B. Nature of taxation
1) Inherent in sovereignty - There is no need to enact a law to exercise that power as this
power springs from the moment a state comes into existence.
2) Legislative in character - Even in the absence of any constitutional provision, the power
falls to the legislature as part of the more general power of law-making.
C. Characteristics of taxation
1) An enforced contribution, for its imposition is in no way dependent upon the will or
assent of the person taxed;
2) It is generally payable in the form of money, although the law may provide payment
in kind;
3) It is laid by some rule of apportionment, which, in case of income taxes, is usually
based on ability to pay;
4) Levied upon persons, property or business, acts, transactions, right or privileges, In
each case, however it is only a person who pays the tax;
5) It is levied by the State which has jurisdiction over the object taxed. It is necessary
that the State has jurisdiction or control over the objects to be taxed in order that the
tax can be enforced;
6) Levied by the lawmaking body of the State. The power to tax is a legislative power
that only the legislature can exercise. Except:
a) Delegated power of the LGUs pursuant to Art. X, Sec. 5 of the Consitution;
b) The President pursuant to Art. VI Section 28 (2) on tariff rates, import an
export quotas, tonnage and wharfage dues, and other duties and imposts;
By: Adelaine Faith Zerna LLB4
Page 1
2) As to compensation:
Taxation Protection and benefits received from the government.
Eminent Domain just compensation, not to exceed the market value declared by the
owner or administrator or anyone having legal interest in the property, or as determined
by the assessor, whichever is lower.
3) As to persons affected:
Taxation and Police Power operate upon a community or a class of individuals
Eminent Domain operates on the individual property owner.
5) As to amount of imposition:
Taxation Generally no limit to the amount of tax that may be imposed.
Page 2
Police Power Relatively free from constitutional limitations and superior to the nonimpairment provisions thereof.
2) As to basis: Tax imposed under power of taxation WHILE license fee under police power.
3) As to amount: In taxation, no limit as to amount WHILE license fee limited to cost of the
license and expenses of police surveillance and regulation.
4) As to the time of payment: Taxes normally paid after commencement of business WHILE
license fee before.
5) As to the effect of payment: Failure to pay a tax does not make the business illegal
WHILE failure to pay license fee makes business illegal.
6) as to surrender: Taxes, being lifeblood of the state, cannot be surrendered except for
lawful consideration WHILE a license fee may be surrendered with or without
consideration.
Page 3
2.
3.
4.
5.
A special assessment is exceptional both as to time and place; a tax has general
application.
A special assessment is a levy on property which derives some special benefit from the
improvement. Its purpose is to finance such improvement. It is not a tax measure
intended to raise revenues for the government. The proceeds thereof may be devoted to
the specific purpose for which the assessment was authorized, thus accruing only to the
owners thereof who, after all, pay the assessment.
Some Rules:
An exemption from taxation does not include exemption from a special treatment.
Page 4
5. Toll may be imposed by the government or by private individuals or entities; tax may be
imposed only by the government.
Page 5
Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re: claim
for payment of unpaid services of a government employee vis--vis the estate taxes due
from his estate. The fact that the court having jurisdiction of the estate had found that
the claim of the estate against the government has been appropriated for the purpose by
a corresponding law shows that both the claim of the government for inheritance taxes
and the claim of the intestate for services rendered have already become overdue and
demandable as well as fully liquidated. Compensation therefore takes place by operation
of law.
E. Purpose of taxation
PRIMARY
To raise revenue in order to support the government
SECONDARY
1)
2)
3)
4)
It is possible for an exaction to be both a tax and a regulation. License fees and charges,
looked to as a source of revenue as well as a means regulation. The fees may properly
regarded as taxes even though they also serve as an instrument of regulation. If the
purpose is primarily revenue, or if revenue is at least one of the real and substantial
purposes, then the exaction is properly called a tax.
Taxation is no longer a measure merely to raise revenue to support the existence of the
government. Taxes may be levied with a regulatory purpose to provide means for
rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the State.
VIOLATION VALID
Sources of revenue should be sufficient to meet the demands of public expenditure
Revenues should be elastic or capable of expanding or contracting annually in response
to variations in public expenditure
Elasticity may be obtained without creating annually any new taxes or any new tax
machinery but merely by changes in the rates applicable to existing taxes
Page 6
Even if a tax law violates the principle of Fiscal Adequacy , in other words, the proceeds
may not be sufficient to satisfy the needs of the government, still the tax law is valid
2) ADMINISTRATIVE FEASIBILITY
VIOLATION VALID
The tax law must be capable of effective or efficient enforcement
Tax laws should be capable of convenient, just and effective administration
Tax laws should close-up the loopholes for tax evasion and deter unscrupulous officials
from committing fraud
There is no law that requires compliance with this principle, so even if the tax law violates
this principle; such tax law is valid.
3) THEORETICAL JUSTICE
VIOLATION INVALID
This principle mandates that taxes must be just, reasonable and fair
Taxation shall be uniform and equitable
Equitable taxation has been mandated by our constitution, as if taxes are unjust and
unreasonable then they are not equitable, thus invalid.
The tax burden should be in proportion to the taxpayers ability to pay (ABILITY TO PAY
PRINCIPLE)
1. Lifeblood theory
Taxes are the lifeblood of the nation.
Without revenue raised from taxation, the government will not survive, resulting in
detriment to society. Without taxes, the government would be paralyzed for lack of
motive power to activate and operate it. (CIR vs. ALGUE)
Taxes are the lifeblood of the government and there prompt and certain availability is an
imperious need.
Taxes are the lifeblood of the nation through which the agencies of the government
continue to operate and with which the state effects its functions for the benefit of its
constituents
2. Necessity theory
Existence of a government is a necessity and cannot continue without any means to pay
for expenses
Reciprocal duties of protection and support between State and inhabitants. Inhabitants
pay taxes and in return receive benefits and protection from the State
H. Doctrines in taxation
By: Adelaine Faith Zerna LLB4
Page 7
Imprescriptibility of taxes
GENERAL RULE: Taxes are imprescriptible
EXCEPTION: They are prescriptible if the tax laws provide for statute of limitations
PRESCRIPTIVE PERIODS:
1) Prescriptive periods for the assessment and collection of taxes
A progressive system of taxation means that tax laws shall place emphasis on direct taxes
rather than on indirect taxes, with ability to pay as the principal criterion.
A regressive system of taxation exists when there are more indirect taxes imposed than
direct taxes.
I. Classification of Taxes
As to subject matter or object
As to purpose
General/fiscal revenue tax is that imposed for the purpose of raising public funds for the
service of the government.
By: Adelaine Faith Zerna LLB4
Page 8
A special or regulatory tax is imposed primarily for the regulation of useful or non-useful
occupation or enterprises and secondarily only for the purpose of raising public funds.
Direct tax
A direct tax is demanded from the person who also shoul,ders the burden of the tax. It is a
tax which the taxpayer is directly or primarily liable and which he or she cannot shift to another.
2.
Indirect tax
An indirect tax is demanded from a person in the expectation and intention that he or she
shall indemnify himself or herself at the expense of another, falling finally upon the ultimate
purchaser or consumer. A tax which the taxpayer can shift to another.
National tax
o A national tax is imposed by the national government.
Local tax
o A local tax is imposed by the municipal corporations or local government units
(LGUs).
As to graduation or rate
Proportional tax
o Tax based on a fixed percentage of the amount of the property receipts or other
basis to be taxed. Example: real estate tax.
Progressive or graduated tax
o Tax the rate of which increases as the tax base or bracket increases.
Digressive tax rate: progressive rate stops at a certain point. Progression halts at a
particular stage.
Regressive tax
o Tax the rate of which decreases as the tax base or bracket increases. There is no
such tax in the Philippines.
J. Tax systems
Constitutional mandate
Page 9
The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation. [Section 28 (1), Article VI, Constitution]
Regressivity is not a negative standard for courts to enforce. What Congress is required
by the Constitution to do is to evolve a progressive system of taxation. This is a
directive to Congress, just like the directive to it to give priority of the enactment of law
for the enhancement of human dignity. The provisions are put in the Constitution as
moral incentives to legislation, not as judicially enforceable rights. (Tolentino v. Secretary
of Finance.)
A progressive system of taxation means that tax laws shall place emphasis on direct taxes
rather than on indirect taxes, with ability to pay as the principal criterion.
A regressive system of taxation exists when there are more indirect taxes imposed than
direct taxes.
indirect tax incidence and liability for the tax falls on one person but the burden thereof
another;
GENERAL RULE:
-
Taxes are personal to the taxpayer. Corporations tax delinquency cannot be enforced on
the stockholder or transfer taxes on the estate be assessed on the heirs.
EXCEPTIONS:
1.
2.
stockholders may be held liable for unpaid taxes of a dissolved corporation if the
corporate assets have passed into their hands; and
heirs may be held liable for the transfer taxes on the estate, if prior to the payment of
the same, the properties of the decedent have been distributed to the heirs.
Page 10
Constitutional limitations
Indirect
a) Due process clause
b) Equal protection clause
c) Freedom of the press
d) Religious freedom
e) Non-impairment clause
f) Law-making process
g) Presidential power to grant reprieves, commutations and pardons, and remit fines and
forfeitures after conviction by final judgment.
Direct
a) Revenue bill must originate exclusively in H.R. but the Senate may propose with
amendments.
b) Non-imprisonment for non-payment of poll tax.
c) Taxation shall be uniform and equitable.
d) Congress shall evolve a progressive system of taxation.
e) Tax exemption of charitable institutions, churches and personages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements ADE
(actually, directly , exclusively) used for charitable, religious, and educational purposes.
f) Tax exemption of all revenues and assets used actually directly and exclusively for educational
purposes of:
Page 11
i) SC power to review judgments or orders of lower courts in all cases involving Legality of any
tax. Impost or toll, Legality of any penalty imposed in relation thereto.
L. SITUS OF TAXATION
Place of taxation
The State where the subject to be taxed has a situs may rightfully levy and collect the tax
In determining the situs of taxation, you have to consider the nature of the taxes
Example:
1) Poll tax, capitation tax, community tax
Residence of the taxpayer
2) Real property tax or property tax
Location of the property
We can only impose property tax on the properties of a person whose residence is in the
Philippines.
B) Where tax laws do not operate within the territorial jurisdiction of the State
1) When exempted by treaty obligations
2) When exempted by international comity
REASON:
The place where the real property is located gives protection to the real property, hence
the property or its owner should support the government of that place
Page 12
EXCEPTION: The situs location not domicile: Where the intangible personal
property has acquired a business situs in another jurisdiction
These intangible properties acquire business situs here in the Philippines, you cannot
apply the principle of MobiliaSequnturPersonam because the properties have acquired
situs here.
2. NATIONALITY THEORY
The country where the income earner is a citizen is the situs of taxation
i. SOURCE RULE
The country which is the source of the income or where the activity that
produced the income took place is the situs of taxation.
Revenue derived by an of-line international carrier without any flight from the Philippines,
from ticket sales through its local agent are subject to tax on gross Philippine billings
Page 13
The power to levy an excise upon the performance of an act or the engaging in an
occupation does not depend upon the domicile of the person subject to the exercise, nor
upon the physical location of the property or in connection with the act or occupation
taxed, but depends upon the place on which the act is performed or occupation engaged
in.
Thus, the gauge of taxability does not depend on the location of the office, but attaches
upon the place where the respective transaction is perfected and consummated
M. Double taxation
Taxing same property twice when it should be taxed but once. Taxing the same person
twice by the same jurisdiction over the same thing.
REQUISITES:
A) The same property is taxed twice when it should only be taxed once;
B) Both taxes are imposed on the same property or subject matter for the same purpose;
C) Imposed by the same taxing authority;
D) Within the same jurisdiction;
E) During the same period; and
F) Covering the same kind or character of tax
2) INDIRECT DOUBLE TAXATION
EXAMPLES:
A) The taxpayers warehousing business although carried on in relation to the operation of
its sugar central is a distinct and separate taxable business
Page 14
B) A license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax
C) Both a license fee and a tax may be imposed on the same business or occupation for
selling the same article and this is not in violation of the rules against double taxation
D) When every bottle or container of intoxicating beverages is subject to local tax and at
the same time the business of selling such product is also subject to liquors license
E) A tax imposed on both on the occupation of fishing and of the fishpond itself
F) A local ordinance imposes a tax on the storage of copra where it appears that the
finished products manufactured out of the copra are subject to VAT
The argument against double taxation may not be invoked where one tax is imposed by
the state and the other imposed by the city, it being widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or taxes be exacted
with respect to the same occupation, calling or activity by both the state and a political
subdivision thereof. And where the statute or ordinance in question applies equally to all
persons, firms and corporations placed in a similar situation, there is no infringement of
the rule on equality.
An ordinance imposing a municipal tax on tenement houses was challenged because the
owners already pay real estate taxes and also income taxes under the NIRC. The
Supreme Court held that there was no double taxation. The same tax may be imposed by
the National Government as well as the local government. There is nothing inherently
obnoxious in the exaction of license fees or taxes with respect to the same occupation,
calling or activity by both the state and a political subdivision thereof. Further, a license
tax may be levied upon a business or occupation although the land used in connection
therewith is subject to property tax.
3) Provide for exemption
4) Enter into treatise with other states
5) Allowance on the principle of reciprocity
Page 15
Shifting is the transfer of the burden of a tax by the original payer or the one on whom
the tax was assessed or imposed to someone else
Process by which such tax burden is transferred from statutory taxpayer to another
without violating the law
It should be borne in mind that what is transferred is not the payment of the tax, but the
burden of the tax
Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to
the retailer, who also shifts it to the final purchaser or consumer
2) BACKWARD SHIFTING
When the burden of the tax is transferred from the consumer or purchaser through the
factors of distribution to the factors of production
Example:
-
Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after
the price is reduced, and from the latter to the wholesaler, or finally to the manufacturer
or producer
2) ONWARD SHIFTING
When the tax is shifted two or more times either forward or backward
Example:
Page 16
Thus, a transfer from the seller to the purchaser involves one shift; from the producer to
the wholesaler, then to retailer, we have two shifts; and if the tax is transferred again to
the purchaser by the retailer, we have three shifts in all.
Impact of taxation is the point on which a tax is originally imposed. In so far as the law is
Incidence of taxation is that point on which the tax burden finally rests or settle down. It
concerned, the taxpayer is the person who must pay the tax to the government. He is
also termed as the statutory taxpayer-the one on whom the tax is formally assessed. He
is the subject of the tax
takes place when shifting has been effected from the statutory taxpayer to another.
Statutory Taxpayer
The Statutory taxpayer is the person required by law to pay the tax or the one on whom
the tax is formally assessed. In short, he or she is the subject of the tax.
In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax
while in indirect taxes, the statutory taxpayer is the one who pay the tax to the
government but the burden can be passed to another person or entity.
The impact is the initial phenomenon, the shifting is the intermediate process, and the
incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller
(manufacturer) who shifts the burden to the customer who finally bears the incidence of
the tax.
Impact is the imposition of the tax; shifting is the transfer of the tax; while incidence is
the setting or coming to rest of the tax.
II. CAPITALIZATION
Reduction is the price of the taxed object equal to the capitalized value of future taxes
on the property sold
This is a special form of backward shifting, where the burden of future taxes which
the buyer may have to pay is shifted back to the seller in the form of reduction in the
selling price
III. TRANSFORMATION
The manufacturer in an effort to avoid losing his customers, maintains the same selling
price and margin of profit, not by shifting the tax burden to his customers, but by
improving his method of production and cutting down or other production cost, thereby
transforming the tax into or earn through the medium of production.
IV. TAX AVOIDANCE
Page 17
The Supreme Court upheld the estate planning scheme resorted to by the Pacheco family
in converting their property to shares of stock in a corporation which they themselves
owned and controlled. By virtue of the deed of exchange, the Pacheco co-owners saved
on inheritance taxes. The Supreme Court said the records do not point anything wrong
and objectionable about this estate planning scheme resorted to. The legal right of the
taxpayer to decrease the amount of what otherwise could be his taxes or altogether
avoid them by means which the law permits cannot be doubted.
Example:
Following the holding period rule in capital gains transaction, by postponing the sale of
the capital asset until after twelve months from date of acquisition you can reduce the
tax on the capital gains by 50%
V. TAX EXEMPTION
Exemptions are not presumed, but when public property is involved, exemption is the
rule and taxation is the exemption.
Its avowed purpose is some public benefit or interests which the lawmaking body
considers sufficient to offset the monetary loss entailed in the grant of the exemption.
The theory behind the grant of tax exemptions is that such act will benefit the body of
the people. It is not based on the idea of lessening the burden of the individual owners of
property.
May be based on contract. In such a case, the public, which is represented by the
government is supposed to receive a full equivalent therefor, i.e. charter of a corporation.
May be based on some ground of public policy, i.e., to encourage new industries or to
foster charitable institutions. Here, the government need not receive any consideration in
return for the tax exemption.
May be based on grounds of reciprocity or to lessen the rigors of international double or
multiple taxation
Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clear
provision therefor.
Page 18
In claiming tax exemption, the burden of proof lies upon the claimant
It cannot be created by mere implication
It cannot be presumed that you are entitled to tax exemption
You must prove it
RULE:
Taxation is the rule and exemption is the exception
TEST:
- OWNERSHIP
Once established that it belongs to the government, the nature of the use of the property
whether proprietary or sovereign becomes immaterial.
Exemption of public property from taxation does not extend to improvements therein
made by occupants or claimants at their own expense.
Page 19
When certain persons, property or transactions are exempted, expressly or impliedly from
all taxes
2) PARTIAL
When certain persons, property or transactions are exempted, expressly or impliedly from
certain taxes, either entirely or in part.
3) There can be no simultaneous exemptions under two laws, when one grants partial
exemption while other grants total exemption.
Does provision in a statute granting exemption from all taxes include indirect taxes?
NO. As a general rule, indirect taxes are not included in the grant of such exemption
unless it is expressly stated.
The word remit means to desist or refrain from exacting, inflicting or enforcing
something as well as to restore what has already been taken. The remission of taxes due
and payable to the exclusion of taxes already collected does not constitute unfair
discrimination. Such a set of taxes is a class by itself and the law would be open to attack
as class legislation only if all taxpayers belonging to one class were not treated alike.
[Juan Luna Subd. V. Sarmiento, 91 Phil 370]
The condition of a tax liability is equivalent to and is in the nature of a tax exemption.
Thus, it should be sustained only when expressly provided in the law. [Surigao
Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728]
Tax amnesty, being a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue to collect what otherwise would be due it and, in this sense, prejudicial thereto.
It is granted particularly to tax evaders who wish to relent and are willing to reform, thus
giving them a chance to do so and thereby become a part of the new society with a clean
slate. [Republic v. Intermediate Appellate Court, 196 SCRA 335]
Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted by
statute. The terms of the amnesty must also be construed against the taxpayer and
liberally in favor of the government.
A tax amnesty, being a general pardon or intentional overlooking by the Statute of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of
its right to collect what otherwise would be due it and, in this sense, prejudicial thereto,
particularly to tax evaders who wish to relent and are willing to reform are given a
chance to do so and therefore become a part of the society with a clean slate.
Like a tax exemption, a tax amnesty is never favorednor presumed in law, and is granted
by statute. The terms of the amnesty must be strictly construed against the taxpayer and
literally in favor of the government. Unlike a tax exemption, however, a tax amnesty has
limited applicability as to cover a particular taxing period or transaction only.
Page 20
There is a tax condonation or remission when the State desists or refrains from exacting,
inflicting or enforcing something as well as to reduce what has already been taken. The
condonation of a tax liability is equivalent to and is in the nature of a tax exemption.
Thus, it should be sustained only when expressed in the law.
Tax exemption, on the other hand, is the grant of immunity to particular persons or
corporations of a particular class from a tax of which persons and corporations generally
within the same state or taxing district are obliged to pay. Tax exemptions are not
favored and are construed strictissimijurisagainst the taxpayer.
> Law granting partial refund partakes the nature of a tax exemption and therefore must
be strictly construed against the taxpayer
> Gross receipts subject to tax under the tax code do not include monies or receipts
entrusted to the taxpayer which do not belong to it and does not redound to the
taxpayers benefit, and it is not necessary that there must be a law or regulation which
would exempt such monies and receipts within the meaning of gross receipts.
Page 21
Since fraud is a state of mind, it need not be proved by direct evidence but may be
proved from the circumstances of the case.
a) Tax laws
1. Legislative intent Tax statutes are to receive reasonably construction with the view to
carry out their purpose and intent. If there is some issue on construction and
interpretation, we determine what was the intent of the legislators. We go back to the
deliberations, debates, arguments.
2. When there is doubt In case of doubt, they are construed strictly against the
government and liberally in favor of the taxpayer. Tax laws are, therefore, given liberal
construction for the reason that taxes are burdens.
3. Where the language is plain - But when the language of the tax law is plain and clear,
which does not require independent interpretation or construction, the rule of strict
construction against the government is not applicable where the language of the tax
statute is plain and there is not doubt as to its legislative intent.
b) Tax exemption and exclusion
General rule:
o In the construction of tax statutes, exemptions are not favored and are construed
strictissimijurisagainst the taxpayer. The fundamental theory is that all taxable
property should bear its share in the cost and expense of the government.
o Taxation is the rule and exemption is the exemption.
o He who claims exemption must be able to justify his claim or right thereto by a
grant express in terms too plain to be mistaken and too categorical to be
misinterpreted. If not expressly mentioned in the law, it must be at least within its
purview by clear legislative intent.
Exceptions
1) When the law itself expressly provides for a liberal construction thereof.
2) In cases of exemptions granted to religious, charitable and educational institutions or to the
government or its agencies or to public property because the general rule is that they are
exempt from tax.
Strict interpretation does not apply to the government and its agencies
Petitioner cannot invoke the rule on stritissimijuris with respect to the interpretation of
statutes granting tax exemptions to the NPC. The rule on strict interpretation does not
apply in the case of exemptions in favor of a political subdivision or instrumentality of the
government. [Maceda v. Macaraig]
Page 22
A tax cannot be imposed unless it is supported by the clear and express language of a
statute; on the other hand, once the tax is unquestionably imposed, a claim of
exemption from tax payers must be clearly shown and based on language in the law too
plain to be mistaken. Since the partial refund authorized under Section 5, RA 1435, is in
the nature of a tax exemption, it must be construedstrictissimijurisagainst the grantee.
Hence, petitioners claim of refund on the basis of the specific taxes it actually paid must
expressly be granted in a statute stated in a language too clear to be mistaken.
Tax refunds, condonations and amnesties, they being in the nature of tax exemptions
must be strictly construed against the taxpayer and liberally in favor of the government.
Page 23
c) Source principle
4. Types of Philippine income tax
a) Compensation income
b) Business/Trade/Professional Income
c) Passive Income
One which the taxpayer merely waits for the amount/income to come in.
Examples: Royalties, Interests, Prizes.
d) Capital Gains
Derived from sale of capital assets (Sec. 22, NIRC) or properties
5. Taxable period
a) Calendar period
b) Fiscal period
c) Short period
6. Kinds of taxpayers and taxes imposed (Sec. 23, NIRC)
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
Taxable on all income derived from sources within and without the
Philippines.
(b) Non-resident citizens
Taxable only on income derived from sources within the Philippines. But if
working abroad, taxable only on income derived from sources within. TN:
Seamen who receives compensation for services rendered abroad as a
member of the complement of a vessel engaged exclusively in international
trade shall be treated as an overseas contract worker.
(ii) Aliens
(a) Resident aliens
One who permanently stays in the Philippines or goes out less than 183
days.
(b) Non-resident aliens
(1) Engaged in trade or business
One who stays in the Philippines for more than 180 days.
(2) Not engaged in trade or business
TN: These persons are taxable only on income derived from sources within.
(iii) Special class of individual employees
(a) Minimum wage earner
The statutory minimum wage earners are no longer taxable. They are
exempted from payment of income tax. The determination of statutory
wages is determined on a regular basis by the RTWPB. (R.A. 9504, July
2008)
b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
(a) Resident foreign corporations
(b) Non-resident foreign corporations
(iii) Joint Venture and Consortium
By: Adelaine Faith Zerna LLB4
Page 24
c) Partnerships
In the case of business partnerships, they are taxed like corporations.
d) General professional partnerships
e) Estates and trusts
In the case of estates and trusts, they are taxable like individuals.
f) Co-ownerships
7. GROSS INCOME
A. (Sec. 32, NIRC) Sources of income but not limited to the following:
(1) Compensation for services in whatever form paid,
salaries, wages,
commissions, and similar items;
the
general
professional
Page 25
(4) Compensation for Injuries or Sickness. - These are forms of indemnity. These are
return of capital. Actual damages in payment for hospitalization and other medical expenses
are not income. Moral damages are not income. But if they are damages for payment of
loss of income or loss of earning capacity, then, they are taxable income.
(5) Income Exempt under Treaty. - Income of any kind, to the extent required by any
treaty obligation binding upon the Government of the Philippines.
(6) Retirement Benefits, Pensions, Gratuities, etc.
Retirement benefits received under Republic Act No. 7641 (Labor Code) and those
received by officials and employees of private firms, whether individual or corporate, in
accordance with a reasonable private benefit plan maintained by the employer
(3)
Age the retiring official or employee is not less than fifty (50) years of age at the time
of his retirement
(4)
Any amount received by an official or employee or by his heirs from the employer as a
consequence of separation of such official or employee from the service of the employer
because of death, sickness or other physical disability or for any cause beyond the control
of the said official or employee.
This refers to separation pay.As a rule, separation pay is taxable. It becomes excluded when
it is payment by reason of death, sickness or other physical disability or for any cause beyond
the control of the said official or employee.
If you resign and you are given a separation pay, that is taxable because that is a cause
within the control of the employee.
There are resignations which are beyond the control of the employee such as in the case of
mergers or consolidations. The separation pay given in such circumstances is excluded because
despite the resignation, it is a cause beyond the control of the employee.
The provisions of any existing law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received by resident or
nonresident citizens of the Philippines or aliens who come to reside permanently in the
Philippines from foreign government agencies and other institutions, private or public.
Page 26
Payments of benefits due or to become due to any person residing in the Philippines
under the laws of the United States administered by the United States Veterans
Administration.
Benefits received from or enjoyed under the Social Security System in accordance with
the provisions of Republic Act No. 8282.
Benefits received from the GSIS under Republic Act No. 8291, including retirement
gratuity received by government officials and employees.
As a rule, prizes and awards are taxable. They are excluded in the instances provided.
(7) Prizes and Awards in Sports Competition. - All prizes and awards granted to athletes in
local and international sports competitions and tournaments whether held in the Philippines or
abroad and sanctioned by their national sports associations.As a rule, prizes and awards in
sports competition are taxable. They are excluded under the conditions aforementioned.
(8) 13th Month Pay and Other Benefits. - Gross benefits received by officials and employees
of public and private entities: Provided, however, That the total exclusion under this
subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover:
(i) Benefits received by officials and employees of the national and
pursuant to Republic Act No. 6686;
(ii) Benefits received by employees pursuant to Presidential
Decree
amended by Memorandum Order No. 28,
dated August 13, 1986;
local
government
No.
851,
as
decree
Page 27
Before, we used to have the scaling of the status of the individual single, head of the
family or married. Now, regardless of your status, you have a personal exemption of P 50,000.
Additional Exemptions:
Minimum Corporate Income Tax on Resident Foreign Corporations. (Sec. 28, NIRC)
A minimum corporate income tax of two percent (2%) of gross income, as prescribed under
Section 27(E) of this Code, shall be imposed, under the same conditions, on a resident foreign
corporation taxable under paragraph (1) of this Subsection.
The MCIT applies to both domestic corporations and to the resident foreign corporations.
In its application, the tax due computed during the tax year at 35% is compared to the
2% of gross income. The tax due payable is whichever is higher.
Page 28
When we say that the MCIT applies beginning on the 4th taxable year immediately
following the year in which the corporation commenced business, it means that newly
established corporations will not yet be subject to the MCIT. When the corporation has
been in the business and operating for 4 years or more at the time this tax became
effective, then, that provision is covered.
Prior to RA 9337, the MCIT was annualized you determine the tax to be paid, whether
MCIT or 35%, at the end of the year. When RA 9337 took effect in 2005, the application
of the MCIT is now on a quarterly basis.
Corporations are required to file quarterly returns. In the case of corporations subject to
MCIT, they have to determine at the end of the quarter the taxable income computed
under the MCIT and under the 35% rate.
There is no 4th quarter return for you will have the annual return.
Page 29
Prior to RA 9504, corporate taxpayers were only entitled to avail of the itemized
deductions. Now, under RA 9504, both the individual and corporate taxpayers may avail
the itemized or the optional standard deduction (OSD).
Civil Code)
Page 30
Page 31
1. Administrative
Before payment of taxes:
a. Dispute Assessment (Protest)
i. Request for reconsideration
ii. Request for reinvestigation
b. Entering a compromise agreement
After payment of taxes:
a. Claim for Tax Refund
2. Judicial
a. Civil
b. Criminal
3. Substantive
a. Question validity of tax statute/ regulation
b. Non-retroactivity of rulings
c. Must be informed of the legal and factual bases of assessment
d. Preservation of books of accounts and examination once a year
A: GR: Under this rule, No court shall have the authority to grant an injunction to restrain the
collection of any national internal revenue, tax, fee or charge. (Sec. 219, R.A. 8424)
XPN: The CTA can issue injunction in aid of its appellate jurisdiction if in its opinion the same
may jeopardize the interest of the government and/or the taxpayer. In this instance, the court
may require the taxpayer either to deposit the amount claimed or file a surety bond for not
more than double the amount with the court. (RA 1125 as amended by RA 9282)
Note: The Lifeblood doctrine requires that the collection of taxes cannot be enjoined, without
taxation, a government can neither exist nor endure.
Assessment
It is a written notice to a taxpayer to the effect that the amount stated therein is due as
tax and containing a demand for the payment. It is a finding by the taxing agency that the
taxpayer has not paid his correct taxes.
Page 32
Note: A notice of assessment contains not only a computation of tax liabilities but also a
demand for the payment within a prescribed period. It also signals the time when penalties and
interests begin to accrue.
Nature of an assessment
It is merely a notice to the effect that the amount stated therein is due as tax and containing a
demand for the payment. (Alhambra Cigar Mfg. Co. v. CIR, GR L-23226, Nov. 28, 1967)
Page 33
XPNs:
1. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)
2. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC)
3. In case of deficiency tax liability arising from a tax audit conducted by the BIR (Sec. 56 [B],
NIRC)
4. Tax lien (Sec. 219, NIRC)
5. Dissolving corporation (Sec. 52 [c], NIRC)
Page 34
3. Authority to conduct inventory taking, surveillance and prescribe gross sales and receipts if
there is reason to believe that the taxpayer is not declaring his correct income, sales or receipts
for internal revenue purposes
4. Authority to terminate taxable period in the following instances:
a. Taxpayer is retiring from business subject to tax;
b. Taxpayer is intending to leave the Philippines or to remove his property therefrom or
to hide or conceal his property and
c. Taxpayer is performing any act tending to obstruct the proceedings for the collection of
taxes.
5. Authority to prescribe real property values
6. Authority to inquire into bank deposits accounts in the following instances:
a. A decedent to determine his gross estate;
b. Any taxpayter who has filed an application for compromise of his tax liability by reason
of financial incapability to pay;
c. A specific taxpayer/s is subject of a request for the supply of tax information a foreign
tax authority pursuant to an intentional convention or agreement on tax matters to which the
Philippines is a signatory or a party of. Provided that the requesting foreign tax authority is able
to demonstrate the foreseeable relevance of certain information required to be given to the
request. (Sec. 3 & 8, RA 10021)
d. Where the taxpayer has signed a waiver authorizing the Commissioner or his duly
authorized representative to inquire into the bank deposits.
7. Authority to accredit and register tax agents
8. Authority to prescribe additional procedural or documentary requirements.
Q: A notice of assessment was mailed within the period prescribed by law but the same was
received by the taxpayer beyond the period. Was there a valid assessment?
A: Yes. There was an assessment made within the period. If the notice is sent through
registered mail, the running of the prescriptive period is stopped. What matters is the sending
of the notice is made within the period of prescription. It is the sending of the notice and not
the receipt that tolls the prescriptive period. (Basilan v. CIR, GR L-22492, Sept. 5, 1967)
Prescriptive Periods
Rationale
To secure the taxpayers against unreasonable investigation after the lapse of the period
prescribed. They are beneficial to the government because tax officers will be obliged to act
By: Adelaine Faith Zerna LLB4
Page 35
promptly in the assessment and collection of the taxes, for when such period have lapsed their
right to assess and collect would be barred by the statute of limitations.
Rules on prescription
1. When the tax law itself is silent on prescription, the tax is imprescriptible;
2. When no return is required, tax is imprescriptible and tax may be assessed at any time as the
prescriptive periods provided in Sec. 203 and 222, NIRC are not applicable. Remedy of the
taxpayer is to file a return for the prescriptive period to commence.
Note: Limitation on the right of the government to assess and collect taxes will
not be presumed in the absence of a clear legislation to the contrary.
3. Prescription is a matter of defense, and it must be proved or established by the party
(taxpayer) relying upon it.
4. Defense of prescription is waivable, such defense is not jurisdictional and must be raised
seasonably, otherwise it is deemed waived.
5. The law on prescription, being a remedial measure, should be interpreted liberally in order to
protect the taxpayer.
6. If the last day of the period falls on a Saturday, a Sunday or a legal holiday in the place
where the Court sits, the time shall not run until the next working day. (Sec. 1, Rule 22, Rules of
Court)
Note: Assessment and collection by the government of the tax due must be made within the
prescribed period as provided by the Tax Code; otherwise, the right of the government to collect
will be barred.
Computation of prescriptive period
It is computed based on the Administrative Code. Sec. 31 of the Administrative Code of 1987
provides that a year shall be understood to be 12 calendar months. Both Article 13 of the Civil
Code and Sec. 31 of the Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it
be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is
composed of 12 calendar months and the number of days is irrelevant. There obviously exists a
manifest incompatibility in the manner of computing legal periods under the Civil Code and the
Administrative Code of 1987. For this reason, Sec. 31, Chapter VIII, Book I of the Administrative
Code of 1987, being the more recent law governs the computation of legal periods. (CIR v.
Primetown Property Group, Inc., GR 162155, Aug. 28, 2007)
Page 36
XPNS:
a. If there is failure to file the required return, the period is within 10 years after the date
of discovery of the omission to file the return.
Note: Date of discovery must be made within the three-year period following the general
rule.
b. If the return is filed but it is false or fraudulent and made with intent to evade the tax,
the period is 10 years from the date of discovery of the falsity or fraud.
Note: Nothing in Sec. 222 (A) 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.
c. Where the CIR and taxpayer, before the expiration of the 3-year period have agreed in
writing to the extension of the period, the period so agreed upon may thereafter be
extended by subsequent agreements in writing made before the expiration of the period
previously agreed upon.
d. Where there is a written waiver or renunciation of the original 3-year limitation signed
by the taxpayer.
Note: Requests for reconsideration of tax assessments, as required by the BIR, must be
accompanied by a waiver of statute of limitations accomplished by the taxpayer.
2. The return was amended substantially The prescriptive period shall be counted from the
filing of the amended return.
Page 37
Substantial Amendments
1. There is under declaration (exceeding 30% of that declared) of taxable sales, receipts or
income;
2. There is overstatement (exceeding 30% of deductions) (Sec. 248, NIRC)
Q: Is it necessary that the notice of assessment be received by the taxpayer within the
prescriptive period?
A: No, notice of the assessment must be released, mailed or sent to the taxpayer within the 3
year period. It is not required that the notice be received by the taxpayer within the prescribed
period, but the sending of the notice must clearly be proven. (Basilan Estate, Inc. v. CIR, GR L22492, Sept. 5, 1967)
Page 38
2. In writing;
3. Signed by the taxpayer;
4. Must specify a definite date agreed upon between the parties within which to assess and
collect taxes;
5. Signed and accepted by the CIR or his duly authorized representative; and
6. Date of acceptance must be indicated. (RMC 06-05)
Pre-assessment Notice
It is a communication issued by the Regional Assessment Division, or any other concerned BIR
Office, informing a taxpayer who has been audited of the findings of the RO, following the
review of these findings.
If the taxpayer disagrees with the findings stated in the PAN, he have 15 days from receipt of
the PAN, to file a written reply contesting the proposed assessment. (Sec. 3.1.2, RR 12-99)
Otherwise, the taxpayer shall be considered in default, in which case a formal letter of demand
and assessment notice shall be issued by the BIR. (Sec. 3.1.2, RR 12-99)
Requisites:
1. In writing; and
2. Should inform the taxpayer of the law and the facts on which the assessment is made (Sec.
228, NIRC)
Note: This is to give the taxpayer the opportunity to refute the findings of the examiner and
give a more accurate and detailed explanation regarding the assessments. The absence of any
of the requirements shall render the assessment void.
Exceptions to Issuance of PAN
1. When the finding for any deficiency tax is the result of Mathematical error in the computation
of the tax appearing on the face of the tax return filed by the taxpayer; or
2. When the Excise tax due on excisable articles has not been paid; or
3. When a Discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
4. When an article locally purchased or imported by an Exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons; or
5. 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. (Sec 3.1.3, RR 12-99)
Page 39
The taxpayer may protest the assessment within 30 days from receipt otherwise the
assessment becomes final, executory, demandable and not appealable to the CTA.
Protesting Assessment
It is the act by the taxpayer of questioning the validity of the imposition of the
corresponding delinquency increments for internal revenue taxes as shown in the notice of
assessment and letter of demand.
Prescriptive period provided by law to make collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer protests the assessment and requests for its
cancellation.
Kinds of protest to an assessment
1. Request for reconsideration - a claim for re-evaluation of the assessment based on existing
records without need of additional evidence. It may involve a question of fact or law or both. It
does not toll the statute of limitations.
2. Request for reinvestigation - a claim for re-evaluation of the assessment based on newlydiscovered or additional evidence. It may also involve a question of fact or law or both. It tolls
the the statute of limitations.
Note: Under Sec. 223, NIRC, the running of the prescriptive period can only be suspended by a
request for reinvestigation, not a request for reconsideration.
Requisites of a protest
1. In writing;
2. Addressed to the CIR;
3. Accompanied by a waiver of the Statute of Limitations in favor of the Government. Without
the waiver the prescriptive period will not be tolled; (BPI v. CIR, GR 139736, Oct. 17, 2005)
4. State the facts, applicable law, rules and regulations or jurisprudence on which the protest is
based otherwise the protest would be void; and
5. Must contain the following:
a. Name of the taxpayer and address for the immediate past 3 taxable years;
b. Nature of the request, specifying the newly discovered evidence to be presented;
By: Adelaine Faith Zerna LLB4
Page 40
What are the administrative remedies of the government for collection of delinquent
taxes under the NIRC? (CELCED)
Page 41
1.
2.
3.
4.
5.
6.
Distraint
It is a summary remedy whereby the collection of tax is enforced on the goods, chattels or
effects of the taxpayer (including other personal property of whatever character as well as
stocks and other securities, debts, credits, bank accounts and interest in or rights to personal
property.) The property may be offered in a public sale, if taxes are not voluntarily paid.
Requisites (DeFDeP)
1.
2.
3.
4.
Kinds
1. Actual resorted to when there is actual delinquency in tax payment.
2. Constructive a preventive remedy which aims at forestalling a possible dissipation of the
taxpayers assets when delinquency sets in. Hence, no actual delinquency in payment is
necessary.
Procedure:
1. Commencement of distraint proceedings by the CIR or his duly authorized representatives or
by the revenue district officer as the case may be
2. Service of warrant of distraintupon taxpayer or upon any person in possession of the property
3. Posting of notice in not less than 2 public places in the municipality or city and notice to
taxpayer specifying the time and place of sale and the articles distrained
4. Sale at public auction to be held not less than 20 days after notice to the owner or possessor
of the property and publication or posting of such notice
5. Disposition of proceeds of the sale
6. Residue over and above what is required to pay the entire claim, including expenses, shall be
returned to the owner of the property sold
Levy
It is the seizure of real property and interest in or rights to such properties for the satisfaction of
taxes due from the delinquent taxpayer.
How made:
It may be effected by serving upon the taxpayer a written notice of levy in the form of a duly
authenticated certificate prepared by Revenue District Officer containing: [DNA]
1. Description of the property upon which levy is made;
2. Name of the taxpayer;
3. Amount of tax and penalty due.
Page 42
TN: Its timely service suspends the running of the prescriptive period to collect the tax
deficiency in the sense that the disposition of the attached properties might well take time to
accomplish, extending even after the lapse of the statutory period for collections. In those
cases, the BIR did not file any collection case but merely relied on the summary remedy of
distraint and levy to collect the tax deficiency. Thus, the enforcement of tax collection through
summary proceedings may still be carried out as the service of warrant of distraint or levy
suspends the prescriptive period for collection. (RP v. Hizon, GR 130430, Dec. 13, 1999)
Procedure:
1. Preparation of a duly authenticated certificate which shall operate with force of a legal
execution throughout the Philippines.
2. Service of the written notice to the:
a. Delinquent taxpayer, or
b. If he is absent from the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or
c. If there be none, the occupant of the property.
d. The Registry of Deeds of the place where the property is located shall also be notified;
3. Advertisement of the time and place of sale within 20 days after the levy by posting of notice
and by publication for three consecutive weeks.
4. Sale at a public auction.
5. Disposition of proceeds of sale.
6. Residue to be returned to the owner.
Possession of the property levied
The owner shall not be deprived of the property until the expiration of the redemption period
and shall be entitled to rents and other income until the expiration of the period for redemption.
LEVY
GARNISHMENT
Subject matter
Advertisement of Sale
Page 43
No newspaper publication
required
No newspaper publication
required
Forfeiture
Forfeiture transfers the title to the specific thing from the owner to the government. Also
there would no longer be any further levy for such would be for the total satisfaction of
the tax due. (Sec 215, NIRC)
Procedure
1. In case of personal property By seizure and sale or destruction of property (Secs. 224 and
225, NIRC)
Ownership
SEIZURE
Rules on forfeiture
1. If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay
the taxes, penalties and costs, the real property shall be forfeited to the government.
2. The Register of Deeds shall transfer the title of forfeited property to the Government without
necessity of a court order.
3. Within 1 year from the date of sale, the property may be redeemed by the delinquent
taxpayer or any one for him, upon payment of taxes, penalties and interest thereon and cost of
sale; if not redeemed within said period, the forfeiture shall become absolute. (Sec. 215, NIRC)
Page 44
It is enforced as payment of tax, interest, penalties, costs upon the entire property and
rights to property of the taxpayer. However, to be valid against any mortgagee,
purchaser or judgment creditor, notice of such lien has to be filed by CIR with the
Registry of Deeds. (Sec. 219, NIRC)
It is applied when:
taxpayer neglects or refuses to pay tax after demand and not from
the time the warrant is served (Sec. 219, NIRC)
With respect to real property from time of registration with the
register of deeds.
Note: A valid assessment is required to be issued before a tax lien shall be annotated at the
proper registry of property.
Extinguishment
1.
2.
3.
4.
5.
Note: A buyer in an execution sale acquires only the rights of the judgment creditor.
Lien vs. Distraint
LIEN
DISTRAINT
To whom directed?
The property itself
regardless of the present
owner of the property
Requisites
By: Adelaine Faith Zerna LLB4
Page 45
Page 46
The CIR may compromise with respect to criminal and civil cases arising from violations
of the NIRC as well as the payment of any internal revenue tax when:
o A reasonable doubt as to the validity of the claim against the taxpayer exists
provided that the minimum compromise entered into is equivalent to 40% of the
basic tax; or
o The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax provided that the minimum compromise entered into is equivalent to
10% of the basic assessed tax.
Note: In these instances, the CIR is allowed to enter into a compromise only if the basic tax
involved does not exceed P1M and the settlement offered is not less than the prescribed
percentages. (Sec. 204 [A], NIRC) If the basic tax involves exceeds P1 million or when the
settlement offered is less than the prescribed minimum rates the approval of the Evaluation
Board is needed.
A preliminary compromise may be entered into by subordinate officials subject to review by the
CIR.
Abatement
It is made when:
o The tax or any portion thereof appears to be unjustly or excessively assessed; or
o The administration and collection costs involved do not justify the collection of the
amount due. (Sec. 204[B], NIRC)
Abatement
Involves the cancellation of the entire
tax liability of a taxpayer.
Page 47
JUDICIAL REMEDIES
GOVERNMENT
TAXPAYER
If express
Civil Action
For tax
remedy
220, NIRC)
purposes,
these are
If implied
actions
May avail of the usual judicial remedies
May resort to the laws of general
instituted by
for convenience and expediency.
application. Thus, a declaratory relief
the
may be availed of if the law does not
government
provide for judicial remedies.
to collect
internal revenue taxes in the regular courts after assessment by CIR has become final and
executory.
2. Must be approved by the CIR (Sec.
It includes, however, the filing by the government of claims against the deceased taxpayer with
the probate court.
Once an action is filed with the regular courts, the taxpayer can no longer assail the validity or
legality of assessment.
Form and Procedure
1. Civil actions shall be brought in the name of the Government of the Philippines.
2. It shall be conducted by legal officers of the BIR.
3. The approval by the Solicitor General together with the approval of the CIR for civil actions
for collection of delinquent taxes is required before they are filed. (Sec. 220 NIRC)
Note: BIR legal officers deputized as Special Attorneys who are stationed outside Metro Manila
may file verified complaints with the approval of the Solicitor General. Provided that a copy of
By: Adelaine Faith Zerna LLB4
Page 48
the complaint is furnished to the Solicitor General. The Solicitor General must file a notice of
appearance in the court where it was filed.
Court Jursidiction
COURTS
Municipal Trial Courts outside Metro Manila
Municipal Trial Courts within Metro Manila
Regional Trial Courts outside Metro Manila
Regional Trial Courts within Metro Manila
Criminal Action
Criminal complaint is instituted not to demand payment but to penalize taxpayer for the violation
of the NIRC.
Criminal action is resorted to not only for collection of taxes but also for enforcement of
statutory penalties of all sorts.
Crimes Punishable
1. Willful attempt to evade or defeat tax (Sec. 254, NIRC)
2. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax
and refund excess taxes withheld on compensation (Sec. 255, NIRC)
Filing of the Information
1. CTA - on criminal offenses arising from violations of the NIRC or Tariff and Customs Code and
other laws administered by the BIR and the BOC where the principal amount of taxes and fees,
exclusive of charges and penalties claimed is P1 million and above.
2. RTC, MTC, MeTC- on criminal offenses arising from violations of the NIRC or
Tariff and Customs Code and other laws administered by the BIR and the BOC where the
principal amount of taxes and fees, exclusive of charges and penalties claimed is less than P1
million. (Sec. 7, RA 9282)
Prescriptive Period
The period is 5 years from commission or discovery of the violation, whichever is later. (Sec.
281, NIRC)
The cause of action for willful failure to pay deficiency tax occurs when the final notice and
demand for the payment thereof is served upon the taxpayer.
The 5-year prescriptive period commences to run only after receipt of the final notice and
demand and the taxpayer refuses to pay.
Note: In addition to the fact of discovery of the filing of a fraudulent return, there must be a
judicial proceeding for the investigation and punishment of the tax offense before the 5-year
limiting period to institute a criminal action for filing a fraudulent return begins to run. The crime
of filing false returns can be considered "discovered" only after the manner of commission, and
the nature and extent of the fraud have been definitely ascertained. Note the conjunctive word
Page 49
and between the phrases the discovery thereof and the institution of judicial proceedings
for its investigation and proceedings. (Lim, Sr. v. CA, GR 48134-37, Oct. 18, 1990)
Page 50
The mode of appeal, we will follow Rule 43 in the petition brought before the CTA. And when it
is brought to the Supreme Court, we follow Rule 45 a petition or appeal by way of certiorari.
Rule 43
Rule 45
CTA (division) CTA (en banc) SC
Page 51
SEC. 19.
Review by Certiorari. A party adversely affected by a decision or ruling of the
CTA en banc may file with the Supreme Court a verified petition for review on certiorari
pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Then, we have this jurisdiction of the Court of Tax Appeals. What are the cases brought to
the CTA?
One, you have the exclusive appellate jurisdiction of the CTA to review by appeal:
1. Decisions of the Commissioner of Internal Revenue involving disputed assessment, refunds
and all other matters arising under the NIRC or other laws administered by the BIR
Sec. 7.
Remember that in Section 228 (NIRC), when the taxpayer protests the assessment, it is filed
with the Commissioner of Internal Revenue. From the decision of the Commissioner of Internal
Revenue, you have 30 days to appeal to the CTA.
Protest
Refunds
Assessment,
CIR
CTA
You also have cases of refunds. It is as well filed with the Commissioner of Internal Revenue
and from the decision of the Commissioner, it is filed with the CTA. This includes all other
matters in the NIRC which are decided by the Commissioner. So, they are all appealed to the
CTA, including all other laws administered by the BIR. So, you have these controversies to be
resolved by the Commissioner. The decision of the Commissioner is appealed also to the CTA.
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds, etc.
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;
What are these? Inaction by the Commissioner of Internal Revenue.
Remember in the assessment cases, the protest is filed with the CIR and the CIR has 180
days to decide. In Section 228 (NIRC), the period within which the Commissioner has to decide
is 180 days. If there is no decision within 180 days, the taxpayer should appeal to the CTA
within 30 days from the lapse of the 180-day period to decide.
Page 52
In case of inaction by the Commissioner, you are given 30 days from the lapse of the 180day period to go now to the CTA.
Assessment
In the case also of refunds in the NIRC, you have the date of payment where you file your
claim for refund with the CIR and finally to the CTA, it is required that from the date of payment
and up to the time the case will reach the CTA, it should be within the 2-year period from
payment.
Remember that in Section 229 (NIRC):
SECTION 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, 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 other words, the claim for refund is lodged, at the outset, administratively before the
Commissioner. And then, from that claim, it is converted into a judicial action when you bring
now the case to the CTA. And you bring the case to the CTA when it will be denied by the
Commissioner.
In the event that the denial is still forthcoming, your claim is pending with the Commissioner
and the 2-year period from payment is about to lapse, do not wait for the 2-year period to
expire. You must now bring the action within reasonable time to the CTA because of the
inaction of the Commissioner on your claim for refund.
So, the law provides a prescriptive period. You have now inaction by the Commissioner on
these refund cases, when the 2-year period is about to prescribe and the Commissioner has not
yet decided and you believe that his decision is that it will be denied. So, you can appeal to the
CTA.
Refunds
Date of Payment
CIR
CTA
Then, on other matters where the law provides that there is a period within which to bring
the action and to decide and when there is no decision, then, you now go and appeal to the
CTA from the lapse of the period.
In the claim for refund, do not wait for the lapse of the period, unlike in the other cases
meronkang waiting time for the decision. Kung walang decision, you are given generally 30
days to appeal to the CTA. In the claim for refund, do not wait for the 2-year period to expire,
otherwise, your petition to the CTA will be barred or dismissed.
You have that jurisdiction inaction by the CIR.
3. Decisions, orders, or resolutions of the RTC in local tax cases originally decided or resolved in
Page 53
Now, it
What are the local taxes where it will fall or pass through the RTC?
i. issue on the legality of the ordinance
When you have a case involving the legality of the ordinance, it is filed with the DOJ. From
the DOJ, the action is brought to the regular courts since this involves a case not subject to
pecuniary estimation, the jurisdiction is with the RTC. From the RTC, it is brought to the CTA.
DOJ
RTC
CTA
So, you have local tax cases where the RTC decides in its original jurisdiction.
ii. protest local tax assessments.
You also have the protest. In protesting local tax assessments, the action is initiated with
the local treasurer. So, you file your protest with your local treasurer. From the local treasurer,
it is filed either to the RTC or to the MTC, depending on the jurisdictional amount. If the
assessment involves within such amount falling within the RTC, it is filed with the RTC. If the
amount is less, it is filed with the MTC.
From the RTC, in its original jurisdiction, it is filed with the CTA. From the MTC, it will not go
directly to the CTA but it will pass through the regular procedures. From MTC to RTC, deciding
now in its appellate jurisdiction.Then, to the CTA.
So, you have the case of protesting tax assessments. You file your protest with the local
treasurer. The local treasurer will decide or there is a lapse or inaction. But nevertheless, the
flow of the remedy is to bring it to the next level, whether to the RTC or MTC, depending on the
jurisdictional amount.
RTC
Protesting Local
Local
Tax Assessments
Treasurer
CTA
MTC
RTC
CTA
Local
Refunds
Treasurer
CTA
MTC
RTC
CTA
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4. Decisions of the Commissioner of Customs on protest cases, seizure and forfeiture, and other
matters arising under the Tariff and Customs Code and other laws administered by the Bureau
of Customs
(4) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property affected, fines,
forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law
or other laws administered by the Bureau of Customs;
So, you have the decisions of the Commissioner of Customs on protest cases involving
liability for customs duties, seizure and forfeiture cases or other matters under the Tariff and
Customs Code and all other laws administered by the Bureau of Customs.
Whether it involves seizure or protest cases, the action is originally initiated with the
collector. From the Collector of Customs, it is brought to the Commissioner of Customs. From
the Commissioner of Customs, to the CTA.
Collector of Customs
Commissioner of Customs
CTA
LBAA
CBAA
CTA
CTA
Page 55
Again, claim for refunds is filed with the Local Treasurer. From the Local Treasurer, you file
with the Local Board of Assessment Appeals, to the Central Board and then, to the CTA.
Refunds
on RPT
These are the decisions in real property taxation made by the Central Board of Assessment
Appeals. From the decision of the Central Board, it is appealed to the Court of Tax Appeals
Decisions of the Secretary of Finance on customs cases elevated by automatic review from
the decisions of the Commissioner of Customs adverse to the government.
6.
CoC DoF
CTA
If it is not adverse to the government, etoang proceedings, from CoC, to the CTA, if it is
adverse to the taxpayer.
But since it is adverse to the government, it will pass first through the DOF. From the DOF
to the Court of Tax Appeals.
7. Decisions of the DTI or DA on cases involving dumping duty and countervailing or safeguard
measure
(7) Decisions of the Secretary of Trade and Industry, in the case of non-agricultural
product, commodity or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving dumping and countervailing
duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where either party may appeal the
decision to impose or not to impose said duties.
The DTI or the DA on cases involving dumping duty, countervailing or safeguard measure
will come in depending on the product.
If it involves non-agri products, cases involving dumping duty, countervailing or safeguard
measure, the protest is filed with DTI.
Non-agri products
By: Adelaine Faith Zerna LLB4
DTI
CTA
Page 56
If it involves agri products, where the dumping duty, countervailing or safeguard measure is
imposed, the remedy or the protest is lodged with the Department of Agriculture.
Agri products
DA
CTA
Such that the decision of the DTI or the DA is appealed to the CTA. Depending on what is
the product, whether agricultural or non-agricultural, you file that with the DA or DTI. When
government imposes a dumping duty and there is an importer who would protest that
imposition or the imposition of a countervailing or a safeguard measure, the importer may bring
that action to the proper office, whether DTI if non-agri and DA if it involves agri products.
From that decision of the Secretary of the DTI or DA, it is appealed to the Court of Tax
Appeals.
The other one is the exclusive original jurisdiction.
The CTA has exclusive original jurisdiction on:
1. criminal offenses for violation of the NIRC or the Tariff and Customs Code and other laws
administered by the BIR/BoC where the principal amount of taxes and fees is more than P1
Million or more
Take note that the amount is insofar as the taxes and fees. Therefore, it excludes penalties,
interests and other surcharges.
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from violations
of the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided,
however, That offenses or felonies mentioned in this paragraph where the principal amount
of taxes and fees, exclusive of charges and penalties, claimed is less than One
million pesos (P1,000,000.00) or where there is no specified amount claimed shall be
tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of
law or the Rules of Court to the contrary notwithstanding, the criminal action and the
corresponding civil action for the recovery of civil liability for taxes and penalties shall at all
times be simultaneously instituted with, and jointly determined in the same proceeding by the
CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the
civil action, and no right to reserve the filling of such civil action separately from the criminal
action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
cases originally decided by them, in their respected territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts
in the exercise of their appellate jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their
respective jurisdiction.
The criminal offense is filed directly with the Court of Tax Appeals in its exclusive original
jurisdiction.
By: Adelaine Faith Zerna LLB4
Page 57
2. Tax collection cases on final and executory assessments where the principal amount of taxes
RTC
CTA
Criminal Offenses/
Tax Collection Cases
MTC
RTC
CTA
So, you have that exclusive original jurisdiction of the Court of Tax Appeals.
Another matter is that there are cases where when it is processed with the CTA, it is filed
originally by division.
However, there are cases when it is brought to the CTA, en banc na. Hindi nadadaansa
division.
What are the cases when it will be directly brought to the CTA, en bancna and not
passing thru the division? We have only 2.
1. Decision of the Central Board of Assessment Appeals
By: Adelaine Faith Zerna LLB4
Page 58
In the case of the decision of the Central Board of Assessment Appeals, from the Central
Board of Assessment Appeals, it is now with the CTA en banc, not by division. And then, to the
Supreme Court.
2. RTC deciding in its appellate jurisdiction of the local tax cases
In the local tax cases, where it is brought to the MTC, then to the RTC and then, the CTA.
The CTA here is en banc. Then, to the Supreme Court.
In local tax cases where the decision of the RTC is in its appellate jurisdiction, the appeal to
the CTA is not by division. It is CTA by en banc na. But when it is in the RTC in its original
jurisdiction, dadaanmunasa division bago mag-en banc.
Only when the RTC decides in its appellate jurisdiction where the appeal to the CTA is
already en banc. As to the rest, except for the two, it will have to pass through the CTA by
division, and then, en banc and then, Supreme Court, including in the original action.
In the original action, ganun pa rin CTA by division, CTA by en banc and then, Supreme
Court.
Local Taxes
MTC
RTC
CTA
SCen banc
So, you have this exclusive appellate and original jurisdiction of the Court of Tax Appeals.
Appeal
The Commissioner of Customs or the Commissioner of Internal Revenue shall appeal to the
Court of Tax Appeals. The matter that is brought on appeal is the party adversely affected by
the decision or ruling.
This same provision is carried under the new law, under the amended provision of Section
11 of RA 125, as amended by RA 8292. Under this provision:
SEC. 11.
Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely
affected by a decision, ruling or inaction2 of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the
Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts
may file an appeal with the CTA within thirty (30) days after the receipt of such decision or
ruling or after the expiration of the period fixed by law for action as referred to in Section
7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30)
days from the receipt of the decision or ruling or in the case of inaction as herein provided, from
the expiration of the period fixed by law to act thereon. A Division of the CTA shall hear the
appeal: Provided, however, That with respect to decisions or rulings of the Central Board of
Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction,
appeal shall be made by filing a petition for review under a procedure analogous to that
provided for under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear
the case en banc.
Inaction is now a matter which upon the lapse of that period, it will now be brought on appeal before the Court of Tax Appeals
Page 59
All other cases involving rulings, orders or decisions filed with the CTA as provided for in
Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or
decision of a Division of the CTA may file a motion for reconsideration of new trial before the
same Division of the CTA within fifteen (15) days from notice thereof: Provide, however, That in
criminal cases, the general rule applicable in regular Courts on matters of prosecution and
appeal shall likewise apply.
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or
the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer
or the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture,
as the case may be, shall suspend the payment, levy, distraint, and/or sale of any property of
the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided,
however, That when in the opinion of the Court the collection by the aforementioned
government agencies may jeopardize the interest of the Government and/or the taxpayer the
Court any stage of the proceeding may suspend the said collection and require the taxpayer
either to deposit the amount claimed or to file a surety bond for not more than double the
amount with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the
Government may directly file the said cases with the CTA covering amounts within its exclusive
and original jurisdiction.
In other words, the CTA has this exclusive appellate jurisdiction and exclusive original
jurisdiction.
You have the criminal offenses involving taxes and fees involving the amount of P 1 Million
or more or the tax collection cases or assessments which have become final and executory in
the amount of P 1 Million or more, the filing should be made directly to the CTA in its exclusive
original jurisdiction.
From the decision of the CTA by division, the next mode is to appeal that to the CTA en
banc.
A party adversely affected by the decision or the resolution of the division of the CTA on a
motion for reconsideration or new trial may file a petition for review with the CTA en banc.
What do we have in these provisions?
In other words, decisions, rulings and inactions of the Commissioner of Internal Revenue,
Commissioner of Customs, Department of Finance, DTI, DA and the RTC in its original
jurisdiction, the appeal is to the CTA by division. And the mode is Rule 42, file a petition for
review.
Decisions/
Rulings/
Inaction
w/ original
jurisdiction
CIR/COC
DOF/DTI
DA & RTC
Appeal
to CTA
division
Review
Rule 42
CTA
Petition
en
for
banc
Review
Rule 43
Petition
for
SC
Page 60
But the decisions and rulings of the Central Board of Assessment Appeals and the RTC in its
appellate jurisdiction, the appeal is to the CTA en banc by way of petition for review under Rule
43.
Decisions/Rulings
of CBAA & RTC in
its appellate
jurisdiction
Appeal to
CTA
en banc
Rule 43
Petition for Review
From the division, you are not precluded to file a motion for reconsideration. From the
denial of the motion for reconsideration, you can now go to the CTA en banc. Here, the mode is
Rule 43. From the en banc, to the Supreme Court under Rule 45.
Here, from the en banc to the Supreme Court, Rule 45 appeal by certiorari.
Now, take note that the appeal that is brought to the CTA are not only decisions but you also
have rulings.
You have cases like taxpayer confronted with a tax problem. So, he writes to the BIR for a
particular tax query and asks for a ruling. So, he writes to the Commissioner for a tax query
asking for a tax ruling in particular transaction, whether you will be taxable or not, exempted or
not. The ruling or the reply of the CIR may either be to grant the query or not. The reply of
the Commissioner may involve to have the transaction, either it will be taxable or not exempted
or it may be not taxable or exempted.
Tax
Query
writes CIR
for tax ruling
Reply
of CIR
Taxable/
Adverse Ruling
Not Exempted
Appeal
CTA
Non-Taxable/
Exempted
If it is not taxable or you are exempted, there is no problem. The taxpayer will not pursue
anymore kasi he will not be taxable. He will be declared exempted from the tax transaction.
What if he receives an adverse ruling, wherein there will be a ruling from the Commissioner
that in that transaction he will be taxable or that he will not be exempted? Can you appeal the
ruling? If it is yes, where will you appeal the ruling? Remember that this is (not ?) a tax case,
which is not an ordinary tax case when you compare it to assessments or refunds.
In this situation, when the taxpayer is confronted with a tax problem and lodged it with the
BIR regarding his query of his taxability or exemption in a transaction and he gets an adverse
ruling, the law allows the taxpayer to appeal the ruling.
Where will he appeal the ruling? The appeal is with the CTA, not with any other courts or
even the regional trial courts because the provision in the law is not only the decisions but also
rulings. So, the rulings therefore include tax queries asked by the taxpayer asking for a ruling,
kung taxable basiya or exempted basiya in a transaction.
In the event that he gets an adverse ruling, his remedy is to appeal that ruling to the Court
of Tax Appeals.
Again, the basis is found under the law. And this provision is found not only in the old law
but it is carried over in the amended law.
Page 61
The decided case here is the LEAL vs. COMMISSIONER. (Not sure but I think it is the
Commissioner vs. Leal November 18, 2002 case, walakasingbinigaynacitation .. check it
out ) Josefina Leal was the operator of a pawnshop and wrote to the BIR with regard to the
business of her pawnshop, whether she would be subject to the VAT or the percentage tax or to
this type of business tax.
The BIR made a reply that the business is taxable and she should pay the percentage tax or
now, the VAT (not sure if tama pagdinigko)
With that adverse ruling, she went to the RTC to question the ruling of the Commissioner.
With the denial, she went to the Court of Appeals and then, finally to the Supreme Court.
Of course, the petition was dismissed because it was the wrong remedy.
While the taxpayer is allowed to question a tax ruling made by the Commissioner, the mode
of where to pursue the action is not with the regular courts. It should be, as in the case of Leal,
it should be brought to the CTA or the Court of Tax Appeals,
In the case of Leal, it cited the statutory provision. Even under the old law, under RA 1125,
the matter that is brought on appeal to the CTA, any party adversely affected by a decision or
ruling. So, it includes therefore, the rulings of the Commissioner of Internal Revenue or his
administrative officers. So, you could appeal the ruling therefore to the CTA.
And under the jurisdiction of the Court of Tax Appeals, its exclusive appellate jurisdiction,
involves the decisions of the CIR in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, then, you have, or
other matters arising under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue.
That provision is allowing the taxpayer to appeal that to the CTA and not to any other
courts.
You have that legal basis to pursue your appeal for that ruling, not to the regular courts, but
to the CTA.
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