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This reviewer consists of my notes during Tax II of School Year 2005-2006. I incorporated the questions that were not asked during class but were part of the old transcript for academic purposes. So, basically, this is an UPDATE on the past reviewer/s. This reviewer is dedicated to the FAB (Paul, Kat, Joei and Jaypee)
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A: Estate tax takes effect after death while gift tax takes effect during the lifetime. Q: What is the relation of estate tax to income tax? We are not talking about estates as a tax payer. A: One American author said that what is not caught in life shall be caught in death. Q: What forms part of gross estate? A: All properties of the decedent, real or personal, tangible or intangible (when resident or citizen). But in case of non-resident alien, it includes all those within and if the situs is here in the Phils. Q: Is it accurate to say that only assets owned by the decedent at the time of his death would form the gross estate and that assets or interests of 3rd parties would not form part of the gross estate? A: No. Gross estate includes not only assets of decedent at the time of his death but also lifetime transfers such as transfers in contemplation of death, revocable transfers and a general power of appointment. Sometimes a property never owned by the decedent forms part of the estate under a general power of appointment. Q: Is the gross estate the same in all kinds of decedents? A: No, the property of a non-resident alien decedent property without the Philippines is not subject to estate tax. Q: X, a citizen, dies in Makati. He has property in Philippines, the US and Canada. Philippines US Canada Deposits Deposits Deposits Real property Real property Real property Stock Stock Stock What is subject to estate tax? A: When you encounter this type of problem, the first step is to determine who the decedent is. In this case X is a citizen, therefore; everything is subject to estate tax. Q: Same situation but what if X was a non-resident citizen?
I ESTATE TAX
Sec. 84-97; Sec. 104 June 21 Tuesday 7-9pm Q: What is an estate tax? A: An estate tax is a tax on the privilege of transmitting property at death which is measured by the value of the property at the time of the death of the decedent. De Leon: Estate tax is the tax on the right to transmit property at death and on certain transfers by the decedent during his life time which is made by law the equivalent of testamentary dispositions. Q: When does the estate tax accrue? A: It accrues at the time of death irrespective of whether the heirs took possession or enjoyment of the property. Q: What does estate tax consist of? A: It consists of property transmitted at death and lifetime transfers but regarded as testamentary dispositions. Q: Suppose A dies, leaving 3 heirs. A had 3 apartments. A dies. Each of his heirs inherited at least one of the apartments. Is the estate tax payable by the heirs? A: No. Estate tax is a transfer of a net estate to the heirs but not a transfer of the net estate to a specific heir. Q: How do you reconcile the fact that estate tax is a tax on the privilege to transfer but the law contemplates estate tax as a transfer of a net estate? A: Massacre Question! Didnt get the answer!! =( Q: Distinguish estate from gift tax.
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A: No, law requires doing business for the shares of a foreign corporation to be included in the gross estate of a decedent. Equity investment is not doing business Q: X, a non resident alien, died abroad. He had promissory notes. 2 were issued by Philippine individual debtors. The value of the promissory notes is P1m. Will the promissory notes form part of the gross estate? A: No, Law says shares, obligations or bonds of a corporation not individuals. Q: What about the argument that the debtors are Filipinos? A: The decedents interest is located abroad. DECEDENTS INTEREST Q: What is the decedents interest? A: Sec 85 (A) Decedents Interest - To the extent of the interest therein of the decedent at the time of his death. Q: Why should you know decedents interest when gross estate includes lifetime transfers? A: To know the extent of interest like dividends. Q: Dividends were declared December 15. Payable the following quarter of the taxable year. Decedent died December 20. Would the dividends form part of the gross estate of the decedent? A: Yes. In determining the decedents interest when it comes to dividends, what is important is the date of declaration of dividends, and not the date of the receipt of dividends. Q: If the decedent was entitled to a year end bonus paid in December but he died in July. The bonus was paid in December. Would the bonus be part of the gross estate? A: No, because it did not accrue at the time of the decedents death. But it is considered an income of an estate but not a part of the gross estate. Q: Suppose decedent is a contractor. He has a building contract. He did a flyover. The contractor is to be paid in 2 years by 4 installments but before the payment of the 3 rd installment, he died. What would be part of his estate?
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circumstance of Age overcomes the circumstance of being healthy. In this case, since X is already 80 years old, we could say that his age overcomes the fact that he is healthy and by taking into consideration the proximity of the date of giving and the death, we could say that this is a transfer in contemplation of death. Q: What is the reason why these life transfers form part of the gross estate? A: Because it really is a testamentary disposition. Q: X, 60 years old, sells his P10m property to his grandson for P1m. He told his grandson that he will die anytime soon. After selling the property, X died. Will the property form part of the gross estate of X? A: Yes, the sale was not for an adequate consideration. Even in transfers for insufficient consideration, it should be in contemplation of death or else it would be gift tax. Q: Same situation but X sold it for P9m. A: No, because there is an adequate consideration. consideration takes it away from the gross estate. This
Q: Supposing A, suffering from mental impairment but still sane enough to execute a transfer, transfers his property to his son, B. A tells his son I am transferring this to you, because Im mentally ill, I may soon become insane. Not only did he become insane, he died. Would this be a transfer in contemplation of death? A: No, because it in contemplation of incapacity and not death. June 23 Thursday 8-9pm -Free CutJune 27 Monday Happy Birthday Nad! June 28 Tuesday 7-9pm -Free CutJune 30 Thursday 8-9pm
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A: Yes, because in effect it became a transfer in contemplation of death. Q: Same situation, but what if X didnt die. He lived for another 5 years, then died on the 6th year. A: This would be very difficult to argue that it was done in contemplation of death, because he lived for another 5 years. US jurisprudence would tell you to look at the intent of the decedent. In this case, X made the transfer irrevocable because he thought he was going to die. Therefore, it could be said that the transfer was done in contemplation of death. Q: How do you establish intent? A: From the circumstances Q: Suppose X made a revocable transfer of a property worth P9m to his son but the son only paid X P8m. X died. Would the property form part of his estate? A: No, because there is adequate consideration which means that it left the estate. GENERAL POWER OF APPOINTMENT Q: What is a general power of appointment? A: De Leon: It refers to the right of the decedent to designate any person including himself who shall enjoy or possess certain property from the estate Q: What are the requisites for the taxability of appointed property? A: De Leon: The requisites are: 1. The existence of a general power of appointment 2. An exercise of such power by the decedent by will or by deed 3. The passing of the property by virtue of such existence. Q: How is a general power of appointment made? A: Sec 85 (D) provides: 1. by will 2. by deed in contemplation of death 3. by deed to take effect at death 4. by deed where decedent retained for himself several rights pertaining to his property
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It is special when he can appoint only among a restricted or designated class of persons other than himself. Q: Are properties transferring under a special power of appointment part of the gross estate? A: No, because the decedent cannot appoint himself INSURANCE PROCEEDS Q: Are insurance proceeds part of the gross estate? A: Yes, but, as provided in Sec 85 (E), only to the extent of the amount receivable by the estate of the deceased, his executor, or administrator. Q: X takes a policy on his own life. The Beneficiary is his estate. Proceeds are P1m. Will these form part of the gross estate? A: Yes Q: Same situation but the revocable beneficiary is Y. Will the proceeds form part of Xs gross estate? A: Proceeds go to Y as beneficiary, but for estate tax purposes, it shall be computed as part of the gross estate of X. Q: Same situation but Y was an irrevocable beneficiary. Will the proceeds still form part of Xs gross estate? A: No, it will not form part of the gross estate for estate tax purposes. But remember, to be irrevocable, it must be expressly stated. Q: What if the irrevocable beneficiary dies. A: It does not form part of the gross estate of the beneficiary. US jurisprudence makes a distinction if it has a reversionary provision or it was absolute. If it had a reversionary provision, then it will revert back to the insured. It would not form part of the beneficiarys gross estate. If it was absolute, then 2 schools of thought (didnt quite get what sir said) July 5, 2005 Tuesday 7-9pm TRANSFER FOR INSUFFICIENT CONSIDERATION Q: When is transfer for insufficient consideration part of the gross estate?
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DEDUCTIONS 1. ELITE Expenses, Losses, Indebtedness, Taxes, Etc a. Funeral Expenses Q: Supposing A, during his lifetime, bought 3 memorial lots worth P300k each. A died. The heirs used one of the lots for his burial. Would the lot used for his burial be deducted as funeral expense? A: Yes, only the actual lot used for the funeral, because the expense incurred for the use of the lot was incurred by the estate. All the 3 lots formed part of the estate of A, but only 1 lot was used as an expense by the estate. Q: What about monuments and tombstones? Would they be deductible as funeral expense? A: Yes. According to the book of Reyes, the cut-off point is internment. Expenses, related to the death, which accrue after internment are not considered funeral expenses. Thus, the expenses on the card of thanks or the mass for the dead after 40 days from death are not funeral expenses. Q: Supposing A died. B, his son, texted all the relatives informing them of As death. B sent a text message to a friend. B said in the text Hi how are you? I miss you. By the way, my father just died. Would these be deducted as funeral expense? A: Yes. Funeral expenses should not be confined to its ordinary or usual meaning. They even include telecommunication expenses incurred in informing the relatives of the deceased. Q: During the march from the wake to the burial place, there was a drum, bugle and even an ati-atihan. The value of these amounted to P50k. It was said that the decedent loved these kind of entertainment. Would these be deductible as funeral expenses? A: Again, the cut-off point is internment and as long as they were related to the death of the decedent, it would then be deductible. Also, it should be paid by the estate. Q: During As funeral, B, his relative paid all the funeral expenses out of his own pocket. Are these expenses deductible? A: No, because the expenses must come from the estate.
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c.
Q: What are claims against the estate? What are the requirements for it to be considered a claim against the estate? A: Reyes: A person, at some time during his lifetime, must have contracted obligations. If enforceable against him when alive, the obligations will be claims against his estate when he shall be dead. Q: A died. Supposing P1m was spent for funeral expenses. According to the law, the maximum amount of funeral expenses that can be deducted is P200k. Can the excess (P800k) be deducted as a claim against the estate? A: No, because: 1. Claims must be existing at the time of the death of the decedent. 2. This would violate the statutory limitations. When you are talking about deductions, statutory limits must be followed. Funeral expenses owed by the estate can be filed against the estate under Rule 86 of the Rules of Court. But the deductions are limited. You have to make a distinction between claims against the estate that must be paid and claims against the estate that may be deducted. In this case, they are claims that must be paid. Q: What is required if the claim against the estate arose out of a debt instrument? A: The debt instrument must be notarized at the time the indebtedness was incurred. Q: X loaned money from Y. X issued a promissory note. The Promissory note was notarized 3 years after the debt was incurred. A year after, X died. Would the debt be deductible as a claim against the estate? A: No, because the promissory note was only notarized after the debt was incurred. The law requires the debt instrument to be notarized at the time the indebtedness was incurred. Q: Supposing the administrator argues that it was notarized a year before the death of the decedent. Thus, it is considered an existing debt at the time of the death of the decedent.
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Q: X died. The estate pays income tax on the income earned by the property. Is this deductible? A: No, because the income received was after the death. If before the death, then it is deductible. Q: What is the distinction between the previous situation and one where you dont have a judicial proceeding? A: For estate tax purposes, there really is no difference. In both cases, you have assets earning revenue, both are taxable on the net and what forms part of the estate are the same. The difference will be in the income prior to the settlement. In the situation with a judicial proceeding, the estate is the taxpayer while in a situation with an extra-judicial settlement, the heirs, as co-owners, are liable for the taxes. Remember in tax I, the estate is a tax payer only if there is a judicial proceeding. g. Losses Q: What are the conditions for losses to be deductible from the gross estate? A: The conditions are: 1. Arising from fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement; 2. Not compensated by insurance or otherwise; 3. Not claimed as a deduction in an income tax return of the estate subject to income tax; 4. Occurring during the settlement of the estate 5. Occurring before the last day for the payment of the estate tax (6 months after decedents death or after extension of 30 days) Q: What if the losses were incurred prior to the death or at the time of the death of the decedent? Would this be deductible as losses? A: No, the law says during settlement Q: A, administrator, withdrew from the bank P500k, which was the income of the estate. Because he was suffering from dementia, he forgot where he placed the P500k. Would this be deductible as loss? A: No, the P500k is income of the estate and income does not form part of the gross estate for estate tax purposes. Granting arguendo that the P500k is not income of the estate but part of the gross estate, it would still not be deductible as a loss because the conditions are not present in this situation.
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Q: What taxes are deductible? A: Taxes accruing before the death but not including any income tax upon income received after the death of the decedent, or property taxes not accrued before his death, or any estate tax because these are chargeable to the income of the estate.
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A: No, one of the conditions set by law is that the property should be located in the Philippines. 3. Transfer for Public Use Q: When should the disposition take effect? A: After the death of the decedent Q: Suppose decedent made a transfer in favor of an NGO. Would this be deductible as transfer for public use? A: No, it should be for the government, not for a non-government organization. 4. Family Home Q: What is this Family Home deduction? A: It is a deduction allowed in the amount equivalent to the current fair market value of the decedents family home. The maximum is P1m. The family home must be certified to as such by the barangay captain of the locality where it is located for it to be deducted. Q: Can a decedent have 2 family homes? A: Yes, but he cannot be able to claim them both as family home deduction. Q: How is a family home defined for estate tax purposes? A: A family home of a married person or an unmarried head of family is the dwelling house where a person and his family reside, and the land on which it is situated. Q: Suppose the decedent lived in an ancestral home for 5 years. The house belonged to his mother, but was constructed by his uncle. Is it deductible? A: No, the family home must be owned by the decedent Q: A is an unmarried head of the family. He had this residence in his hometown but he never used it because he stayed in Manila. He even had it rented for P10k/month. Can this be deducted. A: The law does not really say anything about this, but BIR opinions say that the decedent must have actually resided at the time of his death. At least decedent actually dwelled in the home. Again, we have to remember the rule that deductions are strictly construed.
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receipts. Provided, that in no case shall the deductible medical expenses exceed P500k Q: What if the medical expenses amount to P1m, would the excess of P500k be claimed as a claim against the estate? A: No, if it is already covered by one category of deductions, you cant put it under a different category because this would violate the statutory limitations. Q: What if you did not claim as medical expenses, but instead you claimed it as a claim against the estate? A: In medical expenses you have to show medical bills. Note: There is this revenue regulation that states if medical expenses are incurred more than 1 year prior to death and still unpaid, then it cannot be deducted as a claim against the estate. 7. Amount under RA 4917 Q: What is this RA 4917 deduction? A: Any amount received by the heirs from the decedents employer as a consequence of the death of the decedent-employee in accordance with RA 4917 shall be deductible from the gross estate of the decedent. Q: X died. The heirs were given the separation benefit. Is this deductible? A: No, the law provides that only benefits under RA 4917 are allowed as deductions. RA 4917 will form part of the gross estate, but not deductible. Law only talks about 4917 and not any other benefits under any retirement plan. EXEMPT TRANSMISSIONS Q: What are these exempt transmissions? A: Exemption of Certain Acquisitions and Transmissions: 1. The merger of usufruct in the owner of the naked title; 2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicomissary. 3. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor;
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A: The value of the usufruct is included in the gross estate of B. (Sec. 88 (A)) Q: Same question, but B dies ahead of A. A: Sec. 88 (A) also applies. July 7, 2005 Thursday 8-9pm
For #s 1-3, the value of the property need not be included in gross estate, while for # 4, the value must be included and the same will be deducted. Q: A, the owner gives usufruct to B. A dies. What is the estate tax consequence? A: Forms part of the estate of A, because A is still the owner. Q: Same situation but what if B dies? A: It is not taxable because the right of the usufruct is included in the gross estate of the decedent. Q: A, the decedent tells B, his son that he can determine who is to enjoy the property upon his death. B chooses C as the substitute heir. B dies. A: Law only says fideicommissary substitution. Under the law on Succession, the requirement is that the substitute heir must not be more than 1 degree. Q: What is the difference between the 2nd and the 3rd exempt transmission? A: The 2nd exempt transmission has a substitute provision while the 3rd exempt transmission allows any beneficiary who receives it under decedent. Q: X dies. His estate is worth P20m. The beneficiary leaves it to the beautiful cat foundation. Is it an exempt transmission? A: If it falls under charitable Q: Suppose A transfers property to trust. This property would be enjoyed by B but the title is given to C. A dies. Would the property be part of the estate? A: If it is revocable, it would form part of As estate Q: Same situation, but B dies?
