TAXATION
VER. 2010.06.12
copyrighted 2010
TAXATION
Nice to know
Should know
WARNING:
2.
3.
4.
Marshall said that, the power to tax involves the
power to destroy. On the other hand, Holmes stated that
the power to tax is not the power to destroy while the
court sits.
Reconcile the statements.
In the alternative, what are the implications that
flow from the above statements ?
SUGGESTED ANSWERS: Marshalls view refers to a valid tax
while the Holmes view refers to an invalid tax.
a.
The imposition of a
valid tax could not be judicially
restrained merely because it would prejudice taxpayers property.
b.
An illegal tax could be judicially declared invalid and
should not work to prejudice a taxpayers property.
5.
taxation.
SUGGESTED ANSWER: a.
Reciprocal duties of protection
and support between the state and its citizens and residents. Also
called symbiotic relation between the state and its citizens.
b.
Jurisdiction by the state over persons and property
within its territory.
6.
comprehensively
the
7.
a.
Purpose: Tax imposed for revenue while license fee for
regulation.
Tax for general public purposes while license fee for
regulatory purposes only.
b.
Basis:
Tax imposed under power of
taxation while license fee under police power.
c.
Amount: In taxation, no
limit as to amount while license fee limited to cost of the license and the
expenses of police surveillance and regulation.
d.
Time of
payment: Taxes normally paid after commencement of business while
license fee before.
e.
Effect
of
payment: Failure to pay a tax does not make the business illegal while
failure to pay license fee makes business illegal.
f.
Surrender: Taxes, being the lifeblood of the state, cannot be
surrendered except for lawful consideration while a license fee may be
surrendered with or without consideration. (Cooley on Taxation, pp. 11371138; Pacific Commercial Company v. Romualdez, et al., 49 Phil. 924)
8.
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation is to
promote the general welfare and to protect the health, safety or morals of
the inhabitants. It is in the joint exercise of the power of taxation and police
power where regulatory taxes are collected.
Taxation may be made the implement of the states police power.
The motivation behind many taxation measures is the implementation of
police power goals.
[Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3,
2005) The reader should note that the August 3, 2005 Southern Cross case
3
is the decision on the motion for reconsideration of the July 8, 2004
Southern Cross decision.
The so-called sin taxes on alcohol and tobacco manufacturers help
dissuade the consumers from excessive intake of these potentially harmful
products. (Southern Cross Cement Corporation v. Cement Manufacturers
Association of the Philippines, et al., G. R. No. 158540, August 3, 2005)
10.
Taxation distinguished from police power.
Taxation is distinguishable from police power as to the means employed to
implement these public goals. Those doctrines that are unique to taxation
arose from peculiar considerations such as those especially punitive effects
(Southern Cross Cement Corporation v. Cement Manufacturers Association
of the Philippines, et al., G. R. No. 158540, August 3, 2005) as the power to
tax involves the power to destroy and the belief that taxes are lifeblood of
the state. (Ibid.) taxes being the lifeblood of the government, their prompt
and certain availability is of the essence.
These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. (Ibid.)
11.
How the power of taxation may be used to
implement power of eminent domain. Tax measures are but
enforced contributions exacted on pain of penal sanctions and clearly
imposed for public purpose. In most recent years, the power to tax has
indeed become a most effective tool to realize social justice, public welfare,
and the equitable distribution of wealth. (Commissioner of Internal Revenue v.
Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)
a.
b.
c.
Fiscal adequacy.
Administrative feasibility.
Theoretical justice.
Property -
Imposed on property.
Example Real
c.
Excise imposed upon the
performance of an act, the enjoyment of a privilege or the engaging in
an occupation. Example income tax, estate tax.
17.
territories of the first Contracting Party , even when these supplies are to be used
on the parts of the journey performed over the territory of the Contracting Party in
which they are introduced into or taken on board. The materials referred to above
may be required to be kept under customs supervision and control.
b.
Silkair could not seek refuge under Maceda v. Macaraig,
Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.which upheld the claim
for tax credit or refund by the National Power Corporation (NPC) on the
ground that the NPC is exempt even from the payment of indirect taxes.
In Commissioner of Internal Revenue v. Philippine Long Distance
Telephone Company, G.R. No. 140230, December 15, 2005, 478 SCRA
61 the Supreme Court clarified the ruling in Maceda v. Macaraig, Jr., viz: It
may be so that in Maceda vs. Macaraig, Jr., the Court held that an
exemption from all taxes granted to the National Power Corporation
(NPC) under its charter includes both direct and indirect taxes.
An exemption from all taxes excludes indirect taxes, unless the
exempting statute, like NPCs charter, is so couched as to include indirect
5
tax from the exemption. The amendment under Republic Act No. 6395
enumerated the details covered by NPCs exemption. Subsequently, P.D.
380, made even more specific the details of the exemption of NPC to
cover, among others, both direct and indirect taxes on all petroleum
products used in its operation. Presidential Decree No. 938 [NPCs
amended charter] amended the tax exemption by simplifying the same law
in general terms. It succinctly exempts NPC from all forms of taxes,
duties, fees The use of the phrase all forms of taxes demonstrates the
intention of the law to give NPC all the tax exemptions it has been enjoying
before.
The exemption granted under Section 135 (b) of the NIRC of 1997
and Article 4(2) of the Air Transport Agreement between RP and Singapore
cannot, without a clear showing of legislative intent, be construed as
including indirect taxes. Statutes granting tax exemptions must be
construed in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority, and if an exemption is found to exist, it must not be
enlarged by construction. (Silkair (Singapore) PTE, Ltd., v. Commissioner of
Internal Revenue, G.R. No. 173594, February 6, 2008)
18.
INHERENT LIMITATIONS
1.
taxation ?
SUGGESTED ANSWERS:
a.
Public purpose. The revenues collected from taxation
should be devoted to a public purpose.
b.
No improper delegation of legislative authority to tax. Only
the legislature can exercise the power of taxes unless the same is
delegated to some other governmental body by the constitution or through
a law which does not violate any provision of the constitution.
c.
Territoriality. The taxing power should be exercised only
within territorial boundaries of the taxing authority.
d.
Recognition of government exemptions; and
e.
Observance of the principle of comity. Comity is the
respect accorded by nations to each other because they are equals. On
the other hand taxation is an act of sovereign. Thus, the power should be
imposed upon equals out of respect.
Some authorities include no double taxation.
2.
6
g.
Private persons may be benefited but such benefit should
be merely incidental as its main object is the benefit of the community in
general.
h.
Determined at the time of enactment of tax law and not at
the time of implementation.
i.
There is a presumption of public purpose even if the tax
law does not specifically provide for its purpose. ( Santos & Co., v.
Municipality of Meycauayan, et al., 94 Phil. 1047)
4.
Requisites for taxpayers, concerned citizens,
voters or legislators to have locus standi to sue.
a.In general, the case should involve constitutional issues. (David,
et al., v. President Gloria Macapagal-Arroyo, etc., et al., G. R. No. 171396, May 3,
2006)
b.
Phil. 33) or a
157509,
140835,
c.
For voters, there must be a showing of obvious interest in
the validity of the election law in question.
d.
For concerned citizens, there must be a showing that the
issues raised are of transcendental importance which must be settled
early.
e.
For legislators, there must be a claim that the official
action complained of infringes upon their prerogatives as legislators.
(David, et al., v. President Gloria Macapagal-Arroyo, etc., et al., G. R. No.
171396, May 3, 2006)
5.
Only those directly affected have locus standi to
impugn the alleged encroachment by the executive
department into the legislative domain of Congress.
a.
Only those who shall be directly affected by such
executive encroachment, such as for example employees who would find
themselves subject to disciplinary powers that may be imposed under the
questioned Executive Order as they have a direct and specific interest in
raising the substantive issue therein (Automotive Industry Workers
Alliance (AIWA),etc., et al., v. Romulo, etc. ,et al., G. R. No. 157509,
January 18, 2005) or employees who are going to be demoted,
transferred or otherwise affected by any personnel action subject o the
rule on exhaustion of administrative remedies.
b. Moreover, and if at all, only Congress, can claim any injury
from the alleged executive encroachment of the legislative function to
amend, modify and/or repeal laws. (Automotive Industry Workers Alliance
(AIWA),etc., et al., supra, citing Gonzales v. Narvasa, G. R. No. 140835,
August 14,2000, 337 SCRA 733, 741)
6.
Locus standi being merely a matter of procedure,
have been waived in certain instances where a party who is not
personally injured may be allowed to bring suit. The following are
examples of instances where suits have been brought by parties who have
not have been personally injured by the operation of a law or any other
government act but by concerned citizens, taxpayers or voters who actually
sue in the public interest:
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being deflected
to any improper purpose, or that there is a wastage of public funds through
the enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G.
R. No. 167919, February 14, 2007)
a.
Delegation of tariff powers by Congress to the President
under the flexible tariff clause, Section 28 (2), Article VI of the
Constitution.
b.
Delegation of emergency powers to the President under
Section 23 (2) of Article VI of the Constitution.
c. The delegation to the President of the Philippines to enter into
executive agreements, and to ratify treaties which may contain tax
exemption provisions subject to the concurrence by the Senate in the
ratification made by the President.
d. Delegation to the people at large.
e. Delegation to administrative bodies [Abakada Guro Party List
(Formerly AASJS), etc., v, Ermita, et al., G. R. No.168056, September 1,
2005], which is referred to as subordinate legislation.
In this instance, there is a requirement that the law is complete in
all aspects so what is delegated is merely the implementation of the law
or there exists sufficiently determinate standards to guide the delegate
and prevent a total transference of the taxing power.
9.
Paradigm shift from exclusive Congressional
power to direct grant of taxing power to local legislative bodies.
The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and
other charges pursuant to Article X, section 5 of the 1987 Constitution.
(Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675, and
companion case, April 28, 2004 citing National Power Corporation v. City of
Cabanatuan, G. R. No. 149110, April 9, 2003)
10.
8
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169 in
turn referring to Mactan Cebu International Airport Authority, v. Marcos, G.R. No.
120082, September 11, 1996, 261 SCRA 667, 680)
11.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general
power to levy taxes and otherwise create sources of revenue. They no
longer have to wait for a statutory grant of these powers. The power of
the legislative authority relative to the fiscal powers of local governments
has been reduced to the authority to impose limitations on municipal
powers. Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5 is thus
to reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of municipal corporations.
It is understood, however, that taxes imposed by local government must
be for a public purpose, uniform within a locality, must not be confiscatory,
and must be within the jurisdiction of the local unit to pass. (Quezon City,
et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008
citing City Government of Quezon City, et al. v. Bayan Telecommunications, Inc.,
G.R. No. 162015, March 6, 2006, 484 SCRA 169)
12.
Reconciliation of the local governments
authority to tax and the Congressional general taxing power.
Congress has the inherent power to tax, which includes the power to
grant tax exemptions.
On the other hand, the power of
local
governments, such as provinces and cities for example Quezon City, to
tax is prescribed by Section 151 in relation to Section 137 of the LGC
which expressly provides that notwithstanding any exemption granted by
any law or other special law, the City or a province may impose a
franchise tax. It must be noted that Section 137 of the LGC does not
prohibit grant of future exemptions.
The Supreme Court in a series of cases has sustained the power
of Congress to grant tax exemptions over and above the power of the
local governments delegated power to tax. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing City
Government of Quezon City, et al. v. Bayan Telecommunications, Inc., G.R. No.
162015, March 6, 2006, 484 SCRA 16)
13.
General principles of income taxation in the
Philippines or the source rule of income taxation as provided
in the NIRC of 1997.
a. A citizen of the Philippines residing therein is taxable on all
income derived from sources within and without the Philippines;
b. A nonresident citizen is taxable only on income derived from
sources within the Philippines;
c. An individual citizen of the Philippines who is working and
deriving income abroad as an overseas contract worker is taxable only
on income from sources within the Philippines: Provided, That a
seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade shall
be treated as an overseas contract worker;
d. An alien individual, whether a resident or not of the Philippines,
is taxable only on income derived from sources within the Philippines;
e. A domestic corporation is taxable on all income derived from
sources within and without the Philippines; and
f. A foreign corporation, whether engaged or not in trade or
business in the Philippines, is taxable only on income derived from
sources within the Philippines. (Sec. 23, NIRC of 1997, emphasis supplied)
14.
9
the place of payment, but the place where the services were actually
performed.
Since the activity of securing the sales were in Germany, then the
income did not originate from sources from within the Philippines.
(Commissioner of Internal Revenue v. Baier-Nickel, G. R. No. 153793, August 29,
2006)
18.
Obama Airlines, Inc., a foreign airline company
which does not maintain any flight to and from the Philippines
sold air tickets in the Philippines, through a general sales
agent, relating to the carriage of passengers and cargo
between two points, both outside the Philippines.
10
a.
Is Obama, Inc., subject to income taxes on the
sale of the tickets ?
SUGGESTED ANSWER: Yes. The source of income which is
taxable is that activity which produced the income. The sale of tickets in
the Philippines is the activity that determines whether such income is
taxable in the Philippines.
The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The situs of the source of payments is
the Philippines. the flow of wealth proceeded from and occurred, within the
Philippine territory, enjoying the protection accorded by the Philippine
Government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government. [Commissioner of Internal
Revenue v. British Overseas Airways Corporation (BOAC), 149 SCRA 395]
Off-line air carriers having general sales agents in the Philippines
are engaged in or doing business in the Philippines and their income
from sales of passage documents here is income from within the
Philippines. Thus, the off-line air carrier liable for the 32% (now 30%) tax
on its taxable income. [South African Airways v. Commissioner of Internal
Revenue, G.R. No. 180356, February 16, 2010 citing Commissioner of Internal
Revenue v. British Overseas Airways Corporation (British Overseas Airways), No.
L-65773-74, April 30, 1987, 149 SCRA 395]
b.
Supposing that Obama, Inc., sells tickets outside
of the Philippines for passengers it carry from Gold City, South
Africa to the Philippines but returns to South Africa without any
cargo or passengers.
Would it then be subject to any
Philippine tax on such sales ?
SUGGESTED ANSWER: It would not be subject to any tax. It is not
subject to any income tax because the activity which generated the income
(the sale of the tickets) was performed outside of the Philippines.
It is not subject to the carriers tax based on gross Philippine
billings because there were no lifts that originated from the Philippines.
Gross Philippine Billings refers to the amount of gross revenue derived
from carriage of persons, excess baggage, cargo and mail originating
from the Philippines in a continuous and uninterrupted flight, irrespective
of the place of sale or issue and the place of payment of the ticket or
passage document. [NIRC of 1997, Sec. 28(A)(3)(a)]
c.
Would your answer be the same if Obama, Inc.
sold tickets outside of the Philippines for travelers who are
going to picked up by Obama, Inc., planes from the Diosdado
Macapagal Intl. Airport at Clark, Angeles, Pampanga, bound for
Nairobi, Kenya ? Reason out your answer.
SUGGESTED ANSWER: No more. This time Obama, Inc., would
be subject to the carriers tax based on Gross Philippine Billings. (GPB).
19.
No improper delegation of legislative authority
to tax. The power to tax is inherent in the State, such power being
inherently legislative, based on the principle that taxes are a grant of the
people who are taxed, and the grant must be made by the immediate
representatives of the people; and where the people have laid the power,
there it must remain and be exercised. (Commissioner of Internal Revenue v.
Fortune Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
CONSTITUTIONAL LIMITATIONS
1.
Constitutional limitations on the power of
taxation . The general or indirect constitutional limitations as well as the
specific or direct constitutional limitations.
3.
a.
11
b.
Taxation shall be uniform and equitable;
c.
Congress shall evolve a progressive system of taxation;
d.
All appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives, but the Senate may propose
and concur with amendments;
e. The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object;
f.
Delegated power of the President to impose tariff rates,
import and export quotas, tonnage and wharfage dues:
1)
Delegation by Congress
2)
through a law
3)
subject to Congressional limits and
restrictions
4)
within the framework of national development program.
g.
Tax exemption of charitable institutions, churches,
parsonages and convents appurtenant thereto, mosques, and all lands,
buildings and improvements of all kinds actually, directly and exclusively
used for religious, charitable or educational purposes;
h.
No tax exemption without the concurrence of majority vote
of all members of Congress;
i.
No use of public money or property for religious purposes
except if priest is assigned to the armed forces, penal institutions,
government orphanage or leprosarium;
j.
Money collected on tax levied for a special purpose to be
used only for such purpose, balance if any, to general funds;
k.
The Supreme Court's power to review judgments or orders
of lower courts in all cases involving the legality of any tax, impose,
assessment or toll or the legality of any penalty imposed in relation to the
above;
l.
Authority of local government units to create their own
sources of revenue, to levy taxes, fees and other charges subject to
guidelines and limitations imposed by Congress consistent with the basic
policy of local autonomy;
m.
Automatic release of local government's just share in
national taxes;
n.
Tax exemption of all revenues and assets of non-stock,
non-profit educational institutions used actually, directly and exclusively for
educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by law
including restrictions on dividends and provisions for reinvestment of profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational
purposes subject to conditions prescribed by law.
5.
Equal protection of the law clause is subject to
reasonable classification.
If the groupings are characterized by
substantial distinctions that make real differences, one class may be treated
and regulated differently from another. The classification must also be
germane to the purpose of the law and must apply to all those belonging to
the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January
20, 1999)
6.
All that is
required of a valid classification is that it be reasonable, which means that
a.
the classification should be based on substantial
distinctions which make for real differences,
b.
that it must be germane to the purpose of the law;
c.
that it must not be limited to existing conditions only; and
d.
that it must apply equally to each member of the class.
The standard is satisfied if the classification or distinction is based
on a reasonable foundation or rational basis and is not palpably arbitrary.
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715, August
14, 2008]
7.
Equal protection does not demand absolute
equality. It merely requires that all persons shall be treated alike, under
like circumstances and conditions, both as to the privileges conferred and
liabilities enforced. (Santos v. People, et al, G. R. No. 173176, August 26, 2008)
It is imperative to duly establish that the one invoking equal
protection and the person to which she is being compared were indeed
similarly situated, i.e., that they committed identical acts for which they
were charged with the violation of the same provisions of the NIRC; and
that they presented similar arguments and evidence in their defense - yet,
they were treated differently. (Santos, supra)
8.
Tests to determine validity of classification.
The
United States Supreme Court has established different tests to determine
the validity of a classification and compliance with the equal protection
clause. The recognized tests are:
a.
The traditional (or rational basis) test.
b.
The strict scrutiny (or compelling interest) test.
c.
The intermediate level of scrutiny (or quasi-suspect class)
test.
9.
The traditional (or rational basis) test used in
order to determine the validity of classification.
The
classification is valid if it is rationally related to a constitutionally
permissible state interest.
12
The complainant must prove that the classification is invidous,
wholly arbitrary, or capricious, otherwise the classification is presumed
to be valid. (Lindsley v. Natural Carboinic Gas Co., 220 U.S. 61; McGowan v.
Maryland, 366 U.S. 420; United States Railroad Retirement Board v. Fritz, 449
U.S. 166)
10.
The strict scrutiny (or compelling interest) test
used in order to determine the validity of the classification.
Government regulation that intentionally discriminates against a suspect
class such as racial or ethnic minorities, is subject to strict scrutiny and
considered to violate the equal protection clause unless found necessary
to promote a compelling state interest.
A classification is necessary when it is narrowly drawn so that no
alternative, less burdensome means is available to accomplish the state
interest.
Thus, it was held that denial of free public education to the
children of illegal aliens imposes an enormous and lasting burden based
on a status over which the children have no control is violative of equal
protection because there is no showing that such denial furthers a
substantial state goal. (Plyler v. Doe, 457 U.S. 202)
11.
The intermediate level of scrutiny (or quasisuspect class) test used in order to determine the validity of
he classification. Classification based on gender or legitimacy are not
suspect, but neither are they judged by the traditional or rational basis
test.
Intentional discriminations against members of a quasi-suspect
class violate equal protection unless they are substantially related to
important government objectives. (Craig v. Boren, 429 U.S. 190)
Thus, a state law granting a property tax exemption to widows,
but not widowers, has been held valid for it furthers the state policy of
cushioning the financial impact of spousal loss upon the sex for whom
that loss usually imposes a heavier burden. (Kahn v. Shevin, 416 U.S.
351)
12.
Equality and uniformity of taxation may mean the
same as equal protection. In such a case, the terms would mean that
all subjects and objects of taxation which are similarly situated shall be
subject to the same burdens and granted the same privileges without any
discrimination whatsoever.
13.
It is inherent in the power to tax that the State be
free to select the subjects of taxation , and it has been repeatedly
held that, "inequalities which result from a singling out of one particular
10.
The rewards law to tax collectors does not
violate equal protection. The equal protection clause recognizes a
valid classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary. With respect to RA 9335, its
expressed public policy is the optimization of the revenue-generation
capability and collection of the BIR and the BOC. Since the subject of the
law is the revenue- generation capability and collection of the BIR and the
BOC, the incentives and/or sanctions provided in the law should logically
pertain to the said agencies. Moreover, the law concerns only the BIR and
the BOC because they have the common distinct primary function of
generating revenues for the national government through the collection of
taxes, customs duties, fees and charges.
Indubitably, such substantial distinction is germane and intimately
related to the purpose of the law. Hence, the classification and treatment
accorded to the BIR and the BOC under RA 9335 fully satisfy the
demands of equal protection. (ABAKADA Guro Party List, etc., v. Purisima,
etc., et al.,
13
11.
The prosecution of one guilty person while
others equally guilty are not prosecuted, however, is not, by
itself, a denial of the equal protection of the laws . Where the
official action purports to be in conformity to the statutory classification, an
erroneous or mistaken performance of the statutory duty, although a
violation of the statute, is not without more a denial of the equal protection
of the laws.
The unlawful administration by officers of a statute fair on its
face, resulting in its unequal application to those who are entitled to be
treated alike, is not a denial of equal protection unless there is shown to
be present in it an element of intentional or purposeful discrimination.
This may appear on the face of the action taken with respect to a
particular class or person, or it may only be shown by extrinsic evidence
showing a discriminatory design over another not to be inferred from the
action itself.
(Santos v. People, et al, G. R. No. 173176, August 26, 2008)
12.
Equal protection should not be used to protect
commission of crime. While all persons accused of crime are to be
treated on a basis of equality before the law, it does not follow that they
are to be protected in the commission of crime. It would be
unconscionable, for instance, to excuse a defendant guilty of murder
because others have murdered with impunity.
Likewise, if the failure of prosecutors to enforce the criminal laws
as to some persons should be converted into a defense for others
charged with crime, the result would be that the trial of the district attorney
for nonfeasance would become an issue in the trial of many persons
charged with heinous crimes and the enforcement of law would suffer a
complete breakdown. (Santos v. People, et al, G. R. No. 173176, August 26,
2008)
13.
14.
A lawful tax on a new subject, or an increased tax
on an old one, does not interfere with a contract or impairs its
obligation, within the meaning of the constitution. (Tolentino v.
Secretary of Finance, et al., and companion cases, 235 SCRA 630)
15.
The withdrawal of a tax exemption should not be
construed as prohibiting future grants of exemption from all
taxes. (Philippine Long Distance Telephone Company, Inc., v. City of Davao, et
al., etc., G. R. No. 143867, August 22, 2001)
16.
Tax exemptions in franchises are always subject
to withdrawal. A legislative franchise is granted with the express
condition that it is subject to amendment, alteration, or repeal. (1987
Constitution, Art. XII, Sec. 11)
17.
14
18.
The primary reason for the withdrawal of tax
exemption privileges granted to government owned and
controlled corporations and all other units of government was that
such privilege resulted to serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due them. (Philippine Ports
Authority v. City of Iloilo, G. R. No. 109791, July 14, 2003)
19.
National Power Corporation (NPC) is of the
insistence that it is not subject to the payment of franchises
taxes imposed by the Province of Isabela because all of its
shares are owned by the Republic of the Philippines. It is thus,
an instrumentality of the National Government which is exempt
from local taxation. As such it is not a private corporation
engaged in business enjoying franchise
Is such contention meritorious ?
SUGGESTED ANSWER: No. Philippine Long Distance Telephone
Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22,
2001, upheld the authority of the City of Davao, a local government unit, to
impose and collect a local franchise tax because the Local Government
Code has withdrawn all tax exemptions previously enjoyed by all persons
and authorized local government units to impose a tax on business
enjoying a franchise tax notwithstanding the grant of tax exemption to them.
20.
In lieu of all taxes in the franchise of ABS-CBN
does not exempt it from local franchise taxes. It does not
expressly provide what kind of taxes ABS-CBN is exempted from. It is not
clear whether the exemption would include both local, whether municipal,
city or provincial, and national tax. Whether the in lieu of all taxes
provision would include exemption from local tax is not unequivocal.
The right to exemption from local franchise tax must be clearly
established and cannot be made out of inference or implications but must
be laid beyond reasonable doubt. Verily, the uncertainty in the in lieu of
all taxes provision should be construed against ABS-CBN. ABS-CBN
has the burden to prove that it is in fact covered by the exemption so
claimed but has failed to do so . (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008)
NOTES AND COMMENTS: This is practically the same holding in an
earlier case
involving another telecommunications company Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008. The author opines that since practically all franchises
granted to telecommunications companies are similarly worded that the above
doctrine finds application to the others.)
21.
15
22.
The in lieu of all taxes clause in the franchise
of ABS-CBN has become functus officio with the abolition of
the franchise tax on broadcasting companies with yearly
gross receipts exceeding Ten Million Pesos. The clause in lieu
of all taxes does not pertain to VAT or any other tax. It cannot apply
when what is paid is a tax other than a franchise tax. Since the franchise
tax on the broadcasting companies with yearly gross receipts exceeding
ten million pesos has been abolished, the in lieu of all taxes clause has
now become functus officio, rendered inoperative. (Quezon City, et al., v.
ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008)
NOTES AND COMMENTS: This is practically the same holding in an
earlier case
involving another telecommunications company. Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008. The author opines that since practically all franchises
granted to telecommunications companies are similarly worded that the above
doctrine finds application to the others.)
24.
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b.
Taxing all of the subjects or objects for the first time without
taxing all of them for the second time.
If any of the elements are absent then there is indirect duplicate
taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
a.
Presence of the 2nd element violates the equal protection
clause. If only the 1st element is present, taxing the same subject or object twice,
by the same taxing authority, etc., there is no violation of the equal protection clause
because all subjects and objects that are similarly situated are subject to the same
burdens and granted the same privileges without any discrimination whatsoever,
The presence of the 2nd element, taxing all of the subjects and objects for the
first time, without taxing all for the second time, results to discrimination among
subjects and objects that are similarly situated, hence violative of the equal
protection clause.
26.
When an item of income is taxed in the
Philippines and the same income is taxed in another country,
this would be known as international juridical double taxation
which is the imposition of comparable taxes in two or more states on the
same taxpayer in respect of the same subject matter and for identical
grounds. (Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., et al.,
G.R. No. 127105, June 25, 1999)
28.
Tax credit generally refers to an amount that is
subtracted directly from ones total tax liability, an allowance against the tax
itself, or a deduction from what is owned.
A tax credit reduces the tax due, including whenever applicable
the income tax that is determined after applying the corresponding tax rates
to taxable income. (Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, G. R. No. 159647, April 15, 2005)
29.
A tax deduction is defined as a subtraction fro income
for tax purposes, or an amount that is allowed by law to reduce income
prior to the application of the tax rate to compute the amount of tax which is
due.
A tax deduction reduces the income that is subject to tax in order to
arrive at taxable income. (Commissioner of Internal Revenue v. Central Luzon
Drug Corporation, G. R. No. 159647, April 15, 2005)
30.
16
OTHER CONCEPTS
1. Distinguish tax from debt.
TAX
DEBT
Basis
based on law
based on contract or
judgment
Failure to Pay
may result in
imprisonment
no imprisonment
Mode of
Payment
generally payable in
money
payable in money,
property or service
Assignability
not
assignable
Payment
unless it becomes a
debt is not subject to
compensation or setoff
may be a subject
Interest
draws interest if
stipulated or delayed
Authority
imposed by public
authority
can be imposed by
private individuals
Prescription
Prescriptive periods
for tax under NIRC
31.
The VAT while regressive is NOT violative of the
mandate to evolve a progressive system of taxation. Do you
agree ? The mandate to Congress is not to prescribe but to evolve a
progressive system of taxation. Otherwise, sales taxes which perhaps are
the oldest form of indirect taxes, would have been prohibited with the
proclamation of the constitutional provision.
Sales taxes are also
regressive. . [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No.
168056, September 1, 2005 and companion cases citing Tolentino v. Secretary of
Finance, et al., G. R. No. 115455, August 25, 1994, 235 SCRA 630]
32.
All revenues and assets of non-stock, non-profit
educational institutions that are actually, directly and
exclusively used for educational purposes shall be exempt
from taxation.
33.
Revenues and assets of proprietary educational
institutions, including those which are cooperatively owned,
may be entitled to exemptions subject to limitations provided
by law including restrictions on dividends and provisions for
assignable
2.
Compensation takes place by operation of law, where
the local government and the taxpayer are in their own right reciprocally
debtors and creditors of each other, and that the debts are both due and
demandable, in consequence of Articles 1278 and 1279 of the Civil Code.
(Domingo v. Garlitos, 8 SCRA 443)
17
reasons:
a.
Lifeblood theory.
b.
Taxes
are
not
contractual obligations but arise out of a duty to, and are the positive acts
of government, to the making and enforcing of which the personal
consent of the individual taxpayer is not required. (Republic v. Mambulao
Lumber Co., 4 SCRA 622)
c.
Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Thus, it is correct to say that the offsetting of a taxpayers tax
refund with its alleged tax deficiency is unavailing under Art. 1279 of the
Civil Code. (South African Airways v. Commissioner of Internal Revenue, G.R.
No. 180356, February 16, 2010 reiterating Caltex Philippines, Inc. v.
Commission on Audit, which applied Francia v. Intermediate Appellate Court)
Revenue
d.
In case of a tax overpayment, the BIRs obligation to
refund or off-set arises from the moment the tax was paid. REASON:
Solutio indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern,
Inc 172 SCRA 364)
e.
While judgment should be
rendered in favor of Republic for unpaid taxes, judgment ought at the
same time to issue for Sampaguita Pictures commanding payment to the
latter by the Republic of the value of the backpay certificates which the
Republic received. (Republic v. Ericta, 172 SCRA 623)
5.
Gilbert
obtained a
judgment for a sum of
money against the municipality of Camiling. The judgment has
become final although execution has not issued. Upon
receiving an assessment for municipal sales taxes from the
Municipal Treasurer, Gilbert executed a partial assignment of
his judgment sufficient to cover the assessment in favor of
the Municipality. May the Municipal Treasurer validly accept
the assignment? Why?
SUGGESTED ANSWER: Yes. The parties in this case are
mutually debtors and creditors of each other, and since both of the claims
became overdue, demandable and fully liquidated, compensation takes
place by operation of law. Such was the holding in Domingo v. Garlitos, 8
SCRA 443, a case decided by the Supreme Court whose factual
antecedents are similar to the problem.
6.
In case of doubt, tax laws
must be construed strictly against the State and liberally in
favor of the taxpayer because taxes, as burdens which must be
endured by the taxpayer, should not be presumed to go beyond what the
law expressly and clearly declares. (Lincoln Philippine Life Insurance
Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99)
7.
Interpretation in the imposition of taxes, is not
the similar doctrine as that applied to tax exemptions. The rule
in the interpretation of tax laws is that a statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously. A
tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In
answering the question of who is subject to tax statutes, it is basic that in
case of doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens are
not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. [Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008 citing CIR v. Court of
Appeals, 338 Phil. 322, 330-331 (1997)]
As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the tax laws.
(Ibid., citing CIR v. Philippine American Accident Insurance Company, Inc., G.R.
No. 141658, March 18, 2005, 453 SCRA 668)
8.
Strict interpretation of tax exemption laws. Taxes
are what civilized people pay for civilized society. They are the lifeblood
of the nation. Thus, statutes granting tax exemptions are construed
18
stricissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of tax exemption must be clearly shown and based on
language in law too plain to be mistaken. Otherwise stated, taxation is
the rule, exemption is the exception. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing Mactan Cebu
International Airport Authority v. Marcos, G.R. No. 120082, September 11, 1996,
261 SCRA 667, 680) The burden of proof rests upon the party claiming the
9.
Rationale for strict interpretation of tax
exemption laws. The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to minimize
differential treatment and foster impartiality, fairness and equality of
treatment among taxpayers. (Quezon City, et al., v. ABS-CBN Broadcasting
Corporation, G. R. No. 166408, October 6, 2008)
He who claims an
exemption from his share of common burden must justify his claim that
the legislature intended to exempt him by unmistakable terms. For
exemptions from taxation are not favored in law, nor are they presumed.
They must be expressed in the clearest and most unambiguous language
and not left to mere implications. It has been held that exemptions are
never presumed the burden is on the claimant to establish clearly his right
to exemption and cannot be made out of inference or implications but
must be laid beyond reasonable doubt. In other words, since taxation is
the rule and exemption the exception, the intention to make an
exemption ought to be expressed in clear and unambiguous terms.
(Quezon City, supra citing Agpalo, R.E., Statutory Construction, 2003 ed., p. 302)
10.
Why are tax exemptions are strictly construed
against the taxpayer and liberally in favor of the State ?
SUGGESTED ANSWER: Taxes are necessary for the continued
existence of the State.
13.
Strict interpretation of a tax refund that partakes
of the nature of a tax does not apply to tax refund based on
erroneous payment or where there is no law that authorizes
collection of the tax. There is parity between tax refund and tax
exemption only when the former is based either on a tax exemption
statute or a tax refund statute. (Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which underlies
all quasi-contracts abhorring a persons unjust enrichment at the expense
of another. [Commissioner, supra citing Ramie Textiles, Inc. v. Hon. Mathay, Sr.,
178 Phil. 482 (1979); Puyat & Sons v. City of Manila, et al., 117 Phil. 985 (1963)]
11.
In case of a tax overpayment, where the BIRs
obligation to refund or set-off arises from the moment the tax
was paid under the principle of solutio indebeti. (Commissioner of
given its essence, a claim for tax refund necessitates only preponderance
of evidence for its approbation like in any other ordinary civil case.
14.
Tax refunds premised upon a tax exemption
strictly construed, Tax exemption is a result of legislative grace. And
12.
But note Nestle Phil. v. Court of Appeals, et al.,
G.R. No. 134114, July 6, 2001 which held that in order for the rule on
solutio indebeti to apply it is an essential condition that the petitioner must
first show that its payment of the customs duties was in excess of what was
required by the law at the time the subject 16 importations of milk and milk
products were made. Unless shown otherwise, the disputable presumption
(Commissioner, supra)
he who claims an exemption from the burden of taxation must justify his
claim by showing that the legislature intended to exempt him by words too
plain to be mistaken. [Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R. Nos. 167274-75, July 21, 2008 citing Surigao Consolidated
Mining Co. Inc. v. Commissioner of Internal Revenue and Court of Tax Appeals,
119 Phil. 33, 37 (1963)]
19
The rule is that tax exemptions must be strictly construed such that
the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.
[Commissioner, supra citing Phil. Acetylene Co. v. Commission of Internal
Revenue, et al., 127 Phil. 461, 472 (1967); Manila Electric Company v. Vera, G.R.
No. L-29987, 22 October 1975, 67 SCRA 351, 357-358; Surigao Consolidated
Mining Co. Inc. v. Commissioner of Internal Revenue, supra]
15.
Effect of a BIR reversal of a previous ruling
interpreting a law as exempting a taxpayer. A reversal of a BIR
ruling favorable to a taxpayer would not necessarily create a perpetual
exemption in his favor, for after all the government is never estopped from
collecting taxes because of mistakes or errors on the part of its agents.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al.,
293 SCRA 92, 99)
16.
17.
10, 2000)
18.
a.
Tax amnesty is an immunity from all criminal, civil and
administrative liabilities arising from nonpayment of taxes (People v.
Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax
exemption is an immunity from civil liability only. It is an immunity or
privilege, a freedom from a charge or burden to which others are subjected.
(Florer v. Sheridan, 137 Ind. 28, 36 NE 365)
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda, supra) WHILE tax exemption has
prospective application.
19.
Tax avoidance is the use of legally permissible means to
reduce the tax while tax evasion is the use of illegal means to escape the
payment of taxes.
20.
factors:
a.
21.
a.
Tax avoidance is legal while tax evasion is illegal.
b.
The objective of tax avoidance in most instances is merely
to reduce the tax that is due while is tax evasion the object is to entirely
escape the payment of taxes.
c.
Tax evasion warrants the imposition of civil, administrative
and criminal penalties while tax avoidance does not.
22.
Tax sparing is a provision in some tax treaties which
provides that the state of residence allows as credit the amount that
would have been paid, as if no reduction has been made. (Vogel, Klaus on
Double Taxation Conventions, Third Edition, p.1255 cited in Segarra, Venice H,
Tax Treaties: Trick or treat ?, Philippine Daily Inquirer, December 6, 2002, p. C5)
20
economic development. If the tax credit method is used, there would be
no more tax to credit since there is no more tax to credit as a result of the
tax exemption. Consequently, when the tax method credit method is
applied to these items of income, such incentives are siphoned off since,
in effect, the tax benefits are cancelled out. (Ibid.) Thus, the need for the
tax sparing provision.
2.
In Evangelista v. Collector, 102 Phil. 140, the Supreme
Court held citing Mertens that the term partnership includes a syndicate,
group, pool, joint venture or other unincorporated organization, through or
by means of which any business, financial operation, or venture is carried
on.
3.
Certain business organizations do not fall under
the category of corporations under the Tax Code , and therefore
1.
Rep. Act No. 1405, the Bank Deposits Secrecy
Law prohibits inquiry into bank deposits. As exceptions to
Rep. Act No. 1405, the Commissioner of Internal Revenue is
only authorized to inquire into the bank deposits of:
a.
a decedent to determine his gross estate; and
b.
any taxpayer who has filed an application for compromise
of his tax liability by reason of financial incapacity to pay his tax liability.
[Sec. 5 (F), NIRC of 1997]
c.
A taxpayer who authorizes the Commissioner to inquire
into his bank deposits.
4.
TAX ON INCOME
the Law of Partnership by Floyd R. Mechem, 2nd Ed., Sec. 83, p. 74 cited in Pascual
v. Commissioner of Internal Revenue, 166 SCRA 560)
1.
The Tax Code has included under the term
corporation partnerships, no matter how created or organized,
5.
The common ownership of property does not
itself create a partnership between the owners, though they may
2.
Purpose of the NIRC of 1997.
Revenue
generation has undoubtedly been a major consideration in the
passage of the Tax Code. (Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
3.
Purpose of shift from
ad valorem system to specific tax system in taxation of
cigarettes. The shift from the ad valorem system to the specific tax
system is likewise meant to promote fair competition among the
players in the industries concerned, to ensure an equitable distribution of
the tax burden and to simplify tax administration by classifying cigarettes,
among others, into high, medium and low-priced based on their net retail
price and accordingly graduating tax rates. (Commissioner of Internal
joint-stock
companies,
joint
accounts
(cuentas
en
participacion),
use it for purpose of making gains, and they may, without becoming
21
partners, are among themselves as to the management and use of such
property and the application of the proceeds therefrom.. (Spurlock v,.
Wilson, 142 S.W. 363, 160 No. App. 14, cited in Pascual v. Commissioner
of Internal Revenue, 166 SCRA 560)
6.
The income from the rental of the house, bought
from the earnings of co-owned properties, shall be treated as
the income of an unregistered partnership to be taxable as a
corporation because of the clear intention of the brothers to join together in
a venture for making money out of rentals.
7.
Income is gain derived and severed from capital, from
labor or from both combined. For example, to tax a stock dividend would
be to tax a capital increase rather than the income. (Commissioner of
Internal Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20,
1999)
8.
The term taxable income means the pertinent items of
gross income specified in the Tax Code, less the deductions and/or
personal and additional exemptions, if any, authorized for such types of
income by the Tax Code or other special laws. (Sec. 31, NIRC of 1997)
9.
The
cancellation
and
forgiveness
of
indebtedness may amount to (a) payment of income; (b) gift; or to a (c)
capital transaction depending upon the circumstances.
10.
If an individual performs services for a creditor
who, in consideration thereof, cancels the debt, it is income to
the extent of the amount realized by the debtor as compensation for his
services.
11.
An insolvent debtor does not realize taxable
income from the cancellation or forgiveness. (Commissioner v.
Simmons Gin Co., 43 Fd 327 CCA 10th)
12.
The insolvent debtor realizes income resulting
from the cancellation or forgiveness of indebtedness when he
becomes solvent. (Lakeland Grocery Co., v. Commissioner 36 BTA (F)
289)
13.
If a creditor merely desires to benefit a debtor
and without any consideration therefor cancels the amount of
the debt it is a gift from the creditor to the debtor and need not
be included in the latters income.
14.
If a corporation to which a stockholder is
indebted forgives the debt, the transaction has the effect of
payment of a dividend. (Sec. 50, Rev. Regs. No. 2)
15.
Members of cooperatives not subject to tax on the
interest earned from their deposits with the cooperative . No less
than our Constitution guarantees the protection of cooperatives. Section 15,
Article XII of the Constitution considers cooperatives as instruments for social
justice and economic development. At the same time, Section 10 of Article II of
the Constitution declares that it is a policy of the State to promote social justice in
all phases of national development. In relation thereto, Section 2 of Article XIII of
the Constitution states that the promotion of social justice shall include the
commitment to create economic opportunities based on freedom of initiative and
self-reliance. Bearing in mind the foregoing provisions, we find that an
interpretation exempting the members of cooperatives from the imposition of the
final tax under Section 24(B)(1) of the NIRC (tax on interest earned by deposits)
is more in keeping with the letter and spirit of our Constitution. (Dumaguete
Cathedral Credit Coopertive [DCCC)] etc., v. Commissioner of Internal Revenue,
G.
R.
No.
182722,
January
22,
2010)
16.
The Global system of income taxation is a system
employed where the tax system views indifferently the tax base and
generally treats in common all categories of taxable income of the
individual. (Tan v. del Rosario, Jr., 237 SCRA 324, 331)
17. The Schedular system of income taxation is a system
employed where the income tax treatment varies and is made to depend on
the kind or category of taxable income of the taxpayer. (Tan v. del Rosario,
Jr., 237 SCRA 324, 331)
18. Under the National Internal Revenue Code the global
system is applicable to taxable corporations and the schedular
to individuals.
22
19.
Compensation income is considered as having
been earned in the place where the service was rendered and
not considered as sourced from the place of origin of the money.
20.
Payment for services, other than compensation
income, is considered as having been earned at the place
where the activity or service was performed.
21.
A non-resident alien, who has stayed in the
Philippines for an aggregate period of more than 180 days
during any calendar year, shall be considered as a nonresident alien doing business in the Philippines. Consequently,
he shall be subject to income tax on his income derived from sources from
within the Philippines. [Sec. 25 (A) (1), NIRC]
He is allowed to avail of the itemized deductions including the
personal and additional exemptions subject to the rule on reciprocity.
j.
Daily meal allowance for overtime work not exceeding
twenty five percent (25%) of the basic minimum wage.
The amount of de minimis benefits conforming to the ceiling herein
prescribed shall not be considered in determining the P30,000 ceiling of
other benefits provided under Section 32 (B)(7)(e) of the Code. However,
if the employer pays more than the ceiling prescribed by these regulations,
the excess shall be taxable to the employee receiving the benefits only if
such excess is beyond the P30,000.00 ceiling, provided, further, that any
amount given by the employer as benefits to its employees, whether
classified as de minimis benefits or fringe benefits, shall constitute as
deductible expense upon such employer. [Sec. 2.78.1 (A) (3), Rev. Regs.
2-98 as amended by Rev. Regs. No. 8-2000]
23.
Income subject to final tax refers to an income
collected through the withholding tax system. The payor of the
income withholds the tax and remits it to the government as a final
settlement of the income tax as a final settlement of the income tax due on
said income. The recipient is no longer required to include the income
subjected to a final tax as part of his gross income in his income tax return.
24.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to
the taxpayer which are not treated as part of gross income for purposes of
computing the taxpayers taxable income, due to the following reasons: (1)
It is exempted by the fundamental law; (2) It is exempted by statute; and
(3) It does not come within the definition of income (Sec. 61, Rev. Regs.
No. 2) WHILE deductions are the amounts which the law allows to be
subtracted from gross income in order to arrive at net income.
b.
Exclusions pertain to the computation of gross income
WHILE deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the
taxpayer which do not form part of gross income WHILE deductions are
something spent or paid in earning gross income.
An example of an exclusion from gross income are life insurance
proceeds, and an example of a deduction are losses.
25.
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
23
b.
Amounts received by the insured as a return of premiums
paid by him under life insurance, endowment or annuity contracts either
during the term, or at maturity of the term mentioned in the contract, or
upon surrender of the contract.
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal injuries or
sickness, plus the amounts of any damages received on whether by suit or
agreement on account of such injuries or sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No. 7641.
Retirement received from reasonable private benefit plan after compliance
with certain conditions. Amounts received for beyond control separation.
Foreign social security, retirement gratuities, pensions, etc. USVA benefits,
SSS benefits and GSIS benefits.
27.
1)
Death, sickness or other physical disability; or
2)
For any cause beyond the control of said official or
employee [Sec. 32 (B) (6) (b), NIRC of 1997], such as
retrenchment, redundancy and cessation of business. [1st par.,
Sec. 2.78 (B), (1) (b), Rev. Regs. No. 2-98]
28.
What are the Itemized deductions from gross
income and who may avail of them ?
a. Ordinary and necessary trade, business or professional
expenses.
b.
The amount of interest paid or incurred within a taxable
year on indebtedness in connection with the taxpayers profession, trade or
business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
c. Taxes paid or incurred within the taxable year in connection with
the taxpayers profession.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
d.
Ordinary losses, losses from casualty, theft or
embezzlement; and net operating losses.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
e. Bad debts due to the taxpayer, actually ascertained to be
worthless and charged off within the taxable year, connected with
profession, trade or business, not sustained between related parties.
24
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
f.
Depreciation or a reasonable allowance for the
exhaustion, wear and tear (including reasonable allowance for
obsolescence) of property used in trade or business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
g.
Depletion or deduction arising from the exhaustion of a
non-replaceable asset, usually a natural resource.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
h. Charitable and other contributions. Resident citizens,
resident alien individuals and nonresident alien individuals who are
engaged in trade and business, on their gross incomes other from
compensation income are allowed to deduct these expenses. Domestic
corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
i. Research and development expenditures treated as deferred
expenses paid or incurred by the taxpayer in connection with his trade,
business or profession, not deducted as expenses and chargeable to
capital account but not chargeable to property of a character which is
subject to depreciation or depletion.
29.
expenditures.
25
30.
31.
32.
a.
Accounting methods for tax purposes comprise a set of
rules for determining when and how to report income and deductions.
(Commissioner of Internal Revenue v, Isabela cultural Corporation, G. R.
No. 172231, February 12, 2007)
The two (2) principal accounting methods for recognition of income
are the (a) accrual method; and the (b) cash method.
b.
Recognition of income and expenses under the
accrual method of accounting. Amounts of income accrue where the
right to receive them becomes fixed, where there is created an enforceable
liability. Liabilities, are incurred when fixed and determinable in nature
without regard to indeterminacy merely of time of payment.. (Commissioner
of Internal Revenue v, Isabela cultural Corporation, G. R. No. 172231,
February 12, 2007)
The accrual of income and expense is permitted when the all-events
test has been met. (Ibid.)
c.
All-events test. This test requires:
1)
fixing of a right to income or liability to pay; and
2)
the availability of the reasonable accurate determination of
such income or liability.
The test does not demand that the amount of such income or liability
be known absolutely, only that a taxpayer has at his disposal the
information necessary to compute the amount with reasonable accuracy.
The all-events test is satisfied where computation remains uncertain;
if its basis is unchangeable, the test is satisfied where a computation may
be unknown, but is not as much as unknowable, within the taxable year.
The amount of liability does not have to be determined exactly,; it must be
determined with reasonable accuracy implies something less than an
exact or completely accurate amount.
The propriety of an accrual must be judged by the fact that a
taxpayer knew, or could reasonably be expected to have known, at the
closing of its books for the taxable year. Accrual method of accounting
presents largely a question of fact; such that the taxpayer bears the burden
of proof of establishing the accrual of an item of income or deduction.
(Commissioner of Internal Revenue v, Isabela cultural Corporation, G. R.
No. 172231, February 12, 2007)
d.
Under the cash method income is to be construed as
income for tax purposes only upon actual receipt of the cash payment. It is
also referred to as the cash receipts and disbursements method because
both the receipt and disbursements are considered. Thus, income is
recognized only upon actual receipt of the cash payment but no deductions
are allowed from the cash income unless actually disbursed through an
actual payment in cash.
26
35.
Fringe benefits that are not subject to the fringe
benefits tax:
a.
When the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the employer; or
b.
When the fringe benefit is for the convenience or
advantage of the employer. [Sec. 32(A), NIRC of 1997; 1 st par., Sec. 2.33
(A), Rev. Regs. No. 3-98]
c.
Fringe benefits which are authorized and exempted from
income tax under the Tax Code or under any special law;
d.
Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization benefit plans;
e.
Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not; and
f.
De minimis benefits as defined in the rules and regulations
to be promulgated by the Secretary of Finance upon recommendation of
the Commissioner of Internal Revenue. [1st par., Sec. 32 (C), NIRC of 1997;
Sec. 2.33 (C), Rev. Regs. No. 3-98]
38. Bad debts are those which result from the worthlessness
or uncollectibility, in whole or in part, of amounts due the taxpayer by
others, arising from money lent or from uncollectible amounts of income
from goods sold or services rendered. (Sec. 2.a, Rev. Regs. 5-99)
39.
27
a. There must be an existing indebtedness due to the taxpayer
which must be valid and legally demandable;
b. The same must be connected with the taxpayers trade, business
or practice of profession;
c. The same must not be sustained in a transaction entered into
between related parties;
d. The same must be actually charged off the books of accounts of
the taxpayer as of the end of the taxable year; and
e. The debt must be actually ascertained to be worthless and
uncollectible during the taxable year;
f. The debts are uncollectible despite diligent effort exerted by the
taxpayer. [Sec. 34 (E) (1), NIRC of 1997; Sec. 3, Rev. Regs. No. 5-99
reiterated in Rev. Regs. No. 25-2002; Philippine Refining Corporation v.
Court of Appeals, et al., 256 SCRA 667]
g. Must have been reported as receivables in the income tax return
of the current or prior years. (Sec. 103, Rev. Regs. No. 2)
:
b.
If the said taxpayer did not benefit from the deduction of
the said bad debt written-off because it did not result to any reduction of his
income tax in the year of such deduction (i.e. where the result of his
business operation was a net loss even without deduction of the bad debts
written-off), then his subsequent recovery thereof shall be treated as a
mere recovery or a return of capital, hence, not treated as receipt of
realized taxable income. (Sec. 4, Rev. Regs. 5-99)
42.
Depreciation is the gradual diminution in the useful
value of tangible property resulting from ordinary wear and tear and from
normal obsolescence. The term is also applied to amortization of the value
of intangible assets the use of which in the trade or business is definitely
limited in duration.
43.
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of Finance
upon the recommendation of the Commissioner of Internal Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
44.
45.
exemption ?
SUGGESTED ANSWER: There shall be allowed a basic personal
exemption amounting to Fifty thousand pesos (P50,000) for each
individual taxpayer.
In the case of married individuals where only one of the spouse is
deriving gross income, only such spouse shall be allowed the personal
exemption. [Sec. 35 (A), NIRC of 1997 as amended by Rep. Act No. 9504; Sec.
2.79 (I) (1) (a), Rev. Regs. No. 2-98 as amended by Rev. Regs. No. 10-2008]
NOTES AND COMMENTS: It is clear from Rep. Act No. 9504 that
each of the spouses may claim the P50,000.00. Thus, the total familial
basic personal exemption for spouses is P100,000.00.
Furthermore, the distinctions between the concepts of single,
married and head of the family for purpose of availing of the basic
personal exemption has already been eliminated by Rep. Act No. 9504.
28
b.
shall be allowed an additional exemption of Twenty-Five
Thousand Pesos (P25,000.00)
c.
for each qualified dependent child,
d.
provided that the total number of dependents for which
additional exemptions may be claimed
1)
shall not exceed four (4) dependents. [1st par., Sec. 2.79
(I) (1) (b), Rev. Regs. No. 2-98 as amended by Rev. Regs. No. 10-2008,
arrangement and numbering supplied; Sec. 35 (B), NIRC of 1997 as
amended by Rep. Act No. 9504]
c.
It is to be noted that under the NIRC of 1997, as
amended by Rep. Act No. 9504, only qualified dependent children are
considered for additional exemptions. Grandparents, parents, as well, as
brothers or sisters, and other collateral relatives are not qualified
dependents to be claimed as additional exemptions.
However, if they are senior citizens they may qualify as additional
exemptions under the Senior Citizens Law but not under the NIRC of
1997, as amended by Rep. Act No. 9504.
Senior citizen shall be treated as dependents provided for in the
National Internal Revenue Code, as amended, and as such, individual
taxpayers caring for them, be they relatives or not shall be accorded the
privileges granted by the Code insofar as having dependents are
concerned. [last par. Sec. 5 (a), Rep. Act No. 7432, as amended by Rep. Act
9257, The Expanded Senior Citizens Act of 2003]
are not included among the real properties considered as ordinary assets.
(Sec. 2.a, Rev. Regs. No. 7-2003)
The term capital assets means property held by the taxpayer
(whether or not connected with his trade or business), BUT DOES NOT
INCLUDE:
a. Stock in trade of the taxpayer, or
b. Other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year, or
c. Property held by the taxpayer primarily for sale to customers in
the ordinary course of his trade or business, or
d. Property used in the trade or business, of a character which is subject to
the allowance for depreciation; or real property used in the trade or
business of the taxpayer. [Sec. 39 (A) (1), NIRC of 1997, capitalized words,
numbering and arrangement supplied; Sec. 2.a, Rev. Regs. No. 7-2003]
48.
29
a. Stock in trade of a taxpayer or other real property of a kind which
would properly be included in the inventory of a taxpayer if on hand at the
close of the taxable year; or
b. Real property held by the taxpayer primarily for sale to customers
in the ordinary course of his trade or business; or
c. Real property used in trade or business (i.e. buildings and/or
improvements), of a character which is subject to the allowance for
depreciation; or
d. Real property used in trade or business of the taxpayer. (Sec. 2.
b, Rev. Regs. No. 7-2003)
51.
54.
In case the mortgagor exercises his right of
redemption within one (1) year from the issuance of the certificate of
sale, in a foreclosure of mortgage sale of real property, no capital gains tax
shall be imposed because no capital gains has been derived by the
mortgagor and no sale or transfer of real property was realized. [Sec. 3 (1),
Rev. Regs. No. 4-99]
30
imposed, based on the bid price of the highest bidder but only upon the
expiration of the one year period of redemption provided for under Sec. 6 of
Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty
(30) days from the expiration of the said one-year redemption period. [Sec.
3 (2), Rev. Regs. No. 4-99]
56. The basis for the final presumed capital gains tax
of six per cent (6%) is whichever is the higher of the
a. gross selling price, or
b. the current fair market value as determined below:
1) the fair market value or real properties located in each
zone or area as determined by the Commissioner of Internal
Revenue after consultation with competent appraisers both from
the private and public sectors; or
2) the fair market value as shown in the schedule of
values of the Provincial and City Assessors. [Sec. 24 (D) (1) in
relation to Sec. 6 (E), both of the NIRC of 1997]
It does not matter whether there was an actual gain or loss because
the tax is a presumed capital gains tax. It is the transaction that is taxed
not the gain.
60.
61.
MBC was incorporated in 1961 and engaged in
commercial banking operations since 1987. On May 22, 1987, it
ceased operations that year by reason of insolvency and its
assets and liabilities were placed under the charge of a
government-appointed receiver. On June 23, 1999, the BSP
authorized MBC to operate as a thrift bank.
In 2000, It filed its tax return for the year 1999 paying the
amount of P33 million computed in accordance with the
minimum corporate income tax (MCIT). It sought the BIRs
ruling on whether it is entitled to the four (4) year grace period
for paying on the basis of MCIT reckoned from 1999. BIR then
ruled that cessation of business activities as a result of being
placed under involuntary receivership may be an economic
reason for suspending the imposition of the MCIT.
As a result of the ruling MBC filed an application for
refund of the P33 million. Due to the BIRs inaction, MBC filed a
petition for review with the CTA.
The CTA denied the petition on the ground that MBC is
not a newly organized corporation. In a volte facie the BIR now
31
stronghold in the industry. It does not come as a surprise then when many
companies reported losses in their initial years of operations.
Thus, in order to allow new corporations to grow and develop at the
initial stages of their operations, the lawmaking body saw the need to
provide a grace period of four years from their registration before they pay
their minimum corporate income tax. (Manila Banking Corporation v.
Commissioner of Internal Revenue, G. R. No. 168118, August 26, 2006)
ESTATE TAXES
1. In determining the gross estate of a decedent,
are his properties abroad to be included, and more
particularly, what constitutes gross estate ?
SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen
or a resident alien.
The gross estate of a Filipino citizen or a resident alien comprises
all his real property, wherever situated; all his personal property, tangible,
intangible or mixed, wherever situated, to the extent of his interest
existing therein at the time of his death.
The gross estate of a non-resident alien comprises all his real
property, situated in the Philippines; all his personal property, tangible,
intangible or mixed, situated in the Philippines, to the extent of his interest
existing therein at the time of his death.
2.
32
h.
partnership.
5.
There is no transfer in contemplation of death if
there is no showing that the transferor retained for his life or for any
period which does not in fact end before his death: (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the right,
either alone or in conjunction with any person, to designate the person who
shall possess or enjoy the property or the income therefrom. [Sec. 85 (B),
NIRC of 1997]
b.
One, other than the decedent takes the insurance policy
on the life of the decedent
1)
The amounts are receivable by
a)
the decedents estate,
b)
his executor, or
c)
administrator
2)
irrespective of whether or not the insured
retained the
power of revocation.
and
b.
the proceeds are receivable by a beneficiary designated
as irrevocable. [Sec. 85 (E), NIRC of 1997)
NOTES AND COMMENTS: The beneficiary must not be the decedents
estate, executor or administrator, because the proceeds are includible as part of
gross estate whether or not the decedent retained the power of revocation. (Ibid.)
c.
Where the insurance was NOT taken by the decedent
upon his own life and the beneficiary is not the decedents estate, his
executor or administrator.
4.
Items deductible from the gross estate of a
resident or nonresident Filipino decedent or resident alien
decedent:
a.
Expenses, losses, claims, indebtedness and taxes;
b.
Property previously taxed;
c.
Transfers for public use;
d.
The Family Home up to a value not exceeding P1 million;
e.
Standard deduction of P1 million;
f.
Medical expenses not exceeding P500,000.00;
g.
Amount of exempt retirement received by the heirs under
Rep. Act Mo. 4917;
6.
33
property was transferred to him by gift within the same period prior to his
death;
40% of the value if the prior decedent died more than three years
but not more than four years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death; and
20% of the value if the prior decedent died more than four years
but not more than five years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death. [Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement and
underlining supplied]
8.
DONORS TAXES
1.
stranger ?
SUGGESTED ANSWER:
When the donee or beneficiary is
a stranger, the tax payable by the donor shall be 30% of the net gifts.
2.
?
SUGGESTED ANSWER: A stranger is a is person who is not a:
a.
Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or
b.
Relative by consanguinity in the collateral line within the
fourth degree of relationship. [Sec. 99 (B), NIRC of 1997]
NOTES AND COMMENTS: All relatives by affinity, irrespective of
the degree, are considered as strangers.
3.
4.
For purposes of the donors tax, what is meant by
net gifts ?
SUGGESTED ANSWER: The net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the donee the obligation to pay
the mortgage liability, then the net gift is measured by deducting from the
fair market value of the property the amount of the mortgage assumed.
5.
How are gifts of personal property to be valued
for donors tax purposes ?
SUGGESTED ANSWER: The market value of the personal property
at the time of the gift shall be considered the amount of the gift. ( Sec. 102,
NIRC of 1997)
6.
What is the valuation of donated real property for
donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised at its
fair market value as of the time of the gift.
However, the appraised value of the real property at the time of the
gift shall be whichever is the higher of:
a.
the fair market value as determined by the Commissioner
of Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values
fixed by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B)
both of the NIRC of 1997]
7.
34
b.
Supposing
that
instead
of
a
general
renunciation, B renounced her hereditary share in As estate
to X who is a special child, would your answer be the same ?
Explain.
SUGGESTED ANSWER: My answer would be different. The
renunciation in favor of X would be subject to donors tax.
This is so because the renunciation was specifically and
categorically done in favor of X and identified heir to the exclusion or
disadvantage of Y and Z, the other co-heirs in the hereditary estate. (4th
par., Sec. 11, Rev. Regs. No. 2-2003)
8.
Give some donations that are exempt from
donors tax.
SUGGESTED ANSWER:
a.
The first P100,000.00 net donation during a calendar year
is exempt from donors tax [Sec. 99 (A), NIRC of 1997] made by a resident
or non resident;
b.
The donation by a resident or non-resident of a prize to an
athlete in an international sports tournament held abroad and sanctioned by
the national sports association is exempt from donors tax (Sec. 1, Rep. Act
No. 7549)
c.
Political contributions made by a resident or non-resident
individual if registered with the COMELEC irrespective of whether donated
to a political party or individual.
However, the Corporation Code prohibits corporations from making
political contributions. (Corp. Code, Title IV, Sec. 36.9)
d.
Dowries or gifts made on account of marriage and
before its celebration or within one year thereafter by residents who are
parents to each of their legitimate, recognized natural, or adopted children
to the extent of the first ten thousand pesos (P10,000.00);
e.
Gifts made by residents or non-residents to or for the use
of the National Government or any entity created by any of its agencies
which is not conducted for profit, or to any political subdivisions of the
said Government;
f.
Gifts made by residents or non residents in favor of an
educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or
research institution or organization: Provided, however, That not more
than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes. [Sec. 101 (A), NIRC of 1997, numbering and
arrangement supplied]
g.
Gifts made by non-resident aliens outside of the
Philippines to Philippine residents are exempt from donors taxes because
taxation is basically territorial. The transaction, which should have been
subject to tax was made by non-resident aliens and took place outside of
the Philippines.
10.
A, who is engaged in the car buy and sell
business sold to B P7 million Jaguar for only P4 million. The
proper VAT on the sale was paid. If you are the BIR examiner
assigned to review the sale, would you issue a tax assessment
on the transaction ? Explain your answer briefly.
SUGGESTED ANSWER: Donors taxes would be due on the
insufficiency of consideration.
Where property, other than real property that has been subjected
to the final capital gains tax, is transferred for less than an adequate and
full consideration in money or moneys worth, then the amount by which
the fair market value of the property at the time of the execution of the
Contract to Sell or execution of the Deed of Sale which is not preceded by
a Contract to Sell exceeded the value of the agreed or actual
consideration or selling price shall be deemed a gift, and shall be included
in computing the amount of gifts made during the calendar year. (5th par.,
Sec. 11, Rev. Regs. No. 2-2003)
35
Considering the limited period of time, the reader is advised to focus on
areas marked with stars and just browse the unmarked areas.
1.
2.
Nature of VAT. VAT is an indirect tax that may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. As such, it should be understood not in the context
of the person or entity that is primarily, directly liable for its payment, but
in terms of its nature as a tax on consumption . [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11,
2005 citing various authorities}
3.
indirect tax. If a special law merely exempts a party as a seller from its
direct liability for payment of the VAT, but does not relieve the same party
as a purchaser from its indirect burden of the VAT shifted to it by its VATregistered suppliers, the purchase transaction is not exempt.
REASON: The VAT is a tax on consumption, the amount of which
may be shifted or passed on by the seller to the purchaser of the goods,
properties or services. [Commissioner of Internal Revenue v. Seagate
5.
The VAT is a tax on consumption. Meaning of
consumption as used under the VAT system. Consumption is
"the use of a thing in a way that thereby exhausts it."
Applied to services, the term means the performance or
"successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" Unlike goods,
services cannot be physically used in or bound for a specific place when
their destination is determined. Instead, there can only be a
"predetermined end of a course" when determining the service "location
or position x x x for legal purposes." [Commissioner of Internal Revenue v.
Placer Dome Technical Services (Phils.), Inc. G. R. No. 164365, June 8, 2007]
6.
Illustration of the meaning of consumption as
used under the VAT system. For example the services rendered by
a local firm to its foreign client are performed or successfully completed
upon its sending to a foreign client the drafts and bills it has gathered from
service establishments here. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines. Such
facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines.
[Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.),
Inc. G. R. No. 164365, June 8, 2007]
7.
a.
4.
Illustration of effects of exemptions from VAT
which is an indirect tax.
A VAT exempt seller sells to a non-VAT
exempt purchaser. The purchaser is subject to VAT because the VAT is
merely added as part of the purchase price and not as a tax because the
burden is merely shifted. The seller is still exempt because it could pass
on the burden of paying the tax to the purchaser.
8.
a.
Cost deduction method.
which is payable only by the original sellers.
method and tax credit method was used to determine the value-added
tax payable. (Ibid.)
b.
Tax credit method. This method relies on invoices, an
entity can credit against or subtract from the VAT charged on its sales or
36
outputs the VAT paid on its purchases, inputs and imports.
[Commissioner of Internal Revenue v. Seagate Technology (Philippines),
G. R. No. 153866, February 11, 2005]
If at the end of a taxable period, the output taxes charged by a
seller are equal to the input taxes passed on by the suppliers, no payment
is required. It is when the output taxes exceed the input taxes that the
excess has to be paid.
If however, the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters. Should the
input taxes result from zero-rated or effectively zero-rated transactions or
from acquisition of capital goods, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other internal
revenue taxes. (Ibid.)
9.
How the VAT is imposed on the increase in
worth, merit or improvement of the goods or services. The VAT
utilizes the concept of the output and input taxes.
Output VAT less Input VAT = VAT due on the increase in worth,
merit or improvement f the goods or services.
10.
The right to credit the input tax be limited by
legislation because it is a mere creation of law. Prior to the
enactment of multi-stage sales taxation, the sales taxes paid at every
level of distribution are not recoverable from the taxes payable. With the
advent of Executive Order No. 273 imposing a 10% multi-stage tax on all
sales, it was only then that the crediting of the input tax paid on purchase
or importation of goods and services by VAT-registered persons against
the output tax was established. This continued with the Expanded VAT
Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424).
The right to credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can limit. It should be
stressed that a person has no vested right in statutory privileges.
(ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207, October 15,
2005, and companion cases, on the motion for reconsideration)
13.
a.
the transitional input tax and
b.
the presumptive input tax xxx.
It includes
c.
input taxes which can be directly attributed to
transactions subject to the VAT plus a ratable portion of any input tax
which cannot be directly attributed to either the taxable or exempt activity.
(Rev. Regs. No. 4.110-1, 1st par., 2nd sentence,. And 2nd par.,
paraphrasing, arrangement and numbering supplied )
14.
Concept of transitional input tax credits on
beginning inventories.
Taxpayers who become VAT-registered
persons upon exceeding the minimum turnover of P1,500,000.00 in any
12-month period, or who voluntarily register even if their turnover does not
exceed P1,500,000.00 (except franchise grantees of radio and television
broadcasting whose threshold is P10,000,000.00) shall be entitled to a
transitional input tax on the inventory on hand as of the effectivity of their
VAT registration, on the following:
a.
goods purchased for resale in their present condition;
b.
materials purchased for further processing, but which
have not yet undergone processing;
c.
goods which have been manufactured by the taxpayer;
d.
goods in process for sale; or
e.
goods and supplies for use in the course of the
taxpayers trade or business as a VAT-registered person. [Rev. Regs. No.
16-2005, Sec.4.111-1, (a), 1st par., arrangement and numbering supplied]
15.
16.
The VAT registration fee does NOT violate
religious freedom. The VAT registration fee imposed on non-VAT
enterprises which includes among others, religious sects which sells and
37
distributes religious literature is not violative of religious freedom, although
a fixed amount is not imposed for the exercise of a privilege but only for
the purpose of defraying part of the cost of registration.
The registration fee is thus more of an administrative fee, one not
imposed on the exercise of a privilege, much less a constitutional right.
(Tolentino v. Secretary of Finance, et al., and companion cases, 235 SCRA 630)
17.
Interpretation of the term In the Course of Trade
or Business as used in the VAT system. The term "doing
business" or course of business conveys the idea of business being
done, not from time to time, but all the time. It does not include isolated
transactions.
(Commissioner of Internal Revenue v. Magsaysay Lines, Inc.,
et al., G. R. No. 146984, July 28, 2006)
18.
19.
20.
Transactions considered retirement or cessation
of business deemed sale subject to VAT.
38
a.
Change of ownership of the business. There is change in
the ownership of the business where a single proprietorship incorporates;
or
1)
the proprietor of a single proprietorship sells his
entire business.
b.
Dissolution of a partnership and creation of a new
partnership which takes over the business. [Rev. Regs. No. 16-2005,
Sec. 4.106-7 (a), (4) paraphrasing, arrangement and numbering supplied]
21.
Sale of real properties primarily for sale to customers or held for lease in
the ordinary course of trade or business of the seller shall be subject to
VAT. (Rev. Regs. No. 16-2005, Sec. 4.106-3, 1st par.)
Thus, capital transactions of individuals are not subject to VAT.
Only real estate dealers are subject to VAT.
22.
On September 4, 2009, XYZ, Inc.,
a domestic corporation engaged in the real estate business,
sold a building for P10,000,000.00. Is the sale subject to the
value-added tax (VAT)? If so, how much? Explain.
SUGGESTED ANSWER: Yes. 12% on the gross selling price
because the sale was made in the ordinary course of trade of business of
X, a domestic corporation engaged in the real estate business.
23.
provided, That not later than January 31, 2009 and every three (3) years
thereafter, the amounts stated herein shall be adjusted to its present
value using the Consumer Price Index, as published by the National
Statistics Office (NSO); provided, further, that such adjustment shall be
published through revenue regulations to be issued not later than March
31 of each year.
If two or more adjacent residential lots are sold or disposed in
favor of one buyer, for the purpose of utilizing the lots as one residential
lot, the sale shall be exempt from VAT only if the aggregate value of the
lots do not exceed P1,500,000.00. Adjacent residential lots, although
covered by separate titles and/or separate tax declarations, when sold or
disposed of to one and the same buyer, whether covered by one or
separate Deed of Conveyance, shall be presumed as a sale of one
residential lot. [Rev. Regs. No. 4.109-1 (B), (p), paraphrasing and
numbering supplied]
24.
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to twelve percent (12%) of
gross receipts
c.
derived from the sale or exchange of services,
1)
including the use or lease of properties. [NIRC of
1997, Sec. 108 (A), as amended by R.A. No. 9337, arrangement and
numbering supplied]
25.
Sale or exchange of services, defined. The
term sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or
consideration, whether in kind or in cash, including those performed or
rendered by the following:
a.
construction and service contractors;
b.
stock, real estate, commercial, customs
and immigration brokers;
c.
lessors
of
property,
whether personal or real;
d.
persons engaged in warehousing services
e. lessors or distributors of cinematographic films;
f. persons engaged in milling, processing, manufacturing or
repacking goods for others;
g.
proprietors, operators or keepers of hotels,
motels, rest-houses, pension houses, inns, resorts; theaters, and movie
houses;
h.
proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and
caterers;
i.
dealers in securities;
39
j.
lending
investors;
k. transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land relative to their transport of goods or
cargoes;
l.
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines;
m.
sales of electricity by generation
companies, transmission, and/or distribution companies;
n.
franchise
grantees of electric utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except franchise grantees
of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos (P10,000,000.00), and
franchise grantees of gas and water utilities;
o.
non-life
insurance companies (except their crop insurances), including surety,
fidelity, indemnity and bonding companies; and
p.
similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties. [NIRC of 1997, Sec. 108 (A), as amended by R.A. No. 9337; Rev.
Regs. No. 16-2005, Sec. 4,108-2, 1st par., arrangement and numbering supplied]
26.
services.
a.
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;
b.
The lease or the use of, or the right to use any
industrial, commercial or scientific equipment;
c.
The
supply
of scientific, technical, industrial or
commercial knowledge or information;
d.
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) hereof or any such knowledge or information as is mentioned in
subparagraph (3) hereof; or
e.
The supply of services by a non-resident 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 non-resident person;
f.
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 of
scheme;
g.
The lease of motion picture films, film tapes and discs;
h.
The lease or the use of or the right to use radio,
television, satellite transmission and cable television time. (Rev. Regs. No.
16-2005, Sec. 4.108-2, 2nd par.)
27.
28.
zero. When applied to the tax base, such rate obviously results in no tax
chargeable against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund or a tax credit certificate for
the VAT previously charged by suppliers. [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), G. R. No. 153866,
February 11, 2005]
Under a zero-rating scheme, the sale or exchange of a particular
service is completely freed from the VAT, because the seller is entitled to
recover, by way of a refund or as an input tax credit, the tax that is
included in the cost of purchases attributable to the sale or exchange.
The tax paid or withheld is not deducted from the tax base.
(Commissioner, of Internal Revenue v. American Express International, Inc.
(Philippine Branch), G. R. No. 152609, June 29, 2005 citing various cases)
29.
Situs of taxation of zero-rated VAT services such
as facilitating the collection of receivables from credit card
members situated in the Philippines and payment to service
establishments in the Philippines. The place where the service is
rendered determines the jurisdiction to impose the VAT
Performed in the Philippines, the service is necessarily subject to
its jurisdiction for the State necessarily has to have a substantial
connection to it in order to enforce a zero rate. The place of payment is
immaterial much less is the place where the output of the service will be
further or ultimately used.
40
This is so because the law neither makes a qualification nor adds
a condition in determining the tax situs of a zero-rated service.
(Commissioner of Internal Revenue v. American Express International, Inc.
(Philipppine Branch), G. R. No. 152609, June 29, 2005)
30.
a general rule, the VAT system uses the destination principle as a basis
for the jurisdictional reach of the tax.
Goods and services are taxed only in the country where they are
consumed. Thus, exports are zero-rated, while imports are taxed.
This is also known as the Cross Border Doctrine.
31.
The law
clearly provides for an exception to the destination principle; that is, for a
zero percent VAT rate for services that are performed in the Philippines,
"paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the [BSP]."
33.
Zero-rated
sale
distinguished
from
exempt
transactions:
a.
A zero-rated sale is a taxable transaction but does not
result in an output tax WHILE an exempt transaction is not subject to the
output tax.
b.
The input tax on the purchases of a VAT registered
person who has zero-rated sales may be allowed as tax credits or
refunded WHILE the seller in an exempt transaction is not entitled to any
input tax on his purchases despite the issuance of a VAT invoice or
receipt.
c.
Persons engaged in transactions which are zero rated
being subject to VAT are required to register WHILE registration is
optional for VAT-exempt persons.
34.
35.
Sale of gold to the Central Bank considered as
export sales. As export sales, the sale of gold to the Central Bank is
zero-rated, hence, no tax is chargeable to it as purchaser. Zero rating is
primarily intended to be enjoyed by the seller, which charges no output
VAT but can claim a refund of or a tax credit certificate for the input VAT
previously charged to it by suppliers. (Commissioner of Internal Revenue v.
Manila Mining Corporation, G.R. No. 153204, August 31, 2005)
36.
Sales to ecozone, such as PEZA, considered
export-sale. Notably, while an ecozone is geographically within the
Philippines, it is deemed a separate customs territory and is regarded in
law as foreign soil. Sales by suppliers from outside the borders of the
ecozone to this separate customs territory are deemed as exports and
treated as export sales. These sales are zero-rated or subject to a tax
rate of zero percent. (Commissioner of Internal Revenue v. Sekisui Jushi
Philippines, Inc., G. R. No. 149671, July 21, 2006 citing various authorities)
37.
Ecozone, defined. An ECOZONE or a Special
Economic Zone has been described as
[S]elected areas with
highly developed or which have the potential to be developed into agroindustrial, industrial, tourist, recreational, commercial, banking, investment
and financial centers whose metes and bounds are fixed or delimited by
Presidential Proclamations. An ECOZONE may contain any or all of the
following: industrial estates (IEs), export processing zones (EPZs), free
trade zones and tourist/recreational centers.
The national territory of
the Philippines outside of the proclaimed borders of the ECOZONE shall
be referred to as the Customs Territory. [Commissioner of Internal Revenue v.
Toshiba Information Equipment (Phils.), Inc., G. R.. No. 150154, August 9, 2005]
41
rated sale shall be available as tax credit or refund in accordance with
Rev. Regs. No. 16-2005. [Rev. Regs. No. 16-2005, Sec. Sec. 4.108-5 (a),
words in italics supplied)
40.
While the service performed by American
Express is subject to VAT it is zero-rated, and BIR Revenue
Regulations that alter the legal requirements for zero-rating
are ultra vires and invalid. The VAT system uses the destination
principle which posits that the goods and services are taxed only in the
country where they are consumed,
However, the law itself provides for clear exceptions under which
the supply of services shall be zero-rated, among which are the following:
a.
The service is performed in the Philippines;
b.
The services are within the categories provided for under
the Tax Code; and
c.
It is paid for in acceptable foreign currency of the Bangko
Sentral ng Pilipinas.
American Express renders assistance to its foreign clients by
receiving the bills of service establishments located in the country and
forwarding them to their clients abroad. The services are performed or
successfully completed upon send to its foreign clients the drafts and bills
it has gathered from service establishments here, Its services, having
been performed in the Philippines are therefore also consumed in the
Philippines. Thus, its services are exempt from the destination principle
and are zero-rated.
41. A foreign Consortium composed of BWSCDenmark, Mitsui Engineering and Shipbuilding Ltd., and Mitsui
and Co., Ltd., which entered into a contract with NAPOCOR for
the operation and maintenance of two power barges
appointed BWSC-Denmark as its coordination manager.
BWSCMI was established as the subcontractor to perform the
actual work in the Philippines. The Consortium paid BWSCMI
in acceptable foreign exchange and accounted for in
accordance with the rules and regulations of the BSP.
Through a February 14, 1995 ruling the BIR declared
that BWSCMI may choose to register as a VAT persons
subject to VAT at zero rate. For 1996, it filed the proper VAT
returns showing zero rating. On December 29, 1997, believing
that it is covered by Rev. Regs. 5-96, dated February 20, 1996,
BWSCMI paid 10% output VAT for the period April-December
1996, through the Voluntary Assessment Program (VAP).
On January 7, 1999, BWSCMI was able to obtain a
Ruling from the BIR reconfirming that it is subject to VAT at
zero-rating. On this basis, BWSCMI applied for a refund of the
output VAT it paid.
a.
Is BWSCMI subject to the 10% VAT or is it zero
rated ?
SUGGESTED ANSWER: Yes. BWSCMI is not zero rated and is
subject to the 10% VAT. It is rendering service for the Consortium which
is not doing business in the Philippines. Zero-rating finds application only
where the recipient of the services are other persons doing business
outside of the Philippines. BWSCMI provides services to the Consortium
which by virtue of its contract with NAPOCOR is doing business within the
Philippines. (Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., G. R. No. 153205, January 22,
2007)
b.
Could it obtain a refund of the VAT it paid
through the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund of the
10% output VAT it paid the based on the non-retroactivity of the prejudicial
revocation of the BIR Rulings which held that its services are subject to
0% VAT and which BWSCMI invoked in applying for refund of the output
42
VAT. (Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., supra)
b.
An exempt transaction shall not be the subject of any
billing for output VAT but it shall not also be allowed any input tax credits
WHILE an exempt party being zero-rated is allowed to claim input tax
credits.
44.
Transactions are exempt from VAT. (Subject to the
election by a VAT-registered person not to be subject to the value-added
tax), the following shall be exempt from VAT:
43
citizens coming to resettle in the Philippines: Provided, That such goods
are exempt from customs duties under the Tariff and Customs Code of the
Philippines;
(D)
Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household effects
(except any vehicle, vessel, aircraft, machinery, other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own use
and not for sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner of Internal
Revenue, that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;
(E) Services subject to percentage tax under Title V of the Tax
Code, as enumerated below:
(1)
Sale or lease of goods or properties or the
performance of services of non-VAT-registered persons, other
than the transactions mentioned in paragraphs (A) to (U) of Sec.
109 (1) of the Tax Code, the annual sales and/or receipts of which
does not exceed the amount of One Million Five Hundred
thousand Pesos (P1,500,000.00), Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the
amount herein stated shall be adjusted to its present value using
the Consumer Price Index, as published by the National Statistics
Office (NSO). (Sec. 116, Tax Code)
(2)
Services rendered by domestic common carriers
by land for the transport of passengers and keepers of garages.
(Sec. 117)
(3)
Services rendered by international air/shipping
carriers. (Sec. 118)
(4)
Service rendered by franchise grantees of radio
and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos
(P10,000,000.00) and by franchises of gas and water utilities.
(Sec. 119)
(5)
Service rendered for overseas dispatch message
or conversation originating from the Philippines. (Sc. 120)
(6)
Services rendered by any person, company or
corporation (except purely cooperative companies or associations
) doing life insurance business of any sort in the Philippines.
(Sec. 123)
(7)
Services rendered by fire, marine or
miscellaneous insurance agents of foreign insurance companies.
(Sec. 124)
(8)
Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing exhibitions
professional basketball games, jai-Alai and race tracks. (Sec.
125). and
(9)
Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock exchange or
through initial public offering. (Sec. 127)
(F)
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into raw sugar;
Agricultural contract growers refers to those persons producing
for others poultry, livestock or other agricultural and marine food products
in their original state.
(G)
Medical, dental, hospital and veterinary services except
those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic
operates a pharmacy or drug store, the sale of drugs and medicine is
subject to VAT.
(H)
Educational services rendered by private educational
institutions, duly accredited by the Department of Education (DEPED), the
Commission on Higher Education (CHED), the Technical Education And
Skills Development Authority (TESDA) and those rendered by
government educational institutions;
Educational services shall refer to academic, technical or
vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA and those rendered by
government educational institutions and it does not include seminars, inservice training, review classes and other similar services rendered by
persons who are not accredited by the DepED, the CHED and/or the
TESDA.
(I)
Services rendered by individuals pursuant to an
employer-employee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special laws,
except those under Presidential Decree No. 529 Petroleum Exploration
Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority (CDA) to their members as well as
sale of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries and
44
equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce;
(M)
Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N)
Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development Authority:
Provided, That the share capital contribution of each member does not
exceed Fifteen thousand pesos (P15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the members;
Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
(O)
Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business, or
real property utilized for low-cost and socialized housing as defined by
Republic Act No. 7279, otherwise known as the Urban Development and
Housing Act of 1992, and other related laws, such as RA No. 7835 and
RA No. 8765, residential lot valued at One million five hundred thousand
pesos (P 1,500,000) and below, house and lot, and other residential
dwellings valued at Two million five hundred thousand pesos (P
2,500,000) and below: Provided, That not later than January 31, 2009
and every three (3) years thereafter, the amounts herein stated shall be
adjusted to their present values using the Consumer Price Index, as
published by the National Statistics Office (NSO);
(Q)
Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P 10,000) Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office (NSO);
(R)
Sale, importation, printing or publication of books and any
newspaper, magazine, review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements;
(S)
Sale, importation or lease of passenger or cargo vessels
and aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;
Provided, that the
exemption from VAT on the importation and local purchase of passenger
and/or cargo vessels shall be limited to those of one hundred fifty (150)
tons and above, including engine and spare parts of said vessels;
Provided, further, that the vessels be imported shall comply with the age
limit requirement, at the time of acquisition counted from the date of the
vessels original commissioning, as follows: (i) for passenger and/or
cargo vessels, the age limit is fifteen years (15) years old, (ii) for tankers,
the age limit is ten (10) years old, and (iii) For high-speed passenger
cars, the age limit is five (5) years old, Provided, finally, that exemption
shall be subject to the provisions of section 4 of Republic Act No. 9295,
otherwise known as The Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport operations; Provided,
that the said fuel, goods and supplies shall be used exclusively or shall
pertain to the transport of goods and/or passenger from a port in the
Philippines directly to a foreign port without stopping at any other port in
the Philippines; provided, further, that if any portion of such fuel, goods or
supplies is used for purposes other than that mentioned in this paragraph,
such portion of fuel, goods and supplies shall be subject to 10% VAT (now
12%);
(U) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries; and
45.
a.
Any person, whose sales or receipts are exempt under
Sec. 109 (1) (V) of the Tax Code,
(V) Sale or lease of goods or properties or the
performance of services other than the transactions mentioned in
the preceding paragraphs, the gross annual sales and/or receipts
do not exceed the amount of One million five hundred thousand
pesos (P1,500,000): Provided, That not later than January 31,
45
2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer
Price Index as published by the National Statistics Office (NSO),
from the payment of VAT and
b.
who is not a VAT-registered person
c.
shall pay a tax equivalent to three percent (3%) of his
gross monthly sales or receipts;
Provided, that cooperatives shall be exempt from the three (3%)
gross receipts tax herein imposed. (Rev. Regs. No. 16-2005, Sec. 4.116-1,
so. For married individuals, the husband and wife, subject to no. 2,
6.
tax return.
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents , until
controverted by competent evidence, are competent evidence, are prima
facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et
al., 296 SCRA 309, 317)
2.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on his
income from sources within the Philippines;
c.
Every alien residing in the Philippines on income derived
from sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or in
the exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC of 1997]
3.
Married individuals who are earning purely
compensation income allowed to file separate returns.
4.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a consolidated return for the taxable
year to include the income of both spouses, but where it is
impracticable for the spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall be consolidated by
the Bureau for purposes of verification. [Section 51 (D) of the NIRC of
1997]
5.
Computation of income tax for married
individuals whether citizens, resident or non-resident aliens,
who do not derive income purely from compensation required
file a consolidated return for the taxable year but could not do
a.
An individual whose gross income does not exceed his
total personal and additional exemptions for dependents, Provided, That a
citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippines shall file an income tax return
regardless of the amount of gross income [Sec. 51 (A) (2), NIRC of 1997]
b.
An individual with respect to pure compensation income,
derived from such sources within the Philippines, the income tax on which
has been correctly withheld: Provided, That an individual deriving
compensation concurrently from two or more employers at any time
during the taxable year shall file an income tax return [Sec. 51 (A) (2), NIRC
of 1997, as amended by Rep. Act No. 9504, paraphrasing supplied]
c.
An individual whose sole income has been subject to final
withholding tax;
d.
A minimum wage earner (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned), an individual who
is exempt from income tax pursuant to the provisions of the Tax Code and
other laws, general or special. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec.
22 (HH), both as amended by Rep. Act. 9504]
7.
Minimum wage earners are exempt from income
taxation. That minimum wage earners (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned) shall be exempt
from the payment of income tax on their taxable income: Provided,
further, That the holiday pay, overtime pay, night shift differential pay and
hazard pay received by such minimum wage earners shall likewise be
exempt from income tax. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec. 22
(HH), both as amended by Rep. Act. 9504]
46
8.
An individual who is not required to file an
income tax return may nevertheless be required to file an
information return. [Sec. 51 (A) (3), NIRC of 1997]
9.
A corporation files its income tax return and pays
its income tax four (4) times during a single taxable year.
Quarterly returns are required to be filed for the first three quarters, then a
final adjustment return is filed covering the total taxable income for the
whole taxable year, be it calendar or fiscal.
10.
An individual earning from the practice of his
profession or who engages in trade or business files his
income tax return and pays his income tax four (4) times during
a single taxable year. Quarterly returns are required to be filed for the
first three quarters, then an annual income tax return is filed covering the
total taxable income for the whole of the previous calendar year.
11.
The purpose of the above four (4) times a year
requirement is to make available sufficient funds to meet the
budgetary requirements, on a quarterly basis thereby increasing
government liquidity. It also eases hardships on the part of individuals who
are required to make this four time return. Thus, the taxpayer does not have
to raise large sums of money in order to pay the tax.
12.
An individual earning purely compensation
income files only one annual income tax return covering the total
taxable compensation income for the whole of the previous calendar year.
13.
Under the withholding tax system, taxes imposed
or prescribed by the NIRC of 1997 are to be deducted and
withheld by the payors from payments made to payees for the
former to pay directly to the Bureau of Internal Revenue. It is
also known as collection of the tax at source.
14.
A withholding agent is explicitly made personally
liable under the Tax Code for the payment of the tax required to
be withheld, in order to compel the withholding agent to withhold the tax
under any and all circumstances. In effect, the responsibility for the
collection of the tax as well as the payment thereof is concentrated upon
the person over whom the Government has jurisdiction. (Filipinas Synthetic
Fiber Corporation v. Court of Appeals, et al., G.R. Nos. 118498 & 124377, October
12, 1999) The system facilitates tax collection and reduces tax evasion.
15.
The two (2) types of withholding at source are the
1) final withholding tax; and 2) creditable withholding tax.
16. Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as
a full and final payment of the income due from the payee on
the said income. [1st sentence, 1st par., Sec. 2.57 (A), Rev. Regs. No. 2-98]
The liability for payment of the tax rests primarily on the payor or the
withholding agent.. Thus, in case of his failure to withhold the tax or in case
of under withholding, the deficiency tax shall be collected from the payor
withholding agent. The payee is not required to file an income tax return for
the particular income.
17.
Under the creditable withholding tax system,
taxes withheld on certain income payments are intended to
equal or at least approximate the tax due from the payee on the
said income. The income recipient is still required to file an income tax
return and/or pay the difference between the tax withheld and the tax due
on the income. [1st and 2nd sentences, Sec. 257(B), Rev. Regs. No. 2-98]
18.
The two kinds of creditable withholding taxes are
(a) taxes withheld on income payments covered by the expanded
withholding tax; and (b) taxes withheld on compensation income.
19.
Payments to the following are exempt from the
requirement of withholding or when no withholding taxes
required:
a.
National Government and its instrumentalities including
provincial, city, or municipal governments;
b.
Persons enjoying exemption from payment of income
taxes pursuant to the provisions of any law, general or special, such as but
not limited to the following:
1) Sales of real property by a corporation which is registered with
and certified by the HLURB or HUDCC as engaged in socialized
housing project where the selling price of the house and lot or only
the lot does not exceed P180,000.00 in Metro Manila and other
highly urbanized areas and P150,000.00 in other areas or such
adjusted amount of selling price for socialized housing as may later
be determined and adopted by the HLURB;
2) Corporations registered with the Board of Investments and
enjoying exemptions from income under the Omnibus Investment
Code of 1997;
47
3)
Corporations exempt from income tax under Sec. 30, of
the Tax Code, like the SSS, GSIS, the PCSO, etc. However, income
payments arising from any activity which is conducted for profit or
income derived from real or personal property shall be subject to a
withholding tax. (Sec. 57.5, Rev. Regs. No. 2-98)
20.
For tax amnesty purposes, the withholding agent
is not a taxpayer. He is made to pay the tax where he fails to withhold
as a penalty and not because the tax is due from him. (Commissioner of
Internal Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999,
the Anscor case)
SUGGESTED ANSWER:
a.
the 25% surcharge for late filing or late payment [Sec. 248
(A), NIRC of 1997] (also known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud surcharge. [Sec. 248 (B),
Ibid.]
3.
4.
Deficiency interest, defined. The interest assessed
and collected on any unpaid amount of tax at the rate of 20% per annum or
such higher rate as may be prescribed by regulations, from the date
prescribed for payment until the amount is fully paid. [Sec. 249 (A) (B),
NIRC of 1997]
5.
The interest
assessed and collected on the unpaid amount until fully paid where there is
failure on the part of the taxpayer to pay the amount die on any return
required to be filed; or the amount of the tax due for which no return is
required; or a deficiency tax, or any surcharge or interest thereon, on the
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
7.
Compromise penalty is the amount agreed upon
between the taxpayer and the Government to be paid as a penalty in cases
of a compromise.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes
on time. Imposed surcharges and interests for such delay, the
taxpayer not invokes good faith with the BIR countering by
saying that good faith is not a valid defense for violation of a
special law. Furthermore, the BIR further raises the defense
that the government is not bound by the errors of its agents.
Who is correct ?
SUGGESTED ANSWER: The taxpayer is correct. The settled rule is
that good faith and honest belief that one is not subject to tax on the basis
of previous interpretation of government agencies tasked to implement the
tax, are sufficient justification to delete the imposition of surcharges. (Michel
J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, G. R. No. 166786,
September 11, 2006)
48
the legislative and administrative agents of the State in their exercise of
the power of taxation.
3.
What are the purposes for the creation of the
Court of Tax Appeals ?
SUGGESTED ANSWER:
a.
To prevent delay in the disposition of tax cases by the then
Courts of First Instance (now RTCs), in view of the backlog of civil, criminal,
and cadastral cases accumulating in the dockets of such courts; and
b.
To have a body with special knowledge which ordinary
Judges of the then Courts of First Instance (now RTCs), are not likely to
possess, thus providing for an adequate remedy for a speedy determination
of tax cases. (Ursal v. Court of Tax Appeals, et al., 101 Phil. 209)
4.
a.
Exclusive appellate jurisdiction to review by appeal, as
herein provided:
1.
Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties, in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by
the Bureau of Internal Revenue; (DIVISION)
2.
Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds or internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matter arising under the
National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a
denial; (The inaction on refunds in two years from the time tax was paid.
Thus, if the prescriptive period of two years is about to expire, the taxpayer
should interpose a petition for review with the CTA DIVISION)
3.
Decisions, orders or resolutions of the Regional Trial
Courts in local tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction; (If original DIVISION; if
appellate EN BANC)
4.
Decisions of the Commissioner of Customs in cases
involving liability for customs duties, fees or other money charges, seizure,
49
appellate
jurisdiction over tax cases originally decided by the
Metropolitan Trial
Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in
their respective jurisdiction.
c.
Jurisdiction over tax collection cases:
1.
Exclusive original jurisdiction in tax collection cases
involving final and executory assessments for taxes, fees, charges and
penalties: Provided, however, That collection cases where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is
less than One million pesos (P1,000,000) shall be tried by the proper
Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
2.
Exclusive appellate jurisdiction in tax collection cases:
a)
Over appeals from judgments, resolutions, or orders of
the Regional Trial Courts in tax collection cases originally decided by
them, in their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their
appellate
jurisdiction over tax collection cases originally decided by
the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts, in their respective jurisdiction. (Sec. 7, R. A. No. 1125,
as amended by R. A. No. 9282, emphasis and words in parentheses
supplied)
5.
It is the Regional Trial Court that has jurisdiction
to rule upon the constitutionality of a tax law or a regulation
issued by the taxing authorities. Where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function,
the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts.
Indeed, the Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive agreement,
6.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision of the
Commissioner of Customs:
a.
Decisions of the Secretary of Trade and Industry or the
Secretary of Agriculture in anti-dumping and countervailing duty cases are
appealable to the Court of Tax Appeals within thirty (30) days from receipt
of such decisions.
b. In case of automatic review by the Secretary of Finance in
seizure or forfeiture cases where the value of the importation exceeds P5
million or where the decision of the Collector of Customs which fully or
partially releases the shipment seized is affirmed by the Commissioner of
Customs.
c. In case of automatic review by the Secretary of Finance of a
decision of a Collector of Customs acting favorably upon a customs protest.
50
b.
A Letter of Authority is issued authorizing BIR examiner to
audit or examine the tax return and determines whether the full and
complete taxes have been paid.
c.
If the examiner is satisfied that the tax return is truly
reflective of the taxable transaction and all taxes have been paid, the
process ends. However, if the examiner is not satisfied that the tax return is
truly reflective of the taxable transaction and that the taxes have not been
fully paid, a Notice of Informal Conference is issued inviting the taxpayer to
explain why he should not be subject to additional taxes.
d.
If the taxpayer attends the informal conference and the
examiner is satisfied with the explanation of the taxpayer, the process is
again ended.
If the taxpayer ignores the invitation to the informal conference, or if
the examiner is not satisfied with taxpayers explanation,, and he believes
that proper taxes should be assessed, the Commissioner of Internal
Revenue or his duly authorized representative shall then notify the taxpayer
of the findings in the form of a pre-assessment notice. The pre-assessment
notice requires the taxpayer to explain within fifteen (15) days from receipt
why no notice of assessment and letter of demand for additional taxes
should be directed to him.
e.
If the Commissioner is satisfied with the explanation of the
taxpayer, then the process is again ended.
If the taxpayer ignores the pre-assessment notice by not
responding or his explanations are not accepted by the Commissioner, then
a notice of assessment and a letter of demand is issued.
The notice of assessment must be issued by the Commissioner to
the taxpayer within a period of three (3) years from the time the tax return
was filed or should have been filed whichever is the later of the two events.
Where the taxpayer did not file a tax return or where the tax return filed is
false or fraudulent, then the Commissioner has a period of ten (10) years
from discovery of the failure to file a tax return or from discovery of the fraud
within which to issue an assessment notice. The running of the above
prescriptive periods may however be suspended under certain instances.
The notice of assessment must be issued within the prescriptive
period and must contain the facts, law and jurisprudence relied upon by the
Commissioner. Otherwise it would not be valid.
f.
The taxpayer should then file an administrative protest by
filing a request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to the
Court of Tax Appeals because there is no decision yet of the Commissioner
that could be the subject of a review.
To be valid the administrative protest must be filed within the
prescriptive period, must show the error of the Bureau of Internal Revenue
2.
The word assessment when used in connection
with taxation, may have more than one meaning. More commonly
the word assessment means the official valuation of a taxpayers property
for purpose of taxation. The above definition of assessment finds
51
application under tariff and customs taxation as well as local government
taxation.
For real property taxation, there may be a special meaning to
the burdens that are imposed upon real properties that have been
benefited by a public works expenditure of a local government. It is
sometimes called a special assessment or a special levy. (Commissioner of
Internal Revenue v. Pascor Realty and Development Corporation, et al., G.R. No.
128315, June 29, 1999)
3.
An assessment is a notice duly sent to the
taxpayer which is deemed made only when the BIR releases,
mails or sends such notice to the taxpayer. (Commissioner of Internal
Revenue v. Pascor Realty and Development Corporation, et al., G.R. No. 128315,
June 29, 1999)
4.
Self-assessed tax, defined. A tax that the taxpayer
himself assesses or computes and pays to the taxing authority. It is a tax
that self-assessed by the taxpayer without the intervention of an
assessment by the tax authority to create the tax liability.
The Tax Code follows the pay-as-you-file system of taxation under
which the taxpayer computes his own tax liability, prepares the return, and
pays the tax as he files the return. The pay-as-you-file system is a selfassessing tax return.
Internal revenue taxes are self-assessing. (Dissent of J. Carpio in
Philippine National Oil Company v. Court of Appeals, et al., G. R. No. 109976, April
26, 2005 and companion case)
believe that the taxpayer had taxable income larger than that reported.
Necessarily, this inquiry would have to be outside of the books because
they supported the return as filed. He may take the sworn testimony of the
taxpayer, he may take the testimony of third parties; he may examine and
subpoena, if necessary, traders and brokers accounts and books and the
taxpayers books of accounts. The Commissioner is not bound to follow
any set of patterns. The existence of unreported income may be shown by
any particular proof that is available in the circumstances of the particular
situation. (Commissioner of Internal Revenue v. Hantex Trading Co., Inc. G. R. No.
136975, March 31, 2005)
6.
General rule: When the Commissioner of Internal
Revenue may rely on estimates. The rule is that in the absence of
accounting records of a taxpayer, his tax liability may be determined by
estimation. The petitioner (Commissioner of Internal Revenue) is not
required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of taxes due is justified. To hold otherwise
would be tantamount to holding that skillful concealment is an invincible
barrier to proof. (Commissioner of Internal Revenue v. Hantex Trading Co., Inc.
G. R. No. 136975, March 31, 2005)
However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously. (Ibid.)
7.
Meaning of "best evidence obtainable" under Sec.
6 (B), NIRC of 1997. This means that the original documents must be
produced. If it could not be produced, secondary evidence must be
adduced. (Hantex Trading Co., Inc. v. Commissioner of Internal Revenue, CA G.R. SP No. 47172, September 30, 1998)
52
9.
method. The BIR may require third parties, public or private to supply
information to the BIR, and thus, obtain on a regular basis from any person
other than the person whose internal revenue tax liability is subject to audit
or investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities including the
Bangko Sentral ng Pilipinas and government-owned or controlled
corporations, any information such as, but not limited to, costs and volume
of production, receipts or sales and gross incomes of taxpayers, and the
names , addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters or
multinational companies, joint accounts, associations, joint ventures or
consortia and registered partnerships, and their members; xxx [Sec. 5 (B),
NIRC of 1997)
10.
A pre-assessment notice is a letter sent by the
Bureau of Internal Revenue to a taxpayer asking him to explain within a
period of fifteen (15) days from receipt why he should not be the subject of
an assessment notice. It is part of the due process rights of a taxpayer.
As a general rule, the BIR could not issue an assessment notice
without first issuing a pre-assessment notice because it is part of the due
process rights of a taxpayer to be given notice in the form of a preassessment notice, and for him to explain why he should not be the subject
of an assessment notice.
12.
b.
ten years from discovery of the failure to file the tax return
or discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of 1997[ ; or
c.
within the period agreed upon between the government
and the taxpayer where there is a waiver of the prescriptive period for
assessment (Sec. 222 (b), NIRC of 1997).
13.
Purpose of period of limitations in taxation. For the
purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in
the collection of taxes. [Commissioner of Internal Revenue v. B.F. Goodrich Phils,
Inc., (now Sime Darby International Tire Co., Inc.), et al., G.R. No. 104171, February
24, 1999, 303 SCRA 546; Philippine Journalists, Inc. v. Commissioner of Internal
Revenue, G. R. No. 162852, December 16, 2004], as well as their assessments.
53
taxes after the expiration of reasonable period of time.
(Commissioner of
Internal Revenue v. FMF Development Corporation, G. R. No. 167765, June 30,
2008 citing Philippine Journalists, Inc. v. Commissioner of Internal Revenue G.R.
No. 162852, December 16, 2004, 447 SCRA 214, 225)
14.
Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because
this deprives the taxpayer of the assurance that it will not longer be
subjected to further investigation for taxes after the expiration of a
reasonable period of time. (Philippine Journalists, Inc. v. Commissioner of
Internal Revenue, G. R. No. 162852, December 16, 2004 with note to see Republic
v. Ablaza, 108 Phil. 1105. 1108)
15.
16.
letter of demand and assessment notice shall be void. The same shall be
sent to the taxpayer only by registered mail or by personal delivery.
18.
What are the reasons for presumption of
correctness of assessments ?
SUGGESTED ANSWER:
a.
Lifeblood theory
b.
Presumption of regularity (Commissioner of Internal Revenue
v. Hantex Trading Co., Inc., G, R. No. 136975, March 31, 2005) in the
performance of public functions. (Commissioner of Internal Revenue v. Tuazon,
Inc., 173 SCRA 397)
c.
The likelihood that the taxpayer will have access to the
relevant information [Commissioner of Internal Revenue, supra citing United
States v. Rexach, 482 F.2d 10 (1973). The certiorari was denied by the United
States Supreme Court on November 19, 1973]
d.
The desirability
requirements of the NIRC. (Ibid.)
of
bolstering
the
record-keeping
determination by the CTA must rest on all the evidence introduced and its
54
ultimate
determination
must
find
support
in
credible
evidence.
20.
a.
55
taxpayer, within which the former may assess and collect taxes. It also
would have no binding effect on the taxpayer if there was no consent by the
Commissioner. On this basis, no implied consent can be presumed, nor
can it be contended that the concurrence to such waiver is a mere formality.
(Commissioner of Internal Revenue v. FMF Development Corporation, G. R. No.
167765, June 30, 2008 citing Philippine Journalists, Inc. v. Commissioner of
Internal Revenue G.R. No. 162852, December 16, 2004, 447 SCRA 214, 229 in
turn citing Id. at 229, citing Commissioner of Internal Revenue v. Court of Appeals,
G.R. No. 115712, February 25, 1999, 303 SCRA 614, 620-622.)
23. BIR cannot rely on its invocation of the rule that the
government cannot be estopped by the mistakes of its revenue
officers in the enforcement of RMO No. 20-90 because the law on
prescription should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommended the approval of the
law. To the Government, its tax officers are obliged to act promptly in the
making of assessment so that taxpayers, after the lapse of the period of
prescription, would have a feeling of security against unscrupulous tax agents
who will always try to find an excuse to inspect the books of taxpayers, not to
determine the latters real liability, but to take advantage of a possible
opportunity to harass even law-abiding businessmen. Without such legal
defense, taxpayers would be open season to harassment by unscrupulous
tax agents. [Commissioner of Internal Revenue v. FMF Development
Corporation, G. R. No. 167765, June 30, 2008 citing Republic of the Phils. v.
Ablaza, 108 Phil. 1105, 1108 (1960)]
2.
What are the two ways of protesting an
assessment notice for an internal revenue tax ? Alternatively,
what are the two types of protests ? Explain briefly.
SUGGESTED ANSWER:
a.
Request for reconsideration which refers to a plea for reevaluation of an assessment on the basis of existing records without need
of additional evidence. It may involve both a question of fact or of law or
both.
b.
Request for reinvestigation which refers to a plea for reevaluation of an assessment on the basis of newly-discovered evidence or
additional evidence that a taxpayer intends to present in the investigation.
It may also involve a question of fact or law or both. (Commissioner of
thus a unilateral waiver on the part of the taxpayer does not suspend the
prescriptive period. [Commissioner of Internal Revenue v. Court of Appeals, et
al., G.R. No. 115712, February 25, 1999 (Carnation case)]
3.
What is that type of protest that suspends the
running of the statute of limitations for the beginning of
distraint or levy or a proceeding in court for collection ? Why ?
47.
The act of requesting a reinvestigation alone
does not suspend the running of the prescriptive period. The
request for reinvestigation must be granted by the CIR. The
24.
Supreme Court declared that the burden of proof that the request for
reinvestigation had been actually granted shall be on the Commissioner
of Internal Revenue. Such grant may be expressed in its communications
with the taxpayer or implied from the action of the Commissioner or his
authorized representative in response to the request for reinvestigation.
[Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v.
Commissioner of Internal Revenue, G. R. No. 174942, March 7, 2008]
56
this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter cannot.
(Commissioner of Internal Revenue v. Philippine Global Communication, Inc., G. R.
No. 167146, October 31, 2006 citing Bank of Philippine Islands v. Commissioner of
Internal Revenue, G. R. No. 139736, 17 October 2005, 473 SCRA 205, 230-231)
4.
JUDICIAL
REMEDIES
ASSESSMENTS
INVOLVING
PROTESTED
b.
An indication to the taxpayer by the Commissioner in clear
and unequivocal language of his final denial not the issuance of the
warrant of distraint and levy. What is the subject of the appeal is the final
decision not the warrant of distraint. (Ibid.)
c.
A BIR demand letter sent to the taxpayer after his protest
of the assessment notice is considered as the final decision of the
Commissioner on the protest. (Surigao Electric Co., Inc. v. Court of Tax
Appeals, et al., 57 SCRA 523)
d.
A letter of the BIR Commissioner reiterating to a taxpayer
his previous demand to pay an assessment is considered a denial of the
request for reconsideration or protest and is appealable to the Court of Tax
Appeals. (Commissioner v. Ayala Securities Corporation, 70 SCRA 204)
e.
Final notice before seizure considered as commissioners
decision of taxpayers request for reconsideration who received no other
response.
Commissioner of Internal Revenue v. Isabela Cultural
Corporation, G.R. No. 135210, July 11, 2001 held that not only is the Notice
the only response received: its content and tenor supports the theory that it
was the CIRs final act regarding the request for reconsideration. The very
title expressly indicated that it was a final notice prior to seizure of property.
The letter itself clearly stated that the taxpayer was being given this LAST
OPPORTUNITY to pay; otherwise, its properties would be subjected to
distraint and levy.
57
such decision is based, otherwise, the decision shall be void, in which case
the same shall not be considered a decision on the disputed assessment;
and (b) that the same is his final decision. (Sec. 3.1.6, Rev. Regs. 12-99)
These conditions are not complied with by the mere issuance of a warrant
of distraint and levy. (Commissioner of Internal Revenue v. Union Shipping Corp.,
185 SCRA 547)
3.
As a general rule, there must always be a
decision of the Commissioner of Internal Revenue or
Commissioner of Customs before the Court of Tax Appeals,
would have jurisdiction. If there is no such decision, the petition would
be dismissed for lack of jurisdiction unless the case falls under any of the
following exceptions.
2.
4.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision yet by the
Commissioner of Internal Revenue:
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be
liberally construed, and exemptions are not given retroactive application,
considering that taxes are the lifeblood of the government and in Holmes
memorable metaphor, the price we pay for civilization, tax laws must be
faithfully and strictly implemented. (Commissioner of Internal Revenue v.
b.
Tax laws, unlike remedial laws, are not to be applied
retroactively. Revenue laws are substantive laws and their application must
not be equated with remedial laws. (Acosta, supra)
5.
The characteristic of a BIR denial of a protest
such as would enable the taxpayer to appeal the same to the
Court of Tax Appeals. The Commissioner of Internal Revenue should
always indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a taxpayer
constitutes his final determination on the disputed assessment.
may
3.
What is the prescriptive period for collecting
internal revenue taxes ?
SUGGESTED ANSWER: There are four (4) prescriptive periods for
the collection of an internal revenue tax:
a.
Collection upon a false or fraudulent return or no return
without assessment. In case of a false or fraudulent return with the intent to
evade tax or of failure to file a return, a proceeding in court for the
collection of such tax may be filed without assessment, at any time within
ten (10) years after the discovery of the falsity, fraud or omission. [Sec. 222
(a), NIRC of 1997]
b.
Collection upon a false or fraudulent return or no return
with assessment. Any internal revenue tax which has been assessed
(because the return is false or fraudulent with intent to evade tax or of
failure to fail a return), within a period of ten (10) years from discovery of the
falsity, fraud or omission may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of
58
the tax. [Sec. 222 (c), in relation to Sec. 222 (a) NIRC of 1997, emphasis
supplied]
c.
Collection upon an extended assessment. Where a tax
has been assessed with the period agreed upon between the
Commissioner and the taxpayer in writing (which should initially be within
three (3) years from the time the return was filed or should have been filed),
or any extensions before the expiration of the period agreed upon, the tax
may be collected by distraint or levy or by a proceeding in court
within the period agreed upon in writing before the expiration of the
five (5) year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period
previously agreed upon. [Sec. 222 (d), in relation to Secs. 222 (b) and 203,
NIRC of 1997, emphasis supplied]
d.
Collection upon a return that is not false or fraudulent, or
where the assessment is not an extended assessment. Except as
provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such
period; Provided, That in case where a return is filed beyond the period
prescribed by law, the three (3) year period shall be computed from the day
the return was filed. For purposes of this Section, a return filed before the
last day prescribed by law for the filing thereof shall be considered filed on
such last day. (Sec. 203, NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three (3)year period, it has another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The assessment of the tax is
deemed made and the three (3)-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released,
mailed or sent to the taxpayer. [Bank of Philippine Islands (Formerly Far East
Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing BPI v. Commissioner of Internal Revenue, G.R.
No. 139736, 17 October 2005, 473 SCRA 205, 222-223]
A perusal of Sec. 222 of the NIRC is clear that it covers only three
scenarios only. 1) No assessment was made upon a false or fraudulent
return or omission to file a return; 2) an assessment was made upon a
false or fraudulent return or omission to file a return; and 3) an extended
assessment issued within a period agreed upon by the Commissioner and
the taxpayer. The same scenarios are those referred to in the former Sec.
269 which provided for a prescriptive period for collection of three (3) years.
It is clear therefore that neither Sec. 222 nor the former Sec. 269
provide for an instance where the assessment was made upon a regular
return or one that is not false or fraudulent, or that there was an agreement
to extend the period for assessment.
Resort should therefore be made to the three (3) year period referred
to in Sec. 203 of the NIRC of 1997 which reads, Except as provided in
Section 222, internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such
taxes x x x (paraphrasing and emphasis supplied)
4. What is a compromise ?
SUGGESTED ANSWER: A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only
signify that there was no agreement that had effectively been reached
between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal
Revenue, G. R. No. 138485, September 10, 2001)
59
6.
8.
SUGGESTED ANSWER:
a. The tax or any portion thereof appears to be unjustly or
excessively assessed; or
b. The administration and collection costs involved do not justify the
collection of the amount due. [Sec. 204 (B), NIRC of 1997]
9.
Only the Court of Tax Appeals may issue an order suspending the collection
of a tax.
The Supreme Court may enjoin the collection of taxes under its
general judicial power but it should be apparent that the source of the
power is not statutory but constitutional.
60
motion filed by the interested party at any stage of the proceedings. (Sec.
3, Rule 10, RRCTA effective December 15, 2005)
2.
3.
What should be established by a taxpayer for the
grant of a tax refund ? Why ?
SUGGESTED ANSWER: A taxpayer needs to establish not only
that the refund is justified under the law, but also the correct amount that
should be refunded.
If the latter requisite cannot be ascertained with particularity, there is
cause to deny the refund, or allow it only to the extent of the sum that is
actually proven as due.
Tax refunds partake of the nature of tax exemptions and are thus
construed strictissimi juris against the person claiming the exemption. The
burden in proving the claim for refund necessarily falls on the taxpayer.
(Far East Bank Trust and Company, etc., v. Commissioner of Internal Revenue , et
al., G. R. No. 138919, May 2, 2006)
5.
The two (2) year period and the thirty (30) day
period should be applied on a whichever comes first basis.
Thus, if the 30 days is within the 2 years, the 30 days applies, if the 2 year
period is about to lapse but there is no decision yet by the Commissioner
which would trigger the 30-day period, the taxpayer should file an appeal,
despite the absence of a decision. (Commissioners, etc. v. Court of Tax
Appeals, et al., G. R. No. 82618, March 16, 1989, unrep.)
It is only when the return, covering the whole year, is filed that the
taxpayer will be able to ascertain whether a tax is still due or refund can be
claimed based on the adjusted and audited figures. (Bank of the Philippine
Islands v. Commissioner of Internal Revenue, G.R. No. 144653, August 28, 2001)
61
7.
notify the Government that such taxes have been questioned and the
notice should be borne in mind in estimating the revenue available for
expenditures.
a.
a.
To
afford the Commissioner an opportunity to correct his errors or that of
subordinate officers. (Gonzales v. Court of Tax Appeals, et al., 14 SCRA79)
9.
SUGGES
b.
To
62
A withholding tax agent may also apply for a refund. In a sense, he
is also a taxpayer because the tax may be collected from him if he does not
withhold.
SUGGESTED ANSWER: Yes. The failure to first file a written claim for
refund or credit is not fatal to a petition for review involving a disputed
assessment where an assessment was disputed but the protest was
numbers (8 and 9). An application for refund or credit under Sec. 229 of
the NIRC of 1997 is required where the case filed before the CTA is a
refund case, which is not premised upon a disputed assessment. There is
no need for a prior application for refund or credit, if the refund is merely a
consequence of the resolution of the BIRs denial of a protested
assessment.
Who
could
12.
63
Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007 citing
Philippine Bank of Communications v. Commissioner of Internal Revenue, 361
Phil. 916 (1999)]
13.
In the year 2000 Systra derived excess tax
credits and exercised the option to carry them over as tax
credits for the next taxable year. However, the tax due for the
next taxable year is lower than excess tax credits. It now
applies for a refund of the unapplied tax credits. May its
refund be granted ? If the refund is denied, does Systra lose
the unapplied tax credits ? Explain briefly your answer.
SUGGESTED ANSWER: Systras claim for refund should be
denied. Once the carry over option was made, actually or constructively,
it became forever irrevocable regardless of whether the excess tax credits
were actually or fully utilized Under Section 76 of the Tax Code, a claim
for refund of such excess credits can no longer be made. The excess
credits will only be applied against income tax due for the taxable
quarters of the succeeding taxable years.
Despite the denial of its claim for refund, Systra does not lose the
unapplied tax credits. The amount will not be forfeited in favor of the
government but will remain in the taxpayers account. Petitioner may
claim and carry it over in the succeeding taxable years, creditable against
future income tax liabilities until fully utilized. (Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007 citing
Philam Asset Management, Inc. v. Commissioner of Internal Revenue, G.R. Nos.
156637/162004, 14 December 2005, 477 SCRA 761)
14.
A simultaneous filing of the application with the
BIR for refund/credit and the institution of the court suit with
the CTA is allowed. There is no need to wait for a BIR denial.
REASONS:
a. The positive requirement of Section 230 NIRC (now Sec. 229,
NIRC of 1997);
b. The doctrine that delay of the Commissioner in rendering
decision does not extend the peremptory period fixed by the statute;
c. The law fixed the same period two years for filing a claim for
refund with the Commissioner under Sec. 204, par. 3, NIRC (now Sec. 204
[C], NIRC of 1997), and for filing suit in court under Sec. 230, NIRC (now
Sec. 229, NIRC of 1997), unlike in protests of assessments under Sec. 229
(now Sec. 228, NIRC of 1997), which fixed the period (thirty days from
receipt of decision) for appealing to the court, thus clearly implying that the
prior decision of the Commissioner is necessary to take cognizance of the
case. (Commissioner of Internal Revenue v. Bank of Philippine Islands, etc. et al.,
CA-G.R. SP No. 34102, September 9, 1994; Gibbs v. Collector of Internal Revenue,
et al., 107 Phil, 232; Johnston Lumber Co. v. CTA, 101 Phil. 151)
15.
The grant of a refund is founded on the
assumption that the tax return is valid, i.e. that the facts stated
therein are true and correct. (Commissioner of Internal Revenue v. Court
of Tax Appeals, G. R. No. 106611, July 21, 1994, 234 SCRA 348) Without
the tax return it would be virtually impossible to determine whether the
proper taxes have been assessed and paid. After all, it is axiomatic that a
claimant has the burden of proof to establish the factual basis of his or her
claim for tax credit or refund. Tax refunds, like tax exemptions, are
construed strictly against the taxpayer. (Paseo Realty & Development
Corporation v. Court of Appeals, et al., G. R. No. 119286, October 13, 2004)
64
present the tax return, because other evidence was presented to prove that
the overpaid taxes were not applied. (Ibid.)
17.
A bank-trustee of employee trusts filed an
application for the refund of taxes withheld on the interest
incomes of the investments made of the funds of the
employees trusts. Instead of presenting separate accounts
for interest incomes made of these investments, the banktrustee instead presented witness to establish that it would
next to impossible to single out the specific transactions
involving the employees trust funds from the totality of all
interest income from its total investments. On the above
basis will the application for refund prosper ?
SUGGESTED ANSWER: No. The application for refund will not
prosper.
The bank-trustee needs to establish not only that the refund is
justified under the law (which is so because incomes of employees trusts
are tax exempt), but also the correct amount that should be refunded.
Tax refunds partake of the nature of tax exemptions and are thus
construed strictissimi juris against the person or entity claiming the
exemption. The burden in proving the amount to be refunded necessarily
falls on the bank-trustee, and there is an apparent failure to do so.
A necessary consequence of the special exemption enjoyed alone
by employees trusts would be a necessary segregation in the accounting
of such income, interest or otherwise, earned from those trusts from that
earned by the other clients of the bank-trustee. (Far East Bank and Trust
Company, etc., v. Commissioner, etc., et al., G.R. No. 138919, May 2,
2006) The amounts that are the exempt earnings of the employees trust
has not been shown as they have been commingled with the interest
income of the other clients of the bank-trustee.
18.
CTA Circular No. 1-95 clearly requires that
photocopies of the receipts or invoices must be pre-marked
and submitted to the CTA to verify the correctness of the
summary listing and the CPA certification. CTA Circular No. 1-95,
issued on 25 January 1995, reads:
1.
The party who desires to introduce as evidence such
voluminous documents must present: (a) Summary containing the total
amount/s of the tax account or tax paid for the period involved and a
chronological or numerical list of the numbers, dates and amounts
covered by the invoices or receipts; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of
the contents of the summary after making an examination and evaluation
of the voluminous receipts and invoices. Such summary and certification
must properly be identified by a competent witness from the accounting
firm.
2. The method of individual presentation of each and every
receipt or invoice or other documents for marking, identification and
comparison with the originals thereof need not be done before the Court
or the Commissioner anymore after the introduction of the summary and
CPA certification. It is enough that the receipts, invoices and other
documents covering the said accounts or payments must be premarked by the party concerned and submitted to the Court in order
to be made accessible to the adverse party whenever he/she desires
to check and verify the correctness of the summary and CPA
certification. However, the originals of the said receipts, invoices or
documents should be ready for verification and comparison in case doubt
on the authenticity of the particular documents presented is raised during
the hearing of the case. (Emphasis supplied)
19.
Manila Electric Company a grantee of a
legislative franchise under Act No. 484, as amended by
Republic Act No. 4159 and Presidential Decree No. 551, 1[3] had
been paying a 2% franchise tax based on its gross receipts, in
lieu of all other taxes and assessments of whatever nature.
Upon the effectivity of Executive Order No. 72 on February 10,
1
65
2.
66
increase should not be higher than 100% ad valorem; (b) to establish
import quota or to ban imports of any commodity, and (c) to impose
additional duty on all imports not exceeding 10% ad valorem, among
others.
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No. 134114, July 6,
2001)
5. Special customs duties are additional import duties
imposed on specific kinds of imported articles under certain
conditions. The special customs duties under the Tariff and Customs
Code (TCCP) are the anti-dumping duty, the countervailing duty, the
discriminatory duty, and the marking duty, and under the Safeguard
Measures Act (SMA) additional tariffs as safeguard measures.
7.
9.
Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product,
commodity, or article in the ordinary course of trade when destined for
consumption in the country of export. [Sec. 301 (s) (3 ), TCC, as amended
by Rep. Act No. 8752, Anti-Dumping Act of 1999]
10.
The imposing authority for the anti-dumping duty
is the Secretary of Trade and Industry in the case of nonagricultural product, commodity, or article or the Secretary of
Agriculture, in the case of agricultural product, commodity or
article, after formal investigation and affirmative finding of the Tariff
Commission. [Sec. 301 (a), TCC, as amended by Rep. Act No. 8752, AntiDumping Act of 1999]
11.
Even when all the requirements for the
imposition have been fulfilled, the decision on whether or not
to impose a definitive anti-dumping duty remains the
prerogative of the Tariff Commission. [Sec. 301 (a), TCC, as amended
by Rep. Act No. 8752, Anti-Dumping Act of 1999] Thus, the cabinet secretaries
12. In the determination of whether to impose the antidumping duty, the Tariff Commission, may consider among
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and other
related local industries. (Sec. 301 (a), TCC, as amended by Rep. Act No.
8752, Anti-Dumping Act of 1999)
67
SUGGESTED ANSWER:
Countervailing duties are additional
customs duties imposed on any product, commodity or article of commerce
which is granted directly or indirectly by the government in the country of
origin or exportation, any kind or form of specific subsidy upon the
production, manufacture or exportation of such product commodity or
article, and the importation of such subsidized product, commodity, or
article has caused or threatens to cause material injury to a domestic
industry or has materially retarded the growth or prevents the establishment
of a domestic industry. (Sec. 302, TCCP as amended by Section 1, R.A.
No. 8751)
limitation which is not equally enforced upon like articles of every foreign
country, or discriminates against the commerce of the Philippines, directly
or indirectly, by law or administrative regulation or practice, by or in respect
to any customs, tonnage, or port duty, fee, charge, exaction, classification,
regulation, condition, restriction or prohibition, in such manner as to place
the commerce of the Philippines at a disadvantage compared with the
commerce of any foreign country.
Commission.
Even when all the requirements for the imposition have been fulfilled,
the decision on whether or not to impose a definitive anti-dumping duty
remains the prerogative of the Tariff Commission. ( Sec. 301 (a), TCC, as
amended by Rep. Act No. 8752, Anti-Dumping Act of 1999)
21.
The President of the Philippines imposes the
discriminatory duties.
tariffs, to protect domestic industries and producers from increased imports
which inflict or could inflict serious injury on them.
The CTA is vested with jurisdiction to review decisions of the
Secretary of Trade and Industry imposing safeguard measures as provided
under Rep. Act No. 8800 the Safeguard Measures Act (SMA). (Southern
Cross Cement Corporation v. The Philippine Cement Manufacturers Corp., et al., G.
R. No. 158540, July 8, 2004)
23.
Imposing authority for safeguard measures. The
imposing authority for the countervailing duties is the
Secretary of Trade and Industry in the case of non-agricultural
product, commodity, or article or the Secretary of Agriculture,
in the case of agricultural product, commodity or article , after
formal investigation and affirmative finding of the Tariff Commission.
24.
68
26.
27.
How and to whom should claims for refund of
customs duties be made ?
SUGGESTED ANSWER: All claims for refund of duties shall be
made in writing and forwarded to the Collector of Customs to whom such
duties are paid, who upon receipt of such claim, shall verify the same by the
records of his Office, and if found to be correct and in accordance with law,
shall certify the same to the Commissioner of Customs with his
recommendation together with all necessary papers and documents. Upon
receipt by the Commissioner of such certified claim he shall cause the
same to be paid if found correct. (Sec. 1708, TCC)
28.
Law ?
69
(Jardeleza v. People, G.R. No. 165265, February 6, 2006 citing
Rodriguez v. Court of Appeals, G. R. No. 115218, September 18, 1995,
248 SCRA 288, 296)
NOTES AND COMMENTS:
a.
Importation consists of bringing an article into the
country from the outside. Importation begins when the conveying vessel
or aircraft enters the jurisdiction of the Philippines with intention to unload
therein.
b.
When unlawful importation is complete.
In the
absence of a bona fide intent to make entry and pay duties when the
prohibited article enters the Philippine territory. Importation is complete
when the taxable, dutiable commodity is brought within the limits of the
port of entry. Entry through a custom house is not the essence of the act.
(Jardeleza v. People, G.R. No. 165265, February 6, 2006)
33.
A claiming to be the owner of a vessel which
is the subject of customs warrant of seizure and detention
sought the intercession of the RTC to restrain the Bureau of
Customs from interfering with his property rights over the
vessel. Would the suit prosper?
SUGGESTED ANSWER: No. His remedy was not with the RTC
but with the CTA, as issues of ownership of goods in the custody of
customs officials are within the power of the CTA to determine.
The Collector of Customs has exclusive jurisdiction over seizure
and forfeiture proceedings and trial courts are precluded from assuming
cognizance over such matters even through petitions for certiorari,
prohibition or mandamus. (Commissioner of Customs v. Court of
Appeals, et al., G. R. Nos. 111202-05, January 31, 2006)
34.
The customs authorities do not have to prove to
the satisfaction of the court that the articles on board a vessel
were imported from abroad or are intended to be shipped
abroad before they may exercise the power to effect customs
searches, seizures, or arrests provided by law and continue
with the administrative hearings. (The Bureau of Customs, et al., v.
Ogario, et al., G.R. No. 138081, March 20, 2000)
70
37.
38.
Instances where there is no right of redemption
of seized and forfeited articles:
a.
b.
c.
There is fraud;
The importation is absolutely prohibited, or
The release of the property would be contrary to law.
(Transglobe International, Inc. v. Court of Appeals, et al., G.R. No. 126634, January
25, 1999)
39.
In Aznar v. Court of Tax Appeals, 58 SCRA 519, reiterated
in Farolan, Jr. v. Court of Tax appeals, et al., 217 SCRA 298, the Supreme
Court clarified that the fraud contemplated by law must be actual
and not constructive. It must be intentional, consisting of deception,
willfully and deliberately done or resorted to in order to induce another to
give up some right.
40.
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or delivery
by the same person of any invoice, letter or paper all touching on the
importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or
paper; and
c.
an intention on the part of the importer/consignee to evade
the payment of the duties due. (Republic, etc., v. The Court of Appeals, et
al., G.R. No. 139050, October 2, 2001)
41.
On January 7, 1989, the vessel M/V Star Ace,
coming from Singapore laden with cargo, entered the Port of
San Fernando, La Union for needed repairs. When the Bureau
of Customs later became suspicious that the vessels real
purpose in docking was to smuggle cargo into the country,
seizure proceedings were instituted and subsequently two
Warrants of Seizure and Detention were issued for the vessel
and its cargo.
Cesar does not own the vessel or any of its cargo but
claimed a preferred maritime lien. Cesar then brought several
cases in the RTC to enforce his lien. Would these suits prosper
?
SUGGESTED ANSWER: No. The Bureau of Customs having first
obtained possession of the vessel and its goods has obtained jurisdiction
to the exclusion of the trial courts.
When Cesar has impleaded the vessel as a defendant to enforce his
alleged maritime lien, in the RTC, he brought an action in rem under the
Code of Commerce under which the vessel may be attached and sold.
However, the basic operative fact is the actual or constructive
possession of the res by the tribunal empowered by law to conduct the
proceedings. This means that to acquire jurisdiction over the vessel, as a
defendant, the trial court must have obtained either actual or constructive
possession over it. Neither was accomplished by the RTC as the vessel
was already in the possession of the Bureau of Customs. (Commissioner
of Customs v. Court of Appeals, et al., G. R. Nos. 111202-05, January 31,
2006)
NOTES AND COMMENTS:
a.
Forfeiture of seized goods in the Bureau of Customs is
in the nature of a proceeding in rem, i.e. directed against the res or
imported goods and entails a determination of the legality of their
importation. In this proceeding, it is in legal contemplation the property
itself which commits the violation and is treated as the offender, without
reference whatsoever to the character or conduct of the owner.
The issue is limited to whether the imported goods should be
forfeited and disposed of in accordance with law for violation of the Tariff
and Customs Code. .(Transglobe International, Inc. v. Court of Appeals, et
al., G.R. No. 126634, January 25, 1999)
71
Forfeiture of seized goods in the Bureau of Customs is a proceeding
against the goods and not against the owner. (Asian Terminals, Inc. v.
Bautista-Ricafort, G .R. No. 166901, October 27, 2006 citing Transglobe)
46.
Liquidation, defined.
A liquidation is the final
computation and ascertainment by the collector of the duties on imported
merchandise, based on official reports as to the quantity, character, and
value thereof, and the collectors own finding as to the applicable rate of
duty; it is akin to an assessment of internal revenue taxes under the
National Internal Revenue Code where the tax liability of the taxpayer is
definitely determined. (Pilipinas Shell Petroleum Corporation v. Commissioner
of Customs, G. R. No. 176380, June 18, 2009)
be
considered as a liquidation or an assessment of Shells import
tax liabilities that can be the subject of an administrative tax
protest proceeding before the Commissioner of Customs
whose decision is appealable to the Court of Tax Appeals:
a.
the One Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center (the Center) November 3 letter, signed by the Secretary
of Finance, informing it of the cancellation of the Tax Credit Certificates
(TCCs);
b.
the Commissioner of Customs November 19 letter
requiring Shell to replace the amount equivalent to the amount of the
cancelled TCCs used by Shell; and
c.
the Commissioner of Customs collection letters, issued
through Deputy Commissioner Atty. Valera, formally demanding the
amount covered by the cancelled TCCs.
None of these letters, however, can be considered as a
liquidation or an assessment of Shells import tax liabilities that can be the
subject of an administrative tax protest proceeding before the respondent
whose decision is appealable to the CTA. Shells import tax liabilities had
long been computed and ascertained in the original assessments, and
Shell paid these liabilities using the TCCs transferred to it as payment.
It is even an error to consider the letters as a reassessment
because they refer to the same tax liabilities on the same importations
covered by the original assessments. The letters merely reissued the
original assessments that were previously settled by Shell with the use of
the TCCs. However, on account of the cancellation of the TCCs, the tax
liabilities of Shell under the original assessments were considered unpaid;
hence, the letters and the actions for collection.
When Shell went to the CTA, the issues it raised in its petition
were all related to the fact and efficacy of the payments made, specifically
the genuineness of the TCCs; the absence of due process in the
72
enforcement of the decision to cancel the TCCs; the facts surrounding the
fraud in originally securing the TCCs; and the application of estoppel.
These are payment and collection issues, not tax protest issues within the
CTAs jurisdiction to rule upon.
Shell never protested the original assessments of its tax liabilities
and in fact settled them using the TCCs. These original assessments,
therefore, have become final, incontestable, and beyond any subsequent
protest proceeding, administrative or judicial, to rule upon.
To be very precise, Shells petition before the CTA principally
questioned the validity of the cancellation of the TCCs a decision that
was made not by the Commissioner of Customs, but by the Center. As
the CTA has no jurisdiction over decisions of the Center, Shells remedy
against the cancellation should have been a certiorari petition before the
regular courts, not a tax protest case before the CTA. Records do not
show that Shell ever availed of this remedy.
Alternatively, as held in Shell v. Republic of the Philippines, G.R.
No. 161953, March 6, 2008, 547 SCRA 701, the appropriate forum for
Shell under the circumstances of this case should be at the collection
cases before the RTC where Shell can put up the fact of its payment as a
defense. (Pilipinas Shell Petroleum Corporation v. Commissioner of
Customs, G. R. No. 176380, June 18, 2009)
4.
The Local Government Code explicitly authorizes
provinces and cities, notwithstanding any exemption granted
by any law or other special law to impose a tax on businesses
enjoying a franchise. Indicative of the legislative intent to carry out the
constitutional mandate of vesting broad tax powers to local government
units, the Local Government Code has withdrawn tax exemptions or
incentives theretofore enjoyed by certain entities. (City Government of San
Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)
5.
Philippine Long Distance Telephone Company,
Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22,
2001, upheld the authority of the City of Davao, a local government unit, to
impose and collect a local franchise tax because the Local Government has
withdrawn all tax exemptions previously enjoyed by all persons and
73
authorized local government units to impose a tax on business enjoying a
franchise tax notwithstanding the grant of tax exemption to them.
6.
Explain the concept of the paradigm shift in
local government taxation.
SUGGESTED ANSWER:
Paradigm shift from exclusive
Congressional power to direct grant of taxing power to local legislative
bodies. The power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy taxes, fees and
other charges pursuant to Article X, section 5 of the 1987 Constitution.
(Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675,
and companion case, April 28, 2004 citing National Power Corporation v.
City of Cabanatuan, G. R. No. 149110, April 9, 2003)
8.
9.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general
power to levy taxes and otherwise create sources of revenue. They no
longer have to wait for a statutory grant of these powers. The power of
the legislative authority relative to the fiscal powers of local governments
has been reduced to the authority to impose limitations on municipal
powers. Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5 is thus
to reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will be resolved in favor of municipal corporations.
It is understood, however, that taxes imposed by local government must
be for a public purpose, uniform within a locality, must not be confiscatory,
and must be within the jurisdiction of the local unit to pass. (Quezon City,
et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008
citing City Government of Quezon City, et al. v. Bayan Telecommunications, Inc.,
G.R. No. 162015, March 6, 2006, 484 SCRA 169)
10.
Reconciliation of the local governments
authority to tax and the Congressional general taxing power.
Congress has the inherent power to tax, which includes the power to grant tax
exemptions. On the other hand, the power of local governments, such as
provinces and cities for example Quezon City, to tax is prescribed by Section 151
in relation to Section 137 of the LGC which expressly provides that
notwithstanding any exemption granted by any law or other special law, the City or
a province may impose a franchise tax. It must be noted that Section 137 of the
LGC does not prohibit grant of future exemptions.
74
11.
that fixed for CPAs, if he is to practice both professions. [Sec. 238 (f), Rule
XXX, Rules and Regulations Implementing the Local Government Code of
1991]
14.
X City issued a notice of assessment against
ABC Condominium Corporation for unpaid business taxes.
The Condominium Corporation is a duly constituted
condominium
corporation
in
accordance
with
the
Condominium Act which owns and holds title to the common
and limited common areas of the condominium.
Its
membership comprises the unit owners and is authorized
under its By-Laws to collect regular assessments from its
members for operating expenses, capital expenditures on the
common areas and other special assessments as provided for
in the Master Deed with ?Declaration of Restrictions of the
Condominium.
ABC Condominium Corporation insists that the X City
Revenue Code and the Local Government Code do not contain
provisions upon which the assessment could be based.
Resolve the controversy.
SUGGESTED ANSWER:
ABC is correct.
Condominium
corporations are generally exempt from local business taxation under the
Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise.
X City, is authorized under the Local Government Code, to impose a
tax on business, which is defined under the Code as trade or commercial
activity regularly engaged in as a means of livelihood or with a view to
profit. By its very nature a condominium corporation is not engaged in
business, and any profit that it derives is merely incidental, hence it may not
be subject to business taxes. (Yamane , etc. v. BA Lepanto Condominium
Corporation, G. R. No. 154993, October 25, 2005)
15.
75
the same Code. Section 143(h) may be imposed only on businesses that
are subject to excise tax, VAT, or percentage tax under the NIRC, and that
are not otherwise specified in preceding paragraphs. In the same
way, businesses such as respondents, already subject to a local business
tax under Section 14 of Tax Ordinance No. 7794 [which is based on
Section 143(a) of the LGC], can no longer be made liable for local
business tax under Section 21 of the same Tax Ordinance [which is based
on Section 143(h) of the LGC]. (The City of Manila, et al., v. Coca-Cola
Bottlers Philippines, Inc., G. R. No. 181845, August 4, 2009)
2.
The reasonable market value is determined by
the assessor in the form of a schedule of fair market values.
The schedule is then enacted by the local sanggunian.
3.
Fair market value is the price at which a property
may be sold by a seller who is not compelled to sell and bought
by a buyer who is not compelled to buy, taking into consideration all
uses to which the property is adopted and might in reason be applied.
The criterion established by the statute contemplates a hypothetical
sale. Hence, the buyers need not be actual and existing purchasers.
(Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R.
No. 154126, October 11, 2005 )
NOTES AND COMMENTS: In fixing the value of real property,
assessors have to consider all the circumstances and elements of value
and must exercise prudent discretion in reaching conclusions. (Allied
4.
Approaches in estimating the fair market value of
real property for real property tax purposes ?
a.
Sales Analysis Approach. The sales price paid in actual
market transactions is considered by taking into account valid sales data
accumulated from among the Registrar of Deeds, notaries public,
appraisers, brokers, dealers, bank officials, and various sources stated
under the Local Government Code.
b.
Income Capitalization Approach. The value of an incomeproducing property is no more than the return derived from it. An analysis
of the income produced is necessary in order to estimate the sum which
might be invested in the purchase of the property.
c.
Reproduction cost approach is a formal approach used
exclusively n appraising man-made improvements such as buildings and
other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the
data gathered to arrive at the estimated fair market value to be included in
the ordinance containing the schedule of fair market values. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005 citing Local Assessment Regulations No. 1-92)
76
at a price not exceeding the last prior conveyance in order to avoid a higher
tax assessment.
In the above two scenarios real property owners are effectively
prevented from obtaining the best price possible for their properties and
unduly hampers the equitable distribution of wealth. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126, October 11,
2005)
b.
Light Rail Transit (LRT) improvements such as buildings,
carriageways, passenger terminals stations, and similar structures do not
form part of the public roads since the former are constructed over the latter
in such a way that the flow of vehicular traffic would not be impaired. The
carriageways and terminals serve a function different from the public roads.
Furthermore, they are not open to use by the general public hence not
exempt from real property taxes. Even
granting
that
the
national
government owns the carriageways and terminal stations, the property is
not exempt because their beneficial use has been granted to LRTA a
taxable entity. (Light Rail Transit Authority v. Central Board of Assessment
Appeals, et al., G. R. No. 127316, October 12, 2000)
c.
Barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied
fuel oil to the power plant barges, and the accessory equipment mounted
on the barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that [d]ocks and
structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast are considered immovable
property by destination being intended by the owner for an industry or work
which may be carried on in a building or on a piece of land and which tend
directly to meet the needs of said industry or work. (FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and companion case)
7.
Unpaid realty taxes attach to the property and is
chargeable against the person who had actual or beneficial use
and possession of it regardless of whether or not he is the
owner. To impose the real property tax on the subsequent owner which
77
was neither the owner not the beneficial user of the property during the
designated periods would not only be contrary to law but also unjust.
Consequently, MERALCO the former owner/user of the property
was required to pay the tax instead of the new owner NAPOCOR. (Manila
Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
9.
Public hearings are mandatory prior to approval
of tax ordinance, but this still requires the taxpayer to adduce evidence
to show that no public hearings ever took place. (Reyes, et al., v. Court of
Appeals, et al., G.R. No. 118233, December 10, 1999) Public hearings are
required to be conducted prior to the enactment of an ordinance imposing
real property taxes. (Figuerres v. Court of Appeals, et al., G.R. No. 119172, March
25, 1999)
10.
The concurrent and simultaneous remedies
afforded local government units in enforcing collection of real
property taxes:
a.
b.
c.
action.
11.
Notice and publication, as well as the legal
requirements for a tax delinquency sale, are mandatory , and the
failure to comply therewith can invalidate the sale. The prescribed notices
must be sent to comply with the requirements of due process . (De Knecht,
et al,. v. Court of Appeals; De Knecht, et al., v. Honorable Sayo, 290 SCRA 223,236)
12.
The reason behind the notice requirement is that
tax sales are administrative proceedings which are in
personam in nature. (Puzon v. Abellera, 169 SCRA 789, 795; De Asis v.
I.A.C., 169 SCRA 314)
13.
78
Batangas, G. R. No. 168557, February 16, 2007 and companion
case, held that barges on which were mounted gas turbine power
plants designated to generate electrical power, the fuel oil barges
which supplied fuel oil to the power plant barges, and the accessory
equipment mounted on the barges were subject to real property
taxes.
Moreover, Article 415(9) of the Civil Code provides that [d]ocks
and structures which, though floating, are intended by their nature
and object to remain at a fixed place on a river, lake or coast are
considered immovable property by destination being intended by the
owner for an industry or work which may be carried on in a building
or on a piece of land and which tend directly to meet the needs of
said industry or work.
b.
The Treasurer is correct. The procedure do not allow a
motion for reconsideration to be filed with the Provincial Assessor.
To allow the procedure would indeed invite corruption in the system
of appraisal and assessment. it conveniently courts a graft-prone situation
where values of real property ay be initially set unreasonably high, and then
subsequently reduced upon the request of a property owner. In the latter
instance, allusions of possible cover, illicit trade-off cannot be avoided, and
in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system. (FELS Energy, Inc., v. Province of
Batangas, G. R. No. 168557, February 16, 2007 and companion case)
14.
A special levy or special assessment is an
imposition by a province, a city, a municipality within the
Metropolitan Manila Area, a municipality or a barangay upon real
property specially benefited by a public works expenditure of the LGU to
recover not more than 60% of such expenditure.
a.
Payment under protest at the time of payment or within
thirty (30) days thereafter, protest being lodged to the provincial, city or in
the case of a municipality within the Metro Manila Area the municipal
treasurer.
b.
The treasurer has a period of sixty (60) days from receipt
of the protest within to decide.
c.
Within thirty (30) days from receipt of treasurers decision
or if the treasurer does not decide, within thirty (30) days from the expiration
of the sixty (60) period for the treasurer to decide, the taxpayer should file
an appeal with the Local Board of Assessment Appeals.
d.
The Local Board of Assessment Appeals has 120 days
from receipt of the appeal within which to decide.
e.
The adverse decision of the Local Board of Assessment
Appeals should be appealed within thirty (30) days from receipt to the
Central Board of Assessment Appeals.
f. The adverse decision of the Central Board of Assessment Appeals
shall be appealed to the Court of Tax Appeals (En Banc) by means of a
petition for review within thirty (30) days from receipt of the adverse
decision.
g.
The decision of the CTA may be the subject of a motion for
reconsideration or new trial after which an appeal may be interposed by
means of a petition for review on certiorari directed to the Supreme Court
on pure questions of law within a period of fifteen (15) days from receipt
extendible for a period of thirty (30) days.
18.
The entitlement to a tax refund does not
necessarily call for the automatic payment of the sum claimed.
The amount of the claim being a factual matter, it must still be proven in the
normal course and in accordance with the administrative procedure for
obtaining a refund of real property taxes, as provided under the Local
Government Code.
(Allied Banking Corporation, etc., v. Quezon City
Government, et al., G. R. No. 154126, September 15, 2006)
19.
Procedure for refund of real property taxes based
on validity of the tax measure or solutio indebeti.
a.
Payment under protest not required, claim must be
directed to the local treasurer, within two (2) years from the date the
taxpayer is entitled to such reduction or readjustment, who must decide
within sixty (60) days from receipt.
79
b.
The denial by the local treasurer of the protest would fall
within the Regional Trial Courts original jurisdiction, the review being the
initial judicial cognizance of the matter. Despite the language of Section
195 of the Local Government Code which states that the remedy of the
taxpayer whose protest is denied by the local treasurer is to appeal with
the court of competent jurisdiction, labeling the said review as an exercise
of appellate jurisdiction is inappropriate since the denial of the protest is not
the judgment or order of a lower court, but of a local government official.
(Yamane , etc. v. BA Lepanto Condominium Corporation, G. R. No. 154993,
October 25, 2005)
c.
The decision of the Regional Trial Court should be
appealed by means of a petition for review directed to the Court of Tax
Appeals (Division).
d.
The decision of the Court of Tax Appeals (Division) may be
the subject of a review by the Court of Tax Appeals (en banc).
e.
The decision of the Court of Tax Appeals (en banc) may be
the subject of a petition for review on certiorari on pure questions of law
directed to the Supreme Court.
The change should not be ignored. Reliance on past decisions would have
sufficed were the words actually as well as :directly are not added. There
must be proof therefore of the actual and direct use to be exempt from
taxation. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No.
22.
The 1935 Constitution stated that the lands,
buildings, and improvements are used exclusively but the
present Constitution requires that the lands, buildings and
improvements are actually, directly and exclusively used.
23.
by the hospital and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes. (Lung Center of
the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29,
2004)
25.
As a general principle, a charitable institution
does not lose its character as such and its exemption from
taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives
subsidies from the government. So long as the money received is
devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons
managing or operating the institution. (Lung Center of the Philippines v.
Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
80
b.
Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries, and all
lands, buildings and improvements actually, directly and exclusively used
for religious, charitable and educational purposes;
c.
Machineries and equipment, actually, directly and
exclusively used by local water districts; and government owned and
controlled corporations engaged in the supply and distribution of water and
generation and transmission of electric power;
d.
Real property owned by duly registered cooperatives;
e.
Machinery and equipment used for pollution control and
environmental protection.
27.
Manila International Airport Authority (MIAA) it is
not a government owned or controlled corporation but an
instrumentality of the government that is exempt from
taxation.
It is not a stock corporation because its capital is not divided into
shares, neither is it a non-stock corporation because there are no
members. It is instead an instrumentality of the government upon which
the local governments are not allowed to levy taxes, fees or other
charges.
An instrumentality refers to any agency of the National
Government, not integrated within the department framework vested with
special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes regulatory
agencies chartered institutions and government-owned or controlled
corporations. [Sec. 2 (10), Introductory Provisions, Administrative Code
of 1987] It is an instrumentality exercising not only governmental but also
corporate powers. It exercises governmental powers of eminent domain,
police power authority, and levying of fees and charges.
Finally, the airport lands and buildings are property owned by the
government that are devoted to public use and are properties of the public
domain. (Manila International Airport Authority v. City of Pasay, et al., G. R. No.
163072, April 2, 2009)
28.
A telecommunications company was granted by
Congress on July 20, 1992, after the effectivity of the Local
Government Code on January 1, 1992, a legislative franchise
with tax exemption privileges which partly reads, The
grantee, its successors or assigns shall be liable to pay the
same taxes on their real estate, buildings and personal
property, exclusive of this franchise, as other persons or
81
29.
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT