Professional Documents
Culture Documents
TAXATI0N
With selected Supreme Court decisions
up to May 10, 2009
VER: 09.05.12
by
ABELARDO T. DOMONDON
How to use the Notes: These Notes in the form of
textual materials and representative review questions were
specially prepared by Prof. Domondon for the exclusive
use of Bar Candidates who attended his 2009 lectures on
Taxation, and others he has personally authorized.
The purpose of these Notes is to test the candidates
ability to answer probable questions that may be asked in the
September 33, 2009 Bar Examinations in Taxation. The last
version to be released is Ver. 09.08.17 which may
substantially alter the contents of this Ver. 09.05.12 Be sure
to secure the last version to replace this version.
DO NOT MEMORIZE the suggested answers. Some of
the answers were purposely made to be lengthy in order to
serve as explanatory devices. This is so because you do not
have time anymore to refer back to your review materials.
The materials are arranged in accordance with the bar
examination coverage. The actual bar questions may not be
so arranged. Likewise, these Notes are only indicative of the
1.
2.
Why are tax exemptions are strictly construed
against the taxpayer and liberally in favor of the State ?
SUGGESTED ANSWER:
continued existence of the State.
3.
Taxes are what civilized people pay for civilized society. They are
the lifeblood of the nation. Thus, statutes granting tax exemptions
are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of tax exemption must be
clearly shown and based on language in law too plain to be
mistaken. Otherwise stated, taxation is the rule, exemption is the
exception. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G.
R. No. 166408, October 6, 2008 citing Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA
667, 680) The burden of proof rests upon the party claiming the
4.
Rationale for strict interpretation of tax
exemption laws. The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to
minimize differential treatment and foster impartiality, fairness and
equality of treatment among taxpayers. (Quezon City, et al., v. ABSCBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008) He
who claims an exemption from his share of common burden must
justify his claim that the legislature intended to exempt him by
unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the
clearest and most unambiguous language and not left to mere
implications. It has been held that exemptions are never presumed
the burden is on the claimant to establish clearly his right to
exemption and cannot be made out of inference or implications but
must be laid beyond reasonable doubt. In other words, since
6.
?
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be
7.
It is said that taxes are the lifeblood of the
government and any delay in its collection would impair
the rendition of government services. May the collection
of taxes be restrained by a court ?
SUGGESTED ANSWER: 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)
However, the Court of Tax Appeals is empowered to enjoin
the collection of taxes through administrative remedies when
collection could jeopardize the interest of the government or
taxpayer. (Sec. 11, Rep. Act No. 1125)
8.
What are the grounds and procedure for
suspension of collection of taxes ?
3
SUGGESTED ANSWER: Where the collection of the amount
of the taxpayers liability, sought by means of a demand for
payment, by levy, distraint or sale of property of the taxpayer, or by
whatever means, as provided under existing laws, may jeopardize
the interest of the government or the taxpayer, an interested party
may file a motion for the suspension of the collection of the tax
liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with
the Court of Tax Appeals.
The motion for suspension of the collection of the tax may be
filed together with the petition for review or with the answer, or in a
separate motion filed by the interested party at any stage of the
proceedings. (Sec. 3, Rule 10, RRCTA effective December 15,
2005)
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 citing Lutz v. Araneta, 98
Phil. 148, 152 (1955); in turn citing Great Atl. & Pac. Tea Co. v.
Grosjean, 302 U.S. 412; U.S. v. Biutler, 297 U.S. 1; McCulloch v.
Maryland, 4 Wheaton 316] The reader should note that the August
3, 2005 Southern Cross case is the decision on the motion for
reconsideration of the July 8, 2004 Southern Cross decision.
The so-called sin taxes on alcohol and tobacco
manufacturers help dissuade the consumers from excessive intake
of these potentially harmful products. (Southern Cross Cement
Corporation v. Cement Manufacturers Association of the Philippines,
et al., G. R. No. 158540, August 3, 2005)
10. Explain the compensatory purpose of taxation.
SUGGESTED ANSWER: The compensatory purpose of
taxation is to implement the social justice provisions of the
constitution through the progressive system of taxation, which would
result to equal distribution of wealth, etc.
Progressive income taxes alleviate the margin between rich
and poor.
(Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No.
158540, August 3, 2005)
4
These considerations necessitated the evolution of taxation as
a distinct legal concept from police power. (Southern Cross Cement
Corporation, supra)
If the question asks for an enumeration of the distinctions
between the power of taxation and police power, the candidate
should reformulate no. 17 above.
13.
What is the
Adjustment Act ?
1.
5
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.
3.
4.
SUGGESTED ANSWER:
Locus standi is a right of
appearance in a court of justice on a given question. (Abaya v.
Ebdane, G. R. No. 167919, February 14, 2007)
It is a partys personal and substantial interest in the case,
such that the party has sustained or will sustain (Ibid.)direct injury as
a result of the government act being challenged. It calls for more
than just a generalized grievance.
A party need not be a party to the contract to challenge its
validity. (Ibid.)
5.
6.
7.
8.
What are the requirements that
must be met before taxpayers, concerned citizens and
legislators may be accorded standing to sue ?
SUGGESTED ANSWER:
a. The case should involve constitutional issues;
b. For taxpayers, there must be a claim of illegal
disbursement of public funds or that the tax measure is
unconstitutional.
c. For voters, there must be a showing of obvious interest
in the validity of the election law in question.
d. For concerned citizens, there must be a showing that
the issues raised are of transcendental importance which must be
settled early.
e. For legislators, there must be a claim that the official
action complained of infringes upon their prerogatives as legislators.
6
(David, et al., v. President Gloria Macapagal-Arroyo, etc., et al., G.
R. No. 171396, May 3, 2006)
9.
10.
7
Zone to other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines. (Ibid.)
8
15. The place that gives protection is the place that has
the right to demand that it be supported in the form of taxes so
it could continually give protection.
16. The situs of real property taxes is the place where
the property is located because it is that place that gives
protection. The applicable concept is lex situs or lex rei sitae.
17. The situs of taxation of tangible personal property
is the place where the owner is located because it is that place
that gives protection to the owner which protection extends to the
tangible personal property. The applicable concept is mobilia
sequuntur personam.
18. Intangible personal property may have obtained a
business situs in a particular place even if located elsewhere.
Thus, the dividends earned from domestic corporations are
considered as income from within, irrespective where the shares of
stock of such domestic corporation is located.
19. The situs of income taxation is determined by the
nationality, residence of the taxpayer and source of income.
Please refer to general principles of income taxation under income
taxation.
20. The situs of excise taxes is the place where the
privilege is exercised because it is that place that gives
protection.
21. The situs of transfer taxes, such as estate and
donors taxes, is determined by the nationality and residence of
the taxpayer and the place where the property is located.
Please refer to estate and donors taxes.
9
Internal Revenue, 121 Phil. 579; 13 SCRA 601 (1965) cited in BaierNickel)
24.
a.
By adding the qualification that the tax due after the
12% increase becomes effective shall not be lower than the tax
actually paid prior to 1 January 2000, Revenue Regulation No. 17-99
effectively imposes a tax which is the higher amount between the ad
valorem tax being paid at the end of the three (3)-year transition
period and the specific tax under paragraph C, sub-paragraph (1)(4), as increased by 12%a situation not supported by the plain
wording of Section 145 of the Tax Code. (Commissioner of Internal
Revenue v. Fortune Tobacco Corporation, G. R. Nos. 167274-75, July 21,
2008)
c.
The tax authorities gave the term tax credit in
Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly
disparate from what R.A. No. 7432 provides. Their interpretation
muddled up the intent of Congress to grant a mere discount privilege
and not a sales discount. The Court, striking down the revenue
regulation, held that an administrative agency issuing regulations
may not enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional requirements not
contemplated by the legislature. (Ibid., Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, 15 April
2005, 456 SCRA 414)
d.
Commissioner
Jose
Ong
issued
Revenue
Memorandum Order (RMO) No. 15-91, as well as the clarificatory
Revenue Memorandum Circular (RMC) 43-91, imposing a 5%
lending investors tax under the 1977 Tax Code, as amended by
Executive Order (E.O.) No. 273, on pawnshops. The Commissioner
anchored the imposition on the definition of lending investors
provided in the 1977 Tax Code which, according to him, was broad
enough to include pawnshop operators. However, the Court noted
that pawnshops and lending investors were subjected to different tax
10
treatments under the Tax Code prior to its amendment by the
executive order; that Congress never intended to treat pawnshops in
the same way as lending investors; and that the particularly involved
section of the Tax Code explicitly subjected lending investors and
dealers in securities only to percentage tax. And so the Court
affirmed the invalidity of the challenged circulars, stressing that
administrative issuances must not override, supplant or modify the
law, but must remain consistent with the law they intend to carry
out. (Ibid., citing Commissioner of Internal Revenue v. Michel J. Lhuillier
Pawnshop, Inc., 453 Phil. 1043 (2003), at 1052 in turn citing Commissioner
of Internal Revenue v. Court of Appeals, G.R. No. 108358, 20 January
1995, 240 SCRA 368, 372; Romulo, Mabanta, Buenaventura, Sayoc & De
los Angeles v. Home Development Mutual Fund, G.R. No. 131082, 19 June
2000; 333 SCRA 777, 786)
e.
The then acting Commissioner issued RMC 7-85,
changing the prescriptive period of two years to ten years for claims
of excess quarterly income tax payments, thereby creating a clear
inconsistency with the provision of Section 230 of the 1977 Tax
Code. The Court nullified the circular, ruling that the BIR did not
simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress. [Ibid., Philippine Bank of Communications v.
Commissioner of Internal Revenue, 361 Phil. 916 (1999)]
f.
The Supreme Court ruled as invalid RMO 4-87 which
had construed the amnesty coverage under E.O. No. 41 (1986) to
include only assessments issued by the BIR after the promulgation
of the executive order on 22 August 1986 and not assessments
made to that date. The Supreme Court resolved in the negative.
[Ibid., Commissioner of Internal Revenue v. CA, et al., 310 Phil. 392 (1995)]
statute are clear, plain and free from ambiguity, it must be given its
literal meaning and applied without attempted interpretation. (Ibid.)
b.
Administrative regulations must always be in harmony
with the provisions of the law because any resulting discrepancy
between the two will always be resolved in favor of the basic law.
[Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G. R.
Nos. 167274-75, July 21, 2008 citing Landbank of the Philippines v. Court
of Appeals, 327 Phil. 1047, 1052 (1996)]
CONSTITUTIONAL LIMITATIONS
1. What are the constitutional limitations on the power
of taxation ?
SUGGESTED ANSWER:
The general or indirect
constitutional limitations as well as the specific or direct
constitutional limitations.
2.
3.
What are
constitutional limitation ?
the
specific
or
SUGGESTED ANSWER:
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;
direct
11
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,
non-profit 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.
4.
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)
12
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]
5.
What are the requisites for the validity of
a classification ?
SUGGESTED ANSWER: Classification, to be valid, must
(a)
rest on substantial distinctions,
(b)
be germane to the purpose of the law,
(c)
not be limited to existing conditions only, and
(d)
apply equally to all members of the same class. (Tiu, et
al., v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999)
6.
13
While the Constitution does not encourage the unlimited entry
of foreign goods, services and investments into the country, it does
not prohibit them either. In fact, it allows an exchange on the basis
of equality and reciprocity, frowning only in foreign competition that
is unfair. (Coconut Oil Refiners Association, Inc., etc., et al., v.
Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing Tanada v.
Angara, G. R. No. 118295, May 2, 1997, 272 SCRA 18)
8.
Equality and uniformity of taxation may mean the
same as equal protection. In such a case, the terms would mean
that 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.
9.
Uniformity may have a restrictive meaning different
from equality and equal protection. It would mean then that the
same rate shall be imposed for the same subjects and objects within
the territorial boundaries of a taxing authority.
10. It is inherent in the power to tax that the State be
free to select the subjects of taxation, and it has been repeatedly
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)
Party List, etc., supra citing Dorsheimer v. United States, 74 U.S. 166
(1868)]
In the same vein, employees of the BIR and the BOC may by
law be entitled to a reward when, as a consequence of their zeal in
the enforcement of tax and customs laws, they exceed their revenue
targets. Public service is its own reward. Nevertheless, public
officers may by law be rewarded for exemplary and exceptional
performance. A system of incentives for exceeding the set
expectations of a public office is not anathema to the concept of
public accountability. In fact, it recognizes and reinforces dedication
to duty, industry, efficiency and loyalty to public service of deserving
government personnel. (ABAKADA Guro Party List, etc., supra)
14
and child should be affected alike by a statute. Equality of operation
of statutes does not mean indiscriminate operation on persons
merely as such, but on persons according to the circumstances
surrounding them. It guarantees equality, not identity of rights.
The Constitution does not require that things which are
different in fact be treated in law as though they were the same. The
equal protection clause does not forbid discrimination as to things
that are different. It does not prohibit legislation which is limited
either in the object to which it is directed or by the territory within
which it is to operate. [ABAKADA Guro Party List, etc., v. Purisima, etc.,
et al., G. R. No. 166715, August 14, 2008]
15
bibles by a religious sect. Is this valid or violative of the
constitutionally guaranteed freedom of religion ?
SUGGESTED ANSWER: It is not valid because it violates
the constitutionally guaranteed freedom of religion. As a license fee
is fixed in amount and unrelated to the receipts of the taxpayer, such
a license fee, when applied to a religious sect is actually imposed as
a condition for the free exercise of religion. A license fee restrains
in advance those constitutional liberties of press and religion and
inevitably tends to suppress their exercise.
12. A lawful tax on a new subject, or an increased tax
on an old one, does not interfere with a contract or impairs its
obligation, within the meaning of the constitution. Even though
such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may
impose additional burdens upon one class and release the burdens
of another, still the tax must be paid unless prohibited by the
constitution, nor can it be said that it impairs the obligations of any
existing contract in its true and legal sense. (Tolentino v. Secretary
of Finance, et al., and companion cases, 235 SCRA 630)
13. Under the now prevailing Constitution, where there is
neither a grant nor prohibition by statute, the taxing power of
local governments must be deemed to exist although Congress
may provide statutory limitations and guidelines in order to
safeguard the viability and self-sufficiency of local government units
by directly granting them general and broad tax powers. (City
Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No.