Nad Pugeda 3C 2005-2006
TAX CREDIT Q: What is the purpose of this tax credit? A: The purpose of this tax credit is to provide relief to the taxpayer, because his property located abroad is subject to foreign and local estate tax. Q: Supposing A died with real property abroad and here. X paid estate tax abroad. What is the tax consequence? A: The limitation is the tax credit shall not exceed the tax payment. There is a formula regarding tax credit. VALUATION OF THE GROSS ESTATE Q: How is the estate valued for estate tax purposes? A: Fair market value at the time of the death Q: How do you determine the Fair market value? A: It would depend what the property is Real, Personal or shares of stock. Q: What if it is real property? A: The appraised value of real property as of the time of the death shall be, whichever is the higher of (1) the fair market value as determined by the Commissioner or (2) the fair market value as shown in the schedule of values fixed by the Provincial or City Assessors. Q: How about personal property? A: If the property is recently acquired by the decedent, the purchase price may indicate the fair market value. There is a problem if the personal property was not recently acquired like antique, collection of stamps, etc So you need a standard to determine the Fair market value. The BIR determines this standard based on circumstances like a comparison with pawnshops.
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Obiter by Sir: When you have an estate that exceeds P2m, the BIR wont accept the estate tax return without certification from CPA that it was filed in accordance with BIR regulations. CPA is then happy because he gets extra income. Case Alert! Commissioner v Gonzales Issue as to the taxpayer administrator. The defense was that the liability should be limited to the part she holds (1/3). Supreme Court said whole liability because several liability of 2 or more administrators. Law says administrator is liable for estate tax. Anyway, tax shall be taken from the estate. (Read page 772-773 of the case) RECIPROCITY Q: What is this reciprocity provision? A: When the foreign country of the non-resident decedent allows a similar exemption to a non-resident Filipino, meaning the intangibles of the non-resident Filipino in that foreign country of the non-resident decedent would exempt the intangibles similarly Q: Who does it apply to? A: To non-resident aliens Obiter by sir: Estate tax is called death tax in some jurisdiction Case Alert! Rueda Q: Supposing you have an ambiguity like in this case, would the reciprocity provision still apply? A: No, remember, exemptions are strictly construed. Q: Can the estate of the non-resident alien decedent claim exemption even if there is just partial reciprocity? A: No, the SC held in the case of Fisher that reciprocity must be total with respect to transfer or death taxes of any and every character. If any of the 2 states collects or imposes and does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work. This is the underlying principle of the reciprocity clauses in both laws. Case Alert! Fisher
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Q: X rendered services to Y 5 years ago. Y now gives X a car voluntarily without any consideration. Is this considered as a gift for purposes of gift tax or for purposes of exclusion? A: Subject to gift tax. In cases of exclusion, it is not sufficient to just have absence of consideration. The element of disinterested generosity should be present. Q: Given that, how do you distinguish gift for gift tax purposes and gift for exclusion? A: Gift tax uses comprehensive language. It is very broad and could be through any devise. Exclusion is limited and it is necessary to have disinterested generosity. Q: I give you this car for no consideration, but I can get it back from you anytime next year. Would this be subject to gift tax? A: Not taxable as gift tax, because there is no cessation of control. There must be a completed gift for it to be subject to gift tax. It must be put beyond recall. Case Alert! Burnett Q: Differentiate revocable trust, revocable transfer and revocable gift. A: Revocable trust income never left the owner Revocable transfer property never left the owner Revocable Gift Deemed as if the gift never left the donor If the gift earns income, it will be taxable on the part of the donor If the donor dies, it will form part of the gross estate of the donor. Case Alert! Smith Q: What is the distinction between the Smith Case and the Burnett Case regarding the trust? A: In Burnett, it was a revocable trust. In Smith, it was irrevocable. So the question in the Smith case, would be the reversionary provision Q: How did the Court conclude from the language of the law the contingent element in Sec 98 (B)?
II GIFT TAX
Sec. 98 104 Q: What is this gift tax? What is the nature of this gift tax? A: De Leon: The donors tax is imposed on donations inter vivos or those made between living persons to take effect during the lifetime of the donor. Q: How is the gift tax related to estate tax? income tax? A: When a person during his lifetime makes a gift, he diminishes his gross estate thus, avoiding estate tax. As for income tax, De Leon discussed that without donors tax, the donor may escape progressive tax rates of income taxation through the simple expedient of splitting his income among numerous donees. Q: What property is contemplated in donors tax? A: real, personal, tangible, intangible Q: A owns a property yielding P10m/year. A gives half of the property to B. Half of this property yields P5m/year. Will this be subject to gift tax? How do you protect the income tax when the P5m/year will still be subject to income tax? A: Yes, it will still be subject to gift tax. Q: How is gift tax imposed? A: Sec 98 (B) the tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.
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Q: Dad owns shares worth P70 per share. Son is engaged in trading securities. Dad told Son to sell his shares for P140/share such that the profit would belong to Son. Is there a taxable gift? A:
Q: Same question, but what if there is no filial relationship? A: No gift because it was a transaction in the ordinary course of business. In a purely business transaction, transactions with discounts and bargaining are beyond the scope of gift tax. Q: A starlet goes to a car shop and the owner of the shop sells a P1.2M car to her for only 200K, is there a taxable gift? A: It could be argued that it may be a business transaction where the starlet should opt to be a model for the car shop. If that is the case, then it is not deemed a gift. Business transactions are beyond gift tax coverage.
Q: What if A gives B a gift directly but B should also give A a gift directly. Would there be a taxable gift? A: No taxable gift because there is consideration involved in this situation Q: X would give his Bulacan land as a gift to Y provided that Y would give his Laguna land to X as a gift. Is there a taxable gift? A: No. There is no gift because the transfer was with consideration. It is a taxable exchange of property. If it is a capital asset, it is an exchange subject to Sec. 24 (D). Q: A rendered services to B. The value of the service is P50k. C pays A P100k. Is there a taxable gift? A: C made a direct gift to A the excess of P50k worth of services. C made an indirect gift to B when C paid Bs debt. Q: B rendered services to C worth P50k. C did not pay B. A paid B P100k for Bs services to C. A and C are strangers. What is the gift? A: A made a direct gift to B the excess of P50K worth of services. A made an indirect gift to C when A paid Cs debt.
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Q: X bought a property in 1995 for P1m. At present it costs P10m. X sells the property to Y for P2m. Would this be subject to gift tax? A: You have to first determine whether the property is a capital asset. If it is, then it would be subject to 6%. If not, the excess would be subject to gift tax as transfer for insufficient consideration. SUBJECTS OF GIFT TAX Q: Who are subject to gift tax? A: The law says any person, resident or non-resident Q: X, resident of Shanghai, went to Binondo, Philippines and bought a P1m necklace for his Chinese girlfriend. X gave it to his girlfriend when they were in the Carribean. Would this be subject to gift tax? A: No, the Philippines had no jurisdiction when the necklace was given. Situs of personal property follows the owner Citizen Resident Alien Nonresident Alien Domestic Corporation Foreign Corporation Within Without Sec. 104 re: intangibles Sec. 104 re: intangibles
Q: A, a resident alien, took a permanent job abroad. He subsequently donated his car to B, a Filipina. Would this be subject to gift tax? A: No, A was already considered a non-resident alien at the time he gave the gift to B. We have to look at the circumstances of the case to determine whether the person became non-resident. You also have to show abandonment of residence in the Philippines. VALUATION OF GIFT TAX Q: How do you value gift? Real property? Personal property? A: Same as in estate tax. For real property, the appraised value of real property as of time of the death shall be, whichever is the higher of (1) the market value as determined by the Commissioner or (2) the market value as shown in the schedule of values fixed by Provincial or City Assessors.
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EXEMPTIONS OF CERTAIN GIFTS (Sir did not discuss these, but this is found in the old reviewer) 1. Dowries Q: What are the requirements for gifts in consideration of marriage to be exempted from the donors tax? A: It should be: Given by parent To children Given before or within one year from celebration of marriage Limit: First P10k Q: If a gift is given after the celebration of marriage, can it be exempted from the tax? A: Yes, if given within 1 year from celebration of marriage Q: Suppose a child gave a donation to his widower father, can this donation be exempted? A: No, the law only contemplates gifts made by a parent to a child and not a child to a parent Q: X will give a property to Y on a condition that Y will marry X. They got married. X gave the property. A: This is prohibited by law Q: Dad will give X a gift if X will marry Dads daughter. The BIR taxed the transaction. However, Dad argued that the consideration was the marriage, therefore exempt. Is this exempted? A: It is not exempted. It is not a gift if there is a consideration. In this case, the consideration is the marriage. However, the consideration is not valid because marriage is incapable of pecuniary estimation Q: Suppose Dad makes a donation worth P100k but the funds came from the conjugal property, what would be the extent of the exemption? A: In the case of Tang Ho v Collector, the Supreme Court ruled that he wife must expressly join the husband in making the gift, and her part cannot be implied. Since the wife did not expressly join the husband in the donation, the donation would be deemed to be
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Q: When can you invoke the non-impairment provision with tax law? A: Non-impairment applies when you have a tax exemption pursuant to a contract. However, in Tax I, exemptions granted to franchise can be impaired anytime. Q: Who are liable to pay VAT? A: Reyes book: Any person who: 1. sells, barters or exchanges goods or properties in the course of trade or business; or 2. sells services in the course of trade or business; or 3. imports goods, whether or not in the course of trade or business. Q: Supposing I sell to you my car for P1.5m. Will this be subject to VAT? A: No, the transaction must be in the course of business. Q: Y is engaged in the business of selling 2 nd hand cars. He buys a 2nd hand car and subsequently sells it. Will this be subject to VAT? A: Yes, because Y is in the business of selling 2 nd hand cars. Unless, Y can argue that the car he bought was not part of his business and at the time he bought it from another person, he had no intention to make the car part of his business. Q: There is this organization of lay ministers. In order to support their activities, they sold raffle tickets. It exceeded the new VAT law threshold of P1.5m. Will the sale be subject to VAT? A: No, because this is not an economic and commercial activity. The law, under Sec 105 par. 3, defines the phrase in the course of trade or business as the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person is engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
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3. 4.
gross annual receipts exceed P1.5m offered primarily for sale or lease (not capital asset)
Q: X sells his house and lot in order to buy another house and lot. Will this be subject to VAT? A: No, the house and lot were not sold in the ordinary course of business Q: X has P5m worth of goods. X exchanges these with Y for P5m worth of real property. Will this be subject to VAT? A: Yes, the law includes barter or exchange as long as it is done in the ordinary course of business. Q: If you sell your house, and you are a real estate dealer, is it subject to VAT? A: no, it excludes capital assets. Q: Suppose you sold a lot for the right of way, is the sale subject to VAT? A: No. Selling for a right of way is not primarily for sale. It is a forced sale. Q: If you have a property and then you leased it to a foreigner for $100K for the entire year. Would it be subject to VAT? A: Yes even if paid in foreign currency because it is not a foreign denominated sale. INCIDENTAL AND ISOLATED TRANSACTIONS Q: What is the concept of "incidental to the business"? A: It is when the transaction is not the main purpose of the business but somehow related to it. It is subject to VAT. Q: What is the difference between isolated transactions and incidental transactions? A: Isolated transactions are not subject to VAT but incidental transactions are subject to VAT. Q: Suppose a real estate dealer sold a parcel of land which is not a part of the bundle of the property he is selling, is it subject to VAT? A: No. This is not a transaction incidental to the business but rather an isolated transaction as the property was not held for sale to the customers.
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2nd transaction letter A: X co. declared and paid a dividend out of inventory. This is deemed a sale Note: It should be stressed that it should be share in the profits of a VAT-registered person 2nd transaction letter B: X co. indebted to Y co. for raw materials. When X co. could not pay in money, Y co. agreed to receive the finished goods of X co. in payment. This is deemed a sale by X co. 3rd transaction: E co., a manufacturer, made sales, as follows: To Mr. F, on credit, with title to the goods passing to Mr. F, and to Mr. G, on consignment, with title to the goods to pass only upon actual sale of the consigned goods to a buyer. The goods consigned to Mr. G are still in the shelves of Mr. G. The sale of Mr. F is subject to the VAT because title to the goods has passed to Mr. F. The consignment to Mr. G, although title to the goods has not yet passed, will be subject to the VAT after 60 days from the date of consignment 4th transaction: H&I was a partnership in trade. H&I was dissolved and J&K was formed to continue the business of H&I. At the time H&I was dissolved, the books of accounts showed a merchandise inventory of P100k. The inventory shall be deemed sold by H&I. Q: Since there really is no sale, then what would be the tax base? A: The fair market value would be deemed the gross selling price Q: Y is the supplier of X. Y supplies P1m worth of goods to X. X was not able to pay Y the P1m within 1 month. So what he did was to pay Y the same goods given plus other goods. Would this be VATable? A: Yes, because there is cash at hand or property (????) Q: X is engaged in the business of auctioning cars. A, B and C delivers car to X for it to be sold by X on consignment. When it was sold it was sold in the name of X. Who is liable to the payment of VAT? A: X is deemed to be the seller. If not sold within 60 days, X is liable. If sold within 60 days, X is still liable (???) Q: Is it proper to say that even 0 rated sales are VAT-able? A: Yes. Reyes book: The tax is 0 percent of the gross selling price if:
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Q: Why are export sales 0 % rated? A: Q: What if export sale delivered to a resident here. The buyer is a non-resident but it was delivered to a resident. Will this be 0 rated? A: Yes, see Sec 106 (2) (a) (2) Q: Sale to an export-oriented enterprise. Is this an export sale? A: Yes, see Sec 106 (2) (a) (2) Q: In Sec 106 (2) (a) (3), what is the 70%? 70% of what? A: 70% of the total annual production. See the Atlas Case too. Q: Sale of Fuel and other supplies to international carriers. Will this be 0 rated? A: Yes, this is one of the amendments found in the new VAT law. Q: What are the distinctions between 0 rated and exempt transactions? A: De Leon: 0 rated Transaction is completely free from VAT A VAT-payer can claim and enjoy a credit or refund for the input tax invoiced to him on his purchase Taxable Sales Exempt transactions Only removes the VAT at the exempt stage Not applicable
Q: Y imports printing equipment for P400k. It will be for his personal use. This is the only transaction he made for the taxable year. Will this be subject to VAT? A: The importation will be subject to VAT, because when it comes to importation the law does not distinguish whether or not the transaction was done in the course of trade or business. Q: What if Y argues that it is below the P1.5m threshold requirement as provided in the new VAT law? A: When it comes to importation, the law dispenses with the threshold requirement Q: What is the basis for saying that the law dispenses with the threshold requirement when it comes to importation? A: If you take a look at the new law, the threshold requirement only applies to sales of goods and not importation. Regardless of the amount or the purpose of the importation, it will always be subject to VAT Q: X imports a computer worth P1m. He is not in the business of selling computers. Subsequently, he sells it for P1m. Will this be subject to VAT? A: The importation will be subject to VAT, because when it comes to importation the law does not distinguish whether or not the transaction was done in the course of trade or business. The subsequent sale will not be subject to VAT, because it was not in the course of business. Reyes: However, if X was a tax-exempt person and he subsequently sells, transfers or exchanges in the Philippines such imported article to a non-exempt person or entity, the purchaser, transferee or assignee will be required to pay the VAT. Q: Who is subject to VAT in importation? A: The importer Q: Supposing a foreign corporation engaged in selling machineries has a branch in the Philippines. Buyer told branch that he would buy. Branch told the Parent. Parent delivered the machineries. Who is the importer?
may
not
Q: What is the difference between an exempt transaction and an exempt party? A: July 21 Thursday 8-9pm
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Reyes: Lease of property shall be subject to VAT irrespective of the place where the contract of lease or licensing agreement was executed, if the property is leased or used in the Philippines. Q: What is this so-called destination principle? A: This can be found in the Seagate case. The principle provides that if it is destined or to be consumed here, then it is taxable in the Philippines. If it is destined or to be consumed abroad, then it is not taxable in the Philippines. Case Alert! Seagate Case Alert! Toyo Case Case Alert! Contex July 26 Tuesday 7-9PM -Free CutJuly 28 Thursday 8-9pm Q: A inc. enters into a contract of service with B inc. The actual cost incurred by A inc is P300k. B inc. just reimbursed A for the cost. Would this be VATable? A: Yes, because the payment A gave to B was not only a reimbursement but was also considered a fee. There was a valid consideration involved in the contract of service. In the Comaserco case, it was held that it was immaterial whether profit is derived from rendering service as even non-profit institutions and the government may be subject to it Case Alert! Comaserco Q: Suppose that a contractor advanced costs for labor and materials. Then the contractor bills the owner P1.6m including the advanced payment. Is the total amount of payment subject to VAT even when there is just a mere reimbursement of cost or return to capital? A: No, the mere reimbursement of cost is not subject to VAT. Comaserco case does not apply because when the contractor adds the advanced cost in the total amount of payment, the contractor is NOT charging you, but it was a mere reimbursement. It is not for a
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A: It is the certificate applied to claim the input tax credit. With this certificate, a taxpayer may settle his other tax deficiencies except withholding tax, but he must use it within the 5 year period. Q: In order to claim input tax credit, must it always be related to the business? A: Yes, as seen in the previous example. The buying of cement is related to As construction business. Q: Suppose A is a VAT registered person who rents his house to B. B used the house partly for business and partly for residential purposes. What may B claim as input tax credit? A: B may only claim the portion that he used in the business for input tax credit. It must be related to the transaction in order to claim input tax credit. You cannot claim input VAT for personal purposes. Q: When do you have excess input tax credit? A: When at the end of any taxable quarter the input taxes exceed the output taxes. Q: What happens to this excess? A: The excess shall be carried over to the succeeding taxable quarter or quarters. Q: What are the limitations to this carrying over? A: Reyes: There are 2 limitations: 1. The input tax, inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed 70% of the output VAT 2. If the aggregate acquisition cost, excluding the VAT, of capital goods subject to depreciation exeeds P1m: a. If the estimated useful life is 5 years or more: The input tax shall be evenly spread over the month of acquisition over the 59 succeeding months b. If the estimated useful life is less than 5 years: The input tax shall be spread over its useful life.
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gross sales or receipts do not exceed P100k then it is not engaged in business Tax on Domestic Carriers Q: Who are subject to the domestic carriers tax? A: Those subject to the tax on domestic carriers are: 1. Cars for rent or hire driven by the lessee (rent-a-car); 2. Transportation contractors, including persons who transport passengers for hire; 3. Other domestic carriers by land, air or water, for transport of passengers, except owners of bancas and animal drawn 2-wheeled vehicles; and 4. Keepers of garages Q: What do they transport? A: Persons or passengers Q: What about transport of cargos? A: Not subject to percentage tax but subject to VAT Franchise Tax Q: What franchises are subject to a franchise tax? A: Reyes: Certain franchise grantees are subject to franchise tax, a percentage tax. Other franchise grantees are subject to the VAT. The franchise tax is: 1. On gross receipts covered by the law granting the franchise 2. At the following rates: a. On radio and/or television broadcasting companies whose annual gross receipts of the preceding year did not exceed P10m 3% b. On electric, gas and water utilities 2% The radio and/or television broadcasting company whose annual gross receipts of the preceding year did not exceed P10m may opt to be registered under the VAT system. Once the option is exercised, the option is irrevocable. Overseas Communication Tax
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Q: Supposing you sold to the IPO P200k worth of shares. What is the applicable tax rate? A: It is based on the gross selling price or gross value in money of the shares sold, bartered, exchanged or otherwise disposed of at of 1%. Q: Who is the taxpayer? A: The seller if the shares are listed and traded thru a local stock exchange. The issuing corporation in primary offering, and the seller in secondary offering in the case of disposition thru initial public offering. GROSS RECEIPTS Q: What does gross receipt contemplate? A: It means cash actually and constructively received. It should include everything. There should be no deduction, whatsoever, to arrive at the taxable gross receipts. Gross receipt should be construed in its ordinary meaning. August 2 Tuesday 7-9pm Case Alert! China Case Alert! Solid Bank
V EXCISE TAX
Sec. 128-132, RA 9224, RA 9334 Q: What is an excise tax? A: De Leon: Excise tax refers to taxes applicable to certain specified or selected goods or articles manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines Q: Is it a privilege tax despite it being a tax on selected goods?
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The manufacturer may simply undervalue the price to reduce the ad valorem tax Even if the manufacturer undervalues the price, the tax remains the same because only thing to look at is the quantity of goods.
Q: Tell me if specific or ad valorem. A: Alcohol Specific Tobacco Specific Petroleum Specific Vehicles Ad Valorem Mineral Products Ad Valorem Vehicles and Mineral products are the only 2 subject to ad valorem. However, you can argue that alcohol has some ad valorem aspects, but technically it is specific. Obiter of Sir: Law gives a tax rate, but gives BIR flexibility to make it higher Q: What is the concept of tobacco? A: It is specific. For tobacco, the rates are by the cigar. For cigarettes, you have to distinguish if it was made by the hand or by the machine, because if it is by the machine, the rates are per pack. Tobacco/cigarettes are different from other goods, like alcohol, because the tax itself would exceed the net retail price. It would seem that the legislators think that cigarettes are more sinful than alcohol. Trivia of Sir: There are 52 brands of cigarettes in the Philippines Q: What is the concept of Net Retail Price? A: It is indexed to inflation. The purpose is that the tax will remain the same despite inflation Therefore, if there is inflation, the net retail price can increase with the tax remaining the same. It is a compromise formula. Q: What is a variant? A: For example: Salem is an old brand. Salem menthol is a variant of an existing brand. As a taxpayer, look at your product
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Sir: Some would say it is a tax on document. Some would say it is a tax on transaction. Some would say both. One time, it was even said to be a tax on the privilege of the transaction. Anyway you put it; it is really a tax on the document. But this is all just a theoretical discussion, because in real life, you just pay and then shut up. Q: Who pays the documentary stamp tax? A: De Leon: The tax is imposed against the person making, signing, issuing accepting, or transferring the document or facility evidencing the transaction. Q: When do you pay? A: Upon execution of the document Q: What if one of the parties is not liable for the documentary stamp tax? A: The law provides a situation where one party may be exempt, and the other is not. In this kind of situation, the party who is not exempt, will be liable to pay the documentary stamp tax. Sec 173 xxx provided, that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party there who is not exempt shall be the one directly liable for this tax. Q: Does documentary stamp tax apply to documents executed abroad? A: Under the present law, documentary stamp tax would apply to any document, even documents executed abroad as long as the obligation or right over the transaction arises from the Philippine sources or the property situated in the Philippines. (See Sec. 173) Q: What is the effect if the documentary stamp tax is not paid? A: Sec 201 an instrument xxx without being stamped shall: 1. not be recorded 2. nor shall any copy there or any record or transfer of the same be admitted or used in evidence in any court 3. no notary public or other officer authorized to administer oaths shall add his jurat or acknowledgment Q: What is the remedy for non payment? A: Require them to pay. Documents are non-admissible until paid.
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Q: What would be the tax treatment of a single transaction with multiple documents (example: a loan agreement with a promissory note with the note indicating the value of the loan)? A: The loan will be treated as one taxable document but the tax will be based on whichever yields a higher documentary stamp tax Q: Supposing the loan agreement has several promissory notes, or mortgaged agreements? A: Again, the law will treat this as one taxable transaction, as one taxable document. But the documentary stamp tax will be based on the total value of the loan as supported by the loan documents, whichever will yield a higher documentary stamp tax.
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Q: What is an assessment? A: De Leon: Assessment is a written notice to a taxpayer to the effect that the amount stated therein is due as a tax, and containing a demand for the payment thereof. Q: What is the importance of an assessment? A: It is necessary for the administrative remedies of the government to apply (such as distraint and levy). If there is no assessment, government can only avail of judicial remedies. Q: Who assesses the tax? A: De Leon: Generally, the taxpayer. Taxes are generally selfassessing because they do not need a letter of demand or assessment notice. The taxpayer is supposed to know how much he should pay as tax and when and where he should pay. Q: Is there a form for assessment purposes? A: No, the assessment can be written anywhere. As long as signed by the BIR Sir: Wag lang toilet paper Q: X issued a check to pay his tax debt. The check bounced, so the BIR sent him a notice to make good the check. Is that notice an assessment? A: Yes. As mentioned in the previous question, there is no standard form for the notice of assessment. Any notice sent to the taxpayer demanding the tax liability is an assessment. Q: What is the basis of the assessment power of the BIR? A: See Sec. 6 BIR has the power to examine and assess taxes after the filing of the tax return. The law also gives BIR certain powers in aid-ofassessment. CIR can get any information from anybody for purposes of ascertaining the liability of the taxpayer. Q: Can BIR and CIR make an assessment based on information only known to the commissioner? A: Law says personal knowledge and other information. In practice, BIR can assess you based on whatever evidence it has. It can even base it on chismis, because from there they can make a paper trail
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A:
Return was not false or fraudulent Assessment With Assessment 3 years from the date of filing of the return (or from the last day required by law for filing, if the return was filed before such day) 5 years from the date of assessment, either by: 1. Summary proceedings, or 2. Judicial proceedings Without Assessment 3 years from the date of filing of the return ( or from the last day required by law for filing, if the return was filed before such last day) Collection should be by judicial proceeding only. ASSESSMENT No return was filed, or the return filed was false or fraudulent With Assessment 10 years from the date of discovery of the failure to file the return, or of the falsity or fraud in the return 5 years from the date of assessment, either by: 1. Summary proceedings, or 2. Judicial proceeding Without Assessment 10 years from the date of discovery of the failure to file return, or of the falsity or fraud in the return. Collection should be by judicial proceeding only.
Collection
Collection
Atty.
Q: May these kinds of assessment be considered correct? A: Yes. Under Sec 6 (B) xxx which shall be prima facie correct and sufficient for all legal purposes Q: If assessments are presumed to be correct, can the assessment be based on presumption since it is presumed to be correct? A: No, take a look at sec 5 and 6, these gives a notion that assessments should be based on facts and documents. Q: What is this presumptive gross receipts? I thought it shouldnt be presumed? A: Sec 6 (C) par. 2 xxx when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made, CIR, after taking into account the sales, receipts, income, or other taxable base of the other persons engaged in similar business under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts. Law simply calls it presumptive but it is based on actual facts gathered. Sec. 6 gives you how to get the facts, while sec 5 is about aid in assessments. Q: When may the BIR resort to the fixing of the presumptive gross receipt? A: When the taxpayer was not reporting the proper sales transaction. Q: What are the powers in aid of assessment? A: Sec 5 Q: What is the power of surveillance of the BIR? A: The BIR can do some surveillance for purposes of arriving at a base for which as assessment can be made. Sec. 6 (C) The CIR may place the business operations of any person under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales, or receipt for internal revenue tax purposes. Q: Suppose BIR conducted a surveillance for the period of January to March, can this surveillance cover the year before such surveillance?
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A: If there is grave abuse of discretion, such as when the BIR found that there was basis to assess and yet it refused to make an assessment. Case Alert! Meralco Case where court said discretionary on the part of the BIR to make an assessment. You cannot compel the BIR to make an assessment Case Alert! Collector v Benipayo Assessment should be based on facts. Q: In the case of Benipayo, it was argued that the assessment was based on historical facts. So why did the court say it was an assumption? A: Because presumption of correctness cannot be based on another presumption Q: Supposing that there is a question of law, and the BIR asked DOJ for its opinion, can DOJs opinion be binding upon the BIR? A: No, because Sec. 4 provides that the power to interpret tax laws shall be under the exclusive and original jurisdiction of the CIR. Q: What is the remedy against BIRs interpretation? A: Sec. 4 subject to review by the Secretary of Finance. Q: What is the difference between the appeal or review with the Secretary of Finance and the appeal with the Court of Tax Appeals (CTA)? A: Appeal to Secretary of Finance interpretation of tax laws. Appeal to CTA disputed assessments, refunds, other matters arising under the Tax Code.(See Sec. 4) Period of Assessment Q: When must an assessment be made? A: In ordinary assessments, it should be within 3 years after the last day prescribed by law for the filing of the return In extraordinary assessment, tax may be assessed within 10 years from the discovery of fraud, falsity, or omission. Q: Supposing there was a revised return?
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Q: Same example but on 04/15/04 it reaches the address of the taxpayer, but he was not there. Is the taxpayer bound by the assessment? A: No, if he were bound it would constitute a violation of due process. It would be a deprivation of property without due process. The law provides under Sec. 228, assessment must be received for the taxpayer to be given a chance to dispute the assessment. Q: What if the BIR cannot locate the taxpayer? A: The assessment period is suspended. Case Alert! Basilan Case Alert! Nava Q: Supposing: 04/15/1995 Income tax return was filed 04/15/2005 Assessment Can you have a valid assessment? A: Yes, if false, fraud or failure to file an Income tax return. Law says upon discovery. This implies the right of assessment is imprescriptible, because BIR can argue that it discovered fraud whenever they want. Q: Doesnt this render the 3 years rule useless? A: No, because in the case of fraud, the government must prove fraud. If the government fails to prove it, then the 3 years will apply. Q: What is the exception to the rule that the government must prove fraud? A: When fraud assessment is final, i.e. when the tax payer does not make a reply to the fraud assessment Q: What is the BIRs authority to terminate taxable period? A: Sec. 6 (D) provides CIR shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the immediate payment of the tax for the period so declared terminated x x x. Q: What are the circumstances when the BIR may terminate the taxable period?
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A: The standard is the same between the two, the standard as provided in Sec. 248 (B). Sec. 248 (B) Provided, That a substantial underdeclaration of taxable sales x x x or a substantial overstatement of deductions x x x shall constitute prima facie evidence of a false and fraudulent return. The badges of fraud (substantial under declaration of taxables sales or substantial overstatement of deductions) are also made to apply to false returns. Case Alert! Taligaman Q: When is their failure to file a tax return? A: If on the basis of the returned file, the BIR cannot make a computation or assessment of the tax liability. In short, when you have a return filed which is incomplete to the point that the BIR cannot make a valid assessment, that amounts to a failure to file a return Q: What if the BIR argues that there was no return filed, but the taxpayer, as a defense, argues that a return was filed. Who has the burden on who filed the Income tax return? A: The taxpayer who asserts that he filed a return, as an affirmative defense must prove that a return was filed. Q: Why is the burden on the taxpayer? A: Because he raises it as an affirmative defense. Q: Is it an unjustified burden on the part of the taxpayer that he proves the fact that he filed the return despite the fact that the BIR has all the records? A: No, the taxpayer has the duty to keep and preserve his books. This duty should be reconciled with his burden to prove the fact that he filed the return. Q: Supposing: 1995 2000 2001 2009 ITR was filed Fraud was discovered Assessment was made Collection
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Distraint Q: What is distraint? A: De Leon: It is the seizure of by the government of personal property, tangible or intangible, to enforce the payment of taxes, to be followed by its public sale, if the taxes are not voluntarily paid. Q: How is distraint effected? A: It takes place when chattels are taken and sold at public auction. (See Sec. 208, 209) Q: Is a warrant of distraint necessary? A: Yes. De Leon said that the issuance of the warrant of distraint begins the summary remedy of distraint. It is merely the first step, while the seizure of the property is the next step. Q: Suppose that a taxpayer has a P500,000 tax liability. Taxpayer failed to pay. He has the following properties: Car P2M Painting P700K Shares P500K Jewelry P600K Can the BIR distraint all these chattels? A: No, BIR may only seize the chattels that are enough to satisfy liability. Q: Same circumstance, may the BIR choose the car (P2M) to satisfy the tax liability (P500K)? A: Yes, BIR has the discretion to choose what property can be seized as long as it is sufficient. If there is a residue, (after paying off the tax due, the expenses and costs of distraint) it should be returned to the taxpayer. Q: Suppose the car was seized and sold at public auction. However, there was no bidder. Who would buy the seized property? A: Government, under the law would have to purchase the property. Sec. 215 provides that in case there is no bidder for real property exposed for sale x x x the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim in question x x x.
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A: No, it should be a definite date. There should be a strict compliance, or else the tax payer would be deprived of his property. The presumption of regularity does not apply. (also applicable with regard the name of the taxpayer, the place and time of the sale, the amount advertised as against the amount due) Sec. 209 par. 2 At the time and place fixed in such notice x x x. Levy Q: What is levy? A: De Leon: It is the act of the seizure of real property in order to enforce the payment of taxes. Q: Taxpayer has a tax liability worth P5M. However, he has real properties, to wit: Forbes P30M Corinthian P20M Fairview P7M Bulacan P10M Can you levy all these properties? A: Yes, it can levy all real properties because of the very simple procedure of sending notices to the Register of Deeds. The levy is only an annotation on the title. Q: In the same case, can the government advertise for sale all these properties? A: No, Government can only advertise for sale to satisfy any tax liability only such property, or usable portion thereof sufficient to satisfy the tax claim, plus the expenses of the sale. Q: Supposed the government levied the Forbes property, but it was sold for only P5M, may the taxpayer impugn the sale? A: No, because the taxpayer has the right to redeem the property. It would be easier for him to redeem the property at a lower price. Q: Vic had a P1m tax liability. Vic had real properties worth P1m each. The properties were advertised for sale. One property was sold for P700k. A 2nd property was subsequently sold for P700k too. What will be the right of the taxpayer?
