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CHAPTER 4: TAX INVESTIGATION and ASSESSMENT o o o Internal revenue taxes are generally based on self-assessment and voluntary compliance with tax laws. It is the taxpayer (tp) that determines his own tax liabilities. However, proper administration of tax cannot rely on self-assessment. Hence, as a guardian of Govts revenue from persons who do not declare their proper tax liabilities, the Commissioner (Comm) is free to employ all legal evidence available to him in verifying WON the true financial history and economic activities of the tp are reflected in their book of accounts and tax records.

2. Indirect based on the opinion of the Comm, if any of the circumstances are
present: (NIECS) a. NO records b. INADEQUATE records c. does not EMPLOY method of accounting d. do not reflect CLEARLY the income e. there strong SUSPICION that tp has undisclosed source of income A. Net Worth Method assets minus liabilities (NI-ESA) - no records - inadequate records - need for evidence of source of income - determine starting point or opening net worth - proper adjustment to conform w/ income tax B. Bank Deposit Method when any of the ff circumstances are present: (DC) 1. Determine gross estate of the DECEDENT. 2. Verify claim of financial incapacity of tp seeking a COMPROMISE of tax liabilities. o COHAN RULE where there is evidence that the tp has actually incurred expenses, and there is no proof of the exactment actually spent, the Comm should make as close an approximation as he can, bearing heavily if he chooses upon the tp whose inexactitude is of his own making. Power of the Comm to Issue Summons and Take Testimony o In order to avoid such delay due to non-cooperation of the tp in making available their book of accounts, and other accounting records for inspection. o TO: (LROCO) Persons LIABLE Persons REQUIRED to file a RETURN Officer/Employee of such persons Custodian of book of accounts/records Other persons as may deemed necessary. o PROCEDURE: 1. Request tp in writing to make available for inspection. 2. If not presented/delayed, RO will seek explanation, and re-request the same. 3. If again tp fails, another explanation in writing will be sought. 4. Else, RO, with recommendation of supervisors, shall transfer the records of the case to the Prosecution Division or Legal Branch as the case maybe, under appropriate covering communication recommending the issuance of a subpoena, clearly setting forth ff information: (NADY) a. NAME of the tp/custodian of the books/records.

Power to Examine Tax Returns 1. The returns filed if tp paid and declared the correct amount of tax. 2. Even w/ failure to file a return, the Comm is authorized to examine the book of accounts and tax records of the tp. Preliminary Analysis essential to an effective audit by BIR. The revenue officer shall examine all info contained in any attachment to the tax return to ascertain WON all infos is adequately reflected therein. Letter of Authority (LA) o All investigations of the tp shall be covered by a LA issued by either the Comm or the Reg. Director only. o LA authorizes/empowers a designatd revenue officer to examine, verify and scrutinize tps books and records in relation to his internal revenue tax liabilities for a particular period. o If officer has no LA or has LA but the book/record was not mentioned therein, a tp may refuse to any examn, verificatn and scrutinization. o It has life of 30 days from date of issuance, unless revalidated. o The officer equipped and issued by LA is allowed only 120 days from the date of issuance to conduct audit and submit his investigation. Failure to such requires revalidation of such LA. o However, failure to report after the prescribed 120 days w/o revalidation will not make tp immune from audit, the prescription of making assessment as provided by law is 3 years. METHODS OF INVESTIGATION: 1. Direct computation based on what the tp regularly emplys in his accounting, as reflected in his books/records.

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b. ADDRESS of tp/custodian. c. DESCRIPTION of such books/records sought to be inspected. d. Taxable YEAR involved. SERVICE OF SUBPOENA Generally, must be delivered personally to the tp. If not available to personally be delivered to tp, the ff may be resorted: (RO) 1. Leaving a copy to tps dwelling place/RESIDENCE to some person with (ADR) Sufficient age Discretion Residing therein 2. Leaving a copy on tps OFFICE/reg place of business with: (CC) Competent person Charged therein *NOTE: In both cases, it should be witnessed by another revenue officer accomplanying the server. o FAILURE TO TESTIFY or COMPLY w/ SUMMNONS: (FIC) o Fine: 5 10k, and/or o Imprisonment : 1 2 years. o Or Indirect CONTEMPT (Sec 3, Rule 71 of ROC)

1. Reports/Records requested from tp are not forthcoming (or REFUSED). 2. Reports/Records submitted are FALSE, INCOMPLETE or ERRONEOUS.
However, Although reports/records are incomplete, it shall still be considered sufficient if there is SUBSTATNTIAL COMPLIANCE of law, and made in the ff: (GED) Return is made on GOOD FAITH. Return covers the ENTIRE PERIOD involved. Contains sufficient info, and its DEFINITENESS permits the computation and assessment of tax. LIMITATION: Assessment of proper tax on basis of best obtainable evidence is APPROPRIATE ONLY WHEN the return is (Rfie) not forthcoming/REFUSED, False, Inc, or Erroneous. o

o WEIGHT OF EVIDENCE the law allows BIR to access all relevant material
records/data in the person of tp. Hence, BIR can accept documents/records which cannot be ordinarily admitted in regular courts. Jeopardy Assessment - tax assessments issued withot the benefit of complete or partial audit. - not expressly prohibited and may be resorted in order to avoid delay. Informers Reward: o The law grant rewards to the instrumental in the (VS) 1. Discovery of Violators of the Tax Code. 2. Discovery and Seizure of Smuggled goods. o ELEMENTS: (PLP) 1. It shall be given to persons who voluntarily gives definite and sworn info, which is not yet in POSSESSION of BIR. 2. Info must LEAD to (DRCI) a. Discovery of fraud b. Recovery of revenues, surcharges and fees c. Conviction of guilty persons d. Imposition of Penalties. 3. Info should not refer to a case already PENDING/PREVIOUSLY investigated or examined by the Comm or any of his deputies, agents or examiners, or Sec of Finance or any of its deputites/agents. Taxmapping BIR/representatives makes actual business/establishment to check their compliance w/ Tax Laws. inspection of the

Rights against Self-Incrimination may be availed in crim and admin proceedings like that of BIR. Privilege Communication o Protected: Documents and papers in the hands of tps counsel not merely for consulation. Accountants papers PROVIDED that such were prepared to aid the lawyer in his conclusion, and an integral part of rendering advice. o Not Protected: Documents and Papers in the hands of counsel merely for consulation. Accountant papers and documents are GENERALLY not protected by the privilege. Power to Use Best Evidence Obtainable o FROM: (PO) 1. Persons other than whose tax liabilities are subj of audit/examination. 2. Office or Officer of the natl govt, subdivisions, instrumentalities and agencies including BSP and GOCCs with whom the tp had transaction. o GROUNDS: (RFie)

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CHAPTER 5: TAX ASSESSMENT AND PROCEDURAL DUE PROCESS ASSESSMENT - administrative determination that one is indebted to the Govt (FAN). - not an action or proceeding for collection of taxes. - authority to make assessment of taxes are granted to the Commissioner. PRINCIPLES BEHIND TAX ASSESSMENTS: (PDF) 1. It is PRESUMED TO BE CORRECT - burden of proof is on tp that officer and/or assessment is erroneous. 2. Issuance of assessment is DISCRETIONARY on the Comm. -mandamus may not lie against the Comm to compel him to impose tax assessment. 3. An assessment must be based on FACTS. ASSESSMENT CYCLE: (FAC-PR-FP-SA) 1. Filing of Tax Return / Due date of Filing of Tax Return (whichever is later) 2. Tax Audit of BIR (Letter of Authority / Period to Assess) 3. Informal Conference 4. PAN (Preliminary) 5. Reply to PAN (w/in 15 days from receipt) 6. FAN (Final) 7. Protest a. Reconsideration (re-evaluation without additional evidence) b. Reinvestigation (additional / newly discovered evidence) 8. Supplemental Protest (60 days from assessment) 9. Assessment becomes Final / Collection INFORMAL CONFERENCE o TP must respond within 15 days from receipt. Otherwise. He shall be considered in default, and case shall be endorsed w/ least delay to Assessment Division of Regional Office or the Comm, for Review and Issuance of FAN/ Deficiency Tax if warranted. PRELIMINARY ASSESSMENT NOTICE (PAN) o If theres sufficient basis to assess the tp for any deficiency taxes, there shall issue PAN atleast by registered mail, to notify the tp of the findings of assessment. o EXCEPTIONS / PAN not required: (MD-REE)

Tax deficiency because of MATHEMATICAL ERROR in the computation of Tax as appearing on the face of he return. 2. When DISCREPANCY was determined between the tax withheld and amount actually remitted by the withholding agent. 3. When tp opted to claim a REFUND or credit of creditable withholding tax for a tax period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter/s of succeeding taxable year. 4. When EXCISE TAX due on excisable articles has not been paid. 5. When the article locally purchased or imported by an EXEMPT person such as but not limited to vehicles, capital, equipment, machines and spare parts, has been sold, transferred, or transmitted to a nonexempted person. EFFECT OF NO-ISSUANCE OF PAN: o If tp was was not given opportunity to settle the proposed assessment, and such lack of notice was pointed out in the protest BIR has burden of proof to tp was given such opportunity and/or informed of facts, Laws, Rules and regulation, or Jurisprudence (FLRJ) where the assessment was based/made. o If BIR can sufficiently prove that it has given tp an opportunity to settle and/or be informed of the FLRJ assessment is VALID. o If tp failed to point out in his protest suck lack of prior notice TP shall be considered to have waived such defect and can no longer raise such in appeal.

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FINAL ASSESSMENT NOTICE (FAN) 1. A document that informs tp that amount stated therein is due as tax. 2. As soon as served, obligation arises on the part of tp to pay such. 3. A FAN served must be: 1. In writing 2. Stating the FLRJ on which the assessment is based. o SERVICE OF FAN: o Personal Delivery (nsad) It must be named, signed, given by authority and dated. o Registered Mail effective upon the release / mailed / sent by the Comm to tp. PRESUMPTION: a letter duly directed and mailed is presumed to have been received by the addressee thereof, provided the ff are proven: (AM)

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1. That the letter was properly ADDRESSED with postage

prepaid. 2. That the letter was actually MAILED. PRESUMPTION: Entries in Official records are prima facie evidence of the facts stated therein, provided that the ff are proven: (BPK) 1. Entry was made BY a Pub Officer or another person specially enjoined by law to do so. 2. Made in the PERFORMANCE of his duty or as enjoined by law. 3. Pub Officer or person enjoined by law has sufficient KNOWLEDGE of the facts by him stated which must have been acquired by him personally or through official information. DEFENSE AGAINST PRESUMPTION: The two presumptions are merely DISPUTABLE not Conclusive. Burden of Proof shifts to Comm, if tp directly denies the its receipt.

STATUTE OF LIMITATIONS o VIGILANTIBUS ET NON DORMIENTIBUS JURE SUBRONIUNT, meaning, the law serves those who are vigilant, not those who sleep. o Beneficial to both Govt (prompt tax collection) and tp (protection against unscrulous collector) o CONSTRUCTION: Limitation not only to assess but also to collect taxes will not be presumed in absence of clear legislation to the contrary. Grant of Exception to these limitations must be strictly construed. o DUTY OF TP: Issue must be raised at earliest possible time at Comms level (not on appeal). Must be specifically pleaded/pointed out as an issue, otherwise deemed waived. The start of the running of the period and when it ended must be positively established. o MEANING OF A YEAR:

o o

In Namarco vs. Tecson and pursuant to RMC Bo. 48-90: a) 1 year = 365 days b) 3 years = 365 days x 3 or 1,095 days.

However, in order to prevent confusion when theres a leap year, in the case of CIR vs. Primetown Property Group in pursuant to Administrative Code of 1987: a) 1 year = 12 calendar months b) 3 years = 12 months x 3 or 36 calendar months. PERIODS: Ordinary within 3 years after the day prescribed by law for filing return. Extraordinary within 10 years from discovery of: (FFO) a) FALSE Return b) FRAUDULENT return with intent to evade tax c) Failure to File return (OMISSION) *NOTE: In Extraordinary period, the Comm has two (2) options: 1. Assess tax w/in 10 years not from filing, but from the discovery of FFO. 2. File an action in court for collection of such tax without assessment w/in 10 years from discovery. *NOTE: NEGLIGENCE, whether slight or gorss, is NOT EQUIVLENT to FRAUD WITH INTENT TO EVADE TAX as contemplated by the law There must be INTENTIONAL or WILLFUL WRONGDOING w/ the SOLE OBJECT OF EVADING the tax. CIRCUMSTANCES NEGATIVE FRAUD: (IUS) a) Comm failed to impute/allege Fraud in FAN or demand in payment. b) BIR itself appeared unsure as to the real amount of tps income. c) Fraud by mere speculation/preponderance of evidence, instead of a clear and convincing evidence as required. RECKONING DATE: Assessment be issued w/in 3 years, either: From the last day prescribed by law for filing of tax return. From the day the return was actually filed. NOTE: Whichever is later among the 2 instances. BURDEN OF PROOF The Comm must prove that he had served to tp of the assessment within the prescriptive period prescribed. NOTE: Prescription must be based on express STATUTORY PROVISION. However, when there is no explicit provision of such, but the tax is such that its amount cannot be ascertained w/o the data pertinent thereto, the Comm may, by appropriate regulations, REQUIRE THE FILING OF THE NECESSARY RETURNS. NECESSITY OF SUBSTATNTIAL COMPLETE RETURN: (GED) Return is made on GOOD FAITH. Return covers the ENTIRE PERIOD involved.

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Contains sufficient info, and its DEFINITENESS permits the computation and assessment of tax. TAX RETURN ONCE FILED CANNOT BE WITHDRAWN. However, tp may modify, amend or change such return, provided: a) It is made w/in 3 years from filing such return b) No notice for audit/reinvestigation of such return was served to tp. Amendments: a) UNSUBSTANTIAL - if the change in the reported amount of sales, receipts or income, or of deductions DOES NOT EXCEEDS 30% of that declared per return. 1. Prescription: still w/in 3 years from filing of the ORIGINAL RETURN. b) SUBSTANTIAL - if the change in the reported amount of sales, receipts or income, or of deductions EXCEEDS 30% of that declared per return. 1. Prescription: w/in 3 years from filing of the AMENDED RETURN. RETURNS FILED IN INSTALLMENTS: Usually in case of accounting for long-term contracts The prescriptive period shall be reckoned from the date when the final tax return was filed. NOTE: Period to forfeit the BOND posted by tp to secure its tax obligation (10 years as based Art. 1144) NOTE: Period to recover erroneiously refunded taxes as such is in effect of an assessment for deficiency tax. PRETERMISISON RULE: Where the last day for doing an act required by law falls on a holiday, the act may be done on the next succeeding business day, and In computing any period of time prescribed by a statute, the day of the act after which the designated period of time begins to run is not included. SUSPENSION OF STATUTE OF LIMITATION: (PILO)-W 1. For PERIOD during which Comm is PROHIBITED to make assessment and 60 days after. 2. Tp request for RE-INVESTIGATION w/c is granted by the Comm. 3. When tp cannot be LOCATED in address given by him in return, provided that when tp informs the Comm of any change in address, the running of the prescriptive period will not be suspended. 4. When tp is OUT of the Philippines. NOTE: Another ground, although not enumerated, is when tp executes a WAIVER to such.

o CONSTRUCTION OF PRESCRIPTION:
Liberally in favour of the tp, and strictly against the Govt. Although both the Govt and tp benefits from prescriptive period, the law provides such to protect the tp against UNREASONABLE INVESTIGATION.

WAIVER ELEMENTS: As per RMO 20-90 (ISA-CE) Expiry date of waiver must be INDICATED. SIGNED by tp himself or duly authorize representative. BIR ACCEPTS/AGREES by signing the waiver. Furnished in 3 COPIES i. .Attached to the docket of case ii. Copy of TP iii. Retained by office e. EXECUTION must be PRIOR to the date or expiration of prescriptive period or before the lapse agreed in case of subsequent agreement. 2. As per SUPREME COURT (WAEP) a. Waiver must be in WRITING b. AGREED by both tp and BIR c. EXECUTED before the expiration of ordinary prescriptive period for assessment and collection. d. Waiver must be for definite PERIOD beyond ordinary period. NOTE: Generally, Waiver is in the nature of agreement between tp and Comm, and must be executed prior the lapse of prescriptive period. HOWEVER, in the ff cases, the court held otherwise (exceptions): a. Sinforoso Alca vs. CTA tps renunciation is valid even if executed beyond the lapse of period becase just like any other rights, the right to avail of the defences of prescription is WAIVABLE. b. Sambrano vs. CTA tps execution of mortgage on favour of the Govt to guarantee the payment of tax liabilities after the prescriptive period AMOUNTS TO RENWAL of the obligation or waiver of the benefit grantedhim by law. NOTE: Proper BIR signatories on waiver: a. ACIR tax is not more than 500k

1. a. b. c. d.

o o

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b. Deputy Comm more than 500k but not more than 1M c. Comm more than 1M. d. Occurs when period is about to expire even if RO has yet to complete tax investigation. a) The tp will be REQUESTED to allow waiver and extension of issuance of assessment. b) However, one of compelling reasons why tp will execute such is when Comm threatens tp that he will be issued JEOPARDY ASSESSMENT or an assessment w/o benefit of partial or full audit in the ff circumstances: (JT) 1. When assessment will be JEOPARDIZED by delay of tp to comply to tax audit or investigation. 2. When the Comm TERMINATED the Taxable Period of a tp: (RLRO) a) Tp is RETIRING his business b) Tp intends to LEAVE Philippines c) Tp intends to REMOVE, HIDE OR CONCEAL his property d) Tp OBSTRUCTS the proceeding for collection of proper taxes. NATURE: a) NOT A WAIVER of the right to invoke the defense of prescription as erroneously held. b) But it is an AGREEMENT between the tp and BIR that the period to issue an assessment and collect taxes due is EXTERNDED to a date certain. NOTE: If the tp files RECONSIDERATION, waiver is necessary before request be granted.

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PROTEST o Must be filed within 30 days from receipt of assessment. o And within 60 days after filing of such protest, a supplement of protest or submission of all relevant documents related thereto to should be done. within o FORM: (WB) o Be in WRITING. o Provide statement of FLRJ where protest is BASED. o NOTE: Failure of tp to dispute an assessment makes the same FINAL and DEMANDABLE, which may no longer be disputed nor re-opened on the merits in

the subsequent action for collection Omission constitutes a WAIVER of any defense w/c he could have set-up against the assessment. PROCEDURE IF GOVT OFFICES OR GOCCs WERE ASSESSED: o To SOLICITOR GENERAL, I it involves only depts., bureaus, offices and agencies of the Natl Govt as well as GOCCs of whom he is the principal law officer/counsel.. o Else, to SEC OF JUSTICE. o Appeal to PRESIDENT. TWO (2) TYPES OF PROTEST: o Nature of request for RECONSIDERATION (re-evaluation w/o need of additional evid) o Nature of request for REINVESTIGATION (re-evaluation w/ newly discovered or additional evid) RR 12-99: o It requires tp to state FLRJ (Fact/Law/Rules/Jurisprudence) on which the protest is based. Otherwise, such protest is VOID. NOTE: If there are several issues involved in PAN/FAN but tp only disputes or protests against the validity of some issues, tp shall be required to pay the deficiency tax attributable to the UNDISPUTED ISSUES. The prescriptive period for assessment and collection of the tax shall be suspended only to disputed issues. NO action shall be taken on tps disputed issues in protest UNTIL the tp has paid the deficiency taxes attributable to the undisputed issues. ACTIONS OF COMM ON THE PROTEST: 1. Express Denial Comm state in writing the FLRJ where the assessment is based. The same is FINAL DECISION. 2. Implied Denial (WISI) 1. Issuance of WARRANT OF DISTRAINT OR LEVY after the filing of protest. 2. INSTITUTION OF JUDICIAL ACTION for collection of tax assessed. 3. SET-OFF of taxes 4. INACTION of the Comm after 180 days from submission of documents (if factual issues), or from filing (purely questions of law). NOTE: The 180-day period is not a limitation on the part of the Comm to decide the protest. This period is intended to allow the tp to APPEAL TO CTA EVEN IN

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ABSENCE OF THE COMMs DECISION and PRAY FOR THE EARLY RESOLUTION OF THE CASE. Stated otherwise, after the lapse of the 180-day period, the tp has 2 options: (AW) 1. To APPEAL to CTA (the Comm loses jurisdiction upon appeal.) 2. To WAIT for the final decision of the Comm. FINALITY OF ASSESSMENT:

1. Failure to file PROTEST within 30 days from receipt of FAN.

2. Failure to APPEAL to CTA within 30 days from denial of such protest. HOWEVER, the tp has remedy even after the assessment had become final and demandable: Inquiry by evidence of want of jurisdiction, collusion between parties, or fraud on the party offering the record w/ respect to the proceedings. (JCF)

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CHAPTER 6: GOVT REMEDIES FOR COLLECTION OF DELINQUENT TAXES General Rule: Comm may not file a civil action to enforce collection of the tax unless there is a FINAL and EXECUTORY assessment, except in the ff circumstances: 1. When tp fails to paty the full amount indicated in the tax return. 2. When the Comm files a criminal action against the tp. 3. GENERAL REMEDIES:

1. ADMINISTRATIVE REMEDIES (No court intervention)

a. Distraint of personal property of TP b. Levy of real property of TP 2. JUDICIAL REMEDIES: a. Civil action for collection b. Criminal action for violation of Tax Laws. 3. Require TP to post a BOND 4. Reward System ADMINISTRATIVE REMEDIES: o REQUISITES: 1. The amount involved is more than P100.00 2. There is delinquency on the part of tp. DIFFERENCE (PARF Prop, Assessment, Redemtn, Forfeiture) DISTRAINT LEVY Personal property Real property May be preceded by assessment (RLRO) Always preceded by an assessment No right of redemption Tp may exercise right of redemption (1yr from sale) No forfeiture generally May be forfeited in favour of Govt in case theres no bidder at auction sale. I. DISTRAINT Seizure of Comm of tp;s tangible or intangible personal properties to enforce payment of taxes, followed by public sale of such, if tp voluntarily fails to pay tax due. Govt is in the nature if attaching creditor, and warrant of distarint is analogous to WRIT OF ATTACHMENT or GARNISHMENT.

1. CONSTRUCTIVE DISTRAINT: To WHOM: (TC) 1. TP himself 2. Person having possession/cpntrl of personal property of tp. OBLIGATION: (PD) 1. To PRESERVE the property intact and unaltered, and 2. Not to DISPOSE the same in any manner w/o express authority of the Comm. HOW: (SL) 1. By SIGNING a receipt containin the list of property sought and provision that obligates. 2. If he refused/fails to sign, officer shall prepare a receipt, and shall LEAVE a copy thereof at the premises where the property sought to be distraint is located, and in the presence of 2 witnesses. GROUNDS: (D-RLRO) 1. Delinquent tax on tp 2. Tp is retiring 3. Tp intends to leave the Philippines 4. Tp intends to remove, hide, conceal his properties. 5. Tp obstructs the proceeding to collect tax due. VIOLATION 1. Section 276: When prop under distraint is: (STED) o Sold o Transferred o Encumbered o Or in any manner Disposed Penalty: Fine in amount twice the value of property but not less than 5k and/or Imprisonment of 2-4 years for each act/omission. 2. Section 277: Failure to surrender such property Penalty: Civil liability in amount equal to value of prop not surrendered but not exceeding the taxes due, or

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Fine of 5k, and/or Imprisonment of 6 months to 2 years.

9. Within 5 days after sale, a RETURN of the officer shall be enetered upon records. 10. Certificate of Sale be delivered to purchaser. GARNISHMENT OF BANK DEPOSITS Not a violation of Bank Secrecy Law, as such law only prohibits examination of bank accounts, but not the seizure thereof to satisfy just and lawful debts specifically for tax cases. The sheriff in levy of attachment or execution does not inquire into the source/s of a depositors accounts or amount of his deposit He simply seize so much of the latter as is sufficient to discharge the obligation, with no questions asked regarding the remainder of where or how the money or any part of It came from.

2. ACTUAL DISTRAINT: TWO (2) VIEWS: 1. TPs delinquency must be final and executory. 2. TPs delinquency does not require finality. The 2nd view is more consistent w/ our law and jurisprudence. The existence of govt is not to be crippled or imperilled by long delays that often attend formal judicial proceedings. When individual right to procedural due process collides w/ important state interest, such cannot be ignored for they serve the interest of the greater majority.

PROCEDURE OF ACTUAL DISTRAINT (SR2-NAR-RERIC) 1. SEIZURE of personal property Exceeding 1M = BIR 1M or less = Revenue District Officer 2. Distraining Officer must prepare a REPORT and submit the same w/in 10 days from receipt of warrant. 3. Officer must prepare a RECEIPT thereof, containing: (LDS) a. LIST of the properties sought to be distraint. b. Statement of sum DEMANDED c. Time and date of SALE 4. NOTICE of the auction sale in not less than 2 public places in municipality/city where the distraint is made. 5. AUCTION SALE, that must not be less than 20 days after notice 6. RESIDUE of proceeds after satisfaction of tax due, including expenses for actual seizure and preservation shall be RETURNED to the owner. 7. Officer shall make a REPORT w/in 2 days after sale. 8. If bid price is not EQUAL to the amount of tax or very much less than the FMV of the articles offered in the sale, the Comm or his deputy may purchase the same in behalf of the Govt, and be re-sold.

II. LEVY Refers to same act of seizure but that of real property or interest in or rights to such property in order to enforce payment of taxes. If the personal property of tp is not sufficient to satisfy his tax delinquency, the Comm or his duly authorized representative shall, within 30 days after execution of distraint, PROCEED with LEVY on tps Real property. NOTE: The remedies of distraint and levy may be repeated If necessary, until the full amount due, including all expenses, is collected.

o PROCEDURE: (CNRA-ARIR-CF)
1. RO shall prepare authenticated certificate showing: (NTD) NAME of tp TAX due DESCRIPTION of the property 2. Written NOTICE of levy, mailed and served upon: (RTO) REG OF DEEDS for prov/city where property is located. Delinquent TP or his representative OCCUPANTS of such property. 3. Within 10 days after receipt of the notice, RO shall submit a report on any levy, to the Comm/representative. 4. Within 20 days after levy, RO shall proceed to ADVERTISE the auction for 30 days, and be effected by posting a notice on: Main entrance of mun/city Hall

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In public and conspicuous place in the barrio/district in h=which the real estate lies. The advertisement shall contain the ff: (NADS) NAME of tp AMOUNT of taxes DESCRIPTION of the prop Time and Place of SALE 5. AUCTION SALE 6. W/in 5days, officer shall file a RETURN and enter the same upon records. 7. Deliver to purchaser the CERTIFICATE OF SALE. 8. Right of Redemption 9. If right of redemption was not exercise, a deed of conveyance shall be executed. 10. If there is no bidder or proceeds of the sale is not sufficient to satisfy the taxes, penalties and cost, RO shall declare such property be FORFEITED in favour of the Govt in satisfaction of the claim . EFFECTS OF DISTRAINT or LEVY 1. On the TITLE of the Property no longer belongs to the tp, and can not be anymore subject to execution by judgement creditors of the tp. 2. On TPs LIABILITIES tp is discharge ONLY if the value of the property is sufficient to cover the total tax claims against the tp. REMEDY OF TP AGAINST ABUSE Officer who abused the execution of administrative remedies shall be automatically dismissed from service after due notice and hearing.

BIR legal officers are deputized to prosecute cases and conduct criminal proceedings involving violation of tax laws instituted by DOJ state prosecutors before CTA and regular courts Civil Action (CA) The commissioner may bring an action to enforce a tax lien and collect tax By filing a collection case in the CTA, RTC or MTC as the case may be. By filing an answer to a petition to review filed by the tax payer with the CTA. BIR initiated actions Sec 7 of the New CTA Law implies that only final and executory assessments for taxes, fees, charges and penalties may be subject of a collection suit that can be filed with the CTA, RTC, MetroTC, MTC,MCTC as the case may be. The commissioner may only initiate such suit under the following circumstances: (PASP)

When a tax is assessed and the taxpayer fails to file an administrative PROTEST with the BIR within 30 days from receipt of assessment. When an administrative protest filed by the taxpayer against the assessment is denied and the taxpayer fails to APPEAL with the CTA within 30 days from receipt of said decision. When the taxpayer fails to submit SUPPORTING documents within 60 days from filing of protest. When the tax payer fails to PAY the self-assessed tax as appearing in the return filed by the taxpayer under the pay-as-you-file system

JUDICIAL REMEDIES Formal requirements Institution or commencement before a proper court of civil and criminal actions shall be conducted by the legal officers of the bureau of internal revenue. An appeal from such court requires the solicitor general to represent the interest of the government. He has the primary responsibility to appear for the government in appellate proceedings.

The necessity of a final and executory assessment makes this remedy unpopular, because the Commissioner can resort to administrative remedies in enforcing his assessment immediately after the issuance thereof without awaiting its finality. Taxpayer initiated action Collector of Internal Revenue v. Bohol Land Transportation The judicial action Contemplated in the Tax code may refer not only to the civil case instituted by the government to collect tax but also to the case where the taxpayer takes the initiative to contest the validity of the assessment or collection of taxes by the

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Collector (Commissioner). The objective in both cases is the same, the validity and correctness of the determination and collection of the tax. Criminal action Effective remedy against a recalcitrant taxpayer who refuses to pay the proper tax. It is not only a collection remedy but also involves the enforcement of the provision of the tax code not directly relating to payment of taxes. Procedure is not summary in nature Requires a prior determination of probable cause by the prosecuting arm of the government. Requires the highest quantum of evidence of proof beyond reasonable doubt.

Resort to administrative remedies File a motion to the court for issuance of preliminary attachment

Payment not a valid defense Payment of tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of the tax code or in any action for the forfeiture of untaxed articles. The criminal action subsists so long as there is no legal grounds that would bar their prosecution. Payment of fine Fines imposed for violation of the tax code shall not be lower than the fines imposed or twice the amount of taxes, interest and surcharges due from the taxpayer, whichever is higher. If the taxpayer has no money or property, he shall be subject to subsidiary personal liability of Art. 39 of the RPC. Persons criminally liable under the tax code may be natural or juridical persons. May also be a non-filipino citizen, a public officer a public accountant or a plain recidivist. Juridical person as offender GENERAL RULE: If the crime is punishable by imprisonment and committed by a juridical entity or corporation, the DIRECTORS, OFFICERS, EMPLOYEES or other officers responsible thereof for the offense shall be charged and penalized for the crime. (DOE) EXCEPT: If the imposable penalty is a fine, a corporation may be charged and prosecuted. If the statute defines a crime that may be committed by a corporation but prescribes penalty thereof to be suffered by the directors, officers or employees of such corporation, only such individuals would suffer the penalty these also applies if the crime is committed through their act, default or omission. Who are the persons liable on a corporation? Sec 256 (d) provides: president, general manager, branch manager, treasurer, officer in charge and employees responsible for criminal violation and pay the penalty provided therein. Where a corporation has been found liable for criminal violations, its officers, agents, and all who participates in the criminal violation are liable. (People v. Tan Boon Kong).

Inclusion of Civil Action in the Criminal action Sec. 205 of the tax code provides, the judgment in a criminal case shall not only impose the penalty but also the order of payment of the taxes subject of the criminal case as finally decided by the commissioner. NOTE: Before courts cannot require taxpayer convicted of an offense punishable under the tax code to likewise pay the tax assessed by the Commissioner. He must file a separate action to collect the same. (Garcia v. Collector of Internal Revenue) Sec 205 may only apply if the taxpayer was charged and convicted of an offense that could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer who still refused to pay the same. This is because the law contemplates payment of the taxes subject of the criminal case as finally decided by the commissioner. Sec. 11, Rule 9 of the CTA rules provides: The criminal action and the corresponding civil action for recovery of civil liability for taxes and penalties shall be deemed jointly instituted in the same proceeding. The filing of a criminal action shall necessarily carry with it the filing of the civil action no reservation of civil action of allowed. Remedy prior to Judgement The commissioner need not wait for the judgement of the court for him to be able to collect the assessed tax. He may:

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Criminal liability only attaches to: (CMP)

Corporate agents who themselves COMMIT the crime Those by virtue of their MANAGERIAL POSITION or other similar relation to the corporation could be deemed responsible for its commission, if they had the power to prevent such act. All parties active in PROMOTING a crime

Non Filipino citizen, etc. as offender He shall be deported immediately after serving sentence, without further proceedings for deportation. If he is a public officer or employee, the maximum penalty shall be prescribed plus perpetual disqualification. If he is a public accountant, his certificate shall be automatically revoked or cancelled. If a person is found guilty of reincidence, the maximum penalty shall be prescribed. Acts punishable under the tax code In general violation of tax code would give rise to criminal action. Violations of taxpayer and person aiding the taxpayer (Ill give 10 only ^_^)

Extortion or willful oppression through the use of his office or willful oppression and harassment of a taxpayer who turned down or rejected his offer. Knowingly demanding or receiving any fee other than those authorized by law. Willful neglecting to give receipts, as required by law. Neglecting or permitting the violation of the law by any other person Making or signing false entries in any book or making or signing any false certificate or return. Unlawful divulgence of trade secrets. Failing to issue or execute the warrant of distraint or levy within 30 days after expiration and abuse in the service thereof.

The penalty for such acts or omission shall be: Fine of not less than P50,000 (bucks Ramos, J.) but not more than P100,000 Imprisonment of not less than 10 years but not more than 15 years. Perpetual disqualification to hold office, to vote, to participate in election. Internal revenue officer, after a case of grave misconduct has been establish shall be, subject to civil service laws, dismissed from revenue service. Safeguards to BIR officers and employees

Willful failure to file a return, supply correct and accurate information, pay tax, withhold and remit taxes withheld on compensation. Attempt to make it appear that a return or statement has been filed/ Making false entries, records, reports or using falsified or fake accountable forums. Carrying on business without paying the corresponding annual registration fee. Unlawful use of denatured alcohol. Unlawful possession or removal of articles subject to excise tax without payment of the tax. Failure or refusal to issue receipts or sales or commercial invoices. Printing of receipts or sales or commercial invoices. Printing of receipts or sales or commercial invoices without authority from BIR Printing of double or multiple sets of invoices or receipts.

In order not to intimidate any internal revenue officer form doing his job lawfully, any judgment, damage, or cost recovered in an action brought against any revenue officer shall be satisfied by the commissioner provided the following requisite occur: (DPNA)

The action is brought against a revenue officer to recover DAMAGES by reason of an act done in the PERFORMANCE OF HIS OFFICIAL DUTY. Internal revenue officer did not act NEGLIGENTLY OR IN BAD FAITH. The Commissioner is NOTIFIED in time to make a defense through the solicitor general. The satisfaction of such judgment, damage or cost is APPROVED by the Secretary of finance.

Violations of revenue officers and other government officers (Ill give 7 ^_^)

The absence of negligence or bad faith on the part of the petitioner, any money judgment that would be rendered against her would have to be assumed by the republic of the Philippines as the complaint was in the nature of a suit against the state.

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Neccessity of prior assessment GENERAL RULE: That an assessment of a deficiency tax is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. (Ungab v. Cusi) EXCEPTION: When there is no prima facie evidence that private respondents therein were guilty of tax evasion. No preliminary investigation yet. (Fortune Tobacco case) Effect of acquittal Acquittal in the criminal case could not discharge the duty to pay tax since the duty is imposed by statute prior to and independently of any attempts on the part of the taxpayer to evade payment (Castro v. Collector of Internal Revenue)

instituting an action in the court for collection of tax and will suspend the running of the statute of limitation. A criminal case does not suspend the running of the prescriptive period for the collection of taxes assessed. Administrative action: The CTA is given the power to enjoin the collection of tax by prohibiting the Commissioner from beginning a distraint or levy provided: (AJB)

1. Taxpayer files an APPEAL to the CTA 2. CTA finds that collection of taxes may JEOPARDIZE the interest
of the government or taxpayer

3. The taxpayer either deposit the amount claimed or files with the
CTA a surety BOND. Once the CTA issues injunction against the collection of tax, the 5 year period is suspended.: (WILO-E)

Statute of limitations In the old tax code, the right of the government to collect tax is imprescriptible. However, in the present tax code, it provides for a statute of limitation to prevent negligence on part of the revenue officer on collecting taxes. Any internal revenue tax that has been assessed within the period prescribed may be collected within 5 years from date of assessment. If there is reinvestigation, the time employed reinvestigating should be deducted from the total period of limitation. Collection after the lapse of the said period would be without authority except: There was failure on part of the taxpayer to file a return. Or return filed was false or fraudulent and made with intent to evade tax.

1. When the WARRANT of distraint or levy was duly served upon the 2. 3.
taxpayer and no property could be located When the taxpayer request for re-INVESTIGATION granted by the Commissioner. When the taxpayer cannot be LOCATED on the address given by him in the return.

In this situation, the prescriptive period will be suspended only if the taxpayer informs the Commissioner of the Internal Revenue of any change in his address. (Afisco InsuranceCorporation et. al.v. CA) Even if there is property that could be located but due to taxpayers many/repeated request or positive acts such warrant cannot be served, it can also suspend the running of the prescriptive period.

Suspension on collection of taxes When the commissioner is prohibited from beginning distraint or levy proceeding in court and for 60 days thereafter.

4. When the tax payer is OUT of the Philippines. 5. When the Commissioner EXTENDS the payment of the estate tax upon
prior request of the taxpayer. Note: Extrajudicial demand does not interrupt the prescriptive period as the tax code is a special law and such demand is embodied on the civil code. Criminal action; Suspension Prescription shall be interrupted, in criminal proceedings, when proceedings are instituted for investigation and punishment and would begin to run again after such

In order that the pendency of the other proceedings shall have the effect of tolling the statute of limitations on a cause of action, The proceedings must be of a nature as to prevent the enforcement of remedy by action. Judicial action : Mere pendency of the taxpayers appeal in the CTA and in the SC on the ground of litis pendencia has the effect of legally preventing the commissioner from

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proceedings are dismissed for reason not constituting jeopardy. Also, prescription would be suspended when the offender is out of the Philippines. Reckoning date; Suspension If the commission of the crime is known. It shall be counted form the commission of the crime. If not know, it is counted from the discovery thereof and the institution of judicial proceedings for investigation and punishment. If the nature of the crime is such that it could only be committed after service of notice and demand for payment of deficiency taxes upon taxpayers, the prescriptive period would be counted from the date when the final notice and demand is served on the taxpayer. The defense of prescription can be raised even on appeal in criminal proceedings. Unlike in civil actions, it cannot be raised for the first time on appeal.

Forfeiture of real property shall be enforced by judgment of condemnation and sale in legal action or proceeding. Illicit production of goods articles which are not subject of lawful commerce may be destroyed by order of commissioner, when sale would be injurious to public health. Forfeited property shall not be destroyed until at least 20 days after seizure. If items is owned by third person, the same shall be confiscated or forfeited after due notice and hearing in a separate proceeding. Exempt properties includes that of common carriers when used in the transaction of their business unless the owner or operator consents. REMEDY OF TP: The taxpayers remedy, if he desires to contest the validity of the forfeiture may, at anytime before sale or destruction, bring an action for replevin against the person seizing. 2. Tax lien (CPS)

OTHER REMEDIES: 1. Forfeiture It is the loss, deprivation or destruction of property, right or privilege by way of penalty in consequence of violation of law, non performance of some obligation or non fulfillment of some required conditions. The effect of forfeiture is to transfer the title of the specific thing from the owner to the government. The Commissioner is authorized to forfeit the following: Chattles, machinery and removable fixtures of any sort Dies and other equipment used for printing or making of any internal revenue stamp, label or tag which is an imitation. All articles subject to excise tax. Articles withdrawn from distillery, or distillery warehouse, bounded warehouse or from customs custody. Proceeds of the crime. Procedure The forfeiture of chattels and removable fixture of any sort shall be enforced by seizure or sale, or destruction of the specific forfeited property. It is a legal claim or charge on property, whether real or personal, established by law as a sort of security for the payment of tax obligations. It attaches not only from the service of warrant of distraint or levy but from the time the taxpayer fails or refuses to pay his taxes after assessment, notice and demand. The following are its essential elements: (ADFN) An ASSESSMENT fixing the tax due. Previous DEMAND for payment of tax due. Taxpayer FAILS to pay tax due. In order that the lien may follow the property in the hands of a third person, there must also be NOTICE to him. A tax lien is extinguished: (PDPC)

Full PAYMENT of tax DESTRUCTION of the property subject of the lien PRESCRIPTION of the right to assess or collect Withdrawal or CANCELLATION by the revenue authorities.

Seizure under forfeiture vs tax lien

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In the former, all proceeds derived from the sale of the property forfeited are turned over to the commissioner. While the latter, the residue of the proceeds over and above what is required to pay the tax sought to be realized is returned to the taxpayer. Tax code lien vs Real property tax lien Tax code lien is more limited than Real property tax lien Real property tax lien is enforceable against the property whether in the possession of the delinquent or subsequent owner. Tax lien is not enforceable on any mortgagee purchaser or judgment creditor unless a notice of such lien be filed by the commissioner on the register of deeds. Tax lien does not apply when a property has been transferred to an innocent purchaser and for value. NOTICE: Notice is essential in tax code lien. Tax lien vs other lien The legislature may make tax lien a first lien upon the property of a taxpayer, the power to tax is the strongest of all the powers of the government. (Preference and Concurrence of credit tax lien is a preferred lien among others) REMEMBER: If the national tax does not pertain to specific properties of the taxpayer, tax lien shall only enjoy the preference under 2244 (9) and not in 2241 (1) or 2242 (1) of the Civil code. Laborers lien vs tax lien A tax lien is superior to a workers lien. Utility of tax lien in estate cases Government has 2 ways of collecting the deficiency income tax or estate tax due the estate: By going after all the heirs and collecting from each one of them the amount of tax, proportionate to the inheritance received. Subject the property of the estate which is in the hands of the heir or transferee to the payment of the tax due the estate.

Full payment rule a person resisting a payment of tax must first pay the full amount of the tax asserted and file a formal administrative claim for refund. After: after the creation of the CTA, the no injunction rule has been tempered. The CTA may enjoin the commissioner from collecting taxes of such collection may jeopardize the interest of the government or taxpayer. Penalties and fine A. Surcharge An administrative sanction and not a tax, the tax code imposes 25% to 50% of surcharge. 25% for the following: Failure to file any return or pay tax due Filing a return other than what is required to be filed Failure to pay deficiency tax within the time prescribed for its assessment. Failure to pay the full or part of the amount of the tax shown on any return required to be filed. 50% surcharge in case of willful neglect to file a return within the period prescribed or in case of false or fraudulent return made. Intent is necessary for the imposition of %0 % surcharge. Fraud must be actual and not constructive. It must be intentional consisting of deception willfully and deliberately done or resorted to. Imposition of surcharge can be condoned provided that the taxpayer acted in good faith and has an honest belief that he is not liable for such tax imposed upon him. B. Interest It is compensation for the state for the delay in paying the tax. It is not a criminal penalty. Interest is generally 20% per annum. Deficiency tax It is to be assessed and collected from the date prescribed for its payment until the full payment thereof. Delinquency taxes in case of failure to pay:

No injunction rule Before: courts generally has no power to issue a writ of injunction or temporary restraining order against the collection of tax.

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The amount of tax due on any return to be filed The amount of tax due for which no return was filed A deficiency tax.

If the taxpayer elects to pay the tax in installments and failed to pay, interest will also be collected. If the taxpayer and commissioner enter into a compromise, the latter cannot file a criminal action against the tax payer. Such penalty of the taxpayer will be subject on their compromise agreement. 3. Non injunction against collection of tax 4. Penalties and fines

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CHAPTER 7: REFUND Tax refund VS tax credit It is for refund when the tax payer ask for the return of taxes paid. It is a claim for credit when the taxpayer asks that the tax illegally or erroneously collected from him is to be applied from his other tax obligations instead of returning it to him. A refund check or warrant issued if remains unclaimed for 5 years shall be forfeited in favor of the government. And if a tax credit certificate issued remains unutilized for 5 years, it shall be considered invalid and is not allowed as payment for other tax liabilities. A tax credit granted to the taxpayer may be applied against any internal revenue tax and may be converted to refund as long as it is valid. The original copy of the tax credit certificate must be surrendered to the appropriate revenue officer. Tax credit VS tax deduction Tax credit is a peso for peso reduction of tax liability, direct subtraction from the tax payable. While tax deduction is a subtraction to the gross income resulting to a lower taxable income. Construction Claim in the nature of an exemption claim is strictly construed as against the taxpayer, being highly disfavored and almost said to be odious to the law. It must be under clear and unmistakable terms found in the statute. Social legislation liberally construed in favor of the taxpayer. Erroneous payment of tax may be credited or refunded and only needs a preponderance of evidence. A tax return is presumed to be correct, because the taxpayer is under the pain of criminal prosecution for perjury if he give false information. The commissioner, upon submission of necessary documents by the taxpayer, will assess the documents. If the Commissioner sees that the taxpayer should be given a credit or refund, even without written claim, he will grant such to the taxpayer. Doctrine of equitable recoupment A tax presently assessed against a taxpayer may be recouped or set off against a tax illegally or erroneously collected or overpaid.

The right of the tax payer to claim for a refund or credit is premised on the principle of solution indebiti. (If something is received when there is no right to demand it, the obligation to return arises.) The commissioner will grant a refund under the following circumstances: Procedure GENERALLY: The state cannot be sued without its consent EXCEPT: When it waives such immunity as it allows persons to institute claims against it. Thus before an action for a claim for refund or credit can prosper, the following in general must be established by the taxpayer: The taxpayer complied with the statutory requirements to claim for refund or credit There was an actual collection and receipt by the government of the tax sought to be recovered. When the commissioner erroneously or illegally assessed or collected internal revenue taxes When the commissioner imposes penalties without authority. When the taxpayer returns internal revenue stamps When the creditable VAT withheld remains unutilized

Compliance with statutory requirements: Taxpayer files an administrative claim for refund within 2 years after payment of tax or penalty or after the close of a taxable year. If the commissioner does not grant in whole or in part the amount claimed and the taxpayer wants to question such decision of the commissioner, the taxpayer must file an appeal to the CTA within 30 days from receipt of decision of Commissioner and such appeal is made within the 2 year period. If the commissioner does not act on the claim and the taxpayer does not want to lose its judicial remedy against possible decision of the commissioner, taxpayer must file an appeal within 30 days from the expiration of the period fixed by law to act thereon, provided that such appeal is still covered by the 2 year period.

Filing of administrative claim to the commissioner is premised on the principle of exhaustion of administrative remedies. The filing of an administrative claim may

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be excused if the tax return shows overpayment, as it is considered as a written claim for credit and refund. The commissioner is given 120 days to grant a taxpayers claim for refund, if no action has been taken by the commissioner, the taxpayer should make an appeal to the CTA within 30 days after the lapse of the 120 day period. He may also decide not to appeal after the 120 day period lapse, but he must make an appeal before the 2 year period lapse. NOTE: The commissioner may still grant the claim for refund or credit even after the 2 year period lapse.

NOTE: if the tax was proper at the time of payment but subsequently became improper due to occurrence of a supervening cause, the 2 year period should still be counted from the date of payment. REMEMBER: a refund may either arise from a payment under protest (aware of his right) or an erroneous payment of tax (not aware of his right for refund, 2 years counted from discovery). Defense after 2 year period When will the counting of the 2 year period be suspended: If there is an agreement between the taxpayer and the agent of the commissioner that they would await the decision of the supreme court in a case involving a similar issue If the commissioner made the taxpayer believe that he would be credited for the overpayment.

Remedy against BIR personnel for inaction File an action for damages against the erring BIR personnel pursuant to Article 27 of the civil code File a criminal action against the erring BIR personnel for violation of Sec 269 of the RPC 2 year prescriptive period; to be counted from Excess quarterly income tax payments 2 year period is to be counted from the date of filing of the final adjustment return because it is only during that date that the exact liability or refundability of the tax can be determined. Unutilized creditable withholding tax Also must be counted from the date of filing of the final adjustment return. Final withholding tax the withholding agents claim for refund must be from the filing of the final withholding tax return. VAT 2 year period is computed from the close of a taxable quarter when the sales were made. Claim of constituent corporation claim for refund or tax credit of the amount erroneously made must be filed within 2 years from the date it filed its short period return after the approval of the articles of merger. Tax paid in installments claim for refund or tax credit of the amount erroneously paid in installments must be filed within 2 years from its final payment.

NOTE: even of the 2 year period had elapsed, it may still be suspended for reasons of equity and other special circumstances. Excess estimated quarterly income taxes; unutilized creditable withholding taxes (CWT) In claiming refund or credit for the taxpayer unutilized creditable withholding taxes or excess quarterly income tax payments, the taxpayer must comply with the following requirements: Mar the appropriate box in the final adjustment return (FAR), whether to request for refund or claim Present the succeeding quarterly income tax return and final adjustment return A copy of the statement duly issued by the payor to the payee showing the amount paid and the amount withheld therefrom The income upon which the taxes were withheld is included as part of the gross income declared in the income tax return of the recipient.

A corporation entitled to a credit or refund of the excess estimated quarterly income taxes paid or excess CWT is allowed 2 options: Be credited or refunded with the excess amount paid Carry over the excess credit to the succeeding taxable quarters of the succeeding taxable years

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NOTE: A claim for refund or credit is subject to prior approval and verification by the commissioner. Failure of the taxpayer to indicate in its annual income tax return the option to refund its creditable withholding tax is not fatal to its claim for refund or credit. It is only a plain oversight. The taxpayer may change its option chosen by him as indicated in the FAR, he is not totally precluded from doing such. Excess withholding tax credits The following conditions for grant of a claim for refund or credit of the excess CWTs are the following: The claim is filed within the 2 year period from the date of payment of tax It is shown on the return that the income payment received was declared as part of the gross income The fact of withholding is established by a copy of the statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld. The taxpayer must not have opted to carry over and credit the excess CWTs to the taxable quarters of the succeeding taxable years if it wishes to be refunded. Certificate of CWT establishes the fact of withholding and emanates from the payor itself. Claim refund or credit of unutilized input VAT The following must be established by the VAT registered tax payer: There must be zero rated or effectively zero rated sales Input taxes were incurred or paid. The payments of the sales must have been made in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations Input VAT payments are directly attributable to zero rated sales or effectively zero rated sales or allocated to zero rated or effectively zero rated sales Input VAT payments were not applied against any output VAT liability The claim for refund was filed within the 2 year prescriptive period

To establish its zero rated or effectively zero rated sales, it must substantiate its claim by presenting duly registered official receipts and invoices. Furthermore, the taxpayer must present export declaration, bill of lading, airway bill and other similar documents to establish actual shipment of the goods from the Philippines to a foreign country. Also invoices pertaining to the taxable sales and corresponding input VAT. Input tax for the importation of goods must be substantiated and supported by the following documents and must be reported in the information returns required to be submitted to the BIR: 1. Import entry or other equivalent document showing actual payment of VAT in goods. 2. For the domestic purchase of goods and properties invoice showing information required by the tax code. 3. For purchase of real property public instrument (deed of absolute/conditional sale, contract, etc.) 4. For purchase of service official receipt. Note: Input tax that may be subject of the claim must exclude the portion of input tax that has been applied against the output tax. Required information in VAT invoice or official receipt In order for the taxpayer to establish its zero rated or effectively zero rated sales, it must substantiate its claim by presenting duly registered official receipts and invoices. The VAT invoice or the VAT official receipt must contain the following: A statement that the seller is a VAT registered person followed by his TIN The total amount which the purchaser pays or is obligated to pay to the seller indicates such amount includes the VAT o The amount of tax shall be shown as a separate item in the invoice or receipt o If the sale is exempt from value added tax, the term VAT exempt sale shall be indicated. o If the sale is subject to zero percent value added tax, the term zero rated sale shall be indicated. o If the sales involves goods, properties or services some of which are subject to tax and same which are not, it shall be clearly indicated by a breakdown of the sale price. Date of transaction, quantity, unit cost and description of goods or properties or the nature of services In case of a sale in the amount of P1,000, the name business style, address and TIN of the purchaser, customer or client.

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Sale to a BOI registered enterprise The taxpayer must establish the following: o The tax payer is VAT registered o The BOI registered buyer is also VAT registered o The buyer is a BOI registered manufacturer or producer whose products are 100% exported, as evidenced by the corresponding certification issued by the Board of Investment. Failure to reflect authority to print on sales invoice or receipt does not make such sales invoices or receipts inadmissible in evidence, if it at least contain a statement that the seller is a VAT registered entity followed by his TIN-V NOTE: there is no major difference between an invoice and official receipt with regards to matters that should be contained therein. In an action to claim credit or refund, the claim must be made by and in the name of the real party in interest. Indirect tax it is one wherein the incidence of or the liability for the payment of tax falls on one person, but the burden thereof can be shifted or passed on to another person. The proper party who can question or seek a refund (just like in VAT or excise tax) is on the person whom the tax is imposed by law and who paid the tax even when he shifted the burden thereof to another. NOTE: what is referred to here is the manufacturer exporter not the supplier even if he is the one who paid the excise tax. Final withholding tax Corporate withholding agents in the Philippines of non resident foreign corporation are entitled to claim the refund or credit erroneously or excessively withheld taxes of such non resident foreign corporations. Liability of Government for interest GENERALLY: the government cannot be made to pay interest on the amount refunded in the absence of statutory provisions clearly and expressly authorizing such payment of interest.

EXCEPT: When there is over withholding of income tax from the wages of employees and the amount thereof is not refunded or credited to the employees within 3 months. Also where an illegal tax has been collected, taxpayer is entitled to interest form the time of illegal exaction.

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