127708, March 25, 1999)
16
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.
17
maintenance of a government which retains adequate authority to
secure the peace and good order of society.
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the States power of taxation save only
where a tax exemption has been granted for a valid consideration.
Smart Communications, Inc. v. The City of Davao, etc., et al., G. R.
No. 155491, September 16, 2008 citing Tolentino v. Secretary of
Finance, G. R. No. 115455, August 25, 1994, 235 SCRA 630, 685.
The author opines that since practically all franchises granted to
telecommunications companies are similarly worded that the above
doctrine finds application to the others)
19. When Congress approved a provision that, Any
advantage, favor, privilege, exemption, or immunity granted under
existing franchises, or may hereafter be granted, shall ipso facto
become part of previously granted telecommunications franchises
and shall be accorded immediately and unconditionally to the
grantees of such franchises: Provided, however, That the foregoing
shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life
span of the franchise, or the type of service authorized by the
franchise. (Underscoring supplied) there was no intention for it
to
operate
as
a
blanket
tax
exemption
to
all
telecommunications entities.
Applying the rule of strict
construction of laws granting tax exemptions and the rule that
doubts should be resolved in favor of municipal corporations in
interpreting statutory provisions on municipal taxation, it was held
that said provisions cannot be considered as extending its
application to franchises such as that of PLDT. (Philippine Long
Distance Telephone Company, Inc., v. City of Davao, et al., etc., G.
R. No. 143867, August 22, 2001)
18
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)]
21.
taxation ?
SUGGESTED ANSWER:
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
19
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.
income prior to the application of the tax rate to compute the amount
of tax which is due.
A tax deduction reduces the income that is subject to tax in
order to arrive at taxable income. (Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G. R. No. 159647, April
15, 2005)
27.
The petitioners allege that the R-VAT law
is constitutional because the Bicameral Conference
Committed has exceeded its authority in including
provisions which were never included in the versions of
both the House and Senate such as inserting the stand-by
authority to the President to increase the VAT from 10% to
12%; deleting entirely the no pass-on provisions found in
both the House and Senate Bills; inserting the provision
imposing a 70% limit on the amount of input tax to be
credited against the output tax; and including the
amendments introduced only by Senate Bill No. 1950
regarding other kinds of taxes in addition to the valueadded tax.
Thus, there was a violation of the
constitutional mandate that revenue bills shall originate
exclusively from the House of Representatives.
Are the contentions of such weight as to constitute
grave abuse of discretion which may invalidate the law ?
Explain briefly.
20
28.
OTHER CONCEPTS
1.
What is a tax amnesty ?
SUGGESTED ANSWER: A tax amnesty is a general pardon
or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a
revenue or a tax law.
It partakes of an absolute waiver by the government of its
right to collect what is due it and to give tax evaders who wish to
relent a chance 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 citing Commissioner
of Internal Revenue v. Marubeni Corp., 423 Phil. 862, 874 (2001).
21
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.
c.
Tax evasion warrants the imposition of civil,
administrative and criminal penalties while tax avoidance does not.
5.
What are the reasons why national taxes cannot be
the subject of compensation and set-off with debts ?
SUGGESTED ANSWER:
a.
The lifeblood theory;
b.
Taxes are not contractual obligations but arise out of a
duty to, and are the positive acts of government, to the making and
enforcing of which the personal consent of the individual taxpayer is
not required. (Republic v. Mambulao Lumber Co., 4 SCRA 622)
c.
The government and the taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is no such
debt, demand, contract or judgment as is allowed to be set-off.
(Caltex Philippines, Inc. v. Commission on Audit, 208 SCRA 726,
756)
6.
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)
7.
In case of a tax overpayment, where the BIRs
obligation to refund or set-off arises from the moment the tax
was paid under the principle of solutio indebeti. (Commissioner
of Internal Revenue v. Esso Standard Eastern, Inc, 172 SRCA 364)
22
a.
The above holding should be differentiated from
Philippine Acetylene Co. v. Commissioner of Internal Revenue, 20
SCRA 1056, where the tax exemption did not flow to private entities.
(cited in Abaya v. Ebdane, G. R. No. 167919, February 14, 2007),
and in the following case of Silkair (Singapore) PTE, Ltd., v.
Commissioner of Internal Revenue, G.R. No. 173594, February 6,
2008.
b.
So also, the tax exemption of PAGCOR has already
been withdrawn by Rep. Act No. 9337.
23
(Silkair (Singapore) PTE, Ltd., v. Commissioner of Internal Revenue,
G.R. No. 173594, February 6, 2008)
2.
In Evangelista v. Collector, 102 Phil. 140, the Supreme
Court held citing Mertens that the term partnership includes a
syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial
operation, or venture is carried on.
3. Certain business organizations do not fall under
the category of corporations under the Tax Code, and
therefore not subject to tax as corporations, include:
a. General professional partnerships;
b. Joint venture or consortium formed for the purpose of
undertaking construction projects engaging in petroleum, coal,
geothermal, and other energy operations, pursuant to an operation
or consortium agreement under a service contract with the
st
Government. [1 sentence, Sec. 22 (B), BIRC of 1997]
24
such property and the application of the proceeds therefrom..
(Spurlock v,. Wilson, 142 S.W. 363, 160 No. App. 14, cited in
Pascual v. Commissioner of Internal Revenue, 166 SCRA 560)
14.
If a corporation to which a stockholder is indebted
forgives the debt, the transaction has the effect of payment of a
dividend. (Sec. 50, Rev. Regs. No. 2)
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.
The cancellation and forgiveness of indebtedness
may amount to (a) payment of income; (b) gift; or to a (c) capital
transaction depending upon the circumstances.
10. If an individual performs services for a creditor who, in
consideration thereof, cancels the debt, it is income to the extent of
the amount realized by the debtor as compensation for his services.
11. An insolvent debtor does not realize taxable income
from the cancellation or forgiveness. (Commissioner v. Simmons
Gin Co., 43 Fd 327 CCA 10th)
12. The insolvent debtor realizes income resulting from the
cancellation or forgiveness of indebtedness when he becomes
solvent. (Lakeland Grocery Co., v. Commissioner 36 BTA (F) 289)
13. If a creditor merely desires to benefit a debtor and
without any consideration therefor cancels the amount of the debt it
is a gift from the creditor to the debtor and need not be included in
the latters income.
18.
What are general principles of
income taxation in the Philippines OR the situs of income
taxation in the Philippines OR the source rule of income
taxation as applied in the Philippines ?
SUGGESTED ANSWER:
a.
A citizen of the Philippines residing therein is taxable
on all income derived from sources within and without the
Philippines.
b.
A nonresident citizen is taxable only on income derived
from sources within the Philippines.
c.
An individual citizen of the Philippines who is working
and deriving income from abroad as an overseas contract worker is
taxable only on income from sources within the Philippines:
Provided, That a seaman who is a citizen of the Philippines and who
receives compensation for services rendered abroad as a member
of the complement of a vessel engaged exclusively in international
trade shall be treated as an overseas contract worker.
d.
An alien individual, whether resident or not of the
Philippines, is taxable only on income derived from sources within
the Philippines.
e.
A domestic corporation is taxable on all income derived
from sources within and without the Philippines.
f.
A foreign corporation, whether engaged or not in trade
or business in the Philippines, is taxable only on income derived
from sources within the Philippines. (Sec. 23, NIRC of 1997)
25
19. Compensation income is considered as having
been earned in the place where the service was rendered and
not considered as sourced from the place of origin of the money.
20. Payment for services, other than compensation
income, is considered as having been earned at the place
where the activity or service was performed.
21. A non-resident alien, who has stayed in the Philippines
for an aggregate period of more than 180 days during any calendar
year, shall be considered as a non-resident alien doing business in
the Philippines. Consequently, 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.
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.
The amount of de minimis benefits conforming to the ceiling
herein prescribed shall not be considered in determining the
P30,000 ceiling of other benefits provided under Section 32
(B)(7)(e) of the Code. However, if the employer pays more than the
ceiling prescribed by these regulations, the excess shall be taxable
to the employee receiving the benefits only if such excess is beyond
the P30,000.00 ceiling, provided, further, that any amount given by
the employer as benefits to its employees, whether classified as de
minimis benefits or fringe benefits, shall constitute as deductible
expense upon such employer. [Sec. 2.78.1 (A) (3), Rev. Regs. 2-98
as amended by Rev. Regs. No. 8-2000]
23. Income subject to final tax refers to an income
collected through the withholding tax system. The payor of the
income withholds the tax and remits it to the government as a final
settlement of the income tax as a final settlement of the income tax
due on said income. The recipient is no longer required to include
the income subjected to a final tax as part of his gross income in his
income tax return.
24.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth
to the taxpayer which are not treated as part of gross income for
purposes of computing the taxpayers taxable income, due to the
following reasons: (1) It is exempted by the fundamental law; (2) It
is exempted by statute; and (3) It does not come within the
definition of income (Sec. 61, Rev. Regs. No. 2) WHILE deductions
are the amounts which the law allows to be subtracted from gross
income in order to arrive at net income.
b.
Exclusions pertain to the computation of gross income
WHILE deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the
taxpayer which do not form part of gross income WHILE deductions
are something spent or paid in earning gross income.
An example of an exclusion from gross income are life
insurance proceeds, and an example of a deduction are losses.
25.
26
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum
or otherwise.
b.
Amounts received by the insured as a return of
premiums paid by him under life insurance, endowment or annuity
contracts either during the term, or at maturity of the term mentioned
in the contract, or upon surrender of the contract.
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal
injuries or sickness, plus the amounts of any damages received on
whether by suit or agreement on account of such injuries or
sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No.
7641. Retirement received from reasonable private benefit plan
after compliance with certain conditions. Amounts received for
beyond control separation. Foreign social security, retirement
gratuities, pensions, etc. USVA benefits, SSS benefits and GSIS
benefits.
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.
28.
What are the Itemized deductions from
gross income and who may avail of them ?
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.
27
Resident citizens, resident alien individuals and nonresident
alien individuals who are engaged in trade and business, on their
gross incomes other from compensation income are allowed to
deduct these expenses. Domestic corporations, estates and trusts
may also deduct this expense. Nonresident citizens and foreign
corporations on their gross incomes from within may also deduct this
expense.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
e.
Bad debts due to the taxpayer, actually
ascertained to be worthless and charged off within the taxable year,
connected with profession, trade or business, not sustained between
related parties.
Resident citizens, resident alien individuals and nonresident
alien individuals who are engaged in trade and business, on their
gross incomes other from compensation income are allowed to
deduct these expenses. Domestic corporations, estates and trusts
may also deduct this expense. Nonresident citizens and foreign
corporations on their gross incomes from within may also deduct this
expense.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
f.
Depreciation or a reasonable allowance for the
exhaustion, wear and tear (including reasonable allowance for
obsolescence) of property used in trade or business.
Resident citizens, resident alien individuals and nonresident
alien individuals who are engaged in trade and business, on their
gross incomes other from compensation income are allowed to
deduct these expenses. Domestic corporations, estates and trusts
may also deduct this expense. Nonresident citizens and foreign
corporations on their gross incomes from within may also deduct this
expense.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
g. Depletion or deduction arising from the exhaustion of a
non-replaceable 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.
28
l. Personal and additional exemptions. Resident citizens,
and resident alien on their gross incomes and from compensation
income are allowed to deduct these premiums. Nonresident citizens
on their gross incomes from within may also deduct this expense.
Nonresident alien individuals engaged in trade or business in the
Philippines are allowed to deduct these exemptions under
reciprocity.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
29.
Distinguish ordinary expenses from
capital expenditures.
SUGGESTED ANSWER: Ordinary expenses are those
which are common to incur in the trade or business of the taxpayer
WHILE capital expenditures are those incurred to improve assets
and benefits for more than one taxable year. Ordinary expenses are
usually incurred during a taxable year and benefits such taxable
year. Necessary expenses are those which are appropriate or
helpful to the business.
30.
for
the
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)
The accrual of income and expense is permitted when the allevents test has been met. (Ibid.)
c.
All-events test. This test requires:
1)
fixing of a right to income or liability to pay; and
2)
the availability of the reasonable accurate
determination of such income or liability.
29
The test does not demand that the amount of such income or
liability be known absolutely, only that a taxpayer has at his disposal
the information necessary to compute the amount with reasonable
accuracy.
The all-events test is satisfied where computation remains
uncertain; if its basis is unchangeable, the test is satisfied where a
computation may be unknown, but is not as much as unknowable,
within the taxable year. The amount of liability does not have to be
determined exactly,; it must be determined with reasonable
accuracy implies something less than an exact or completely
accurate amount.
The propriety of an accrual must be judged by the fact that a
taxpayer knew, or could reasonably be expected to have known, at
the closing of its books for the taxable year. Accrual method of
accounting presents largely a question of fact; such that the
taxpayer bears the burden of proof of establishing the accrual of an
item of income or deduction. (Commissioner of Internal Revenue v,
Isabela cultural Corporation, G. R. No. 172231, February 12, 2007)
d. Under the cash method income is to be construed as
income for tax purposes only upon actual receipt of the cash
payment.
It is also referred to as the cash receipts and
disbursements method because both the receipt and disbursements
are considered. Thus, income is recognized only upon actual
receipt of the cash payment but no deductions are allowed from the
cash income unless actually disbursed through an actual payment in
cash.
33.
The fringe benefits tax is a final withholding tax
imposed on the grossed-up monetary value of fringe benefits
furnished, granted or paid by the employer to the employee, except
rank and file employees. [1st par., Sec. 2.33 (A), Rev. Regs. No. 398]
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.
st
[Sec. 33 (B), NIRC of 1997; 1 par., Sec. 2.33 (B), Rev. Regs. No.
3-98]
35. Fringe benefits that are not subject to the fringe
benefits tax:
a.
When the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the employer; or
b.
When the fringe benefit is for the convenience or
st
advantage of the employer. [Sec. 32(A), NIRC of 1997; 1 par.,
Sec. 2.33 (A), Rev. Regs. No. 3-98]
c.
Fringe benefits which are authorized and exempted
from income tax under the Tax Code or under any special law;
d.
Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization benefit plans;
e.
Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not; and
f.
De minimis benefits as defined in the rules and
regulations to be promulgated by the Secretary of Finance upon
recommendation of the Commissioner of Internal Revenue. [1st
par., Sec. 32 (C), NIRC of 1997; Sec. 2.33 (C), Rev. Regs. No. 3-98]
30
deductions from the gross income of corporations. (Revenue
Memorandum Circular No. 17-71)
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.
41.
31
SUGGESTED ANSWER: These are the theoretical persona,
living and family expenses of an individual allowed to be deducted
from the gross or net income of an individual taxpayer.
These are arbitrary amounts which have been calculated by
our lawmakers to be roughly equivalent to the minimum of
subsistence, taking into account the personal status and additional
qualified dependents of the taxpayer. They are fixed amounts in the
sense that the amounts have been predetermined by our lawmakers
and until our lawmakers make new adjustments on these personal
exemptions, the amounts allowed to be deducted by a taxpayer are
fixed as predetermined by Congress. [Pansacola v. Commissioner
of Internal Revenue, G. R. No. 159991, November 16, 2006 citing
Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414, 418
(1918)]
49..
capital 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
32
attorney-in-fact for the purpose of developing, managing,
administering and selling the lots; sales made with frequency and
continuity; annual sales income from the sales was considerable;
and the heir was not a stranger to the real estate business. (Tuazon,
Jr. v. Lingad, 58 SCRA 170)
f. Inherited agricultural property improved by introduction of
good roads, concrete gutters, drainage and lighting systems
converts the property to an ordinary asset. The property forms part
of the stock in trade of the owner, hence an ordinary asset. This is
so, as the owner is now engaged in the business of subdividing real
estate. (Calasanz v. Commissioner of Internal Revenue, 144 SCRA
at p. 672)
50.
33
It does not matter whether there was an actual gain or loss
because the tax is a presumed capital gains tax. It is the
transaction that is taxed not the gain.
56. Holding period not applied to the taxation of the
presumed capital gains derived from the sale of real property
considered as capital assets.
59.
Excepted from the payment of the
presumed capital gains tax are those presumed to have
been realized from the disposition by natural persons of
their principal place of residence
a.
the proceeds of which is fully utilized in acquiring or
constructing a new principal residence;
b.
within eighteen (18) calendar months from the date of
sale or disposition
c.
the BIR Commissioner shall have been duly notified by
the taxpayer within thirty (30) days from the date of sale or
disposition through a prescribed return of his intention to avail of the
tax exemption; and
d.
the said tax exemption can only be availed of once
every ten (10) years. [Sec. 24 (D) (2), NIRC of 1997]
60. A final withholding tax (FWT) of 20% on passive
income is collected from the interest income of banks. It
likewise has to pay a 5% gross receipts tax (GRT) on gross
receipts which includes their passive income. XYZ Bank now
claims that the GRT should be computed after deducting the
20% passive income tax on the ground that the monies or
receipts that do not redound to the benefit of the taxpayer are
not part of its gross receipts. To impose the GRT without
deducting the 20% would be double taxation. It also contends
that since the 20% was withheld at source and is paid directly
to the government, then the bank has not received the same.
Thus, it should not be included in the gross receipts subject to
tax.
Resolve the issue of whether the 20% FWT on the banks
passive income form part of the taxable gross receipts for the
purpose of computing the 5% GRT.
SUGGESTED ANSWER: No. The word gross must be used
in its plain and ordinary meaning. It is defined as whole, entire,
total, without deduction. Thus, the 20% should not be deducted for
purposes of computing the 5% gross receipts tax.
Receipt may either be actual or constructive. There is prior to
the withholding a constructive receipt of the interest, otherwise there
would be no interest from where the 20% tax may be withheld from.
There is no double taxation because there are two kinds of
taxes, the 20% FWT which is an income tax and the 5% GRT which
is a percentage tax. (Commissioner of Internal Revenue v. Citytrust
Investment Phils., Inc., G. R. No. 139786, September 27, 2006 and
companion case)
NOTES AND COMMENTS:
a.
Commissioner of Internal Revenue v. Manila Jockey
Club, 108 Phil. 821 (1960) is different from Commissioner of
Internal Revenue v. Citytrust Investment Phils., Inc., G. R. No.
139786, September 27, 2006 and companion case. Manila
Jockey Club paid amusement taxes on its commission in the total
amount of bets called wager funds and did not include the 5% of
the fund which went to the Board on Races and to the owners of
horses and jockeys. The Supreme Court rules that the gross
34
receipts of Manila Jockey Club should not include the 5% because
although delivered to the Club, such money has been especially
earmarked by law or regulation for other persons.
Manila Jockey does not apply because what happened there
was earmarking and not withholding. Earmarking is not the same as
withholding. Amounts earmarked do not form part of gross receipts
because these are by law or regulation reserved for some person
other than the taxpayer, although delivered or received. On the
contrary, amounts withheld form part of gross receipts because there
are in constructive possession and not subject to any reservation,
the withholding agent being merely a conduit in the collection
process. (Commissioner of Internal Revenue v. Citytrust Investment
Phils., Inc., G. R. No. 139786, September 27, 2006 and companion
case)
b.
There are distinctions between the 20% FWT on
interest income and the 5% GRT on banks. Since the two are
different there is no double taxation.
1)
FWT is an income tax under Title II of the Code
(Tax on Income) while GRT is a percentage tax under Title V
of the Tax Code.
2)
Percentage tax is a national tax measured by a
certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross
receipts or earnings derived by any person engaged in the
sale of services while an income tax is a national tax imposed
on the net or gross income realized in a taxable year.
3)
Income tax is subject to withholding while
percentage is not. (Commissioner of Internal Revenue v.
Citytrust Investment Phils., Inc., G. R. No. 139786, September
27, 2006 and companion case)
61. MBC was incorporated in 1961 and engaged in
commercial banking operations since 1987. On May 22, 1987, it
ceased operations that year by reason of insolvency and its
assets and liabilities were placed under the charge of a
government-appointed receiver. On June 23, 1999, the BSP
authorized MBC to operate as a thrift bank.
In 2000, It filed its tax return for the year 1999 paying the
amount of P33 million computed in accordance with the
minimum corporate income tax (MCIT). It sought the BIRs
ruling on whether it is entitled to the four (4) year grace period
for paying on the basis of MCIT reckoned from 1999. BIR then
ruled that cessation of business activities as a result of being
35
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)
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.
4.
Not every inter-vivos transfer in anticipation of death is
considered transfer in contemplation of death for purposes of
determining the property to be included in the gross estate of a
decedent.
5.
To be considered a transfer in contemplation
death the decedent has at any time made a transfer, by trust
otherwise, in contemplation of or intended to take effect
possession or enjoyment at or after death [Sec. 85 (B), NIRC
1997].
It is clear that the properties are not transferred
contemplation of or intended to take effect in possession
enjoyment at or after death.
of
or
in
of
in
or
ESTATE TAXES
2.
6.
There is no transfer in contemplation of death if there is
no showing 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]
7.
36
DONORS TAXES
2.
stranger ?
SUGGESTED ANSWER: A stranger is a is person who is
not a:
a.
Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or
b.
Relative by consanguinity in the collateral line within
the fourth degree of relationship. [Sec. 99 (B), NIRC of 1997]
NOTES AND COMMENTS:
All relatives by affinity,
irrespective of the degree, are considered as strangers.
3.
4.
For purposes of the donors tax, what is meant
by net gifts ?
SUGGESTED ANSWER: The net economic benefit from
the transfer that accrues to the donee. Accordingly, if a
mortgaged property is transferred as a gift, but imposing upon
the donee the obligation to pay the mortgage liability, then the
net gift is measured by deducting from the fair market value
of the property the amount of the mortgage assumed. (last
par., Sec. 11, Rev. Regs.No.2-2003)
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]
7. A
b.
Supposing that instead of a general
renunciation, B renounced her hereditary share in As
estate to X who is a special child, would your answer be
the same ? Explain.
SUGGESTED ANSWER: My answer would be different. The
renunciation in favor of X would be subject to donors tax.
This is so because the renunciation was specifically and
categorically done in favor of X and identified heir to the exclusion
or disadvantage of Y and Z, the other co-heirs in the hereditary
estate. (4th par., Sec. 11, Rev. Regs. No. 2-2003)
8.
37
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 nonresident individual if registered with the COMELEC irrespective of
whether donated to a political party or individual.
However, the Corporation Code prohibits corporations from
making political contributions. (Corp. Code, Title IV, Sec. 36.9)
d.
Dowries or gifts made on account of marriage and
before its celebration or within one year thereafter by residents who
are parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first ten thousand pesos
(P10,000.00);
e.
Gifts made by residents or non-residents to or for the
use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political
subdivisions of the said Government;
f.
Gifts made by residents or non residents in favor of an
educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization
or research institution or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall be used by such
donee for administration purposes. [Sec. 101 (A), NIRC of 1997,
numbering and arrangement supplied]
g.
Gifts made by non-resident aliens outside of the
Philippines to Philippine residents are exempt from donors taxes
because taxation is basically territorial. The transaction, which
should have been subject to tax was made by non-resident aliens
and took place outside of the Philippines.
10.
A sold to B and P7 million Jaguar for
only P4 million. The proper VAT on the sale was paid. If
you are the BIR examiner assigned to review the sale,
would you issue a tax assessment on the transaction ?
Explain your answer briefly.
SUGGESTED ANSWER: Donors taxes would be due on the
insufficiency of consideration.
Where property, other than real property that has been
subjected to the final capital gains tax, is transferred for less than an
adequate and full consideration in money or moneys worth, then the
amount by which the fair market value of the property at the time of
the execution of the Contract to Sell or execution of the Deed of
Sale which is not preceded by a Contract to Sell exceeded the value
of the agreed or actual consideration or selling price shall be
deemed a gift, and shall be included in computing the amount of
th
gifts made during the calendar year. (5 par., Sec. 11, Rev. Regs.
No. 2-2003)
1.
2.
38
Philippines. These services must be regularly conducted in this
country, undertaken in pursuit of a commercial or an economic
activity, for a valuable consideration, and not exempt under the Tax
Code, other special laws, or any international agreement.
(Commissioner, of Internal Revenue v. American Express
International, Inc. (Philipppine Branch), G. R. No. 152609, June 29,
2005 citing various cases and authorities)
VAT is a percentage tax imposed on any person whether or
not a franchise grantee, who in the course of trade or business, sells,
barters, exchanges, leases, goods or properties, renders services. It
is also levied on every importation of goods whether or not in the
course of trade or business. The tax base of the VAT is limited only
to the value added to such goods, properties, or services by the
seller, transferor or lessor. Further, the VAT is an indirect tax and
can be passed on to the buyer. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008)
3.
What is the effect on exemptions of VAT
being an indirect tax ? Reason out and illustrate your
answer.
SUGGESTED ANSWER: 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 VAT-registered 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)
Illustration: 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.
4.
The VAT is a tax on consumption. Explain the
meaning of consumption as used under the VAT system.
Give an example.
SUGGESTED ANSWER: Consumption is "the use of a thing
in a way that thereby exhausts it."
Applied to services, the term means the performance or
"successful completion of a contractual duty, usually resulting in the
5.
SUGGESTED ANSWER:
a.
Any person who, in the course of his trade or business,
1)
Sells, barters, exchanges or leases goods or
properties, or
2)
renders services, and
b.
any person who imports goods xxx
However, in the case of importation of taxable goods, the
importer, whether an individual or corporation and whether or not
made in the course of his trade or business, shall be liable to VAT
xxx. (Rev. Regs. No. 16-2005,Sec. 4.105-1, paraphrasing supplied)
6.
What are the various VAT methods and
systems ?
SUGGESTED ANSWER:
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 citing Deoferio, Jr. V. A. and
Mamalateo, V.C., The Value Added Tax in the Philippines (First
Edition 2000)] This was subsequently modified and a mixture of
cost deduction method and tax credit method was used to
determine the value-added tax payable. (Ibid.)
b.
Tax credit method. This method relies on invoices, an
entity can credit against or subtract from the VAT charged on its
sales or outputs the VAT paid on its purchases, inputs and imports.
[Commissioner of Internal Revenue v. Seagate Technology
39
(Philippines), G. R. No. 153866, February 11, 2005 citing various
cases and authorities; Abakada Guro Party List (etc.) v. Ermita, etc.,
et al., G. R. No. 168056, September 1, 2005 and companion cases)
If at the end of a taxable period, the output taxes charged by
a seller are equal to the input taxes passed on by the suppliers, no
payment is required. It is when the output taxes exceed the input
taxes that the excess has to be paid. If however, the input taxes
exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from acquisition
of capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer or credited against other internal revenue
taxes. [Commissioner of Internal Revenue v. Seagate Technology
(Philippines), G. R. No. 153866, February 11, 2005 citing various
cases and authorities]
7.
The VAT being imposed on the increase in
worth merit or improvement of the goods or services.
How is this done ?
SUGGESTED ANSWER: The VAT utilizes the concept of the
output and input taxes.
8.
9.
SUGGESTED ANSWER: The VAT due on or paid by a VATregistered person on importation of good or local purchases of
goods or services, including lease or use of properties, in the course
st
of his trade or business. (Rev. Regs. No. 4.110-1, 1 par.)
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 )
12.
What is the concept of transitional input tax
credits on beginning inventories ?
SUGGESTED ANSWER:
Taxpayers who become VATregistered persons upon exceeding the minimum turnover of
P1,500,000.00 in any 12-month period, or who voluntarily register
even if their turnover does not exceed P1,500,000.00 (except
franchise grantees of radio and television broadcasting whose
threshold is P10,000,000.00) shall be entitled to a transitional input
tax on the inventory on hand as of the effectivity of their VAT
registration, on the following:
a.
goods purchased for resale in their present condition;
b.
materials purchased for further processing, but which
have not yet undergone processing;
c.
goods which have been manufactured by the taxpayer;
d.
goods in process for sale; or
e.
goods and supplies for use in the course of the
taxpayers trade or business as a VAT-registered person. [Rev.
st
Regs. No. 16-2005, Sec.4.111-1, (a), 1 par., arrangement and
numbering supplied]
14.
credits ?
SUGGESTED ANSWER:
Persons or firms engaged in the
processing of sardines, mackerel, and milk, and in manufacturing
refined sugar, cooking oil and packed noodle-based instant meals,
40
shall be allowed a presumptive input tax, creditable against the
output tax, equivalent to four percent (4%) of the gross value in
money of their purchases of primary agricultural products which are
used as inputs to their production.
As used in this paragraph, the term processing shall mean
pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form or inner
substance of a product in such a manner as to prepare it for special
use to which it could not have been put in its original form or
condition. [Rev. Regs. No. 16-2005, Sec.4.111-1, (b)]
16.
41
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)
17.
b.
Dissolution of a partnership and creation of a new
partnership which takes over the business. [Rev. Regs. No. 162005, Sec. 4.106-7 (a), (4) paraphrasing, arrangement and
numbering supplied]
19.
to VAT ?
21.
VAT ?
SUGGESTED ANSWER:
The following sales of real
properties are exempt from VAT, namely:
a.
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business;
b.
Sale of real properties utilized for low-cost housing as
defined by RA No. 7279, otherwise known as the Urban and
Development Housing Act of 1992 and other related laws, such as
RA No. 7835 and RA No. 8763.
xxx
xxx
xxx
c.
Sale of real properties utilized for socialized housing
as defined under RA No. 7279, and other related laws wherein the
price ceiling per unit is P225,000.00 or as may from time to time be
determined by the HUDCC and the NEDA and other related laws.
xxx
xxx
xxx
d.
Sale of residential lot valued at One Million Five
Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot
and other residential dwellings valued at Two Million Give Hundred
42
Thousand Pesos (P2,500,000.00) and below where the instrument of
sale/transfer/disposition was executed on or after November 1,
2005, provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amounts stated herein shall be
adjusted to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO); provided, further,
that such adjustment shall be published through revenue regulations
to be issued not later than March 31 of each year.
If two or more adjacent residential lots are sold or disposed in
favor of one buyer, for the purpose of utilizing the lots as one
residential lot, the sale shall be exempt from VAT only if the
aggregate value of the lots do not exceed P1,500,000.00. Adjacent
residential lots, although covered by separate titles and/or separate
tax declarations, when sold or disposed of to one and the same
buyer, whether covered by one or separate Deed of Conveyance,
shall be presumed as a sale of one residential lot. [Rev. Regs. No.
4.109-1 (B), (p), paraphrasing and numbering supplied]
22.
What is the VAT on services and lease of
properties ?
SUGGESTED ANSWER:
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to ten percent (10%) of
gross receipts
c.
derived from the sale or exchange of services,
1)
including the use or lease of properties.
d.
Provided,
That
the
President,
upon
the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
1)
Value-added tax collection as a percentage of
Gross Domestic product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
2)
National government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent
(1 1/2%). [NIRC of 1997, Sec. 108 (A), as amended by R.A.
No. 9337, arrangement and numbering supplied]
23.
b.
stock, real estate, commercial, customs and
immigration brokers;
c.
lessors of property, whether personal or real;
d.
persons engaged in warehousing services
e.
lessors or distributors of cinematographic films;
f.
persons engaged in milling, processing,
manufacturing or repacking goods for others;
g.
proprietors, operators or keepers of
hotels, motels, rest-houses, 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]
24.
X
Corporation
rendered
technical
services through its work engineers to PNB and SSS in
the construction of their buildings. The work engineers
acted as overseers of X Corporation, rendering their
professional services as employees of X corporation.
Should X Corporation be subjected to VAT or should it be
43
26.
A zero-rated sale of goods or properties by a sale by a VATregistered person is a taxable transaction for VAT purposes but the
sale does not result in any output tax.
However, the input tax on the purchases of goods, properties or
services related to such zero-rated sale shall be available as tax
credit or refund in accordance with Rev. Regulations No. 16-2005.
(Rev. Regs. No. 16-2005, 1st par.)
44
29.
VAT ?
SUGGESTED ANSWER: As a general rule, the VAT
system uses the destination principle as a basis for the jurisdictional
reach of the tax.
Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are
taxed.
30.
principle ?
SUGGESTED ANSWER: Yes. The law clearly provides for
an exception to the destination principle; that is, for a zero percent
VAT rate for services that are performed in the Philippines, "paid for
in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the [BSP]."
32. Zero-rated
exempt transactions:
sale
distinguished
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.
33.
from
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.
45
Customs Territory. [Commissioner of Internal Revenue v. Toshiba
Information Equipment (Phils.), Inc., G. R.. No. 150154, August 9,
2005]
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. (Philipppine
Branch), G. R. No. 152609, June 29, 2005)
40.
A foreign Consortium composed of
BWSC-Denmark, Mitsui Engineering and Shipbuilding
Ltd., and Misui and Co., Ltd., which entered into a
contract with NAPOCOR for the operation and
maintenance of two power barges appointed BWSCDenmark 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 zero-rating. 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 ?
46
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. Zerorating 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.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund
of the 10% output VAT it paid the based on the non-retroactivity of
the prejudicial revocation of the BIR Rulings which held that its
services are subject to 0% VAT and which BWSCMI invoked in
applying for refund of the output VAT. (Commissioner of Internal
Revenue v. Burmeister and Wain Scandinavian Contractor
Mindanao, Inc., supra)
41.
a.
The sale of goods or properties and/or services and the
use or lease of properties that is
b. not subject to VAT (output tax) and
c.
the seller is not allowed any tax credit on VAT (input
tax) purchases.
The person making the exempt sale of goods, properties or
services shall not bill any output tax to his customers because the
said transaction is not subject to VAT. [Rev. Regs. No. 16-2005,
Sec. 4.109-1 (A), arrangement and numbering supplied]
47
Sugar whose content of sucrose by weight, in the dry state,
has a polarimeter reading of 99.5o and above are presumed to be
refined sugar.
Cane sugar produced from the following shall be presumed,
for internal revenue purposes, to be refined sugar:
(1)
product of a refining process,
(2)
products of a sugar refinery, or
(3)
product of a production line of a sugar mill
accredited by the BIR to be producing sugar with polarimeter
reading of 99.5o and above, and for which the quedanissued
therefor, and verified by the Sugar Regulatory Administration,
identifies the same to be of a polarimeter reading of 99.5o and
above.
Bagasse is not included in the exemption provided for under
this section.
(B)
Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets);
Specialty feeds refers to non-agricultural feeds or food for
race horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets.
(C) Importation of personal and household effects
belonging to the residents of the Philippines returning from abroad
and nonresident citizens coming to resettle in the Philippines:
Provided, That such goods are exempt from customs duties under
the Tariff and Customs Code of the Philippines;
(D) Importation
of
professional
instruments
and
implements, wearing apparel, domestic animals, and personal
household effects (except any vehicle, vessel, aircraft, machinery,
other goods for use in the manufacture and merchandise of any kind
in commercial quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within ninety (90) days
before or after their arrival, upon the production of evidence
satisfactory to the Commissioner of Internal Revenue, that such
persons are actually coming to settle in the Philippines and that the
change of residence is bona fide;
(E) Services subject to percentage tax under Title V of the
Tax Code, as enumerated below:
(1)
Sale or lease of goods or properties or the
performance of services of non-VAT-registered persons,
other than the transactions mentioned in paragraphs (A) to
(U) of Sec. 109 (1) of the Tax Code, the annual sales and/or
receipts of which does not exceed the amount of One
Million Five Hundred thousand Pesos (P1,500,000.00),
Provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price
Index, as published by the National Statistics Office (NSO).
(Sec. 116, Tax Code)
(2)
Services rendered by domestic common carriers
by land for the transport of passengers and keepers of
garages. (Sec. 117)
(3)
Services rendered by international air/shipping
carriers. (Sec. 118)
(4)
Service rendered by franchise grantees of radio
and/or television broadcasting whose annual gross receipts
of the preceding year do not exceed Ten Million Pesos
(P10,000,000.00) and by franchises of gas and water
utilities. (Sec. 119)
(5)
Service rendered for overseas dispatch message
or conversation originating from the Philippines. (Sc. 120)
(6)
Services rendered by any person, company or
corporation (except purely cooperative companies or
associations ) 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.
48
(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, in-service 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
employer-employee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act
as supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region and do
not earn or derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special
laws, except those under Presidential Decree No. 529 Petroleum
Exploration Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with
the Cooperative Development Authority (CDA) to their members as
well as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct farm
inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing
of their produce;
(M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development
Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus ratably
distributed among the members;
Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
(O) Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
49
purposes other than that mentioned in this paragraph, such portion
of fuel, goods and supplies shall be subject to 10% VAT (now 12%);
(U) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries; and
45.
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents, until
controverted by competent evidence, are competent evidence, are
prima facie correct with respect to the entries therein. (Ropali
Trading v. NLRC, et al., 296 SCRA 309, 317)
2.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a 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]
3.
Individuals required to file an income tax return.
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]
4. 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
50
business or practice of profession within the Philippines shall file an
income tax return regardless of the amount of gross income;
b.
An individual with respect to pure compensation
income for services in whatever form paid, including, but not limited
to fees, salaries, wages, commissions, and similar items, derived
from sources within the Philippines, the income tax on which has
been correctly withheld, Provided, That an individual deriving
compensation concurrently from two or more employers at any time
during the taxable year shall file an income tax return: Provided,
further, That an individual whose pure compensation income derived
from sources within the Philippines exceeds Sixty thousand pesos
(P60,000.00), shall also file an income tax return;
c.
An individual whose sole income has been subject to
final withholding tax;
d.
An individual who is exempt from income tax pursuant
to the provisions of the NIRC of 1997, and other laws, general or
special. [Sec. 51 (A) (2), NIRC of 1997]
NOTES AND COMMENTS: Amendments under Rep. Act No.
9504 are not incouded.
5.
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]
6.
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.
taxpayer does not have to raise large sums of money in order to pay
the tax.
9.
An individual earning purely compensation income
files only one annual income tax return covering the total
taxable compensation income for the whole of the previous calendar
year.
10. Under the withholding tax system, taxes imposed
or prescribed by the NIRC of 1997 are to be deducted and
withheld by the payors from payments made to payees for the
former to pay directly to the Bureau of Internal Revenue. It is
also known as collection of the tax at source.
11. A withholding agent is explicitly made personally
liable under the Tax Code for the payment of the tax required to
be withheld, in order to compel the withholding agent to withhold
the tax under any and all circumstances. In effect, the responsibility
for the collection of the tax as well as the payment thereof is
concentrated upon the person over whom the Government has
jurisdiction.
(Filipinas Synthetic Fiber Corporation v. Court of
Appeals, et al., G.R. Nos. 118498 & 124377, October 12, 1999) The
system facilitates tax collection.
12. The two (2) types of withholding at source are the 1)
final withholding tax; and 2) creditable withholding tax.
7.
An individual earning from the practice of his
profession or who engages in trade or business files his
income tax return and pays his income tax four (4) times during
a single taxable year. Quarterly returns are required to be filed for
the first three quarters, then an annual income tax return is filed
covering the total taxable income for the whole of the previous
calendar year.
8.
The purpose of the above four (4) times a year
requirement is to make available sufficient funds to meet the
budgetary requirements, on a quarterly basis thereby increasing
government liquidity. It also eases hardships on the part of
individuals who are required to make this four time return. Thus, the
51
st
nd
a.
For tax amnesty purposes, the withholding agent is
not a taxpayer because he is made to pay the tax where he fails to
withhold as a penalty and not that the tax is due from him.
(Commissioner of Internal Revenue v. Court of Appeals, et al., G.R.
No. 108576, January 20, 1999, the Anscor case)
52
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to
discourage delay in the payment of taxes due to the State and in this
sense the surcharge and interest charged are not penal but
compensatory in nature they are compensation to the State for the
delay in payment, or for the concomitant tuse of the funds by the
taxpayer beyond the date he is supposed to have paid them to the
State. (Bank of the Philippine Islands v. Commissioner of Internal
Revenue, G. R. No. 137002, July 27, 2006)
7.
Compromise penalty, defined. 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 ?
ANSWER: The taxpayer is correct. The settled rule is that
good faith and honest belief that one is not subject to tax on the
basis of previous interpretation of government agencies tasked to
implement the tax, are sufficient justification to delete the imposition
of surcharges. (Michel J. Lhuillier Pawnshop, Inc. v. Commissioner
of Internal Revenue, G. R. No. 166786, September 11, 2006)
a.
To prevent delay in the disposition of tax cases by the
then Courts of First Instance (now RTCs), in view of the backlog of
civil, criminal, and cadastral cases accumulating in the dockets of
such courts; and
b.
To have a body with special knowledge which ordinary
Judges of the then Courts of First Instance (now RTCs), are not
likely to possess, thus providing for an adequate remedy for a
speedy determination of tax cases. (Ursal v. Court of Tax Appeals,
et al., 101 Phil. 209; Lacsamana, et al., etc., v. CTA, et al., 102 Phil.
931)
3.
The legal remedies under the NIRC of 1997 and
other laws available to an aggrieved taxpayer may be classified
into the tax remedies with respect to:
a.
assessment;
b.
collection, and
c.
refund of internal revenue taxes.
The remedies may also be classified into the administrative or
the judicial remedies.
53
c. 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 said decision, or from the lapse of the one
hundred eighty (180) day period; otherwise, the decision shall
become final, executory and demandable. [last par., Sec. 228 (e),
NIRC of 1997]
d. On appeal, the taxpayer should apply for the issuance of
a writ of preliminary injunction to enjoin the BIR from collecting the
tax subject of the appeal.
e. 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.
f. A decision of the Court of Tax Appeals en banc adverse
to the taxpayer or the government may be appealed to the Supreme
Court through a petition for review on certiorari filed with fifteen (15)
days from notice, and extendible for justifiable reasons for thirty (30)
days only.
6. The legal remedy under the NIRC of 1997 available to
an aggrieved taxpayer at the administrative level with respect to
refund or recovery of tax erroneously or illegally collected, is to file a
claim for refund or credit with the Commissioner of Internal
st
Revenue. (1 par., Sec. 229, NIRC of 1997)
54
requires the taxpayer to explain within fifteen (15) days from receipt
why no notice of assessment and letter of demand for additional
taxes should be directed to him.
e. If the Commissioner is satisfied with the explanation of
the taxpayer, then the process is again ended.
If the taxpayer ignores the pre-assessment notice by not
responding or his explanations are not accepted by the
Commissioner, then a notice of assessment and a letter of demand
is issued.
The notice of assessment must be issued by the
Commissioner to the taxpayer within a period of three (3) years from
the time the tax return was filed or should have been filed whichever
is the later of the two events. Where the taxpayer did not file a tax
return or where the tax return filed is false or fraudulent, then the
Commissioner has a period of ten (10) years from discovery of the
failure to file a tax return or from discovery of the fraud within which
to issue an assessment notice.
The running of the above
prescriptive periods may however be suspended under certain
instances.
The notice of assessment must be issued within the
prescriptive period and must contain the facts, law and jurisprudence
relied upon by the Commissioner. Otherwise it would not be valid.
f. The taxpayer should then file an administrative protest by
filing a request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to
the Court of Tax Appeals because there is no decision yet of the
Commissioner that could be the subject of a review.
To be valid the administrative protest must be filed within
the prescriptive period, must show the error of the Bureau of Internal
Revenue and the correct computations supported by a statement of
facts, and the law and jurisprudence relied upon by the taxpayer.
There is no need to pay under protest. If the protest was not
seasonably filed the assessment becomes final and collectible and
the Bureau of Internal Revenue could use its administrative and
judicial remedies in collecting the tax.
g. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall be submitted, otherwise the
assessment shall become final and collectible and the BIR could use
its administrative and judicial remedies to collect the tax.
Once an assessment has become final and collectible, not
even the BIR Commissioner could change the same. Thus, the
taxpayer could not pay the tax, then apply for a refund, and if denied
appeal the same to the Court of Tax Appeals.
55
SUGGESTED ANSWER: It has always been the rule that
those seeking tax refunds or credits bear the burden of proving the
factual basis of their claims and of showing, by words too plain to be
mistaken, that the legislature intended to entitle them to such claims.
(Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G. R. No. 145526, March 16,
2007, See Commissioner of Internal Revenue v. Seagate
Technology (Philippines) G. R. No. 153866, 11 February 2005, 451
SCRA 132)
12. What is the nature of proceedings before the Court
of Tax Appeals ?
SUGGESTED ANSWER:
First, a judicial claim for refund or tax credit in the CTA is by
no means an original action, but rather an appeal by way of petition
for review of a previous, unsuccessful administrative claim.
Therefore, as in every appeal or petition for review, a
petitioner has to convince the appellate court that the quasi-judicial
agency a quo did not have any reason to deny its claims.
Second, cases filed in the CTA are litigated de novo. Thus, a
petitioner should prove every minute aspect of its case by
presenting, formally offering and submitting its evidence to the CTA.
Since it is crucial for a petitioner in a judicial claim for refund
or tax credit to show that its administrative claim should have been
granted in the first place, part of the evidence to be submitted to the
CTA must necessarily include whatever is required for the
successful prosecution of an administrative claim.
(Atlas
Consolidated Mining and Development Corporation v. Commissioner
of Internal Revenue, G. R. No. 145526, March 116, 2007)
56
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
57
definition of civil liability and the application of Art. 104 of the
Revised Penal Code does not cover taxes. Consequently, the
Supreme Court ruled that on the tax collection case the RTC would
have jurisdiction.
Interpretation by the author in the light of Rep. Act. 9282.
If it is a criminal case cognizable by the Sandiganbayan, then this
court retains jurisdiction, with the civil jurisdiction being cognizable
by the CTA or the lower courts depending on the amount.
If the issue is a purely tax case, even if it involves cases
cognizable by the Sandiganbayan, then jurisdiction vests upon the
CTA or the lower courts depending on the amount of the tax.
58
NOTES AND COMMENTS:
The author disputes this
doctrine. The decisions of the Commission under other matter
refers to the quasi-judicial decisions and not to the quasi-legislative
powers of the Commissioner.
in administrative action.
.
(Commissioner of Internal
Revenue v. Bank of the Philippines Islands, G. R. No. 134062,
April 17, 2007 citing Oceanic Wireless Network, Inc. v.
Commissioner of Internal Revenue, G. R. No. 148380, 9
December 2005, 477 SCRA 205, 211-212, citing Surigao
Electric Co., Inc. v. Court of Tax Appeals, G. R. No. L-254289,
28 June 1974, 57 SCRA 523)
59
18.
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.
SUGGESTED ANSWER: The taxpayer should appeal, by
way of a petition for review, to the Court of Tax Appeals not on the
ground of the denial of the protest but on other matter arising under
the provisions of the National Internal Revenue Code. The actual
issuance of a warrant of distraint and levy in certain cases cannot
be considered a final decision on a disputed assessment.
To be a valid decision on a disputed assessment, the
decision of the Commissioner or his duly authorized representative
shall (a) state the facts, the applicable law, rules and regulations, or
jurisprudence on which such decision is based, otherwise, the
decision shall be void, in which case the same shall not be
considered a decision on the disputed assessment; and (b) that the
same is his final decision. (Sec. 3.1.6, Rev. Regs. 12-99) These
conditions are not complied with by the mere issuance of a warrant
of distraint and levy. (Commissioner of Internal Revenue v. Union
Shipping Corp., 185 SCRA 547)
Furthermore, a motion for the suspension of the collection of
the tax may be filed together with the petition for review (Sec. 3,
Rule 10, RRCTA effective December 15, 2005) because the
collection of the tax may jeopardize the interest of the taxpayer.
18-A. 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.
60
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.
The Supreme Court did not grant the provisional remedy
prayed for in Southern Cross Cement Corporation v. The Philippine
Cement Manufacturers Corp., et al., G. R. No. 158540, July 8, 2004
for it would be tantamount to enjoining the collection of taxes, a
peremptory judicial act which is traditionally frowned upon unless
there is a clear statutory basis for it. Evident is the clear legislative
intent that the imposition of safeguard measures, despite the
availability of judicial review, should not be enjoined notwithstanding
any timely appeal of the imposition. This so because the Safeguard
Measures Act states that the filing of a petition for review before the
CTA does not stop, suspend, or otherwise toll the imposition or
collection of the appropriate tariff duties or the adoption of other
appropriate safeguard measures.
22.
General rule: The rule is that in the absence of
accounting records of a taxpayer, his tax liability may be determined
by estimation. The petitioner (Commissioner of Internal Revenue)
is not required to compute such tax liabilities with mathematical
exactness. Approximation in the calculation of taxes due is justified.
To hold otherwise would be tantamount to holding that skillful
concealment is an invincible barrier to proof. [Commissioner of
Internal Revenue v. Hantex Trading Co., Inc. G. R. No. 136975,
March 31, 2005 citing United States v. Johnson, 319 U.S. 1233
(1943)] However, the rule does not apply where the estimation is
arrived at arbitrarily and capriciously. [Commissioner of Internal
Revenue v. Hantex Trading Co., Inc., citing United States v.
Rindskopf, 105 U.S.418 (1881)]
23. 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)
NOTES AND COMMENTS:
a.
The secondary evidence referred to are those that
may be adduced using the general methods for reconstructing a
taxpayers income or the indirect approach to tax investigation.
The best evidence envisaged in Section 16 of the 1977
NIRC [now Sec. 6 (B),NIRC of 1997] includes the corporate and
accounting records of the taxpayer who is the subject of the
assessment process, the accounting records of other taxpayers
engaged in the same line of business, including their gross profit and
net profit sales. (Commissioner of Internal Revenue v. Hantex
Trading Co., Inc. G. R. No. 136975, March 31, 2005 citing De Leon,
The National Internal Revenue Code Annotated, p. 37)
Such evidence also includes data, record, paper, document
or any evidence gathered by internal revenue officers from other
taxpayers who had personal transactions or from whom the subject
taxpayer received any income; and record, data, document and
information secured from government offices or agencies, such as
the SEC, the Central Bank of the Philippines, the Bureau of
Customs, and the Tariff and Customs Commission. (sic,
Commissioner v. Hantex Trading Co., Inc., supra)
The law allows the BIR access to all
relevant or material records or data in the person of the taxpayer. It
places no limit or condition on the type or form of the medium by
which the record subject of the order of the BIR is kept. (Ibid.)
Purpose of the best evidence obtainable rule
under Sec, 6 (B), NIRC of 1997. The purpose of the law is to
enable the BIR to get at the taxpayers records in whatever form
they may be kept. (Commissioner of Internal Revenue v. Hantex
Trading Co., Inc. G. R. No. 136975, March 31, 2005)
24. Sec. 6 (B) of the NIRC of 1997 allows the BIR to
make or amend a tax return from his own knowledge or
obtained through testimony or otherwise.
Thus, the
Commissioner of Internal Revenue investigates any circumstance
which led him to believe that the taxpayer had taxable income larger
than that reported. Necessarily, this inquiry would have to be outside
of the books because they supported the return as filed. He may
take the sworn testimony of the taxpayer, he may take the testimony
of third parties; he may examine and subpoena, if necessary,
traders and brokers accounts and books and the taxpayers books
of accounts. The Commissioner is not bound to follow any set of
patterns. The existence of unreported income may be shown by any
particular proof that is available in the circumstances of the
particular situation. [Commissioner of Internal Revenue v. Hantex
Trading Co., Inc. citing Campbell, Jr., v. Guetersloh, 287 F.2d 878
(1961)]
61
Citing its ruling in a previous case, a U.S. appellate court
declared that where the records of the taxpayer are manifestly
inaccurate and incomplete, the Commissioner may look to other
sources of information to establish income made by the taxpayer
during the years in question. (Ibid., in turn citing Kenney v.
Commissioner, 111 F.2d 374)
25. The following are the general methods developed by the
Bureau of Internal Revenue for reconstructing a taxpayers
income where the records do not show the true income or where no
return was filed or what was filed was a false and fraudulent return
(a) Percentage method;
(b) Net worth method.;
(c) Bank deposit method;
(d) Cash expenditure method;
(e) Unit and value method;
(f) Third party information or access to records method;
(g) Surveillance and assessment method. (Chapter XIII.
Indirect Approach to Investigation, Handbook on Audit Procedures
and Techniques Volume I, pp. 68-74)
26. Third party information or access to records method.
The BIR may require third parties, public or private to supply
information to the BIR, and thus, obtain on a regular basis from any
person other than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or officer of the
national and local governments, government agencies and
instrumentalities including the Bangko Sentral ng Pilipinas and
government-owned or controlled corporations, any information
such as, but not limited to, costs and volume of production, receipts
or sales and gross incomes of taxpayers, and the names ,
addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters
or multinational companies, joint accounts, associations, joint
ventures or consortia and registered partnerships, and their
members; xxx [Sec. 5 (B), NIRC of 1997)
27. A pre-assessment notice is a letter sent by the
Bureau of Internal Revenue to a taxpayer asking him to explain
within a period of fifteen (15) days from receipt why he should not be
the subject of an assessment notice. It is part of the due process
rights of a taxpayer.
As a general rule, the BIR could not issue an assessment
notice without first issuing a pre-assessment notice because it is part
62
34.
taxation.
Purpose
of
period
of
limitations
in
63
Commissioner of Internal Revenue, G. R. No. 162852, December 16,
2004;], as well as their assessments.
The law prescribing a limitation of actions for the collection of
the income tax is beneficial both to the Government and to its
citizens; to the Government because tax officers would be obliged to
act promptly in the making of assessment, and to citizens because
after the lapse of the period of prescription citizens would have a
feeling of security against unscrupulous tax agents who will always
find an excuse to inspect the books of taxpayers, not to determine the
latters real liability, but to take advantage of every opportunity to
molest peaceful, law-abiding citizens. Without such a legal defense
taxpayers would furthermore be under obligation to always keep their
books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial
measure 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 recommend the approval
of the law. [Republic of the Philippines v. Ablaza, 108 Phil. 1105,
1108, cited in Bank of Philippine Islands (Formerly Far East Bank and
Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008]
35.
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)
Laws on prescription should be liberally construed in favor of
the taxpayer. Reason: for the purpose of safeguarding taxpayers
from an unreasonable examination, investigation or assessment, our
tax laws provide a statute of limitation on the collection of taxes.
Thus, the law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection, As a corollary,
the exceptions to the law on prescription should perforce be strictly
construed. [Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, G. R. No. 162852, December 16, 2004 citing
Commissioner of Internal Revenue v. B.F. Goodrich Phils, Inc (now
Sime Darby International Tire Co., Inc.),., et al., G.R. No. 104171,
February 24, 1999, 303 SCRA 546]
The prescriptive period was precisely intended to give the
taxpayers peace of mind. (Commissioner of Internal Revenue v. B.F.
Goodrich Phils., Inc., et al., G.R. No. 104171, February 24, 1999)
36.
A jeopardy assessment is a delinquency tax
assessment which was assessed without the benefit of complete or
partial audit by an authorized revenue officer, who has reason to
believe that the assessment and collection of a deficiency tax will be
jeopardized by delay because of the taxpayers failure to comply
with the audit and investigation requirements to present his books of
accounts and/or pertinent records, or to substantiate all or any of the
deductions, exemptions, or credits claimed in his return. [Sec. 3.1
(a), Rev. Regs. No. 6-2000)
Jeopardy assessment is an indication of the doubtful validity
of the assessment, hence it may be subject to a compromise. [Sec.
3.1 (a), Rev. Regs. No. 6-2000]
37. During Julianas lifetime, her business affairs were
managed by the Philippine Trust Company (Philtrust). She
died on April 3, 2001.Two days after her death, Philtrust,
through its Trust Officer, filed her Income Tax Return for 2000,
without indicating that Juliana died.
On May 22, 2001, Philtrust filed a verified petition with the
RTC for appointment as Special Administrator. This was
denied by the court who appointed one of the heirs as Special
Administrator.
Philtrusts motion for reconsideration was
denied.
After an investigation by the BIR of the decedents
income tax liability, it sent, on November 18, 2003, a demand
letter and a Notice of Assessment to Juliana c/o Philtrust at the
latters address which was stated in the 1998 Income Tax
Return. No response was made neither was the BIR advised
that Juliana already died.
On June 18, 2005, the BIR Commissioner issued warrants
of distraint and levy to enforce collection of the deficiency
income tax liability which was served on Julianas heir. On
November 22, 2005, the BIR filed with the estate court a motion
for allowance of claim. The heir claimed that there was no
proper service of the notice of assessment and that the filing of
the motion was time-barred. On the other hand the BIR made
the submission that both the issuance of the assessment
notice and the motion were all properly made on Philtrust.
Furthermore the lapse of the 30-day period within which to
protest made the assessment final, executory and
uncontestable and not time barred.
Rule on the conflicting claims of the parties.
64
SUGGESTED ANSWER: I would rule in favor of the heir.
There was no proper service of the notice of assessment
because the death of Juliana automatically severed the legal
relationship of principal and agent between her and Philtrust. The
severed relationship could not be revived on the mere fact that
Philtrust filed her Tax Return two days after her death.
Philtrusts failure to file a notice of death subjects it to penal
sanctions which do not include the indefinite tolling of the
prescriptive period for making deficiency tax assessments, or the
waiver of the notice requirement for such assessments. (Estate of
the late Juliana Diez Vda. de Gabriel v. Commissioner of Internal
Revenue, G.R. No. 155541, January 27, 2004)
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.)
41.
Give instances where prima
correctness of a tax assessment does not apply.
facie
65
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:
66
b.
The Waiver of the Statute of Limitations is not valid
because it did not specify a definite agreed date between the BIR
and PJI, within which the former may assess and collect revenue
taxes. Furthermore, the waiver is also defective from the
government side because it was signed only by a revenue district
officer, and not the Commissioner, as so required. Finally, PJI was
not furnished a copy of the waiver.
c.
The waiver document is incomplete and defective and
thus the three-year prescriptive period within which to assess was
not tolled or extended and continued to run until April 17, 1998.
Consequently, Assessment/Demand No. 33-1-000757-94 issued on
December 9, 1998 was invalid because it was issued beyond the
three (3) year period. In the same manner, the Warrant of Distraint
and/or Levy which PJI received on March 28, 2000 is also null and
void for having been issued pursuant to an invalid assessment.
(Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.
R. No. 162852, December 16, 2004)
46.
No. 167146, October 31, 2006 citing Sec. 271, now Sec. 223, NIRC
of 1997) When a taxpayer demands a reinvestigation, the time
employed in reinvestigation should be deducted from the total period
of limitation. [Commissioner of Internal Revenue, supra citing
Republic v. Lopez, 117 Phil. 575, 578; 7 SCRA 566, 568-569
(1963)]
Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment which will be limited to the
evidence already at hand; this justifies why the former can suspend
the running of the statute of limitations on collection of the assessed
tax, while the latter cannot. (Commissioner of Internal Revenue v.
Philippine Global Communication, Inc., G. R. No. 167146, October
31, 2006 citing Bank of Philippine Islands v. Commissioner of
Internal Revenue, G. R. No. 139736, 17 October 2005, 473 SCRA
205, 230-231)
SUGGESTED ANSWER:
a.
It must be filed within the reglementary period of thirty
(30) days from receipt of the notice of assessment.
b.
The taxpayer must not only show the errors of the
Bureau of Internal Revenue but also the correct computation
through
1)
A statement of the facts, the applicable law, rules
and regulations, or jurisprudence on which the taxpayers
protest is based,
2)
If there are several issues involved in the
disputed assessment and the taxpayer fails to state the facts,
the applicable law, rules and regulations, or jurisprudence in
support of his protest against some of the several issues on
which the assessment is based, the same shall be considered
undisputed issue or issues, in which case, the taxpayer shall
be required to pay the corresponding deficiency tax or taxes
attributable thereto. (Sec. 3.1.5, Rev. Regs. 12-99)
c.
Within sixty (60) days from filing of the protest, the
th
taxpayer shall submit all relevant supporting documents. [4 par.,
Sec. 228 (e), NIRC of 1997]
SUGGESTED ANSWER:
a.
Request for reconsideration which refers to a plea for
re-evaluation of an assessment on the basis of existing records
without need of additional evidence. It may involve both a question
of fact or of law or both.
b.
Request for reinvestigation which refers to a plea for reevaluation of an assessment on the basis of newly-discovered
evidence or additional evidence that a taxpayer intends to present in
the investigation. It may also involve a question of fact or law or
both. (Commissioner of Internal Revenue v. Philippine Global
Communication, Inc., G. R. No. 167146, October 31, 2006 citing
Rev. Regs. No. 12-85)
67
payment, by levy, distraint or sale of property of the taxpayer, or by
whatever means, as provided under existing laws, may jeopardize
the interest of the government or the taxpayer, an interested party
may file a motion for the suspension of the collection of the tax
liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with
the Court of Tax Appeals.
The motion for suspension of the collection of the tax may be
filed together with the petition for review or with the answer, or in a
separate motion filed by the interested party at any stage of the
proceedings. (Sec. 3, Rule 10, RRCTA effective December 15,
2005)
68
a. The tax or any portion thereof appears to be unjustly or
excessively assessed; or
b. The administration and collection costs involved do not
justify the collection of the amount due. [Sec. 204 (B), NIRC of
1997]
54. What is the prescriptive period for collecting
internal revenue taxes ?
SUGGESTED ANSWER: There are four (4) prescriptive
periods for the collection of an internal revenue tax:
a.
Collection upon a false or fraudulent return or no return
without assessment. In case of a false or fraudulent return with the
intent to evade tax or of failure to file a return, a proceeding in court
for the collection of such tax may be filed without assessment, at
any time within ten (10) years after the discovery of the falsity, fraud
or omission. [Sec. 222 (a), NIRC of 1997)
b.
Collection upon a false or fraudulent return or no return
with assessment.
Any internal revenue tax which has been
assessed (because the return is false or fraudulent with intent to
evade tax or of failure to fail a return), within a period of ten (10)
years from discovery of the falsity, fraud or omission may be
collected by distraint or levy or by a proceeding in court within
five (5) years following the assessment of the tax. [Sec. 222
(c), in relation to Sec. 222 (a) NIRC of 1997, emphasis supplied)
c.
Collection upon an extended assessment. Where a tax
has been assessed with the period agreed upon between the
Commissioner and the taxpayer in writing (which should initially be
within three (3) years from the time the return was filed or should
have been filed), or any extensions before the expiration of the
period agreed upon, the tax may be collected by distraint or levy
or by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5) year period. The
period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously
agreed upon. [Sec. 222 (d), in relation to Secs. 222 (b) and 203,
NIRC of 1997, emphasis supplied)
d.
Collection upon a return that is not false or fraudulent,
or where the assessment is not an extended assessment. Except
as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the
filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun
after the expiration of such period; Provided, That in case where
a return is filed beyond the period prescribed by law, the three (3)
year period shall be computed from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed
by law for the filing thereof shall be considered filed on such last
day. (Sec. 203, NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three
(3)-year period, it has another three (3) years within which to collect
the tax due by distraint, levy, or court proceeding. The assessment
of the tax is deemed made and the three (3)-year period for
collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent to the
taxpayer. [Bank of Philippine Islands (Formerly Far East Bank and
Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing BPI v. Commissioner of Internal
Revenue, G.R. No. 139736, 17 October 2005, 473 SCRA 205, 222223)
NOTES AND COMMENTS:
a.
Both the former Sec. 269, NIRC of 1977 and Sec.222
of NIRC of 1997 do not refer to a regular return. It is clear that
in enacting Sec. 222, entitled Exceptions as to the period of
limitation of assessment and collection of taxes, the NIRC of 1997
has eliminated sub-paragraph c of the former Sec. 269 of the NIRC,
also entitled Exceptions as to the period of limitation of assessment
and collection of taxes. Said Sec. 269 (c), reads Any internal
revenue tax which has been assessed within the period of limitation
above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of
the tax.
A perusal of Sec. 222 of the NIRC is clear that it covers only
three scenarios only. 1) No assessment was made upon a false or
fraudulent return or omission to file a return; 2) an assessment was
made upon a false or fraudulent return or omission to file a return;
and 3) an extended assessment issued within a period agreed upon
by the Commissioner and the taxpayer. The same scenarios are
those referred to in the former Sec. 269 which provided for a
prescriptive period for collection of three (3) years.
It is clear therefore that neither Sec. 222 nor the former Sec.
269 provide for an instance where the assessment was made upon
a regular return or one that is not false or fraudulent, or that there
was an agreement to extend the period for assessment.
Resort should therefore be made to the three (3) year period
referred to in Sec. 203 of the NIRC of 1997 which reads, Except as
provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the
filing of the return, and no proceeding in court without
69
assessment for the collection of such taxes x x x (paraphrasing
and emphasis supplied)
55. What is solutio indebeti as applied to tax cases ?
SUGGESTED ANSWER: This is erroneous payment of taxes
and occurs when the taxpayer pays under a mistake of fact, as for
the instance in a case where he is not aware of an existing
exemption in his favor at the time the payment was made. Such
payment is held to be not voluntary and therefore, can be recovered
or refunded. (Commissioner of Internal Revenue v. Acesite
(Philippines) Hotel Corporation, G. R. No. 147295, February 16,
2007)
NOTES AND COMMENTS: Technicalities and legalisms,
however exalted, should not be misused by the government to keep
money not belonging to it, thereby enriching itself at the expense of
its law-abiding citizens. State Land Investment Corporation v.
Commissioner of Internal Revenue, G. R. No. 171956, January 18,
2008 citing BPI-Family Savings Bank, Inc. v. Court of Appeals, G.R.
No. 122480, April 12, 2000, 330 SCRA 507.
Under the principle of solutio indebiti provided in Art. 2154,
Civil Code, If something is received when there is no right to
demand it, and it was unduly delivered through mistake, the
obligation to return it arises. The BIR received something when
there [was] no right to demand it, and thus, it has the obligation to
return it.
State Land Investment Corporation v. Commissioner of
Internal Revenue supra citing Citibank, N. A. v. Court of Appeals and
Commissioner of Internal Revenue, G.R. No. 107434, October 10,
1997, 280 SCRA 459, in turn citing Ramie Textiles, Inc. v. Mathay,
Sr., 89 SCRA 586 (1979). It is an ancient principle that no one, not
even the state, shall enrich oneself at the expense of another.
Indeed, simple justice requires the speedy refund of the wrongly
held taxes. (Ibid.)
70
one precludes the other. Since the Bank has chosen the tax credit
approach it cannot anymore avail of the tax refund. (Philippine Bank
of Communications v. Commissioner of Internal Revenue, et al.,
G.R. No. 112024, January 28, 1999)
NOTES AND COMMENTS:
a.
The choice, is given to the taxpayer, whether to
claim for refund under Sec. 76 or have its excess taxes applied
as tax credit for the succeeding taxable year, such election is not
final. Prior verification and approval by the Commissioner of
Internal Revenue is required. The availment of the remedy of tax
credit is not absolute and mandatory. It does not confer an absolute
right on the part of the taxpayer to avail of the tax credit scheme if it
so chooses. Neither does it impose a duty on the part of the
government to sit back and allow an important facet of tax collection
to be at the sole control and discretion of the taxpayer. (Paseo
Realty & Development Corporation v. Court of Appeals, et al., G. R.
No. 119286, October 13, 2004)
tax credit certificate will be issued or which will be claimed for cash
refund. (Systra Philippines, Inc., supra citing De Leon, Hector, THE
NATIONAL INTERNAL REVENUE CODE, Seventh Edition, 2000, p.
430)
60. In the year 2000 Systra derived excess tax credits
and exercised the option to carry them over as tax credits for
the next taxable year. However, the tax due for the next taxable
year is lower than excess tax credits. It now applies for a
refund of the unapplied tax credits. May its refund be granted
? If the refund is denied, does Systra lose the unapplied tax
credits ? Explain briefly your answer.
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)
Supposing in the above problem that Systra permanent
ceased operations, what happens to the unapplied credits ?
SUGGESTED ANSWER:
Where, the corporation
permanently ceases its operations before full utilization of the tax
credits it opted to carry over, it may then be allowed to claim the
refund of the remaining tax credits. In such a case, the remaining
tax credits can no longer be carried over and the irrevocability rule
ceases to apply. Cessante ratione legis, cessat ipse lex. (Footnote
no. 23, Systra Philippines, Inc., v. Commissioner of Internal
Revenue, G. R. No. 176290, September 21, 2007)
NOTES AND COMMENTS: The holding in State Land
Investment Corporation v. Commissioner of Internal Revenue, G. R.
No. 171956, January 18, 2008 that the taxpayer is entitled to a
refund because during the succeeding year there was no tax due
against which the excess tax credits may be applied is not doctrinal.
71
This is so because it interpreted the provisions of then Sec. 69 of the
NIRC, which did not provide for the irrevocability rule now
contained in Sec. 76 of the NIRC of 1997.
60-A. In early April 1999 XYZ Bank advanced the amount
of P180 million to the BIR its income tax payment for the banks
1999 operations in response for the governments call to
generate more revenues for national development. In separate
letters dated April 19 and 29, 1999 and May 14, 1999 XYZ
requested for the issuance of a Tax Credit Certificate (TCC) to
be utilized against future tax obligations of the bank.
By the end of 1999, a credit balance in the amount of P73
million remain which was carried over for the years 2000 to
2004 but was not availed of because XYZ incurred losses
during the period. On July 28, 2005 PNB reiterated its request
for the issuance of a TCC for the P73 million balance. The BIR
rejected the request on the ground of among others
prescription having been applied for beyond the two-year
reglementary period for filing claims for refund as set forth in
Sec. 229 of the NIRC of 1997.
Has the claim prescribed ? Explain briefly your answer.
SUGGESTED ANSWER: The claim has not prescribed.
Sec. 229 of the Tax Code, as couched, particularly its statute of
limitations component, is in context intended to apply to suits for any
national internal revenue tax alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have
excessively or in any manner wrongfully collected.
Analyzing the underlying reason behind the advance payment
(to help the government) made by XYZ it would be improper to treat
the same as erroneous, wrongful or illegal payment of tax within the
meaning of Sec. 229 of the NIRC of 1997.
An availment of tax credit due for reasons other than the
erroneous or wrongful collection of taxes may have a different
prescriptive period. (Commissioner of Internal Revenue v. Philippine
National Bank, G.R. No. 161997, October 25, 2005 citing
Commissioner of Internal Revenue v. The Philippine Life Insurance
Co., et al. G.R. No. 105208, May 29, 1995) Absent any specific
provision in the Tax Code or special laws, that period would be ten
(10) years under Article 1144 of the Civil Code. (Commissioner of
Internal Revenue v. Philippine National Bank, supra)
61. ABC Bank filed with the BIR an application for a tax
credit/refund for alleged excess payments of its gross receipts
tax (GRT) for the 3rd and 4th quarters of 2003 and the entire 2004
amounting to P14 million. Since no action was taken by the
Commissioner on its claim, ABC filed a case with the CTA on
October 18, 2005 to comply with the two-year reglementary
period and avoid the prescription of its action. Only July 30,
2007, the CTA rendered a decision denying the claim for ABCs
failure to file its formal offer of evidence in the CTA.
ABC Bank now seeks refuge in Onate v. Court of
Appeals, 320 Phil. 344; 250 SCRA 283 (1995) where the Supreme
Court allowed evidence, not formally offered, to be considered
on condition that: (1) evidence must have been identified by
testimony duly recorded and (2)
it must have been
incorporated in the records of the case.
Is ABC correct ?
SUGGESTED ANSWER: No. A tax refund s in the nature of
a tax exemption which must be construed strictissimi juris against
the taxpayer. The taxpayer must present convincing evidence to
substantiate a claim for refund.
Without any documentary
evidenced on record, ABC failed to discharge the burden of proving
its right to a tax credit/tax refund. (Far East Bank & Trust Company
v. Commissioner of Internal Revenue, G. R. No. 149589, September
15, 2006)
62. A simultaneous filing of the application with the BIR
for refund/credit and the institution of the court suit with the
CTA is allowed. There is no need to wait for a BIR denial.
REASONS:
a. The positive requirement of Section 230 NIRC (now Sec.
229, NIRC of 1997);
b.
The doctrine that delay of the Commissioner in
rendering decision does not extend the peremptory period fixed by
the statute;
c. The law fixed the same period two years for filing a claim
for refund with the Commissioner under Sec. 204, par. 3, NIRC (now
Sec. 204 [C], NIRC of 1997), and for filing suit in court under Sec.
230, NIRC (now Sec. 229, NIRC of 1997), unlike in protests of
assessments under Sec. 229 (now Sec. 228, NIRC of 1997), which
fixed the period (thirty days from receipt of decision) for appealing to
the court, thus clearly implying that the prior decision of the
Commissioner is necessary to take cognizance of the case.
(Commissioner of Internal Revenue v. Bank of Philippine Islands,
etc. et al., CA-G.R. SP No. 34102, September 9, 1994; Gibbs v.
Collector of Internal Revenue, et al., 107 Phil, 232; Johnston Lumber
Co. v. CTA, 101 Phil. 151)
72
63. The grant of a refund is founded on the
assumption that the tax return is valid, i.e. that the facts stated
therein are true and correct. (Commissioner of Internal Revenue v.
Court of Tax Appeals, G. R. No. 106611, July 21, 1994, 234 SCRA
348) Without the tax return it would be virtually impossible to
determine whether the proper taxes have been assessed and paid.
After all, it is axiomatic that a claimant has the burden of proof to
establish the factual basis of his or her claim for tax credit or refund.
Tax refunds, like tax exemptions, are construed strictly against the
taxpayer. (Paseo Realty & Development Corporation v. Court of
Appeals, et al., G. R. No. 119286, October 13, 2004)
However, in BPI-Family Savings Bank v. Court of Appeals,
386 Phil. 719; 326 SCRA 641 (2000), refund was granted, despite
the failure to present the tax return, because other evidence was
presented to prove that the overpaid taxes were not applied. (Ibid.)
b.
It is shown on the return of the recipient that the income
payment received was declared as part of the gross income; and
c.
The fact of withholding is established by a copy of a
statement duly issued by the payee showing the amount paid and
the amount of tax withheld therefrom. (Banco Filipino Savings and
Mortgage Bank v. Court of Appeals, et al., G. R. No. 155682, March
27, 2007)
NOTES AND COMMENTS:
a.
Proof of fact of withholding. Sec. 10. Claim for tax
credit or refund. (a) Claims for Tax Credit or Refund of Income
tax deducted and withheld on income payments shall be given due
course only when it is shown on the return that the income payment
received has been declared as part of the gross income and the fact
of withholding is established by a 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)
66.
73
SUGGESTED ANSWER: What has to be established, as a
matter of evidence, is that the amount sought to be refunded to the
bank-trustee corresponds to the tax withheld on the interest income
earned from the exempt employees trust. The need to be
determinate is important, specially if the bank trustee, in the ordinary
course of its banking business, earns interest income not only from
its investments of employees trusts, but on a whole range of
accounts which do not enjoy the same broad exemption as
employees trusts. (Far East Bank Trust and Company, etc., v.
Commissioner of Internal Revenue, et al., G. R. No. 138919, May 2,
2006)
NOTES AND COMMENTS:
a.
Employees trust fund, defined. An employees trust
fund is a trust established by an employer to provide retirement,
pension, or other benefits to employees - it is a separate taxable
entity established for the exclusive benefit of the employees.
(Development Bank of the Philippines v. Commission on Audit, 422
SCRA 459)
b.
Income of employees trust is tax exempt. Any
provision of law to the contrary notwithstanding, the retirement
benefits received by official and employees of private firms, whether
individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer shall be exempt from all
taxes and shall not be liable to amendment, levy or seizure by or
under any legal or equitable process whatsoever except to pay a
debt of the official or employee concerned to the private benefit plan
or that arising from liability imposed in a criminal action x x x
(Sec. 1, Rep. Act 4917)
A tax-exempt employees trust fund is referred to under the
NIRC of 1997 as a reasonable private retirement plan, which means
a pension, gratuity, stock bonus or profit-sharing plan maintained by
an employer for the benefit of some or all of his officials or
employees, wherein contributions are made by such employer for
the officials or employees, or both, for the purpose of distributing to
such officials and employees the earnings and principal of the fund
thus accumulated, and wherein it is provided in said plan that at no
time shall any part of the corpus or income of the fund be used for,
or be diverted to, any purpose other than for the exclusive benefit of
the said officials or employees. [Sec. 32 (B) (6 ) (a), NIRC of 1997]
c.
Extent of exemption. The tax exemption enjoyed by
employees trust is absolute irrespective of the nature of the tax. It
does not apply only to the tax on interest income from money
market placements, bank deposits, other deposit substitute
instruments and government security, because the source of the
interest income does not have any effect on the exemption enjoyed
74
amounts covered by the invoices or receipts; and (b) a Certification
of an independent Certified Public Accountant attesting to the
correctness of the contents of the summary after making an
examination and evaluation of the voluminous receipts and invoices.
Such summary and certification must properly be identified by a
competent witness from the accounting firm.
2. The method of individual presentation of each and every
receipt or invoice or other documents for marking, identification and
comparison with the originals thereof need not be done before the
Court or the Commissioner anymore after the introduction of the
summary and CPA certification. It is enough that the receipts,
invoices and other documents covering the said accounts or
payments must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the
adverse party whenever he/she desires to check and verify the
correctness of the summary and CPA certification. However, the
originals of the said receipts, invoices or documents should be ready
for verification and comparison in case doubt on the authenticity of
the particular documents presented is raised during the hearing of
the case. (Emphasis supplied)
69. Manila Electric Company a grantee of a legislative
franchise under Act No. 484, as amended by Republic Act No.
4159 and Presidential Decree No. 551,2[3] had been paying a 2%
franchise tax based on its gross receipts, in lieu of all other
taxes and assessments of whatever nature.
Upon the
effectivity of Executive Order No. 72 on February 10, 1987,
however, respondent became subject to the payment of regular
corporate income tax.
For the last quarter ending December 31, 1987,
respondent filed on April 15, 1988 its tentative income tax
reflecting a refundable amount of P101,897,741, but only
P77,931,812 was applied as tax credit for the succeeding
taxable year 1988.
Acting on a yearly routinary Letter of Authority No.
0018064 NA dated June 27, 1988 issued by petitioner, directing
the investigation of tax liabilities of respondent for taxable year
1987, an investigation was conducted by Revenue Officer
Frederick Capitan which showed that respondent was liable for
1. deficiency income tax in the amount of P2,340,902.52; and
2. deficiency franchise tax in the amount of P2,838,335.84.
2[3]
Id. at 11.
75
2.
3.
8.
76
10. The imposing authority for the anti-dumping duty
is the Secretary of Trade and Industry in the case of nonagricultural product, commodity, or article or the Secretary of
Agriculture, in the case of agricultural product, commodity or
article, after formal investigation and affirmative finding of the Tariff
Commission. [Sec. 301 (a), TCC, as amended by Rep. Act No.
8752, Anti-Dumping Act of 1999]
11. Even when all the requirements for the imposition
have been fulfilled, the decision on whether or not to impose a
definitive anti-dumping duty remains the prerogative of the
Tariff Commission. [Sec. 301 (a), TCC, as amended by Rep. Act
No. 8752, Anti-Dumping Act of 1999] Thus, the cabinet secretaries
could not contravene the
recommendation of the Tariff
Commission. They could not impose the anti-dumping duty or any
special customs duty without the favorable recommendation of the
Tariff Commission.
12. In the determination of whether to impose the antidumping duty, the Tariff Commission, may consider among
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and other
related local industries. (Sec. 301 (a), TCC, as amended by Rep.
Act No. 8752, Anti-Dumping Act of 1999)
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)
The anti-dumping duty shall be equal to the margin of
dumping on such product, commodity or article thereafter imported
to the Philippines under similar circumstances, in addition to
ordinary duties, taxes and charges imposed by law on the imported
product, commodity or article.
14.
77
classification, regulation, condition, restriction or prohibition, in such
manner as to place the commerce of the Philippines at a
disadvantage compared with the commerce of any foreign country.
21.
The President of the Philippines imposes the
discriminatory duties.
imposed.
?
SUGGESTED ANSWER: It has a triple meaning.
a.
the documents filed at the Customs house;
b.
the submission and acceptance of the documents; and
c.
Customs declaration forms or customs entry forms
required to be accomplished by passengers of incoming vessels or
passenger planes as envisaged under Sec. 2505 of the TCCP
(Failure to declare baggage). (Jardeleza v. People, G.R. No.
165265, February 6, 2006)
29. A flight stewardess arrived from Singapore. Upon
her arrival she was asked whether she has anything to declare.
She answered none, and she submitted her Customs Baggage
Declaration Form which she accomplished and signed with
nothing or written on the space for items to be declared. When
her hanger bag was examined some pieces of jewelry were
found concealed within the lining of said bag.
She was then convicted of violating of Sec. 3601 of the
Tariff and Customs Code for unlawful importation which
penalizes any person who shall fraudulently import or bring
into the Philippines any article contrary to law.
78
She now appeals claiming that lower court erred n
convicting her under Sec. 3601 when the facts alleged both in
the information and those shown by the prosecution constitute
the offense under Sec. 2505 Failure to Declare Baggage, of
which she was acquitted. Is she correct ?
SUGGESTED ANSWER: No. Sec. 3601 does not define a
crime. It merely provides, inter alia, the administrative remedies
which can be resorted to by the Bureau of Customs when seizing
dutiable articles found the baggage of any person arriving in the
Philippines which is not included in the accomplished baggage
declaration submitted to the customs authorities, and the
administrative penalties that such person must pay for the release of
such goods if not imported contrary to law.
Such administrative penalties are independent of the criminal
liability for smuggling that may be imposed under Sec. 3601, and
other provisions of the TCC which can only be determined after the
appropriate criminal proceedings, prescinding from the outcome in
any administrative case that may have been filed and disposed of by
the customs authorities.
Indeed the second paragraph of Sec. 2505 provides that
nothing shall prevent the bringing of a criminal action against the
offender for smuggling under Section 3601. (Jardeleza v. People,
G. R. No. 165265, February 6, 2006)
29-A. Payment is not a defense in smuggling. When
upon trial for violation of this section, the defendant is shown to
have possession of the article in question, possession shall be
deemed sufficient evidence to authorize conviction, unless the
defendant shall explain the possession to the satisfaction of the
court: Provided, however, That payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution
under this section. (last par., Sec. 3601, TCC)
30. How is smuggling committed ?
SUGGESTED ANSWER: Smuggling is committed by any
person who:
a.
fraudulently imports or brings into the country any
article contrary to law;
b.
assists in so doing any article contrary to law; or
c.
receives, conceals, buys, sells or in any manner
facilitates the transportation, concealment or sale of such goods
after importation, knowing the same to have been imported contrary
to law. (Jardeleza v. People, G.R. No. 165265, February 6, 2006
79
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.
32. A claiming to be the owner of a vessel which is
the subject of customs warrant of seizure and detention sought
the intercession of the RTC to restrain the Bureau of Customs
from interfering with his property rights over the vessel. Would
the suit prosper?
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)
33. The customs authorities do not have to prove to
the satisfaction of the court that the articles on board a vessel
were imported from abroad or are intended to be shipped
abroad before they may exercise the power to effect customs
searches, seizures, or arrests provided by law and continue
with the administrative hearings. (The Bureau of Customs, et al.,
v. Ogario, et al., G.R. No. 138081, March 20, 2000)
34. The Tariff and Customs Code allows the Bureau of
Customs to resort to the administrative remedy of seizure, such
as by enforcing the tax lien on the imported article when the
imported articles could be found and be subject to seizure and
forfeiture.
35. The Tariff and Customs Code allows the Bureau of
Customs to resort to the judicial remedy of filing an action in
court when the imported articles could not anymore be found.
38.
Requisites
for
forfeiture
of imported
goods:
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)
39. On January 7, 1989, the vessel M/V Star Ace,
coming from Singapore laden with cargo, entered the Port of
San Fernando, La Union for needed repairs. When the Bureau
of Customs later became suspicious that the vessels real
purpose in docking was to smuggle cargo into the country,
seizure proceedings were instituted and subsequently two
Warrants of Seizure and Detention were issued for the vessel
and its cargo.
Cesar does not own the vessel or any of its cargo but
claimed a preferred maritime lien. Cesar then brought several
cases in the RTC to enforce his lien. Would these suits
prosper ?
SUGGESTED ANSWER: No. The Bureau of Customs
having first obtained possession of the vessel and its goods has
obtained jurisdiction to the exclusion of the trial courts.
80
When Cesar has impleaded the vessel as a defendant to
enforce his alleged maritime lien, in the RTC, he brought an action
in rem under the Code of Commerce under which the vessel may be
attached and sold.
However, the basic operative fact is the actual or constructive
possession of the res by the tribunal empowered by law to conduct
the proceedings. This means that to acquire jurisdiction over the
vessel, as a defendant, the trial court must have obtained either
actual or constructive possession over it. Neither was accomplished
by the RTC as the vessel was already in the possession of the
Bureau of Customs. (Commissioner of Customs v. Court of
Appeals, et al., G. R. Nos. 111202-05, January 31, 2006)
NOTES AND COMMENTS:
a.
Forfeiture of seized goods in the Bureau of
Customs is in the nature of a proceeding in rem, i.e. directed
against the res or imported goods and entails a determination of the
legality of their importation. In this proceeding, it is in legal
contemplation the property itself which commits the violation and is
treated as the offender, without reference whatsoever to the
character or conduct of the owner.
The issue is limited to whether the imported goods should be
forfeited and disposed of in accordance with law for violation of the
Tariff and Customs Code. .(Transglobe International, Inc. v. Court of
Appeals, et al., G.R. No. 126634, January 25, 1999)
Forfeiture of seized goods in the Bureau of Customs is a
proceeding against the goods and not against the owner. (Asian
Terminals, Inc. v. Bautista-Ricafort, G .R. No. 166901, October 27,
2006 citing Transglobe)
40. The Collector of Customs upon probable cause that
the articles are imported or exported, or are attempted to be
imported or exported, in violation of the tariff and customs
laws shall issue a warrant of seizure. (Sec. 6, Title III, CAO No.
9-93)
If the search and seizure is to be conducted in a dwelling
place, then a search warrant should be issued by the regular courts
not the Bureau of Customs.
There may be instances where no warrants issued by the
Bureau of Customs or the regular courts is required, as in search
and seizures of motor vehicles and vessels.
41. Smuggled goods seized by virtue of a court warrant
should be surrendered to the court that issued the warrant and
1.
81
SUGGESTED ANSWER: No.
Philippine Long Distance
Telephone Company, Inc., v. City of Davao, et al., etc., G. R. No.
143867, August 22, 2001, upheld the authority of the City of Davao,
a local government unit, to impose and collect a local franchise tax
because the Local Government Code has withdrawn all tax
exemptions previously enjoyed by all persons and authorized local
government units to impose a tax on business enjoying a franchise
tax notwithstanding the grant of tax exemption to them.
5.
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.
6.
Requirements: Any individual or corporation
employing a person subject to professional tax shall require payment
by that person of the tax on his profession before employment and
annually thereafter.
Any person subject to the professional tax shall write in
deeds, receipts, prescriptions, reports, books of account, plans and
designs, surveys and maps, as the case may be, the number of the
official receipt issued to him.
Exemption: Professionals exclusively employed in the
government shall be exempt from payment. (Sec. 139, LGC)
NOTE: For the purpose of collecting the tax, the provincial or
city treasurer or his duly authorized representative shall require from
such professionals their current annual registration cards issued by
competent authority before accepting payment of their professional
tax for the current year. The PRC shall likewise require the
professionals presentation of proof of payment before registration of
professionals or renewal of their licenses. (last par., Art. 228, Rules
and Regulations Implementing the Local Government Code of 1991)
82
1.
83
the time of sale, cession, transfer and conveyance, whichever
is higher, as evidenced by the certificate of payment of the
capital gains tax issued therefore.
Is the proviso for the basis in determining the value for
real property tax purposes valid ?
SUGGESTED ANSWER: No. The proviso being contrary to
public policy and for restraining trade is not valid for the following
reasons:
a.
It mandates an exclusive rule in determining the fair
market value and departs from the established procedures such as
the sales analysis approach, the income capitalization approach and
the reproduction approach provided under the rules implementing
the statute. It unduly interferes with the duties statutorily placed
upon the local assessor by completely dispensing with his analysis
and discretion which the Local Government Code and the
regulations require to be exercised. An ordinance that contravenes
any statute is ultra vires and void.
b.
The consideration approach in the ordinance is illegal
since the appraisal, assessment, levy and collection of real property
tax shall not be let to any private person, it will also completely
destroy the fundamental principle in real property taxation that real
property shall be classified, valued and assessed on the basis of its
actual use regardless of where located, whoever owns it, and
whoever uses it. Allowing the parties to a private sale to dictate the
fair market value of the property will dispense with the distinctions of
actual use stated in the Local Government Code and in the
regulations.
c.
The invalidity is not cured by the prhase whichever is
higher because an integral part of that system still permits valuing
real property in disregard of its actual use.
d.
The ordinance would result to real property
assessments more than once every three (3) years and that is not
the congressional intent as shown in the provisions of the Local
Government Code and the regulations. Consequently, the real
property tax burden should not be interpreted to include those
beyond what the Code or the regulations expressly clearly state.
e.
The proviso would provide a chilling effect on real
property owners or administrators to enter freely into contracts
reflecting the increasing value of real properties in accordance with
prevailing market conditions.
While the Local Government Code provides that the
assessment of real property shall not be increased once every three
(3) years, the questioned proviso subjects the property to a higher
assessment every time a sales transaction is made. Real property
owners would therefore postpone sales until after the lapse of the
three (3) year period, or if they do so within the said period they shall
be compelled to dispose of the property at a price not exceeding the
last prior conveyance in order to avoid a higher tax assessment.
In the above two scenarios real property owners are
effectively prevented from obtaining the best price possible for their
properties and unduly hampers the equitable distribution of wealth.
(Allied Banking Corporation, etc., v. Quezon City Government, et al.,
G. R. No. 154126, October 11, 2005)
6.
What is the nature of a tax declaration ?
SUGGESTED ANSWER: As a rule, tax declarations or realty
tax payments of property are not conclusive evidence of ownership,
nevertheless, they are good indicia of possession in the concept of
owner, for no one in his right mind would be paying taxes for a
property that is not in his actual or constructive possession. They
constitute at least proof that the holder has a claim of title over the
property.
The voluntary declaration of a piece of property for taxation
purposes manifests not only ones sincere and honest desire to
obtain title to the property and announces his adverse claim against
the State and all other interested parties, but also the intention to
contribute needed revenues to the government. Such an act
strengthens ones bona fide claim of acquisition of ownership.
(Buenaventura, et al., v. Republic, G. R. No. 166865, March 2,
2007 citing Heirs of Simplicio Santiago v. Heirs of Mariano E.
Santiago, G. R. No. 151440, 17 June 2003, 404 SCRA 193, 199
200)
7.
84
different from the public roads. Furthermore, they are not open to
use by the general public hence not exempt from real property
taxes. Even granting that the national government owns the
carriageways and terminal stations, the property is not exempt
because their beneficial use has been granted to LRTA a taxable
entity. (Light Rail Transit Authority v. Central Board of Assessment
Appeals, et al., G. R. No. 127316, October 12, 2000)
c.
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.
8. The restriction upon the power of courts to impeach
tax assessment without a prior payment, under protest, of the
taxes assessed is consistent with the doctrine that taxes are
the lifeblood of the nation, and as such their collection cannot be
curtailed by injunction or any like action; otherwise, the state or, in
this case, the local government unit, shall be crippled in dispensing
the needed services to the people, and its machinery gravely
disabled. (Manila Electric Company v. Barlis, G.R. No. 114231, May
18, 2001)
Thus, the trial court has no jurisdiction to entertain a petition
for prohibition absent payment under protest of the tax assessed.
(Ibid.)
NOTES AND COMMENTS: While the above May 18, 2001
decision was set aside by the Supreme Court when it granted the
petitioners second motion for reconsideration on June 29, 2004, the
author submits that the above doctrine in the May 18, 2001 decision
is still valid, because what was reversed in the second motion for
reconsideration was the garnishment of Meralcos assets. The
remand to the lower court was for the resolution of whether or not
an assessment was issued to Meralco.
85
enactment of an ordinance imposing real property taxes. (Figuerres
v. Court of Appeals, et al., G.R. No. 119172, March 25, 1999)
86
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 graftprone 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, citing Callanta v. Office of the Ombudsman. G. R.
Nos. 115253-74, January 30, 1998, 285 SCRA 648)
18. A special levy or special assessment is an imposition by
a province, a city, a municipality within the Metropolitan Manila
Area, a municipality or a barangay upon real property specially
benefited by a public works expenditure of the LGU to recover not
more than 60% of such expenditure.
19. If the ground for the protest is validity of the real
property tax ordinance and not the unreasonableness of the
amount 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.
20. If the ground for the protest is unreasonableness of
the amounts collected there is need to pay under protest and
administrative remedies must be resorted to before recourse to the
proper courts.
21. Procedure for refund of real property taxes based on
unreasonableness or excessiveness of amounts collected.
a.
Payment under protest at the time of payment or within
thirty (30) days thereafter, protest being lodged to the provincial, city
or in the case of a municipality within the Metro Manila Area the
municipal treasurer.
b.
The treasurer has a period of sixty (60) days from
receipt of the protest within to decide.
c.
Within thirty (30) days from receipt of treasurers
decision or if the treasurer does not decide, within thirty (30) days
from the expiration of the sixty (60) period for the treasurer to
decide, the taxpayer should file an appeal with the Local Board of
Assessment Appeals.
d.
The Local Board of Assessment Appeals has 120 days
from receipt of the appeal within which to decide.
e.
The adverse decision of the Local Board of
Assessment Appeals should be appealed within thirty (30) days from
receipt to the Central Board of Assessment Appeals.
f.
The adverse decision of the Central Board of
Assessment Appeals shall be appealed to the Court of Tax Appeals
(En Banc) by means of a petition for review within thirty (30) days
from receipt of the adverse decision.
g.
The decision of the CTA may be the subject of a
motion for reconsideration or new trial after which an appeal may be
interposed by means of a petition for review on certiorari directed to
the Supreme Court on pure questions of law within a period of
fifteen (15) days from receipt extendible for a period of thirty (30)
days.
22. A City Ordinance adopting a method of assessment
was nullified by the Supreme Court. A taxpayer who has paid
his real property taxes on the basis of the nullified ordinance
now posits that the return of the real property tax erroneously
collected and paid is a necessary consequence of the Supreme
Courts nullification of the ordinance and there is no need to
claim for a refund. Is this correct ?
SUGGESTED ANSWER: No. The entitlement to a tax
refund does not necessarily call for the automatic payment of the
sum claimed. The amount of the claim being a factual matter, it
must still be proven in the normal course and in accordance with the
administrative procedure for obtaining a refund of real property
taxes, as provided under the Local Government Code. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R.
No. 154126, September 15, 2006)
NOTE: In the above Allied Banking case, the Supreme Court
provided for the starting date of computing the two-year prescriptive
87
period within which to file the claim with the Treasurer, which is from
finality of the Decision. The procedure to be followed is that shown
below.
23. Procedure for refund of real property taxes based on
validity of the tax measure or solutio indebeti.
a.
Payment under protest not required, claim must be
directed to the local treasurer, within two (2) years from the date the
taxpayer is 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.
24.
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]
25. The constitutional tax exemptions refer only
to real property that are actually, directly and exclusively used for
religious, charitable or educational purposes, and that the only
constitutionally recognized exemption from taxation of revenues are
those earned by non-profit, non-stock educational institutions which
are actually, directly and exclusively used for educational purposes.
88
28.
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)
upon which the local governments are not allowed to levy taxes,
fees or other charges.
An instrumentality refers to any agency of the National
Government, not integrated within the department framework vested
with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes
regulatory agencies chartered institutions and government-owned or
controlled corporations. [Sec. 2 (10), Introductory Provisions,
Administrative Code of 1987] It is an instrumentality exercising not
only governmental but also corporate powers.
It exercises
governmental powers of eminent domain, police power authority,
and levying of fees and charges.
Finally, the airport lands and buildings are property owned
by the government that are devoted to public use and are properties
of the public domain. (Manila International Airport Authority v. City
of Pasay, et al., G. R. No. 163072, April 2, 2009 citing Manila
International Airport Authority v. Court of Appeals, et al., G. R. No.
155650, July 20, 2006)
89
b.
The companys properties are exempt from tax
under its franchise.
Resolve the issues raised.
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)
NOTES AND COMMENTS:
a.
Note the confusion in the decision. It cited Mactan
Cebu which stated that the taxing power of local government units is
no longer merely by virtue of a valid delegation as before, but
pursuant to direct authority but in the concluding portion referred to
it as the LGCs delegated taxing power. Which is which, delegated
or direct grant ? The author submits that the weight of jurisprudence
shows that it is a direct grant not a delegated power. If a question is
asked then state it is a direct grant.
32. 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-manager-operator
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 support its
claim for tax exemption. (National Power Corporation v. Central
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