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to P400k. After the sale, BIR issues a certificate of sale to Henry where it states that the proceeds of the sale sufficiently cover the tax liability. After 2 years, Henry acquired personal property worth P200k. Can this be seized to satisfy the remaining P100k? A: Yes, there could be a further levy until the amount due is collected. Sec. 217 The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected. Q: Should further distraint and levy be within the prescriptive period? A: No, it is a continuation of the collection effort that started within the prescriptive period. What is important is the collection effort started within. Q: Can there be distraint and levy 10 years after the assessment? A: Constructive Distraint Q: What is the difference between a constructive distraint and an actual distraint? A: De Leon: In actual distraint There is taking of possession of personal property. In constructive distraint the owner is merely prohibited from disposing of his properties. In addition, in constructive distraint, there is no previous assessment and the government does not take possession. Sec 206 par. 2 The constructive distraint of personal property x x x obligate himself (taxpayer) to preserve the same intact and unaltered and not to dispose of the same x x x. Q: When may the BIR resort to constructive restraint? A: Sec. 206 provides: 1. taxpayer retiring from any business subject to tax 2. taxpayer is intending to leave the Philippines 3. intending to remove his property 4. or hide or conceal his property
Further Distraint or Levy Q: Henry has a tax liability of P500k. The properties of Henry were subject to distraint and levy. The real and personal property seized were sold to public auction. The proceeds of the auction amounted
Nad Pugeda 3C 2005-2006
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A: No, no private claim, even a claim based on a court judgment can prevail over a tax claim. Q: Where does the tax lien attached? A: Tax lien attaches to all properties and property rights of the taxpayer. Sec. 219 provides that if any person x x x refuses to pay x x x shall be a lien in favor of the Government x x x upon all the property and rights to property belonging to the taxpayer. Q: When does the tax lien attaches? A: from the time when the assessment was made by the Commissioner until paid Sec. 219 provides that if any person x x x liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government from the time when the assessment was made by the Commissioner until paid Q: What does a tax lien represents? A: It represents the tax liability being enforced by the tax remedies available to the government, whether administratively or judicially. 3. Judicial Remedies Criminal Action
Q: What is the rationale for this remedy? A: This is the remedy where the government cant do the actual distraint. Constructive distraint is an additional remedy because the government can resort to it while the remedy of actual distraint is not yet available, meaning the assessment process is still to be done.It applies to a potential delinquent taxpayer. It also serves to protect the government from taxpayers who intends to abscond. Q: Supposing the taxpayer was assessed for P500k. He seeks a compromise with the BIR for P200k. The BIR thinks this is acceptable, but still issues a constructive distraint on some of his properties. Is the BIR allowed to do this? A: Yes. Sec. 206 provides that to safeguard the interest of the government, the commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer xxx. The law says any taxpayer, so even potential tax delinquents. You do not need an assessment or an ongoing compromise, as long as the BIR thinks you are a potential delinquent, your property can be put under constructive distraint. Remember to always look at the language of the law. 2. Tax Lien Q: What is this tax lien? A: The tax lien renders the tax claim of the government superior than any other claim. Sec. 219 provides that if any person x x x liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government from the time when the assessment was made by the Commissioner until paid x x x upon all the property and rights to property belonging to the taxpayer. Provided, That this lien shall not be valid against any mortgagee, purchaser, or judgment creditor until notice of such lien filed with Register of Deeds. Q: What is the purpose of this tax lien? You already have distraint and levy, so why must there still be a tax lien? A: Because the tax lien renders the tax claim of the government superior than any other claim Q: What if there is a court order, can it prevail over a tax lien?
Nad Pugeda 3C 2005-2006
Q: When can the BIR collect by criminal action? A: NIRC provides a number of provisions as basis for filing criminal actions. 1. Sec. 205 (b) By civil or criminal action. 2. Sec. 222 (a) x x x the fact of fraud shall be judicially taken cognizance in the civil or criminal action for collection thereof. 3. Sec. 254 Tax Evader Provision 4. Sec. 281 Prescription for Violation Q: Is an assessment required before a criminal case can be filed against the offending taxpayer? A: No. In CIR vs. Pascor Realty, the court ruled that the proceeding in court may be preceded without an assessment or simultaneously with another action. (See also Sec. 205) Q: How could the government collect by criminal action if the assessment is not yet final?
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A: The compromise remedy is available to the government in two cases: 1. existence of a reasonable doubt as to the validity of the claim against the taxpayer 2. financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. Q: Supposing Blupers inc. had a 3 year history. During its first 2 years, Blupers inc. earned profits. By the time it reached its 3 rd year, Blupers inc. began to suffer losses. The BIR assesses it for some taxes. Lets say around P300k or how about P3m. Can Blupers inc. offer a compromise on the ground of financial incapacity? A: No. The mere fact it suffered losses will not indicate financial incapacity. The corporation still has to submit financial documents, balance sheets, etc to prove its financial incapacity. Q: May the BIR look into the bank account of the taxpayer to determine financial incapacity? A: Yes. This is one of the exceptions where the BIR may inquire into the bank account of the taxpayer. That is why, in case of compromise, the taxpayer is asked to sign a waiver to the bank secrecy act. Q: Supposing Paul was assessed a P3m liability. He protested this until it reached the Court of Tax appeals, then the Court of Appeals, then finally the Supreme Court. He lost and the case went bank to the BIR for execution. Paul now argues that because of the disputes in the courts, he is now in financial incapacity. Can Paul enter into a compromise with the BIR? A: If the ground of his compromise is existence of a reasonable doubt as to the validity of the claim against the taxpayer, then this will fail. Obviously there is no more reasonable doubt as to the validity of the claim. However, if the ground is financial incapacity, then his offer of compromise may be entertained. Q: Same case, but Paul compromises under the first ground (reasonable doubt of the tax liability)? A: No, because clearly the claim of the government is not doubtful Q: What is the advantage of having a compromise on the ground of financial incapacity? A: The minimum compromise rate is lower. The tax liability shall be subject to a rate equivalent to 10% of the basic assessed tax.
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Q: Pending resolution of a protest, a criminal action was filed. May the criminal action proceed? A: Yes. In Ungab vs. Cusi, SC ruled that there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. This is so because in that case, there is a prima facie showing that there was willful evasion of taxes. Q: Whether a criminal case may prosper pending the resolution of the assessment absence prima facie evidence of intent to defraud the government? A: No. Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is due must be proved. The tax liabilities of the taxpayer should first be determined before the CIR may assert that the taxpayer have willfully attempted to evade or defeat the taxes sought to be collected. (CIR vs. CA, Fortune Tobacco) Q: Was the Ungab Case overruled by the Fortune Tobacco Case? A: No, the Ungab Case was not overruled because in that case, there is a prima facie showing of a willful attempt to evade taxes. But in the Fortune Tobacco Case, its registered wholesale price was approved by the BIR. Since it was approved by the BIR, it is presumed to be the actual wholesale price, therefore, not fraudulent. (CIR vs. CA, Fortune Tobacco) Q: Can the taxpayer consider the filing of a civil or criminal case against him as an implied decision to his protest appealable to the CTA? A: A criminal action is not an implied decision.
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C. Preliminary Assessment Notice (PAN) If after review, it is determined that there is sufficient basis to assess the taxpayer. BIR shall issue a PAN, showing in detail the facts and the law on which it is based. Failure to respond: the taxpayer has 15 days from receipt to respond. If he fails to respond or the response is unsatisfactory, a formal letter of demand shall be issued, calling for payment D. Formal Letter of Demand It calls for the payment of the deficiency tax, stating the facts and law on which the assessment is based It shall be sent by registered mail or personal delivery E. Disputed Assessment The taxpayer may protest administratively against the formal letter of demand within 30 days from receipt. F. Supporting Documents The taxpayer must submit the documents supporting his protest within 60 days from the filing of the letter of protest, otherwise the assessment shall become final, executory and demandable. G. Appeal to the Court of Tax Appeals If the protest is denied, the taxpayer may appeal to the Court of Tax appeals within 30 days from the receipt of the decision. H. Decision by Inaction If the protest has not yet been decided within 180 days from the date of the submission of the documents supporting the protest, the taxpayer may appeal to the Court of Tax Appeals within 30 days from the lapse of the said 180 day period, otherwise the assessment becomes final, executory and demandable. J. Appeal to the Supreme Court If the decision of the Court of Tax Appeals is unfavorable, the taxpayer may appeal the decision within 15 days from the receipt of the final decision to the Supreme Court. Preliminary Assessment Notice
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Tax II Notes 2005 Edition Mendoza Preliminary Assessment Notice Not Required
Q: What are the cases when a PAN is not required? A: Sec. 228 par. (a) 1. mathematical error When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. 2. discrepancy in tax withheld - When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. 3. refunded or credited but deducted When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year 4. unpaid excise tax When the excise tax due on excisable articles has not been paid 5. sale or imported by exempt but sold to non-exempt When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries, and spare parts, has been sold, traded, or transferred to non-exempt persons. The notice for informal conference and the preliminary assessment notice shall not be required in these cases. (De Leon) Q: When would the BIR issue PAN? A: Sec. 228 When the Commissioner or his duly authorized representative finds that proper taxes should be assessed xxx. Q: What must the PAN contain? A: the facts and the law Sec. 228 par (2) The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Q: What if the PAN does not contain the necessary statements therein?
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A: Failure to state the facts and law, the PAN is void, but the BIR may issue another PAN. Q: What assessment must contain facts and the law from which it is based otherwise it will be void? A: The preliminary assessment notice must contain the facts and the law upon which it is based otherwise it will be void. However in actual practice, both the preliminary assessment and formal assessment must contain both facts and law upon which it is based. Q: Does the requirement of stating the facts and law apply only to PAN? A: Reading Sec. 228 closely, it seems that this requirement only pertains to the PAN. A demand of payment suffices in the formal assessment notice. However, jurisprudence and tax regulations said that there must be statements of facts and law in both the PAN and final assessment notice. Q: If the assessment is void for lack of facts and law, can it still assess? A: No, but the BIR may issue another PAN. Q: What happens after the PAN? A: Sec. 228 par. (3) x x x the taxpayer shall be required to respond to the said notice. Q: What must exist in a preliminary assessment and a formal assessment? A: In a preliminary assessment there must be a reply. In a formal assessment there must be a dispute. Q: Supposing: 3/13/00 taxpayer filed tax return 3/17/03 taxpayer received PAN Is there a valid assessment? A: No, this implies that it has already prescribed because in Basilan Case, final assessment must be made within 3 years.
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December 1974 CIR made a decision against the taxpayer September 1975 CIR sued the taxpayer Whether the CIRs assessment have prescribed? A: No. The assessments were predicated on the fact that his income tax were false because he underdeclared his income. In such a case, the deficiency assessments may be made within 10 years from the discovery of the falsity or omission. (Basa vs. Republic) 60-day period and the 180-day period Q: What is this 60-day period? A: It is the period within which to submit supporting documents for his protest. The period begins from the filing of the letter of protest, otherwise the assessment shall become final , executory and demandable. Q: What is the effect of the failure to file the supporting documents within 60 days? A: The assessment will become final Sec. 228 par (4) xxx all relevant supporting documents shall have been submitted otherwise, the assessment shall become final. Q: What about this 180-day period? A: It is the period given to the BIR to resolve the protest. Q: What is the effect of the failure to resolve the protest within 180days? A: If the protest has been undecided within this period from the date of the submission of the supporting documents, the taxpayer may appeal to the CTA. Sec. 228 par. (5) If the protest x x x is not acted upon within 180 days from submission of documents, the taxpayer x x x may appeal to the CTA within 30 days from the lapse of the 180 day period x x x. Q: Suppose that the taxpayer filed a strongly worded protest with attachments. Within the 60 day period, the taxpayer didnt submit any documents. Can the BIR argue that the assessment has already become final?
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Q: Between the 60-day period and the 180-day period, the BIR can decide. If the BIR decides, then you go to the CTA within 30 days from receipt of its final decision. There is no problem with this, but what if between the 60-day period and the 180-day period, the BIR issues a warrant of distraint instead? Can the BIR do this? A: The effect of this would be that the warrant of distraint would be considered as an implied decision of the BIR. However, jurisprudence would tell you that it cannot be considered an implied decision when you have a strongly worded protest. The BIR must either decide expressly or by inaction. August 25 Thursday 8-9pm Q: X was assessed for P1m. Assessment notice was issued on 4/10/04. When should X dispute the assessment? A: 30 days from receipt of the assessment notice Q: What if you dispute it 10 days after. You submit documents together with your protest. On 6/19/04, you submitted additional documents. Can the BIR decide the protest already? A: Yes, in this case, the taxpayer already submitted his additional documents Q: When do you start the 180-day period? A: After the submission of the documents. Q: So does this mean that before the lapse of the 60-day period, the BIR can already decide? A: Yes. What is important is that there was the submission of documents within the 60-day period. The law does not say 180 days from the lapse of the 60-day period. What you have to know is the date of the last submission. In practice, the taxpayer usually submits his documents on the last day of the 60-day period. Q: Supposing the protest has not yet decided on the protest. On 180th day, the taxpayer appealed to the CTA. Did the taxpayer correctly? A: No. The law says that in case of a decision by inaction, taxpayer may appeal after the lapse of 180 days and not on 180th day. This means that it should be appealed on a day after 180th day. the act the the the
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Q: Supposing 2 months after the end of the 60-day period, a warrant of distraint and levy was issued. Can the taxpayer appeal to the CTA? A: It depends. The law obliges the taxpayer to dispute the assessment on strong grounds. It also obliges the BIR to state clearly what is the appealable decision. The decision must clearly state that it is the one that would be appealable if the protest is based on strong grounds. However, if the taxpayer merely made a pro forma protest, a warrant of distraint or levy is deemed an implied decision appealable to the CTA. Q: Supposing a protest was filed stating that the assessments are contrary to law and not supported by sufficient evidence, can the Commissioner ignore the protest and instead file a collection suit before the RTC? A: Yes. Such protest does not have a basis or a leg to stand on. The requirement for the Commissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. Where the taxpayer did not actually contest the assessment by stating the basis thereof, the CIR need not rule on their request. The act of the Commissioner in filing an action may be considered as an outright denial or the protest. (Dayrit vs. Cruz) Q: What is the purpose of the 60-day period? A: The purpose of the 60-day period is to prevent pro forma protests. After the 60-day period, the law assumes you submitted documents. If you submit documents, then it could not be anymore called a pro forma protest. Q: What if 60 days after the lapse of the 60-day period the BIR issues a final notice before garnishment of the taxpayers bank account. The taxpayer appeals to the CTA. The CTA dismissed the case. Is the CTA correct? A: No. We have to take a look at the tenor of the final notice before garnishment. It is a final notice and last chance given to the taxpayer. Therefore, it should be considered as the decision appealable to the CTA. Q: Didnt the SC say that a warrant of distraint cannot be considered an implied decision if the protest is strongly worded? The how come a final notice before garnishment is considered as the decision even if you have a strong protest?
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the taxpayer to pay, gave a warning that in event of failure to pay, the CIR would be constrained to enforce collection. Although prior to the decision of a disputed assessment, there may still be exchanges between the CIR and the taxpayer. But when the CIR indicated his position regarding the disputed assessment, he has made a decision that is properly appealable to the CTA for review. (CIR vs. Isabela Cultural Corporation) Q: Supposing after the lapse of the 60-day period, no documents were submitted. On the 67th day, a warrant was issued. The taxpayer appealed to the CTA. Will the case prosper? What is the effect of not submitting documents? A: The effect of not submitting documents is that the assessment becomes final. In the first place, there is no longer anything to dispute because the assessment has already become final. The warrant is now considered a collection case. A warrant of distraint can be an implied decision only if there is a protest or a dispute. In this situation, the warrant is simply a collection remedy already. Q: Another similar situation. You have 30 days to protest, you filed a protest 45 days after the assessment. The 60-day period lapsed. A warrant of distraint was issued. The taxpayer appeals to the CTA. Will the CTA entertain the appeal? A: No. The protest was filed on the 45 th day after the assessment. Remember that the effect of not filing a protest is that the assessment becomes final. So in this situation the assessment has already become final, executory and demandable. The jurisdiction of the CTA is over disputed assessments, remember that. August 30 Tuesday 7-9pm -Free CutSeptember 1 Thursday 8-9pm Q. What is the effect of final assessment? A:
CIR v Union Shipping: The Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. On the basis of this statement indubitably showing that the Commissioners communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court as the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This would encourage the Commissioner to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court.
Q: Supposing that the BIR issued a Final Notice Before Seizure to the taxpayer. It states that it is the taxpayers last opportunity to settle the assessment and that should he fail, the BIR would pursue collection remedies. Can the BIR argue that this is not the decision appealable to the CTA? A: No, because its content and tenor supported the theory that it was the CIRs final act regarding the protest. The very title indicated that it as a final notice. It is the CIRs final act when it demanded
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period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court for sixty days thereafter x x x. The pendency of the taxpayers appeal in the CTA and in the SC had the effect of temporarily staying the hands of the Commissioner. If the taxpayers stand that the pendency of the appeal did not stop the running of the period, taxpayers would be encouraged to delay the payment in the hope of ultimately avoiding the same. (Protectors Services vs. CA) Case Alert! Basa Q: Supposing X did not dispute the assessment. So this is a final assessment. Can X, the taxpayer, still question the assessment in the court? A: Again and again you cannot revive the assessment in the RTC. If you fail to dispute, you cannot raise it anymore. You are barred. Sorry ka na lang. Case Alert! Hizon Q: Nad, failed to dispute the assessment. 2 years after, the RTC affirmed the finality of the assessment. Can Nad still appeal 30 days after this affirmation? A: No. In this situation we have to distinguish between finality and affirmation. In finality, it becomes such by the mere failure of the taxpayer to dispute the assessment. In affirmation, the trial court is just recognizing the fact that the assessment has already become final. Regardless of the affirmation, the assessment has already become final. Q: Same situation, but this time Nad disputes it with the CTA. A: Still No. Remember, CTA jurisdiction is over disputed assessments. In this case, the assessment was already final. REFUND Q: What are the requirements? A: According to Cebu Portland vs. CIR 1. filing a written claim for refund with the Commissioner of Internal Revenue 2. institution of suit or proceeding in court within 2 years from the date of payment.
Theoretically, prescription may be a valid defense in a collection case, but in reality it does not happen.
Q: Does the protest have the effect of suspending the period of collection? A: It depends. If the protest if filed on time, then it may suspend the collection of taxes. But if the protest is filed beyond the 30-day period, it does not suspend the running of the prescriptive period. (De Leon, Citing Republic vs. Hizon) Q: Supposing that the BIR assessed the taxpayer. The taxpayer made a protest. It was denied and so he appealed, and kept on appealing until he reached the SC. Before the SC, can the taxpayer argue that the collection remedy has prescribed assuming that it took him years to reach the SC? A: No. Sec. 223 The running of the Statute of Limitations x x x on a proceeding in court for collection x x x, shall be suspended for a
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Q: In appealing the decision of the BIR to the CTA, is the taxpayer who paid the tax under protest also required to file a claim for refund? A: No. To hold that the taxpayer must file a claim for refund before appealing with the CTA would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the CIR would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. (Vda. De San Agustin vs. CIR) Case Alert! Panay Electric Q: Do you need a disputed assessment to have a refund case? A: No. As long as there is an irregular payment, there can be a refund. 2-year period Q: When can you claim refund before the BIR and the courts? A: The claim for refund should be filed with the BIR within 2 years from the date of payment. Judicial action can be had by appealing to the CTA within 2 years from the date of payment. Q: Mace paid capital gains tax for the year 2000. It turned out to be an erroneous payment. When can Mace claim for a refund? A: 2 years from the date of payment Q: Supposing: 04/30/2000 Payment 04/30/2001 Claim for Refund 04/30/2002 Denied 05/23/2002 Appeal to the CTA within 30 days. Prosper? A: No. Appeal must also be within the 2 years. Q: Supposing: 02/20/2001 Denied 08/20/2001 Appeal to the CTA Prosper? A: No. Appeal must be within 30 days from the date of denial.
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at the time when the period to appeal the assessment has already lapsed. Can the taxpayer still claim? A: Sir said that some authors say that the taxpayer could file a refund as long as there is payment within the period to appeal. This is different from the Concepcion case, because in that case, the taxpayer paid the tax at the time when the period to appeal the assessment have already lapsed. September 6 Tuesday 7-9pm -Free CutSeptember 8 Thursday 8-9pm -Free CutSeptember 13 Tuesday 7-9pm Q: In the taxyear of 2000, four tax payments were made in a quarterly basis. The taxpayer filed a claim for refund of one installment in March 2003. Will this prosper? A: In claims for refund, the important thing to consider is the date of payment. It is only at the end of the tax year, and only upon filling of the Final Adjustment Return, will the taxpayer know what taxes are due, etc. Therefore, the period to file a claim for refund is counted only from that time. Q: In cases where the taxpayer files quarterly income tax return, whether the basis for computing the two year period should be the date when the quarterly income tax was paid or the date when the final return for the taxable year was filed? A: It should be computed from the date when the final return for the taxable year was filed, because the payment of quarterly income tax should only be considered as mere installments of the annual tax due. These quarterly tax payments should be treated as advances or portions of the annual tax due. (De Leon) It is the Final Return which is reflective of the operations of the business for the whole tax period. It is at the time of the filing of the Final or Annual Income Tax Return when it can be ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. (CIR vs. TMX Sales) Case Alert! CIR v TMX
Q: Suppose that the taxpayer paid the tax within the period to appeal the assessment. After that, the taxpayer claimed for refund
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A: The taxpayer. He who asserts must prove. Also, a refund is akin to an exemption to taxation. Moreover, in cases of refund pursuant to an assessment, the assessment is prima facie correct, so the taxpayer must prove the contrary, unless if the assessment became final. Proper Person to Claim Refund Q: Who is the proper tax payer who should pay the refund? A: The one who paid the taxes erroneously or illegally.
Q: X inc. is a seller of cement products. There is a 10% tax imposed by law on the sale which is passed to the buyer as cost of goods. Supposing the law which imposed the tax was declared illegal? Who can claim for the refund? A: X inc., because he is the one liable to the BIR Q: What about the argument that the tax liability was passed on to the buyer? A: Only the seller can claim the refund because the seller is the taxpayer and NOT the buyer. Better theory is that the seller holds the amount refunded in trust for the buyer. Supervening Cause Sec. 229 par. (b) In any case, no such suit or proceeding shall be filed after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment x x x. Q: Supposing, 1999 date of payment 2002 SC declared the tax illegal 2002 taxpayer file a claim for refund Did the action to claim refund prescribed? A: Yes. Because the supervening event occur beyond the two year period. Q: Is there an instance where the two year period is extended notwithstanding the mandate of the law that the claim for refund
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Q: What is the territorial jurisdiction of the Bureau of Customs (BC)? A: Sec. 603 xxx said Bureau shall have the right of supervision and police authority over all seas within the jurisdiction of the Philippines and over all coasts, potrs, airports, harbors, bays, rivers, and inland waters whether navigable or not from the sea. Q: Why does the Customs law does not talk of land as part of BCs jurisdiction? A: Because you cannot import on land in the Philippines, but there can be seizure in land when importation obligations are not yet paid. Sec. 603 par. (b) x x x Imported articles which may be subject to seizure for violation of the tariff and customs law may be pursued in their transportation in the Philippines by land x x x. IMPORTATION
IX - A BUREAU OF CUSTOMS
Tariff and Customs Code (Book II) Sec 602, 603, 604, 1201-1211, 1601-1604, 2201-2212, 2536, 25013503, 3511-1512 RA 8751 Countervailing Duty RA 8752 Anti-Dumping Act RA 8181 Transaction Value RA 8800 Safeguard Measures Act
Q: What is importation? When does it begin and when does it end? A: When importation begins and when it ends is very important. As long as there is still importation, the customs authorities can still assert jurisdiction. Sec. 1202 Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade (unload) therein. Sec. 1202 x x x Importation is deemed terminated upon payment of duties, taxes, and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or incase said articles are free
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sets had Filipino consignees. So to sum it all up, intention to unload is highly factual in nature. Transshipment Q: What is the defense of transshipment? A: That there is no intention to unload the goods. The ship merely docked. Q: The defense of a consignee is always transshipment. What is transhippment? A: Under present law regarding transhippment, vessel must be out of Philippine territory for a certain number of days. If not, it may be ceased by authorities Misshipment Q: What is the defense of misshipment? A: That there is no intention to unload because the ship was not really destined to the Philippines but somehow it docked. QUIZ given September 15 Thursday 8-9pm -Free CutSeptember 20 Tuesday 7-9pm Q: Are there situations where the Bureau of Customs can have jurisdiction over a vessel in the high seas? A: Yes. If: 1. In hot pursuit when the pursuit began in the Philippine waters 2. If the vessel is Philippine registered 3. Asaali case where the state has the power to secure itself from injury. Q: Supposing a ship was sighted unloading goods. The customs alerted a signal to board the vessel. But, this vessel went to international waters. Can BC seized the vessel and the cargo even if it is already at international waters? A: Yes, Asaali case.
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A: They are empowered by law to seize even without warrant. As long as you have unpaid customs duty, the Bureau will still have jurisdiction. Remember importation has not yet ceased because not yet paid. Case Alert! US v Chuloy Case Alert! Paterok v BOC Q: A Mercedes Benz was already out of the customs house because duties were initially paid. A year after, an investigation conducted resulted to an undervaluation. However, the Benz was already in the residence of a buyer. Can the Bureau seize the car from the buyer? Remember, there was no fraud. The duties were simply not paid. A: No. It will just constitute a lien. Q: So how does the government enforce the lien? A: The Bureau goes after the importer because the undervalued duties are deemed to be a personal debt. That is why it is important to know the kind of importation. If it is a prohibited importation, then government has all the right to seize the goods. If it is not, then it will just constitute a tax lien and other remedies could be resorted to, but never seizure. Kinds of Importation Q: Speaking of kind of importation, so what are the kinds of importation? A: The kinds of importation are: 1. Prohibited Importation importation of contrabands that may not be legally entered within 2. Conditionally Free importation wherein after compliance with certain requirements they become exempt from duties 3. Dutiable Importation importation of articles subject to duties under the TCC 4. Qualified Importation law imposes certain requirements for it to be able to be imported; e.g. Opium for medicinal purposes 5. Tax Exempt Importation articles imported by tax exempt entities
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Q: What is an example of a conditionally free importation? A: Sirs example is the importation of dutiable goods for mere exhibition.
Q: Is the government exempt from paying tax duties? A: No. Sec. 1205 x x x all importations by the Government for its own use or that of its subordinate branches or instrumentalities, or corporations, agencies or instrumentalities owned or controlled by the government shall be subject to the duties, taxes, fees, and other charges provided for in this code. CLASSIFICATION OF DUTIES Q: What are these taxes imposed on imported materials? A: specific or ad valorem Q: How are duties classified? A: Classification of Duties: 1. Ordinary or Regular a. ad valorem b. specific 2. Special a. Countervailing b. Anti-Dumping c. Marking d. Discriminatory Q: What is an ad valorem duty? A: It is a duty based on the value or price of the goods. (Bar Ops Stenographic Notes) Q: What is a specific duty? A: It is a duty imposed on goods based on some kind of measurement without any assessment on the value of the goods. (Bar Ops Stenographic Notes) Q: Who imposes the Dumping and Countervailing Duties? A: Secretary of DTI non-agricultural products Secretary of DA agricultural products
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Q: How do you distinguish anti-dumping with safeguard duty? A: Safeguard is imposed if there is an increase in importation that affects domestic industries. So basically, if they cannot get you under the anti-dumping, then they will get you with the safe-guard duty. But this does not necessarily mean imposition of duties. They could simply limit importation. COUNTER-VEILING DUTY Q: What is this counter-veiling duty? A: Sec. 302 Whenever any product, commodity, or article of commerce is granted directly or indirectly by the government in the country or 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 product or has materially retarded the growth or prevents the establishment of a domestic industry x x x issue a countervailing duty equal to the ascertained amount of the subsidy. (Amended by RA 8751) Q: What goods are subject to countervailing duty? A: Foreign goods sold here. These goods enjoy a subsidy from country of origin. Q: What must be established? A: What must be established are: 1. The causal relationship between the specific subsidy created and the material injury to the industry. 2. The amount of duty to be imposed need NOT be established. Procedure is similar to that of the anti-dumping Q: What is the purpose of this duty? A: Foreign goods are subjected to this duty to counter or upset the subsidy, to protect local industries. Q: Is there a need to establish injury to local industries? A: No. However, the subsidy must be proved. Once the subsidy is proven, injury is already shown because the local industry is already at a disadvantage because of the subsidy. (Bar Ops
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Q: What is this transaction value? A: Sec. 201 - The dutiable value of an imported article subject to an ad valorem rate of duty shall be based on the transaction value or price of same, like or similar articles, as bought and sold or offered for sale freely in the usual wholesale quantities in the ordinary course of trade in the principal markets of the exporting country on the date of exportation to the Philippines x x x. (as amended by E.O. 71) Q: What is the transaction value? A: It is the amount paid by the buyer to acquire the goods. Only goods subject to ad valorem rate shall be taxed based on the transaction value. Q: How do you determine transaction value? A: Look at the invoice, bill of lading Sec. 201 x x x The transaction value under this section shall be trade value or price declared in the commercial, trade or sales invoice. x x x. Q: Supposing the collector doubts the documents of the importer due to possible undervaluation. What should be the basis for determining the transactional value? A: The collector can adopt any method to arrive at actual rate. He may even adopt a transactional value of similar/identical goods. This is because the assessment of duty is based on dutiable value or transactional value Sec. 201 x x x Where there exists a reasonable doubt as to the value or price of the imported article declared in the entry, the correct dutiable value of the article shall be ascertained by the Commissioner of Customs x x x. When the dutiable value provided for in the preceding paragraphs can not be ascertained for failure of the importer to produce the documents mentioned in the second paragraph, or where there exists a reasonable doubt as to the dutiable value of the imported article declared in the entry, it shall be the domestic wholesale selling price x x x. Q: Would it be correct to say that the Commissioner of Customs may adopt any method to arrive at the basis? A: Yes, in the end of the day, the Commissioner may adopt any method, unlike the BIR.
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Q: Upon entrance the taxpayer argues it is a residence that looks like a warehouse, the collector argues that it is a warehouse that looks like a residence. The taxpayer is demanding a search warrant. Will this stop the customs officers from entering? A: The law does not say that you can judge a structure from mere appearance. Must look at the surrounding circumstances in order to determine whether the structure is a residence or a warehouse. Determine whether the structure is principally used for storage of the hot items; it does not matter if there are incidents of a residence. Q: Upon entry into the compound, the customs officials saw a building. This structure looks like a warehouse, but it is a residence. The customs officials want to search it, but the owner demands a search warrant. Can they enter the building without a warrant? A: They have to determine whether or not the structure is a dwelling house. 1. They should look at the structure. (there might be no windows). 2. It could be the dwelling of the watchman (because under par. B of Sec. 2208, a warehouse x x x does not become a dwelling x x x by reason of the fact that the person employed as watchman lives in the place x x x.) 3. Look at the primary use of the structure. Q: Supposing they went to the warehouse, while searching and doing some seizure, goods were taken out of the warehouse by employees of the importer inside and taken into the dwelling house. Can the dwelling house be searched of articles being seized without a search warrant from the warehouse to the dwelling home? A: Yes. As incidental lawful arrest, you can search without a warrant. So while the rule is a dwelling home cannot be searched without a search warrant, as an exception to the broad power of search and seizure of customs authorities, you have that provided. Thats a basic principle in tax law. Search can be made pursuant or incidental to a lawful arrest. Case Alert! Pacis September 22 Thursday 8-9pm -Free Cut-
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presence of dutiable articles therein. Precisely the law states of stopping and searching of moving vehicles based on reasonable ground for existence of dutiable articles. Customs officer may also validly seize the vehicle. Q: Suppose a customs officer saw a truck getting out of the customs house. After 5 minutes, he pursue the vehicle. Are their actions justifiable, that they can search the vehicle without a warrant? A: Yes, if it is based on reasonable ground to suspect. No warrant is needed when moving vehicles are stopped and searched. It would be impractical to search without a warrant. FLEXIBLE TARIFF LAWS Sec. 401 - The President, x x x is hereby empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by statute x x x when in his judgment such modification in the rates of import duty is necessary in the interest of national economy, general welfare and/or national defense. (RA 1937) Q: What is Flexible Tariff Laws? A: Under Sec. 401 of the Customs Code. The president may reduce or increase import or tariff rates. But the President cannot reclassify importation. (ex. From prohibited to dutiable importation) This is different from the constitutional power of the President to fix import duties.
IV - B BUREAU OF CUSTOMS
Tariff and Customs Code Sec. 1204, 1508, 1603, 1701-1708, 1801-1802, 2301-2316, 2401-2402, 2503, 2530-2531, 2532, 2533, 2535, 3601-3602 REMEDIES OF THE GOVERNMENT
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collector still take back the property and sell it to satisfy the unpaid tax lien? A: No the collector may not seize and forfeit the property. The unpaid duty constitutes a personal debt on the part of X. Technically the tax lien on the goods ceases due to the fact that the goods were out of the customhouses already. The collector may collect judicially on the basis of an unpaid duty (which is the personal debt of the importer). Q: Supposing in the same example, wherein the importation is neither fraudulent or prohibited, may the collector still judicially collect the unpaid tax after 3 years? A: No, the collector may no longer enforce the tax due to prescription. The Tariffs and Customs Code provides that in importation cases that are neither fraudulent or prohibited, the collector may only collect unpaid taxes therefrom within a period of 3 years from payment of first assessment. Q: What if the goods are imported fraudulently, what is the governments remedy? A: Enforcement of tax lien applies only to lawful importation. Tax lien does not apply to fraudulent or contraband importation. Seizure and forfeiture are the proper remedies. Q: Is this tax lien similar to the tax lien enforced under the NIRC? A: No, The tax lien under the NIRC attaches to all properties of the taxpayer, while the tax lien enforced by the BC attaches to the imported articles only. Prescriptive Period Q: What if the imported goods are not prohibited articles or not imported fraudulently, and that there was a deficiency importation in 2001, however, it was discovered after more than 3 years. Can the government collect? A: No. Sec. 1603 When x x x final adjustment of duties made, with subsequent delivery, such x x x settlements of duties will, after the expiration of 3 years from the date of payment of duties, in the absence of fraud or protest x x x be final and conclusive upon all parties x x x.
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Q: What are the other remedies? A: Compromise, but should first be approved by the Secretary of Finance Q: What is the remedy of compromise and when is it available? A: The Customs Commissioner can compromise in certain seizure and forfeiture cases except when the case involves prohibited importation, importation attended by fraud, and when the release of the goods will be contrary to law. There is also no compromise in criminal cases. Sec. 2316 Subject to the approval of the Secretary of Finance, the Commissioner of Customs may compromise any case arising under this Code or other laws or part of laws enforced by the Bureau of Customs involving the imposition of fines, surcharges, and forfeitures unless otherwise specified by law. 3. Judicial Remedies Q: Does the Bureau of Customs have judicial remedies? Criminal? Civil? A: Yes. Before the amendment in the law, only one case of judicial action was given to the Bureau. They were allowed to enforce collection because of personal debt. After the amendment in sec. 2401, another judicial remedy was provided, criminal and civil. The criminal remedy to collect was only granted by the NIRC, now it is also found in the Tariff code. Sec. 2401 x x x criminal actions and proceedings instituted in behalf of the government under the authority of this Code x x x but no criminal action for the recovery of duties x x x shall be filed in court without the approval of the Commissioner. Sir: The criminal action filed under Sec. 2401 is different from smuggling. This provision talks of violations of the customs law. The criminal actions filed under the Tariffs and Customs Code does not have any prescriptive period. 4. Hold Delivery of Goods
2. Compromise
Q: When can the Bureau of Customs hold the delivery and release of shipments of the importer?
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Q: When may the government resort to the remedy of compulsory acquisition? A: When there is undervaluation of goods subject to ad valorem duty. Sec. 2317 par (a) x x x undervaluation of goods subject to ad valorem duty Q: On what basis are the goods acquired? A: for a price equal to their declared customs value plus by duties already paid on the goods Q: What is the remedy of the taxpayer? A: Sec. 2317 par (b) An importer who is dissatisfied with a decision of the Commissioner x x x may within 20 working days after the date on which the notice of the decision is given, appeal to the Secretary of Finance, and thereafter if still dissatisfied, to the CTA x x x.
Q: What is the nature of the seizure proceedings? A: It is a civil proceeding. Which means there is no conviction. It is in rem against the res. A forfeiture penalty is a civil penalty. Once forfeited, that is the end of customs liability because forfeiture is the maximum penalty. The offender is the property itself and NOT the person. (Bar Ops Stenographic Notes) Q: When is the remedy of seizure and forfeiture used by the government? A: The kind of importation largely determines the kind of remedy the government will use. The remedy of seizure and forfeiture is used by the government only in cases of Prohibited Importation Q: What is the procedure in seizure proceedings? A: The procedure is first, customs issues a warrant of seizure and detention (WSD). After the WSD is issued, notice is sent to the importer, and then a hearing is conducted. After the hearing, the
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This is a new remedy provided by law because of the transaction value law (RA 8181). This has to be distinguished from search and seizure where you have fraudulent documents. In compulsory acquisition, you do not have fraudulent documents but simply undervaluation.
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A: No longer because forfeiture is the highest penalty. The action is against the goods and NOT the owner, but the criminal charges can be had. Q: Supposing equipment was seized due to fraudulent importation. They are subsequently declared forfeited in favor of the government. May the government still go after the importer? A: The government can no longer go after the taxpayer because of the simple reason that seizure and forefeiture of the goods is already the highest civil penalty. However, the taxpayer may be criminally charged for smuggling. This is an example that the same act produces both civil and criminal liability. Q: Is it proper to effect seizure and forfeiture after the sale at public auction if the forfeited articles are found in the possession of a third party? A: Yes, if the goods were found in the possession of a third party, this means that the articles were removed contrary to law from any public or private warehouse under customs custody. Even if the government has already been paid by virtue of the public auction, it can still effect forfeiture if the goods were removed contrary to law. The forfeiture of the subject machineries, however, is not dependent on whether or not the importation was terminated; rather it is premised on the illegal withdrawal of goods from Customs custody. (Carrara Marble vs. Commissioner) Sec. 2530 Any xxx cargo xxx shall be subject to forfeiture xxx (e) any article which is fraudulently concealed or removed contrary to law from any public or private warehouse, xxx under customs supervision. Case Alert! Carrara Case Q: In the Carrara case, the SC said regardless of the termination of the importation, the Bureau can still subject it to forfeiture. Why did the SC say that? A: The government has a right to take something that has been illegally taken from it. In that sense, still you can go to forfeiture proceedings. The government is the rightful owner. Q: So why would it still be subject to forfeiture proceedings when it has been abandoned na? Why cant the government just take it and give it to the lawful owner?
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A: No, if the defendant is shown to have had possession of the illegally imported merchandise, without satisfactory explanation, such possession shall be deemed sufficient to authorize conviction. (Rimorin vs. People) Sec. 3601 par (3) When upon trial for violation of this section, the defendant is shown to have had possession of the article in question, possession shall be deemed sufficient evidence to authorize conviction unless the defendant shall explain the possession to the satisfaction of the court x x x. SOME DEFENSES AVAILABLE Q: Supposing a vessel was found to be carrying unpaid goods. Will it always, under all circumstances, be subject to seizure and forfeiture proceedings? A: No. There are exceptions to this rule: 1. Common Carrier (See Sec 2530) 2. Commercial quantities 1. Commercial Quantities Q: What is the commercial quantity requirement? A: Sec. 2530 (a) any vehicle x x x including cargo, which shall be used unlawfully in the importation of x x x contraband or smuggled articles in commercial quantities x x x. The mere carrying or holding on board of contraband or smuggled articles in commercial quantities shall subject such vehicle x x x to forfeiture. Q: Suppose that PAL came from HK with HK residents. When PAL disembarked, the HK residents were apprehended by the BC because they possess highly dutiable items. Will the articles be forfeited? A: No, because there is no importation in commercial quantities. 2. Common Carrier Q: Same question, but would the aircraft be subject to forfeiture? A: No, because it is a common carrier. The plane is beyond seizure and forfeiture because it is classified as a common carrier. Section 2530 (a) provides, Provided that aircraft is not used as a duly authorized common carrier and is such a carrier, it is not chartered nor leased.
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at the res and therefore the defenses of the owner are personal and not applicable to the former? A: The vessel will be subject to forfeiture if probable cause is established against it. However, the defense by the owner may be raised to avoid actual forfeiture of the vessel. In other words, the defense of no knowledge on the part of the owner is a defense that would take away the vessel from being actually forfeited. Q: If the knowledge of the owner is not a defense, why does Sec. 2531 states that the forfeiture of the vehicle x x x shall not be effected if it is established that the owner x x x has no knowledge of or participation in the unlawful act x x x? A: If you have unlawful importation, it simply means it will be subject to forfeiture proceedings. The fact that the vessel owner has no knowledge of the unlawful importation will not take it out of the forfeiture proceedings. Now, whether or not forfeiture as a penalty will be imposed, it depends on the knowledge or non-knowledge of the owner. If there is no knowledge, under Sec. 2531, forfeiture penalty may not be imposed. But whether the vessel will be subject to forfeiture proceedings, yes. Whether the penalty will be imposed depends on the knowledge. Q: Despite the allegation of lack of knowledge, is it still possible to cause the forfeiture of the vessel? When is there prima facie presumption against the vessel? A: Yes. Sec. 2531 x x x, Provided, however, That a prima facie presumption shall exist against the vessel x x x: 1. If the conveyance has been used for smuggling at least twice before 2. If the owner is not in the business for which the conveyance is generally used. 3. If the owner is not financially in position to own such conveyance. Case Alert! Pascual Q: What are other the defenses available to the importer? A: He may allege that there is no intention to unload, and that the items are mere personal effects. EXCLUSIVE ORIGINAL JURISDICTION Q: Who has exclusive original jurisdiction in customs cases?
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the Collector cannot be found liable for usurpation of judicial functions in issuing the WSD notwithstanding the constitutional mandate that only a judge may issue a search warrant because Customs officials may conduct the search even without any warrant. Q: What is the purpose of a warrantless search if they would have to wait for WSD? A: Warrantless search simply talks of search. WSD is important because it initializes the seizure proceeding. In warrantless searches, it is merely an administrative remedy, but without the WSD there can be no seizure proceedings. Q: If this is so, is it not pointless to have a warrantless search on the part of customs collectors? A: No. The Warrant of Seizure and Forfeiture does not diminish the value of a warrantless search, on the contrary, it strengthens it. Q: When does the exclusive jurisdiction of BC over seized and forfeited articles attach? A: The issuance of the warrant of seizure and detention initializes the seizure proceedings. If the goods are already in the Customs custody, the exclusive jurisdiction attached. Q: When does seizure/forfeiture proceedings begin? More properly, when does the exclusive jurisdiction of the collector begin? A: If the goods are within the custody of the Bureau the exclusive authority attaches immediately even without issuance of a Warrant of Seizure and Forfeiture. On the other hand, if the goods are not within the custody of the Bureau, the exclusive authority attaches upon issuance of the Warrant of Seizure and Forfeiture. Q: Supposing you have goods in a certain warehouse. This is outside customs custody. They were seized before the issuance of a Warrant of Seizure and Detention. Can the importer go to the RTC and enjoin seizure and forfeiture on the ground that the customs acted illegally? Can he raise lack of authority? A: No, even assuming there really was lack of authority. This is by express provision that the exclusive original jurisdiction belongs to the Bureau of Customs. This defense is not sufficient or else the importer can just raise the defense with the RTC to deprive the Bureau of Customs of exclusive original jurisdiction. You can question the warrant or seizure, but only during the seizure
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Q: What is this protest? A: Sec. 2308 When a ruling or decision of the Collector is made whereby liability for duties xxx are determined xxx the party adversely affected may protest such ruling or decision by presenting to the Collector at the time when payment of the amount claimed to be due to the government is made or within 15 days thereafter, a written protest setting forth his objection to the ruling or decision in question, together with the reasons therefore. No protest shall be considered unless payment of the amount due after final liquidation has fist been made and the corresponding docket fee xxx. Section 2402, The party aggrieved by the ruling of the Commissioner in any matter brought before him upon protest or by his action in any case of seizure may appeal to the CTA Q: When is the remedy of protest available? A: The remedy of protest is available only in regular dutiable transactions and NOT in importations contrary to law. Q: What is protested here? A: the assessment or the imposition of taxes. Q: When can the taxpayer protest? A: within 15 days from the payment of taxes due. Q: Suppose a taxpayer was made to pay on the account of imported prohibited articles. Can he make a protest thereafter? A: No, remember protest is NOT available in prohibited importation. Q: X came from Bangkok with several sacks of RTW. He was assessed P100K. X paid. 30 days after, X questioned the imposition to the Commissioner. The Commissioner issued an order requiring the Collector to explain the assessment. Is the order proper? A: No, In this case there is no protest, so there can be no appeal to the Commissioner. Moreover, X questioned the assessment beyond the period to appeal. Failure to protest renders the imposition final. Sec. 2309 xxx shall make a protest, otherwise the action of the Collector shall be final and conclusive against him xxx The remedy of protest must be exclusively filed with the collector within 15 days from payment. After the prescriptive period, the
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those 3 years, the commissioner may conduct a PEA to check if correct duties have been paid. Under the new law, once PEA conducted, importer can be liable for deficiency duties and can be penalized. The effect of this is that the liquidation can never be final, because commissioner can just conduct PEA. Here we are talking only about legal importation. (see RA 9135)
September 29 Thursday 8-9pm Q: In seizure, what happens if you have an adverse decision to the government? A: Sec 2313 (b). It is automatically reviewed by the commissioner and records of the case are elevated within 5 days. In case of inaction it is different in protest and seizure. Q: If commissioner affirms? A: Automatically appealed to the secretary of finance. Q: Supposing the decision of the commissioner is not favorable to the government and the amount involved is P5m? A: If amount if P5m at the level of the commissioner, there is an automatic appeal to the secretary of finance. That is why you have to read sec. 2313 carefully. Q: What if there is inaction on the part of the commissioner? A: Then the tax payer can go to the CTA 30 days from the receipt of the records because it is considered final. Q: If you have seizure case, what are the remedies of the taxpayer? A: Bond, settlement Case Alert! Ogario/ Harrison Motors Q: Can the importer be held liable even if he no longer has dominion over the property, or even if the property has already been transferred? A: Yes. As between the importer and the buyer, it is the importer who has the obligation to pay taxes to the BIR and the BC. The importer would be unjustly enriched if the buyer should pay the tax and denied reimbursement by the importer. Imposing the tax
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3.
Injury, destruction, loss of irrevocable domestic letter of credit, bank guarantee, bond, while xxx: a. Within limits of port of entry b. Remaining in customs custody c. In transit with formal entry xxx d. Released for export, except theft (Sec. 1704) Refund of Excess Payments (Sec. 1707)
Q: What is the procedure for filing a refund? A: Sec. 1708 All claims for refund of duties shall be in writing and forwarded to the Collector x x x. Q: X was assessed P100k. Assessment was made in September 15, 2005. He paid. On October 15, 2005, he filed a claim for refund. Will this prosper? A: No. The claim for refund must be filed within 15 days from payment. Q: Why 15 days? Is there a provision that says 15 days from payment? A: There is no provision, but the procedure for refund is similar to the procedure for protest and in the procedure for protest, you are given 15 days from payment. This is explained in the Nestle case, where the Court said that when the importer claims refund, the importer is actually protesting. The Court actually calls it a protestable refund case. In customs law, you pay first before protesting. What is the prayer in the pleading of a protest filed? Refund diba? So refund should follow protest procedure. x x x in all cases subject to protest, the claim for refund of customs duties may be enforced only when the interested party claiming refund fails to file a written protest before the Collector of Customs. This written protest must x x x be made either at the time when payment of the amount claimed to be due the government is made or within 15 days thereafter x x x. (Nestle vs. CA) Q: X, importer, was assessed P100k. He paid on September 30, 2005. On October 30, 2005, X went to the Commissioner. The Commissioner said Oh cool, I think you are right! So the Commissioner writes to the collector ordering refund. Is this proper? A: No. A claim for refund has to be made within 15 days, remember?
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A: When the burden of the taxpayer is greater. If the taxpayer feels that he is being pressed for certain liabilities, all he has to do is to abandon the goods. The abandonment will relieve of any customs liability. Q: Would abandonment extinguish criminal liability? A: No. Sec. 1802 par (b) Nothing in this section shall be construed as relieving the owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the abandoned article. Q: How do you forfeiture? A: In seizure and often than not, abandonment, it taxpayer differentiate abandonment from seizure and forfeiture proceedings, the importation is, more prohibited and fraudulent. In the case of is always a regular importation and stupid
Q: How can an importer abandon the goods? A: Sec. 1801 An imported article is deemed abandoned under any of the following circumstances: 1. 2. When the owner x x x of the imported article expressly signifies in writing to the Collector his intention to abandon When the owner x x x after due notice, fails to file an entry within 30 days which shall not be extendible from the date of discharge of the last package from the vessel or the aircraft or having filed such entry, fails to claim his importation within 15 days which shall not be extendible, from the date of posting of the notice to claim such importation
3.
Q: What is the effect of abandonment? A: Sec. 1801 par (b) Any person who abandons an article or who fails to claim his importation x x x shall be deemed to have renounced all his interests and property rights therein. Sec. 1802 An abandoned article shall ipso facto be deemed the property of the Government x x x. Q: Does the ownership of the government over the abandoned articles mean that the taxpayer can no longer question the propriety of abandonment upon declaration of abandonment?
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A: The law always mandates sale on public auction of abandoned articles. But in some instances, the collector allowed redemption upon payment of duties, fines and surcharges. However this is questionable. Q: Why allow redemption when the government can sell the articles for a higher price? A: The law on abandonment merely states that the government can exercise ownership over the goods. There is no prohibition against the government in settling the tax liability in whatever way it deems fit. Therefore the collector is not precluded from allowing redemption by the taxpayer to settle the tax liability. 4. Judicial Remedies Q: What are the judicial remedies of the taxpayer? A: appeal to the CTA. Q: Can the taxpayer forego the administrative remedy and go straight judicially to the CTA? A: No. The judicial remedy is always tied up with the administrative remedy. If the taxpayer did not file a protest or a claim for refund he may not go straight to the CTA. In short there must be an exhaustion of administrative remedies first. Q: Can the importer go to Court and ask for injunction? A: Simple answer is that in seizure and forfeiture, there can be no injunction, because the exclusive jurisdiction is with the Bureau of Customs. But what if it involves an assessment? Here the taxpayer will tell you there is no prohibition, but the taxpayer will not do that. Because before you protest, you have to pay. So there is really nothing to enjoin. So no need for rule prohibiting injunction. 5. Compromise Q: What is compromise? Supposing you have seizure proceedings where goods were valued at P3m. Fine was imposed at P500k. Supposing the taxpayer asks if he can pay the fine of just P300k. Collector accepted. Proper? A: No. Secretary of Finance must approve the compromise FRAUDULENT PRACTICES/ IMPORTATION
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Q: Supposing the collector declares the goods as abandoned. Does the importer have a remedy? A: The taxpayer may appeal the decision to the commissioner and thereafter to the CTA. Q: But what about the statement that says goods abandoned shall automatically belong to the government? A: The automatic reversion contemplates a situation of Final abandonment. Meaning that the decision is already final and executory and no longer appealable. Q: Suppose goods were misshipped. Upon reaching the port, the BC declared these goods abandoned. The owner-importer appeared. The collector allowed payment of duties and taxes. Did the collector erred in allowing payment of duties when such goods are abandoned in favor of the government? A: In the case of transshipment or misshipment, there is no importation because there is no intention to unload. Abandonment presupposes importation. Q: Supposing the importer stored the imported goods with the warehouseman, the warehouseman insured the goods with the insurer. The consignee failed to file the import return and to claim the goods. BIR issued a declaration that the goods are abandoned in favor of the government. Subsequently, the goods were destroyed by fire. Can the consignee claim the insurance proceeds? A: No. Q: Does the taxpayer have the remedy of redemption in case of abandoment?
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Q: What are the other cases that fall under the exclusive appellate jurisdiction of the CTA in customs cases? A: countervailing duty, dumping duty, refund, abandonment. TARIFF COMMISSION Q: What is the Tariff Commission? A: Tariff commission is a body administration functions. having investigative and
Sec. 502 x x x to investigate the administration of and the fiscal and industrial effects of the tariff and customs laws of this country now in force or which may hereafter be enacted x x x. Q: Can this body impose penalties pursuant to findings on their investigation? A: No, this is mainly a policy making body and can only make recommendations for further action by the President.
X
Q: What is the rule in forged documents? A: In the case of Transglobe v. CA, the court ruled that in case of forged documents, the importer should have actual knowledge of the forgery in order for the importation to be fraudulent, precluding other remedies available to the taxpayer CTA JURISDICTION IN CUSTOMS CASES Q: What is the jurisdiction of the CTA in customs cases? A: In Sec. 7 of RA 9282, CTA has exclusive appellate jurisdiction to 1. Decisions of the Commissioner of Customs x x x 2. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner which are adverse to the Government under Sec. 2315 of Customs Code 3. Decisions of Sec of DTI 4. Decisions of Sec of DA
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1. 2. 3. 4.
The entities involved here are the local government units (LGUs), specifically the provinces, cities, municipalities, and the barangay. This taxing power is merely delegated by Congress to LGUs. The reason for this grant is that the LGUs have no inherent power to tax. This taxing power is legislative in character. This means that it is exercised by the LGUs through their respective Sanggunian by an enactment of an ordinance. The enactment of tax ordinances and revenue measures requires public hearings to be first conducted.
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Tax II Notes 2005 Edition Mendoza 5. The new Constitution grants LGUs the authority to create their own sources of revenues, which shall accrue exclusively to them. See Sec 5, Art 10. 6. The tax powers of LGUs are to be liberally construed but a doubt on the application of a tax ordinance shall be construed strictly against the LGU. The exceptions to this are tax exceptions, incentive or relief, which shall be construed strictly against the grantee. Q: What are the fundamental principles of Local Government Taxation? You have to memorize this. A: Sec. 130 provides that the Fundamental principles are: 1. Taxation shall be uniform in each LGU 2. Taxes, fees, charges and other impositions shall: a. Be equitable and based as far as practicable on the taxpayers ability to pay; b. Only for public purposes c. Not unjust, excessive, oppressive, or confiscatory; d. Not contrary to law, public policy, national economic policy, or in restraint of trade;
3. The collection of local taxes, fees, charges, & other impositions shall in no case be let to any private person
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regardless of other LGUs. As long as its uniform within the jurisdiction of the taxing LGU then its valid. 2. Taxes, fees, charges and other impositions shall: a. Equitable -> based ability to pay on
Q: What do you mean by this? A: This means that you have to apply the same rate REGARDLESS (meaning: without any standard). This is the same principle with national taxation. However, LGC covers taxes, fees (i.e., parking fees, garbage fees), charges, & other impositions b. Only for Public Purpose
Q: What do you mean by this? A: Proceeds of taxation are used to support the existence of the LGU or the pursuit of its governmental objectives. The LGU taxes for its own benefit and therefore can determine its own public purpose.
4. 5.
The revenue collected shall inure solely to the benefit of and subject to disposition of the LGU levying the local taxes, fees, charges, & other impositions. Each LGU shall evolve a progressive system of taxation.
c.
1. Taxation shall be uniform in each LGU. Q: What do you mean by uniform in each LGU? A: This means that all taxable articles or kinds of property of the same class shall be taxed at the same rate within the territorial jurisdiction of the taxing authority or LGU. Q: Municipality A imposes a tax on a business but the same business is exempted by Municipality B. Is the tax levied by A valid? A: YES, because uniformity is required only within the geographical limits of the taxing authority. The LGC provides in each LGU, meaning it levies for its own purposes within its jurisdiction,
Q: A tax rate is contested to be unjust & excessive. What must the Court establish to arrive at such a conclusion that said tax is really unjust, excessive? A: the Court must look at the circumstances of the case because of the presumption of reasonableness in favor of the LGU. Also, the LGUs are given a wide latitude in fixing the tax rates. Thus, absence any showing that its unjust, excessive, the Court would be slow in writing off an ordinance. See Jagna case d. Not contrary to law, public policy, national economic policy or in restraint of trade
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Therefore, no element of
Q: Can the LGU impose a tax already imposed by the NIRC? A: No. LGU may not impose taxes which are already imposed under the NIRC Income Q: Can the LGU impose income tax? Why or why not? A: No. This is an absolute rule. Sec. 133 (a) Income tax, except when levied on banks and other financial institutions. The exception provided is inaccurate. This is really not an exception but rather this refers to the tax on the gross receipts of such institutions. Passing Through limitation Q: The City of Lipa imposes an inspection fee on every kilo of Barako coffee being sold to the next LGU. A businessman from Talisay, Batangas wants to buy Barako coffee from Lipa. The businessman is taxed. Proper? A: No. This is within the passing through limitation. Q: Two municipalities connected by a bridge built by both of them. Municipality A imposes a tax on every vehicle passing through the bridge. Municipality A loaded a vehicle with goods. Under the ordinance the vehicle is subject to a P50 for passing the bridge. Valid? A: Depends. You have to look at the circumstances of the case. If its a tax on the vehicle, then it would be valid since it could be considered under toll fees or charges (S155, LGC) Remember that S155 refers to the vehicles itself and not to the goods it carries. BUT if the tax is on the vehicle for passing through the bridge, then it would not be valid because its actually a tax on the goods and
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Sec of Finance says it should not cover fees for services rendered and for rentals of properties used for business. BUT Sir disagrees with this since the exemption is expressly provided for by the Code.
Tax on the National instrumentalities and LGUs Government, its agencies,
Q: Can the LGU impose a tax on another LGU? A: No. This falls under the common limitations particularly sec. 133 (o) Q: How about corporations? Can the LGU tax GOCCs? A: Depends on the term instrumentalities/ agencies. See the Napocor vs Cabanatuan case. In that case, Cabanatuan imposed a franchise tax on Napocor. Napocor invoked the limitation because it was a GOCC. The Court upheld the franchise tax because the province or city was specifically authorized to impose a franchise tax. So because of this specific authority, it was allowed. This is an exception to the common limitations. Therefore, the rule is that this limitation is only applicable in the
absence of a specific provision in the LGC authorizing the LGU to impose a tax on the said instrumentalities/agencies of the national government. An exemption in this limitation is Sec 137, which authorizes provinces (as well as cities by virtue of Sec 151) to levy franchise tax notwithstanding any exemption granted by law or other special law.
SPECIFIC TAX POWERS Provinces Q: Can the province impose business taxes? A: Yes, those enumerated like b usiness of publication and printing, on
A: Cooperatives are exempt from paying taxes, fees, or charges (pecuniary liabilities)
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A: Business taxes. This is since their power to levy such tax covers almost all economic activities from building of ships to beauty parlors. Q: Supposing in Makati, you have this 1 big compound at 123 Batangas West St. owned by X. Here you have several establishments like a beauty parlor, barber shop, and other shops. What will be the local tax treatment? A: Sec. 146 provides that if its SAME person, SAME place but DIFF businesses = segregate or separate the taxes on each of the businesses. Treat each business separately or differently. Q: Supposing that in 1 municipality, 29 barangays, X has the same business in each of the 29 barangays. Let us say his business is a laundry shop. Same tax treatment? A: No. If SAME person, SAME business but DIFF places = taxpayer must consolidate all the gross receipts of each branch/business. Treat all the branches as one business. Q: What if different businesses but same tax rates, would that make a difference? A: No. The gross receipts will still be consolidated. What is controlling are the tax rates. If different tax rates, then treated separately. Q: X has a repair shop and within it there is a spare parts store for automobiles to be repaired by the repair shop. Would the spare parts store be subject to a different tax than that of the repair shop? A: Depends. If the spare parts store is incidental to the repair shop business, then it would not be subject to a different tax. BUT if the spare parts store sells to the public, then its an independent business and therefore it can be made subject to a different tax. See Opon case. Cities Q: What is the taxing power of the City? A: The City has the broadest taxing power among the LGUs. This is since the City has the power to impose those taxes levied by both the province and the municipality.
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A: Then the 70% apportioned to a factory shall be shared pro rata in proportion to their production. See Sec. 150 (d) Barangay Q: What is the taxing power of the barangay? A: The barangay has the least taxing power among the LGUs. The general tax powers under Sec 186 of the Code have not been withheld from them TAX SITUS Q: What is this tax situs? A: Section 150. If there is a branch/sales office: Tax situs is where the sale was effected. If there be none: [SALES APPORTIONEMENT RULE] o Sale shall be recorded in the principal office (30%) and where the factory is located (70%). o If the plantation and the factory are located in different places then the 70% would be divided as follows: 60% allocated to the LGU where the factory is situated and 40% where the plantation is located. Q: Supposing Pasig principal office San Juan 1 branch with P1m gross receipts Makati P2m gross receipts Quezon City Delivery/ Consignment basis of P2m Total Sales amounts to P5m. What is the tax treatment? A: The Sales in San Juan will be recorded because a branch is located there. The rest of the sales shall be computed in Pasig, because that is where the principal office is. In QC, it is mere consignment and not a branch/ outlet. Q: Same facts, but there is also a factory in Valenzuela. The Principal Office is still in Pasig. Both no sales A: Apply the Sales Apportionment Rule wherein the sales shall be split. 30% recorded in Pasig and 70% recorded in Valenzuela Q: Supposing there were 2 factories, 1 in Valenzuela and 1 in Makati? CIVIL REMEDIES FOR COLLECTION Things to remember: The non-payment of the tax liability on the due date subjects the taxpayer to corresponding surcharges and interest. All local taxes shall be collected by the local treasurer or his duly authorized deputies. A tax lien is created on any unpaid tax, fee or charge. It attaches automatically to the thing. It is superior to all other liens, charges or encumbrances in favor of any person. It is extinguished only upon full payment of the delinquent tax, fee, or charge plus the surcharges or interest. o It is generally directed against the property subject to the tax regardless of the owner. Whereas in a distraint, the property must be that of the taxpayer although it need not be the property to which the tax is assessed. o NOTE the tax lien cannot be appealed since it attaches automatically to the thing. o It is imposed on any property which is subject to the lien as well as on any property used in the business, occupation or practice of profession or calling with respect to which the lien is imposed. Q: Can LGU file a criminal case to collect? A: NO because the Code uses civil action. Q: When can the LGU avail of these remedies? A: Only after an assessment has become final and the taxpayer fails to pay within the prescribed period. Q: Is there a need for an assessment? A: Yes, because the remedies are only available when the assessment has become final and the taxpayer fails to pay within the prescribed period.
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Q: What if X has a P50k local tax liability but his present properties were only worth P30k. However, the following year, X acquired real properties. The treasurer wants to levy on the new real properties of X. X goes to court to enjoin the same. Can the said real properties be levied? A: YES, the remedy of further levy is also available to LGUs until the tax due is paid. Provided that it is made within the 5 year collection period. Q: Same facts. Can an injunction be had? A: YES. Actually X wants to enjoin the collection and not the assessment. It should be noted that there has already been a prior collection made by the treasurer. Q: X is assessed by the treasurer. X contests the assessment as the tax is based on an ordinance he claims to be invalid. What is the remedy of X? A: Since X failed to contest/appeal the validity of the ordinance with the Secretary of Justice, then such ordinance is already binding and effective upon him. Therefore, the remedy of X is to protest the same. However, he cannot use the defense that ordinance is invalid since he did not appeal the same with the Sec of Justice. See Jardine case (the Court mentioned here the 3 mandatory periods: 30 day period, decision period & appeal period; also the Doctrine of Exhaustion of Admin Remedies) See also Systems Plus case (re Doctrine of exhaustion: cannot raise a purely legal issue so as to skirt the doctrine of exhaustion.) Q: What is the procedure for distraint? A: The Procedure is: SEIZURE = upon failure of the taxpayer to pay his tax liability at the time required, the treasurer or his deputy may seize or confiscate any personal property subject to the tax lien in sufficient quantity. ACCOUNTING Of Distrained Goods PUBLICATION = the notice shall be exhibited in 3 public places in the territory of the LGU where the distraint is made. It should specify the time & place of sale and the articles distrained. Period: it should be not less than 20 days after notice to the owner or possessor of the property.
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necessary clothing & that of his family, professional libraries, etc. Please see Sec 185, LGC Q: May the LGU grant tax exemptions, incentives or reliefs? A: Yes, as provided under Sec 192 Take Note that the Local Government Code has withdrawn tax exemptions, incentives granted to or presently enjoyed by all persons, whether natural or juridical including GOCCs. Those entities still exempted are: o Local water districts o Cooperatives under RA 6938 o Non-stock, non-profit hospitals institutions
Q: What is the procedure for levy? A: Written notice of the levy shall be mailed or served upon assessor or the RD. PUBLICATION = within 30 days after the levy, the local treasurer shall publicly advertise the auction sale. Posting of the notice is made at the main entrance of the hall, and in the barangay where the prop is located. STAY OF SALE = At any time before the date fixed for the sale, the taxpayer may stay the proceedings by paying the taxes, fees, charges, penalties and interest. SALE = If the taxpayer fails to settle the delinquency on time, the sale shall proceed and shall be held either at the main entrance of the province/muni/city. RIGHT OF REDEMPTION = within 1 year from date of the sale. It is exercised upon payment of the total amount of taxes, fees, charges, surcharges, interests, and penalties plus interest of not more than 2% from date of delinquency. o Note that possession and enjoyment of property during the period of redemption is with the owner. EXECUTION OF FINAL DEED TO PURCHASER = if taxpayer fails to redeem the property, the local treasurer shall execute the final deed in favor of the buyer. Judicial Action Q: What is the remedy by judicial action? A: the LGU may institute an ordinary civil action with the regular courts for the collection of delinquent taxes, fees, charges, or revenues. Properties exempt from the civil remedies for collection Q: What are the properties exempt from distraint, levy, attachment or execution? A: Some of which are the tools and implements necessarily used by the delinquent taxpayer in his trade or employment, his
and
educational
Q: May LGUs condone or remit taxes? A: The authority of the LGUs to grant tax exemption privileges and reliefs under Sec 192 is broad enough to allow them to condone or remit taxes. REMEDIES OF THE TAXPAYER Q: What are the remedies of the taxpayer? A: Remedies prior to an assessment a. Administrative appeal to Sec of Justice Within 30 days from effectivity of the ordinance Must decide within 60 days from receipt of the appeal If the Sec of Justice takes no action upon the lapse of the 60 days, then the taxpayer may file appropriate proceedings with a court of competent jurisdiction. This involves questions re the constitutionality or validity of the ordinance. The appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein. Action for declaratory relief
b.
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Q: Supposing the taxpayer goes straight to the Court assailing constitutional issues of the ordinance. Is this proper? A: No. Even for strictly legal issues you have to first go to the Secretary of Justice. See sec. 187. Although, you will see that in some jurisprudence the SC allowed it. Q: Supposing assailing the validity of an ordinance, X goes to the Court. If this was allowed, what are the advantages? A: The ordinance is suspended. Recent jurisprudence says you have to exhaust administrative remedies first. SC says observe the 3 mandatory periods. Q: Is there a prohibition from enjoining the collection of tax? A: No
Remedies after an assessment 1. Written Protest of the assessment Within 60 days from receipt of the assessment; filed with the local treasurer If this is not done, then the assessment becomes final and executory. The local treasurer shall decide the protest within 60 days from its date of filing by either sustaining or denying the same wholly or partly. From the decision of the local treasurer, the taxpayer may, within 30 days from receipt of the said decision, appeal to the regular courts. 2. An action for refund (Written claim for refund) Within 2 years from payment or from the date the taxpayer is entitled thereto. Payment must be made within the 60 day period from receipt of the assessment. [VITUG: if theres no assessment, the taxpayer may still opt to pay the tax and thereafter claim a refund under the conditions expressed in Sec 196] The filing of the written claim for refund with the local treasurer is a condition precedent for maintaining a court action.
If the local treasurer does not act and the 2 year period is about to expire, the taxpayer may already initiate the court action and consider the inaction as a denial.
Q: What are the 3 mandatory periods? A: The 3 mandatory periods are: (Jardine case) 1. 30 day period 2. Decision period 3. Appeal period
property tax shall be guided by the following fundamental principles: 1. Real property shall be appraised at its current and fair market value.
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Tax II Notes 2005 Edition Mendoza 2. Real property shall be classified for assessment purposes on the basis of its actual use. 3. Real property shall be assessed on the basis of a uniform classification within each local government unit. 4. The appraisal, assessment, levy, and collection of real property tax shall not be let to any private person. 5. The appraisal and assessment of real property shall be equitable
1. Appraised at Current and Fair Market Value Q: How do you appraise real property tax? A: Use the Fair Market Value of the real property. Q: What is the basis of the assessment? A: The Assessor is not limited to any value so long as it is equitable. See the case of Reyes vs. Almanzor. 2. Classified on the Basis of Actual Use Q: Why is classification based on actual use important in taxation? A: Because of the different assessment levels of lands. It could be residential, or commercial, which has different rates. Residential has the lowest assessment level. 3. Uniformed Classification within each LGU Q: What is uniformity? A: Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate. (Reyes vs. Almanzor) Q: Supposing X owns 2 real properties located in 2 different Municipalities. One in Municipality A and the other in Municipality B. Can the tax rates differ? A: Yes. This does not violate the uniformity principle because the properties are located in 2 different jurisdictions. Municipality A should not be concerned with what the other municipality imposes as long as all property of the same class within its jurisdiction are taxed the same.
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4. Not be let to any Private Person Q: Supposing in Municipality A, the real property tax was levied by an NGO. Would this be proper? A: No. This is not allowed because an NGO is a private person. 5. Equitable Q: When is real property tax equitable? A: When it is based on the ability to pay the tax. The tax should not pay more when others are paying less. COVERAGE OF REAL PROPERTY TAX Q: What are covered by real property tax? A: It covers: 1. lands 2. buildings 3. machineries 4. improvements Sec 232 xxx tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted. 1. Lands 2. Buildings Sir: Land and building are clearly covered by real property, but what about machineries or improvements? 3. Machineries Sec. 199 (o) Machinery embraces machines xxx which may or may not be attached, permanently or temporarily, to the real property. It includes xxx and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry xxx and which by their very nature and purpose are designed for, or necessary to its xxx business purpose.
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1. Realty by Destination machineries should be essential to the business. It is a realty by destination, although not permanently attached. Such would include air conditioning systems of banks or big computers of a business firm. 2. Realty by incorporation if the machinery is permanently attached. Q: Supposing a transportation company owns a welding machine, a boring machine, a hydraulic press, carpentry tools, blacksmith xxx, are these machines subject to real property tax? A: No. Movable equipment to be immobilized in contemplation of the law must first be "essential and principal elements" of an industry or works without which such industry or works would be "unable to function or carry on the industrial purpose for which it was established." The tools here are not essential and principal elements of petitioner's business of transporting passengers and cargoes by motor trucks. They are merely incidentals acquired as movables and used only for expediency to facilitate and/or improve its service. Even without such tools and equipments, its business may be carried on. (Mindanao Bus vs. City Assessor)
4. Improvements Sec. 199 (m) Improvement is a valuable addition made to a property or an amelioration in its addition, amounting to more than a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further purposes. Q: What are the improvements A: the improvement must 1. enhance the utility or value of the property where it is attached 2. It must have a separate existence from the property. 3. It must also prolong the life of property,
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Q: How about improvements? What are the requisites for its taxability? A: 3 requisites: 1. improvements must enhance the value of the property 2. improvements must be separately assessable, they have a separate existence 3. improvement can be treated independently from the main property Q: What are some examples of taxable and non-taxable improvements? A: For example, a road and a fence is a separate taxable improvement. However, in a fishpond having dikes, the dikes do not have a separate existence hence it is not a taxable improvement. Q: Suppose a tailings dam was constructed which benefited not only the taxpayer but also the nearby communities and that even without the dam, the operations of the taxpayers business could still continue, can the taxpayer argue that the dam is an inseparable part of its business therefore not a separate real property subject to tax? A: No. The subject dam falls within the definition of an "improvement" because it is permanent in character and it enhances both the value and utility of petitioner's mine. A structure constitutes an improvement would depend upon the degree of permanence intended in its construction and use. The expression "permanent" does not imply that it must be used perpetually but only until the purpose to which the principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is annexed is still used for the said purpose. (Benguet vs. CBAA) EXEMPTED PROPERTIES Q: What are the exceptions to the real property tax? A: Sec. 234 the following are exempted from payment of the real property tax: 1. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
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3.
A: Yes. when the government sold the property, the agency although exempt from the payment of taxes clearly indicated that the property became taxable upon its delivery to the purchaser" and that "the sole determinative factor for exemption from realty taxes is the 'use' to which the property is devoted, And where 'use' is the test, the ownership is immaterial. (City of Baguio vs. Busuego) Q: What if the real property is owned by the State but its title is registered in the name of a taxable GOCC, is the property subject to tax? A: Yes, it must be subject to tax. Q: What would be the rule if the use and ownership of the State property are different? A: Sir said that if owner is different from the actual user, use controls. If ownership is clear, and no actual use, ownership controls. Q: Suppose X obtained a loan with the government with his real property as a collateral. He failed to pay. The government was the highest bidder. Afterwards X redeemed the land. Is X liable to pay the real property tax during the period when he was deprived of its ownership and possession? A: No, to impose the real property tax on X which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. It is contrary to the tax policy that the user of the property bears the tax. (Estate of Lim vs. City of Manila) 2. Real Property for Educational Purposes Religious, Charitable, or
4. 5.
1. Real Property owned by the State Q: Supposing the government owned a parcel of land. It leased it to a GOCC. The Lease contract began on January 1. Would this be subject to real property tax? A: The question is whether or not the GOCC is a taxable person. If yes, regardless of whether or not there is consideration, it is not exempt. Q: Suppose the parcel of land was instead leased to the Society of Jesus for P50K per month. Would this be subject to real property tax? A: No. Sec. 234 (a) provides that real property owned by the state is subject to Real Property Tax when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. Since the Society of Jesus is not a taxable person, it cannot be subject to tax. Q: Suppose the parcel of land was instead leased to a taxable person for free? A: The land is still taxable. As long as beneficial use is granted to a taxable entity, the property is taxable. Consideration is immaterial. Q: Suppose that X entered into a contract to sell with a government institution. After the execution of the contract, X acquired possession over the property, however, he did not pay the whole consideration. Is X subject to tax notwithstanding the fact that the property still belongs to the government?
Q: Supposing a religious entity is exempt from real property tax. Is it exempt from other taxes too, like special levy? A: No. The real property tax exemption only refers to the basic real property tax exemption. 3. Machineries for Water or Electric Power
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A: Yes, because the effectivity of lease is beyond the tax date of January 1. Q: Can LGU add to the list of exemptions? A: No. The exemptions are granted by law. They cannot be changed by any tax ordinance. October 6 Thursday 8-9pm -Last day of Tax II party!!!So sir just noted the important parts of the remaining topic. *** The remaining part of this reviewer was directly lifted from the previous reviewer because of the party. *** COMPUTATION OF REAL PROPERTY TAX Q: How is Real Property Tax computed? A: Appraise FMV, Classify based on use assessment level, assess based on uniform classification LEVIES IN ADDITION TO THE BASIC PROPERTY TAX Q: What are the special levies that a LGU may imposed? A: LGU can imposed 1. special education fund 2. idle lands this has the highest ad valorem rate 3. special levy those benefited by public works projects and LGU 4. different rates imposed Special Levy Q: Supposing a LGU made a park. This park enhanced the value of the properties around it. How can the LGU imposed the special levy on those affected by the park? A: Those nearer to the park will be imposed a higher rate than those imposed n properties far from the park who were still benefited. Q: Supposing the government builds a park enhancing the value of the houses closest to the park. What happens?
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Collection Suit there is no need for the LGU to issue an assessment notice or a notice that fixes the taxpayers liability
Q: Is assessment necessary in order to collect real property tax? A: No. There is no assessment as fixing tax liability, only assessment in determining the value of the land in real property taxation. There is only a notice of delinquency to apprise tax payer of tax liability on the property Q: When is collection made? A: Collection is made 5 years from due date. If there is fraud and intent to evade payment, 10 years from discovery thereof Q: May the government collect through judicial action? A: Yes. The government can file a collection case with the RTC which is appealable to the CTA. The principle behind judicial action is that all taxes are indebtedness, enforceable by the courts. Prescription Q: When may the government collect real property tax due? A: within 5 years from due date, reckoning point is the due date. Sec. 270 xxx shall be collected within 5 years from the date they become due. REMEDIES OF THE TAXPAYER 1. Remedy against Assessments Sec. 226 Any owner xxx who is not satisfied with the action of the xxx assessor in the assessment of his property may, within 60 days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment of the LGU by filing a petition xxx. Q: May the Assessor reduce the new assessed values of real properties upon requests of the affected property owners? A: No. The issuance of a notice of assessment by the local assessor shall be his last action on a particular assessment. On the side of the property owner, it is this last action which gives him the right to appeal to the Local Board of Assessment Appeals. The above procedure also, does not grant the property owner the remedy of
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A: Sec. 161 within one year from the date of the sale, the owner of the delinquent property xxx shall have the right to redeem xxx. Q: When may the taxpayer claim for refund? A: Within 2 years from entitlement to reduction or adjustment
Q: Why cant the assessor be allowed to review his assessment? A: Because, to allow owners chose to bring their requests for a review/readjustment before the city assessor would indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently take place. (Callanta vs. Ombudsman) 2. Remedy against an Assessment issue Sec. 252 No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words paid under protest. The protest in writing must be filed within 30 days from payment of the tax to the LGU treasurer xxx who shall decide the protest within 60 days from receipt xxx. Q: How do you file a protest in real property taxation? A: Follow these steps: 1. File a protest of the determination of the assessed value of the property within 60 days from assessment with the Local Board of Assessment Appeals; 2. The local board has 120 days to decide; 3. 30 days within receipt of decision or lapse of 120 days, taxpayer may appeal to the Central Board; 4. Appeal to the CTA Q: Can the taxpayer go directly to the court? A: As a general rule, administrative remedies must first be exhausted. Butt if the issue is the authority to assess, then the taxpayer can go directly to court Q: What could be a ground in the protest? A: The payment will be illegal based on fundamental principles. Q: When can the taxpayer exercise right of redemption?
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Sec. 253 xxx the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer within 2 years from the date the taxpayer is entitled to such reduction or adjustment. Q: What is the remedy if the claim for refund is denied? A: The remedy is the same as in protest Q: What are the other remedies? A: Right to redeem the property, remedy of refund in case of excessive payment (Section 253) within 2 years from the date taxpayer is entitled to such reduction or payment Condone Real Tax Liability Q: Can the real property tax be condoned? A: Yes. Sec 277 - The President of the Philippines may, when public interest so requires, condone or reduce the real property tax and interest xxx. Sec. 276 In case of a general failure of crops or substantial decrease in the price of agricultural or agri-based products, or calamity xxx the sanggunian concerned by ordinance passed prior to the first day of January of any year and upon the recommendation of the Local Disaster Coordinating Council, may condone or reduce xxx. Q: What is the basis of this condoning power? A: The power to make tax amnesty is based on the power to grant tax relief as provided in section 192.
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DISPUTED ASSESSMENT Q: Suppose that a taxpayer received an assessment notice. Immediately after receipt, he appealed to the CTA alleging that the assessment was illegal and unconstitutional. Can the CTA take cognizance of it? A: No. CTA has no jurisdiction because there is no disputed assessment and there is no decision. Sec 7 (a) (1) Decisions of the CIR in cases involving disputed assessments Q: Supposing X, inc. received an assessment. He filed a protest within the period. Subsequently, he received a final notice of assessment. Within 30 days from receipt, he appealed to the CTA. Pending appeal, BIR canceled the tax liability. Can the CTA take cognizance of the case? A: No, if an assessment was cancelled, there would be no disputed assessment. CTA has jurisdiction only to disputed assessment. If it is canceled, the assessment is no longer disputed. Q: The taxpayer received a final assessment obliging him to pay P300K as his tax liability. He appealed to the CTA. During a hearing in the CTA, BIR increased the assessment. It amended its pleading increasing the assessment to P450K. Can the CTA dismissed the case as it was not the disputed assessment appealed? A: No. BIR may, after appeal from its decision to the Court of Tax Appeals increase his assessment. SC in CIR vs. Batangas Transportation and Laguna Tayabas: 1. the Government is not bound by the errors committed by its tax collectors in making tax assessments, 2. If the BIR is not allowed to amend the assessment before the CTA, and since it may make a subsequent reassessment to collect additional sums that would lead to multiplicity of suits which the law does not encourage; 3. that the hearing before the Court of Tax Appeals partakes of a trial de novo and the Tax Court is authorized to receive evidence, and the taxpayer has opportunity to present and argue their sides, so that the true and correct amount of the tax to be collected may be determined and decided, whether resulting in the increase or reduction of the assessment appealed to it.
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Q: When does the CTA have original jurisdiction on tax collection cases? A: Sec. 7 (c) 1. Exclusive original jurisdiction final and executory assessments, the principal amount of taxes and fees exclusive of charges and penalties is PhP 1 Million or more 2. Exclusive appellate jurisdiction 1. appeals from RTC in tax collection cases originally decided by them 2. petitions for review of RTC in the exercise of their appellate jurisdiction Q: Suppose an assessment became final, can the BIR filed a collection case with the RTC? A: Yes. Sec. 7 (c) (1) x x x collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than PhP1 Million shall be tried by the proper MTC, MeTC, and RTC Q: Supposing that there is a pending collection case, can the RTC enjoin the collection? A: No, because no court shall issue an injunction Sec. 218 No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by this Code. NO INJUNTION Q: Supposing a collection case involving an amount of less than P1 million was heard before the RTC. Can the CTA, upon motion of the taxpayer, enjoin the BIR? A: No. CTA may only enjoin a collection case in the exercise of its appellate jurisdiction. The main case must be before the CTA. Pending the resolution of the case before the RTC, the CTA cannot enjoin the collection. APPEAL FROM CTA Q: Suppose a taxpayer lost in the CTA, what is his remedy?
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A: validity of tax sale, validity of memorandum circular issued by the BIR. Q: Suppose that there is an auction sale, but the taxpayer was out of town. The taxpayer filed a motion to reset the sale. BIR denied the taxpayers motion. Can the taxpayer appeal to the CTA? A: No. an appeal to the CTA must only be final cases disposing of the case and not interlocutory orders. Id like to thank the makers of the previous reviewer/s especially the one that had a special acknowledgment to Alf Bambi Carlos Chuck Deli Erika Jonah Jovit Macky Ron Rybi She TR. 90% of that Reviewer was incorporated here.
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