreign travel;
h.
Holiday and vacation expenses;
i.
Educational assistance to the employee or his dependents;
and
j.
Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law allows. [Sec. 33 (B),
NIRC of 1997; 1st par., Sec. 2.33 (B), Rev. Regs. No. 3-98]
38. Bad debts are those which result from the worthlessness
or uncollectibility, in whole or in part, of amounts due the taxpayer by
others, arising from money lent or from uncollectible amounts of income
from goods sold or services rendered. (Sec. 2.a, Rev. Regs. 5-99)
39.
!26
year or years shall be included as part of the taxpayers gross income in the
year of such recovery to the extent of the income tax benefit of said
deduction.
NOTES AND COMMENTS:
a.
If in the year the taxpayer claimed deduction of bad debts
written-off, he realized a reduction of the income tax due from him on
account of the said deduction, his subsequent recovery thereof from his
debtor shall be treated as a receipt of realized taxable income. (Sec. 4, Rev.
Regs. 5-99)
b.
If the said taxpayer did not benefit from the deduction of the
said bad debt written-off because it did not result to any reduction of his
income tax in the year of such deduction (i.e. where the result of his
business operation was a net loss even without deduction of the bad debts
written-off), then his subsequent recovery thereof shall be treated as a
mere recovery or a return of capital, hence, not treated as receipt of
realized taxable income. (Sec. 4, Rev. Regs. 5-99)
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of Finance
upon the recommendation of the Commissioner of Internal Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
44.
2006 citing Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414, 418
(1918)]
45.
exemption ?
NOTES AND COMMENTS: It is clear from Rep. Act No. 9504 that
each of the spouses may claim the P50,000.00. Thus, the total familial
basic personal exemption for spouses is P100,000.00.
Furthermore, the distinctions between the concepts of single,
married and head of the family for purpose of availing of the basic
personal exemption has already been eliminated by Rep. Act No. 9504.
2.79 (I) (1) (b), Rev. Regs. No. 2-98 as amended by Rev. Regs. No.
10-2008, arrangement and numbering supplied; Sec. 35 (B), NIRC of 1997
as amended by Rep. Act No. 9504]
!27
3)
c.
It is to be noted that under the NIRC of 1997, as amended
by Rep. Act No. 9504, only qualified dependent children are considered
for additional exemptions. Grandparents, parents, as well, as brothers or
sisters, and other collateral relatives are not qualified dependents to be
claimed as additional exemptions.
However, if they are senior citizens they may qualify as additional
exemptions under the Senior Citizens Law but not under the NIRC of
1997, as amended by Rep. Act No. 9504.
Senior citizen shall be treated as dependents provided for in the
National Internal Revenue Code, as amended, and as such, individual
taxpayers caring for them, be they relatives or not shall be accorded the
privileges granted by the Code insofar as having dependents are
concerned. [last par. Sec. 5 (a), Rep. Act No. 7432, as amended by Rep. Act
9257, The Expanded Senior Citizens Act of 2003]
48.
sold to tenants. (Roxas v. Court of Tax Appeals, etc. L-25043, April 26,
1968)
g. Real property used by an exempt corporation in its exempt
operations, such as a corporation included in the enumeration of Section 30
of the Code, shall not be considered used for business purposes, and
therefore considered as capital asset. (last sentence, 3rd par., Sec. 3.b,
Rev. Regs. No. 7-2003)
h. Real property, whether single detached, townhouse, or
condominium unit, not used in trade or business as evidenced by a
certification from the Barangay Chairman or from the head of
administration, in case of condominium unit, townhouse or apartment, and
as validated from the existing available records of the Bureau of Internal
Revenue, owned by an individual engaged in business, shall be treated as
capital asset. (last par., Sec. 3.b., Rev. Regs. No. 7-2003)
assets:
a.
The machinery and equipment of a manufacturing concern
subject to depreciation;
b. The tractors, trailers and trucks of a hauling company;
c. The condominium building owned by a realty company the units
of which are for rent or for sale;
d.
The wood, paint, varnish, nails, glue, etc. which are the raw
materials of a furniture factory;
e.
Inherited parcels of land of substantial areas located in the
heart of Metro Manila, which were subdivided into smaller lots then sold on
installment basis after introducing comparatively valuable improvements
not for the purpose of simply liquidating the estate but to make them more
saleable ; the employment of an attorney-in-fact for the purpose of
developing, managing, administering and selling the lots; sales made with
frequency and continuity; annual sales income from the sales was
!28
considerable; and the heir was not a stranger to the real estate business.
(Tuazon, Jr. v. Lingad, 58 SCRA 170)
f. Inherited agricultural property improved by introduction of good
roads, concrete gutters, drainage and lighting systems converts the
property to an ordinary asset. The property forms part of the stock in trade
of the owner, hence an ordinary asset. This is so, as the owner is now
engaged in the business of subdividing real estate. (Calasanz v.
Commissioner of Internal Revenue, 144 SCRA at p. 672)
Regulations No. 7-2003 has defined real property as having the same
meaning attributed to that term under Article 415 of Republic Act No. 386,
otherwise known as the Civil Code of the Philippines. (Sec. 2.c, Rev. Regs.
No. 7-2003)
sale,
exchange,
c.
or other disposition, including pacto de retro sales and other
forms of conditional sales. [Sec. 24 (D) (1), NIRC of 1997, numbering
and arrangement supplied]
d. Sale, exchange, or other disposition includes taking by the
government through condemnation proceedings. (Gutierrez v. Court of Tax
Appeals, et al., 101 Phil. 713; Gonzales v. Court of Tax Appeals, et al., 121 Phil.
861)
56. The basis for the final presumed capital gains tax
of six per cent (6%) is whichever is the higher of the
a. gross selling price, or
b. the current fair market value as determined below:
1) the fair market value or real properties located in each
zone or area as determined by the Commissioner of Internal
Revenue after consultation with competent appraisers both from
the private and public sectors; or
2) the fair market value as shown in the schedule of
values of the Provincial and City Assessors. [Sec. 24 (D) (1) in
relation to Sec. 6 (E), both of the NIRC of 1997]
!29
controlled corporations shall be determined, at the option of the taxpayer,
by including the proceeds as part of gross income to be subjected to the
allowable deductions and/or personal and additional exemptions, then to
the schedular tax [Sec. 24 (D) (1), in relation to Sec. 24 (A) (1), both of the
NIRC of 1997] or the final presumed capital gains tax of six percent (6%).
[Sec. 24 (D) (1) in relation to Sec. 6 (E), both of the NIRC of 1997]
60.
for paying on the basis of MCIT reckoned from 1999. BIR then
ruled that cessation of business activities as a result of being
placed under involuntary receivership may be an economic
reason for suspending the imposition of the MCIT.
As a result of the ruling MBC filed an application for
refund of the P33 million. Due to the BIRs inaction, MBC filed a
petition for review with the CTA.
The CTA denied the petition on the ground that MBC is
not a newly organized corporation. In a volte facie the BIR now
maintains that MBC should pay the MCIT beginning January 1,
1998 as it did not close its business operations in 1987 but
merely suspended the same.
Even if placed under
receivership, the corporate existence was never affected.
Thus, it falls under the category of an existing corporation
recommencing its banking operations.
Should the refund be granted ?
SUGGESTED ANSWER:
Yes.
The MCIT shall be imposed
beginning in the fourth taxable year immediately following the year in which
the corporation commenced its business operations. [Sec. 27 (E) (1), NIRC
of 1997]
The date of commencement of operations of a thrift bank is the date
it was registered with the SEC or the date when the Certificate of Authority
to Operate was issued to it by the Monetary Board, whichever comes later.
(Sec. 6, Rev. Regs. No. 4-95)
Clearly then. MBC is entitled to the grace period of four years from
June 23, 1999 when it was authorized by the BSP to operate as a thrift
bank before the MCIT should be applied to it. (Manila Banking Corporation
v. Commissioner of Internal Revenue, G. R. No. 168118, August 26, 2006)
NOTES AND COMMENTS:
a.
The MCIT and when should be imposed and the four (4)
year grace period. A minimum corporate income tax of two percent (2%)
of the gross income as of the end of the taxable year, as defined herein, is
hereby imposed on a corporation taxable under this Title, beginning on the
fourth taxable year immediately following the year in which such corporation
commenced its business operations, when the minimum corporate income
tax is greater than the tax computed under Subsection (A) of this section for
the taxable year. [Sec. 27 (E) (1), NIRC of 1997]
b.
Period when a corporation becomes subject to the MCIT.
(5) Specific rules for determining the period when a corporation becomes
subject to the MCIT (minimum corporate income tax) For purposes of the MCIT, the taxable year in which business
operations commenced shall be the year in which the domestic corporation
registered with the Bureau of Internal Revenue (BIR).
!30
Firms which were registered with BIR in 1994 and earlier years shall
be covered by the MCIT beginning January 1, 1998. x x x (Rev. Regs. No.
9-98)
Manila Banking Corporation v. Commissioner of Internal Revenue,
G. R. No. 168118, August 26, 2006 did not apply Rev. Regs. No. 9-98
because Rev. Regs. No. 4-95 specifically refers to thrift banks.)
c.
Purpose of the four (4) year grace period. The intent of
Congress relative to the MCIT is to grant a four (43) year suspension of
tax payment to newly organized corporations. Corporations still starting
their business operations have to stabilize their venture in order to obtain a
stronghold in the industry. It does not come as a surprise then when many
companies reported losses in their initial years of operations.
Thus, in order to allow new corporations to grow and develop at the
initial stages of their operations, the lawmaking body saw the need to
provide a grace period of four years from their registration before they pay
their minimum corporate income tax. (Manila Banking Corporation v.
Commissioner of Internal Revenue, G. R. No. 168118, August 26, 2006)
ESTATE TAXES
1. In determining the gross estate of a decedent,
b.
One, other than the decedent takes the insurance policy on
the life of the decedent
1)
The amounts are receivable by
a)
the decedents estate,
b)
his executor, or
c)
administrator
2)
irrespective of whether or not the insured retained the
power of revocation.
c.
Where the insurance was NOT taken by the decedent upon
his own life and the beneficiary is not the decedents estate, his executor
or administrator.
4.
Items deductible from the gross estate of a resident
or nonresident Filipino decedent or resident alien decedent:
a.
b.
c.
!31
d.
The Family Home up to a value not exceeding P1 million;
e.
Standard deduction of P1 million;
f.
Medical expenses not exceeding P500,000.00;
g.
Amount of exempt retirement received by the heirs under
Rep. Act Mo. 4917;
h.
Net share of the surviving spouse in the conjugal partnership.
5.
There is no transfer in contemplation of death if
there is no showing that the transferor retained for his life or for any
period which does not in fact end before his death: (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the right,
either alone or in conjunction with any person, to designate the person who
shall possess or enjoy the property or the income therefrom. [Sec. 85 (B),
NIRC of 1997]
60% of the value if the prior decedent died more than two years but
not more than three years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death;
40% of the value if the prior decedent died more than three years
but not more than four years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death; and
20% of the value if the prior decedent died more than four years
but not more than five years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death. [Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement and
underlining supplied]
probate court is determining issues which are not against the property of
the decedent, or a claim against the estate as such, but is against the
interest or property right which the heir, legatee, devisee, etc. has in the
property formerly held by the decedent.
