The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at
the time of the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells exclusively
to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in
the Philippines by nonresident foreign persons shall be considered as being course of trade or
business.
Note:
A transaction characterized as having been entered into by a person in the course of trade or business, if it
is regularly conducted and undertaken in pursuit of a commercial or economic activity. Transactions that
are undertaken incidental to the pursuit of a commercial or economic activity are considered as entered
into in the course of trade or business
Incidental
Means depending upon or appertaining to something else as primary.
Characteristics of VAT:
1. It is a tax on value added of a taxpayer
2. It is collected through the tax credit method
3. It is transparent form of sales tax
4. It is broad-based tax on consumption of goods, properties or services in the Philippines
5. It is an indirect tax
6. It is in accordance with the tax-inclusive method
7. There is no cascading in the value added tax system
Note:
The fact that no income was derived from the sale or exchange transaction is not material and is still
susceptible to payment of VAT
Nature
1. An indirect tax; hence, amount of the tax may be shifted or passed on to the buyer
2. A privilege tax; hence, the tax is imposed not on the goods, properties or services as such but on
the sale, barter, exchange or lease of goods or properties, or the sale or performance of services
for a fee, remuneration, etc
3. A uniform tax computed at the rate of 0% or 12% of the gross selling price of goods or of gross
receipts realized from the sale of services
4. An ad valorem tax because it is based on the gross selling price or gross value in money, or gross
receipts derived from the transaction
5. A tax on the value added by every seller as the goods, properties or services pass along the
distribution chain, unless the seller is exempt.
VAT
It is a form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the Philippines. It is an
indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or
services
Tax Rates
On sale of goods and properties - twelve percent (12%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged
On sale of services and use or lease of properties - twelve percent (12%) of gross receipts derived
from the sale or exchange of services, including the use or lease of properties
On importation of goods - twelve percent (12%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such as tax to be paid by the importer prior to the release of such goods from
customs custody; provided, that where the customs duties are determined on the basis of quantity
or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any.
Value added
It is the difference between total sales of the taxpayer for the taxable quarter subject to value added tax
and his total purchases for the same period subject also to value added tax.
Output Tax
Means the VAT due on the sale or lease of taxable goods, properties or services by any person registered
or required to register under the tax code
Input tax
Means the VAT from or paid by a VAT registered person in the course of his trade or business on
importation of goods or local purchases of goods, properties or services including lease or use of property,
from a vat registered person
Comment:
It is the value paid by a person where as the output tax is the value included in the purchase price when
sold.
Note:
As a general rule the responsibility to pay VAT is imposable upon the seller except in cases where the
buyer is also the importer of the goods
Note:
A buyer becomes entitled to the input tax upon consummation of sale and issuance of a VAT invoice, in
the case of sale of goods or properties, and upon payment of service fee or compensation, in the case of
sale of services. It is not necessary that the inventory of goods or properties be sold before the buyer
thereof become entitled to it.
Generally there must be an actual sale of goods, properties or services in the Philippine in order that VAT
may be imposed, except in:
1. Importation of goods by any person, who may not be engaged in trade or business in the
Philippines, in which case, the tax is imposed on the importer-buyer. Importation of servies is not
subject to VAT unless such service is performed within the Philippines
2. Issuance of VAT invoice for exempt sales of GPS.
a. Note must be taken that as a rule vat exempt transactions require a non-vat invoice,
however if the seller issues a vat invoice in a vat exempt transaction, the seller shall be
held liable for the payment of VAT
b. Deemed sales of goods or properties
Note:
A sale of goods located and consumed outside the PH is exempt from VAT, even if the contracting parties
are both domestic corporations
Note:
Investments in capital goods such as machinery and equipment are effectively not subject to VAT due to
the provisions of the tax code allowing taxpayers to recover input taxes paid on acquisition of capital
goods through refund or tax credit
Destination principle
The destination of the goods determines taxation or exemption from tax.
Note:
Import sales are subject to 0% or are vat exempt. The reason why imports are tax exempt or subjected to a
0% VAT is because the goods will be made outside the PH, while imports of goods are subject to the 12%
VAT because they are for consumption within the PH.
Note:
Since VAT is an indirect tax, the impact of taxation is on the seller since it is upon him the tax has been
imposed while the incidence of tax is one the final consumer, the place at which the tax comes to rest.
(i) 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
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%).
1. The term 'goods or properties' shall mean all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
a. Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan secret
formula or process, goodwill, trademark, trade brand or other like property or
right;
c. The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
The term 'gross selling price' means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the value-added tax. The excise tax, if any,
on such goods or properties shall form part of the gross selling price.
2. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
a. Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported and
paid for in acceptable foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas,(BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the said buyer's goods
and paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
(3) Sale of raw materials or packaging materials to export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
(5) Those considered export sales under Executive Order No. 226, otherwise known
as the Omnibus Investment Code of 1987, and other special laws; and
(6) The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations.
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
1. Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered persons: or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods, were consigned; and
4. Retirement from or cessation of business, with respect to inventories of taxable aoods
existing as of such retirement or cessation.
(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection
(A) of this Section shall also apply to goods disposed of or existing as of a certain date if under
circumstances to be prescribed in rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner, the status of a person as a VAT-
registered person changes or is terminated.
(D) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and
subsequently returned or for which allowances were granted by a VAT-registered person may
be deducted from the gross sales or receipts for the quarter in which a refund is made or a
credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at
the time of sale and the grant of which does not depend upon the happening of a future event
may be excluded from the gross sales within the same quarter it was given.
(E) Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner
shall, by rules and regulations prescribed by the Secretary of Finance, determine the
appropriate tax base incases where a transaction is deemed a sale, barter or exchange of goods
or properties under Subsection (B) hereof, or where the gross selling price is unreasonably
lower than the actual market value
Note:
A contract for a piece of work is not subject to the vat on sales or exchange of goods or services but is
more appropriately subjected to the sale of services
Note:
Export sales include sale of goods and services by a taxpayer located in the customs territory to a person
located in a special economic zone or Freeport zone
SEC. 107. Value-Added Tax on Importation of Goods. -
(A) In General. - There shall be levied, assessed and collected on every importation of goods a
value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on the basis of the
quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: Provided, further, 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:
(i) 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
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%).
(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax free importation of goods into
the Philippines by persons, entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers, transferees or recipients shall be considered the importers thereof, who
shall be liable for any internal revenue tax on such importation. The tax due on such
importation shall constitute a lien on the goods superior to all charges or liens on the goods,
irrespective of the possessor thereof
An alien employee of the Asian Development Bank (ADB) who is retiring soon has
offered to sell his car to you which he imported tax-free for his personal use. The privilege of
exemption from tax is granted to qualified personal use under the ADB Charter which is
recognized by the tax authorities. If you decide to purchase the car, is the sale subject to tax?
Explain. (5%)
SUGGESTED ANSWER:
The sales transaction is subject to value added tax (VAT) under Sec. 107(B) of the NIRC,
although this provision is expressly excluded from the coverage of the 2005 bar exam.
The proceeds from the sale are subject to income tax. The car is considered a capital asset of
the retiring alien employee because he is not engaged in the business of buying and
selling cars. He therefore derived income, which should be reported in his income tax return.
(Sees. 32 and 39, NIRC)
Note:
Failure to register does not exculpate a person from paying VAT taxes
Note:
As a general rule, non-stock, non-profit corporations or associations are usually VAT exempt in offering
their services to their members or for the use of their facilities under the reasoning that the services or
lease offered by them are not considered as one of the transactions which are subject to VAT. However
the moment that they enter into transactions subject to VAT, I.E opening of Canteens, the BIR has ruled
that they will be subjected to VAT.
Note:
VAT attached only upon the consummation of the sale or of the exchange of goods, regardless of the
terms of payment between contracting parties.
Types of sales:
1. Actual sale
2. Deemed sales
Note:
In transactions deemed sales, the seller is also the buyer and no valuable consideration is thus paid.
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to
ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or
lease of properties: 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:
(i) 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
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).
The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered
by construction and service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for
others; proprietors, operators or keepers of hotels, motels, rest-houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers; dealers in securities; lending investors; 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; 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; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities, telephone and telegraph,
radio and television broadcasting and all other franchise grantees except those under Section 119 of
this Code and non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange
of services' shall likewise include:
1. The lease or the use of or the right or privilege to use any copyright, patent, design or model plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;
2. The lease or the use of, or the right to use of any industrial, commercial or, scientific equipment;
3. The supply of scientific, technical, industrial or commercial knowledge or information;
4. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such property, or right as is mentioned in
subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3)
5. The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such nonresident person;
6. The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture,
project or scheme;
7. The lease of motion picture films, films, tapes and discs; and
8. The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the
contract of lease or licensing agreement was executed if the property is leased or used in the
Philippines.
The term 'gross receipts' means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and advanced payments actually or constructively received
during the taxable quarter for the services performed or to be performed for another person, excluding
value-added tax.
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
1. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
2. Services other than those mentioned in the preceding paragraph rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business
who is outside the Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
3. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services
to zero percent (0%) rate;
4. Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof;
5. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production;
6. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country;
and
7. Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels.
Note:
The sale and exchange of services under the VAT law embraces all transactions sales of exchanges not
covered by sales and exchanges of goods and properties regardless if it requires the application or use of
the physical or mental faculties of a person provided that it is not one of the exempt transactions.
Note:
Transport of passengers are not subject to vat but is subject to percentage tax.
Note:
Sale or exchanges of goods, properties or services in special economic zones and freeports zones are
considered as foreign territories by fiction of law hence not subject to vat
Note:
A contract of lease covering property situated in the Philippines is subject to VAT regardless of the
location of lessor or where the contract was executed. However if the lessor is an enterprise registered in
the Philippine Export Zone Authority the transaction shall be vat exempt
Constructive receipt
Occurs when the money consideration or its equivalent is placed under the control of the person who
rendered the service without any substantial restrictions by the payor.
1. Sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez.
[1%]
2. Services rendered by Jake's Construction Company, a contractor to the World Health
Organization in the renovation of its offices in Manila. [1%]
3. Sale of tractors and other agricultural implements by Bungkal Incorporated to local farmers.
[1%]
4. Sale of RTW by Cely's Boutique, a Filipino dress designer, in her dress shop and other
outlets. [1%]
5. Fees for lodging paid by students to Bahay-Bahayan Dormitory, a private entity operating
a student
SUGGESTED ANSWER:
1. VAT exempt. Sale of agricultural products, such as fresh vegetables, in their original state, of
a kind generally used as, or producing foods for human consumption is exempt from VAT.
(Section 109(c), NIRC).
2. VAT at 0%. Since Jake's Construction Company has rendered services to the World Health
Organization, which is an entity exempted from taxation under international agreements to
which the Philippines is a signatory, the supply of services is subject to zero percent (0%) rate.
(Sec. 108[B1(3), NIRC).
3. VAT at 10%. Tractors and other agricultural implements fall under the definition of
goods which include all tangible objects which are capable of pecuniary estimation (Sec.
106[A1(1), NIRC, the sales of which are subject to VAT at 10%.
4. This is subject to VAT at 10%. This transaction also falls under the definition of goods which
include all tangible objects which are capable of pecuniary estimation (Sec. 106[A1(1),
NIRC, the sales of which are subject to VAT at 10%.
5. VAT Exempt. The monthly fee paid by each student falls under the lease of residential units
with a monthly rental per unit not exceeding Php 8,000, which Is exempt from VAT
regardless of the amount of aggregate rentals received by the lessor during the year. (Sec.
109(x), NIRC). The term unit shall mean per person in the case of dormitories, boarding
houses and bed spaces (Sec. 4.103-1, RRNo. 7-95)
Note:
If one of the parties is granted tax exempt status, it is only exempted from paying VAT as a seller and
does not extend to it as a purchaser under the reasoning that as a seller it is liable to pay the VAT to the
government directly whereas as a purchaser it is not liable to pay directly to the government
Note:
The following are the effects of exemption:
1. Partial exemption
The seller has no output tax liability on his sales, but the input taxes passed on to him by his
suppliers of goods, properties or services form part of his assets or operating expenses
2. Total exemption
Total relief from VAT is accomplished by subjecting the sales to zero value rate, but the input
taxes passed on to him by his suppliers may be recovered from the BOR through claims for tax
credits or refunds
Tax Exemptions: Nature & Coverage; Proper Party (2004)
As an incentive for investors, a law was passed giving newly established companies in
certain economic zone exemption from all taxes, duties, fees, imposts and other charges for a
period of three years. ABC Corp. was organized and was granted such incentive. In the
course of business, ABC Corp. purchased mechanical equipment from XYZ Inc. Normally, the
sale is subject to a sales tax.
XYZ Inc. claims, however, that since it sold the equipment to ABC Corp. which is
tax exempt, XYZ should not be liable to pay the sales tax. Is this claim tenable? (5%)
SUGGESTED ANSWER:
A. No. Exemption from taxes is personal in nature and covers only taxes for which the
taxpayer-grantee is directly liable. The sales tax is a tax on the seller who is not exempt
from taxes. Since XYZ Inc. is directly liable for the sales tax and no tax exemption privilege
is ever given to him, therefore, its claim that the sale is tax exempt is not tenable. A tax
exemption is construed in strictissimi juris and it can not be permitted to exist upon
vague implications (Asiatic Petroleum Co., Ltd. V. Llanes, 49 Phil
B. Assume arguendo that XYZ had to and did pay the sales tax. ABC Corp. later found out,
however, that XYZ merely shifted or passed on to ABC the amount of the sales tax by
increasing the purchase price. ABC Corp. now claims for a refund from the Bureau of Internal
Revenue in an amount corresponding to the tax passed on to it since it is tax exempt.
Is the claim of ABC Corp. meritorious? (5%)
SUGGESTED ANSWER;
B. No. The claim of ABC Corp. is not meritorious. Although the tax was shifted to ABC
Corp. by the seller, what is paid by it is not a tax but part of the cost it has assumed. Hence,
since ABC Corp. is not a taxpayer, it has no capacity to file a claim for refund. The taxpayer who
can file a claim for refund is the person statutorily liable for the payment of the tax
TAX BASE
Note:
The tax base shall be the gross selling price or gross receipt as defined in section 106 however when the
consideration is paid mixed by money and property the property shall be valued using its fair market
value at the time of sale or the estimated amount of the property whichever is higher. Further as per the
vat inclusive method, if the amount of the vat is not specified in the invoice or document representing the
sale or exchange it shall be the deemed inclusive thereof and may be determined using the divisor of 11.
Rules in determining the tax base of sale of goods
1. As a general rule, the output tax accrues on the sale of goods or properties(other real property) at
the time of the sale, when the sales invoice is issued, although none or only a part of the gross
selling price is paid by the buyer at the time of sale
2. In sales covering real property, the following rules shall govern:
a. If it is a sale on cash basis, the amount subject to VAT at the time of execution of the
document of sale
b. In deferred payments:
i. In the case of sale of real property on installment plan, where the initial payment
is more than 25% of the gross selling price, the tax base shall be the entire gross
selling price, or FMV as determined by the CIR, whichever is higher
ii. In the case of sale of real property is NOT on installment plan, where the initial
payment is less than 25% of the gross selling price, the tax base shall be the
amount actually or constructively received during the taxable quarter.
iii. If the sale of real property is on installment plan where the zonal value/FMV is
higher than the consideration exclusive of the VAT, the VAT shall be based on
the ratio of actual collection of the consideration, exclusive of VAT.
c. Sales discounts determined and granted at the time of sale, which are expressly indicated
in the sales invoice relating to sales of goods or properties do not form part of the tax
base provided:
i. The grant of sales discount must not depend upon the happening of a future event
ii. The discount must be recorded in the books of accounts of the seller
iii. The discount must be expressly indicated in the sales invoice
d. When the buyer is a senior citizen the tax base shall be net sales after deducting the 20%
senior citizen discount
e. The tax base for transactions deemed sale is generally the market value of such goods as
of the occurrence of the transaction deemed sale. However, in the case of retirement from
or cessation of business the tax base shall be the acquisition cost or the current market
price of the goods, whichever is lower.
f. If the gross selling price is lower than the actual market value by more than 30% percent
the gross selling price is considered as unreasonable lower than the actual market value.
As such the CIR is authorized to determine and prescribed the actual market value to be
used as a tax base
Gross receipts
The term means the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the
services and deposits and advanced payments actually or constructively received during the taxable
quarter for the services performed or to be performed for another person, excluding value-added tax,
EXCEPT those amounts earmarked for payment to unrelated third party or received as reimbursement for
advance payment on behalf of another, which do not redound to the benefit of the payor. (unrelated party)
Rates of VAT
Provided, That the input tax on goods purchased or imported in a calendar month for use
in trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000): Provided, however, That if the estimated useful life
of the capital good is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such a shorter period: Provided, finally, that in the case of
purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.
3. A VAT-registered person who is also engaged in transactions not subject to the value-added
tax shall be allowed tax credit as follows:
a. Total input tax which, can be directly attributed to transactions subject to value-add
tax; and
b. A ratable portion of any input tax which cannot be directly attributed to either
activity.
The term 'input tax' means the value-added tax due from or paid by a VAT-registered
person in the course of his trade or business on importation of goods or local purchase of
goods or services, including lease or use of property, from a VAT-registered person. It shall
also include the transitional input tax determined in accordance with Section 111 of this
Code.
The term 'output tax' means the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under Section 236 of
this Code.
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided,
That the input tax inclusive of input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output VAT: Provided,
however, That any input tax attributable to zero-rated sales by a VAT-registered person may at
his option be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.
(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried over from the
preceeding month or quarter and the input tax creditable to a VAT-registered person during
the taxable month or quarter shall be reduced by the amount of claim for refund or tax credit
for value-added tax and other adjustments, such as purchase returns or allowances and input
tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only those filed
with the Bureau of Internal Revenue but also those filed with other government agencies, such
as the Board of Investments and the Bureau of Customs.
Output tax
1. 12%
2. 0%
Input tax
1. 12%
2. 0%
3. 2% transitional or 12% actual input tax
4. 4% presumptive input tax
5. 5% final withholding tax
Note:
Transitional input tax are applied to the value of foods existing at the date a person commences business
and/or becomes liable to pay VAT. Whereas presumptive input tax rate is applied to purchases of VAT-
exempt goods used as inputs by VAT registered person in manufacturing or processing certain food
products.
Note:
With respect to transactions requiring foreign currency, such requirement may be waived in exchange
deals provided the BIR and BSP issues a ruling confirming that the exchange deals complies with the
accounting requirements or liquidation of the foreign currency under the BSP circulars and the tax code
Note:
NPC by its special charter categorically makes it exempt from payment of all taxes, whether direct or
indirect, including taxes
Note:
In order for an effectively zero-rated transaction to be zero rated, an application must be filed with BIR
and approved accordingly prior to the execution of the transaction. Further the word zero-rated must be
stamped on the face of the VAT invoice or receipt to be issued by the seller of the goods or services.
Note:
Transactions with embassies of a foreign state and its personnel will not be zero-rated unless there is
existing international agreement showing that the said foreign government allows similar tax exemption
privilege to the Philippine embassy and its personnel on their purchases of goods or services in that
foreign country. Such vat exemption shall not extend to the individual purchases made by the members of
their diplomatic staff.
Exempt Transactions
SEC. 109. Exempt Transactions. - The following shall be exempt from the value-added tax:
(a) Sale of nonfood agricultural products; marine and forest products in their original state by the primary
producer or the owner of the land where the same are produced;
(d) 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);
(e) Sale or importation of coal and natural gas, in whatever form or state, and petroleum products (except
lubricating oil, processed gas, grease, wax and petrolatum) subject to excise tax imposed under Title VI;
(f) Sale or importation of raw materials to be used by the buyer or importer himself in the
manufacture of petroleum products subject to excise tax, except lubricating oil, processed gas, grease,
wax and petrolatum;
(g) Importation of passenger and/or cargo vessels of more than five thousand tons (5,000) whether
coastwise or ocean-going, including engine and spare parts of said vessel to be used by the importer
himself as operator thereof;
(h) 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;
(i) 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, that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;
(k) Services by agricultural contract growers and milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;
(l) Medical, dental, hospital and veterinary services subject to the provisions of Section 17 of Republic
Act No. 7716, as amended;
(m) Educational services rendered by private educational institutions, duly accredited by the Department
of Education, Culture and Sports (DECS) and the Commission on Higher Education (CHED), and those
rendered by government educational institutions;
(n) Sale by the artist himself of his works of art, literary works, musical compositions and similar
creations, or his services performed for the production of such works;
(p) 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;
(q) Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590;
(r) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority
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;
(s) Sales by electric cooperatives duly registered with the Cooperative Development authority or
National Electrification Administration, relative to the generation and distribution of electricity as well
as their importation of machineries and equipment, including spare parts, which shall be directly used in
the generation and distribution of electricity;
(t) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the
Cooperative Development Authority whose lending operation is limited to their members;
(u) 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;
(w) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business or real property utilized for low-cost and socialized housing as defined by
Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other
related laws, house and lot and other residential dwellings valued at One million pesos (P1,000,000) and
below: Provided, That not later than January 31st of the calendar year subsequent to the effectivity of this
Act and each calendar year thereafter, the amount of One million pesos (P1,000,000) shall be adjusted to
its present value using the Consumer Price Index, as published by the national Statistics Office (NSO);
(x) Lease of a residential unit with a monthly rental not exceeding Eight thousand pesos (P10,000);
Provided, That not later than January 31st of the calendar year subsequent to the effectivity of Republic
Act No. 8241 and each calendar year thereafter, the amount of ten thousand pesos (P10,000) shall be
adjusted to its present value using the Consumer Price Index as published by the National Statistics Office
(NS0);
(y) Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid advertisements; and
(z) Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Five hundred fifty thousand pesos (P550,000): Provided, That not later than January 31st of
the calendar year subsequent to the effectivity of Republic Act No. 8241 and each calendar year
thereafter, the amount of Five hundred fifty thousand pesos (550,000) shall be adjusted to its present
value using the Consumer Price Index, as published by the National Statistics Office (NSO).
The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or properties
or services which are otherwise not subject to VAT, but who issues a VAT invoice or receipt therefor
shall, in addition to his liability to other applicable percentage tax, if any, be liable to the tax imposed
in Section 106 or 108 without the benefit of input tax credit, and such tax shall also be recognized as
input tax credit to the purchaser under Section 110, all of this Code.
Input Tax
(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any
person who elects to be a VAT-registered person shall, subject to the filing of an inventory
according to rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to two percent (2%) of the value of such inventory
or the actual value-added tax paid on such goods, materials and supplies, whichever is
higher, which shall be creditable against the output tax.
As used in this Subsection, 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 manner as to prepare it for special use to which it
could not have been put in its original form or condition.
(A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the
close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236, shall file a return
and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration:
Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of
business or head office and all branches.
(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise permits, the return
shall be filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or duly
authorized city or municipal Treasurer in the Philippines located within the revenue district where the
taxpayer is registered or required to register.
"(C) Withholding of Value-Added Tax. - The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods and services which are subject to the value-
added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at
the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax
at the time of payment. For purposes of this Section, the payor or person in control of the payment shall
be considered as the withholding agent.
"The value-added tax withheld under this Section shall be remitted within ten (10) days following the end
of the month the withholding was made.
5 categories of input tax
1. Input tax credit on importation of goods, properties and services
2. Transitional input tax
3. Presumptive input tax
4. Final withholding tax
5. Excess input tax
(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this
Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in payment of his other internal revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or
by his duly authorized representative without the necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the
Commission on Audit."
Note:
In cases of zero rated sales it is the seller who is entitled to a tax refund or credit. However in cases of
purchase of capital goods, the purchaser is the one entitled to the refund or tax credit.
Note:
Input taxes on purchases directly and entirely attributable to transactions exempt from value added tax
becomes part of the cost of the asset or operating expens of the taxpayer deductible only from his gross
income.
Note:
Failure to register as a VAT person does not relieve him of his liability to pay VAT however he can not
claim the benefits of input tax.
Note:
The failure of a vat registered person to mark a receipt as vat-exempt when the transaction is in fact vat
exempt shall render him liable to pay the VAT thereon. The purchaser shall be entitled to claim input tax
credit on the said purchase.
Tax Remedies
The judgment in the criminal case shall not only impose the penalty but shall also order payment of
the taxes subject of the criminal case as finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by
means of civil or criminal action, including the preservation or transportation of personal property
distrained and the advertisement and sale thereof, as well as of real property and improvements
thereon.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
SUGGESTED ANSWER:
Yes. The RMO is in reality a ruling of the Commissioner in implementing the provisions of
the Tax Code on the taxability of pawnshops. Jurisdiction to review rulings of the
Commissioner is lodged with the Court of Tax Appeals and not with the Regional
Trial Court (CIR v.Josefina Leal, G.R. No. 113459, November 18, 2002; Tax Reform Act,
RA 8424, Title I, Sec. 4 [1997]).
Note:
The power of the CIR to decide disputed assessment, refunds of taxes, fees or other charges, penalties and
other matters arising in the tax code is subject to the exclusive appellate jurisdiction of the CTA as per
RA 9282
Note:
The power to review decisions of the CIR by the SEC of finance is limited to cases which are adverse to
the tax payer and as such the filing of an appeal to the secretary of finance shall not stop the running of
the period to make an appeal to the CTA.
SEC. 5 Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons - In ascertaining the correctness of any return, or in making a return when
none has been made, or in determining the liability of any person for any internal revenue tax, or in
collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be relevant or material to such
inquiry;
(B) To 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 of multinational companies,
joint accounts, associations, joint ventures of consortia and registered partnerships, and their
members;
(C) To summon the person liable for tax or required to file a return, or any officer or employee of
such person, or any person having possession, custody, or care of the books of accounts and
other accounting records containing entries relating to the business of the person liable for tax,
or any other person, to appear before the Commissioner or his duly authorized representative
at a time and place specified in the summons and to produce such books, papers, records, or
other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant or material to
such inquiry; and
(E) To cause revenue officers and employees to make a canvass from time to time of any revenue
district or region and inquire after and concerning all persons therein who may be liable to
pay any internal revenue tax, and all persons owning or having the care, management or
possession of any object with respect to which a tax is imposed.
The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be
construed as granting the Commissioner the authority to inquire into bank deposits other than as
provided for in Section 6(F) of this Code.
1) Issued an access letter to A Co. to furnish the BIR information on sales and payments to
its suppliers.
2) Issued an access letter to a bank (CX Bank) to furnish the BIR on deposits of some
suppliers of A Co. on the alleged ground that the suppliers are committing tax evasion.
A Co., X Bank and the suppliers have not been issued by the BIR letter of authority to examine.
A Co. and X Bank believe that the BIR is on a "fishing expedition" and come to you for counsel.
What is your advice? (10%)
SUGGESTED ANSWER:
I will advise A Co. and B Co. that the BIR is justified only in getting information from the former
but not from the latter. The BIR is authorized to obtain information from other persons other than
those whose internal revenue tax liability is subject to audit or investigation. However, this
power shall not be construed as granting the Commissioner the authority to inquire
into bank deposits. (Section 5. NIRC).
SUGGESTED ANSWER:
No. as this would be violative of Republic Act No. 1405, the Bank Deposits Secrecy Law. The
Commissioner of Internal Revenue or his duly authorized representative may be
allowed to inquire or look into the bank deposits of a taxpayer in the following cases:
For the purpose of determining the gross estate of a decedent;
Where the taxpayer has filed an application for compromise of his tax liability by
reason of financial incapacity to pay such tax liability. (Sec. 6 (F), NIRC of 1997]
Where the taxpayer has signed a waiver authorizing the Commissioner or his duly
authorized representatives to Inquire into the bank deposits.
SUGGESTED ANSWER:
No. The Commissioner of Internal Revenue has the authority to inquire into bank
deposit accounts of a decedent to determine his gross estate notwithstanding the
provisions of the Bank Secrecy Law. Hence, the banks holding the deposits in
question may not refuse to disclose the amount of deposits on the ground of secrecy
of bank deposits. (Section 6(F) of the 1997 Tax Code). The fact that the deposit
is a joint account will not preclude the Commissioner from inquiring thereon
because the law mandates that if a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with another, it shall not
allow any withdrawal from the said deposit account, unless the Commissioner has
certified that the taxes imposed thereon have been paid. (Section 97 of the
1997 Tax Code). Hence, to be able to give the required certification, the inclusion of
the deposit is imperative, which may be made possible only through the inquiry
made by the Commissioner.
SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements
for Tax Administration and Enforcement.
(A) Examination of Returns and Determination of Tax Due - After a return has been filed as
required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the correct
amount of tax: Provided, however; That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer
Any return, statement of declaration filed in any office authorized to receive the same shall not
be withdrawn: Provided, That within three (3) years from the date of such filing, the same may
be modified, changed, or amended: Provided, further, That no notice for audit or investigation
of such return, statement or declaration has in the meantime been actually served upon the
taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports and other Documents - When a
report required by law as a basis for the assessment of any national internal revenue tax shall
not be forthcoming within the time fixed by laws or rules and regulations or when there is
reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall
assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law,
or willfully or otherwise files a false or fraudulent return or other document, the Commissioner
shall make or amend the return from his own knowledge and from such information as he can
obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all
legal purposes.
(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales
and Receipts - The Commissioner may, at any time during the taxable year, order inventory-
taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or
may place the business operations of any person, natural or juridical, under observation or
surveillance if there is reason to believe that such person is not declaring his correct income,
sales or receipts for internal revenue tax purposes.
The findings may be used as the basis for assessing the taxes for the other months or quarters of
the same or different taxable years and such assessment shall be deemed prima facie correct.
When it is found that a person has failed to issue receipts and invoices in violation of the
requirements of Sections 113 and 237 of this Code, or when there is reason to believe that the
books of accounts or other records do not correctly reflect the declarations made or to be made
in a return required to be filed under the provisions of this Code, the Commissioner, after
taking into account the sales, receipts, income or other taxable base of other persons engaged in
similar businesses under similar situations or circumstances or after considering other relevant
information may prescribe a minimum amount of such gross receipts, sales and taxable base,
and such amount so prescribed shall be prima facie correct for purposes of determining the
internal revenue tax liabilities of such person.
(D) Authority to Terminate Taxable Period - When it shall come to the knowledge of the
Commissioner that a taxpayer is retiring from business subject to tax, or is intending to leave
the Philippines or to remove his property therefrom or to hide or conceal his property, or is
performing any act tending to obstruct the proceedings for the collection of the tax for the past
or current quarter or year or to render the same totally or partly ineffective unless such
proceedings are begun immediately, the Commissioner shall declare the tax period of such
taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together
with a request for the immediate payment of the tax for the period so declared terminated and
the tax for the preceding year or quarter, or such portion thereof as may be unpaid, and said
taxes shall be due and payable immediately and shall be subject to all the penalties hereafter
prescribed, unless paid within the time fixed in the demand made by the Commissioner.
(E) Authority of the Commissioner to Prescribe Real Property Values - The Commissioner is
hereby authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers both from the private and public sectors, determine the
fair market value of real properties located in each zone or area.
For purposes of computing any internal revenue tax, the value of the property shall be,
whichever is the higher of:
1. the fair market value as determined by the Commissioner, or
2. the fair market value as shown in the schedule of values of the Provincial and City
Assessors.
(F) Authority of the Commissioner to inquire into Bank Deposit Accounts - Notwithstanding any
contrary provision of Republic Act No. 1405 and other general or special laws, the
Commissioner is hereby authorized to inquire into the bank deposits of:
1. A decedent to determine his gross estate; and
2. Any taxpayer who has filed an application for compromise of his tax liability under Sec. 204
(A) (2) of this Code by reason of financial incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the payment of his tax liabilities on his
claim that his financial position demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in writing his privilege under
Republic Act No. 1405 or under other general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the bank deposits of the taxpayer.
(G) Authority to Accredit and Register Tax Agents - The Commissioner shall accredit and register,
based on their professional competence, integrity and moral fitness, individuals and general
professional partnerships and their representatives who prepare and file tax returns,
statements, reports, protests, and other papers with or who appear before, the Bureau for
taxpayers.
Within one hundred twenty (120) days from January 1, 1998, the Commissioner shall create
national and regional accreditation boards, the members of which shall serve for three (3)
years, and shall designate from among the senior officials of the Bureau, one (1) chairman and
two (2) members for each board, subject to such rules and regulations as the Secretary of
Finance shall promulgate upon the recommendation of the Commissioner.
Individuals and general professional partnerships and their representatives who are denied
accreditation by the Commissioner and/or the national and regional accreditation boards may
appeal such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60)
days from receipt of such appeal.
Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be
deemed as approval of the application for accreditation of the appellant.
(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary
Requirements - The Commissioner may prescribe the manner of compliance with any
documentary or procedural requirement in connection with the submission or preparation of
financial statements accompanying the tax returns.
SEC. 7. Authority of the Commissioner to Delegate Power - The Commissioner may delegate the powers
vested in him under the pertinent provisions of this Code to any or such subordinate officials with the
rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be
imposed under rules and regulations to be promulgated by the Secretary of finance, upon recommendation
of the Commissioner: Provided, however, That the following powers of the Commissioner shall not be
delegated:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of
Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing
ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax
liability: Provided, however, That assessments issued by the regional offices involving
basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor
criminal violations, as may be determined by rules and regulations to be promulgated by
the Secretary of finance, upon recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional evaluation board which
shall be composed of the Regional Director as Chairman, the Assistant Regional Director,
the heads of the Legal, Assessment and Collection Divisions and the Revenue District
Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers
Substantive remedies
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a pre-assessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation
of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax
for a taxable period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice.
If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180)
days from submission of documents, the taxpayer adversely affected by the decision or inaction
may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or
from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable.
Assessment
It is the notice to the effect that the amount therein stated is due from a taxpayer as a tax with a demand
for payment of the same within a stated period of time.
Forms of assessments:
1. Formal assessment notice
2. Informal notice
General Rule:
Tax collection cannot be enjoined by court injunction. Tax Code provides that no court shall have the
authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge
imposed by this Code. (Sec. 18, NIRC)
Exception:
An injunction that may be issued by the CTA in aid of its appellate jurisdiction under RA 1125
Note:
An assessment made by the government is presumed to be correct and the burden of proof is on the
taxpayer contesting the validity or correctness of an assessment to prove that the CIR is wrong and the
taxpayer is correct.
Note:
An assessment is issued by the BIR based on findings of fact and/or law. The failure to state the factual
and legal basis of an assessment will render the same void.
Note:
The assessment process usually starts with the self-assessment by the taxpayer of his tax liability, filing of
the tax return, and payment of the entire tax due shown on his return
Note:
As a general rule internal revenue taxes are self-assessing and no further assessment by the government is
required to create tax liability The taxpayer himself assesses his liability, files the tax return and pays the
tax within the prescribed rates. The collection of the unpaid taxes reflected in the self-assessed return may
be collected without the need of issuing an assessment since the government adopts the assessment made
by the taxpayer.
However the following instances require an assessment notice to be made by the government in order to
establish tax liability of a tax payer:
1. Instances mentioned in sec 6 (d)
2. Deficiency tax liability arising from a tax audit conducted by the BIR
3. Instances where a tax lien is effected
4. In instances where a corporation is being or will be dissolved.
Examination of books of accounts and other accounting records of taxpayer by revenue officers to
determine correct tax liability.
Note:
Letter of Authority must be served to the concerned taxpayer within thirty (30) days from its date of
issuance otherwise it hall be null and void. Revenue officer is allowed only 120 days from the date of
receipt of a letter of authority by the taxpayer to conduct the audit and submit the required report of
investigation.
Note:
If the taxpayer does not submit the documents or information requested by the BIR, the person may be
required to testify or the document may be summoned and required to be presented to the BIR
Q. Can the BIR issue LOA more than once within a taxable year?
A. No. BIR officer are allowed to issue LOA only once. EXCEPT:
1. When BIR determines that there is fraud or irregularities was committed by taxpayer
2. Taxpayer itself request for an examination of his accounts
3. When there is a need to verify the withholding taxes required by the BIR.
4. When capital gains tax must be verified.
Power of the Commissioner to assess deficiency tax based on best evidence obtainable
Sec. 6B of R.A. 8424 empowers the Commissioner to assess the proper tax and make or amend the return
based on the best evidence obtainable (from his own knowledge and from such information as he can
obtain through testimony or otherwise) when:
1. a report required by law as a basis for the assessment of any national internal revenue tax shall
not be forthcoming within the time fixed by laws or rules and regulations; or
2. there is reason to believe that any such report is
a. false
b. incomplete
c. erroneous.
The return made by the Commissioner, in this instance, shall be prima facie correct and sufficient for all
legal purposes.
Rules:
1. If after review and evaluation by the assessment division or by the CIR or his duly authorized
representative, it is determined that there exist sufficient basis to assess the taxpayer deficiency
taxes.
2. The assessment division or the CIR or his duly authorized representative shall forthwith issue to
the taxpayer, at least by registered mail a PAN for the proposed assessment is based.
3. If the taxpayer fails to respond within 15 days from date of receipt of the PAN. He shall be
considered in default in which case a formal letter of demand and assessment notice shall be
caused to be issued, calling for payment of the deficiency inclusive of applicable penalties
Reply
If the taxpayer contests the a contents of the proposed assessment he shall answer by means of a reply
setting forth in writing the findings of the revenue officers contained in a PAN and his arguments and the
basis thereof.
Reply vs protest
1. A reply is made in response of a PAN, whereas a protest is made in contesting a FAN.
2. A TX is generally given under the regulations 15 fays from the date of receipt of the PAN within
which to make his written reply thereto, while in a protest the TX is given 30 days to file a protest
3. Due to the shorter time given to the TX to make a reply, a TX generally does not respond in an
adequate manner whereas in a protest is usually sufficient and comprehensive to explain the legal
and factual bases why the assessment is in correct.
4. Failure to reply to a PAN makes the TX in default and authorizes the revenue official to issue a
FAN.
Note
If the taxpayer disagrees with the findings stated in the PAN, he shall then have 15 days from his receipt
of the PAN to file a written reply contesting the proposed assessment.
Note:
The FAN must be sent by registered mail however if personally delivered to the TX or to his authorized
representative. The TX or his duly authorized representative shall acknowledge receipt thereof in the
duplicate copy of the letter of demand showing the following:
1. His name
2. Signature
3. Designation and authority to act for and in behalf of the TX if received by a person other than the
TX
4. Date of receipt thereof.
Note:
If the TX disagrees with the final assessment he must file a protest within 30 days from receipt of the
assessment otherwise the assessment shall become final and executory.
TAX ASSESSMENT
It is the official action of an officer authorized by law in ascertaining the amount of tax due under the law
from a taxpayer. This action necessarily involves:
1. the computation of the sum due;
2. giving notice to that effect to the taxpayer; and
3. the making, simultaneously with or sometime after the giving of notice, of a demand upon him
for the payment of the tax deficiency stated.
Note
Assessment contains not only computation of tax liabilities but also a demand for payment within a
prescribed period. [CIR vs. PASCOR, 309 SCRA 402]
Note:
Notice of assessment is presumed valid. If the taxpayer contested such a determination, the burden of
proving the determination wrong, together with the corresponding burden of first going forward with
evidence, is on the taxpayer. [ Cyanamid Philippines, Inc. vs. CA, 322 SCRA 639]
Q. When is an assessment deemed made?
An assessment is deemed made only when the collector of internal revenue releases, mails, or sends such
notice to the taxpayer regardless whether the taxpayer received the notice within the prescriptive period.
[Basilan Estates, Inc. vs. CIR, 21 SCRA 17]
Note:
In order for the presumption of receipt to arise the following facts must be present:
1. The letter was properly addressed with postage prepaid
2. The fact that the assessment has been mailed.
POWER TO COLLECT:
Delinquency Deficiency
Failure to pay the tax due on the date fixed by law The amount still due and collectible from a
or indicated in the assessment notice or letter of taxpayer upon audit or investigation.
demand
SUGGESTED ANSWER:
A revenue tax is considered delinquent when it is unpaid after the lapse of the last day
prescribed by law for its payment. Likewise, it could also be considered as
delinquent where an assessment for deficiency tax has become final and the taxpayer has not
paid it within the period given in the notice of assessment.
If the TX does not agree with the FAN he may question the same in accordance with the following
process:
1. He must file an administrative protest against the assessment within 30 days from the date of
receipt of the assessment
a. if there are several issues involved in the FAN but the TX only disputes or protests
against the validity of some of the issues raised, the TX shall be required to pay the
deficiency tax or rates attributable to the undisputed issues, in which case, a collection
letter shall be issued to the taxpayer calling for payment of the said deficiency tax,
inclusive of the applicable surcharge and/or interest. NO ACTION shall be taken on the
TX disputed issues until the TX has paid the deficiency tax or taxes attributable to the
said undisputed issues.
b. The prescriptive period for assessment or collection of the tax or taxes attributable to the
disputed issues shall be suspended.
c. The TX must state the facts, the applicable law, rules and regulations, or jurisprudence on
which his protest is based otherwise his protest shall be considered void and without
force and effect.
d. If the TX disputes some or all of the issues raised in the FAN but only provides for facts
and law relied upon with respect to some of the issues, those which he did not provide for
arguments and supporting facts and law shall be DEEMED undisputed, hence he shall be
liable to pay for the same
e. Failure to file a protest within the protest period shall render the FAN final and
executory.
2. Submission of documentary evidence and arguments
a. Within 60 days from date of filing of protest
b. Failure to submit would render the assessment final, executory and demandable
3. Denial of protest
a. The taxpayer may appeal to the Court of Tax Appeals (CTA) within 30 days from date of
receipt of the decision
b. Otherwise, the assessment shall become final, executory and demandable
4. Inaction of the CIR
a. Failure to act on the protest within 180 days from date of submission of the required
documents would give rise to the right of the taxpayer to appeal
b. The appeal should be made within 30 days from the lapse of the said 180-day period
c. Otherwise, the assessment shall become final, executory and demandable.
Forms of protest:
1. Request for reconsideration, where the protest is anchored on documents, arguments and legal
authorities already submitted or presented to the BIR
2. Request for reinvestigation, where the protest is grounded on new or additional evidence not yet
submitted to the BIR.
Note:
The when to file an appeal:
1. Within 30 days after denial full or partial by the CIR of his protest
2. In case the CIR has not decided his protest he has 2 options:
a. Within 30 days after expiration of the 180 days counted from the submission of the
complete set of documents; or
b. Even if after the 180 days, he can wait for the decision of the CIR and appeal the same to
the CTA within 30 days therefrom
Note:
Perfection of an appeal with the CTA shall not suspend the administrative remedies availed of by the
government. However the CTA is duly authorized to issue injunctions when warranted.
On June 1, 2003, Global Bank received a final notice of assessment from the BIR for
deficiency documentary stamp tax in the amount of P5 Million. On June 30, 2003, Global Bank
filed a request for reconsideration with the Commissioner of Internal Revenue. The
Commissioner denied the request for reconsideration only on May 30, 2006, at the same
time serving on Global Bank a warrant of distraint to collect the deficiency tax. If you were
its counsel, what will be your advice to the bank? Explain. (5%)
ALTERNATIVE ANSWER:
The denial for the request for reconsideration is the final decision of the CIR.. I would advise
Global Bank to appeal the denial to the Court of Tax Appeals (CTA) within 30 days
from receipt. I will further advise the bank to file a motion for injunction with the Court of
Tax Appeals to enjoin the Commissioner from enforcing the assessment pending resolution
of the appeal. While an appeal to the CTA will not suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the satisfaction of its tax liability, the CTA is
authorized to give injunctive relief if the enforcement would jeopardize the interest of the
taxpayer, as in this case, where the assessment has not become final (Lascona Land Co.
v,CIR, CTA Case No. 5777, January 4, 2000; See also Revised CTA Rules, approved by the
Supreme Court on December 15, 2005).
ALTERNATIVE ANSWER:
I will advice the Bank to promptly pay the deficiency documentary stamp tax and the
interest charges to avoid any further increase in the tax liability. The Bank should have appealed
to the Court of Tax Appeals when the BIR failed to decide on its Request for Reconsideration
within thirty (30) days after the inaction of the BIR for one hundred eighty (180) days or
on December 31, 2003. The Tax Assessment has already become final, executory and
unappealable at that point (BPI v. CIR, G.R. No. 139736, October 17, 2005).
RR disputed a deficiency tax assessment and upon receipt of an adverse decision by the
Commissioner of Internal Revenue, filed an appeal with the Court of Tax Appeals. While the
appeal is pending, the BIR served a warrant of levy on the real properties of RR to enforce the
collection of the disputed tax. Granting arguendo that the BIR can legally levy on the
properties, what could RR do to stop the process? Explain briefly. (5%)
SUGGESTED ANSWER:
RR should file a motion for injunction with the Court of Tax Appeals to stop the administrative
collection process. An appeal to the CTA shall not suspend the enforcement of the tax liability,
unless a motion to that effect shall have been presented in court and granted by it on the basis
that such collection will jeopardize the interest of the taxpayer or the Government (Pirovano
v. CIR, 14 SCRA 832 [1965]).
The CTA is empowered to suspend the collection of internal revenue taxes and customs
duties in cases pending appeal only when: (1) in the opinion of the court the collection by
the BIR will jeopardize the interest of the Government and/or the taxpayer; and (2) the
taxpayer is willing to deposit the amount being collected or to file a surety bond for not more
than double the amount of the tax to be fixed by the court (Section 11, JR.A. No. 1125).
Note:
Denial of a protest or an MR may be direct or indirect. What is controlling is whether the response given
by the BIR clearly indicates its intention to collect the taxes despite the arguments presented in the protest
and that there is no other correspondence or notice which would indicate otherwise. The reglementary
period begins upon receipt of the indirect notice of denial of the protest.
A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding
payment within 10 days, otherwise, it would collect through summary remedies. The
taxpayer requested for a reconsideration stating the grounds therefor. Instead of resolving
the request for reconsideration, the BIR sent a Final Notice before Seizure to the
taxpayer.
May this action of the Commissioner of Internal Revenue be deemed a denial of the request for
reconsideration of the taxpayer to entitle him to appeal to the Court of Tax Appeals? Decide
with reasons. (5%)
SUGGESTED ANSWER:
Yes, the final notice before seizure was in effect a denial of the taxpayer's request for
reconsideration, not only was the notice the only response received, its nature, content and tenor
supports the theory that it was the BIR's final act regarding the request for reconsideration.
(CIR v. Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)
Judicial Remedies:
1. Civil actions
2. Criminal action
SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account
(cuentas en participacion), association or insurance company liable to pay an internal revenue tax,
neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the assessment was made by the Commissioner
until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property
and rights to property belonging to the taxpayer: Provided, That this lien shall not be valid against
any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the
Commissioner in the office of the Register of Deeds of the province or city where the property of the
taxpayer is situated or located.
Tax Lien
It is understood to denote a legal claim or charge on property, either personal as security for the payment
of some debt or obligation.
Rules:
1. The levy shall affect all the properties and rights to property belonging to the taxpayer
2. It shall not cover properties belonging to another
3. The lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of
such lien has been filed with the RD
4. Once filed it shall be superior to the claim of a private litigant and shall be given preference over
all other claims.
5. The tax lien shall attach not only from the service of the warrant of distraint of personal property
but from the time the tax became due and payable.
6. It shall cover the unpaid tax with interests, penalties, and costs that may accrue.
For failure of Oceanic Company, Inc. (OCEANIC), to pay deficiency taxes of P20 Million,
the Commissioner of Internal Revenue issued warrants of distraint on OCEANIC's
personal properties and levied on its real properties. Meanwhile, the Department of Labor
through the Labor Arbiter rendered a decision ordering OCEANIC to pay unpaid
wages and other benefits to its employees. Four barges belonging to OCEANIC were levied
upon by the sheriff and later sold at public auction.
The Commissioner of Internal Revenue filed a motion with the Labor Arbiter to annul
the sale and enjoin the sheriff from disposing the proceeds thereof. The employees
of OCEANIC opposed the motion contending that Art. 110 of the Labor Code gives first
preference to claims for unpaid wages.
SUGGESTED ANSWER:
The motion filed by the Commissioner should be granted because the claim of the government
for unpaid taxes are generally preferred over the claims of laborers for unpaid wages. The
provision of Article 110 of the Labor Code, which gives laborers' claims for preference
applies only in case of bankruptcy or liquidation of the employer's business. In
the instant case, Oceanic is not under bankruptcy or liquidation at the time the
warrants of distraint and levy were issued hence, the opposition of the employees is
unwarranted. (CIR vs. NLRC et al G.R. No. 74965, November 9, 1994).
(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or
delinquent revenue to pay the same at the time required, the Commissioner or his duly
authorized representative, if the amount involved is in excess of One million pesos
(P1,000,000), or the Revenue District Officer, if the amount involved is One million pesos
(P1,000,000) or less, shall seize and distraint any goods, chattels or effects, and the personal
property, including stocks and other securities, debts, credits, bank accounts, and interests in
and rights to personal property of such persons ;in sufficient quantity to satisfy the tax, or
charge, together with any increment thereto incident to delinquency, and the expenses of the
distraint and the cost of the subsequent sale.
A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted
by the distraining officer to the Revenue District Officer, and to the Revenue Regional
Director: Provided, That the Commissioner or his duly authorized representative shall, subject
to rules and regulations promulgated by the Secretary of Finance, upon recommendation of
the Commissioner, have the power to lift such order of distraint: Provided, further, That a
consolidated report by the Revenue Regional Director may be required by the Commissioner
as often as necessary.
(B) Levy on Real Property.- After the expiration of the time required to pay the delinquent tax or
delinquent revenue as prescribed in this Section, real property may be levied upon, before
simultaneously or after the distraint of personal property belonging to the delinquent.
To this end, any internal revenue officer designated by the Commissioner or his duly
authorized representative shall prepare a duly authenticated certificate showing the name of
the taxpayer and the amounts of the tax and penalty due from him.
Said certificate shall operate with the force of a legal execution throughout the Philippines.
Levy shall be affected by writing upon said certificate a description of the property upon
which levy is made.
At the same time, written notice of the levy shall be mailed to or served upon the Register of
Deeds for the province or city where the property is located and upon the delinquent taxpayer,
or if he be absent from the Philippines, to his agent or the manager of the business in respect to
which the liability arose, or if there be none, to the occupant of the property in question.
In case the warrant of levy on real property is not issued before or simultaneously with the
warrant of distraint on personal property, and the personal property of the taxpayer is not
sufficient to satisfy his tax delinquency, the Commissioner or his duly authorized
representative shall, within thirty (30) days after execution of the distraint, proceed with the
levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by
the levying officer to the Commissioner or his duly authorized representative: Provided,
however, That a consolidated report by the Revenue Regional Director may be required by the
Commissioner as often as necessary: Provided, further, That the Commissioner or his duly
authorized representative, subject to rules and regulations promulgated by the Secretary of
Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants
of levy issued in accordance with the provisions hereof.
Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon
the taxpayer and upon the president, manager, treasurer or other responsible officer of the
corporation, company or association, which issued the said stocks or securities.
Debts and credits shall be distrained by leaving with the person owing the debts or having in his
possession or under his control such credits, or with his agent, a copy of the warrant of distraint.
The warrant of distraint shall be sufficient authority to the person owning the debts or having in his
possession or under his control any credits belonging to the taxpayer to pay to the Commissioner
the amount of such debts or credits.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon
the president, manager, treasurer or other responsible officer of the bank.
Upon receipt of the warrant of garnishment, the bank shall turn over to the Commissioner so much
of the bank accounts as may be sufficient to satisfy the claim of the Government.
Note:
Levy is effected by writing upon an authenticated certificate showing the name of the TX, the amounts of
the Tax and penalty due, and a description of the property upon which levy is made.
Note:
Real property may be levied upon before, simultaneously, or after the distraint of personal property
belonging to the delinquent.
Note:
Notice of levy must be given:
1. RD of the province or city where the property is located
2. The TX
3. If the TX is absent or cannot be found to his agent or the manager of the business in respect to
which the liability arose,
4. If there be none, to the occupant of the property in question.
SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the
Government, the Commissioner may place under constructive distraint the property of a
delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to
tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or
conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax
due or which may be due from him.
The constructive distraint of personal property shall be affected by requiring the taxpayer or any
person having possession or control of such property to sign a receipt covering the property
distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the
same;in any manner whatever, without the express authority of the Commissioner.
In case the taxpayer or the person having the possession and control of the property sought to be
placed under constructive distraint refuses or fails to sign the receipt herein referred to, the
revenue officer effecting the constructive distraint shall proceed to prepare a list of such property
and, in the presence of two (2) witnessed, leave a copy thereof in the premises where the property
distrained is located, after which the said property shall be deemed to have been placed under
constructive distraint.
Requisites of distraint:
1. the taxpayer must be delinquent (except in constructive distraint) in the payment of tax;
2. there must be a subsequent demand for its payment (assessment);
3. the taxpayer fails to pay the tax at the time required; and
4. the period within which to assess or collect the tax has not yet prescribed.
Note:
Report on the Distraint by the distraining officer must be submitted within 10 days from receipt of the
warrant to the Revenue District Officer and to the Revenue Regional Director. The order of Distraint may
be lifted by the Commissioner or his representative (Sec. 207 A NIRC)
Constructive distraint
It is an administrative remedy given to the government once imposed shall prohibit the owner of a
personal property to preserve and not to alienate in whatever manner the property without express
authority from the CIR
Note:
Distraint and levy may be repeated as often as required to satisfy unpaid taxes and its corresponding
charges.
SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on
realty may be repeated if necessary until the full amount due, including all expenses, is collected.
Note:
The prescriptive period to collect taxes is suspended by initiating any of the process of collection, the SC
has held that the issuing of a warrant to levy or distraint property is sufficient to toll the prescriptive
period.
Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy
upon and sale of real properties of the decedent without first securing the authority of
the court sitting in probate over the supposed will of the decedent?
SUGGESTED ANSWER:
Yes. The BIR is authorized to collect estate tax deficiency through the summary remedy of
levying upon and sale of real properties of a decedent, without the cognition and authority
of the court sitting in probate over the supposed will of the deceased, because the collection of
estate tax is executive in character. As such the estate tax is exempted from the application of
the statute of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the government (Marcos v. CIR, G.R.
No. 120880, June 5, 1997).
ALTERNATIVE ANSWER:
Yes, if the tax assessment has already become final, executory and enforceable. The
approval of the court sitting in probate over the supposed will of the deceased is not a
mandatory requirement for the collection of the estate tax. The probate court is determining
issues which are not against the property of the decedent, or a claim against the estate as
such, but is against the interest or property right which the heir, legatee, devisee, etc. has in
the property formerly held by the decedent. (Marcos v. CIR, G.R, No. 120880, June 5,
1997).
SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer
or his duly authorized representative, other than the officer referred to in Section 208 (comment:
garnishing or distraining officer) of this Code shall, according to rules and regulations prescribed
by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a
notification to be exhibited in not less than two (2) public places in the municipality or city where
the distraint is made, specifying; the time and place of sale and the articles distrained.
The time of sale shall not be less than twenty (20) days after notice.
One place for the posting of such notice shall be at the Office of the Mayor of the city or
municipality in which the property is distrained.
At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or
effects, or other personal property, including stocks and other securities so distrained, at public
auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly
licensed commodity or stock exchanges.
In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale
which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or
association which issued the stocks or other securities.
Upon receipt of the copy of the bill of sale, the corporation, company or association shall make the
corresponding entry in its books, transfer the stocks or other securities sold in the name of the
buyer, and issue, if required to do so, the corresponding certificates of stock or other securities.
Any residue over and above what is required to pay the entire claim, including expenses, shall be
returned to the owner of the property sold.
The expenses chargeable upon each seizure and sale shall embrace only the actual expenses of
seizure and preservation of the property pending; the sale, and no charge shall be imposed for the
services of the local internal revenue officer or his deputy
SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the
consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or
effects distrained shall be restored to the owner.
SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within two (2) days after the sale, the
officer making the same shall make a report of his proceedings in writing to the Commissioner and
shall himself preserve a copy of such report as an official record.
SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property
under distraint is not equal to the amount of the tax or is very much less than the actual market
value of the articles offered for sale, the Commissioner or his deputy may purchase the same in
behalf of the national Government for the amount of taxes, penalties and costs due thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and
regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to
the National Treasury and accounted for as internal revenue.
SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer conducting the
proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary
to satisfy the claim and cost of sale; and such advertisement shall cover a period of a least thirty
(30) days.
It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall
and in public and conspicuous place in the barrio or district in which the real estate lies and; by
publication once a week for three (3) weeks in a newspaper of general circulation in the
municipality or city where the property is located.
The advertisement shall contain a statement of the amount of taxes and penalties so due and the
time and place of sale, the name of the taxpayer against whom taxes are levied, and a short
description of the property to be sold.
At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying
the taxes, penalties and interest.
If he does not do so, the sale shall proceed and shall be held either at the main entrance of the
municipal building or city hall, or on the premises to be sold, as the officer conducting the
proceedings shall determine and as the notice of sale shall specify.
Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings
shall be entered upon the records of the Revenue Collection Officer, the Revenue District officer
and the Revenue Regional Director.
The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make
out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale,
describing the property sold stating the name of the purchaser and setting out the exact amount of
all taxes, penalties and interest: Provided, however, That in case the proceeds of the sale exceeds the
claim and cost of sale, the excess shall be turned over to the owner of the property.
The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his
collection, advance an amount sufficient to defray the costs of collection by means of the summary
remedies provided for in this Code, including; the preservation or transportation in case of
personal property, and the advertisement and subsequent sale, both in cases of personal and real
property including improvements found on the latter.
In his monthly collection reports, such advances shall be reflected and supported by receipts.
The owner shall not, however, be deprived of the possession of the said property and shall be entitled to
the rents and other income thereof until the expiration of the time allowed for its redemption.
SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real
property exposed for sale as herein above provided or if the highest bid is for an amount
insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale
shall declare the property forfeited to the Government in satisfaction of the claim in question and
within two (2) days thereafter, shall make a return of his proceedings and the forfeiture which shall
be spread upon the records of his office.
It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such
declaration of forfeiture, to transfer the title of the property forfeited to the Government without
the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem
said property by paying to the Commissioner or the latter's Revenue Collection Officer the full
amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the
property be not thus redeemed, the forfeiture shall become absolute.
SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge of any real
estate obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties
or costs arising under this Code or in compromise or adjustment of any claim therefore, and said
Commissioner may, upon the giving of not less than twenty (20) days notice, sell and dispose of the
same of public auction or with prior approval of the Secretary of Finance, dispose of the same at
private sale.
In either case, the proceeds of the sale shall be deposited with the National Treasury, and an
accounting of the same shall rendered to the Chairman of the Commission on Audit.
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -
The Commissioner may -
(A) Compromise the Payment of any Internal Revenue Tax, when:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum
amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent
(10%) of the basic assessed tax; and (comment: amount payable is the 10%)
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic
assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement
offered is less than the prescribed minimum rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be composed of the Commissioner and the four
(4) Deputy Commissioners.
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction.
No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment of
the tax or penalty: Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied
against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly
liable.
Any request for conversion into refund of unutilized tax credits may be allowed, subject to the
provisions of Section 230 (Comment: Forfeiture of Cash Refund and of Tax Credit) of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is
surrendered to the appropriate revenue officer for verification and cancellation: Provided, further,
That in no case shall a tax refund be given resulting from availment of incentives granted pursuant
to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the
Senate and House of Representatives, every six (6) months, a report on the exercise of his powers
under this Section, stating therein the following facts and information, among others: names and
addresses of taxpayers whose cases have been the subject of abatement or compromise; amount
involved; amount compromised or abated; and reasons for the exercise of power: Provided, That
the said report shall be presented to the Oversight Committee in Congress that shall be constituted
to determine that said powers are reasonably exercised and that the government is not unduly
deprived of revenues.
Compromise
A contract whereby the parties by reciprocal concessions, avoid litigation or put an end to one already
commenced.
Requisites:
1. the taxpayer must have a tax liability;
2. there must be acceptance (by the Commissioner or taxpayer as the case may be) of the offer in the
settlement of the original claim;
3. there must be an offer (by the taxpayer of an amount to be paid by him)
The approval of the Evaluation Board (composed of the CIR and the Deputy Commissioners) is required
when:
1. The basic tax involved exceeds Php1,000,000; or
2. The settlement offered is less than the MCR
Note: The MCR may be less than the prescribed rates of 10% or 40%, as the case may be, provided it is
approved by the Evaluation Board
Limitation as to coverage:
1. With respect to the liability of the taxpayer for surcharges as their imposition is mandatory
2. In cases finally decided by the courts
Extent of discretion:
1. before the complaint is filed with the prosecutors office, the Commissioner has full discretion to
compromise except those involving fraud
2. After the complaint is filed with the prosecutors office but before the information is filed with
the court, the Commissioner can still compromise provided the prosecutor consented;
3. after the information is filed with the court, the Commissioner is no longer permitted to
compromise with or without the consent of the prosecutor.
Compromise penalty
It is a mutual agreement between the taxpayer and the government where the former agrees to pay a
certain amount of money, as to compromise a tax violation that may be subject of criminal prosecution
Compromise Penalty:
An amount which the taxpayer pays to compromise a tax violation
Paid in lieu of criminal prosecution
A taxpayer cannot be compelled to pay a compromise penalty
If he does not want to pay, the CIR must institute a criminal action.
Abatement
Cancellation of the tax liability
Grounds:
1. When the tax assessed or any portion thereof appears to be unjustly or excessively demanded, or
2. When the administration and collection costs involved do not justify the collection of the amount
due
GEN RULE:
the power to compromise and abate cannot be delegated by the CIR
EXCEPT:
1. assessments issued by regional offices involving basic taxes of Php500,000 or less;
2. minor criminal violations.
BIR; Compromise (2005)
State and discuss briefly whether the following cases may be compromised or may not be
compromised:
a) Delinquent accounts;
b) Cases under administrative protest, after issuance of the final assessment notice to the
taxpayer, which are still pending;
c) Criminal tax fraud cases;
d) Criminal violations already filed in court;
e) Cases where final reports of reinvestigation or reconsideration have been issued
resulting in the reduction of the original assessment agreed to by the taxpayer when he
signed the required agreement form. (5%)
SUGGESTED ANSWERS:
The following cases may still be compromised (R.R. 30-02 [2002]) because of the taxpayer's
financial incapacity to pay the tax due or the assessment's doubtful validity:
a) DELINQUENT ACCOUNTS provided that it can be shown that the failure to pay is due to
the financial incapacity or that the assessment is of doubtful validity
b) Cases under administrative protest, after issuance of the final assessment notice to the
taxpayer, which are still pending.
After the tax assessment had become final and unappealable, the Commissioner
of Internal Revenue initiated the filing of a civil action to collect the tax due from NX. After
several years, a decision was rendered by the court ordering NX to pay the tax due plus
penalties and surcharges. The judgment became final and executory, but attempts
to execute the judgment award were futile.
SUGGESTED ANSWER:
Yes. The Commissioner has the power to accept the offer of compromise if the financial
position of the taxpayer clearly demonstrates a clear inability to pay the tax (Section
204, NIRC).
As represented by NX in his offer, only 50% of the judgment award is all he could
really afford. This is an offer for compromise based on financial incapacity which the
Commissioner shall not accept unless accompanied by a waiver of the secrecy of bank
deposits (Section 6[F}, NIRC). The waiver will enable the Commissioner to ascertain the
financial position of the taxpayer, although the inquiry need not be limited only to the bank
deposits of the taxpayer but also as to his financial position as reflected in his financial
statements or other records upon which his property holdings can be ascertained.
Under what conditions may the Commissioner of Internal Revenue be authorized to:
A. Compromise the payment of any internal revenue tax? (2%)
SUGGESTED ANSWER:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2. the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
SUGGESTED ANSWER:
The Commissioner of Internal Revenue may abate or cancel a tax liability when:
1. The tax or any portion thereof appears to be unjustly or excessively assessed; or
2. The administration and collection costs involved do not justify the collection of the
amount due. [Sec. 204 (B), NIRC of 1997]
May the Commissioner of the Internal Revenue compromise the payment of withholding tax
(tax deducted and withheld at source) where the financial position of the taxpayer
demonstrates a clear inability to pay the assessed tax? [5%1
SUGGESTED ANSWER:
No. A taxpayer who is constituted as withholding agent who has deducted and withheld at
source the tax on the income payment made by him holds the taxes as trust funds for the
government (Sec. 58[D]) and is obligated to remit them to the BIR. The subsequent inability
of the withholding agent to pay/remit the tax withheld is not a ground for compromise
because the withholding tax is not a tax upon the withholding agent but it is only a
procedure for the collection of a tax.
A. Will the BIR's action for collection prosper? As counsel of Minolta, what action
will you take?
SUGGESTED ANSWER:
A. Yes, BIR's action for collection will prosper because the assessment is already final and
executory, it can already be enforced through judicial action.
As counsel of Minolta, I will introduce evidence that the income payment was reported by the
payee and the income tax was paid thereon in 1997 so that my client may only be
allowed to pay the civil penalties for non-withholding pursuant to RMO No. 38-83.
[Note: It is not clear whether this is a case of non-withholding/ underwithholding or non-
remittance of tax withheld. As such, the tax counsel may be open to other remedies
against the assessment.]
SUGGESTED ANSWER:
B. All criminal violations of the Tax Code may be compromised except those already
filed in court or those involving fraud (Section 204, NIRC). Accordingly, if Minolta
makes a voluntary offer to compromise the criminal violations for non-filing and non-
payment of taxes for the year 1998, the Commissioner may accept the offer which is allowed
by law. However, if it can be established that a tax has not been paid as a consequence of
non-filing of the return, the civil liability for taxes may be dealt with independently of the
criminal violations. The compromise settlement of the criminal violations will not relieve the
taxpayer from its civil liability. But the civil liability for taxes may also be compromised if
the financial position of the taxpayer demonstrates a clear inability to pay the tax.
A domestic corporation failed to withhold and remit the tax on income received from Philippine
sources by a non- resident foreign corporation. In addition to the civil penalties
provided for under the Tax Code, a compromise penalty was imposed for violation of the
withholding tax provisions. May the Commissioner of Internal Revenue legally enforce the
collection of compromise penalty? (5%)
SUGGESTED ANSWER:
No. There is no showing that the compromise penalty was imposed by the Commissioner of
Internal Revenue with the agreement and conformity of the taxpayer. (Wonder Mechanical
Engineering Corporation u. Court of Tax Appeals, et. al., 64 SCRA 555).
Judicial Remedies
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal actions
and proceedings instituted in behalf of the Government under the authority of this Code or other law
enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the
Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no civil or
criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this
Code shall be filed in court without the approval of the Commissioner.
SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court shall have the authority to
grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by
this Code.
Note:
Civil actions for collection of sum of money based on an assessment which has become final and
executory for an amount of 1M or less shall be with the RTC but if it is more than 1M it is with the CTA
Civil Actions
Actions instituted by the government to collect internal revenue taxes. It includes filing by the
government with the probate court claims against the deceased taxpayer.
Enforced by:
1. filing a civil case for the collection of a sum of money with the proper regular court (i.e. MTC or
RTC); or
2. filing an answer to the petition for review filed by the taxpayer with the CTA
Requisites for the institution of a civil action filed with the ordinary court:
1. delinquent
2. collectible
Note:
Whenever instituting an action in the civil courts, the SOL GEN must approved. However in cases where
the action was instituted by the BIR legal officers deputized by as special attorneys, they need only to
furnish the sol gen a copy of the complaint, and thereafter, the sol gen files a notice of appearance in the
court where the action is filed. Failure to comply with these requisites renders the action susceptible to a
motion to dismiss.
Note:
In the event a protest is pending with BIR and the latter institutes a civil action, it is appropriate for the
TX to file an appeal to the CTA since the filing of the civil action constitutes the indirect denial of his
protest and once he has filed his action in the CTA, he can move to dismiss the action in the RTC since
jurisdiction over the case is properly lodged now with the CTA.
(b) Any person who willfully aids or abets in the commission of a crime penalized herein or who causes
the commission of any such offense by another shall be liable in the same manner as the principal.
(c) If the offender is not a citizen of the Philippines, he shall be deported immediately after serving the
sentence without further proceedings for deportation.
If he is a public officer or employee, the maximum penalty prescribed for the offense shall be
imposed and, in addition, he shall be dismissed from the public service and perpetually disqualified
from holding any public office, to vote and to participate in any election.
If the offender is a Certified Public Accountant, his certificate as a Certified Public Accountant shall,
upon conviction, be automatically revoked or cancelled.
(d) In the case of associations, partnerships or corporations, the penalty shall be imposed on the partner,
president, general manager, branch manager, treasurer, officer-in-charge, and the employees
responsible for the violation.
(e) The fines to be imposed for any violation of the provisions of this Code shall not be lower than the
fines imposed herein or twice the amount of taxes, interest and surcharges due from the taxpayer,
whichever is higher
2 common crimes punishable under the NIRC:
1. Attempt to evade or defeat tax:
SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to
evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other
penalties provided by law, upon conviction thereof, be punished by a fine not less than Thirty
thousand (P30,000) but not more than One hunderd thousand pesos (P100,000) and suffer
imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the
conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit
for the collection of taxes.
2. Failure to file a return supply correct and accurate information, pay tax, withhold and remit and
refund excess taxes withheld on compensation
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold
and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any person required
under this Code or by rules and regulations promulgated thereunder to pay any tax make a return,
keep any record, or supply correct the accurate information, who willfully fails to pay such tax,
make such return, keep such record, or supply correct and accurate information, or withhold or
remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times
required by law or rules and regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and
suffer imprisonment of not less than one (1) year but not more than ten (10) years.
Any person who attempts to make it appear for any reason that he or another has in fact filed a
return or statement, or actually files a return or statement and subsequently withdraws the same
return or statement after securing the official receiving seal or stamp of receipt of internal revenue
office wherein the same was actually filed shall, upon conviction therefor, be punished by a fine
of not less than Ten thousand pesos (P10,000) but not more than Twenty thousand pesos
(P20,000) and suffer imprisonment of not less than one (1) year but not more than three (3) years.
SEC. 281. Prescription for Violations of any Provision of this Code. - All violations of any provision
of this Code shall prescribe after Five (5) years.
Prescription shall begin to run from the day of the commission of the violation of the law, and if the
same be not known at the time, from the discovery thereof and the institution of judicial
proceedings for its investigation and punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty persons
and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy.
The term of prescription shall not run when the offender is absent from the Philippines.
Important Principles on criminal actions:
1. No criminal action for recovery of taxes or the enforcement of any fine, penalty or forfeiture shall
be filed in court without the approval of the commissioner.
2. The CIR has delegated the authority to institute a criminal action to his subordinates in the legal
services
3. All violations of any penal provision of the tax code shall prescribed after five years from the day
of the commission of the violation of the law, and if the same be not known at the time, from the
discovery thereof and the institution of judicial proceedings for its investigation and punishment.
4. Even if the civil action to institute recovery of the unpaid tax has prescribe, it does not necessarily
follow that the criminal action shall have prescribed as well. Note that the prescriptive period of
the action begins from the day the act or omission constituting the offense has been discovered
AND institution of proceedings for its investigation
5. Payment of the tax due after apprehension shall not constitute a valid defense in any prosecution
for violation of any provision of this code or in any action for the forfeiture of untaxed articles.
Except if such payment takes the form of a compromise agreement.
6. If there is a prima facie case against the accused for tax evasion, assessment in not a pre-requisite
for its institution, the requirement of a final assessment is geared towards the institution of a civil
action for recovery and not a criminal action for punishment of the offense provided that there is
a prima facie evidence to prove that the accused willingly and knowingly evaded to pay taxes
and what is being questioned in the assessment is the mathematical computation only.
In 1995, the BIR filed before the Department of Justice (DOJ) a criminal complaint against
a corporation and its officers for alleged evasion of taxes. The complaint was supported by
a sworn statement of the BIR examiners showing the computation of the tax liabilities of the
erring taxpayer. The corporation filed a motion to dismiss the criminal complaint on the
ground that there has been, as yet, no assessment of its tax liability; hence, the criminal
complaint was premature. The DOJ denied the motion on the ground that an assessment of the
tax deficiency of the corporation is not a precondition to the filing of a criminal
complaint and that in any event, the joint affidavit of the BIR examiners may be
considered as an assessment of the tax liability of the corporation. Is the ruling of the
DOJ correct? Explain. (5%)
SUGGESTED ANSWER:
The DOJ is correct in ruling that an assessment of the tax deficiency of the corporation is not a
precondition to the filing of a criminal complaint. There is no need for an assessment so
long as there is a prima facie showing of violation of the provisions of the Tax Code. After all,
a criminal charge is instituted not to demand payment, but to penalize the tax payer for
violation of the Tax Code. (Commissioner of Internal Revenue v. Pascor Realty and
Development Corporation, G.R. No. 128315, June 29, 1999) Furthermore, there is
nothing in the problem that shows that the BIR in filing the case is also interested in
collecting the tax deficiency.
However, it is in error when it ruled that the joint affidavit of the BIR examiners may be
considered as an assessment of the tax liability of the corporation. The joint affidavit
showing the computation of the tax liabilities of the erring taxpayer is not a tax assessment
because it was not sent to the taxpayer, and does not demand payment of the tax within
a certain period of time. An assessment is deemed made only when the BIR releases,
mails or sends such notice to the taxpayer. (Commissioner of Internal Revenue v. Pascor
Realty and Development Corporation, G.R. No. 128315, June 29, 1999)
No. Assessment is not necessary before a taxpayer maybe prosecuted if there is a prima facie
showing of a willful attempt to evade taxes as in the taxpayer's failure to declare a
specific item of taxable income in his income tax returns (Ungab v. Cusi 97 SCRA 877). On the
contrary, if the taxes alleged to have been evaded is computed based on reports
approved by the BIR there is a presumption of regularity of the previous payment of
taxes, so that unless and until the BIR has made a final determination of what is supposed
to be the correct taxes, the taxpayer should not be placed in the crucible of criminal
prosecution (CIR v. Fortune Tobacco Corp., GR No. 119322, June 4, 1996).
Gerry was being prosecuted by the BIR for failure to pay his income tax liability for Calendar
Year 1999 despite several demands by the BIR in 2002. The Information was filed with the
RTC only last June 2006. Gerry filed a motion to quash the Information on the ground
of prescription, the Information having been filed beyond the 5-year reglementary period. If
you were the judge, will you dismiss the Information? Why? (5%)
SUGGESTED ANSWER:
No. The trial court can exercise jurisdiction. Prescription of a criminal action begins to run
from the day of the violation of the law. The crime was committed when Gerry willfully
refused to pay despite repeated demands in 2002. Since the information was filed in June
2006, the criminal case was instituted within the five-year period required by law (Tupaz v.
Ulep, G.R. No. 127777, October 1, 1999; Section 281, NIRC).
TY Corporation filed its final adjusted income tax return for 1993 on April 12, 1994 showing
a net loss from operations. After investigation, the BIR issued a pre-assessment notice on
March 30, 1996. A final notice and demand letter dated April 15, 1997 was issued, personally
delivered to and received by the company's chief accountant. For willful refusal
and failure of TY Corporation to pay the tax, warrants of distraint and levy on its properties
were issued and served upon it. On January 10, 2002, a criminal charge for violation of
the Tax Code was instituted in the Regional Trial Court with the approval of the Commissioner.
The company moved to dismiss the criminal complaint on the ground that an act for violation
of any provision of the Tax Code prescribes after five (5) years and, in this case, the
period commenced to run on March 30, 1996 when the pre-assessment was issued. How will
you resolve the motion? Explain your answer. (5%)
SUGGESTED ANSWER:
The motion to dismiss should not be granted. It is only when the assessment has become
final and unappealable that the 5-year period to file a criminal action commences to run (Tupaz
v. Ulop, 316 SCRA 118 [1999]). The pre- assessment notice issued on March 30, 1996 is not a
final assessment which is enforceable by the BIR. It is the issuance of the final notice and
demand letter dated April 15, 1997 and the failure of the taxpayer to protest within 30 days
from receipt thereof that made the assessment final and unappealable. The earliest date
that the assessment has become final is May 16, 1997 and since the criminal charge was
instituted on January 10, 2002, the same was timely filed.
Civil Penalties
SEC. 248. Civil Penalties.
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25%) of the amount due, in the following cases:
1. Failure to file any return and pay the tax due thereon as required under the provisions of
this Code or rules and regulations on the date prescribed; or
2. Unless otherwise authorized by the Commissioner, filing a return with an internal revenue
officer other than those with whom the return is required to be filed; or
3. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
4. Failure to pay the full or part of the amount of tax shown on any return required to be filed
under the provisions of this Code or rules and regulations, or the full amount of tax due for
which no return is required to be filed, on or before the date prescribed for its payment.
(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules
and regulations, or in case a false or fraudulent return is willfully made, the penalty to be
imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case, any payment has
been made on the basis of such return before the discovery of the falsity or fraud: Provided,
That a substantial under-declaration of taxable sales, receipts or income, or a substantial
overstatement of deductions, as determined by the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence
of a false or fraudulent return: Provided, further, That failure to report sales, receipts or
income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of
deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable
for substantial under-declaration of sales, receipts or income or for overstatement of
deductions, as mentioned herein.
Note:
The liability to pay the surcharge arises upon the lapse of the period where the taxpayer is required to pay
despite the absence of any assessment.
Surcharges:
1. Not really a penalty as used in criminal law but a civil administrative sanction designed primarily
to:
a. protect the State revenue, and
b. reimburse the government for the expenses in investigating and the loss resulting from
the taxpayers fraud.
2. Penalty of 25% of the amount due for:
a. Failure to file any return and pay the tax due thereon;
b. Filing a return with the wrong agent of the BIR, unless otherwise authorized by the CIR
c. failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment;
d. Failure to pay the full or part of the tax as shown on the return on or before the due date
Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his
income tax return and the payment of the tax due. The accountant filed a falsified tax
return by underdeclaring the sales and overstating the expense deductions by Danilo.
Is Danilo liable for the deficiency tax and the penalties thereon? What is the liability, if
any, of the accountant? Discuss. (5%)
SUGGESTED ANSWER:
Danilo is liable for the deficiency tax as well as for the deficiency interest. He should
not be held liable for the fraud penalty because the accountant acted beyond the limits of
his authority. There is no showing in the problem that Danilo signed the falsified return or
that it was prepared under his direction. {On the other hand the accountant may be held
criminally liable for violation of the Tax Code when he falsified the tax return by underdeclaring
the sale and overstating the expense deductions. If Danny's accountant is a Certified Public
Accountant, his certificate as a CPA shall automatically be revoked or cancelled upon
conviction.
SEC. 249. Interest. -
(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of
twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations,
from the date prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be
subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and
collected from the date prescribed for its payment until the full payment thereof.
(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and elects to pay the
tax on installment under the provisions of this Code, but fails to pay the tax or any installment hereof,
or any part of such amount or installment on or before the date prescribed for its payment, or where
the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or
any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on
the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid.
Interest:
1. Deficiency interest
a. 20% per annum from the date prescribed for its payment until the full payment thereof
2. Delinquency interest
a. Interest of 20% or the Manila Reference rate, whichever is higher, required to be paid in
case of failure to pay:
i. the amount of the tax due on any return required to be filed;
ii. amount of the tax due for which return is required;
iii. the deficiency tax or any surcharge or interest thereon, on the date appearing in
the notice and demand of the CIR.
SUGGESTED ANSWER:
DEFICIENCY INTEREST for purposes of the income tax is the interest due on any
amount of tax due or installment thereof which is not paid on or before the date prescribed
for its payment computed at the rate of 20% per annum or the Manila Reference Rate,
whichever is higher, from the date prescribed for its payment until it is fully paid.
If for example after the audit of the books of XYZ Corp. for taxable year 1993 there was
found to be due a deficiency income tax of P125,000.00 inclusive of the 25% surcharge
imposed under Section 248 of the Tax Code, the interest will be computed on the
P125.000.00 from April 15, 1994 up to its date of payment.
SUGGESTED ANSWER:
Delinquency interest is the interest of 20% or the Manila Reference Rate, whichever is higher,
required to be paid in case of failure to pay:
(a) the amount of the tax due on any return required to be filed; or
(b) the amount of the tax due for which return is required; or
(c) the deficiency tax or any surcharge or interest thereon, on the due date
appearing in the notice and demand of the Commissioner of Internal Revenue.
If in the above illustration the assessment notice was released on December 31, 1994
and the amount of deficiency tax, inclusive of surcharge and deficiency interest were
computed up to January 30, 1995 which is the due date for payment per assessment notice,
failure to pay on this latter date will render the tax delinquent and will require the
payment of delinquency interest.
Compromise:
1. Similarities of compromise and compromise penalty:
a. They both imply mutual agreement.
b. A compromise penalty cannot be imposed in the absence of a showing that the taxpayer
consented thereto.
2. The CIR has no power to impose and collect the compromise penalties in the absence of a
compromise agreement validly entered into between the taxpayer and the CIR
REMEDIES OF TAXPAYER
1. Administrative:
a. before payment:
i. protest
ii. entering into a compromise.
b. after payment:
i. filing of claim for refund or tax credit within two years from date of payment
regardless of any supervening cause.
2. Judicial:
a. civil action:
i. appeal to CTA within 30 days from receipt of decision on the protest or from
the lapse of 180 days due to inaction of the Commissioner;
ii. action to contest forfeiture of chattel; and
iii. action for damages
b. criminal action:
i. Filing of criminal complaint against erring BIR official and employees; and
ii. Injunction when the CTA in its opinion the collection by the BIR may
jeopardize taxpayer.
Protest of Assessment:
1. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment
a. Request for reinvestigation-a plea for re-evaluation of an assessment on the basis of
newly discovered or additional evidence that a taxpayer intends to present in the
reinvestigation. Involves a question of fact or law or both.
b. Request for reconsideration-a plea for re-evaluation of the assessment on the basis of
existing records without need of additional evidence. Involves a question of fact or law or
both. (Revenue Regulation No. 12-85)
2. Within 60 days from filing of protest, all relevant supporting documents should have been
submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228 NIRC)
SEC. 231. Action to Contest Forfeiture of Chattel. - In case of the seizure of personal property under
claim of forfeiture, the owner desiring to contest the validity of the forfeiture may, at any time before sale
or destruction of the property, bring an action against the person seizing the property or having possession
thereof to recover the same, and upon giving proper bond, may enjoin the sale; or after the sale and within
six (6) months, he may bring an action to recover the net proceeds realized at the sale.
CTA
1. Appeal of Protest to the CTA (Sec. 228 NIRC)
a. Grounds:
i. if the protest is denied in whole or in part or
ii. is not acted upon within 180 days from submission of documents
2. Appellate Court: Court of Tax Appeals
3. Period to appeal:
a. within 30 days from receipt of decision denying the protest or
b. 30 days from the lapse of 180 day period
4. Effect of failure to appeal: the decision shall be final, executory and demandable
Taxpayers suit.
Requisites:
1. the tax money is being extracted and spent in violation of specific Constitutional protections
against abuses of legislative power
2. that public money is being deflected to any improper purpose
3. that the petitioner seeks to restrain the respondents from wasting public funds through
enforcement of invalid or unconstitutional law
Note:
However, the Supreme Court has discretion whether or not to entertain a taxpayers suit and could brush
side the lack of locus standi where the issues are transcendental importance in keeping with the courts
duty to determine that public officers have not abused the discretion given to them.
Compare the taxpayer's remedies under the National Internal Revenue Code and the
Tariff and Customs Code.
SUGGESTED ANSWER:
The taxpayer's remedies under the NATIONAL INTERNAL REVENUE CODE may
be categorized into remedies before payment and remedies after payment. The remedy
BEFORE PAYMENT consists of
1. Administrative Remedy which is the filing of protest within 30 days from receipt
of assessment, and
2. Judicial Remedy which is the appeal of the adverse decision of the Commissioner on the
protest with the Court of Tax Appeals, and finally with the Supreme Court.
1. by paying the assessed tax within 30 days from receipt of assessment and
2. the filing of a claim for refund or tax credit of these taxes on grounds that they are
erroneously paid within two years from date of payment.
3. If there is a denial of the claim, appeal to the CTA shall be made within 30 days from denial
but within two years from date of payment.
If the Commissioner fails to act on the claim for refund or tax credit and the two-year
period is about to expire, the taxpayer should consider the continuous inaction of the
Commissioner as a denial and elevate the case to the CTA before the expiration of the
two-year period.
Under the Tariff and Customs Code, taxpayer's remedies arise only after payment of duties.
1. The administrative remedies consist of filing a claim for refund which may take the form
of abatement or drawback.
2. The taxpayer can also file a protest within 15 days from payment if he disagrees
with the ruling or decision of the Collector of Customs regarding the legality or
correctness of the assessment of customs duties.
3. If the decision of the Collector is adverse to the taxpayer, he can notify the
Collector within 15 days from receipt of said decision of his desire to have his case
reviewed by the Commissioner.
Note:
Examination of the books of account of corporations and partnership is only allowable once a year except
in the following cases:
1. Fraud, irregularity or mistakes, as determined by the commissioner
2. The taxpayer requests reinvestigation
3. Verification of compliance with withholding tax laws and regulations
4. Verification of capital gains tax liabilities
5. In the exercise of the CIR power to obtain information from other persons in which case, another
or separate examination and inspection may be made
Describe separately the procedures on the legal remedies under the Tax Code available to an
aggrieved taxpayer both at the administrative and judicial levels. (5%)
SUGGESTED ANSWER:
The legal remedies of an aggrieved taxpayer under the Tax Code, both at the administrative
and judicial levels, may be classified into those for assessment, collection and refund.
a. After receipt of the Pre-Assessment Notice, he must within fifteen (15) days from receipt
explain why no additional taxes should be assessed against him.
c. Within sixty (60) days from filing of the protest, the taxpayer shall submit all
relevant supporting documents.
a. Where the Commissioner of Internal Revenue has not acted on the taxpayer's protest
within a period of one hundred eighty (180) days from submission of all relevant documents,
then the taxpayer has a period of thirty (30) days from the lapse of said 180 days within which
to interpose a petition for review with the Court of Tax Appeals.
b. Should the Commissioner deny the taxpayer's protest, then he has a period of thirty (30)
days from receipt of said denial within which to interpose a petition for review with the Court of
Tax Appeals.
In both cases the taxpayer must apply with the Court of Tax Appeals for the Issuance of an
Injunctive writ to enjoin the Bureau of Internal Revenue from collecting the disputed tax
during the pendency of the proceedings.
NOTE: A 2004 Amendment - The decision of the division of CTA is in turn appeallable
within fifteen (15) days to the CTA en banc. The decision of the CTA en banc is directly
appeallable to the Supreme Court on question of law on certiorari.
The employment by the Bureau of Internal Revenue of any of the Administrative Remedies
for the collection of the tax like distraint, levy, etc. may be administratively appealed by the
taxpayer to the Commissioner whose decision is appealable to the Court of Tax Appeals under
other matter arising under the provisions of the National Internal Revenue Code.
The judicial appeals starts with the Court of Tax Appeals, and continues in the same manner as
shown above.
Should the Bureau of Internal Revenue decide to utilize its Judicial tax remedies for collecting
the taxes by means of an ordinary suit filed with the regular courts for the collection of a
sum of money, the taxpayer could oppose the same going up the ladder of judicial processes
from the Municipal Trial Court (as the case may be) to the Regional Trial Court, to the
Court of Appeals, thence to the Supreme Court. (comment claims greater than 1M must be filed
with the CTA)
The remedies of an aggrieved taxpayer on a claim for refund is to appeal the adverse
decision of the Commissioner to the CTA in the same manner outlined above.
Prescription
SEC. 203. Period of Limitation Upon Assessment and Collection. - 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 a case where a
return is filed beyond the period prescribed by law, the three (3)-year period shall be counted 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 as filed on such last day.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the
tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed
in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within
five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, 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.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall
be construed to authorize the examination and investigation or inquiry into any tax return filed
in accordance with the provisions of any tax amnesty law or decree.
Note:
The tax code provisions on prescription shall prevail over those of the civil code in actions relating to tax
collections
General Rules:
1. When the tax law itself is silent on prescription, tax is imprescriptible;
2. When no return is required, tax is imprescriptible;
3. Defense of prescription is waivable; and
4. Provisions on prescriptions, being remedial in nature should be liberally interpreted to carry out
its intent.
Taxes were generally imprescriptible; statutes, however, may provide otherwise. State the rules
that have been adopted on this score by -
SUGGESTED ANSWERS:
1. National Internal Revenue Code - The statute of limitation for assessment of tax if a return is
filed is within three (3) years from the last day prescribed by law for the filing of the return or if
filed after the last day, within three years from date of actual filing. If no return is filed
or the return filed is false or fraudulent, the period to assess is within TEN YEARS
from discovery of the omission, fraud or falsity.
The period to collect the tax is within THREE YEARS from date of assessment. In
the case, however, of omission to file or if the return filed is false or fraudulent, the period
to collect is within TEN YEARS from discovery without need of an assessment.
2. Tariff and Customs Code - It does not express any general statute of limitation; it provided,
however, that "when articles have entered and passed free of duty or final adjustment
of duties made, with subsequent delivery, such entry and passage free of duty or
settlement of duties will, after the expiration of ONE (1) YEAR, from the date of the final
payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties,
unless the liquidation of Import entry was merely tentative" (Sec 1603, TCC).
3. Local Government Code - Local taxes, fees, or charges shall be assessed within
FIVE (5) YEARS from the date they became due. In case of fraud or intent to evade the
payment of taxes, fees or charges the same maybe assessed within TEN YEARS from discovery
of the fraud or intent to evade payment. They shall also be collected either by
administrative or judicial action within FIVE (5) YEARS from date of assessment (Sec. 194,
LGC).
Note:
IAC is not covered by the prescriptive period
GENERAL RULE:
three years after the date the return is due or filed, whichever is later.
EXCEPTIONS:
1. failure to file a return: ten (10) years from the date of the discovery of the omission to file
the return;
2. false or fraudulent return with intent to evade the tax: ten (10) years from the date of the
discovery of the falsity or fraud;
3. agreement in writing: to the extension (not reduction) of the period to assess between the
Commissioner and the taxpayer before the expiration of the three year period.
i. the extended period agreed upon can further be extended by a subsequent written
agreement made before the expiration of the extended period previously agreed
upon.
SUGGESTED ANSWER:
The distinction between a false return and a fraudulent return is that the first merely implies
a deviation from the truth or fact whether intentional or not, whereas the second is
intentional and deceitful with the sole aim of evading the correct tax due (Aznar us.
Commissioner, L-20569, August 23, 1974).
There is prima facie evidence of a false or fraudulent return when the taxpayer has willfully
and knowingly filed it with the intent to evade a part or all of the tax legally due from him
(Ungab v. Cusi,, 97 SCRA 877). There must appear a design to mislead or deceive on the part
of the taxpayer, or at least culpable negligence. A mistake not culpable in respect of its value
would not constitute a false return. (Words and Phrases, Vol. 16, page 173).
What constitutes prima facie evidence of a false or fraudulent return to justify the
imposition of a 50% surcharge on the deficiency tax due from a taxpayer? Explain. (5%)
SUGGESTED ANSWER:
There is a prima facie evidence of false or fraudulent return when the taxpayer
SUBSTANTIALLY UNDER- DECLARED his taxable sales, receipts or income, or
The Commissioner of Internal Revenue issued an assess- ment for deficiency income tax for
taxable year 2000 last July 31, 2006 in the amount of P 10 Million inclusive of surcharge and
interests. If the delinquent taxpayer is your client, what steps will you take? What is your
defense? (10%)
ALTERNATIVE ANSWER:
ALTERNATIVE ANSWER:
Since my client has lost his right to protest, I will advise him to wait for a collection action by the
Commissioner. Then, I will file a petition for review with the CTA to question the
collection. Since the assessment was issued beyond the prescriptive period to assess, the
action to collect an invalid assessment is not warranted (Phil. Jour- nalists, Inc. v. CIR, G.R.
No. 162852, December 16, 2004).
SUGGESTED ANSWER:
A. The protest should be resolved against Mr. Castro. What was filed is a fraudulent
return making the prescriptive period for assessment ten (10) years from discovery of the
fraud (Section 222, NIRC). Accordingly, the assessment was issued within that prescriptive
period to make an assessment based on a fraudulent return.
Note:
The CIR may issue a revised assessment and the same shall be valid even if issued during the pendency of
any appeal provided however that the same is issued within the prescriptive period.
b. The waiver must be signed by the taxpayer himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its responsible officials.
In case the authority is delegated by the taxpayer to a representative, such delegation
should be in writing and duly notarized.
d. The CIR or the revenue official authorized by him must sign the waiver indicating that
the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR
should be indicated. However, before signing the waiver, the CIR or the revenue official
authorized by him must make sure that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly authorized representative.
e. Both the date of execution by the taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or before the lapse of the period
agreed upon in case a subsequent agreement is executed.
f. The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the acceptance of
the BIR and the perfection of the agreement.
Requisites of a tax return for purposes of starting the running of the period of limitation:
1. the return is valid - it has complied substantially with the requirements of the law; and
2. the return is appropriate it is a return for the particular tax is required by law.
Note: A defective tax return is the same as if no return was filed at all.
Note:
As a general rule the prescriptive period for assessment starts to run from the filing of the original return,
if the same is sufficiently complete to enable the CIR to intelligently determine the proper amount of tab
to be assessed. However where the amended return is substantially different from the original retur, the
right of the BIR to assess the tax is counted from the filing of the amended return.
A Co., a Philippine Corporation, filed its 1995 Income Tax Return (ITR) on April 15,
1996 showing a net loss. On November 10, 1996, it amended its 1995 ITR to show more
losses. After a tax investigation, the BIR disallowed certain deductions claimed by A Co.,
putting A Co. in a net income position. As a result, on August 5, 1999, the BIR issued a
deficiency income assessment against A Co. A Co. protested the assessment on the ground that it
has prescribed: Decide. (5%)
SUGGESTED ANSWER:
The right of the BIR to assess the tax has not prescribed.
The rule is that internal revenue taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return.(Section 203, NIRC), However, if the return
originally filed is amended substantially, the counting of the three-year period starts from
the date the amended return was filed. (CIR v. Phoenix Assurance Co., Ltd., 14 SCRA 52). There
is a substantial amendment in this case because a new return was filed declaring more losses,
which can only be done either (1) in reducing gross income or (2) in increasing the items of
deductions, claimed.
Grounds for suspension of the running of prescriptive period for assessment and collection:
1. when the Commissioner is prohibited from making the assessment or beginning the distraint or
levy or proceeding in court, and for sixty days thereafter;
2. when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
3. when the taxpayer cannot be located in the address given by him in the return, unless he informs
the Commissioner of any change in his address;
4. when the warrant of distraint or levy is duly served, and no property is located; and
5. when the taxpayer is out of the Philippines.
On August 5, 1997, Adamson Co., Inc. (Adamson) filed a request for reconsideration of the
deficiency withholding tax assessment on July 10, 1997, covering the taxable year 1994. After
administrative hearings, the original assessment of P150,000.00 was reduced to P75.000.00
and a modified assessment was thereafter issued on August 05, 1999. Despite repeated
demands, Adamson failed and refused to pay the modified assessment. Consequently, the BIR
brought an action for collection in the Regional Trial Court on September 15, 2000.
Adamson moved to dismiss the action on the ground that the government's right to collect the tax
by judicial action has prescribed. Decide the case. (5%)
SUGGESTED ANSWER:
The right of the Government to collect by judicial action has not prescribed. The filing of
the request for reconsideration suspended the running of the prescriptive period and
commenced to run again when a decision on the protest was made on August 5, 1999. It must be
noted that in all cases covered by an assessment, the period to collect shall be five (5)
years from the date of the assessment but this period is suspended by the filing of a request
for reconsideration which was acted upon by the Commissioner of Internal Revenue (CIR v.
Wyeth Suaco Laboratories, Inc., 202 SCRA 125 [1991])
Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his 1994 income
tax return on March 20, 1995. On December 15, 1995, he left the Philippines as an immigrant
to join his family in Canada. After the investigation of said return/the BIR issued a
notice of deficiency income tax assessment on April 15, 1998. Mr. Reyes returned to the
Philippines as a balikbayan on December 8, 1998. Finding his name to be in the list of
delinquent taxpayers, he filed a protest against the assessment on the ground that he
did not receive the notice of assessment and that the assessment had prescribed. Will
the protest prosper? Explain. (5%)
SUGGESTED ANSWER:
No. Prescription has not set in because the period of limitations for the Bureau of Internal
Revenue to issue an assessment was SUSPENDED during the time that Mr. Reyes was out of
the Philippines or from the period December 15, 1995 up to December 8, 1998.
(a) A taxpayer received, on 15 January 1996 an as- sessment for an internal revenue
tax deficiency. On 10 February 1996, the taxpayer forthwith filed a petition for review
with the Court of Tax Appeals. Could the Tax Court entertain the petition?
(b) Under the above factual setting, the taxpayer, instead of questioning the assessment
he received on 15 January 1996 paid, on 01 March 1996 the "deficiency tax" assessed. The
taxpayer requested a refund from the Commissioner by submitting a written claim on 1
March 1997. It was denied. The taxpayer, on 15 March 1997, filed a petition for review
with the Court of Appeals. Could the petition still be entertained?
SUGGESTED ANSWER:
(a) No. Before taxpayer can avail of Judicial remedy he must first exhaust
administrative remedies by filing a protest within 30 days from receipt of the assessment. It is
the Commissioner's decision on the protest that give the Tax Court jurisdiction over the case
provided that the appeal is filed within 30 days from receipt of the Commissioner's
decision. An assessment by the BIR is not the Commissioner's decision from which a
petition for review may be filed with the Court of Tax Appeals. Rather, it is the action
taken by the Commissioner in response to the taxpayer's protest on the assessment that would
constitute the appealable decision (Section 7, RA 1125).
(b) No, the petition for review can not be entertained by the Court of Appeals, since
decisions of the Commissioner on cases involving claim for tax refunds are within the
exclusive and primary jurisdiction of the Court of Tax Appeals (Section 7.RA1125).
A Co., a Philippine corporation, received an income tax deficiency assessment from the BIR
on May 5, 1995. On May 31, 1995, A Co. filed its protest with the BIR. On July 30,
1995, A Co. submitted to the BIR all relevant supporting documents. The CIR did not
formally rule on the protest but on January 25, 1996, A Co. was served a summons and a copy
of the complaint for collection of the tax deficiency filed by the BIR with the Regional Trial
Court (RTC). On February 20, 1996, A Co. brought a Petition for Review before the CTA.
The BIR contended that the Petition is premature since there was no formal denial of the
protest of A Co. and should therefore be dismissed.
SUGGESTED ANSWER;
Yes, the CTA has jurisdiction over the case because this qualifies as an appeal from the
Commissioner's decision on disputed assessment. When the Commissioner decided to collect
the tax assessed without first deciding on the taxpayer's protest, the effect of the
Commissioners action of filing a judicial action for collection is a decision of denial of
the protest, in which event the taxpayer may file an appeal with the CTA. (Republic v. Lim Tian
Teng & Sons, Inc., 16 SCRA 584; Dayrit v. Cruz, L-39910, Sept. 26, 1988).
Tax Credit or Refund
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -
(A) Forfeiture of Refund.- A refund check or warrant issued in accordance with the pertinent
provisions of this Code, which shall remain unclaimed or uncashed within five (5) years
from the date the said warrant or check was mailed or delivered, shall be forfeited in favor
of the Government and the amount thereof shall revert to the general fund. cralaw
(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent
provisions of this Code, which shall remain unutilized after five (5) years from the date of
issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment
for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate
shall revert to the general fund
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -
The Commissioner may -
XXXXXX
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction.
No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, That a return filed showing an overpayment shall
be considered as a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied
against any internal revenue tax, excluding withholding taxes, for which the taxpayer is
directly liable.
Any request for conversion into refund of unutilized tax credits may be allowed, subject to
the provisions of Section 230 of this Code: Provided, That the original copy of the Tax
Credit Certificate showing a creditable balance is surrendered to the appropriate revenue
officer for verification and cancellation: Provided, further, That in no case shall a tax
refund be given resulting from availment of incentives granted pursuant to special laws for
which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of
both the Senate and House of Representatives, every six (6) months, a report on the exercise
of his powers under this Section, stating therein the following facts and information, among
others: names and addresses of taxpayers whose cases have been the subject of abatement
or compromise; amount involved; amount compromised or abated; and reasons for the
exercise of power: Provided, That the said report shall be presented to the Oversight
Committee in Congress that shall be constituted to determine that said powers are
reasonably exercised and that the government is not unduly deprived of revenues.
(B) Capital Goods.- A VAT-registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to
the extent that such input taxes have not been applied against output taxes.
The application may be made only within two (2) years after the close of the taxable quarter
when the importation or purchase was made.
(C) Cancellation of VAT Registration. - A person whose registration has been cancelled due to
retirement from or cessation of business, or due to changes in or cessation of status under
Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply
for the issuance of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.
(D) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of compete
documents in support of the application filed in accordance with Subsections (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals.
(E) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the Commission on Audit.
Refund Credit
There is actual reimbursement of the tax The reimbursable mount is applied against the
sum that may be due of collectible from the
taxpayer
Grounds:
1. tax is collected erroneously or illegally;
2. penalty is collected without authority;
3. sum collected is excessive
Requisites:
1. claim must be in writing;
2. it must be filed with the Commissioner within two years (2) after the payment of the tax or
penalty; and
3. Show proof of payment.
Tax credit
A claim for issuance of a tax credit certificate, showing an amount owing from the government to the
taxpayer which the latter is legally authorized to credit or offset against national internal taxes payable by
him, except withholding taxes.
SEC. 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable income of that year, the corporation shall either:
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income
taxes paid, the excess amount shown on its final adjustment return may be carried over and
credited against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable years.
Once the option to carry-over and apply the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor.
Rules as to the commencement date of the 2 year prescriptive period:
1. As a general rule the commencement date of the 2 year period is from the date of payment
regardless of any supervening cause that may arise after payment:
2. EXCEPTIONS:
a. Corporate Income tax
i. Where a corporation paid quarterly income taxes in any of the first 3 quarters
during the taxable year but incurs a net loss during the taxable year, the 2-year
period for the filing of the claim for refund or credit shall be counted from the
date of the filing of the annual corporate ITR.
b. Income tax paid in installments
i. Where the tax paid had been paid in installment, the taxes are deemed paid, for
purposes of determining the commencement of the 2-year period for filing a
written claim for the refund or credit therefore on the date the last installment
was paid.
A corporation files its income tax return on a calendar year basis. For the first quarter of
1993, it paid on 30 May 1993 its quarterly income tax in the amount of P3.0 million. On
20 August 1993, it paid the second quarterly income tax of P0.5 million. The third quarter
resulted in a net loss, and no tax was paid. For the fourth and final return for 1993, the
company reported a net loss for the year, and the taxpayer indicated in the income tax return that
it opted to claim a refund of the quarterly income tax payments. On 10 January 1994, the
corporation filed with the Bureau of Internal Revenue a written claim for the refund of
P3.5 million.
BIR failed to act on the claim for refund; hence, on 02 March 1996, the corporation
filed a petition for review with the Court of Tax Appeals on its claim for refund of the
overpayment of its 1993 quarterly income tax. BIR, in its answer to the petition, alleged that the
claim for refund was filed beyond the reglementary period. Did the claim for refund prescribe?
SUGGESTED ANSWER:
The claim for refund has prescribed. The counting of the two-year prescriptive period for
filing a claim for refund is counted not from the date when the quarterly income taxes were
paid but on the date when the final adjustment return or annual income tax return was
filed (CIR v. TMX Sales Inc., G.R. No. 83736, January 15, 1992; CIR v. Phi/Am Life Insurance
Co., Inc., G.R. No. 105208, May 29, 1995). It is obvious that the annual income tax return
was filed before January 10, 1994 because the written claim for refund was filed with the
BIR on January 10, 1994. Since the two-year prescriptive period is not only a limitation of
action in the administrative stage but also a limitation of action for bringing the case to the
judicial stage, the petition for review filed with the CTA on March 02, 1996 is beyond the
reglementary period.
Taxpayer: Prescriptive Period; Claims for Refund (1994)
XCEL Corporation filed its quarterly income tax return for the first quarter of 1985 and
paid an income tax of P500.000.00 on May 15, 1985. In the subsequent quarters, XCEL
suffered losses so that on April 15, 1986 it declared a net loss of P1,000,000.00 in its annual
income tax return. After failing to get a refund, XCEL filed on March 1, 1988 a case with the
Court of Tax Appeals to recover the P500.000.00 in taxes paid on May 15, 1985.
SUGGESTED ANSWER:
The action for refund was filed in the Court of Tax Appeals on time. In the case of
Commissioner v. TMX Sales, Inc., 205 SCRA 184, which is similar to this case, the Supreme
Court ruled that in the case of overpaid quarterly corporate income tax, the two-year period for
filing claims for refund in the BIR as well as in the institution of an action for refund in
the CTA, the two-year prescriptive period for tax refunds (Sec. 230, Tax Code) is
counted from the filing of the final, adjustment return under Sec. 67 of the Tax Code, and
not from the filing of the quarterly return and payment of the quarterly tax. The CTA
action on March 1, 1988 was clearly within the reglementary two-year period from the
filing of the final adjustment return of the corporation on April 15, 1986.
Note:
A return filed showing an overpayment shall be considered as a written claim for credit or refund.
Note:
Once the option to carry-over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance of a tax credit shall be
allowed therefor
Congress enacts a law granting grade school and high school students a 10% discount on
all school-prescribed textbooks purchased from any bookstore. The law allows bookstores to
claim in full the discount as a tax credit.
1. If in a taxable year a bookstore has no tax due on which to apply the tax credits, can
the bookstore claim from the BIR a tax refund in lieu of tax credit? Explain. (2.5%)
SUGGESTED ANSWER:
No, the bookstore cannot claim from the BIR a tax refund in lieu of tax credit. There is
nothing in the law that grants a refund when the bookstore has no tax liabil- ity against which
the tax credit can be used (CIR v. Central Luzon Drug, G.R. No 159647, April 15, 2005). A tax
credit is in the nature of a tax exemption and in case of doubt, the doubt should be resolved in
strictissimi juris against the claimant.
2. Can the BIR require the bookstores to deduct the amount of the discount from their gross
income? Explain. (2.5%)
SUGGESTED ANSWER:
No. Tax credit which reduces the tax liability is different from a tax deduction which merely
reduces the tax base. Since the law allowed the bookstores to claim in full the discount as a tax
credit, the BIR is not allowed to expand or contract the legislative mandate (CIR v.
Bicolandia Drug Corp., G.R. No. 148083, July 21, 2006; CIR v. Central Luzon Drug Corp., G.R.
No. 159647, April 15, 2005).
3. If a bookstore closes its business due to losses with- out being able to recoup the
discount, can it claim reimbursement of the discount from the government on the ground that
without such reimbursement, the law constitutes taking of private property for public
use without just compensation? Explain. (5%)
SUGGESTED ANSWER:
A bookstore, closing its business due to losses, cannot claim reimbursement of the
discount from the government. If the business continues to operate at a loss and no other
taxes are due, thus compelling it to close shop, the credit can never be applied and will
be lost altogether (CIR v. Central Luzon Drug, G.R. No. 159647, April 15, 2005). The grant of
the discount to the taxpayer is a mere privilege and can be revoked anytime.
Options available to the taxpayer when the tax paid is not equal to the tax due:
1. If there is a deficiency in payment, to pay the balance of the tax due
2. Carry over the excess credit
3. Be credited or refunded the amount paid.
Note:
Once the option of applying the tax credit has been made, it may no longer be revoked.
Note:
A tax refund is treated as a tax exemption as such it is strictly construed against the taxpayer and the
burden of proof is on the taxpayer to prove that he is entitled to the tax refund requested.
Note:
It is a precondition to the filing of an action for refund in the courts that an request for refund be filed with
the CIR. However the adverse decision of the CIR is not required to the institution of the action in the
courts hence if within the 2 year prescriptive period is about to lapse and there has been no action on the
part of the CIR as to the request for refund the taxpayer must institute an action before the CTA otherwise
his claim will be barred by prescription.
On March 12, 2001, REN paid his taxes. Ten months later, he realized that he had
overpaid and so he immediately filed a claim for refund with the Commissioner
of Internal Revenue.
On February 27, 2003, he received the decision of the Commissioner denying REN's
claim for refund. On March 24, 2003, REN filed an appeal with the Court of Tax
Appeals. Was his appeal filed on time or not? Reason. (5%)
SUGGESTED ANSWER:
The appeal was not filed on time. The two-year period of limitation for filing a claim for
refund is not only a limitation for pursuing the claim at the administrative level but also a
limitation for appealing the case to the Court of Tax Appeals. The law provides that "no suit or
proceeding shall be filed after the expiration of two years from the date of the payment of
the tax or penalty regardless of any supervening cause that may arise after payment (Section
229, JVZRCJ. Since the appeal was only made on March 24, 2003, more than two years had
already elapsed from the time the taxes were paid on March 12, 2003. Accordingly,
REN had lost his judicial remedy because of prescription.
State the conditions required by the Tax Code before the Commissioner of Internal Revenue
could authorize the refund or credit of taxes erroneously or illegally received.
SUGGESTED ANSWER:
Does a withholding agent have the right to file an application for tax refund? Explain.
SUGGESTED ANSWER:
Yes. A taxpayer is "any person subject to tax." Since, the withholding tax agent who is
"required to deduct and withheld any tax" is made "personally liable for such tax" should the
amount of the tax withheld be finally found to be less than that required to be withheld by law,
then he is a taxpayer. Thus, he has sufficient legal interest to file an application for refund, of
the amount he believes was illegally collected from him. (Commissioner of Internal
Revenue v. Procter & Gamble, G.R. No. 66838, December 2, 1991)
A. What must a taxpayer do in order to claim a refund of, or tax credit for, taxes and
penalties which he alleges to have been erroneously, illegally or excessively assessed or
collected? (3%)
SUGGESTED ANSWER:
The taxpayer must comply with the following procedures in claiming a refund of, or tax credit
for, taxes and penalties which he alleges to have been erroneously, illegally or excessively
assessed or collected:
1. He should file a written claim for refund with the Commissioner within two years after
the date of payment of the tax or penalty (Sec. 204, NIRC);
2. The claim filed must state a categorical demand for reimbursement (Bermejo v.
Collector, 87 Phil. 96 [1950]).
3. The suit or proceeding for recovery must be commenced in court within two years from
date of payment of the tax or penalty regardless of any supervening event that will arise
after payment (Sec. 229, NIRC).
B. Can the Commissioner grant a refund or tax credit even without a written claim for it?
(2%)
SUGGESTED ANSWER:
B. Yes. When the taxpayer files a return which on its face shows an overpayment of the tax
and the option to refund/ claim a tax credit was chosen by the taxpayer, the Commissioner
shall grant the refund or tax credit without the need for a written claim. This is so, because a
return filed showing an overpayment shall be considered as a written claim for credit or
refund. (Sees. 76 and 204, NIRC). Moreover, the law provides that the
Commissioner may, even without a written claim therefor, refund or credit any tax where on the
face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid. (Sec. 229, NIRC).
On June 16, 1997, the Bureau of Internal Revenue (BIR) issued against the Estate of Jose de
la Cruz a notice of deficiency estate tax assessment, inclusive of surcharge, interest and
compromise penalty. The Executor of the Estate of Jose de la Cruz (Executor) filed a timely
protest against the assessment and requested for waiver of the surcharge, interest and
penalty. The protest was denied by the Commissioner of Internal Revenue (Commissioner)
with finality on September 13, 1997. Consequently, the Executor was made to pay the
deficiency assessment on October 10, 1997. The following day, the Executor filed a Petition
with the Court of Tax Appeals (CTA) praying for the refund of the surcharge, interest and
compromise penalty. The CTA took cognizance of the case and ordered the Commissioner
to make a refund. The Commissioner filed a Petition for Review with the Court of
Appeals assailing the jurisdiction of the CTA and the Order to make refund to the Estate on
the ground that no claim for refund was filed with the BIR.
SUGGESTED ANSWER:
Yes. There was no claim for refund or credit that has been duly filed with the Commissioner
of Internal Revenue which is required before a suit or proceeding can be filed in any court
(Sec. 229. NIRC of 1997). The denial of the claim by the Commissioner is the one which will
vest the Court of Tax Appeals jurisdiction over the refund case should the taxpayer decide
to appeal on time.
B. Why is the filing of an administrative claim with the BIR necessary? (3%)
SUGGESTED ANSWER:
The filing of an administrative claim for refund with the BIR is necessary in order:
1) To afford the Commissioner an opportunity to consider the claim and to have a
chance to correct the errors of subordinate officers (Gonzales v. CTA, et al, 14 SCRA 79);
and
2) To notify the Government that such taxes have been questioned and the notice
should be borne in mind in estimating the revenue available for expenditures. (Bermejo
v. Collector, G.R. No. L- 3028. July 29, 1950)
Taxpayer: Protest against Assessment (1999)
A Co., a Philippine corporation, received an income tax deficiency assessment from the
BIR on November 25, 1996. On December 10, 1996, A Co. filed its protest with the BIR On
May 20, 1997, the BIR issued a warrant of distraint to enforce the assessment. This
warrant was served on A Co. on May 25, 1997. In a letter dated June 4, 1997 and received by A
Co. 5 days later, the CIR formally denied A Co.'s protest stating that it constitutes his final
decision on the matter. On July 6, 1997, A Co. filed a Petition for Review with the
CTA. The BIR moved to dismiss the Petition on the ground that the CTA has no jurisdiction
over the case. Decide. (10%)
SUGGESTED ANSWER:
The CTA has jurisdiction over the case. The appealable decision is the one which
categorically stated that the Commissioner's action on the disputed assessment is final and,
therefore, the reckoning of the 30-day period to appeal was on June 9, 1999. The filing of the
petition for review with the CTA was timely made. The Supreme Court has ruled that the
CIR must categorically state that his action on a disputed assessment is final; otherwise, the
period to appeal will not commence to run. That final action cannot be implied from the
mere issuance of a warrant "of distraint and levy. (CIR v. Union Shipping Corporation, 185
SCRA 547).
Is protest at the time of payment of taxes and duties a requirement to preserve the
taxpayers' right to claim a refund? Explain.
SUGGESTED ANSWER:
For TAXES imposed under the NIRC, protest at the time of payment is not required to
preserve the taxpayers' right to claim refund. This is clear under Section 230 of the NIRC which
provides that a suit or proceeding maybe maintained for the recovery of national internal
revenue tax or penalty alleged to have been erroneously assessed or collected, whether
such tax or penalty has been paid under protest or not.
For DUTIES imposed under the Tariff and Customs Code, a protest at the time of
payment is required to preserve the taxpayers' claim for refund. The procedure under the
TCC is to the effect that when a ruling or decision of the Collector of Customs is made
whereby liability for duties is determined, the party adversely affected may protest such
ruling or decision by presenting to the Collector, at the time when payment is made, or
within 15 days thereafter, a written protest setting forth his objections to the ruling or
decision in question (Sec. 2308. TCC).
Note:
An appeal to the SEC of finance over the decision of the CIR except on tariff cases, will not suspend the
prescriptive period to institute an action in the CTA since it is not the officer which the law has specified
to whom the appeal should be taken.
Lily's Fashion, Inc. is a garment manufacturer located and registered as a Subic Bay
Freeport Enterprise under Republic Act No. 7227 and a non-VAT taxpayer. As such, it is
exempt from payment of all local and national internal revenue taxes. During its operations, it
purchased various supplies and materials necessary in the conduct of its manufacturing
business. The suppliers of these goods shifted to Lily's Fashion, Inc. the 10% VAT on
the purchased items amounting to P 500,000.00. Lily's Fashion, Inc. filed with the BIR a
claim for refund for the input tax shifted to it by the suppliers. If you were the
Commissioner of Internal Revenue, will you allow the refund? (5%)
ALTERNATIVE ANSWER:
No, I will not allow the refund. Only VAT-Registered taxpayers are entitled to a
refund of their unapplied/unused Input VAT (Tax Reform Act, Section 112[A] [1997]).
ALTERNATIVE ANSWER:
No. The exemption of Lily's Fashion, Inc. is only for taxes for which it is directly liable.
Hence, it can not claim exemption for a tax shifted to it, which is not at all considered a
tax to the buyer but a part of the purchase price. Lily's fashion is not the taxpayer in so far
as the passed-on tax is concerned and therefore, it can not claim for a refund of a tax merely
shifted to it (Phil. Acetylene Co., Inc. v. CIR, L-19707,Aug. 17, 1987)
Note:
Once an appeal on the decision of the CIR as to the validity of assessment is filed to the CTA, it has the
effect of divesting the RTC (when appropriate) of jurisdiction under the reasoning that there is no cause
of action since the RTC requires a valid assessment to anchor its decision upon since the assessment itself
is being reviewed in the CTA hence there is nothing for the RTC to enforce.
BIR: Court of Tax Appeals: Collection of Taxes; Grounds for Compromise (1996)
1. May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes
by the Bureau of Internal Revenue? Explain.
SUGGESTED ANSWER:
Yes. When a decision of the Commissioner on a tax protest is appealed to the CTA
pursuant to Sec. 11 of RA. No. 1125 (law creating the CTA) in relation to Sec. 229 of the
NIRC, such appeal does not suspend the payment, levy, distraint and/or sale of any of the
taxpayer's property for the satisfaction of his tax liability. However, when in the opinion of
the CTA the collection of the tax may jeopardize the interest of the Government
and/or the taxpayer, the Court at any stage of the proceedings may suspend or restrain
the collection of the tax 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.
2. May the tax liability of a taxpayer be compromised during the pendency of an appeal?
Explain.
SUGGESTED ANSWER:
Yes. During the pendency of the appeal, the taxpayer may still enter into a compromise
settlement of his tax liability for as long as any of the grounds for a compromise i.e.; doubtful
validity of assessment and financial incapacity of taxpayer, is present. A compromise of a tax
liability is possible at any stage of litigation, even during appeal, although legal propriety
demands that prior leave of court should be obtained
Note:
The remedy shall not be exclusive and shall not preclude the court from availing of other means under the
Rules of Court.
GEN. RULE:
No appeal taken to the CTA shall suspend the payment, levy or distrait, and/or sale of any property of the
taxpayer.
EXCEPTIONS:
1. there must be a showing that collection of the tax may jeopardize the interest of the government
and/or taxpayer;
2. deposit of the amount claimed or file a surety bond for not more that double the amount of tax
with the Court when required; and
3. showing by taxpayer that appeal is not frivolous or dilatory.
Note:
Appeal to the CTA does not automatically suspend collection UNLESS CTA issues suspension order at
any stage of proceedings.
Note:
PD 242, granting jurisdiction to the DOJ only of cases or controversies within and among the government
offices, agenies and instrumentalities, including GOCC. Whereas the law creating CTA governs all
revenue and customs controversies involving private litigants and the government
SUGGESTED ANSWER:
Motion granted. The Court of Tax Appeals has jurisdiction only over decisions of
the Commissioner of Customs in cases involving seizures, detention or release of property
affected. (Sec. 7, R.A. No. 1125). There is no decision yet of the Commissioner which is
subject to review by the Court of Tax Appeals.
ALTERNATIVE ANSWER:
Motion granted. The Court of Tax Appeals has no jurisdiction because there is no
decision rendered by the Commissioner of Customs on the seizure and forfeiture case. The
taxpayer should have appealed the decision rendered by the Collector within fifteen (15)
days from receipt of the decision to the Commissioner of Customs. The Commissioners
adverse decision would then be the subject of an appeal to the Court of Tax Appeals.
b) Under the same facts, could the importer file an action in the Regional Trial Court for
replevin on the ground that the articles are being wrongfully detained by the Collector of
Customs since the importation was not illegal and therefore exempt from seizure?
Explain. (3%)
SUGGESTED ANSWER:
No. The legislators intended to divest the Regional Trial Courts of the jurisdiction to replevin a
property which is a subject of seizure and forfeiture proceedings for violation of the Tariff and
Customs Code otherwise, actions for forfeiture of property for violation of the Customs
laws could easily be undermined by the simple device of replevin. (De la Fuente v. De
Veyra, et. al, 120 SCRA 455)
There should be no unnecessary hindrance on the government's drive to prevent
smuggling and other frauds upon the Customs. Furthermore, the Regional Trial Court do not
have Jurisdiction in order to render effective and efficient the collection of Import and export
duties due the State, which enables the government to carry out the functions It has been
Instituted to perform. (Jao, et al, Court of Appeals, et al, and companion case, 249
SCRA 35, 43)
A Co., a Philippine corporation, is the owner of machin- ery, equipment and fixtures located
at its plant in Muntinlupa City. The City Assessor characterized all these properties as real
properties subject to the real property tax. A Co. appealed the matter to the Muntinlupa Board
of Assessment Appeals. The Board ruled in favor of the City. In accordance with RA 1125
(An Act creating the Court of Tax Appeals). A Co. brought a petition for review before
the CTA to appeal the decision of the City Board of Assessment Appeals. Is the Petition for
Review proper? Explain. (5%)
SUGGESTED ANSWER:
No. The CTAs devoid of jurisdiction to entertain appeals from the decision of the City
Board of Assessment Appeals. Said decision is instead appealable to the Central Board of
Assessment Appeals, which under the Local Government Code, has appellate jurisdiction
over deci- sions of Local Board of Assessment Appeals. (Caltex Phils, foe. v. Central
Board of Assessment Appeals, L- 50466, May 31, 1982).
May the collection of taxes be barred by prescription? Explain your answer. (3%)
SUGGESTED ANSWER:
BIR: Court of Tax Appeals: Collection of Taxes; Grounds for Compromise (1996)
1. May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes
by the Bureau of Internal Revenue? Explain.
SUGGESTED ANSWER:
Yes. When a decision of the Commissioner on a tax protest is appealed to the CTA
pursuant to Sec. 11 of RA. No. 1125 (law creating the CTA) in relation to Sec. 229 of the
NIRC, such appeal does not suspend the payment, levy, distraint and/or sale of any of the
taxpayer's property for the satisfaction of his tax liability. However, when in the opinion of
the CTA the collection of the tax may jeopardize the interest of the Government
and/or the taxpayer, the Court at any stage of the proceedings may suspend or restrain
the collection of the tax 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.
2. May the tax liability of a taxpayer be compromised during the pendency of an appeal?
Explain.
SUGGESTED ANSWER:
Yes. During the pendency of the appeal, the taxpayer may still enter into a compromise
settlement of his tax liability for as long as any of the grounds for a compromise i.e.; doubtful
validity of assessment and financial incapacity of taxpayer, is present. A compromise of a tax
liability is possible at any stage of litigation, even during appeal, although legal propriety
demands that prior leave of court should be obtained (Pasudeco vs. CIR L-39387, June 29,
1982).
May the courts enjoin the collection of revenue taxes? Explain your answer. (2%)
SUGGESTED ANSWER:
As a general rule, the courts have no authority to enjoin the collection of revenue taxes.
(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. (Section 11, RA 1125).
Article 10 Section 5.
Each local government unit shall have the power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments
Note:
The LGUs have no power to tax instrumentalities of the national government, this doctrine emanates
from the supremacy of the national government over the local government
Power to Create Sources of Revenue Each local government unit has the power to:
1. create its own sources of revenue and
2. levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of
local autonomy. (Sec. 129)
Note:
Such taxes, fees, and charges shall accrue exclusively to the local government units.
Section 130. Fundamental Principles. - The following fundamental principles shall govern the
exercise of the taxing and other revenue-raising powers of local government units:
(1) be equitable and based as far as practicable on the taxpayer's ability to pay;
(4) not be contrary to law, public policy, national economic policy, or in the restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person;
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of,
and be subject to the disposition by, the local government unit levying the tax, fee, charge or
other imposition unless otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
In order to raise revenue for the repair and maintenance of the newly constructed City Hall of
Makati, the City Mayor ordered the collection of P1.00, called "elevator tax", every time
a person rides any of the high-tech elevators in the city hall during the hours of 8:00 a.m. to
10:00 a.m. and 4:00 p.m. to 6:00 p.m. Is the "elevator tax" a valid imposition? Explain. (8%)
SUGGESTED ANSWER:
No. The imposition of a tax, fee or charge or the generation of revenue under the
Local Government Code, shall be exercised by the SANGUNIAN of the local government
unit concerned through an appropriate ordinance (Section 132 of the Local Government
Code). The city mayor alone could not order the collection of the tax; as such, the "elevator tax"
is an invalid imposition.
Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for
wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form whatsoever
upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-
eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines"
respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units
Excluded imposition:
1. taxes which are levied under the NIRC, unless otherwise provided by LGC;
2. taxes which are imposed under the Tariff and Customs code
3. taxes imposition of which contravenes existing governmental policies or which violates the
fundamental principles of taxation
4. taxes and other charges imposed under special law.
Note:
Ordinance which would prohibit the free flow of goods into, or out of, the territorial jurisdictions of local
governments are invalid.
Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures;
Mandatory Public Hearings. - The procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code: Provided, That public hearings
shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any
question on the constitutionality or legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however,
That such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty
(30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of
Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court
of competent jurisdiction.
Section 56. Review of Component City and Municipal Ordinances or Resolutions by the
Sangguniang Panlalawigan.
(a) Within three (3) days after approval, the secretary to the sanggunian panlungsod or
sangguniang bayan shall forward to the sangguniang panlalawigan for review, copies of approved
ordinances and the resolutions approving the local development plans and public investment
programs formulated by the local development councils.
(b) Within thirty (30) days after the receipt of copies of such ordinances and resolutions, the
sangguniang panlalawigan shall examine the documents or transmit them to the provincial
attorney, or if there be none, to the provincial prosecutor for prompt examination. The provincial
attorney or provincial prosecutor shall, within a period of ten (10) days from receipt of the
documents, inform the sangguniang panlalawigan in writing of his comments or recommendations,
which may be considered by the sangguniang panlalawigan in making its decision.
(c) If the sangguniang panlalawigan finds that such an ordinance or resolution is beyond the power
conferred upon the sangguniang panlungsod or sangguniang bayan concerned, it shall declare such
ordinance or resolution invalid in whole or in part. The sangguniang panlalawigan shall enter its
action in the minutes and shall advise the corresponding city or municipal authorities of the action
it has taken.
(d) If no action has been taken by the sangguniang panlalawigan within thirty (30) days after
submission of such an ordinance or resolution, the same shall be presumed consistent with law and
therefore valid.
(a) Within ten (10) days after its enactment, the sangguniang barangay shall furnish copies of all
barangay ordinances to the sangguniang panlungsod or sangguniang bayan concerned for review
as to whether the ordinance is consistent with law and city or municipal ordinances.
(b) If the sangguniang panlungsod or sangguniang bayan, as the case may be, fails to take action on
barangay ordinances within thirty (30) days from receipt thereof, the same shall be deemed
approved.
(c) If the sangguniang panlungsod or sangguniang bayan, as the case may be, finds the barangay
ordinances inconsistent with law or city or municipal ordinances, the sanggunian concerned shall,
within thirty (30) days from receipt thereof, return the same with its comments and
recommendations to the sangguniang barangay concerned for adjustment, amendment, or
modification; in which case, the effectivity of the barangay ordinance is suspended until such time
as the revision called for is effected.
X, a taxpayer who believes that an ordinance passed by the City Council of Pasay is
unconstitutional for being discriminatory against him, want to know from you, his tax
lawyer, whether or not he can file an appeal. In the affirmative, he asks you where such
appeal should be made: the Secretary of Finance, or the Secretary of Justice, or the Court of
Tax Appeals, or the regular courts. What would your advice be to your client, X? (8%)
SUGGESTED ANSWER:
The appeal should be made with the Secretary of Justice. Any question on the constitutionality
or legality of a tax ordinance may be raised on appeal with the Secretary of Justice within 30
days from the effectivity thereof. (Sec. 187, LGC; Hagonoy Market Vendor
Association v. Municipality of Hagonoy, 376 SCRA 376 [2002]).
PROVINCES
Taxes that may be imposed by provinces
1. tax on transfer of real property
2. tax on business of printing and publication
3. franchise tax
4. tax on sand gravel and other quarry resources extracted from public land
5. professional tax
6. amusement tax
7. annual fixed tax for delivery truck or van manufacturers or producers, wholesalers of, dealer, or
retailers in, certain products.
Rate:
Not more than 50% of the 1% of the total consideration or of the fair market value, whichever is higher
Exception:
Sale, transfer or other disposition of real property pursuant to R.A. No. 6657 (CARL).
Note: It shall be the duty of the seller, donor, transferor or administrator to pay the tax imposed within 60
days from the date of the execution of the deed or from the date of the decedent's death
Rate:
Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year
Exceptions:
Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment. School texts or
references, prescribed by the DECS shall be exempt from the tax.
Franchise Tax.
Notwithstanding any exemption granted by any law or other special law, the province may impose a tax
on businesses enjoying a franchise.
Rate:
Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year, within its
territorial jurisdiction.
Exceptions:
Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment.
Rate:
Not more than 10% of fair market value in the locality
Note:
The permit to extract resources shall be issued exclusively by the provincial governor, pursuant to the
ordinance of the sangguniang panlalawigan. Proceeds distributed as follows:
1. Province -30%
2. Component City or Municipality where the quarry resources are extracted - 30%
3. Barangay where the quarry resources are extracted - 40%.
Professional Tax.
The province may levy an annual professional tax on each person engaged in the exercise or practice of
his profession requiring government examination. To be paid on or before the 31st day of January.
Note:
Any person first beginning to practice a profession after the month of January must, however, pay the full
tax before engaging therein.
Rate:
At such amount and reasonable classification as the sangguniang panlalawigan may determine but shall in
no case exceed P300.00.
Exception:
Professionals exclusively employed in the government shall be exempt from the payment of this tax.
Note:
To be paid to the province where he/she practices his/her profession or where he/she maintains principal
office in case the practice is in several places provided, after payment he/she shall be entitled to practice
his/her profession in any part of the Philippines. W/out being subjected to any other national or local tax,
license, or fee for the practice of the profession.
Local Taxation; Situs of Professional Taxes (2005)
a) May Makati City, where he has his main office, require him to pay his professional tax as a
lawyer? Explain.
SUGGESTED ANSWER:
No. Makati City where Mr. Fermin has his main office may not require him to pay his
professional tax as a lawyer. Mr. Fermin has the option of paying his professional
tax as a lawyer in Pasig City where he practices law or in Makati City where he
maintains his principal office. (Sec. 139[b], Local Government Code)
b) May Quezon City, where he has his residence and where he also practices his two
professions, go after him for the payment of his professional tax as a CPA and a lawyer?
Explain.
SUGGESTED ANSWER:
No, the situs of the professional tax is the city where the professional practices his
profession or where he maintains his principal office in case he practices his
profession in several places. The local government of Quezon City has no right to collect
the professional tax from Mr. Fermin as the place of residence of the taxpayer is not the proper
situs in the collection of the professional tax.
Amusement Tax.
The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadium, and other places of amusement where one
seeks admission to entertain himself by seeing or viewing a show or performance
Rate:
Not more than 30% of the gross receipts from admission fees.
Exception:
The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical
programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt.
Note:
Sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax.
In case of fraud or failure to pay, the sangguniang panlalawigan may impose surcharges, interest and
penalties. The proceeds from the amusement tax shall be shared equally by the province and the
municipality where such amusement places are located.
Annual Fixed Tax for Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of,
Dealers, or Retailers in, Certain Products.
The province may levy an annual fixed tax for every truck or any vehicle used by manufacturers,
producers, wholesalers, dealers or retailers in the delivery of distilled spirits, soft drinks, cigars and
cigarettes, and other products as may be determined by the sanggunian, to sales outlets, or consumers,
whether directly or indirectly, within the province.
Rate:
Amount not exceeding P500.00.
Note:
Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed
for municipalities (1-8 above). (Sec. 144 LGC)
Note:
The tax is payable for every separate or distinct establishment or place where business is conducted. (Sec.
146 LGC)
Municipalities shall have the exclusive authority to grant fishery privileges in the municipal
waters. The sanggunian may:
1. Grant fishery privileges to erect fish corrals, oysters, or other aquatic beds or bangus fry areas:
a. Duly registered organizations and cooperatives of marginal fishermen shall have the
preferential right;
b. The sanggunian may require a public bidding pursuant to an ordinance for the grant of
such privilege;
c. Absent of such orgs. and coops or their failure to exercise their preferential right, other
parties may participate in the public bidding
2. Grant the privilege to gather, take or catch bangus fry, prawn fry or fry of other species and fish
from the municipal waters by nets or other fishing gears to marginal fishermen free of rental or
fee
3. Issue licenses for the operation of fishing vessels of three (3) tons or less. (Sec. 149)
The city may levy the taxes and other charges which the province or municipalities may impose. The tax
rates that the city may levy may exceed the maximum rates allowed for the province or municipality by
not more than 50% except the rates of professional and amusement taxes.
COMMUNITY TAX
Cities or municipalities may levy a community tax (Sec. 156)
1. Individuals Liable to Community Tax:
a. Inhabitant of the Philippines
b. Eighteen years of age or over
c. Regularly employed on a wage or salary
d. basis for at least 30 consecutive working days during any calendar year,
e. Who is engaged in business or occupation,
f. who owns real property with an aggregate assessed value of P1, 000.00 or more,
g. who is required by law to file an income tax return
Tax rate:
1. Individual
a. P5.00 and an annual additional tax of P1.00 for every P1, 000.00 of income regardless of
whether from business, exercise of profession or from property which in no case shall
exceed P5, 000.00.
b. In the case of husband and wife, the tax imposed shall be based upon the total property
owned by them and the total gross receipts or earnings derived by them. (Sec. 157)
2. Juridical Personalities (Sec. 158, LGC)
a. Every corporation, no matter how created or organized, whether domestic or resident
foreign, engaged in or doing business in the Philippines is also liable to pay an annual
community tax.
b. Tax rate: P500.00 and an annual additional tax, which shall exceed P10, 000.00 in
accordance with the following schedule:
i. For every P5,000.00 worth of real property in the Philippines owned by it during
the preceding year based on the valuation used for the payment of real property
tax - P2.00;
ii. For every P5, 000.00 of gross receipts derived by it from its business in the
Philippines during the preceding year P2.00.
Place of Payment:
place of residence of the individual, or in the place where the principal office of the juridical entity is
located. (Sec. 160)
Note:
A community tax certificate may also be issued to any person or corporation not subject to the community
tax upon payment of P1.00. (Sec. 162,LGC)
Note:
The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their
respective jurisdictions.
Note:
The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall
accrue entirely to the general fund of the city or municipality concerned.
Proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows:
(Sec. 164):
1. 50% accrues to the general fund of the city or municipality concerned; and
2. 50% accrues to the barangay where the tax is collected.
Note:
The community tax certificate shall not be required in the registration of a voter.
Section 165. Tax Period and Manner of Payment. - Unless otherwise provided in this Code, the tax
period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges
may be paid in quarterly installments.
Section 166. Accrual of Tax. - Unless otherwise provided in this Code, all local taxes, fees, and
charges shall accrue on the first (1st) day of January of each year. However, new taxes, fees or
charges, or changes in the rates thereof, shall accrue on the first (1st) day of the quarter next
following the effectivity of the ordinance imposing such new levies or rates.
Section 167. Time of Payment. - Unless otherwise provided in this Code, all local taxes, fees, and
charges shall be paid within the first twenty (20) days of January or of each subsequent quarter, as
the case may be. The sanggunian concerned may, for a justifiable reason or cause, extend the time
for payment of such taxes, fees, or charges without surcharges or penalties, but only for a period
not exceeding six (6) months.
Section 173. Local Government's Lien. - Local taxes, fees, charges and other revenues constitute a
lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by
appropriate administrative or judicial action, not only upon any property or rights therein which
may be subject to the lien but also upon property used in business, occupation, practice of
profession or calling, or exercise of privilege with respect to which the lien is imposed. The lien may
only be extinguished upon full payment of the delinquent local taxes fees and charges including
related surcharges and interest.
Section 174. Civil Remedies. - The civil remedies for the collection of local taxes, fees, or charges,
and related surcharges and interest resulting from delinquency shall be:
(a) By administrative action thru distraint of goods, chattels, or effects, and other personal property
of whatever character, including stocks and other securities, debts, credits, bank accounts, and
interest in and rights to personal property, and by levy upon real property and interest in or rights
to real property;
Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of
the local government unit concerned.
Section 175. Distraint of Personal Property. - The remedy by distraint shall proceed as follows:
(a) Seizure - Upon failure of the person owing any local tax, fee, or charge to pay the same at the
time required, the local treasurer or his deputy may, upon written notice, seize or confiscate any
personal property belonging to that person or any personal property subject to the lien in sufficient
quantity to satisfy the tax, fee, or charge in question, together with any increment thereto incident
to delinquency and the expenses of seizure. In such case, the local treasurer or his deputy shall issue
a duly authenticated certificate based upon the records of his office showing the fact of delinquency
and the amounts of the tax, fee, or charge and penalty due. Such certificate shall serve as sufficient
warrant for the distraint of personal property aforementioned, subject to the taxpayer's right to
claim exemption under the provisions of existing laws. Distrained personal property shall be sold at
public auction in the manner hereon provided for.
(b) Accounting of distrained goods. - The officer executing the distraint shall make or cause to be
made an account of the goods, chattels or effects distrained, a copy of which signed by himself shall
be left either with the owner or person from whose possession the goods, chattels or effects are
taken, or at the dwelling or place or business of that person and with someone of suitable age and
discretion, to which list shall be added a statement of the sum demanded and a note of the time and
place of sale.
(c) Publication - The officer shall forthwith cause a notification to be exhibited in not less than three
(3) public and conspicuous places in the territory of the local government unit where the distraint is
made, specifying the time and place of sale, and the articles distrained. The time of sale shall not be
less than twenty (20) days after the notice to the owner or possessor of the property as above
specified and the publication or posting of the notice. One place for the posting of the notice shall be
at the office of the chief executive of the local government unit in which the property is distrained.
(d) Release of distrained property upon payment prior to sale - If at any time prior to the
consummation of the sale, all the proper charges are paid to the officer conducting the sale, the
goods or effects distrained shall be restored to the owner.
(e) Procedure of sale - At the time and place fixed in the notice, the officer conducting the sale shall
sell the goods or effects so distrained at public auction to the highest bidder for cash. Within five (5)
days after the sale, the local treasurer shall make a report of the proceedings in writing to the local
chief executive concerned.
Should the property distrained be not disposed of within one hundred and twenty (120) days from
the date of distraint, the same shall be considered as sold to the local government unit concerned
for the amount of the assessment made thereon by the Committee on Appraisal and to the extent of
the same amount, the tax delinquencies shall be cancelled.
Said Committee on Appraisal shall be composed of the city or municipal treasurer as chairman,
with a representative of the Commission on Audit and the city or municipal assessor as members.
(f) Disposition of proceeds - The proceeds of the sale shall be applied to satisfy the tax, including the
surcharges, interest, and other penalties incident to delinquency, and the expenses of the distraint
and sale. The balance over and above what is required to pay the entire claim shall be returned to
the owner of the property sold. The expenses chargeable upon the seizure and sale shall embrace
only the actual expenses of seizure and preservation of the property pending the sale, and no charge
shall be imposed for the services of the local officer or his deputy. Where the proceeds of the sale
are insufficient to satisfy the claim, other property may, in like manner, be distrained until the full
amount due, including all expenses, is collected.
Section 176. Levy on Real Property. - After the expiration of the time required to pay the
delinquent tax, fee, or charge, real property may be levied on before, simultaneously, or after the
distraint of personal property belonging to the delinquent taxpayer. To this end, the provincial, city
or municipal treasurer, as the case may be, shall prepare a duly authenticated certificate showing
the name of the taxpayer and the amount of the tax, fee, or charge, and penalty due from him. Said
certificate shall operate with the force of a legal execution throughout the Philippines. Levy shall be
effected by writing upon said certificate the description of the property upon which levy is made. At
the same time, written notice of the levy shall be mailed to or served upon the assessor and the
Register of Deeds of the province or city where the property is located who shall annotate the levy
on the tax declaration and certificate of title of the property, respectively, and the delinquent
taxpayer or, if he be absent from the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or if there be none, to the occupant of the property in question.
In case the levy on real property is not issued before or simultaneously with the warrant of distraint
on personal property, and the personal property of the taxpayer is not sufficient to satisfy his
delinquency, the provincial, city or municipal treasurer, as the case may be, shall within thirty (30)
days after execution of the distraint, proceed with the levy on the taxpayer's real property.
A report on any levy shall, within ten (10) days after receipt of the warrant, be submitted by the
levying officer to the sanggunian concerned.
Section 183. Collection of Delinquent Taxes, Fees, Charges or other Revenues through Judicial
Action. - The local government unit concerned may enforce the collection of delinquent taxes, fees,
charges or other revenues by civil action in any court of competent jurisdiction. The civil action
shall be filed by the local treasurer within the period prescribed in Section 194 of this Code.
(a) Local taxes, fees, or charges shall be assessed within five (5) years from the date they became
due. No action for the collection of such taxes, fees, or charges, whether administrative or
judicial, shall be instituted after the expiration of such period: Provided, That. taxes, fees or
charges which have accrued before the effectivity of this Code may be assessed within a period
of three (3) years from the date they became due.
(b) In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be
assessed within ten (10) years from discovery of the fraud or intent to evade payment.
(c) Local taxes, fees, or charges may be collected within five (5) years from the date of assessment
by administrative or judicial action. No such action shall be instituted after the expiration of
said period: Provided, however, That, taxes, fees or charges assessed before the effectivity of
this Code may be collected within a period of three (3) years from the date of assessment.
(d) The running of the periods of prescription provided in the preceding paragraphs shall be
suspended for the time during which:
(1) The treasurer is legally prevented from making the assessment of collection;
(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before
expiration of the period within which to assess or collect; and
Section 195. Protest of Assessment. - When the local treasurer or his duly authorized representative
finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment
stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and
penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a
written protest with the local treasurer contesting the assessment; otherwise, the assessment shall
become final and executory. The local treasurer shall decide the protest within sixty (60) days from
the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he
shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer
finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with
notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with
the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.
Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any
court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written
claim for refund or credit has been filed with the local treasurer. No case or proceeding shall be
entertained in any court after the expiration of two (2) years from the date of the payment of such
tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit.
Note:
Any of these remedies or all may be pursued concurrently or simultaneously at the discretion of the local
government unit concerned.
Tax lien
Local taxes constitute a lien, superior to all liens, charges or encumbrances in favor of any person,
enforceable by appropriate administrative of judicial action, not only upon any property or rights therein
which may be the subject of the lien but also upon property used in business, occupation, practice of
profession or calling, or exercise of privilege with respect to which the lien is imposed
Judicial action
1. civil action only; it precludes a criminal case as a proper remedy for collection of delinquent
local taxes.
2. The treasurer of the concerned Local Government Unit shall file the collection case.
3. The CTA has coordinate jurisdiction over the tax collection cases of the LGU
Protest
Within 60 days from receipt of assessment. Payment under protest not necessary.
Note:
Payment and subsequent refund or tax credit
1. within two (2) years from payment of tax to local treasurer.
2. Right of redemption one (1) year from the date of sale or from the date of forfeiture.
Note:
Action for declaratory relief injunction is available if irreparable damage would be caused to the taxpayer
and no adequate remedy is available.
Characteristics:
1. Direct tax on the ownership of real property
2. Ad Valorem tax. The value is based on the tax base
3. Proportion - the tax is calculated on the basis of a certain percentage of the value assessed
4. Indivisible single obligation
5. Local Tax
Section 232. Power to Levy Real Property Tax. - A province or city or a municipality within the
Metropolitan Manila Area my levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvement not hereinafter specifically exempted.
Section 233. Rates of Levy. - A province or city or a municipality within the Metropolitan Manila
Area shall fix a uniform rate of basic real property tax applicable to their respective localities as
follows:
(a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real
property; and
(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not
exceeding two percent (2%) of the assessed value of real property.
Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity of this Code.
According to the Local Government Code, Real Property liable for Real Prop tax are:
1. Land,
2. Buildings
3. Machinery and
4. Other improvements not otherwise exempted under said code (Sec 232, LGC)
Note:
Although the term real property has not been expressly defined in the LGC, early decisions of the
Supreme Court in Mindanao Bus Co. v City Assessor of Cagayan de Oro, 6 SCRA `97; Board of
Assessment Appeals v Meralco, 119 PHIL 328; Manila Electric Co. v Board of Assessment Appeals, 10
SCRA 68 seem to suggest that Art 415 of the Civil Code could also be controlling.
The real property of Mr. and Mrs Angeles, situated in a commercial area in front of
the public market, was declared in their Tax Declaration as residential because it had been
used by them as their family residence from the time of its construction in 1990. However, since
January 1997, when the spouses left for the United States to stay there permanently with their
children, the property has been rented to a single proprietor engaged in the sale of appliances
and agri-products. The Provincial Assessor reclassified the property as commercial for tax
purposes starting January 1998. Mr. and Mrs. Angeles appealed to the Local Board of
Assessment Appeals, contending that the Tax Declaration previously classifying their
property as residential is binding. How should the appeal be decided? (5%)
SUGGESTED ANSWER:
The appeal should be decided against Mr. and Mrs. Angeles. The law focuses on the actual
use of the property for classification, valuation and assessment purposes regardless of
ownership. Section 217 of the Local Government Code provides 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".
State the fundamental principles underlying real property taxation in the Philippines.
SUGGESTED ANSWER:
The following are the fundamental principles governing real property taxation:
1) Real property shall be appraised at its current and fair market value;
2) Real property shall be classified for assessment purposes on the basis of its actual
use:
3) Real property shall be assessed on the basis of a uniform classification within each
local government unit;
4) The appraisal, assessment, levy, and collection of real property tax shall not be let to
any private person; and
5) The appraisal and assessment of real property shall be equitable.
PROCEDURE:
Section 201. Appraisal of Real Property. - All real property, whether taxable or exempt, shall be
appraised at the current and fair market value prevailing in the locality where the property is
situated. The Department of Finance shall promulgate the necessary rules and regulations for the
classification, appraisal, and assessment of real property pursuant to the provisions of this Code.
Section 202. Declaration of real Property by the Owner or Administrator. - It shall be the duty of
all persons, natural or juridical, owning or administering real property, including the
improvements therein, within a city or municipality, or their duly authorized representative, to
prepare, or cause to be prepared, and file with the provincial, city or municipal assessor, a sworn
statement declaring the true value of their property, whether previously declared or undeclared,
taxable or exempt, which shall be the current and fair market value of the property, as determined
by the declarant. Such declaration shall contain a description of the property sufficient in detail to
enable the assessor or his deputy to identify the same for assessment purposes. The sworn
declaration of real property herein referred to shall be filed with the assessor concerned once every
three (3) years during the period from January first (1st) to June thirtieth (30th) commencing with
the calendar year 1992.
Section 203. Duty of Person Acquiring Real Property or Making Improvement Thereon. - It shall
also be the duty of any person, or his authorized representative, acquiring at any time real property
in any municipality or city or making any improvement on real property, to prepare, or cause to be
prepared, and file with the provincial, city or municipal assessor, a sworn statement declaring the
true value of subject property, within sixty (60) days after the acquisition of such property or upon
completion or occupancy of the improvement, whichever comes earlier.
Section 204. Declaration of Real Property by the Assessor. - When any person, natural or juridical,
by whom real property is required to be declared under Section 202 hereof, refuses or fails for any
reason to make such declaration within the time prescribed, the provincial, city or municipal
assessor shall himself declare the property in the name of the defaulting owner, if known, or against
an unknown owner, as the case may be, and shall assess the property for taxation in accordance
with the provision of this Title. No oath shall be required of a declaration thus made by the
provincial, city or municipal assessor
Section 206. Proof of Exemption of Real Property from Taxation. - Every person by or for whom
real property is declared, who shall claim tax exemption for such property under this Title shall file
with the provincial, city or municipal assessor within thirty (30) days from the date of the
declaration of real property sufficient documentary evidence in support of such claim including
corporate charters, title of ownership, articles of incorporation, by-laws, contracts, affidavits,
certifications and mortgage deeds, and similar documents.
If the required evidence is not submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt,
the same shall be dropped from the assessment roll.
Section 222. Assessment of Property Subject to Back Taxes. - Real property declared for the first
time shall be assessed for taxes for the period during which it would have been liable but in no case
of more than ten (10) years prior to the date of initial assessment: Provided, however, That such
taxes shall be computed on the basis of the applicable schedule of values in force during the
corresponding period.
If such taxes are paid on or before the end of the quarter following the date the notice of assessment
was received by the owner or his representative, no interest for delinquency shall be imposed
thereon; otherwise, such taxes shall be subject to an interest at the rate of two percent (2%) per
month or a fraction thereof from the date of the receipt of the assessment until such taxes are fully
paid.
Note:
IF PROPERTY DECLARED FOR THE FIRST TIME (Sec. 222)
If declared for 1st time, real property shall be assessed for back taxes for not more than 10 years prior to
the date of initial assessment taxes shall be computed on the basis of applicable schedule of values in
force during the corresponding periods
(b) In every province and city, including the municipalities within the Metropolitan Manila Area,
there shall be prepared and maintained by the provincial, city or municipal assessor an
assessment roll wherein shall be listed all real property, whether taxable or exempt, located
within the territorial jurisdiction of the local government unit concerned. Real property shall be
listed, valued and assessed in the name of the owner or administrator, or anyone having legal
interest in the property.
(c) The undivided real property of a deceased person may be listed, valued and assessed in the
name of the estate or of the heirs and devisees without designating them individually; and
undivided real property other than that owned by a deceased may be listed, valued and assessed
in the name of one or more co-owners: Provided, however, That such heir, devisee, or co-owner
shall be liable severally and proportionately for all obligations imposed by this Title and the
payment of the real property tax with respect to the undivided property.
(c) The real property of a corporation, partnership, or association shall be listed, valued and
assessed in the same manner as that of an individual.
(d) Real property owned by the Republic of the Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a
taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of the
public entity if such property has been acquired or held for resale or lease.
Section 207. Real Property Identification System. - All declarations of real property made under
the provisions of this Title shall be kept and filed under a uniform classification system to be
established by the provincial, city or municipal assessor.
Procedure
1. take the schedule of FMV
2. Assessed value = FMV X Assessment level
3. Tax = Assessed value X Tax rate
STEP 5: PAYMENT AND COLLECTION OF TAX
Section 246. Date of Accrual of Tax. - The real property tax for any year shall accrue on the first
day of January and from that date it shall constitute a lien on the property which shall be superior
to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only
upon the payment of the delinquent tax.
When:
1. Period: January 1 of every year (Sec 246)
2. tax shall constitute as superior lien (Sec 246)
HOW?
1. basic real prop tax in 4 equal installments (Mar 31, June 30,Sept. 30, Dec. 31)
2. special levy - governed by ordinance
Note:
INTEREST for LATE PAYMENT Two percent (2%) each month on unpaid amt. until the delinquent amt
is paid. Provided in no case shall the total interest exceed thirty-six (36) months
Note:
FOR ADVANCE and PROMPT PAYMENT
1. advance payment -discount not exceeding 20% of annual tax (Sec 251, LGC)
2. prompt payment -discount not exceeding 10% of annual tax due (Art 342 IRR)
WHO COLLECTS?
The provincial, city, municipal or barangay treasurer within which to collect.
Section 235. Additional Levy on Real Property for the Special Education Fund. - A province or city, or a
municipality within the Metropolitan Manila Area, may levy and collect an annual tax of one percent
(1%) on the assessed value of real property which shall be in addition to the basic real property tax. The
proceeds thereof shall exclusively accrue to the Special Education Fund (SEF).
Section 236. Additional Ad Valorem Tax on Idle Lands. - A province or city, or a municipality within
the Metropolitan Manila Area, may levy an annual tax on idle lands at the rate not exceeding five
percent (5%) of the assessed value of the property which shall be in addition to the basic real property tax.
Section 237. Idle Lands, Coverage. - For purposes of real property taxation, idle lands shall include the
following:
(a) Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery,
and other agricultural uses, one-half (1/2) of which remain uncultivated or unimproved by the owner of
the property or person having legal interest therein. Agricultural lands planted to permanent or perennial
crops with at least fifty (50) trees to a hectare shall not be considered idle lands. Lands actually used for
grazing purposes shall likewise not be considered idle lands.
(b) Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000)
square meters in area one-half (1/2) of which remain unutilized or unimproved by the owner of the
property or person having legal interest therein.
Regardless of land area, this Section shall likewise apply to residential lots in subdivisions duly approved
by proper authorities, the ownership of which has been transferred to individual owners, who shall be
liable for the additional tax: Provided, however, That individual lots of such subdivisions, the ownership
of which has not been transferred to the buyer shall be considered as part of the subdivision, and shall be
subject to the additional tax payable by subdivision owner or operator.
Section 238. Idle Lands Exempt from Tax. - A province or city or a municipality within the Metropolitan
Manila Area may exempt idle lands from the additional levy by reason of force majeure, civil disturbance,
natural calamity or any cause or circumstance which physically or legally prevents the owner of the
property or person having legal interest therein from improving, utilizing or cultivating the same.
Section 239. Listing of Idle Lands by the Assessor. - The provincial, city or municipal assessor shall
make and keep an updated record of all idle lands located within his area of jurisdiction. For purposes of
collection, the provincial, city or municipal assessor shall furnish a copy thereof to the provincial or city
treasurer who shall notify, on the basis of such record, the owner of the property or person having legal
interest therein of the imposition of the additional tax.
A city outside of Metro Manila plans to enact an ordinance that will impose a
special levy on idle lands located in residential subdivisions within its territorial
jurisdiction in addition to the basic real property tax. If the lot owners of a subdivision
located in the said city seek your legal advice on the matter, what would your advice be?
Discuss. (5%)
SUGGESTED ANSWER:
I would advise the lot owners that a city, even if it is outside Metro Manila, may levy an
annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed value of the
property which shall be in addition to the basic real property tax. (Sec. 236, Local
Government Code) I would likewise advise them that the levy may apply to residential
lots, regardless of land area, in subdivisions duly approved by proper authorities, the
ownership of which has been transferred to individual owners who shall be liable for the
additional tax. (Last par., Sec. 237)
The term "Idle Lands" means, land not devoted directly to any crop or to any definite purpose for
at least one year prior to the notice of expropriation, except for reasons other than force
majeure or any fortuitous event, but used to be devoted or is suitable to such crop or is
contiguous to land devoted directly to any crop and does not include land devoted
permanently or regularly to other essential and more productive purpose. (Philippine Legal
Encyclopedia, by Sibal, 1986 Ed.)
Finally, I would advise them to construct or place improvements on their idle lands
by making valuable additions to the property or ameliorations in the land's conditions so
the lands would not be considered as idle. (Sec. 199[m]) In this manner their properties would
not be subject to the ad valorem tax on idle lands.
Aside from the basic real estate tax, give three (3) other taxes which may be imposed
by provincial and city governments as well as by municipalities in the Metro Manila
area. (3%)
SUGGESTED ANSWER:
The following real property taxes aside from the basic real property tax may be imposed by
provincial and city governments as well as by municipalities in the Metro Manila area:
1. Additional levy on real property for the Special Education Fund (Sec. 235, LGC);
2. Additional Ad-valorem tax on Idle lands (Sec. 23, LGC); and
3. Special levy (Sec. 240).
Under Article 415 of the Civil Code, in order for machinery and equipment to be
considered real property, the pieces must be placed by the owner of the land and, in addition,
must tend to directly meet the needs of the industry or works carried on by the owner. Oil
companies install underground tanks in the gasoline stations located on land leased by the oil
companies from the owners of the land where the gasoline stations [are] located. Are those
underground tanks, which were not placed there by the owner of the land but which were instead
placed there by the lessee of the land, considered real property for purposes of real
property taxation under the local Government Code? Explain. (8%)
SUGGESTED ANSWER:
Yes. The properties are considered as necessary fixtures of the gasoline station, without which
the gasoline station would be useless. Machinery and equipment installed by the lessee of
leased land is not real property for purposes of execution of a final judgment only. They are
considered as real property for real property tax purposes as "other improvements to affixed
or attached real property under the Assessment Law and the Real Property Tax Code
(Caltex v. Central Board of Assessment Appeals, 114 SCRA 296 [1982]).
Section 270. Periods Within Which To Collect Real Property Taxes. - The basic real property tax
and any other tax levied under this Title shall be collected within five (5) years from the date they
become due. No action for the collection of the tax, whether administrative or judicial, shall be
instituted after the expiration of such period. In case of fraud or intent to evade payment of the tax,
such action may be instituted for the collection of the same within ten (10) years from the discovery
of such fraud or intent to evade payment.
The period of prescription within which to collect shall be suspended for the time during which:
(4) The local treasurer is legally prevented from collecting the tax;
(5) The owner of the property or the person having legal interest therein requests for
reinvestigation and executes a waiver in writing before the expiration of the period within
which to collect; and
(6) The owner of the property or the person having legal interest therein is out of the country
or otherwise cannot be located.
PERIOD:
1. within five (5) years from the date they become due
2. within ten (10) yrs. from discovery of fraud, in case there is fraud or intent to evade
REMEDIES OF TAXPAYER
1. PAYMENT UNDER PROTEST (Sec 252)
a. file protest with province, city, or municipality with treasurer concerned
b. indicate amount contested
c. annotate on tax receipt paid under protest
d. Within 30 days, confirm protest in writing stating grounds therefor
e. Treasurer shall decide protest within 60 days
2. REFUND IN CASE OF EXCESSIVE COLLECTION (Sec 253)
a. File a written claim for refund within two (2) years from date taxpayer is entitled thereto
(a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words "paid under protest". The protest in writing must
be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who
shall decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer
concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3,
Title II, Book II of this Code.
Note: No protest shall be entertained unless THE TAX IS FIRST PAID.
Section 253. Repayment of Excessive Collections. - When an assessment of basic real property tax,
or any other tax levied under this Title, is found to be illegal or erroneous and the tax is accordingly
reduced or adjusted, the taxpayer may file a written claim for refund or credit for taxes and
interests with the provincial or city treasurer within two (2) years from the date the taxpayer is
entitled to such reduction or adjustment.
The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days
from receipt thereof. In case the claim for tax refund or credit is denied, the taxpayer may avail of
the remedies as provided in Chapter 3, Title II, Book II of this Code.
REMEDIES OF GOVERNMENT
Remedies may be enforced either through administrative or judicial action or both, alternative or
simultaneously. Use or non-use of one remedy shall not be a bar against the other (Sec 258)
ADMINISTRATIVE Remedies
1. Levy on Real property (Sec 258 and 259)
2. Sale of Real Property (Sec 260)
3. Local Governments Lien (Sec 256)
4. Further Distraint or Levy (Sec 265)
Section 256. Remedies For The Collection Of Real Property Tax. - For the collection of the basic
real property tax and any other tax levied under this Title, the local government unit concerned
may avail of the remedies by administrative action thru levy on real property or by judicial action.
Section 257. Local Governments Lien. - The basic real property tax and any other tax levied under
this Title constitutes a lien on the property subject to tax, superior to all liens, charges or
encumbrances in favor of any person, irrespective of the owner or possessor thereof, enforceable by
administrative or judicial action, and may only be extinguished upon payment of the tax and the
related interests and expenses.
Section 258. Levy on Real Property. - After the expiration of the time required to pay the basic real
property tax or any other tax levied under this Title, real property subject to such tax may be levied
upon through the issuance of a warrant on or before, or simultaneously with, the institution of the
civil action for the collection of the delinquent tax. The provincial or city treasurer, or a treasurer
of a municipality within the Metropolitan Manila Area, as the case may be, when issuing a warrant
of levy shall prepare a duly authenticated certificate showing the name of the delinquent owner of
the property or person having legal interest therein, the description of the property, the amount of
the tax due and the interest thereon. The warrant shall operate with the force of a legal execution
throughout the province, city or a municipality, within the Metropolitan Manila Area. The warrant
shall be mailed to or served upon the delinquent owner of the real property or person having legal
interest therein, or in case he is out of the country or cannot be located, the administrator or
occupant of the property. At the same time, written notice of the levy with the attached warrant
shall be mailed to or served upon the assessor and the Registrar of Deeds of the province, city or
municipality within the Metropolitan Manila Area where the property is located, who shall
annotate the levy on the tax declaration and certificate of title of the property, respectively.
The levying officer shall submit a report on the levy to the sanggunian concerned within ten (10)
days after receipt of the warrant by the owner of the property or person having legal interest
therein.
Section 259. Penalty for Failure to Issue and Execute Warrant. - Without prejudice to criminal
prosecution under the Revised Penal Code and other applicable laws, any local treasurer or his
deputy who fails to issue or execute the warrant of levy within one (1) year from the time the tax
becomes delinquent or within thirty (30) days from the date of the issuance thereof, or who is found
guilty of abusing the exercise thereof in an administrative or judicial proceeding shall be dismissed
from the service.
Section 260. Advertisement and Sale. - Within thirty (30) days after service of the warrant of levy,
the local treasurer shall proceed to publicly advertise for sale or auction the property or a usable
portion thereof as may be necessary to satisfy the tax delinquency and expenses of sale. The
advertisement shall be effected by posting a notice at the main entrance of the provincial, city or
municipal building, and in a publicly accessible and conspicuous place in the barangay where the
real property is located, and by publication once a week for two (2) weeks in a newspaper of general
circulation in the province, city or municipality where the property is located. The advertisement
shall specify the amount of the delinquent tax, the interest due thereon and expenses of sale, the
date and place of sale, the name of the owner of the real property or person having legal interest
therein, and a description of the property to be sold. At any time before the date fixed for the sale,
the owner of the real property or person having legal interest therein may stay the proceedings by
paying the delinquent tax, the interest due thereon and the expenses of sale. The sale shall be held
either at the main entrance of the provincial, city or municipal building, or on the property to be
sold, or at any other place as specified in the notice of the sale.
Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the
sale to the sanggunian concerned, and which shall form part of his records. The local treasurer
shall likewise prepare and deliver to the purchaser a certificate of sale which shall contain the name
of the purchaser, a description of the property sold, the amount of the delinquent tax, the interest
due thereon, the expenses of sale and a brief description of the proceedings: Provided, however,
That proceeds of the sale in excess of the delinquent tax, the interest due thereon, and the expenses
of sale shall be remitted to the owner of the real property or person having legal interest therein.
The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the
costs of collection thru the remedies provided for in this Title, including the expenses of
advertisement and sale.
Section 265. Further Distraint or Levy. - Levy may be repeated if necessary until the full amount
due, including all expenses, is collected.
Real Property Tax; Requirements; Auction Sales of Property for Tax Delinquency (2006)
Note: the answer of mamaleteo seems to be more accurate pp 593
Quezon City published on January 30, 2006 a list of delinquent real property taxpayers
in 2 newspapers of general circulation and posted this in the main lobby of the City
Hall. The notice requires all owners of real properties in the list to pay the real property
tax due within 30 days from the date of publication, otherwise the properties listed shall be sold
at public auction.
Joachin is one of those named in the list. He purchased a real property in 1996 but failed to
register the document of sale with the register of Deeds and secure a new real property tax
declaration in his name. He alleged that the auction sale of his property is void for lack of due
process considering that the City Treasurer did not send him personal notice. For his part,
the City Treasurer maintains that the publication and posting of notice are sufficient
compliance with the requirements of the law.
1. If you were the judge, how will you resolve this issue? (2.5%)
SUGGESTED ANSWER:
I will resolve the issue in favor of Joachin. In auction sales of property for tax delinquency,
notice to delinquent landowners and to the public in general is an essential and indispensable
requirement of law, the non-fulfillment of which vitiates the same (Tiongco v. Phil.
Veterans Bank, G.R. No. 82782, Aug. 5, 1992). The failure to give notice to the right person i.e.,
the real owner, will render an auction sale void (Tan v. Bantegui, G.R. No, 154027, October
24, 2005; City Treasurer of Q.C. v. CA, G.R. No. 120974, Dec. 22, 1997).
2. Assuming Joachin is a registered owner, will your answer be the same? (2.5%)
SUGGESTED ANSWER:
Yes. The law requires that a notice of the auction sale must be properly sent to Joachin and
not merely through publication (Tan v. Bantegui, G.R. No, 154027, October 24,2005; Estate
of Mercedes Jacob v. CA, G.R. No. 120435, Dec. 22, 1997).
JUDICIAL (Sec 266)
Civil action filed by the local treasurer within 5 yrs. from due date
Section 266. Collection of Real Property Tax Through the Courts. - The local government unit
concerned may enforce the collection of the basic real property tax or any other tax levied under
this Title by civil action in any court of competent jurisdiction. The civil action shall be filed by the
local treasurer within the period prescribed in Section 270 of this Code
Section 276. Condonation or Reduction of Real Property Tax and Interest. - In case of a general
failure of crops or substantial decrease in the price of agricultural or agribased products, or
calamity in any province, city or municipality, the sanggunian concerned, by ordinance passed
prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster
Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon
for the succeeding year or years in the city or municipality affected by the calamity.
Section 277. Condonation or Reduction of Tax by the President of the Philippines. - The President
of the Philippines may, when public interest so requires, condone or reduce the real property tax
and interest for any year in any province or city or a municipality within the Metropolitan Manila
Area.
The PRESIDENT may remit or reduce real prop tax in any province, city, municipalities if he deems that
PUBLIC INTEREST so requires (Sec 277) THE SANGGUNIAN concerned may CONDONE or
REDUCE the tax in cases where:
1. there is a general failure of crops
2. substantial decrease in the price of products
3. calamity (Sec 276)by an ordinance
a. passed before Jan 1 of any year and upon recommendation by an ordinance and upon
recommendation of the Local Disaster Coordinating Council
An Ordinance was passed by the Provincial Board of a Province in the North, increasing
the rate of basic real property tax from 0.006% to 1 % of the assessed value of the real
property effective January 1, 2000. Residents of the municipalities of the said province
protested the Ordinance on the ground that no public hearing was conducted and,
therefore, any increase in the rate of real property tax is void. Is there merit in the protest?
Explain your answer. (2%)
SUGGESTED ANSWER:
The protest is devoid of merit. No public hearing is required before the enactment of a
local tax ordinance levying the basic real property tax (Art. 324, LGC Regulations).
ALTERNATIVE ANSWER:
Yes, there is merit in the protest provided that sufficient proof could be introduced for the
non-observance of public hearing. By implication, the Supreme Court recognized that
public hearings are required to be conducted prior to the enactment of an
ordinance imposing real property taxes. Although it was concluded by the highest tribunal
that presumption of validity of a tax ordinance can not be overcome by bare assertions of
procedural defects on its enactment, it would seem that if the taxpayer had presented
evidence to support the allegation that no public hearing was conducted, the Court should
have ruled that the tax ordinance is invalid. (Belen Figuerres v. Court of Appeals, GRNo. 119172,
March 25, 1999).
TARIFF
custom duties, toll of tribute payable upon merchandise to the government.
CUSTOM DUTIES
This is a tax which are assessed at the at the prescribed tariff rates which are likely imposed for both
revenue raising and for regulatory purposes. It is the name given to taxes on the importation and
exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a
foreign country.[ Garcia vs. Executive Sec., G.R. no. 101273, July 3, 1992]
Note:
Customs duties and tariffs are synonymous with one another. They both refer to the taxes imposed on
imported or exported wares, articles, or merchandise.
Purposes of tariffs:
1. Revenue tariffs, those whose rates are relatively low so that goods may be readily imported and
duties may be easily collected.
2. Protective tariffs, those whose rates are relatively high to keep certain imports out of the domestic
market or to raise domestic price on certain imports so that they may be manufactured profitably
at domestically;
3. Bargaining tariffs, those whose schedules include rates designed primarily for bargaining
purposes or which contain some general provision for the imposition of higher duties upon
products of countries whose tariff policies are considered unsatisfactory or unfair.
As to the scope
Tariff and Custom laws extend not only to the provisions of the TCC but to all other laws as well the
enforcement of which is entrusted to the BOC.
MERCHANDISE
The Revised Administrative Code defines merchandise, when used with reference to importation or
exportation, to include goods, wares and in, general anything that may be the subject or exportation.
Checks, money orders and dollar bills properly within the concept of merchandise as used in Revised
Administrative Code, are merchandise. [Bastida vs. CIR]
Kinds of Goods/Merchandise
1. Articles subject to duty ( Dutiable Goods)
2. Prohibited importation
3. Conditionally-free importations
Note:
These articles which are exempt from import duties upon compliance with the formalities prescribed in or
with regulations promulgated by the Commissioner of Customs with the approval of the Sec. of Finance.
Unless otherwise relieved by laws or regulation, the liability for duties, taxes, fees, and other charges
attaching on importation constitutes a personal debt due to the importer of the government which can be
discharged only by payment of said duties and charge. It also constitutes a lien upon the articles imported
which maybe enforced while such articles are in custody or subject to the control of the government.
Government importations
All importations by the government for its own use or that of its own subordinates branches or
instrumentalities or corporations, agencies or instrumentalities owned or controlled by the government
shall be subject to the duties, taxes , fees and charges provided in the Tariff and Customs Code.[Section
1205,Tariff and Customs Code]
Import Entry
A declaration to the BOC showing the description, value, tariff classification and other particulars of the
imported article to enable the customs authorities to determine the correct customs duties and internal
revenue taxes due on the importation.
Abandonment
It is the renunciation by an importer of all his interest in the property rights in the imported article. It may
be express or implied.
Fraudulent Practices (Criminal Offense) against Custom Revenues under Sec. 3602
1. Entry of imported articles by means of any false or fraudulent invoice.
2. Entry of goods at less than the true weight or measure.
3. Filling of any false or fraudulent entry for the payment of drawbacks or refund of duties.
Returning residents
1. For the purpose of conditionally free importation of personal and household effects, they are
nationals who have stayed in a foreign country for a period of at least six (6) months.
BALIKBAYAN
For the purpose of tax-free purchase at Philippine Duty-free shops, he must be:
1. Filipino citizen who has been continuously out of the Philippines for a period of at least one (1)
year; or
2. Filipino overseas worker; or
3. Former Filipino citizen and his family who had been naturalized in a foreign country and comes
or returns to the Philippines
4. The term family shall mean the spouse and children of the balikbayan who are not balikbayan in
their own right traveling with the latter to the Philippines.
Sec. 401, TCC: In the interest of national economy, general welfare and/or national security, the President
upon recommendation of the NEDA, is empowered:
1. to increase, reduce, or remove existing protective rates of import duty, provided that the increase
should not be higher than 100% ad valorem;
2. to establish import quota or to ban imports of any commodity; and
3. to impose additional duty on all imports not exceeding 10% ad valorem.
(Sec. 401, TCC) THE TARIFF COMMISIONS (TC) FUNCTIONS OF THE TARIFF COMMISSION
A. The Commission shall investigate:
1. the administration of and the fiscal and industrial effects of the countrys tariff and customs laws;
2. the relations between the rates of duty on raw materials and finished or partly finished goods;
3. the effects of ad valorem and specific duties and of compound specific and ad valorem duties;
4. all questions relative to the arrangement of schedules and classifications of articles under the
tariff laws;
5. the tariff relations between the Philippines and foreign countries, commercial treaties, etc.;
6. the volume of importation compared with domestic production and consumption;
7. conditions, causes, and effects relating to competition of foreign industries with those of the
Philippines;
8. in general, to investigate the operation of customs and tariff laws and to submit report of its
investigation; and
9. the nature, composition, and classification of articles for customs revenue and other related
purposes which shall be furnished to NEDA, Board of Investments, Central Bank, and Sec. of
Finance.
B. Administrative assistance to the President and Congress (Sec. 506, TCC)
Note:
Before filing a protest, there must first be a payment under protest.
Requirements for making a Protest:
1. must be in writing
2. must point out the particular decision or ruling of the Collector of Customs to which exception is
taken or objection made
3. must state the grounds relied upon for relief
4. must be limited to the subject matter of a single adjustment
5. must be filed when the amount claimed is paid or within 15 days after the payment
6. protest must furnish samples of goods under protest when required.
SEIZURE AND FORFEITURE CASES
This refers to the matters involving smuggling. It is administrative and civil in nature and is directed
against the res or imported articles and entails a determination of the legality of importation.
Note:
These are action in rem.
Note:
anything that was used for smuggling is subject to confiscation. [Lladoc vs. Com of Custom, R.R. L-
28809, May 16, 1983] EXCEPT Common carriers that are not privately chartered cannot be confiscated.
Note:
Mere possession of the article in question by the defendant renders him liable UNLESS defendant could
explain that his possession is lawful to the satisfaction of the court (sec. 3601,TCC)
Note:
Payment of the tax due after apprehension is not a valid defense.[Rodriguez vs. CA, G.R. no. 115218,
September 18, 1995]
Port of Entry
A domestic port open to both foreign and coastwise trade including airport of entry (sec. 3514, TCC).
All articles imported into the Philippines whether subject to duty or not shall be entered through a
customhouse at a port of entry.
Note:
In Assali vs. Commissioner, 27SCRA312, the SC held as a valid the interception and seizure of a vessel
on the high seas, saying that the authority of a nation within its territory is absolute and exclusive. The
power to secure itself from injury may certainly be exercised beyond the limits of its territory. Places
where searches and seizures may be conducted:
1. Right of police officer to enter enclosure WITHOUT a warrant, EXCEPT a dwelling house
2. Search with dwelling house must be with proper warrant
3. right to search vehicles or aircrafts and person or articles conveyed therein
4. Right to search vehicles, beast and person
5. Search of person arriving from foreign countries.
SETTLEMENT OF FORFEITURE CASES
GEN. RULE:
Settlement of cases by payment of fine or redemption of forfeited property is allowed.
EXCEPTIONS:
1. the importation is absolutely prohibited or
2. the surrender of the property to the person offering to redeem would be contrary to law
3. when there is fraud. (sec. 2307,TCC)
Note:
Acquittal in criminal charged is not a res judicata in seizure or forfeiture proceedings. Since criminal
proceeding are actions in personam while the latter is action in rem.
Note:
Burden of proof in seizure or forfeiture case is on the claimant. (sec. 2535, TCC)
MANIFEST
Manifest in coastwise trade for cargo and passengers transported from one place to another are required
when one or both of such places are a port of entry (sec.906,TCC).
Manifest is not only required to imported goods. It is also required for articles found on vessels or
aircraft engaged in coastwise trade.
Whether the act of smuggling is established or not under the principle of res ipsa loquitur. It is
enough that the cargo was unmanifested and that there was no showing that payment of duties
thereon had been made for it to be subject to forfeiture.Thus, unmanifested cargo is subject to
forfeiture.
SURCHARGE
To overcharge or to charge again as in an accounting between parties.
FINES
Subject to Fines [Code: BRUCE]
1. Breach of a
2. Failure to supply or manifest requirements provided by law (sec. 2521, TCC)
3. Unlawful loading and unloading of cargoes (Secs. 2524, 2517,TCC)
4. Failure to produce all the crew members
5. Failure to exhibit the documents related to the vessel (Secs. 2519,2507,2508-2514, TCC)
What do you understand by the term "flexible tariff clause" as used in the Tariff and
Customs Code? (5%)
SUGGESTED ANSWER:
The term "flexible tariff clause "refers to the authority given to the President to adjust tariff
rates under Section 401 of the Tariff and Customs Code, which is the enabling law
that made effective the delegation of the taxing power to the President under the
Constitution.
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, and to the judicial
remedy of filing an action in court. When does the Bureau of Customs normally avail itself;
(a) of the administrative, instead of the judicial remedy, or
(b) of the latter, instead of the former, remedy?
SUGGESTED ANSWER:
(a) The Bureau of Customs normally avails itself of the ADMINISTRATIVE REMEDY of
seizure, such as by enforcing the tax lien on the imported articles, instead of the judicial
remedy when the goods to which the tax lien attaches, regardless of ownership, is still in the
custody or control of the Government. In the case, however, of importations which are
prohibited or undeclared, the remedy of seizure and forfeiture may still be exercised by the
Bureau of Customs even if the goods are no longer in its custody.
(b) On the other hand, when the goods are properly released and thus beyond the reach
of tax lien, the government can seek payment of the tax liability through judicial action since the
tax liability of the importer constitutes a personal debt to the government, therefore,
enforceable by action. In this case judicial remedy is normally availed of instead of the
administrative remedy.
SUGGESTED ANSWER:
IMPORTATION begins from the time the carrying vessel or aircraft enters Philippine territorial
jurisdiction with the intention to unload therein and ends at the time the goods are released or
withdrawn from the customhouse upon payment of the customs duties or with legal permit to
withdraw (Viduya vs. Berdiago, 73 SCRA 553).
On January 1, 1996, armed with warrants of seizure and detention issued by the Bureau of
Customs, members of the customs enforcement and security services coordinated
with the Quezon City police to search the premises owned by a certain Mr. Ho along
Kalayaan Avenue, Quezon City, which allegedly contained untaxed vehicles and parts. While
inside the premises, the member of the customs enforcement and security services noted
articles which were not included in the list contained in the warrant. Hence, on January
15, 1996, an amended warrant and seizure was issued.
On January 25, 1996, the customs personnel started hauling the articles pursuant to the
amended warrant. This prompted Mr. Ho to file a case for injunction and damages
with a prayer for a restraining order before the Regional Trial Court of Quezon City
against the Bureau of Customs on January 27, 1996. On the same date, the Trial Court issued a
temporary restraining order.
A motion to dismiss was filed by the Bureau of Customs on the ground that the Regional Trial
Court has no jurisdiction over the subject matter of the complaint claiming that it was the
Bureau of Customs that has exclusive jurisdiction over it. Decide.
SUGGESTED ANSWER:
The motion to dismiss should be granted. Seizure and forfeiture proceedings are within the
exclusive jurisdiction of the Collector of Customs to the exclusion of regular Courts.
Regional Trial Courts are devoid of competence to pass upon the validity or regularity of
seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin
or otherwise interfere with these proceedings (Republic vs. CFI of Manila [Branch XXII],
G.R. No. 43747, September 2, 1992; Jao vs. CA, G.R. No. 104604, October 6, 1995).
SUGGESTED ANSWER:
a) Dumping duties are special duties imposed by the Secretary of Finance upon
recommendation of the Tariff Commission when it is found that the price of the imported
articles is deliberately or continually fixed at less than the fair market value or cost of
production, and the importation would cause or likely cause an injury to local industries
engaged in the manufacture or production of the same or similar articles or prevent
their establishment.
b) Countervailing duties are special duties imposed by the Secretary of Finance upon
prior investigation and report of the Tariff Commission to offset an excise or inland
revenue tax upon articles of the same class manufactured at home or subsidies to foreign
producers or manufacturers by their respective governments.
Explain briefly each of the special customs duties authorized under the Tariff and
Customs Code.
SUGGESTED ANSWER:
The following are the Special Duties imposed under the Tariff and Customs Code:
(a) Dumping Duty - This is a duty levied on imported goods where it appears that a specific kind
or class of foreign article is being imported into or sold or is likely to be sold in the
Philippines at a price less than its fair value;
(b) Countervailing Duty - This is a duty equal to the ascertained or estimated amount of
the subsidy or bounty or subvention granted by the foreign country on the production,
manufacture, or exportation into the Philippines of any article likely to injure an
industry in the Philippines or retard or considerable retard the establishment of such industry;
(c) Marking Duty - This is a duty on an ad valorem basis imposed for improperly
marked articles. The law requires that foreign importations must be marked in any
official language of the Philippines the name of the country of origin of the article;
(d) Discriminatory or Retaliatory Duty - This is a duty imposed on imported goods whenever it
is found as a fact that the country of origin discriminates against the commerce of the
Philippines in such a manner as to place the commerce of the Philippines at a
disadvantage compared with the commerce of any foreign country.
Discuss briefly the remedies of an importer during the pendency of seizure proceedings.
SUGGESTED ANSWER:
During the pendency of seizure proceedings the importer may secure the release of the
imported property for legitimate use by posting a bond in an amount to be fixed by the
Collector, conditioned for the payment of the appraised value of the article and/or any
fine, expenses and costs which may be adjudged in the case; provided, that articles the
importation of which is prohibited by law shall not be released under bond.
The importer may also offer to pay to the collector a fine imposed by him upon the property to
secure its release or in case of forfeiture, the importer shall offer to pay for the domestic market
value of the seized article, which offer subject to the approval of the Commissioner may
be accepted by the Collector in settlement of the seizure case, except when there is fraud.
Upon payment of the fine or domestic market value, the property shall be forthwith released
and all liabilities which may or might attach to the property by virtue of the offense which was
the occasion of the seizure and all liability which might have been incurred under any bond
given by the importer in respect to such property shall thereupon be deemed to be
discharged.
X and his wife, Y, Filipinos living in the Philippines, went on a three-month pleasure trip
around the world during the months of June, July and August 2002. In the course of their trip,
they accumulated some personal effects which were necessary, appropriate and normally
used in leisure trips, as well as souvenirs in non-commercial quantities. Are they
"returning residents" for purposes of Section 105 of the Tariff and Customs Code? Explain.
(8%)
SUGGESTED ANSWER:
No. The term "returning residents" refers to nationals who have stayed in a foreign
country for a period of at least six (6) months. (Section 105(f) of the Tariff and Customs
Code). Due to their limited duration of stay abroad X and Y are not considered as "returning
residents" but they are merely considered as travelers or tourists who enjoy the benefit of
conditionally free importation.
[Note: Credit must likewise be given if the candidate answered in the affirmative, considering
that travelers or tourists are given the same tax treatment as that of returning residents,
treating their personal effects, not in commercial quantities, as conditionally free
importation.]
In smuggling a shipment of garlic, the smugglers used an eight-wheeler truck which they hired
for the purpose of taking out the shipment from the customs zone. Danny, the truck owner,
did not have a certificate of public convenience to operate his trucking business. Danny did
not know that the shipment of garlic was illegally imported.
Can the Collector of Customs of the port seize and forfeit the truck as an instrument in the
smuggling?
SUGGESTED ANSWER:
Yes, the Collector of Customs of the port can seize and forfeit the truck as an instrument in the
smuggling activity, since the same was used unlawfully in the importation of smuggled articles.
The mere carrying of such articles on board the truck (in commercial quantities) shall
subject the truck to forfeiture, since it was not being used as a duly authorized common
carrier, which was chartered or leased as such. (Sec. 2530 [a], TCC)
Moreover, although forfeiture of the vehicle will not be effected if it is established that the
owner thereof had no knowledge of or participation in the unlawful act, there arises a
prima facie presumption or knowledge or participation if the owner is not in the business
for which the conveyance is generally used. Thus, not having a certificate of public
convenience to operate a trucking business, he is legally deemed not to have been engaged in
the trucking business. (Sec. 2531, Tariff and Customs Code)
SUGGESTED ANSWER:
State and explain the basis of dutiable value of an imported article subject to an ad
valorem tax under the Tariff and Customs Code.
ALTERNATIVE ANSWER:
The basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff
and Customs Code is its TRANSACTION VALUE. (Sec. 201[A], Tariff and Customs
Code, as amended by R.A. No. 9135) If such value could not be determined, then the
following values are to be utilized in their sequence: Transaction value of identical
goods (Sec. 201[B]); Transaction value of similar goods (Sec. 201[C]); Deductive value
(Sec. II.E.1, CA.O. No. 4-2004); Computed value (Sec., II.F.l, C.A.O. No. 1-20040) and
Fallback value. (Sec. 201[F])
ALTERNATIVE ANSWER:
The basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff
and Customs Code is its transaction value, which shall be the price actually paid or
payable for the goods when sold for export to the Philippines, adjusted by adding certain cost
elements to the extent that they are incurred by the buyer but are not included in the price
actually paid or payable for the imported goods. (Sec. 201[A], Tariff and Customs Code,
as amended by R.A. 9135)
If such value could not be determined, then the following values are to be utilized in their
sequence: Transaction value of identical goods (Sec. 201[B]); Transaction value of similar
goods (Sec. 201[C]); Deductive value (Sec. II.E.1, CA.O. No. 4-2004); Computed value
(Sec. II.F.l, C.A.O. No. 1-20040) and Fallback value. (Sec. 201[F])
SUGGESTED ANSWER:
The distinctions between countervailing duty and dumping duty are the following:
1. Basis: The countervailing duty is imposed whenever there is granted upon the imported article by
the country of origin a specific subsidy upon its production, manufacture or
exportation and this results or threatens injury to local industry while the basis for the
imposition of dumping duty is the importation and sale of imported items at below their
normal value causing or likely to cause injury to local industry.
2. Amount: The countervailing duty imposed is equivalent to the value of the specific
subsidy while the dumping duty is equivalent to the margin of dumping which is equal to
the difference between the export price to the Philippines and the normal value of the imported
article.
Customs; Taxability; Personal Effects (2005)
Jacob, after serving a 5-year tour of duty as military attache in Jakarta, returned to the
Philippines bringing with him his personal effects including a personal computer and
a car. Would Jacob be liable for taxes on these items? Discuss fully. (5%)
SUGGESTED ANSWER:
No, Jacob is not liable for taxes on his personal computer and the car because he is tax-exempt
by law. He has met the following requirements for exemption under P.D. No. 922 (1976):
a) He was a military attache assigned to Jakarta;
b) He has served abroad for not less than two (2) years;
c) He is returning to the Philippines after serving his tour of duty; and
d) He has not availed of the tax exemption for the past four (4) years.
He is entitled to tax exemption on his personal and household effects including a car;
provided:
a) The car must have been ordered or purchased prior to the receipt by the Philippine
mission or consulate in Jakarta of Jacob's recall order;
b) the car is registered in Jacob's name;
c) the exemption shall apply to the value of the car;
d) the exemption shall apply to the aggregate value of his personal and
household effects (including the personal computer) not exceeding thirty per
centum (30%) of the total amount received by Jacob as salary and allowances
during his assignment in Jakarta, but not to exceed four (4) years;
e) Jacob must not have availed of the exemption more oftener than one every four
years. (Last par., Sec. 105, Tariff and Customs Code)