The notices of levy were regularly issued within the prescriptive
period.
The tax assessment having become final, executory and
enforceable, the same can no longer be contested by means of a disguised
protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47)
DONORS TAXES
2.
stranger ?
3.
!32
SUGGESTED ANSWER: The net gifts made during the calendar
year. [Sec. 99 (A), NIRC of 1997]
4.
For purposes of the donors tax, what is meant by
net gifts ?
SUGGESTED ANSWER:
The net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the donee the obligation to pay
the mortgage liability, then the net gift is measured by deducting from the
fair market value of the property the amount of the mortgage assumed.
(last par., Sec. 11, Rev. Regs.No.2-2003)
5.
How are gifts of personal property to be valued for
donors tax purposes ?
SUGGESTED ANSWER: The market value of the personal property
at the time of the gift shall be considered the amount of the gift. (Sec. 102,
NIRC of 1997)
6.
What is the valuation of donated real property for
donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised at its
fair market value as of the time of the gift.
However, the appraised value of the real property at the time of the
gift shall be whichever is the higher of:
a.
the fair market value as determined by the Commissioner of
Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values fixed
by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B) both
of the NIRC of 1997]
b.
Supposing that instead of a general renunciation, B
renounced her hereditary share in As estate to X who is a
special child, would your answer be the same ? Explain.
8.
donors tax.
SUGGESTED ANSWER:
a.
The first P100,000.00 net donation during a calendar year is
exempt from donors tax [Sec. 99 (A), NIRC of 1997] made by a resident or
non resident;
b.
The donation by a resident or non-resident of a prize to an
athlete in an international sports tournament held abroad and sanctioned by
the national sports association is exempt from donors tax (Sec. 1, Rep.
Act No. 7549)
c.
Political contributions made by a resident or non-resident
individual if registered with the COMELEC irrespective of whether donated
to a political party or individual.
However, the Corporation Code prohibits corporations from making
political contributions. (Corp. Code, Title IV, Sec. 36.9)
d.
Dowries or gifts made on account of marriage and before
its celebration or within one year thereafter by residents who are parents
to each of their legitimate, recognized natural, or adopted children to the
extent of the first ten thousand pesos (P10,000.00);
e.
Gifts made by residents or non-residents to or for the use of
the National Government or any entity created by any of its agencies
which is not conducted for profit, or to any political subdivisions of the
said Government;
f.
Gifts made by residents or non residents in favor of an
educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, That not more
than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes. [Sec. 101 (A), NIRC of 1997, numbering and
arrangement supplied]
g.
Gifts made by non-resident aliens outside of the Philippines to
Philippine residents are exempt from donors taxes because taxation is
basically territorial. The transaction, which should have been subject to tax
was made by non-resident aliens and took place outside of the Philippines.
!33
In 2008 Leon was thinking of donating a P200,000.00 to Miklos, his
first cousin. The P200,000.00 is the totality of the net gifts for 2008. If he
donated the P200,000.00 in 2008 the first P100,000 would be exempt
and the remaining P50,000.00 would be subject to donors tax
If Leon spreads the P200,000 donation over two (2) calendar
years, donating P100,000.00 on December 30, 2008 and the remaining
P100,000.00 on January 1, 2009 the transaction would be exempt from
donors tax. This is so even if the donation is separated only by two days
because the basis is the calendar year. Leon would be enjoying the
exemption for the first P100,000.00 net gifts for each calendar year.
10.
1.
Value-added tax (VAT) is a tax which is imposed
only on the increase in the worth, merit or importance of goods, properties
or services, and not on the total value of the goods or services being sold
or rendered.
2.
of the person or entity that is primarily, directly liable for its payment, but
in terms of its nature as a tax on consumption. [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11,
2005 citing various authorities}
3.
Effect of exemptions from VAT which is an
indirect tax. If a special law merely exempts a party as a seller from its
direct liability for payment of the VAT, but does not relieve the same party
as a purchaser from its indirect burden of the VAT shifted to it by its VATregistered suppliers, the purchase transaction is not exempt.
REASON: The VAT is a tax on consumption, the amount of which
may be shifted or passed on by the seller to the purchaser of the goods,
properties or services.
[Commissioner of Internal Revenue v. Seagate
Technology (Philippines), G. R. No. 153866, February 11, 2005)
4.
Illustration of effects of exemptions from VAT
which is an indirect tax.
A VAT exempt seller sells to a non-VAT
exempt purchaser. The purchaser is subject to VAT because the VAT is
merely added as part of the purchase price and not as a tax because the
burden is merely shifted. The seller is still exempt because it could pass
on the burden of paying the tax to the purchaser.
5.
The VAT is a tax on consumption.
Meaning of
consumption as used under the VAT system. Consumption is
6.
Illustration of the meaning of consumption as used
under the VAT system. For example the services rendered by a local
firm to its foreign client are performed or successfully completed upon its
!34
sending to a foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines.
Such
facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines.
Output VAT less Input VAT = VAT due on the increase in worth,
merit or improvement f the goods or services.
7.
a.
8.
a.
Cost deduction method. This is a single-stage tax which is
payable only by the original sellers.
(Abakada Guro Party List (etc.) v.
Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases)
9.
How the VAT is imposed on the increase in worth,
merit or improvement of the goods or services. The VAT utilizes
the concept of the output and input taxes.
(ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207, October 15,
2005, and companion cases, on the motion for reconsideration)
a.
the transitional input tax and
b.
the presumptive input tax xxx.
It includes
c.
input taxes which can be directly attributed to transactions
subject to the VAT plus a ratable portion of any input tax which cannot be
directly attributed to either the taxable or exempt activity. (Rev. Regs. No.
4.110-1, 1st par., 2nd sentence,. And 2nd par., paraphrasing, arrangement
and numbering supplied )
!35
b.
materials purchased for further processing, but which have
not yet undergone processing;
c.
goods which have been manufactured by the taxpayer;
d.
goods in process for sale; or
e.
goods and supplies for use in the course of the taxpayers
trade or business as a VAT-registered person. [Rev. Regs. No. 16-2005,
Sec.4.111-1, (a), 1st par., arrangement and numbering supplied]
16.
freedom.
or course of business conveys the idea of business being done, not from
time to time, but all the time. It does not include isolated transactions.
(Commissioner of Internal Revenue v. Magsaysay Lines, Inc., et al., G. R. No.
146984, July 28, 2006)
18.
No. The term "carrying on business" does not mean the performance of a
single disconnected act, but means conducting, prosecuting and
continuing business by performing progressively all the acts normally
incident thereof; while "doing business" conveys the idea of business
being done, not from time to time, but all the time. "Course of business"
is what is usually done in the management of trade or business. "Course
of business" or "doing business" connotes regularity of activity. In the
instant case, the sale was an isolated transaction.
The sale which was involuntary and
made pursuant to the declared policy of Government for privatization
could no longer be repeated or carried on with regularity. It should be
emphasized that the normal VAT-registered activity of NDC is leasing
personal property.
This finding is confirmed by the Revised
Charter of the NDC which bears no indication that the NDC was created
for the primary purpose of selling real property. (Commissioner of Internal
Revenue v. Magsaysay Lines, Inc., et al., G. R. No. 146984, July 28, 2006)
!36
2)
Creditors in payment of debt or obligation
c. Consignment of goods if actual sale is not made within
sixty (60) days following the date such goods were consigned.
Consigned goods returned by the consignee within the 60-day period are
not deemed sold.
d.
Retirement from or cessation of business, with respect to
all goods on hand,
1)
whether capital goods, stock-in-trade, supplies or
materials as of the date of such retirement, or cessation,
2)
whether or not the business is continued by the new
owner or successor. xxx [Rev. Regs. No. 16-2005, Sec. 4.106-7,
paraphrasing, arrangement and numbering supplied]
21.
Sale of real properties primarily for sale to customers or held for lease in
the ordinary course of trade or business of the seller shall be subject to
VAT. (Rev. Regs. No. 16-2005, Sec. 4.106-3, 1st par.)
Thus, capital transactions of individuals are not subject to VAT.
Only real estate dealers are subject to VAT.
22.
On September 4, 2009, XYZ, Inc., a domestic
corporation engaged in the real estate business, sold a
building for P10,000,000.00. Is the sale subject to the valueadded tax (VAT)? If so, how much? Explain.
24.
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to twelve percent (12%) of
gross receipts
c.
derived from the sale or exchange of services,
1)
including the use or lease of properties. [NIRC of
1997, Sec. 108 (A), as amended by R.A. No. 9337, arrangement and
numbering supplied]
!37
e.
lessors or distributors of cinematographic films;
f.
persons engaged in milling, processing, manufacturing or
repacking goods for others;
g.
proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; theaters, and movie houses;
h.
proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers;
i.
dealers in securities;
j.
lending investors;
k.
transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport of
goods or cargoes;
l.
common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines;
m.
sales of electricity by generation companies,
transmission, and/or distribution companies;
n.
franchise grantees of electric utilities, telephone
and telegraph, radio and television broadcasting and all other franchise
grantees except franchise grantees of radio and/or television
broadcasting whose annual gross receipts of the preceding year do not
exceed Ten Million Pesos (P10,000,000.00), and franchise grantees of
gas and water utilities;
o.
non-life insurance companies (except their
crop insurances), including surety, fidelity, indemnity and bonding
companies; and
p.
similar services regardless
of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. [NIRC of 1997, Sec. 108 (A), as amended by
R.A. No. 9337; Rev. Regs. No. 16-2005, Sec. 4,108-2, 1st par., arrangement and
numbering supplied]
!38
Performed in the Philippines, the service is necessarily subject to
its jurisdiction for the State necessarily has to have a substantial
connection to it in order to enforce a zero rate. The place of payment is
immaterial much less is the place where the output of the service will be
further or ultimately used.
This is so because the law neither makes a qualification nor adds a
condition in determining the tax situs of a zero-rated service.
(Commissioner of Internal Revenue v. American Express International, Inc.
(Philipppine Branch), G. R. No. 152609, June 29, 2005)
30.
The
Philippine VAT system adheres to the Cross Border Doctrine, according to
which, no VAT shall be imposed to form part of the cost of goods destined
for consumption outside of the territorial border of the taxing authority.
33.
transactions:
a.
A zero-rated sale is a taxable transaction but does not result
in an output tax WHILE an exempt transaction is not subject to the output
tax.
b.
The input tax on the purchases of a VAT registered person
who has zero-rated sales may be allowed as tax credits or refunded
WHILE the seller in an exempt transaction is not entitled to any input tax
on his purchases despite the issuance of a VAT invoice or receipt.
c.
Persons engaged in transactions which are zero rated being
subject to VAT are required to register WHILE registration is optional for
VAT-exempt persons.
34.
!39
38.
principle which posits that the goods and services are taxed only in the
country where they are consumed,
However, the law itself provides for clear exceptions under which
the supply of services shall be zero-rated, among which are the following:
a.
The service is performed in the Philippines;
b.
The services are within the categories provided for under the
Tax Code; and
c.
It is paid for in acceptable foreign currency of the Bangko
Sentral ng Pilipinas.
American Express renders assistance to its foreign clients by
receiving the bills of service establishments located in the country and
forwarding them to their clients abroad. The services are performed or
successfully completed upon send to its foreign clients the drafts and bills
it has gathered from service establishments here, Its services, having
been performed in the Philippines are therefore also consumed in the
Philippines. Thus, its services are exempt from the destination principle
and are zero-rated.
The BIR could not change the law.
[Commissioner, of Internal
Revenue v. American Express International, Inc. (Philippine Branch), G. R. No.
152609, June 29, 2005]
41.
A foreign Consortium composed of BWSCDenmark, Mitsui Engineering and Shipbuilding Ltd., and Mitsui
and Co., Ltd., which entered into a contract with NAPOCOR for
the operation and maintenance of two power barges
appointed BWSC-Denmark as its coordination manager.
BWSCMI was established as the subcontractor to perform the
actual work in the Philippines. The Consortium paid BWSCMI
in acceptable foreign exchange and accounted for in
accordance with the rules and regulations of the BSP.
Through a February 14, 1995 ruling the BIR declared that
BWSCMI may choose to register as a VAT persons subject to
VAT at zero rate. For 1996, it filed the proper VAT returns
showing zero rating. On December 29, 1997, believing that it
is covered by Rev. Regs. 5-96, dated February 20, 1996,
BWSCMI paid 10% output VAT for the period April-December
1996, through the Voluntary Assessment Program (VAP).
On January 7, 1999, BWSCMI was able to obtain a Ruling
from the BIR reconfirming that it is subject to VAT at zerorating. On this basis, BWSCMI applied for a refund of the
output VAT it paid.
a.
Is BWSCMI subject to the 10% VAT or is it zero
rated ?
SUGGESTED ANSWER: Yes. BWSCMI is not zero rated and is
subject to the 10% VAT. It is rendering service for the Consortium which
is not doing business in the Philippines. Zero-rating finds application only
where the recipient of the services are other persons doing business
outside of the Philippines. BWSCMI provides services to the Consortium
which by virtue of its contract with NAPOCOR is doing business within the
Philippines.
(Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., G. R. No. 153205, January 22,
2007)
b.
Could it obtain a refund of the VAT it paid through
the VAP ? Explain.
!40
VAT. (Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., supra)
42.
43.
VAT-exempt transactions distinguished from
VAT-exempt entities.
a.
An exempt transaction, on the one hand, involves goods or
services which, by their nature, are specifically listed in and expressly
exempted from the VAT under the Tax Code, without regard to the tax
status VAT-exempt or not of the party to the transaction.
An exempt party, on the other hand, is a person or entity granted
VAT exemption under the Tax Code, a special law or an international
agreement to which the Philippines is a signatory, and by virtue of which
its taxable transactions become exempt from VAT. [Commissioner of
Internal Revenue v. Toshiba Information Equipment (Phils.), Inc., G. R. No.
150154, August 9, 2005]
b.
An exempt transaction shall not be the subject of any billing
for output VAT but it shall not also be allowed any input tax credits WHILE
an exempt party being zero-rated is allowed to claim input tax credits.
!41
(D) Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household effects
(except any vehicle, vessel, aircraft, machinery, other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own use
and not for sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner of Internal
Revenue, that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;
(E) Services subject to percentage tax under Title V of the Tax
Code, as enumerated below:
(1)
Sale or lease of goods or properties or the
performance of services of non-VAT-registered persons, other
than the transactions mentioned in paragraphs (A) to (U) of Sec.
109 (1) of the Tax Code, the annual sales and/or receipts of which
does not exceed the amount of One
Million Five Hundred
thousand Pesos (P1,500,000.00), Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the
amount herein stated shall be adjusted to its present value using
the Consumer Price Index, as published by the National Statistics
Office (NSO). (Sec. 116, Tax Code)
(2)
Services rendered by domestic common carriers by
land for the transport of passengers and keepers of garages.
(Sec. 117)
(3)
Services rendered by international air/shipping
carriers. (Sec. 118)
(4)
Service rendered by franchise grantees of radio and/
or television broadcasting whose annual gross receipts of the
p r e c e d i n g y e a r d o n o t e x c e e d Te n M i l l i o n P e s o s
(P10,000,000.00) and by franchises of gas and water utilities.
(Sec. 119)
(5)
Service rendered for overseas dispatch message or
conversation originating from the Philippines. (Sc. 120)
(6)
Services rendered by any person, company or
corporation (except purely cooperative companies or associations
) doing life insurance business of any sort in the Philippines.
(Sec. 123)
(7)
Services rendered by fire, marine or miscellaneous
insurance agents of foreign insurance companies. (Sec. 124)
(8)
Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing exhibitions
professional basketball games, jai-Alai and race tracks. (Sec.
125). and
(9)
Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock exchange or
through initial public offering. (Sec. 127)
(F)
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into raw sugar;
Agricultural contract growers refers to those persons producing
for others poultry, livestock or other agricultural and marine food products
in their original state.
(G) Medical, dental, hospital and veterinary services except
those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic operates
a pharmacy or drug store, the sale of drugs and medicine is subject to
VAT.
(H) Educational services rendered by private educational
institutions, duly accredited by the Department of Education (DEPED), the
Commission on Higher Education (CHED), the Technical Education And
Skills Development Authority (TESDA) and those rendered by
government educational institutions;
Educational services shall refer to academic, technical or
vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA and those rendered by
government educational institutions and it does not include seminars, inservice training, review classes and other similar services rendered by
persons who are not accredited by the DepED, the CHED and/or the
TESDA.
(I)
Services rendered by individuals pursuant to an employeremployee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special laws,
except those under Presidential Decree No. 529 Petroleum Exploration
Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority (CDA) to their members as well as
sale of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce;
(M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development Authority:
Provided, That the share capital contribution of each member does not
exceed Fifteen thousand pesos (P15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the members;
!42
Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
(O) Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business, or
real property utilized for low-cost and socialized housing as defined by
Republic Act No. 7279, otherwise known as the Urban Development and
Housing Act of 1992, and other related laws, such as RA No. 7835 and
RA No. 8765, residential lot valued at One million five hundred thousand
pesos (P 1,500,000) and below, house and lot, and other residential
dwellings valued at Two million five hundred thousand pesos (P
2,500,000) and below: Provided, That not later than January 31, 2009
and every three (3) years thereafter, the amounts herein stated shall be
adjusted to their present values using the Consumer Price Index, as
published by the National Statistics Office (NSO);
(Q) Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P 10,000) Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office (NSO);
(R) Sale, importation, printing or publication of books and any
newspaper, magazine, review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements;
(S)
Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for domestic
or international transport operations; Provided, that the exemption from
VAT on the importation and local purchase of passenger and/or cargo
vessels shall be limited to those of one hundred fifty (150) tons and
above, including engine and spare parts of said vessels; Provided, further,
that the vessels be imported shall comply with the age limit requirement,
at the time of acquisition counted from the date of the vessels original
commissioning, as follows: (i) for passenger and/or cargo vessels, the
age limit is fifteen years (15) years old, (ii) for tankers, the age limit is ten
(10) years old, and (iii) For high-speed passenger cars, the age limit is
five (5) years old, Provided, finally, that exemption shall be subject to the
provisions of section 4 of Republic Act No. 9295, otherwise known as
The Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations; Provided, that the said
fuel, goods and supplies shall be used exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines directly
to a foreign port without stopping at any other port in the Philippines;
provided, further, that if any portion of such fuel, goods or supplies is used
for purposes other than that mentioned in this paragraph, such portion of
fuel, goods and supplies shall be subject to 10% VAT (now 12%);
45.
a.
Any person, whose sales or receipts are exempt under Sec.
109 (1) (V) of the Tax Code,
(V) Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of One million five hundred thousand
pesos (P1,500,000): Provided, That not later than January 31,
2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer
Price Index as published by the National Statistics Office (NSO),
from the payment of VAT and
b.
who is not a VAT-registered person
c.
shall pay a tax equivalent to three percent (3%) of his gross
monthly sales or receipts;
Provided, that cooperatives shall be exempt from the three (3%)
gross receipts tax herein imposed. (Rev. Regs. No. 16-2005, Sec. 4.116-1,
arrangement, numbering and words in italics supplied)
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents, until
controverted by competent evidence, are competent evidence, are prima
!43
facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et
al., 296 SCRA 309, 317)
2.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on his
income from sources within the Philippines;
c.
Every alien residing in the Philippines on income derived from
sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or in the
exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC of 1997]
3.
Married individuals who are earning purely
compensation income allowed to file separate returns.
4.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a consolidated return for the taxable
year to include the income of both spouses, but where it is
impracticable for the spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall be consolidated by
the Bureau for purposes of verification. [Section 51 (D) of the NIRC of
1997]
5.
Computation of income tax for married individuals
whether citizens, resident or non-resident aliens, who do not
derive income purely from compensation required file a
consolidated return for the taxable year but could not do so.
For married individuals, the husband and wife, subject to no. 2, supra,,
shall compute separately their individual income tax based on their
respective total taxable income: Provided, that if any income cannot be
definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their respective
taxable income. [2nd to the last par., Sec. 24 (A) (2), NIRC of 1997 as amended
by Rep. Act No. 9504]
6.
Individuals who are not required to file an income
tax return.
a.
An individual whose gross income does not exceed his total
personal and additional exemptions for dependents, Provided, That a
citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippines shall file an income tax return
regardless of the amount of gross income [Sec. 51 (A) (2), NIRC of 1997]
b.
An individual with respect to pure compensation income,
derived from such sources within the Philippines, the income tax on which
c.
An individual whose sole income has been subject to final
withholding tax;
d.
A minimum wage earner (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned), an individual who
is exempt from income tax pursuant to the provisions of the Tax Code and
other laws, general or special. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec.
22 (HH), both as amended by Rep. Act. 9504]
7.
Minimum wage earners are exempt from income
taxation. That minimum wage earners (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned) shall be exempt
from the payment of income tax on their taxable income: Provided,
further, That the holiday pay, overtime pay, night shift differential pay and
hazard pay received by such minimum wage earners shall likewise be
exempt from income tax. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec. 22
(HH), both as amended by Rep. Act. 9504]
8.
An individual who is not required to file an income
tax return may nevertheless be required to file an information
return. [Sec. 51 (A) (3), NIRC of 1997]
9.
A corporation files its income tax return and pays its
income tax four (4) times during a single taxable year. Quarterly
returns are required to be filed for the first three quarters, then a final
adjustment return is filed covering the total taxable income for the whole
taxable year, be it calendar or fiscal.
!44
are required to make this four time return. Thus, the taxpayer does not have
to raise large sums of money in order to pay the tax.
a.
National Government and its instrumentalities including
provincial, city, or municipal governments;
b.
Persons enjoying exemption from payment of income taxes
pursuant to the provisions of any law, general or special, such as but not
limited to the following:
1) Sales of real property by a corporation which is registered
with and certified by the HLURB or HUDCC as engaged in socialized
housing project where the selling price of the house and lot or only
the lot does not exceed P180,000.00 in Metro Manila and other
highly urbanized areas and P150,000.00 in other areas or such
adjusted amount of selling price for socialized housing as may later
be determined and adopted by the HLURB;
2) Corporations registered with the Board of Investments and
enjoying exemptions from income under the Omnibus Investment
Code of 1997;
3)
Corporations exempt from income tax under Sec. 30,
of the Tax Code, like the SSS, GSIS, the PCSO, etc. However,
income payments arising from any activity which is conducted for
profit or income derived from real or personal property shall be
subject to a withholding tax. (Sec. 57.5, Rev. Regs. No. 2-98)
SUGGESTED ANSWER:
a.
the 25% surcharge for late filing or late payment [Sec. 248 (A),
NIRC of 1997] (also known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud surcharge. [Sec. 248 (B),
Ibid.]
!45
3.
4.
collected on any unpaid amount of tax at the rate of 20% per annum or
such higher rate as may be prescribed by regulations, from the date
prescribed for payment until the amount is fully paid. [Sec. 249 (A) (B),
NIRC of 1997]
5.
Delinquency interest, defined. The interest assessed
and collected on the unpaid amount until fully paid where there is failure on
the part of the taxpayer to pay the amount die on any return required to be
filed; or the amount of the tax due for which no return is required; or a
deficiency tax, or any surcharge or interest thereon, on the date appearing
in the notice and demand by the Commissioner of Internal Revenue. [Sec.
249 (c), NIRC of 1997]
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
7.
Compromise penalty is the amount agreed upon between
the taxpayer and the Government to be paid as a penalty in cases of a
compromise.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes
on time. Imposed surcharges and interests for such delay, the
taxpayer not invokes good faith with the BIR countering by
saying that good faith is not a valid defense for violation of a
special law. Furthermore, the BIR further raises the defense
that the government is not bound by the errors of its agents.
Who is correct ?
SUGGESTED ANSWER: The taxpayer is correct. The settled rule is
that good faith and honest belief that one is not subject to tax on the basis
4.
a.
Exclusive appellate jurisdiction to review by appeal, as
herein provided:
1.
Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties, in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue; (DIVISION)
!46
2.
Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds or internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matter arising under the
National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a
denial; (The inaction on refunds in two years from the time tax was paid.
Thus, if the prescriptive period of two years is about to expire, the taxpayer
should interpose a petition for review with the CTA DIVISION)
3.
Decisions, orders or resolutions of the Regional Trial Courts in
local tax cases originally decided or resolved by them in the exercise of
their original or appellate jurisdiction; (If original DIVISION; if appellate EN
BANC)
4.
Decisions of the Commissioner of Customs in cases involving
liability for customs duties, fees or other money charges, seizure, detention
or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other
laws administered by the Bureau of Customs; (DIVISION)
5.
Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the assessment
and taxation of real property originally decided by the provincial or city
board of assessment appeals; (EN BANC)
6.
Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the
Commissioner of Customs which are adverse to the Government under
Section 2315 of the Tariff and Customs Code; (This has reference to
forfeiture cases where the decision is to release the seized articles
DIVISION)
7.
Decisions of the Secretary of Trade and Industry, in case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision to
impose or not to impose said duties. (DIVISION)
b.
Jurisdiction over cases involving criminal offenses as
herein provided:
1.
Exclusive original jurisdiction over all criminal cases
arising from violations of the National Internal Revenue Code or Tariff and
Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or
felonies mentioned in this paragraph where the principal amount of taxes
and fees, exclusive of charges and penalties claimed, is less than One
million pesos (P1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for
the recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the civil action will be
recognized.
2.
Exclusive appellate jurisdiction in criminal offenses:
a)
Over appeals from the judgments, resolutions or orders
of the Regional Trial Courts in tax cases originally decided by them,
in
their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their
appellate
jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in
their respective jurisdiction.
c.
Jurisdiction over tax collection cases:
1.
Exclusive original jurisdiction in tax collection cases involving
final and executory assessments for taxes, fees, charges and penalties:
Provided, however, That collection cases where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is less than
One million pesos (P1,000,000) shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and Regional Trial Court.
2.
Exclusive appellate jurisdiction in tax collection cases:
a)
Over appeals from judgments, resolutions, or orders of
the Regional Trial Courts in tax collection cases originally decided by
them, in their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their
appellate
jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit
Trial Courts, in their respective jurisdiction. (Sec. 7, R. A. No.
1125, as amended by R. A. No. 9282, emphasis and words in parentheses
supplied)
!47
6.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision of the
Commissioner of Customs:
a.
Decisions of the Secretary of Trade and Industry or the
Secretary of Agriculture in anti-dumping and countervailing duty cases are
appealable to the Court of Tax Appeals within thirty (30) days from receipt
of such decisions.
b. In case of automatic review by the Secretary of Finance in
seizure or forfeiture cases where the value of the importation exceeds P5
million or where the decision of the Collector of Customs which fully or
partially releases the shipment seized is affirmed by the Commissioner of
Customs.
!48
f.
The taxpayer should then file an administrative protest by
filing a request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to the
Court of Tax Appeals because there is no decision yet of the Commissioner
that could be the subject of a review.
To be valid the administrative protest must be filed within the
prescriptive period, must show the error of the Bureau of Internal Revenue
and the correct computations supported by a statement of facts, and the
law and jurisprudence relied upon by the taxpayer. There is no need to pay
under protest. If the protest was not seasonably filed the assessment
becomes final and collectible and the Bureau of Internal Revenue could use
its administrative and judicial remedies in collecting the tax.
g. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall be submitted, otherwise the assessment shall
become final and collectible and the BIR could use its administrative and
judicial remedies to collect the tax.
Once an assessment has become final and collectible, not even
the BIR Commissioner could change the same. Thus, the taxpayer could
not pay the tax, then apply for a refund, and if denied appeal the same to
the Court of Tax Appeals.
h. If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from the submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal to
the Court of Tax Appeals within thirty (30) days from receipt of the adverse
decision, or from the lapse of the one hundred eighty (180-) day period,
with an application for the issuance of a writ of preliminary injunction to
enjoin the BIR from collecting the tax subject of the appeal.
If the taxpayer fails to so appeal, the denial of the Commissioner
or the inaction of the Commissioner would result to the notice of
assessment becoming final and collectible and the BIR could then utilize its
administrative and judicial remedies to collect the tax.
i.
A decision of a division of the Court of Tax Appeals adverse to
the taxpayer or the government may be the subject of a motion for
reconsideration or new trial, a denial of which is appealable to the Court of
Tax Appeals en banc by means of a petition for review.
The Court of Tax Appeals, has a period of twelve (12) months from
submission of the case for decision within which to decide.
j.
If the decision of the Court of Tax Appeals en banc affirms the
denial of the protest by the Commissioner or the assessment in case of
failure by the Commissioner to decide the taxpayer must file a petition for
review on certiorari with the Supreme Court within fifteen (15) days from
notice of the judgment on questions of law. An extension of thirty (30) days
may for justifiable reasons be granted. If the taxpayer does not so appeal,
the decision of the Court of Tax Appeals would become final and this has
the effect of making the assessment also final and collectible. The BIR
could then use its administrative and judicial remedies to collect the tax.
2.
The word assessment when used in connection with
taxation, may have more than one meaning. More commonly the
3.
An assessment is a notice duly sent to the taxpayer
which is deemed made only when the BIR releases, mails or
sends such notice to the taxpayer. (Commissioner of Internal Revenue v.
Pascor Realty and Development Corporation, et al., G.R. No. 128315, June 29,
1999)
4.
Self-assessed tax, defined. A tax that the taxpayer
himself assesses or computes and pays to the taxing authority. It is a tax
that self-assessed by the taxpayer without the intervention of an
assessment by the tax authority to create the tax liability.
The Tax Code follows the pay-as-you-file system of taxation under
which the taxpayer computes his own tax liability, prepares the return, and
pays the tax as he files the return. The pay-as-you-file system is a selfassessing tax return.
Internal revenue taxes are self-assessing. (Dissent of J. Carpio in
Philippine National Oil Company v. Court of Appeals, et al., G. R. No. 109976, April
26, 2005 and companion case)
!49
6.
General rule: When the Commissioner of Internal
Revenue may rely on estimates. The rule is that in the absence of
However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously. (Ibid.)
7.
Meaning of "best evidence obtainable" under Sec. 6
(B), NIRC of 1997. This means that the original documents must be
produced. If it could not be produced, secondary evidence must be
adduced. (Hantex Trading Co., Inc. v. Commissioner of Internal Revenue, CA G.R. SP No. 47172, September 30, 1998)
a.
When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on the face
of the return; or
b. When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding agent; or
c. When a taxpayer opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have
carried over and automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or quarters of the
succeeding table year; or
d. When the excess tax due on excisable articles has not been paid;
or
e. When an article locally purchased or imported by an exempt
person, such as, but not limited to vehicles, capital equipment, machineries
and spare parts, has been sold, trade or transferred to non-exempt
persons. (Sec. 228, NIRC of 1997)
!50
a. Three (3) years from the last day within which to file a return
or when the return was actually filed, whichever is later (Sec. 203, NIRC of
1997). The CIR has three (3) years from the date of actual filing of the tax
return to assess a national internal revenue tax or to commence court
proceedings for the collection thereof without an assessment. [Bank of
Philippine Islands (Formerly Far East Bank and Trust Company) v. Commissioner
of Internal Revenue, G. R. No. 174942, March 7, 2008]
b. ten years from discovery of the failure to file the tax return or
discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of 1997[ ; or
c. within the period agreed upon between the government and
the taxpayer where there is a waiver of the prescriptive period for
assessment (Sec. 222 (b), NIRC of 1997).
14.
Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because
this deprives the taxpayer of the assurance that it will not longer be
subjected to further investigation for taxes after the expiration of a
reasonable period of time. (Philippine Journalists, Inc. v. Commissioner of
Internal Revenue, G. R. No. 162852, December 16, 2004 with note to see Republic
v. Ablaza, 108 Phil. 1105. 1108)
16.
Requisites for Formal Letter of Demand and
Assessment Notice. The formal letter of demand and assessment
!51
SUGGESTED ANSWER:
a. There must have been previously issued a pre-assessment
notice until excepted;
b. It must have been issued prior to the prescriptive period; and
c. The letter of demand calling for payment of the taxpayers
deficiency tax or taxes shall state the facts, the law, rules and regulations,
or jurisprudence on which the assessment is based, otherwise, the formal
letter of demand and assessment notice shall be void. (Sec. 3.1.4, Rev.
Regs. No. 12-99)
SUGGESTED ANSWER:
a.
Lifeblood theory
b.
Presumption of regularity (Commissioner of Internal Revenue v.
Hantex Trading Co., Inc., G, R. No. 136975, March 31, 2005) in the performance
of public functions. (Commissioner of Internal Revenue v. Tuazon, Inc., 173
SCRA 397)
c.
The likelihood that the taxpayer will have access to the
relevant information [Commissioner of Internal Revenue, supra citing United
States v. Rexach, 482 F.2d 10 (1973). The certiorari was denied by the United
States Supreme Court on November 19, 1973]
d.
The desirability of bolstering the record-keeping requirements
of the NIRC. (Ibid.)
determination by the CTA must rest on all the evidence introduced and its
ultimate determination must find support in credible
evidence. [Commissioner of Internal Revenue, supra]
20.
What are the instances that suspends the
running of the prescriptive periods (Statute of Limitations)
within which to make an assessment and the beginning of
distraint or levy or of a proceeding in court for the collection, in
respect of any tax deficiencies?
SUGGESTED ANSWER:
a.
When the Commissioner is prohibited from making the
assessment, or beginning distraint, or levy or proceeding in court and for
sixty (60) days thereafter;
b.
When the taxpayer requests for and is granted a
reinvestigation by the commissioner;
c.
When the taxpayer could not be located in the address given
by him in the return filed upon which the tax is being assessed or collected;
d.
When the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and
e.
When the taxpayer is out of the Philippines.
NOTES AND COMMENTS:
The holding in Commissioner of Internal Revenue v. Court of
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case) that
the waiver of the period for assessment must be in writing and have the
written consent of the BIR Commissioner is still doctrinal because of the
provisions of Sec. 223, NIRC of 1997 which provides for the suspension of
the prescriptive period:
21.
Under RMO No. 20-90, which implements
Sections 203 and 222 (b), the following procedures should be
followed for a valid waiver of the prescriptive period for an
assessment:
a.
The waiver must be in the proper form;
b.
The waiver shall be signed by the taxpayer himself or his
duly authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of
Internal Revenue or the revenue official authorized by him, as hereinafter
provided, shall sign the waiver indicating that the Bureau has accepted
and agreed to the waiver. The date of such acceptance by the Bureau
should be indicated. Both the date of execution by the taxpayer and
date of acceptance by the Bureau should be before the expiration of the
period of prescription or before the lapse of the period agreed upon in
case a subsequent agreement is executed.
c.
T h e
following revenue officials are authorized to sign the waiver.
A.
In
!52
the National Office
Commissioner
For tax cases involving more than P1M
Regional Offices
The Revenue District Officer with respect to tax
pending investigation and the period to assess is
prescribe regardless of amount.
x x x x
3.
B.
In the
1.
cases still
about
to
x x x x
d.
The waiver
must be executed in three (3) copies, the original copy to be attached
to the docket of the case, the second copy for the taxpayer and the
third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the original copy.
d.
The foregoing
procedures shall be strictly followed. Any revenue official found not to
have complied with this Order resulting in prescription of the right to
assess/collect shall be administratively dealt with. (Renumbering and
emphasis supplied.)
If the above are not followed there is no valid waiver and
prescription would run.
(Commissioner of Internal Revenue v. FMF
Development Corporation, G. R. No. 167765, June 30, 2008 citing Philippine
Journalists, Inc. v. Commissioner of Internal Revenue G.R. No. 162852,
December 16, 2004, 447 SCRA 214, 228-229)
22.
The procedures in RMO No. 20-90 are NOT
merely directory and that the execution of a waiver is a
renunciation of a taxpayers right to invoke prescription. RMO
No. 20-90 must be strictly followed. A waiver of the statute of
limitations under the NIRC, to a certain extent being a derogation of the
taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed. The waiver of the
statute of limitations does not mean that the taxpayer relinquishes the right
to invoke prescription unequivocally, particularly where the language of the
document is equivocal.
Thus a waiver becomes unlimited in time, and invalid, because it
did not specify a definite date, agreed upon between the BIR and the
taxpayer, within which the former may assess and collect taxes. It also
would have no binding effect on the taxpayer if there was no consent by the
Commissioner. On this basis, no implied consent can be presumed, nor
can it be contended that the concurrence to such waiver is a mere formality.
(Commissioner of Internal Revenue v. FMF Development Corporation, G. R. No.
167765, June 30, 2008 citing Philippine Journalists, Inc. v. Commissioner of
Internal Revenue G.R. No. 162852, December 16, 2004, 447 SCRA 214, 229 in
turn citing Id. at 229, citing Commissioner of Internal Revenue v. Court of Appeals,
G.R. No. 115712, February 25, 1999, 303 SCRA 614, 620-622.)
23. BIR cannot rely on its invocation of the rule that the
government cannot be estopped by the mistakes of its revenue
officers in the enforcement of RMO No. 20-90 because the law on
prescription should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommended the approval of the
law. To the Government, its tax officers are obliged to act promptly in the
making of assessment so that taxpayers, after the lapse of the period of
prescription, would have a feeling of security against unscrupulous tax agents
who will always try to find an excuse to inspect the books of taxpayers, not to
determine the latters real liability, but to take advantage of a possible
opportunity to harass even law-abiding businessmen. Without such legal
defense, taxpayers would be open season to harassment by unscrupulous
tax agents. [Commissioner of Internal Revenue v. FMF Development Corporation,
G. R. No. 167765, June 30, 2008 citing Republic of the Phils. v. Ablaza, 108 Phil.
1105, 1108 (1960)]
24.
The signatures of both the Commissioner and
the taxpayer, are required for a waiver of the prescriptive
period, thus a unilateral waiver on the part of the taxpayer does not
suspend the prescriptive period. [Commissioner of Internal Revenue v. Court of
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case)]
!53
G, R. No. 134062, April 17, 2007 citing Sy Po v. Court of Appeals, G. R. No.
L-81446, 18 August 1988, 164 SCRA 524, 530, citations omitted)
1)
A statement of the facts, the applicable law, rules and
regulations, or jurisprudence on which the taxpayers protest is
based,
2)
If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the applicable
law, rules and regulations, or jurisprudence in support of his protest
against some of the several issues on which the assessment is
based, the same shall be considered undisputed issue or issues, in
which case, the taxpayer shall be required to pay the corresponding
deficiency tax or taxes attributable thereto. (Sec. 3.1.5, Rev. Regs.
12-99)
c.
Within sixty (60) days from filing of the protest, the taxpayer
shall submit all relevant supporting documents. [4th par., Sec. 228 (e), NIRC of
1997]
J U D I C I A L R E M E D I E S I N V O LV I N G P R O T E S T E D
ASSESSMENTS
1.
Acts of BIR Commissioner that may be
considered as denial of a protest which serve as basis for
appeal to the Court of Tax Appeals.
a.
Filing by the BIR of a civil suit for collection of the deficiency
tax is considered a denial of the request for reconsideration. (Commissioner
of Internal Revenue v. Union Shipping Corporation, 185 SCRA 547)
b.
An indication to the taxpayer by the Commissioner in clear
and unequivocal language of his final denial not the issuance of the
warrant of distraint and levy. What is the subject of the appeal is the final
decision not the warrant of distraint. (Ibid.)
c.
A BIR demand letter sent to the taxpayer after his protest of
the assessment notice is considered as the final decision of the
Commissioner on the protest. (Surigao Electric Co., Inc. v. Court of Tax Appeals,
et al., 57 SCRA 523)
d.
A letter of the BIR Commissioner reiterating to a taxpayer his
previous demand to pay an assessment is considered a denial of the
!54
request for reconsideration or protest and is appealable to the Court of Tax
Appeals. (Commissioner v. Ayala Securities Corporation, 70 SCRA 204)
e.
Final notice before seizure considered as commissioners
decision of taxpayers request for reconsideration who received no other
response.
Commissioner of Internal Revenue v. Isabela Cultural
Corporation, G.R. No. 135210, July 11, 2001 held that not only is the Notice
the only response received: its content and tenor supports the theory that it
was the CIRs final act regarding the request for reconsideration. The very
title expressly indicated that it was a final notice prior to seizure of property.
The letter itself clearly stated that the taxpayer was being given this LAST
OPPORTUNITY to pay; otherwise, its properties would be subjected to
distraint and levy.
2.
The taxpayer seasonably protested the assessment
issued by the Commissioner of Internal Revenue. During the
pendency of the protest the CIR issued a warrant of distraint
and levy to collect the taxes subject of the protest.
As counsel what advice shall you give the taxpayer.
Explain briefly your answer.
3.
As a general rule, there must always be a decision
of the Commissioner of Internal Revenue or Commissioner of
Customs before the Court of Tax Appeals, would have
jurisdiction. If there is no such decision, the petition would be dismissed
for lack of jurisdiction unless the case falls under any of the following
exceptions.
4.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision yet by the
Commissioner of Internal Revenue:
a.
Where the Commissioner has not acted on the disputed
assessment after a period of 180 days from submission of complete
supporting documents, the taxpayer has a period of 30 days from the
expiration of the 180 day period within which to appeal to the Court of Tax
Appeals. (last par., Sec. 228 (e), NIRC of 1997; Commissioner of Internal Revenue
v. Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)
2.
While this may be so, statutes may provide for periods of prescription,
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be
liberally construed, and exemptions are not given retroactive application,
considering that taxes are the lifeblood of the government and in Holmes
memorable metaphor, the price we pay for civilization, tax laws must be
faithfully and strictly implemented. (Commissioner of Internal Revenue v.
!55
Acosta, etc.,G. R. No. 154068, August 3, 2007)
However, statutes may provide
for prescriptive periods for the collection of particular kinds of taxes.
b.
Tax laws, unlike remedial laws, are not to be applied
retroactively. Revenue laws are substantive laws and their application must
not be equated with remedial laws. (Acosta, supra)
3.
What is the prescriptive period for collecting
internal revenue taxes ?
b.
Collection upon a false or fraudulent return or no return with
assessment. Any internal revenue tax which has been assessed (because
the return is false or fraudulent with intent to evade tax or of failure to fail a
return), within a period of ten (10) years from discovery of the falsity, fraud
or omission may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax. [Sec.
222 (c), in relation to Sec. 222 (a) NIRC of 1997, emphasis supplied]
c.
Collection upon an extended assessment. Where a tax has
been assessed with the period agreed upon between the Commissioner
and the taxpayer in writing (which should initially be within three (3) years
from the time the return was filed or should have been filed), or any
extensions before the expiration of the period agreed upon, the tax may
be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (5) year
period. The period so agreed upon may be extended by subsequent
written agreements made before the expiration of the period previously
agreed upon. [Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997,
emphasis supplied]
d.
Collection upon a return that is not false or fraudulent, or
where the assessment is not an extended assessment.
Except as
provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such
period; Provided, That in case where a return is filed beyond the period
prescribed by law, the three (3) year period shall be computed from the day
the return was filed. For purposes of this Section, a return filed before the
last day prescribed by law for the filing thereof shall be considered filed on
such last day. (Sec. 203, NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three (3)year period, it has another three (3) years within which to collect the tax
4. What is a compromise ?
SUGGESTED ANSWER: A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only
signify that there was no agreement that had effectively been reached
between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal
Revenue, G. R. No. 138485, September 10, 2001)
!56
5.
What tax
compromise ?
SUGGESTED ANSWER:
The following cases may, upon
taxpayers compliance with the basis for compromise, be the subject matter
of compromise settlement:
a. Delinquent accounts;
b. Cases under administrative protest after issuance of the Final
Assessment Notice to the taxpayer which are still pending in the Regional
Offices, Revenue District Offices, Legal Service, Large Taxpayer Service
(LTS), Collection Service, Enforcement Service and other offices in the
National Office;
c.
Civil tax cases being disputed before the courts;
d.
Collection cases filed in courts;
e.
Criminal violations, other than those already filed in court, or
those involving criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002)
6.
compromise ?
SUGGESTED ANSWER:
a. Withholding tax cases unless the applicant-taxpayer invokes
provisions of law that cast doubt on the taxpayers obligation to withhold.;
b.
Criminal tax fraud cases, confirmed as such by the
Commissioner of Internal Revenue or his duly authorized representative;
c. Criminal violations already filed in court;
d. Delinquent accounts with duly approved schedule of
installment payments;
e. Cases where final reports of reinvestigation or reconsideration
have been issued resulting to reduction in the original assessment and the
taxpayer is agreeable to such decision by signing the required agreement
form for the purpose. On the other hand, other protested cases shall be
handled by the Regional Evaluation Board (REB) or the National Evaluation
Board (NEB) on a case to case basis;
f.
Cases which become final and executory after final judgment
of a court where compromise is requested on the ground of doubtful validity
of the assessment; and
g. Estate tax cases where compromise is requested on the
ground of financial incapacity of the taxpayer. (Sec. 2, Rev. Regs. No.
30-2002)
9.
The collection of a tax may not be suspended. Only
the Court of Tax Appeals may issue an order suspending the collection of a
tax.
10.
As a general rule, No court shall have the
authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge. (Sec. 218, NIRC)
No appeal taken to the CTA from the decision of the Commissioner
of Internal Revenue or the Commissioner of Customs or the Regional Trial
Court, provincial, city or municipal treasurer or the Secretary of Finance, the
Secretary of Trade and Industry and Secretary of Agriculture, as the case
may be shall suspend the payment, levy, distraint, and/or sale of any
property of the taxpayer for the satisfaction of his tax liability as provided by
existing law: Provided, however, That when in the opinion of the Court the
collection by the aforementioned government agencies may jeopardize the
interest of the Government and/or the taxpayer the Court at any stage of
the proceeding may suspend the said collection and require the taxpayer
either to deposit the amount claimed or to file a surety bond for not more
than double the amount with the Court. (Sec. 11, Rep. Act No. 1125, as
amended by Sec. 9, Rep. Act No. 9282 )
The Supreme Court may enjoin the collection of taxes under its
general judicial power but it should be apparent that the source of the
power is not statutory but constitutional.
!57
11.
copy of the Withholding Tax Statement duly issued by the payor to the
payee showing the amount paid and the amount of the tax withheld
therefrom xxx (Rev. Regs. No. 6-85, as amended)
The document which may be accepted as evidence of the third
condition, that is, the fact of withholding, must emanate from the payor
itself, and not merely from the payee, and must indicate the name of the
payor, the income payment basis of the tax withheld, the amount of the tax
withheld and the nature of the tax paid. (Banco Filipino Savings and Mortgage
Bank v. Court of Appeals, et al., G. R. No. 155682, March 27, 2007)
3.
What should be established by a taxpayer for the
grant of a tax refund ? Why ?
SUGGESTED ANSWER: A taxpayer needs to establish not only
that the refund is justified under the law, but also the correct amount that
should be refunded.
If the latter requisite cannot be ascertained with particularity, there is
cause to deny the refund, or allow it only to the extent of the sum that is
actually proven as due.
Tax refunds partake of the nature of tax exemptions and are thus
construed strictissimi juris against the person claiming the exemption. The
burden in proving the claim for refund necessarily falls on the taxpayer. (Far
East Bank Trust and Company, etc., v. Commissioner of Internal Revenue, et al., G.
R. No. 138919, May 2, 2006)
5.
The two (2) year period and the thirty (30) day
period should be applied on a whichever comes first basis.
Thus, if the 30 days is within the 2 years, the 30 days applies, if the 2 year
period is about to lapse but there is no decision yet by the Commissioner
which would trigger the 30-day period, the taxpayer should file an appeal,
despite the absence of a decision. (Commissioners, etc. v. Court of Tax
Appeals, et al., G. R. No. 82618, March 16, 1989, unrep.)
!58
income taxes should be the date when the corporation filed its
final adjustment return not on the date when the taxes were paid on a
quarterly basis. (Philippine Bank of Communications v. Commissioner of Internal
Revenue, et al., G.R. No. 112024, January 28, 1999)
It is only when the return, covering the whole year, is filed that the
taxpayer will be able to ascertain whether a tax is still due or refund can be
claimed based on the adjusted and audited figures. (Bank of the Philippine
Islands v. Commissioner of Internal Revenue, G.R. No. 144653, August 28, 2001)
7.
cases ?
a.
a.
Tafford
o the
Commissioner an opportunity to correct his errors or that of subordinate
officers.
(Gonzales v. Court of Tax Appeals, et al., 14 SCRA79)
8.
itWhy
is
necessary to file an administrative claim for refund with the
BIR, before filing a case with the Court of Tax Appeals ?
BSUGGESTED
notify
Tothe
Government that such taxes have been questioned and the notice should
be borne in mind in estimating the revenue available for expenditures.
!59
SUGGESTED ANSWER:
SUGGESTED ANSWER: Yes. The failure to first file a written claim for
refund or credit is not fatal to a petition for review involving a disputed
assessment where an assessment was disputed but the protest was
9.
rule the filing of an application for refund or credit with the
Bureau of Internal Revenue is an administrative precondition
before a suit may be filed with the Court of Tax Appeals ?
As a general
!60
against the assessment. The law, should not be interpreted as to result in
absurdities. (vda. de San Agustin., etc., v. Commissioner of Internal Revenue, G.R.
No. 138485, September 10, 2001 citing Roman Catholic Archbishop of Cebu v.
Collector of Internal Revenue, 4 SCRA 279) NOTE: Reconciliation between
above two numbers (8 and 9). An application for refund or credit under
Sec. 229 of the NIRC of 1997 is required where the case filed before the
CTA is a refund case, which is not premised upon a disputed assessment.
There is no need for a prior application for refund or credit, if the refund is
merely a consequence of the resolution of the BIRs denial of a protested
assessment.
credit ?
!61
SUGGESTED ANSWER: Systras claim for refund should be
denied. Once the carry over option was made, actually or constructively,
it became forever irrevocable regardless of whether the excess tax credits
were actually or fully utilized Under Section 76 of the Tax Code, a claim
for refund of such excess credits can no longer be made. The excess
credits will only be applied against income tax due for the taxable
quarters of the succeeding taxable years.
Despite the denial of its claim for refund, Systra does not lose the
unapplied tax credits. The amount will not be forfeited in favor of the
government but will remain in the taxpayers account. Petitioner may
claim and carry it over in the succeeding taxable years, creditable against
future income tax liabilities until fully utilized. (Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007 citing
Philam Asset Management, Inc. v. Commissioner of Internal Revenue, G.R. Nos.
156637/162004, 14 December 2005, 477 SCRA 761)
credit..
SUGGESTED ANSWER:
There are unmistakable formal and
practical differences between the two modes. Formally, a tax refund
requires a physical return of the sum erroneously paid by the taxpayer,
while a tax credit involves the application of the reimbursable amount
against any sum that may be due and collectible from the taxpayer.
On the practical side, the taxpayer to whom the tax is refunded
would have the option, among others, to invest for profit the returned sum,
an option not proximately available if the taxpayer chooses instead to
receive a tax credit. (Commissioner of Customs v. Philippine Phosphate Fertilizer
Corporation, G. R. No. 144440, September 1, 2004)
!62
On the above
!63
In case the articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs. (Sec. 1202, TCCP)
The Bureau of Customs loses jurisdiction to enforce the TCCP and to make
seizures and forfeitures after importation is deemed terminated.
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No. 134114, July 6,
2001)
5. Special customs duties are additional import duties
imposed on specific kinds of imported articles under certain
conditions. The special customs duties under the Tariff and Customs
Code (TCCP) are the anti-dumping duty, the countervailing duty, the
discriminatory duty, and the marking duty, and under the Safeguard
Measures Act (SMA) additional tariffs as safeguard measures.
6.
The special customs duties are imposed for the
protection of consumers and manufacturers, as well as
Philippine products.
7.
Dumping duty is an additional special duty
amounting to the difference between the export price and the
normal value of such product, commodity or article (Sec. 301 (s)
(1), TCC, as amended by
2.
!64
SUGGESTED ANSWER: The anti-dumping duty is imposed
a. Where a product, commodity or article of commerce is exported
into the Philippines at a price less than its normal value when destined for
domestic consumption in the exporting country,
b. and such exportation is causing or is threatening to cause
material injury to a domestic industry, or materially retards the
establishment of a domestic industry producing the like product. [Sec. 301
(a), TCC, as amended by Rep. Act No. 8752, Anti-Dumping Act of 1999]
9.
Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product,
commodity, or article in the ordinary course of trade when destined for
consumption in the country of export. [Sec. 301 (s) (3 ), TCC, as amended
by Rep. Act No. 8752, Anti-Dumping Act of 1999]
12. In the determination of whether to impose the antidumping duty, the Tariff Commission, may consider among
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and other
related local industries. (Sec. 301 (a), TCC, as amended by Rep. Act No.
SUGGESTED ANSWER:
Countervailing duties are additional
customs duties imposed on any product, commodity or article of commerce
which is granted directly or indirectly by the government in the country of
origin or exportation, any kind or form of specific subsidy upon the
production, manufacture or exportation of such product commodity or
article, and the importation of such subsidized product, commodity, or
article has caused or threatens to cause material injury to a domestic
industry or has materially retarded the growth or prevents the establishment
of a domestic industry. (Sec. 302, TCCP as amended by Section 1, R.A.
No. 8751)
13.
The amount of anti-dumping duty that may be
imposed is the difference between the export price and the
normal value of such product, commodity or article. (Sec. 301 (s)
(1), TCC, as amended by Rep. Act No. 8752, Anti-Dumping Act of 1999)
duty.
!65
21.
The President of the Philippines imposes the
discriminatory duties.
22.
24.
9135)
a.
b.
c.
28.
Law ?
!66
a.
fraudulently imports or brings into the country any article
contrary to law;
b.
assists in so doing any article contrary to law; or
c.
receives, conceals, buys, sells or in any manner facilitates
the transportation, concealment or sale of such goods after importation,
knowing the same to have been imported contrary to law. (Jardeleza v.
People, G.R. No. 165265, February 6, 2006 citing Rodriguez v. Court of
Appeals, G. R. No. 115218, September 18, 1995, 248 SCRA 288, 296)
NOTES AND COMMENTS:
a.
Importation consists of bringing an article into the country
from the outside. Importation begins when the conveying vessel or
aircraft enters the jurisdiction of the Philippines with intention to unload
therein.
b.
When unlawful importation is complete. In the absence
of a bona fide intent to make entry and pay duties when the prohibited
article enters the Philippine territory. Importation is complete when the
taxable, dutiable commodity is brought within the limits of the port of entry.
Entry through a custom house is not the essence of the act. (Jardeleza v.
People, G.R. No. 165265, February 6, 2006)
SUGGESTED ANSWER:
a.
Regional Trial Courts have no jurisdiction to replevin a
property which is subject to seizure and forfeiture proceedings for violation
of the Tariff and Customs Code otherwise, actions for forfeiture of property
for violation of the Customs laws could easily be undermined by the simple
device of replevin. (De la Fuente v. De Veyra, et al., 120 SCRA 455)
b.
The doctrine of exclusive customs jurisdiction over customs
cases to the exclusion of the RTCs is anchored upon the policy of placing
no unnecessary hindrance on the governments drive, not only to prevent
smuggling and other frauds upon Customs,
c.
but more importantly, to render effective and efficient the
collection of import and export duties due the State, which enables the
government to carry out the functions it has been instituted to perform.
(Jao, et al., v. Court of Appeals, et al., and companion case, 249 SCRA 35,
43)
d.
The issuance by regular courts of writs of preliminary
injunction in seizure and forfeiture proceedings before the Bureau of
Customs may arouse suspicion that the issuance or grant was for
consideration other than the strict merits of the case. (Zuno v. Cabredo,
402 SCRA 75 [2003])
e. Under the doctrine of primary jurisdiction, the Bureau of Customs
has exclusive administrative jurisdiction to conduct searches, seizures and
forfeitures of contraband without interference from the courts. It could
conduct searches and seizures without need of a judicial warrant except if
the search is to be conducted in a dwelling place.
Where an administrative office has obtained a technical expertise in
a specific subject, even the courts must defer to this expertise.
!67
NOTES AND COMMENTS: The Bureau of Customs could search
and seize articles without need of a judicial warrant unless the place to be
searched is a dwelling place. In such a case customs requires a judicial
warrant.
SUGGESTED ANSWER: No. His remedy was not with the RTC
but with the CTA, as issues of ownership of goods in the custody of
customs officials are within the power of the CTA to determine.
The Collector of Customs has exclusive jurisdiction over seizure
and forfeiture proceedings and trial courts are precluded from assuming
cognizance over such matters even through petitions for certiorari,
prohibition or mandamus.
(Commissioner of Customs v. Court of
Appeals, et al., G. R. Nos. 111202-05, January 31, 2006)
the release of the property for legitimate use, the Collector shall, with the
approval of the Commissioner of Customs, surrender it upon the filing of a
cash bond, in an amount fixed by him, conditioned upon the payment of
the appraised value of the article and/or any fine, expenses and costs
which may be adjudged in the case: Provided, That such importation
shall not be released under any bond when there is prima facie
evidence of fraud in the importation of the article: Provided, further,
That articles the importation of which is prohibited by law shall not be
released under any circumstances whatsoever: Provided, finally, That
nothing in this section shall be construed as relieving the owner or
importer from any criminal liability which may arise from any violation of
law committed in connection with the importation of the article. (emphasis
supplied)
There is fraud;
The importation is absolutely prohibited, or
The release of the property would be contrary to law.
(Transglobe International, Inc. v. Court of Appeals, et al., G.R. No. 126634, January
25, 1999)
39.
In Aznar v. Court of Tax Appeals, 58 SCRA 519, reiterated in
Farolan, Jr. v. Court of Tax appeals, et al., 217 SCRA 298, the Supreme
Court clarified that the fraud contemplated by law must be actual
and not constructive. It must be intentional, consisting of deception,
willfully and deliberately done or resorted to in order to induce another to
give up some right.
40.
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or delivery
by the same person of any invoice, letter or paper all touching on the
importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or paper;
and
c.
an intention on the part of the importer/consignee to evade the
payment of the duties due. (Republic, etc., v. The Court of Appeals, et al.,
G.R. No. 139050, October 2, 2001)
!68
44.
Decisions of the Commissioner of Customs
in cases involving liability for customs duties, fees or other
money charges that must be appealed to the Court of Tax
Appeals Division within thirty (30) days from receipt specifically
refer to his decisions on administrative tax protest cases, as stated in
Section 2402 of the Tariff and Customs Code of the Philippines (TCCP):
Section 2402. Review by Court of Tax Appeals.
The party aggrieved by a ruling of the Commissioner
in any matter brought before him upon protest or by
his action or ruling in any case of seizure may appeal to
the Court of Tax Appeals, in the manner and within the
period prescribed by law and regulations.
Unless an appeal is made to the Court of Tax Appeals in the
manner and within the
period prescribed by laws and regulations, the
action or ruling of the Commissioner shall be f i n a l a n d c o n c l u s i v e .
[Emphasis supplied.] (Pilipinas Shell Petroleum Corporation v. Commissioner
of Customs, G. R. No. 176380, June 18, 2009)
47.
The following letters of demand can not be
considered as a liquidation or an assessment of Shells import
tax liabilities that can be the subject of an administrative tax
!69
a.
the One Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center (the Center) November 3 letter, signed by the Secretary
of Finance, informing it of the cancellation of the Tax Credit Certificates
(TCCs);
b.
the Commissioner of Customs November 19 letter requiring
Shell to replace the amount equivalent to the amount of the cancelled
TCCs used by Shell; and
c.
the Commissioner of Customs collection letters, issued
through Deputy Commissioner Atty. Valera, formally demanding the
amount covered by the cancelled TCCs.
None of these letters, however, can be considered as a liquidation
or an assessment of Shells import tax liabilities that can be the subject of
an administrative tax protest proceeding before the respondent whose
decision is appealable to the CTA. Shells import tax liabilities had long
been computed and ascertained in the original assessments, and Shell
paid these liabilities using the TCCs transferred to it as payment.
It is even an error to consider the letters as a reassessment
because they refer to the same tax liabilities on the same importations
covered by the original assessments. The letters merely reissued the
original assessments that were previously settled by Shell with the use of
the TCCs. However, on account of the cancellation of the TCCs, the tax
liabilities of Shell under the original assessments were considered unpaid;
hence, the letters and the actions for collection.
When Shell went to the CTA, the issues it raised in its petition were
all related to the fact and efficacy of the payments made, specifically the
genuineness of the TCCs; the absence of due process in the enforcement
of the decision to cancel the TCCs; the facts surrounding the fraud in
originally securing the TCCs; and the application of estoppel. These are
payment and collection issues, not tax protest issues within the CTAs
jurisdiction to rule upon.
Shell never protested the original assessments of its tax liabilities
and in fact settled them using the TCCs. These original assessments,
therefore, have become final, incontestable, and beyond any subsequent
protest proceeding, administrative or judicial, to rule upon.
To be very precise, Shells petition before the CTA principally
questioned the validity of the cancellation of the TCCs a decision that
was made not by the Commissioner of Customs, but by the Center. As
the CTA has no jurisdiction over decisions of the Center, Shells remedy
against the cancellation should have been a certiorari petition before the
regular courts, not a tax protest case before the CTA. Records do not
show that Shell ever availed of this remedy.
Alternatively, as held in Shell v. Republic of the Philippines, G.R.
No. 161953, March 6, 2008, 547 SCRA 701, the appropriate forum for
Shell under the circumstances of this case should be at the collection
cases before the RTC where Shell can put up the fact of its payment as a
defense. (Pilipinas Shell Petroleum Corporation v. Commissioner of
Customs, G. R. No. 176380, June 18, 2009)
48.
A case becomes ripe for filing with the
Regional Trial Court (RTC), as a collection matter after the
finality of the Commissioner of Customs assessment. (Pilipinas
Shell Petroleum Corporation v. Commissioner of Customs, G. R. No. 176380,
June 18, 2009 citing Shell v. Republic of the Philippines, G.R. No. 161953, March
6, 2008, 547 SCRA 701)
The assessment has long been final, and this recognition of finality
removes all perceived hindrances, based on this case, to the continuation
of the collection suits.
A suit for the collection of internal revenue taxes, where the
assessment has already become final and executory, the action to collect
is akin to an action to enforce the judgment. No inquiry can be made
therein as to the merits of the
In light of the conclusion that the present case does not involve a
decision of the Commissioner of Customs on a matter brought to him as a
tax protest, Atty. Valeras lack of authority to issue the collection letters
and to institute the collection suits is irrelevant. For this same reason, the
injunction against Atty. Valera cannot be invoked to enjoin the collection of
unpaid taxes due from Shell. (Pilipinas Shell Petroleum Corporation v.
Commissioner of Customs, supra)
!70
4.
The Local Government Code explicitly authorizes
provinces and cities, notwithstanding any exemption granted
by any law or other special law to impose a tax on businesses
enjoying a franchise. Indicative of the legislative intent to carry out the
5.
Philippine Long Distance Telephone Company, Inc.,
v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001,
6.
b.
each local government unit will have its fair share of available
resources;
c.
the resources of the national government will be unduly
disturbed; and
d.
local taxation will be fair, uniform and just. (Manila Electric
Company v. Province of Laguna, et al., G.R. No. 131359, May 5, 1999)
8.
No. 166408, October 6, 2008 citing City Government of Quezon City, et al. v.
Bayan Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA
169 in turn referring to Mactan Cebu International Airport Authority, v. Marcos,
G.R. No. 120082, September 11, 1996, 261 SCRA 667, 680)
9.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general
power to levy taxes and otherwise create sources of revenue. They no
longer have to wait for a statutory grant of these powers. The power of
the legislative authority relative to the fiscal powers of local governments
has been reduced to the authority to impose limitations on municipal
powers. Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5 is thus
to reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of municipal corporations.
It is understood, however, that taxes imposed by local government must
be for a public purpose, uniform within a locality, must not be confiscatory,
and must be within the jurisdiction of the local unit to pass. (Quezon City,
et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008
citing City Government of Quezon City, et al. v. Bayan Telecommunications, Inc.,
G.R. No. 162015, March 6, 2006, 484 SCRA 169)
!71
has the inherent power to tax, which includes the power to grant tax exemptions.
On the other hand, the power of local governments, such as provinces and cities
for example Quezon City, to tax is prescribed by Section 151 in relation to Section
137 of the LGC which expressly provides that notwithstanding any exemption
granted by any law or other special law, the City or a province may impose a
franchise tax. It must be noted that Section 137 of the LGC does not prohibit
grant of future exemptions.
11.
Professional tax may be imposed by a
province or city but not by a municipality or barangay.
a.
Transaction taxed: Exercise or practice of profession requiring
government licensure examination.
b.
Tax rate: In Accordance with a taxing ordinance which should
not exceed P300.00.
c.
Tax base: Reasonable classification by the sanggunian.
d.
Exception: Payment to one province or city no longer subject
to any other national or local tax, license or fee for the practice of such
profession in any part of the Philippine professionals exclusively employed
in the government.
e.
Date of payment: or on before January 31 or engaging in the
profession.
f.
Place of payment: Province or city where the professional
practices his profession or where he maintains his principal office in case
he practices his profession in several places.
12.
Requirements:
Any individual or corporation
employing a person subject to professional tax shall require payment by
that person of the tax on his profession before employment and annually
thereafter.
13.
SUGGESTED ANSWER:
The professionals subject to the
professional tax are only those who have passed the bar examinations, or
any board or other examinations conducted by the Professional Regulation
Commission (PRC). for example, a lawyer who is also a Certified Public
Accountant (CPA) must pay the professional tax imposed on lawyers and
that fixed for CPAs, if he is to practice both professions. [Sec. 238 (f), Rule
XXX, Rules and Regulations Implementing the Local Government Code of
1991]
!72
Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise.
X City, is authorized under the Local Government Code, to impose a
tax on business, which is defined under the Code as trade or commercial
activity regularly engaged in as a means of livelihood or with a view to
profit. By its very nature a condominium corporation is not engaged in
business, and any profit that it derives is merely incidental, hence it may not
be subject to business taxes. (Yamane , etc. v. BA Lepanto Condominium
Corporation, G. R. No. 154993, October 25, 2005)
its actual use. (Allied Banking Corporation, etc., v. Quezon City Government, et
1.
a.
Appraisal at current and fair market value;
b.
Classification for assessment on the basis of actual use;
c.
Assessment on the basis of uniform classification;
d.
Appraisal, assessment, levy and collection shall not be let to a
private person;
e.
Appraisal and assessment shall be equitable.
NOTES AND COMMENTS: Real properties shall be appraised at
the current and fair market value prevailing in the locality where the
property is situated and classified for assessment purposes on the basis of
2.
The reasonable market value is determined by the
assessor in the form of a schedule of fair market values.
The schedule is then enacted by the local sanggunian.
3.
Fair market value is the price at which a property
may be sold by a seller who is not compelled to sell and bought
by a buyer who is not compelled to buy, taking into consideration all
4.
Approaches in estimating the fair market value of
real property for real property tax purposes ?
a.
Sales Analysis Approach. The sales price paid in actual
market transactions is considered by taking into account valid sales data
accumulated from among the Registrar of Deeds, notaries public,
appraisers, brokers, dealers, bank officials, and various sources stated
under the Local Government Code.
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b.
Income Capitalization Approach. The value of an incomeproducing property is no more than the return derived from it. An analysis
of the income produced is necessary in order to estimate the sum which
might be invested in the purchase of the property.
c.
Reproduction cost approach is a formal approach used
exclusively n appraising man-made improvements such as buildings and
other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the
data gathered to arrive at the estimated fair market value to be included in
the ordinance containing the schedule of fair market values.
(Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005 citing Local Assessment Regulations No. 1-92)
d.
The ordinance would result to real property assessments
more than once every three (3) years and that is not the congressional
intent as shown in the provisions of the Local Government Code and the
regulations. Consequently, the real property tax burden should not be
interpreted to include those beyond what the Code or the regulations
expressly clearly state.
e.
The proviso would provide a chilling effect on real property
owners or administrators to enter freely into contracts reflecting the
increasing value of real properties in accordance with prevailing market
conditions.
While the Local Government Code provides that the assessment of
real property shall not be increased once every three (3) years, the
questioned proviso subjects the property to a higher assessment every time
a sales transaction is made.
Real property owners would therefore
postpone sales until after the lapse of the three (3) year period, or if they do
so within the said period they shall be compelled to dispose of the property
at a price not exceeding the last prior conveyance in order to avoid a higher
tax assessment.
In the above two scenarios real property owners are effectively
prevented from obtaining the best price possible for their properties and
unduly hampers the equitable distribution of wealth.
(Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126, October 11,
2005)
Personal property under the civil law may be considered as real property for
purposes of taxes where the property is essential to the conduct of the
business.
a.
Underground tanks are essential to the conduct of the
business of a gasoline station without which it would not be operational.
(Caltex Phils., Inc. v. Central Board of Assessment Appeals, et al., 114 SCRA 296)
b.
Light Rail Transit (LRT) improvements such as buildings,
carriageways, passenger terminals stations, and similar structures do not
form part of the public roads since the former are constructed over the latter
in such a way that the flow of vehicular traffic would not be impaired. The
carriageways and terminals serve a function different from the public roads.
Furthermore, they are not open to use by the general public hence not
exempt from real property taxes. E v e n g r a n t i n g t h a t t h e n a t i o n a l
government owns the carriageways and terminal stations, the property is
not exempt because their beneficial use has been granted to LRTA a
taxable entity. (Light Rail Transit Authority v. Central Board of Assessment
Appeals, et al., G. R. No. 127316, October 12, 2000)
c.
Barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied
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fuel oil to the power plant barges, and the accessory equipment mounted
on the barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that [d]ocks and
structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast are considered immovable
property by destination being intended by the owner for an industry or work
which may be carried on in a building or on a piece of land and which tend
directly to meet the needs of said industry or work. (FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and companion case)
7.
Unpaid realty taxes attach to the property and is
chargeable against the person who had actual or beneficial use
and possession of it regardless of whether or not he is the
owner. To impose the real property tax on the subsequent owner which
was neither the owner not the beneficial user of the property during the
designated periods would not only be contrary to law but also unjust.
Consequently, MERALCO the former owner/user of the property
was required to pay the tax instead of the new owner NAPOCOR. (Manila
Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
9.
Public hearings are mandatory prior to approval of
tax ordinance, but this still requires the taxpayer to adduce evidence to
show that no public hearings ever took place. (Reyes, et al., v. Court of
Appeals, et al., G.R. No. 118233, December 10, 1999) Public hearings are
required to be conducted prior to the enactment of an ordinance imposing
real property taxes. (Figuerres v. Court of Appeals, et al., G.R. No. 119172, March
25, 1999)
13.
FELS Energy, Inc., had a contract to supply
NPC with the electricity generated by FELS power barges. The
contract also stated that NPC shall be responsible for all real
estate taxes and assessments.
FELS then received an
assessment of real property taxes on its power barges from the
Provincial Assessor of Batangas.
If filed a motion for
reconsideration with the Provincial Assessor.
a.
Upon denial, FELS elevated the matter to the Local
Board of Assessment Appeals (LBAA), where it raised the
following issues:
1)
Since NPC is tax-exempt then FELs should
also be tax-exempt because of its contract with NPC.
2)
The power barges are not real property subject
to real property taxes.
b.
Upon the other hand the Local Treasurer insists that
the assessment has attained a state of finality hence the appeal
to the LBAA should be dismissed.
Rule on the conflicting contentions.
SUGGESTED ANSWER:
a.
All the contentions of FELS are without merit:
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1)
NPC is not the owner of the power barges nor the
operator of the power barges. The tax exemption privilege granted
to NPC cannot be extended to FELS. the covenant is between NPC
and FELs and does not bind a third person not privy to the contract
such as the Province of Batangas.
2)
The Supreme Court of New York in Consolidated
Edison Company of New York, Inc., et al., v. The City of New York,
et al., 80 Misc. 2d 1065 (1975) cited in FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and
companion case, held that barges on which were mounted gas
turbine power plants designated to generate electrical power, the fuel
oil barges which supplied fuel oil to the power plant barges, and the
accessory equipment mounted on the barges were subject to real
property taxes.
Moreover, Article 415(9) of the Civil Code provides that
[d]ocks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake or coast
are considered immovable property by destination being intended by
the owner for an industry or work which may be carried on in a
building or on a piece of land and which tend directly to meet the
needs of said industry or work.
b.
The Treasurer is correct. The procedure do not allow a
motion for reconsideration to be filed with the Provincial Assessor.
To allow the procedure would indeed invite corruption in the system
of appraisal and assessment. it conveniently courts a graft-prone situation
where values of real property ay be initially set unreasonably high, and then
subsequently reduced upon the request of a property owner. In the latter
instance, allusions of possible cover, illicit trade-off cannot be avoided, and
in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system. (FELS Energy, Inc., v. Province of
Batangas, G. R. No. 168557, February 16, 2007 and companion case)
14.
A special levy or special assessment is an
imposition by a province, a city, a municipality within the
Metropolitan Manila Area, a municipality or a barangay upon real
collected the tax must be paid under protest, and the issue of legality may
be raised to the proper courts on certiorari without need of exhausting
administrative remedies.
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entitled to such reduction or readjustment, who must decide within sixty
(60) days from receipt.
b.
The denial by the local treasurer of the protest would fall
within the Regional Trial Courts original jurisdiction, the review being the
initial judicial cognizance of the matter. Despite the language of Section
195 of the Local Government Code which states that the remedy of the
taxpayer whose protest is denied by the local treasurer is to appeal with
the court of competent jurisdiction, labeling the said review as an exercise
of appellate jurisdiction is inappropriate since the denial of the protest is not
the judgment or order of a lower court, but of a local government official.
(Yamane , etc. v. BA Lepanto Condominium Corporation, G. R. No. 154993,
October 25, 2005)
c.
The decision of the Regional Trial Court should be appealed
by means of a petition for review directed to the Court of Tax Appeals
(Division).
d.
The decision of the Court of Tax Appeals (Division) may be the
subject of a review by the Court of Tax Appeals (en banc).
e.
The decision of the Court of Tax Appeals (en banc) may be
the subject of a petition for review on certiorari on pure questions of law
directed to the Supreme Court.
20.
Charitable institutions, churches and
parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings and improvements
that are actually, directly and exclusively used for religious,
charitable or educational purposes are exempt from taxation.
[Sec.28 (3) Article VI, 1987 Constitution]
21.
The constitutional tax exemptions refer only to
real property that are actually, directly and exclusively used for religious,
23.
which the charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property is used
for tax-exempt purposes.
If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purpose but is subject to taxation,. The
words dominant use or principal use cannot be substituted for the words
used exclusively without doing violence to the Constitution and the law.
Solely is synonymous with exclusively. (Lung Center of the Philippines v.
Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
25.
As a general principle, a charitable institution does
not lose its character as such and its exemption from taxes
simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives
subsidies from the government. So long as the money received is
devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons
managing or operating the institution. (Lung Center of the Philippines v.
Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
26.
Property that are exempt from the payment of
real property tax under the Local Government Code.
a.
Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has been
granted to a taxable person for a consideration or otherwise;
b.
Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries, and all
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lands, buildings and improvements actually, directly and exclusively used
for religious, charitable and educational purposes;
c.
Machineries and equipment, actually, directly and exclusively
used by local water districts; and government owned and controlled
corporations engaged in the supply and distribution of water and generation
and transmission of electric power;
d.
Real property owned by duly registered cooperatives;
e.
Machinery and equipment used for pollution control and
environmental protection.
SUGGESTED ANSWERS:
a.
There is no need to exhaust administrative remedies as the
appeal to the LBAA is not a speedy and adequate remedy within the law.
This is so because the properties are already scheduled for auction sale.
Furthermore one of the recognized exceptions to the rule on
exhaustion is that if the issue is purely legal in character which is so in
this case.
b.
The properties are exempt from taxation. The grant of taxing
powers to local governments under the Constitution and the Local
Government Code does not affect the power of Congress to grant tax
exemptions.
The term exclusive of this franchise is interpreted to mean
properties actually, directly and exclusively used in the radio or
telecommunications business. The subsequent piece of legislation which
reiterated the phrase exclusive of this franchise found in the previous tax
exemption grant to the company is an express and real intention on the
part of Congress to once against remove from the LGCs delegated taxing
power, all of the companys properties that are actually, directly and
exclusively used in the pursuit of its franchise. (The City Government of
Quezon City, et al., v. Bayan Telecommunications, Inc., G. R. No.
162015, March 6, 2006)
29.
The owner operator of a BOT and not the
ultimate owner is subject to real property taxes. Consistent with
the BOT concept and as implemented, BPPC the owner-manageroperator of the project is the actual user of its machineries and
equipment.
BPPCs ownership and use of the machineries and
equipment are actual, direct, and immediate, while NAPOCORs is
contingent and, at this stage of the BOT Agreement, not sufficient to
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support its claim for tax exemption. (National Power Corporation v. Central
Board of Assessment Appeals, et al., G, R. No. 171470, January 30, 2009)
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT