Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
VER. 2010.08.12
copyrighted 2010
Prepared by Prof. Abelardo T. Domondon
(AB (Econ), BSC (Acctg), LLB, MA (Econ), LLM, DCL (Cand.). LawyerCPA-Customs Broker, Management Consultant, Professor of Law and Pre-Bar
Reviewer)
How to use the BAR STAR NOTES. The BAR STAR NOTES in
the form of questions and answers as well as textual discussion
were specially prepared by Prof. Domondon for the exclusive use of
Bar Reviewees who attended the 2010 Wrap-Up Lectures on
TAXATION conducted by Primus Information, Center, Inc., and the Bar
Reviewees of various law schools and Review Centers where he was invited
to lecture on Taxation. Included in the presentation are doctrines contained
in Supreme Court decisions up to April 2010.
The purpose of the BAR STAR NOTES is to provide the Bar
Reviewee with a handy review material which serves as memory-joggers
for the September 12, 2010 Bar Examinations in Taxation. The author tries
to second guess what would be included in the Bar Exams using statistical
analysis. The actual Bar questions may not be formulated in the same
manner as the BAR STAR NOTES. However, the doctrines tested in the Bar
would in all probability be included in these Notes.
If pressed for time, the author suggests that the reader should focus
his attention on the following:
Nice to know
Should know
TAXATION
GENERAL PRINCIPLES OF TAXATION
TAXATION, IN GENERAL
1.
State
briefly
and
concisely
the
nature
of
taxation. Alternatively, define taxation.
SUGGESTED ANSWER: The inherent power of the sovereign exercised
through the legislature to impose burdens upon subjects and objects within
its jurisdiction for the purpose of raising revenues to carry out the legitimate
objects of government.
2.
What is the nature of the States power to tax ? Explain
briefly.
SUGGESTED ANSWER: The nature of the states power to tax is twofold. It is both an inherent power and a legislative power.
It
is inherent in nature being an attribute of sovereignty. This is so, because
without the taxes, the states existence would be imperiled. There is thus, no
need for a constitutional grant for the state to exercise this
power.
It is a legislative power because it involves the promulgation
of rules. Taxation is a set of rules, how much is the tax to be paid, who pays
the tax, to whom it should be paid, and when the tax should be paid.
3.
What is the underlying theory of taxation ? Explain
briefly.
SUGGESTED
ANSWER: Taxes
are
the
lifeblood
of
the
nation.
Without revenue raised from taxation, the government will not
survive, resulting in detriment to society. Without taxes, the government
would be paralyzed for lack of motive power to activate and operate
it. (Commissioner of Internal Revenue v. Algue, Inc. et al., 158 SCRA 8,
16-17)
4.
Marshall said that, the power to tax involves the
power to destroy. On the other hand, Holmes stated that
the power
to tax
is
not
the
power to destroy while the court sits.
Reconcile
the
statements.
In
the
alternative, what are the implications that flow from the above
statements
?
SUGGESTED
ANSWERS: Marshalls view refers to a valid tax while the Holmes view
refers to an invalid tax.
a.
The
imposition of a valid tax could not be judicially restrained merely because it
would
prejudice
taxpayers
property.
b.
An
illegal tax could be
judicially declared invalid
and should not work to prejudice a taxpayers property.
5.
Discuss briefly the basis/bases, or rationale of
taxation.
SUGGESTED ANSWER: a.
Reciprocal duties of protection and support
between
the state and its citizens and residents. Also called symbiotic
relation between the state and its citizens.
b.
Jurisdiction by the state over persons and property
within its territory.
6.
Discuss briefly but comprehensively the objectives or
purposes of taxation.
SUGGESTED ANSWER: The purposes or objectives of taxation are
the
following:
a.
The
primary
purpose:
1)
Revenue
purpose.
b.
The
secondary
purposes
1)
S
umptuary
or
regulatory
purpose.
2)
Compensatory
purpose.
3)
To
implement the power of eminent domain.
7.
Distinguish
a
tax
from
a
license
fee.
SUGGESTED
ANSWER: The
following
are
the
distinctions:
a.
Purpose: Tax imposed for revenue while
license fee for regulation. Tax for general public purposes while license fee
for
regulatory
purposes
only.
b.
Basis: Tax imposed under power of taxation while license fee under
police
power.
c.
Amount: In taxation, no limit as to amount while license fee
limited to cost of the license and the expenses of police surveillance and
regulation.
d.
Time of payment: Taxes normally paid after
commencement
of
business
while
license
fee
before.
e.
Effect of payment: Failure to pay
a tax does not make the business illegal while failure to pay license fee
makes business illegal.
f.
Surrender: Taxes, being the
involves the power to destroy and the belief that taxes are lifeblood of the
state. (Ibid.) taxes being the lifeblood of the government, their prompt and
certain availability is of the essence.
These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. (Ibid.)
11.
How the power of taxation may be used to implement
power of eminent domain. Tax measures are but enforced contributions
exacted on pain of penal sanctions and clearly imposed for public
purpose. In most recent years, the power to tax has indeed become a most
effective tool to realize social justice, public welfare, and the equitable
distribution of wealth. (Commissioner of Internal Revenue v. Central Luzon
Drug Corporation, G.R. No. 159647, April 16, 2005)
Establishments granting the 20% senior citizens discount may claim
the discounts granted to senior citizens as tax deduction based on the net
cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the total
amount of the claimed tax deduction net of value added tax if applicable,
shall be included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National
Internal Revenue Code, as amended. [M.E. Holding Corporation v. Court of
Appeals, et al., G.R. No. 160193, March 3, 2008 citing Expanded Senior
Citizens Act of 2003, Sec. 4 (a)]
12. What are the three basic principles of a sound tax
system? Explain
each
briefly.
SUGGESTED
ANSWER: The
canons of a sound tax system, also known as the characteristics or,
principles of a sound tax system, are used as a criteria in order to determine
whether a tax system is able to meet the purposes or objectives of
taxation. They are:
a.
Fiscal adequacy.
b.
Administrative feasibility.
c.
Theoretical justice.
13.
What
are
the
elements
or
characteristics of
a
tax
?
SUGGESTED
ANSWER:
a.
Enforce
d contribution.
b.
Generally payable in money.
c.
Proportionate in character.
d.
Levied on persons, property or exercise of a right or
privilege.
e.
f.
g.
h.
15. What are the classes or kinds of taxes according to the subject
matter or object ?
SUGGESTED
ANSWER:
a.
Persona
l, poll or capitalization imposed on all residents, whether citizen or
not. Example Community Tax.
b.
Property - Imposed on property. Example Real property
tax.
c.
Excise imposed upon the performance of an
act, the enjoyment of a privilege or the engaging in an occupation. Example
income tax, estate tax.
16. What are the kinds of taxes classified as to who bears
the burden ? Explain each briefly.
SUGGESTED
ANSWER: Based on the possibility of shifting the incidence of taxation, or as
to who shall bear the burden of taxation, taxes may be classified into:
a.
Direct taxes. Those that are extracted from the very person
who, it is intended or desired, should pay them (Commissioner of Internal
Revenue v. Philippine Long Distance Telephone Company, G. R. No. 140230,
December 15, 2005); they are impositions for which a taxpayer is directly
liable on the transaction or business he is engaged in, (Commissioner of
Internal Revenue v. Philippine Long Distance Telephone Company,
supra)
which liability cannot be shifted or transferred to another. Example
income tax, estate tax, donors tax, etc.
b.
Indirect taxes are those that are demanded in the first
instance, from, or are paid by, one person in the expectation and intention
that he can shift the burden to (Commissioner of Internal Revenue v.
What
are
the
as
different
kinds
of
2.
What are the principles to consider in the
determination of whether tax revenues are devoted for a public
purpose ?
SUGGESTED ANSWER:
a.
The tax revenues are for a public purpose if utilized for the
benefit of the community in general. An alternative meaning is that tax
proceeds should be utilized only to attain the objectives of government.
b.
Inequalities resulting from the singling out of one particular
class for taxation or exemption infringe no constitutional limitation.
REASON: It is inherent in the power to tax that the legislature is
free to select the subjects of taxation.
BASIS: The lifeblood theory.
c.
An individual taxpayer need not derive direct
benefits from the tax.
REASON: The paramount consideration is the welfare of the greater
portion of the population.
d.
A tax may be imposed, not so much for revenue
purposes, but under police power for the general welfare of the community.
This would still be for a public purpose.
e.
Public
purpose
continually
expanding. Areas
formerly left to private initiative now lose their boundaries and may be
undertaken by the government if it is to meet the increasing social
challenges of the times.
f.
Tax revenue must not be used for purely private
purposes or for the exclusive benefit of private persons.
g.
Private persons may be benefited but such benefit should be
merely incidental as its main object is the benefit of the community in
general.
h.
Determined at the time of enactment of tax law and not at
the time of implementation.
i.
There is a presumption of public purpose even if the tax law
does not specifically provide for its purpose. (Santos & Co., v. Municipality
of Meycauayan, et al., 94 Phil. 1047)
j. Public use is no longer confined to the traditional notion of use
by the public but held synonymous with public interest, public benefit, public
welfare, and public convenience. (Commissioner of Internal Revenue v.
Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)
3. A law was enacted imposing a tax on manufacturers of
coconut oil, the proceeds of which are to be used exclusively for the
protection and promotion of the coconut industry, namely, to
improve the working conditions in coconut mills and to conduct
research on the use of coconut oil for motor fuel. Some of the
manufacturers of coconut oil challenge the validity of the law,
e.
For legislators, there must be a claim that the official action
complained of infringes upon their prerogatives as legislators. (David, et al.,
v. President Gloria Macapagal-Arroyo, etc., et al., G. R. No. 171396, May 3,
2006)
5.
Only those directly affected have locus standi to
impugn the alleged encroachment by the executive department into
the legislative domain of Congress.
a.
Only those who shall be directly affected by such executive
encroachment, such as for example employees who would find themselves
subject to disciplinary powers that may be imposed under the questioned
Executive Order as they have a direct and specific interest in raising the
substantive
issue
therein (Automotive
Industry
Workers
Alliance
(AIWA),etc., et al., v. Romulo, etc. ,et al., G. R. No. 157509, January 18,
2005) or employees who are going to be demoted, transferred or otherwise
affected by any personnel action subject o the rule on exhaustion of
administrative remedies.
b. Moreover, and if at all, only Congress, can claim any injury from
the alleged executive encroachment of the legislative function to amend,
modify and/or repeal laws. (Automotive Industry Workers Alliance
(AIWA),etc., et al., supra, citing Gonzales v. Narvasa, G. R. No. 140835,
August 14,2000, 337 SCRA 733, 741)
6.
Locus standi being merely a matter of procedure, have
been waived in certain instances where a party who is not personally
injured may be allowed to bring suit. The following are examples of
instances where suits have been brought by parties who have not have been
personally injured by the operation of a law or any other government act but
by concerned citizens, taxpayers or voters who actually sue in the public
interest:
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the
enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R.
No. 167919, February 14, 2007)
7. The VAT law provides that, the President, upon the
recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%)
after any of the following conditions have been satisfied. (i) valueadded tax collection as a percentage of Gross Domestic Product
12.
Reconciliation of the local governments authority to
tax and the Congressional general taxing power. Congress has the
inherent power to tax, which includes the power to grant tax
exemptions. On the other hand, the power of local governments, such as
provinces and cities for example Quezon City, to tax is prescribed by Section
151 in relation to Section 137 of the LGC which expressly provides that
notwithstanding any exemption granted by any law or other special law, the
City or a province may impose a franchise tax. It must be noted that
Section 137 of the LGC does not prohibit grant of future exemptions.
The Supreme Court in a series of cases has sustained the power of
Congress to grant tax exemptions over and above the power of the local
governments delegated power to tax. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing City
Government of Quezon City, et al. v. Bayan Telecommunications, Inc., G.R.
No. 162015, March 6, 2006, 484 SCRA 16)
Indeed, the grant of taxing powers to local government units under
the Constitution and the LGC does not affect the power of Congress to grant
exemptions to certain persons, pursuant to a declared national policy. The
legal effect of the constitutional grant to local governments simply means
that in interpreting statutory provisions on municipal taxing powers, doubts
must be resolved in favor of municipal corporations. [Ibid., referring
to Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of
Davao]
13. General principles of income taxation in the
Philippines or the source rule of income taxation as provided in the
NIRC of 1997.
a. A citizen of
the
Philippines residing therein
is
taxable
on all income derived from sourceswithin and without the Philippines;
b.
A nonresident citizen is taxable only on income derived
from sources within the Philippines;
c. An individual citizen of the Philippines who is working and deriving
income abroad as anoverseas contract worker is taxable only
on income from
sources within the
Philippines:
Provided,
That
a seaman who is a citizen of the Philippines and who receives compensation
for services rendered abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be treated as an overseas
contract worker;
d.
An alien individual, whether a resident or not of the
Philippines, is taxable only onincome derived from sources within the
Philippines;
e. A domestic corporation is taxable on all income derived from
sources within and without the Philippines; and
within
Philippines.
the
18.
Obama Airlines, Inc., a foreign airline company which
does not maintain any flight to and from the Philippines sold air
tickets in the Philippines, through a general sales agent, relating to
the carriage of passengers and cargo between two points, both
outside the Philippines.
a.
Is Obama, Inc., subject to income taxes on the sale of
the tickets ?
SUGGESTED ANSWER: Yes. The source of income which is taxable is
that activity which produced the income. The sale of tickets in the
Philippines is the activity that determines whether such income is taxable in
the Philippines.
The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The situs of the source of payments is the
Philippines. the flow of wealth proceeded from and occurred, within the
Philippine territory, enjoying the protection accorded by the Philippine
Government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government. [Commissioner of Internal
Revenue v. British Overseas Airways Corporation (BOAC), 149 SCRA 395]
Off-line air carriers having general sales agents in the Philippines are
engaged in or doing business in the Philippines and their income from sales
of passage documents here is income from within the Philippines. Thus, the
off-line air carrier liable for the 32% (now 30%) tax on its taxable
income. [South African Airways v. Commissioner of Internal Revenue, G.R.
No. 180356, February 16, 2010 citingCommissioner of Internal Revenue v.
British Overseas Airways Corporation (British Overseas Airways), No. L65773-74, April 30, 1987, 149 SCRA 395]
b.
Supposing that Obama, Inc., sells tickets outside of
the Philippines for passengers it carry from Gold City, South Africa to
the Philippines but returns to South Africa without any cargo or
passengers. Would it then be subject to any Philippine tax on such
sales ?
SUGGESTED ANSWER: It would not be subject to any tax. It is not
subject to any income tax because the activity which generated the income
(the sale of the tickets) was performed outside of the Philippines.
It is not subject to the carriers tax based on gross Philippine billings
because there were no lifts that originated from the Philippines. Gross
Philippine Billings refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place
of sale or issue and the place of payment of the ticket or passage
document. [NIRC of 1997, Sec. 28(A)(3)(a)]
c.
Would your answer be the same if Obama, Inc. sold
tickets outside of the Philippines for travelers who are going to picked
up by Obama, Inc., planes from the Diosdado Macapagal Intl. Airport
3.
The specific or direct constitutional limitation.
a.
No imprisonment for non-payment of a poll tax;
b.
Taxation shall be uniform and equitable;
c.
Congress shall evolve a progressive system of taxation;
d.
All appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives, but the Senate may propose and
concur with amendments;
e. The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object;
f.
Delegated power of the President to impose tariff rates,
import and export quotas, tonnage and wharfage dues:
1)
Delegation by Congress
2)
through a law
3)
subject to Congressional limits and
restrictions
4)
within the framework of national development program.
g.
Tax exemption of charitable institutions, churches,
parsonages and convents appurtenant thereto, mosques, and all lands,
buildings and improvements of all kinds actually, directly and exclusively used
for religious, charitable or educational purposes;
h.
No tax exemption without the concurrence of majority vote
of all members of Congress;
i.
No use of public money or property for religious purposes
except if priest is assigned to the armed forces, penal institutions,
government orphanage or leprosarium;
j.
Money collected on tax levied for a special purpose to be
used only for such purpose, balance if any, to general funds;
k.
The Supreme Court's power to review judgments or orders
of lower courts in all cases involving the legality of any tax, impose,
assessment or toll or the legality of any penalty imposed in relation to the
above;
l.
Authority of local government units to create their own
sources of revenue, to levy taxes, fees and other charges subject to
guidelines and limitations imposed by Congress consistent with the basic
policy of local autonomy;
m.
Automatic release of local government's just share in
national taxes;
n.
Tax exemption of all revenues and assets of non-stock, nonprofit educational institutions used actually, directly and exclusively for
educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by law
including restrictions on dividends and provisions for reinvestment of profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational purposes
subject to conditions prescribed by law.
5.
Equal protection of the law clause is subject to
reasonable classification. If the groupings are characterized by
substantial distinctions that make real differences, one class may be treated
and regulated differently from another. The classification must also be
germane to the purpose of the law and must apply to all those belonging to
the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410,
January 20, 1999)
6.
Requisites for valid classification. All that is required of a
valid
classification
is
that
it
be
reasonable,
which
means
that
a.
the classification should be based on substantial
distinctions which make for real differences,
b.
that it must be germane to the purpose of the law;
c.
that it must not be limited to existing conditions only; and
d.
that it must apply equally to each member of the class.
The standard is satisfied if the classification or distinction is based on
a reasonable foundation or rational basis and is not palpably
arbitrary. [ABAKADA Guro Party List, etc., v. Purisima, etc., et al., G. R. No.
166715, August 14, 2008]
7.
Equal
protection
does
not
demand
absolute
equality. It merely requires that all persons shall be treated alike, under
like circumstances and conditions, both as to the privileges conferred and
liabilities enforced. (Santos v. People, et al, G. R. No. 173176, August 26,
2008)
It is imperative to duly establish that the one invoking equal
protection and the person to which she is being compared were indeed
similarly situated, i.e., that they committed identical acts for which they
were charged with the violation of the same provisions of the NIRC; and that
they presented similar arguments and evidence in their defense - yet, they
were treated differently. (Santos, supra)
8.
Tests to determine validity of classification.
The
United States Supreme Court has established different tests to determine
the validity of a classification and compliance with the equal protection
clause. The recognized tests are:
a.
The traditional (or rational basis) test.
b.
The strict scrutiny (or compelling interest) test.
c. The intermediate level of scrutiny (or quasi-suspect class)
test.
9.
The traditional (or rational basis) test used in order to
determine the validity of classification. The classification is valid if it is
rationally related to a constitutionally permissible state interest.
The complainant must prove that the classification is invidous,
wholly arbitrary, or capricious, otherwise the classification is presumed to
be valid. (Lindsley v. Natural Carboinic Gas Co.,220 U.S. 61; McGowan
v. Maryland, 366 U.S. 420; United States Railroad Retirement Board v.
Fritz, 449 U.S. 166)
10.
The strict scrutiny (or compelling interest) test used
in order to determine the validity of the classification. Government
regulation that intentionally discriminates against a suspect class such as
racial or ethnic minorities, is subject to strict scrutiny and considered to
violate the equal protection clause unless found necessary to promote a
compelling state interest.
A classification is necessary when it is narrowly drawn so that no
alternative, less burdensome means is available to accomplish the state
interest.
Thus, it was held that denial of free public education to the children
of illegal aliens imposes an enormous and lasting burden based on a status
over which the children have no control is violative of equal protection
because there is no showing that such denial furthers a substantial state
goal. (Plyler v. Doe, 457 U.S. 202)
11.
The intermediate level of scrutiny (or quasi-suspect
class) test used in order to determine the validity of he
classification. Classification based on gender or legitimacy are not
suspect, but neither are they judged by the traditional or rational basis
test.
Intentional discriminations against members of a quasi-suspect class
violate equal protection unless they are substantially related to important
government objectives. (Craig v. Boren, 429 U.S. 190)
Thus, a state law granting a property tax exemption to widows, but
not widowers, has been held valid for it furthers the state policy of
cushioning the financial impact of spousal loss upon the sex for whom that
loss usually imposes a heavier burden. (Kahn v. Shevin, 416 U.S. 351)
12.
Equality and uniformity of taxation may mean the
same as equal protection. In such a case, the terms would mean that all
subjects and objects of taxation which are similarly situated shall be subject
to the same burdens and granted the same privileges without any
discrimination whatsoever.
13.
It is inherent in the power to tax that the State be
free to select the subjects of taxation, and it has been repeatedly held
that, "inequalities which result from a singling out of one particular class of
taxation, or exemption, infringe no constitutional limitation." (Commissioner
of Internal Revenue, et al., v. Santos, et al., 277 SCRA 617)
9. Benjie is a law-abiding citizen who pays his real estate
taxes promptly. Due to a series of typhoons and adverse economic
conditions, an ordinance is passed by Soliman City granting a 50%
discount for payment of unpaid real estate taxes for the preceding
year and the condonation of all penalties on fines resulting from the
late payment.
Arguing that the ordinance rewards delinquent tax payers
and discriminates against prompt ones, Benjie demands that he be
refunded an amount equivalent to one-half of the real property taxes
he paid. The municipal attorney rendered an opinion that Benjie
cannot be reimbursed because the ordinance did not provide for
such reimbursement. Benjie files suit to declare the ordinance void
on the ground that it is a class legislation. Will his suit prosper ?
Explain your answer briefly.
SUGGESTED ANSWER: No. There is no class legislation because
there is no violation of the equal protection suit. There is a valid
classification between those who already paid their taxes and those who
have not. Furthermore, the taxing authority has the prerogative to select
the subjects and objects of taxation, including granting a 50% discount in
the payment of unpaid real estate taxes, and the condonation of all
penalties on fines resulting from late payment.
10.
The rewards law to tax collectors does not violate
equal protection. The equal protection clause recognizes a valid
classification, that is, a classification that has a reasonable foundation or
rational basis and not arbitrary. With respect to RA 9335, its expressed
public policy is the optimization of the revenue-generation capability and
collection of the BIR and the BOC. Since the subject of the law is the
revenue- generation capability and collection of the BIR and the BOC, the
incentives and/or sanctions provided in the law should logically pertain to
the said agencies. Moreover, the law concerns only the BIR and the BOC
because they have the common distinct primary function of generating
revenues for the national government through the collection of taxes,
customs duties, fees and charges.
Indubitably, such substantial distinction is germane and intimately
related to the purpose of the law. Hence, the classification and treatment
accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of
equal protection. (ABAKADA Guro Party List, etc., v. Purisima, etc., et
al., G. R. No. 166715, August 14, 2008)
11.
The prosecution of one guilty person while others
equally guilty are not prosecuted, however, is not, by itself, a denial
of the equal protection of the laws. Where the official action purports to
be in conformity to the statutory classification, an erroneous or mistaken
performance of the statutory duty, although a violation of the statute, is not
without more a denial of the equal protection of the laws.
The unlawful administration by officers of a statute fair on its face,
resulting in its unequal application to those who are entitled to be treated
alike, is not a denial of equal protection unless there is shown to be present
in it an element of intentional or purposeful discrimination. This may appear
on the face of the action taken with respect to a particular class or person,
or it may only be shown by extrinsic evidence showing a discriminatory
design over another not to be inferred from the action itself.
(Santos v. People, et al, G. R. No. 173176, August 26, 2008)
12.
Equal protection should not be used to protect
commission of crime. While all persons accused of crime are to be treated
on a basis of equality before the law, it does not follow that they are to be
protected in the commission of crime. It would be unconscionable, for
instance, to excuse a defendant guilty of murder because others have
murdered with impunity.
Likewise, if the failure of prosecutors to enforce the criminal laws as
to some persons should be converted into a defense for others charged with
crime, the result would be that the trial of the district attorney for
nonfeasance would become an issue in the trial of many persons charged
with heinous crimes and the enforcement of law would suffer a complete
breakdown. (Santos v. People, et al, G. R. No. 173176, August 26, 2008)
13.
Illustration of double taxation in local taxation. there is
indeed double taxation if Coca-Cola is subjected to the taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794, since these are being
imposed: (1) on the same subject matter the privilege of doing business in
the City of Manila; (2) for the same purpose to make persons conducting
business within the City of Manila contribute to city revenues; (3) by the
same taxing authority City of Manila; (4) within the same taxing
jurisdiction within the territorial jurisdiction of the City of Manila; (5) for
the same taxing periods per calendar year; and (6) of the same kind or
character a local business tax imposed on gross sales or receipts of the
business. (The City of Manila, et al., v. Coca-Cola Bottlers Philippines,
Inc., G. R. No. 181845, August 4, 2009)
14.
A lawful tax on a new subject, or an increased tax on
an old one, does not interfere with a contract or impairs its
v.
15.
The withdrawal of a tax exemption should not be
construed as prohibiting future grants of exemption from all
taxes. (Philippine Long Distance Telephone Company, Inc., v. City of Davao,
et al., etc., G. R. No. 143867, August 22, 2001)
16.
Tax exemptions in franchises are always subject to
withdrawal. A legislative franchise is granted with the express condition
that it is subject to amendment, alteration, or repeal. (1987
Constitution, Art. XII, Sec. 11)
It is enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of
the State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal
order. The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure
the peace and good order of society. (Smart Communications, Inc. v. The
City of Davao, etc., et al., G. R. No. 155491, September 16, 2008)
NOTES AND COMMENTS: Philippine Long Distance Telephone
Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22,
2001 made the observation that since Smarts franchise was granted after the
effectivity of the Local Government Code that its tax exemption privilege was
reinstated. However,Smart Communications, Inc. v. The City of Davao, etc.,
et al., G. R. No. 155491, September 16, 2008 is explicit in its holding that
Smart is not entitled to a tax exemption.
17. When withdrawal of a tax exemption impairs the
obligation of contracts. The Contract Clause has never been thought as a
limitation on the exercise of the States power of taxation save only where a
tax exemption has been granted for a valid consideration. (Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008) citing Tolentino v. Secretary of Finance, G. R. No.
115455, August 25, 1994, 235 SCRA 630, 685) The author opines that
since practically all franchises granted to telecommunications companies are
similarly worded that the above doctrine finds application to the others)
18. The primary reason for the withdrawal of tax exemption
privileges
granted
to
government
owned
and
controlled
corporations and all other units of government was that such privilege
resulted to serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises, hence resulting in the need for these entities to
abolished, the in lieu of all taxes clause has now become functus officio,
rendered inoperative. (Quezon City, et al., v. ABS-CBN Broadcasting
Corporation, G. R. No. 166408, October 6, 2008)
NOTES AND COMMENTS: This is practically the same holding in an
earlier case involving another telecommunications company. Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008. The author opines that since practically all franchises
granted to telecommunications companies are similarly worded that the
above doctrine finds application to the others.)
23. Double taxation in its generic sense, this means taxing
the same subject or object twice during the same taxable period. In
its particular sense, it may mean direct duplicate taxation, which is prohibited
under the constitution because it violates the concept of equal protection,
uniformity and equitableness of taxation. Indirect duplicate taxation is not
anathematized by the above constitutional limitations.
24. Elements of direct duplicate taxation:
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b.
Taxing all of the subjects or objects for the first time without
taxing all of them for the second time.
If any of the elements are absent then there is indirect duplicate
taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
a.
Presence of the 2nd element violates the equal
protection clause. If only the 1stelement is present, taxing the same
subject or object twice, by the same taxing authority, etc., there is no
violation of the equal protection clause because all subjects and objects that
are similarly situated are subject to the same burdens and granted the same
privileges without any discrimination whatsoever,
The presence of the 2nd element, taxing all of the subjects and objects
for the first time, without taxing all for the second time, results to
discrimination among subjects and objects that are similarly situated, hence
violative of the equal protection clause.
25. Double taxation a valid defense against the legality of a tax
measure if the double taxation is direct duplicate taxation, because it
would violate the equal protection clause of the constitution.
26.
When an item of income is taxed in the Philippines
and the same income is taxed in another country, this would be
6.
In case of doubt, tax laws must be construed strictly
against the State and liberally in favor of the taxpayer because taxes,
as burdens which must be endured by the taxpayer, should not be presumed
to go beyond what the law expressly and clearly declares. (Lincoln Philippine
Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92,
99)
7.
Interpretation in the imposition of taxes, is not the
similar doctrine as that applied to tax exemptions. The rule in the
interpretation of tax laws is that a statute will not be construed as imposing
a tax unless it does so clearly, expressly, and unambiguously. A tax cannot
be imposed without clear and express words for that purpose. Accordingly,
the general rule of requiring adherence to the letter in construing statutes
applies with peculiar strictness to tax laws and the provisions of a taxing act
are not to be extended by implication. In answering the question of who is
subject to tax statutes, it is basic that in case of doubt, such statutes are to
be construed most strongly against the government and in favor of the
subjects or citizens because burdens are not to be imposed nor presumed to
be imposed beyond what statutes expressly and clearly import.
[Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G. R.
Nos. 167274-75, July 21, 2008 citing CIR v. Court of Appeals, 338 Phil. 322,
330-331 (1997)] As burdens, taxes should not be unduly exacted nor
assumed beyond the plain meaning of the tax laws. (Ibid., citing CIR v.
Philippine American Accident Insurance Company, Inc., G.R. No. 141658,
March 18, 2005, 453 SCRA 668)
8.
Strict interpretation of tax exemption laws. Taxes are
what civilized people pay for civilized society. They are the lifeblood of the
nation. Thus, statutes granting tax exemptions are construed stricissimi
juris against the taxpayer and liberally in favor of the taxing authority. A
claim of tax exemption must be clearly shown and based on language in law
too plain to be mistaken. Otherwise stated, taxation is the rule, exemption
is the exception. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation,
G. R. No. 166408, October 6, 2008 citing Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA 667,
680) The burden of proof rests upon the party claiming the exemption to
prove that it is in fact covered by the exemption so claimed. (Quezon City,
supra citing Agpalo, R.E., Statutory Construction, 2003 ed., p. 301)
9.
Rationale for strict interpretation of tax exemption
laws. The basis for the rule on strict construction to statutory provisions
granting tax exemptions or deductions is to minimize differential treatment
Sr., 178 Phil. 482 (1979); Puyat & Sons v. City of Manila, et al., 117 Phil.
985 (1963)]
The dynamic of erroneous payment of tax fits to a tee the prototypic
quasi-contract, solutio indebiti, which covers not only mistake in fact but also
mistake in law. (Commissioner, supra citing CIVIL CODE, Arts. 2142, 2154
and 2155)
The Government is not exempt from the application of solutio indebiti.
(Commissioner, supraciting Commissioner of Internal Revenue v. Firemans
Fund Insurance Co., G.R. No. L-30644, 9 March 1987, 148 SCRA 315, 324325; Ramie Textiles, Inc. v. Mathay, supra; Gonzales Puyat & Sons v. City of
Manila, supra)
Indeed, the taxpayer expects fair dealing from the Government, and
the latter has the duty to refund without any unreasonable delay what it has
erroneously collected. (Commissioner, supra citingCommissioner of Internal
Revenue v. Tokyo Shipping Co., supra at 338) If the State expects its
taxpayers to observe fairness and honesty in paying their taxes, it must hold
itself against the same standard in refunding excess (or erroneous)
payments of such taxes. It should not unjustly enrich itself at the expense
of taxpayers. [Commissioner, supra citing AB Leasing and Finance
Corporation v. Commissioner of Internal Revenue, 453 Phil. 297 in turn
citing BPI-Family Savings Bank, Inc. v. Court of Appeals, 330 SCRA 507,
510, 518 (2000)] And so, given its essence, a claim for tax refund
necessitates only preponderance of evidence for its approbation like in any
other ordinary civil case. (Commissioner, supra)
14.
Tax refunds premised upon a tax exemption strictly
construed, Tax exemption is a result of legislative grace. And he who
claims an exemption from the burden of taxation must justify his claim by
showing that the legislature intended to exempt him by words too plain to be
mistaken. [Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R. Nos. 167274-75, July 21, 2008 citing Surigao
Consolidated Mining Co. Inc. v. Commissioner of Internal Revenue and Court
of Tax Appeals, 119 Phil. 33, 37 (1963)]
The rule is that tax exemptions must be strictly construed such that
the exemption will not be held to be conferred unless the terms under which
it is granted clearly and distinctly show that such was the intention.
[Commissioner, supra citing Phil. Acetylene Co. v. Commission of Internal
Revenue, et al., 127 Phil. 461, 472 (1967); Manila Electric Company v.
Vera, G.R. No. L-29987, 22 October 1975, 67 SCRA 351, 357-358; Surigao
Consolidated Mining Co. Inc. v. Commissioner of Internal Revenue, supra]
A claim for tax refund may be based on statutes granting tax
exemption or tax refund. In such case, the rule of strict interpretation
against the taxpayer is applicable as the claim for refund partakes of the
nature of an exemption, a legislative grace, which cannot be allowed unless
granted in the most explicit and categorical language. The taxpayer must
show that the legislature intended to exempt him from the tax by words too
plain to be mistaken. [Commissioner, supra with a note to see Surigao
Consolidated Mining Co. Inc. v. CIR, supra at 732-733; Philex Mining Corp.
v. Commissioner of Internal Revenue, 365 Phil. 572, 579 (1999); Davao
Gulf Lumber Corp. v. Commissioner of Internal Revenue, 354 Phil. 891-892
(1998); . Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd.,
314 Phil. 220, 228 (1995)]
15. Effect of a BIR reversal of a previous ruling interpreting a
law as exempting a taxpayer. A reversal of a BIR ruling favorable to a
taxpayer would not necessarily create a perpetual exemption in his favor, for
after all the government is never estopped from collecting taxes because of
mistakes or errors on the part of its agents. (Lincoln Philippine Life Insurance
Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99)
16.
A tax amnesty is a general pardon or intentional
overlooking by the State of its authority to impose penalties on persons
otherwise guilty of evasion or violation of a revenue or a tax law.
It partakes of an absolute waiver by the government of its right to
collect what is due it and to give tax evaders who wish to relent a chance to
start with a clean slate. A tax amnesty, much like a tax exemption, is never
favored nor presumed in law. The grant of a tax amnesty, similar to a tax
exemption, must be construed strictly against the taxpayer and liberally in
favor of the taxing authority. (Philippine Banking Corporation, etc., v.
Commissioner of Internal Revenue, G. R. No. 170574, January 30, 2009)
17.
The purpose of tax amnesty is to
a. give tax evaders who wish to relent a chance to
start a
clean slate, and to
b. give the government a chance to collect
uncollected tax
from
tax evaders without having to go
through the tedious process
of a tax case. (Banas, Jr. v. Court
of Appeals, et al.,G.R. No. 102967,
February 10, 2000)
18.
Tax amnesty distinguished from tax exemption.
a.
Tax amnesty is an immunity from all criminal, civil and
administrative liabilities arising from nonpayment of taxes (People v.
Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax exemption
is an immunity from civil liability only. It is an immunity or privilege, a
freedom from a charge or burden to which others are subjected. (Florer v.
Sheridan, 137 Ind. 28, 36 NE 365)
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda,supra) WHILE tax exemption has
prospective application.
19.
Tax avoidance is the use of legally permissible means to
reduce the tax while tax evasion is the use of illegal means to escape the
payment of taxes.
20.
Tax evasion connotes the integration of three factors:
a.
The end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due;
b.
an accompanying state of mind which is described as being
evil on bad faith, willful, or deliberate and not accidental; and
c.
a course of action or failure of action which is
unlawful. (Commissioner of Internal Revenue v. The Estate of Benigno P.
Toda, Jr., , etc., G. R. No. 147188, September 14, 2004)
21.
Tax avoidance distinguished from tax evasion.
a.
Tax avoidance is legal while tax evasion is illegal.
b.
The objective of tax avoidance in most instances is merely to
reduce the tax that is due while is tax evasion the object is to entirely escape
the payment of taxes.
c.
Tax evasion warrants the imposition of civil, administrative
and criminal penalties while tax avoidance does not.
22.
Tax sparing is a provision in some tax treaties which
provides that the state of residence allows as credit the amount that would
have been paid, as if no reduction has been made. (Vogel, Klaus on Double
Taxation Conventions, Third Edition, p.1255 cited in Segarra, Venice H, Tax
Treaties: Trick or treat ?, Philippine Daily Inquirer, December 6, 2002, p. C5)
There may be instances where a particular income is exempt from
taxation in order to encourage foreign investments which may lead to
economic development. If the tax credit method is used, there would be no
more tax to credit since there is no more tax to credit as a result of the tax
exemption. Consequently, when the tax method credit method is applied to
these items of income, such incentives are siphoned off since, in effect, the
tax benefits are cancelled out. (Ibid.) Thus, the need for the tax sparing
provision.
NATIONAL INTERNAL REVENUE CODE
3.
Certain business organizations do not fall under the
category of corporations under the Tax Code, and therefore not
subject to tax as corporations, include:
a.
General professional partnerships;
b.
Joint venture or consortium formed for the purpose
of undertaking construction projects engaging in petroleum, coal,
geothermal, and other energy operations, pursuant to an operation or
consortium
agreement
under
a
service
contract
with
the
st
Government. [1 sentence, Sec. 22 (B), BIRC of 1997]
4. Co-heirs who own inherited properties which produce
income should not automatically be considered as partners of an
unregistered corporation subject to income tax for the following
reasons:
a. The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common
right or interest in any property from which the returns are derived. There
must be an unmistakable intention to form a partnership or joint
venture. (Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 436)
b.
There is no contribution or investment of additional capital to
increase or expand the inherited properties, merely continuing the dedication
of the property to the use to which it had been put by their forebears. (Ibid.)
c.
Persons who contribute property or funds to a common
enterprise and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no
common stock capital, and no community of interest as principal proprietors
in the business itself from which the proceeds were derived. (Elements of the
Law of Partnership by Floyd R. Mechem, 2 nd Ed., Sec. 83, p. 74 cited
in Pascual v. Commissioner of Internal Revenue, 166 SCRA 560)
5.
The common ownership of property does not itself create
a partnership between the owners, though they may use it for purpose of
making gains, and they may, without becoming partners, are among
themselves as to the management and use of such property and the
application of the proceeds therefrom.. (Spurlock v,. Wilson, 142 S.W. 363,
160 No. App. 14, cited in Pascual v. Commissioner of Internal Revenue, 166
SCRA 560)
6.
The income from the rental of the house, bought from
the earnings of co-owned properties, shall be treated as the income
of an unregistered partnership to be taxable as a corporation because of
the clear intention of the brothers to join together in a venture for making
money out of rentals.
7.
Income is gain derived and severed from capital, from labor
or from both combined. For example, to tax a stock dividend would be to tax
a capital increase rather than the income. (Commissioner of Internal Revenue
v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999)
8.
The term taxable income means the pertinent items of
gross income specified in the Tax Code, less the deductions and/or personal
and additional exemptions, if any, authorized for such types of income by the
Tax Code or other special laws. (Sec. 31, NIRC of 1997)
9.
The cancellation and forgiveness of indebtedness may
amount to (a) payment of income; (b) gift; or to a (c) capital transaction
depending upon the circumstances.
10.
If an individual performs services for a creditor who,
in consideration thereof, cancels the debt, it is income to the extent of
the amount realized by the debtor as compensation for his services.
11.
An insolvent debtor does not realize taxable income
from the cancellation or forgiveness. (Commissioner v. Simmons Gin
Co., 43 Fd 327 CCA 10th)
12.
The insolvent debtor realizes income resulting from
the cancellation or forgiveness of indebtedness when he becomes
solvent. (Lakeland Grocery Co., v. Commissioner 36 BTA (F) 289)
13.
If a creditor merely desires to benefit a debtor and
without any consideration therefor cancels the amount of the debt it
is a gift from the creditor to the debtor and need not be included in
the latters income.
14.
If a corporation to which a stockholder is indebted
forgives the debt, the transaction has the effect of payment of a
dividend. (Sec. 50, Rev. Regs. No. 2)
15.
Members of cooperatives not subject to tax on the
interest earned from their deposits with the cooperative. No less than our
Constitution guarantees the protection of cooperatives. Section 15, Article XII of
the Constitution considers cooperatives as instruments for social justice and
economic development. At the same time, Section 10 of Article II of the
Constitution declares that it is a policy of the State to promote social justice in all
phases of national development. In relation thereto, Section 2 of Article XIII of
the Constitution states that the promotion of social justice shall include the
tax on his income derived from sources from within the Philippines. [Sec. 25
(A) (1), NIRC]
He is allowed to avail of the itemized deductions including the personal
and additional exemptions subject to the rule on reciprocity.
22. What are considered as de minimis benefits not subject
to withholding tax on compensation income of both managerial and
rank and file employees ?
SUGGESTED ANSWER:
a.
Monetized unused vacation leave credits of employees not
exceeding ten (10) days during the year;
b.
Medical cash allowance to dependents of employees not
exceeding P750.00 per employee per semester or P125 per month;
c.
Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per
month amounting to not more than P1,000.00;
d. Uniforms and clothing allowance not exceeding P3,000.00 per
annum;
e. Actual yearly medical benefits not exceeding P10,000.00 per
annum;
f.
Laundry allowance not exceeding P300 per month;
g.
Employees achievement awards, e.g. for length of service or
safety achievement, which must be in the form of a tangible persona property
other than cash or gift certificate, with an annual monetary value not
exceeding P10,000.00 received by an employee under an established written
plan which does not discriminate in favor of highly paid employees;
h.
Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per annum;
i.
Flowers, fruits, books, or similar items given to employees
under special circumstances, e.g. on account of illness, marriage, birth of a
baby, etc.; and
j.
Daily meal allowance for overtime work not exceeding
twenty five percent (25%) of the basic minimum wage.
The amount of de minimis benefits conforming to the ceiling herein
prescribed shall not be considered in determining the P30,000 ceiling of
other benefits provided under Section 32 (B)(7)(e) of the Code. However, if
the employer pays more than the ceiling prescribed by these regulations, the
excess shall be taxable to the employee receiving the benefits only if such
excess is beyond the P30,000.00 ceiling, provided, further, that any amount
given by the employer as benefits to its employees, whether classified asde
minimis benefits or fringe benefits, shall constitute as deductible expense
upon such employer. [Sec. 2.78.1 (A) (3), Rev. Regs. 2-98 as amended by
Rev. Regs. No. 8-2000]
23.
Income subject to final tax refers to an income
collected through the withholding tax system. The payor of the income
withholds the tax and remits it to the government as a final settlement of the
income tax as a final settlement of the income tax due on said income. The
recipient is no longer required to include the income subjected to a final tax
as part of his gross income in his income tax return.
24. Distinguish exclusions from deductions.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to the
taxpayer which are not treated as part of gross income for purposes of
computing the taxpayers taxable income, due to the following
reasons: (1) It is exempted by the fundamental law; (2) It is exempted by
statute; and (3) It does not come within the definition of income (Sec. 61,
Rev. Regs. No. 2) WHILE deductions are the amounts which the law allows to
be subtracted from gross income in order to arrive at net income.
b.
Exclusions pertain to the computation of gross income
WHILE deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the taxpayer
which do not form part of gross income WHILE deductions are something
spent or paid in earning gross income.
An example of an exclusion from gross income are life insurance
proceeds, and an example of a deduction are losses.
25. What are excluded from gross income ?
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
b.
Amounts received by the insured as a return of premiums
paid by him under life insurance, endowment or annuity contracts either
during the term, or at maturity of the term mentioned in the contract, or upon
surrender of the contract.
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal injuries or
sickness, plus the amounts of any damages received on whether by suit or
agreement on account of such injuries or sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No.
7641. Retirement received from reasonable private benefit plan after
compliance with certain conditions. Amounts received for beyond control
gratuities,
pensions,
26.
What are the conditions for excluding retirement
benefits from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Retirement benefits received under Republic Act No. 7641
and those received by officials and employees of private firms, whether
individual or corporate, in accordance with the employers reasonable private
benefit plan approved by the BIR.
b.
Retiring official or employee
1)
In the service of the same employer for at least ten (10) years;
2)
Not less than fifty (50) years of age at time of retirement;
3)
Availed of the benefit of exclusion only once. [Sec. 32 (B) (6) (a),
NIRC of 1997] The retiring official or employee should not have previously
availed of the privilege under the retirement plan of the same or another
employer. [1st par., Sec. 2.78 (B) (1), Rev. Regs. No. 2-98]
27. What kind of separation (retirement) pay is excluded
from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Any amount received by an official, employee or by his
heirs,
b.
From the employer
c.
As a consequence of separation of such official or employee
from the service of the employer because of
1)
Death, sickness or other physical disability; or
2)
For any cause beyond the control of said official or employee
[Sec. 32 (B) (6) (b), NIRC of 1997], such as retrenchment, redundancy and
cessation of business. [1st par., Sec. 2.78 (B), (1) (b), Rev. Regs. No. 2-98]
28.
What are the Itemized deductions from gross income
and who may avail of them ?
a. Ordinary
and
necessary trade,
business
or
professional expenses.
b.
The amount of interest paid or incurred within a taxable year
on indebtedness in connection with the taxpayers profession, trade or
business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these
expenses. Domestic corporations, estates and trusts may also deduct this
expense. Nonresident citizens and foreign corporations on their gross
incomes from within may also deduct this expense.
g.
Depletion or deduction arising from the exhaustion of a nonreplaceable asset, usually a natural resource.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these
expenses. Domestic corporations, estates and trusts may also deduct this
expense. Nonresident citizens and foreign corporations on their gross
incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in the
Philippines are not allowed to deduct this expense.
h. Charitable and other contributions. Resident citizens, resident
alien individuals and nonresident alien individuals who are engaged in trade
and business, on their gross incomes other from compensation income are
allowed to deduct these expenses. Domestic corporations, estates and trusts
may also deduct this expense. Nonresident citizens and foreign corporations
on their gross incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in the
Philippines are not allowed to deduct this expense.
i. Research and development expenditures treated as deferred
expenses paid or incurred by the taxpayer in connection with his trade,
business or profession, not deducted as expenses and chargeable to capital
account but not chargeable to property of a character which is subject to
depreciation or depletion.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these
expenses. Domestic corporations, estates and trusts may also deduct this
expense. Nonresident citizens and foreign corporations on their gross
incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in the
Philippines are not allowed to deduct this expense.
j. Contributions to pension trusts. Resident citizens, resident alien
individuals and nonresident alien individuals who are engaged in trade and
business, on their gross incomes other from compensation income are
allowed to deduct these expenses. Domestic corporations, estates and trusts
may also deduct this expense. Nonresident citizens and foreign corporations
on their gross incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in the
Philippines are not allowed to deduct this expense.
k. Insurance premiums for health and hospitalization. Resident
citizens, resident alien individuals and nonresident alien individuals who are
engaged in trade and business, on their gross incomes other from
compensation income are allowed to deduct these expenses. Nonresident
citizens and nonresident alien individual engaged in trade or business in the
Philippine on their gross incomes from within may also deduct these
premiums.
Nonresident alien individuals not engaged in trade or business in the
Philippines are not allowed to deduct these premiums.
l. Personal and additional exemptions. Resident citizens, and
resident alien on their gross incomes and from compensation income are
allowed to deduct these premiums. Nonresident citizens on their gross
incomes from within may also deduct this expense. Nonresident alien
individuals engaged in trade or business in the Philippines are allowed to
deduct these exemptions under reciprocity.
Nonresident alien individuals not engaged in trade or business in the
Philippines are not allowed to deduct this expense.
29. Distinguish ordinary expenses from capital expenditures.
SUGGESTED ANSWER: Ordinary expenses are those which are
common to incur in the trade or business of the taxpayer WHILE capital
expenditures are those incurred to improve assets and benefits for more than
one taxable year. Ordinary expenses are usually incurred during a taxable
year and benefits such taxable year. Necessary expenses are those which are
appropriate or helpful to the business.
30. What are the requisites for the deductibility of business
expenses ?
SUGGESTED ANSWER: The following are the requisites for
deductibility of business expenses:
a.
Compliance with the business test:
1)
Must be ordinary and necessary;
2)
Must be paid or incurred within the taxable
year;
3)
Must be paid or incurred in carrying on a trade or business.
4)
Must
not
be
bribes,
kickbacks
or
other
illegal
expenditures
b. Compliance with the substantiation test. Proof by evidence or
records of the deductions allowed by law including compliance with the
business test.
31. What are the requisites for the deductibility of ordinary
and necessary trade, business, or professional expenses, like
expenses paid for legal and auditing services ?
SUGGESTED ANSWER:
a.
the expense must be ordinary and necessary;
b.
it must have been paid or incurred during the taxable year
dependent upon the method of accounting upon the basis of which the net
income is computed.
c.
it must be supported by receipts, records or other pertinent
papers. (Commissioner
of
Internal
Revenue
v,
Isabela
cultural
Corporation, G. R. No. 172231, February 12, 2007)
32.
TMG Corporation is issuing the accrual method of
accounting. In 2005 XYZ Law Firm and ABC Auditing Firm rendered
various services which were billed by these firms only during the
following year 2006. Since the bills for legal and auditing services
were received only in 2006 and paid in the same year, TMG deducted
the same from its 2006 gross income. The BIR disallowed the
deduction ?
Who is correct, TMG or BIR ? Explain.
SUGGESTED ANSWER: The BIR is correct. TMG should have deducted
the professional and legal fees in the year they were incurred in 2005 and
not in 2006 because at the time the services were rendered in 2005, there
was already an obligation to pay them. (Commissioner of Internal Revenue
v, Isabela Cultural Corporation, G. R. No. 172231, February 12, 2007)
NOTES AND COMMENTS:
a.
Accounting methods for tax purposes comprise a set of
rules for determining when and how to report income and
deductions. (Commissioner of Internal Revenue v, Isabela cultural
Corporation, G. R. No. 172231, February 12, 2007)
The two (2) principal accounting methods for recognition of income are
the (a) accrual method; and the (b) cash method.
b.
Recognition of income and expenses under the accrual
method of accounting. Amounts of income accrue where the right to
receive them becomes fixed, where there is created an enforceable
liability. Liabilities, are incurred when fixed and determinable in nature
without regard to indeterminacy merely of time of payment.. (Commissioner
of Internal Revenue v, Isabela cultural Corporation, G. R. No. 172231,
February 12, 2007)
The accrual of income and expense is permitted when the all-events
test has been met. (Ibid.)
c.
All-events test. This test requires:
1)
fixing of a right to income or liability to pay; and
2)
the availability of the reasonable accurate determination of such
income or liability.
The test does not demand that the amount of such income or liability
be known absolutely, only that a taxpayer has at his disposal the information
necessary to compute the amount with reasonable accuracy.
The all-events test is satisfied where computation remains uncertain; if
its basis is unchangeable, the test is satisfied where a computation may be
unknown, but is not as much as unknowable, within the taxable year. The
amount of liability does not have to be determined exactly,; it must be
35.
Fringe benefits that are not subject to the fringe
benefits tax:
a.
When the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the employer; or
b.
When the fringe benefit is for the convenience or advantage
of the employer. [Sec. 32(A), NIRC of 1997; 1st par., Sec. 2.33 (A), Rev.
Regs. No. 3-98]
c.
Fringe benefits which are authorized and exempted from
income tax under the Tax Code or under any special law;
d.
Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization benefit plans;
e.
Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not; and
f.
De minimis benefits as defined in the rules and regulations
to be promulgated by the Secretary of Finance upon recommendation of the
Commissioner of Internal Revenue. [1st par., Sec. 32 (C), NIRC of 1997; Sec.
2.33 (C), Rev. Regs. No. 3-98]
36. De minimis benefits are facilities and privileges (such as
entertainment, medical services, or so-called courtesy discounts on
purchases), furnished or offered by an employer to his employees. They are
not considered as compensation subject to income tax and consequently to
withholding tax, if such facilities are offered or furnished by the employer
merely as a means of promoting the health, goodwill, contentment, or
efficiency of his employees. [Sec. 2.78,1 (A) (3), Rev. Regs. 2-98 as
amended by Rev. Regs. No. 8-2000]
37. Preferred shares are considered capital regardless of the
conditions under which such shares are issued and dividends or
interests paid thereon are not allowed as deductions from the gross
income of corporations. (Revenue Memorandum Circular No. 17-71)
38. Bad debts are those which result from the worthlessness or
uncollectibility, in whole or in part, of amounts due the taxpayer by others,
arising from money lent or from uncollectible amounts of income from goods
sold or services rendered. (Sec. 2.a, Rev. Regs. 5-99)
39. Who are related parties ?
SUGGESTED ANSWER: The following are related parties:
a.
Members of the same family. The family of an individual
shall include only his brothers and sisters (whether by the whole or halfblood), spouse, ancestors, and lineal descendants;
b.
An individual and a corporation more than fifty percent
(50%) in value of the outstanding stock of which is owned, directly or
indirectly, by or for such individual;
c.
Two corporations more than fifty percent (50%) in value of
the outstanding stock of which is owned, directly or indirectly, by or for the
same individual;
d.
A grantor and a fiduciary of any trust; or
e.
The fiduciary of a trust and the fiduciary of another trust if
the same person is a grantor with respect to each trust; or
f.
A fiduciary of a trust and a beneficiary of such. [Sec. 36
(B), NIRC of 1997]
40. What are the requisites for valid deduction of bad debts
from gross income ?
SUGGESTED ANSWER:
a. There must be an existing indebtedness due to the taxpayer which
must be valid and legally demandable;
b. The same must be connected with the taxpayers trade, business or
practice of profession;
c. The same must not be sustained in a transaction entered into
between related parties;
d. The same must be actually charged off the books of accounts of the
taxpayer as of the end of the taxable year; and
e. The debt must be actually ascertained to be worthless and
uncollectible during the taxable year;
f. The debts are uncollectible despite diligent effort exerted by the
taxpayer. [Sec. 34 (E) (1), NIRC of 1997; Sec. 3, Rev. Regs. No. 5-99
reiterated in Rev. Regs. No. 25-2002; Philippine Refining Corporation v. Court
of Appeals, et al., 256 SCRA 667]
g. Must have been reported as receivables in the income tax return of
the current or prior years. (Sec. 103, Rev. Regs. No. 2)
:
41. What is the tax benefit rule ?
SUGGESTED ANSWER: The tax benefit rule posits that the recovery
of bad debts previously allowed as deduction in the preceding year or years
shall be included as part of the taxpayers gross income in the year of such
recovery to the extent of the income tax benefit of said deduction.
NOTES AND COMMENTS:
a.
If in the year the taxpayer claimed deduction of bad debts
written-off, he realized a reduction of the income tax due from him on account
of the said deduction, his subsequent recovery thereof from his debtor shall
be treated as a receipt of realized taxable income. (Sec. 4, Rev. Regs. 5-99)
b.
If the said taxpayer did not benefit from the deduction of the
said bad debt written-off because it did not result to any reduction of his
income tax in the year of such deduction (i.e. where the result of his business
operation was a net loss even without deduction of the bad debts written-off),
then his subsequent recovery thereof shall be treated as a mere recovery or a
return of capital, hence, not treated as receipt of realized taxable
income. (Sec. 4, Rev. Regs. 5-99)
42.
Depreciation is the gradual diminution in the useful value
of tangible property resulting from ordinary wear and tear and from normal
obsolescence. The term is also applied to amortization of the value of
intangible assets the use of which in the trade or business is definitely limited
in duration.
43.
The methods of depreciation are the following:
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of Finance
upon the recommendation of the Commissioner of Internal Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
44.
What are personal and additional exemptions ?
SUGGESTED ANSWER: These are the theoretical persona, living and
family expenses of an individual allowed to be deducted from the gross or net
income of an individual taxpayer.
These are arbitrary amounts which have been calculated by our
lawmakers to be roughly equivalent to the minimum of subsistence, taking
into account the personal status and additional qualified dependents of the
taxpayer. They are fixed amounts in the sense that the amounts have been
predetermined by our lawmakers and until our lawmakers make new
adjustments on these personal exemptions, the amounts allowed to be
deducted by a taxpayer are fixed as predetermined by Congress. [Pansacola
v. Commissioner of Internal Revenue, G. R. No. 159991, November 16, 2006
citing Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414, 418
(1918)]
45.
?
SUGGESTED ANSWER: There shall be allowed a basic personal
exemption amounting to Fifty thousand pesos (P50,000) for each individual
taxpayer.
considered as capital asset. (last sentence, 3rd par., Sec. 3.b, Rev. Regs. No.
7-2003)
h.
Real property, whether single detached, townhouse, or
condominium unit, not used in trade or business as evidenced by a
certification from the Barangay Chairman or from the head of administration,
in case of condominium unit, townhouse or apartment, and as validated from
the existing available records of the Bureau of Internal Revenue, owned by an
individual engaged in business, shall be treated as capital asset. (last par.,
Sec. 3.b., Rev. Regs. No. 7-2003)
49. Ordinary assets shall refer to all real properties
specifically excluded from the definition of capital assets, namely:
a. Stock in trade of a taxpayer or other real property of a kind which
would properly be included in the inventory of a taxpayer if on hand at the
close of the taxable year; or
b. Real property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business; or
c. Real property used in trade or business (i.e. buildings and/or
improvements), of a character which is subject to the allowance for
depreciation; or
d. Real property used in trade or business of the taxpayer. (Sec. 2. b,
Rev. Regs. No. 7-2003)
50.. Examples of ordinary assets hence not capital assets:
a.
The machinery and equipment of a manufacturing concern
subject to depreciation;
b. The tractors, trailers and trucks of a hauling company;
c. The condominium building owned by a realty company the units of
which are for rent or for sale;
d.
The wood, paint, varnish, nails, glue, etc. which are the raw
materials of a furniture factory;
e.
Inherited parcels of land of substantial areas located in the
heart of Metro Manila, which were subdivided into smaller lots then sold on
installment basis after introducing comparatively valuable improvements not
for the purpose of simply liquidating the estate but to make them more
saleable ; the employment of an attorney-in-fact for the purpose of
developing, managing, administering and selling the lots; sales made with
frequency and continuity; annual sales income from the sales was
considerable; and the heir was not a stranger to the real estate
business. (Tuazon, Jr. v. Lingad, 58 SCRA 170)
f. Inherited agricultural property improved by introduction of good
roads, concrete gutters, drainage and lighting systems converts the property
to an ordinary asset. The property forms part of the stock in trade of the
owner, hence an ordinary asset. This is so, as the owner is now engaged in
54.
In case the mortgagor exercises his right of
redemption within one (1) year from the issuance of the certificate of sale,
in a foreclosure of mortgage sale of real property, no capital gains tax shall be
imposed because no capital gains has been derived by the mortgagor and no
sale or transfer of real property was realized. [Sec. 3 (1), Rev. Regs. No. 499]
55. In case of non-redemption of the property sold upon a
foreclosure of mortgage sale, the presumed capital gains tax shall be
imposed, based on the bid price of the highest bidder but only upon the
expiration of the one year period of redemption provided for under Sec. 6 of
Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty
(30) days from the expiration of the said one-year redemption period. [Sec.
3 (2), Rev. Regs. No. 4-99]
56. The basis for the final presumed capital gains tax of six
per cent (6%) is whichever is the higher of the
a. gross selling price, or
b. the current fair market value as determined below:
1) the fair market value or real properties located in each zone or
area as determined by the Commissioner of Internal Revenue after
consultation with competent appraisers both from the private and public
sectors; or
2) the fair market value as shown in the schedule of values of the
Provincial and City Assessors. [Sec. 24 (D) (1) in relation to Sec. 6 (E), both
of the NIRC of 1997]
It does not matter whether there was an actual gain or loss because
the tax is a presumed capital gains tax. It is the transaction that is taxed
not the gain.
57. Holding period not applied to the taxation of the presumed
capital gains derived from the sale of real property considered as capital
assets.
58. The tax liability, of individual taxpayers (not corporate),
if any, on gains from sales or other dispositions of real property,
classified as capital assets, to the government or any of its political
subdivisions or agencies or to government owned or controlled corporations
shall be determined, at the option of the taxpayer, by including the proceeds
as part of gross income to be subjected to the allowable deductions and/or
personal and additional exemptions, then to the schedular tax [Sec. 24 (D)
(1), in relation to Sec. 24 (A) (1), both of the NIRC of 1997] or the final
presumed capital gains tax of six percent (6%). [Sec. 24 (D) (1) in relation
to Sec. 6 (E), both of the NIRC of 1997]
59. The seller of the real property, classified as a capital asset,
pays the presumed capital gains tax whether:
a. an individual [Sec. 24 (D) (1), NIRC of 1997];
1) Citizen, whether resident or not [Ibid.];
2) Resident alien [Ibid.];
3) Nonresident alien engaged in trade or business in the Philippines
[Sec. 25 (A) (3) in relation to Sec. 24 (D) (1), both of the NIRC of 1997];
4) Nonresident alien not engaged in trade or business in the
Philippines [Sec. 25 (B) in relation to Sec. 24 (D) (1), both of the NIRC of
1997];
b. an estate or trust (Ibid.);
c. a domestic corporation. [Sec. 27 (D) (5), NIRC of 1997]
60. Excepted from the payment of the presumed capital
gains tax are those presumed to have been realized from the
disposition by natural persons of their principal place of residence
a.
the proceeds of which is fully utilized in acquiring or
constructing a new principal residence;
b.
within eighteen (18) calendar months from the date of sale
or disposition
c.
the BIR Commissioner shall have been duly notified by the
taxpayer within thirty (30) days from the date of sale or disposition through a
prescribed return of his intention to avail of the tax exemption; and
d.
the said tax exemption can only be availed of once every ten
(10) years. [Sec. 24 (D) (2), NIRC of 1997]
61.
MBC was incorporated in 1961 and engaged in
commercial banking operations since 1987. On May 22, 1987, it
ceased operations that year by reason of insolvency and its assets
and liabilities were placed under the charge of a governmentappointed receiver. On June 23, 1999, the BSP authorized MBC to
operate as a thrift bank.
In 2000, It filed its tax return for the year 1999 paying the
amount of P33 million computed in accordance with the minimum
corporate income tax (MCIT). It sought the BIRs ruling on whether
it is entitled to the four (4) year grace period for paying on the basis
of MCIT reckoned from 1999. BIR then ruled that cessation of
business activities as a result of being placed under involuntary
receivership may be an economic reason for suspending the
imposition of the MCIT.
c.
Purpose of the four (4) year grace period. The intent of
Congress relative to the MCIT is to grant a four (43) year suspension of tax
payment to newly organized corporations. Corporations still starting their
business operations have to stabilize their venture in order to obtain a
stronghold in the industry. It does not come as a surprise then when many
companies reported losses in their initial years of operations.
Thus, in order to allow new corporations to grow and develop at the
initial stages of their operations, the lawmaking body saw the need to provide
a grace period of four years from their registration before they pay their
minimum corporate income tax. (Manila Banking Corporation v.
Commissioner of Internal Revenue,G. R. No. 168118, August 26, 2006)
ESTATE TAXES
1. In determining the gross estate of a decedent, are
his properties abroad to be included, and more particularly, what
constitutes gross estate ?
SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen or a
resident alien.
The gross estate of a Filipino citizen or a resident alien comprises all
his real property, wherever situated; all his personal property, tangible,
intangible or mixed, wherever situated, to the extent of his interest existing
therein at the time of his death.
The gross estate of a non-resident alien comprises all his real property,
situated in the Philippines; all his personal property, tangible, intangible or
mixed, situated in the Philippines, to the extent of his interest existing
therein at the time of his death.
2.
William
Smith, an American citizen, was a
permanent resident
of
the
Philippines. He
died
in
San
Francisco, California. He left 10,000 shares of San Miguel
Corporation, a condominium unit at the Twin Towers Building at
Pasig, Metro Manila and a house and lot in Miami, Florida.
What assets shall be included in the Estate Tax Return to be
filed with the BIR ?
SUGGESTED ANSWER: All of the assets should be included in the Estate
Tax Return to be filed with the BIR.
Smith, an American citizen and a permanent resident of the Philippines
is considered,
for Philippine estate tax purposes,
a resident
alien. Consequently, the assets to be included in the Estate Tax Return to be
filed with the BIR should be all property, real or personal, tangible, intangible
or mixed, wherever situated, to the extent of the interest that Smith has at
the time of his death. Thus, all of the properties enumerated in the problem
irrespective of where they are situated are includible in the gross estate of
Smith.
3. Proceeds of life insurance includible in a decedents
gross estate.
a.
The decedent takes the insurance policy on his own life
1) The amounts are receivable by
a)
the decedents estate,
b)
his executor, or
c)
administrator irrespective of whether or not
the insured retained the power of revocation, OR
2)
The
amounts
are
receivable
by
any
beneficiary
designated in the policy of insurance as
revocable beneficiary.
[Sec. 85 (E), NIRC of 1997]
b.
One, other than the decedent takes the insurance policy on
the life of the decedent
1)
The amounts are receivable by
a)
the decedents estate,
b)
his executor, or
c)
administrator
2)
irrespective of whether or not the insured retained
the
power of revocation.
4. Proceeds of life insurance NOT included in a decedents
gross estate.
a.
The decedent takes the insurance policy on his own life, and
b.
the proceeds are receivable by a beneficiary designated as
irrevocable. [Sec. 85 (E), NIRC of 1997)
NOTES AND COMMENTS: The beneficiary must not be the decedents
estate, executor or administrator, because the proceeds are includible as
part of gross estate whether or not the decedent retained the power of
revocation. (Ibid.)
c.
Where the insurance was NOT taken by the decedent upon
his own life and the beneficiary is not the decedents estate, his executor or
administrator.
4.
or nonresident
a.
b.
c.
d.
e.
f.
g.
Amount of exempt retirement received by the heirs under
Rep. Act Mo. 4917;
h.
Net share of the surviving spouse in the conjugal
partnership.
5.
There is no transfer in contemplation of death if there
is no showing that the transferor retained for his life or for any period
which does not in fact end before his death: (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the right,
either alone or in conjunction with any person, to designate the person who
shall possess or enjoy the property or the income therefrom. [Sec. 85 (B),
NIRC of 1997]
6. Vanishing deduction (deduction for property previously
taxed),
defined. The deduction allowed from the gross estates of
citizens, resident aliens and nonresident estates for properties which were
previously subject to donors or estate taxes. The deduction is called a
vanishing deduction because the deduction allowed diminishes over a period
of five (5) years.
It is also known as a deduction for property previously taxed.
7. Vanishing deduction (property previously taxed) allowed
as a deduction from the gross estate of a Filipino citizen, whether
resident or not, of a resident alien decedent, or of a nonresident
alien decedent.
a.
An amount equal to the value specified below of
b.
Any property forming a part of the gross estate situated in
the Philippines
c
Of any person who died within five years prior to the
death of the decedent, or transferred to the decedent by gift within five
years prior to his death,
d.
Where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior decedent
by gift, bequest, devise, or inheritance, or
e.
Which can be identified as having been acquired in
exchange for property so received:
100% of the value if the prior decedent died within one year prior to
the death of the decedent, or if the property was transferred to him by gift
within the same period prior to his death;
80% of the value if the prior decedent died more than one year
but not more than two yearsprior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death;
60% of the value if the prior decedent died more than two years
but not more than three yearsprior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death;
40% of the value if the prior decedent died more than three years
but not more than four yearsprior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death; and
20% of the value if the prior decedent died more than four years
but not more than five yearsprior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death. [Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement
and underlining supplied]
8.
The approval of the court sitting in probate, or as a
settlement tribunal over the estate of the deceased is not a
mandatory requirement for the collection of the estate. The probate
court is determining issues which are not against the property of the
decedent, or a claim against the estate as such, but is against the interest or
property right which the heir, legatee, devisee, etc. has in the property
formerly held by the decedent.
The notices of levy were regularly issued within the prescriptive period.
The tax assessment having become final, executory and enforceable,
the same can no longer be contested by means of a disguised
protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47)
DONORS TAXES
1.
What is the donors tax rate if the donee is a stranger ?
SUGGESTED ANSWER:
When the donee or beneficiary is a stranger,
the tax payable by the donor shall be 30% of the net gifts.
2.
For purposes of the donors tax who is a stranger ?
SUGGESTED ANSWER: A stranger is a is person who is not a:
a.
Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or
b.
Relative by consanguinity in the collateral line within the
fourth degree of relationship. [Sec. 99 (B), NIRC of 1997]
NOTES AND COMMENTS: All relatives by affinity, irrespective of the
degree, are considered as strangers.
3.
What is the tax base for donations ?
SUGGESTED ANSWER: The net gifts made during the calendar year.
[Sec. 99 (A), NIRC of 1997]
4.
For purposes of the donors tax, what is meant by net
gifts ?
SUGGESTED ANSWER: The net economic benefit from the transfer
that accrues to the donee. Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the donee the obligation to pay the
mortgage liability, then the net gift is measured by deducting from the fair
market value of the property the amount of the mortgage assumed. (last
par., Sec. 11, Rev. Regs.No.2-2003)
5.
How are gifts of personal property to be valued for
donors tax purposes ?
SUGGESTED ANSWER: The market value of the personal property at
the time of the gift shall be considered the amount of the gift. (Sec. 102,
NIRC of 1997)
6.
What is the valuation of donated real property for
donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised at its fair
market value as of the time of the gift.
However, the appraised value of the real property at the time of the
gift shall be whichever is the higher of:
a.
the fair market value as determined by the Commissioner of
Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values
fixed by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88
(B) both of the NIRC of 1997]
7.
A died leaving as his only heirs, his surviving spouse B,
and three minor children, X, Y and Z. Since B does not want to
participate in the distribution of the estate, she renounced her
hereditary share in the estate.
a.
Is the renunciation subject to donors tax ? Explain.
SUGGESTED ANSWER: No. The general renunciation by an heir,
including the surviving spouse, as in the case B, of her share in the
hereditary estate left by the decedent is not subject to donors tax. (4 th par.,
Sec. 11, Rev. Regs. No. 2-2003)
This is so because the general renunciation by B was not specifically
and categorically done in favor of identified heir/s to the exclusion or
disadvantage of the other co-heirs in the hereditary estate.
b.
Supposing that instead of a general renunciation, B
renounced her hereditary share in As estate to X who is a special
child, would your answer be the same ? Explain.
the
concept
of
donation
or
gift
acquisition of capital goods, any excess over the output taxes shall instead
be refunded to the taxpayer or credited against other internal revenue taxes.
(Ibid.)
9.
How the VAT is imposed on the increase in worth,
merit or improvement of the goods or services. The VAT utilizes the
concept of the output and input taxes.
Output VAT less Input VAT = VAT due on the increase in worth, merit
or improvement f the goods or services.
10.
The right to credit the input tax be limited by
legislation because it is a mere creation of law. Prior to the enactment
of multi-stage sales taxation, the sales taxes paid at every level of
distribution are not recoverable from the taxes payable. With the advent of
Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was
only then that the crediting of the input tax paid on purchase or importation
of goods and services by VAT-registered persons against the output tax was
established. This continued with the Expanded VAT Law (R.A. No. 7716),
and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input
tax as against the output tax is clearly a privilege created by law, a privilege
that also the law can limit. It should be stressed that a person has no
vested right in statutory privileges. (ABAKADA Guro Party List, etc. et al. vs.
Ermita, G.R. No. 168207, October 15, 2005, and companion cases, on the
motion for reconsideration)
11.
Output tax is the value-added tax due on the sale or
lease or taxable goods, properties or services by any VAT-registered person.
12.
Input tax is the value-added tax due on or paid by a
VAT-registered person on importation of good or local purchases of goods or
services, including lease or use of properties, in the course of his trade or
business. (Rev. Regs. No. 4.110-1, 1st par.)
13.
Included in the input tax.
a.
the transitional input tax and
b.
the presumptive input tax xxx.
It includes
c.
input taxes which can be directly attributed to transactions
subject to the VAT plus a ratable portion of any input tax which cannot be
directly attributed to either the taxable or exempt activity. (Rev. Regs. No.
4.110-1, 1st par., 2nd sentence,. And 2nd par., paraphrasing, arrangement and
numbering supplied )
14.
Concept of transitional input tax credits on beginning
inventories. Taxpayers who become VAT-registered persons upon
23.
The following sales of real properties are exempt
from VAT, namely:
a.
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business;
b.
Sale of real properties utilized for low-cost housing as
defined by RA No. 7279, otherwise known as the Urban and Development
Housing Act of 1992 and other related laws, such as RA No. 7835 and RA
No. 8763.
xxx
xxx
xxx
c.
Sale of real properties utilized for socialized housing as
defined under RA No. 7279, and other related laws wherein the price ceiling
per unit is P225,000.00 or as may from time to time be determined by the
HUDCC and the NEDA and other related laws.
xxx
xxx
xxx
d.
Sale of residential lot valued at One Million Five Hundred
Thousand Pesos (P1,500,000.00) and below, or house & lot and other
residential dwellings valued at Two Million Give Hundred Thousand Pesos
(P2,500,000.00) and below where the instrument of sale/transfer/disposition
was executed on or after November 1, 2005, provided, That not later than
January 31, 2009 and every three (3) years thereafter, the amounts stated
herein shall be adjusted to its present value using the Consumer Price Index,
as published by the National Statistics Office (NSO); provided, further, that
such adjustment shall be published through revenue regulations to be issued
not later than March 31 of each year.
If two or more adjacent residential lots are sold or disposed in favor
of one buyer, for the purpose of utilizing the lots as one residential lot, the
sale shall be exempt from VAT only if the aggregate value of the lots do not
exceed P1,500,000.00. Adjacent residential lots, although covered by
separate titles and/or separate tax declarations, when sold or disposed of to
one and the same buyer, whether covered by one or separate Deed of
Conveyance, shall be presumed as a sale of one residential lot. [Rev. Regs.
No. 4.109-1 (B), (p), paraphrasing and numbering supplied]
24.
a.
b.
gross receipts
c.
amended by R.A. No. 9337; Rev. Regs. No. 16-2005, Sec. 4,108-2, 1 st par.,
arrangement and numbering supplied]
26.
Also included in the phrase sale or exchange of
services.
a.
The lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
b.
The lease or the use of, or the right to use any industrial,
commercial or scientific equipment;
c.
The supply of scientific, technical, industrial or commercial
knowledge or information;
d.
The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling the application or
enjoyment of any such property, or right as is mentioned in subparagraph
(2) hereof or any such knowledge or information as is mentioned in
subparagraph (3) hereof; or
e.
The supply of services by a non-resident person or his
employee in connection with the use of property or rights belonging to, or
the installation or operation of any brand, machinery or other apparatus
purchased from such non-resident person;
f.
The supply of technical advice, assistance or services
rendered in connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project of scheme;
g.
The lease of motion picture films, film tapes and discs;
h.
The lease or the use of or the right to use radio,
television, satellite transmission and cable television time. (Rev. Regs. No.
16-2005, Sec. 4.108-2, 2nd par.)
27.
Zero-rated Sales of Goods or Properties. A zerorated sale of goods or properties by a sale by a VAT-registered person is a
taxable transaction for VAT purposes but the sale does not result in any
output tax.
However, the input tax on the purchases of goods, properties or services
related to such zero-rated sale shall be available as tax credit or refund in
accordance with Rev. Regulations No. 16-2005. (Rev. Regs. No. 16-2005,
1st par.)
28. Concept of VAT zero-rating. The tax rate is set at
zero. When applied to the tax base, such rate obviously results in no tax
chargeable against the purchaser. The seller of such transactions charges no
output tax, but can claim a refund or a tax credit certificate for the VAT
previously charged by suppliers. [Commissioner of Internal Revenue v.
Seagate Technology (Philippines),G. R. No. 153866, February 11, 2005]
37.
Ecozone, defined. An ECOZONE or a Special Economic
Zone has been described as [S]elected areas with highly developed or
which have the potential to be developed into agro-industrial, industrial,
tourist, recreational, commercial, banking, investment and financial centers
whose metes and bounds are fixed or delimited by Presidential
Proclamations. An ECOZONE may contain any or all of the following:
industrial estates (IEs), export processing zones (EPZs), free trade zones
and tourist/recreational centers.
The national territory of the Philippines
outside of the proclaimed borders of the ECOZONE shall be referred to as the
Customs Territory. [Commissioner of Internal Revenue v. Toshiba
Information Equipment (Phils.), Inc., G. R.. No. 150154, August 9, 2005]
38.
Zero-rated sale of service, defined. A zero-rated
sale of service (by a VAT-registered person) is a taxable transaction for VAT
purposes, but shall not result in any output tax. However, the input tax on
purchases of goods, properties or services related to such zero-rated sale
shall be available as tax credit or refund in accordance with Rev. Regs. No.
16-2005. [Rev. Regs. No. 16-2005, Sec. Sec. 4.108-5 (a), words in italics
supplied)
39. Service performed by American Express in facilitating
the collection of receivables from credit card members situated in
the Philippines and payment to service establishments in the
Philippines in behalf of its Hong-Kong based client is subject to VAT
but zero-rated. This is so because it meets all the requirements for VAT
imposition, as follows:
a.
It regularly renders in the Philippines the service of
facilitating the collection and payment of receivables belonging to a foreign
company that is a clearly separate and distinct entity.
b.
Such service is commercial in nature; carried on over a
sustained period of time; on a significant scale with a reasonable degree of
frequency; and not at random, fortuitous, or attenuated.
c.
For this service, it definitely receives consideration in
foreign currency that is accounted for in conformity with law.
d.
It is not an entity exempt under any of our laws or
international agreements. (Commissioner, of Internal Revenue v. American
Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29,
2005)
40.
While the service performed by American Express is
subject to VAT it is zero-rated, and BIR Revenue Regulations that
alter the legal requirements for zero-rating are ultra vires and
invalid. The VAT system uses the destination principle which posits that the
goods and services are taxed only in the country where they are consumed,
However, the law itself provides for clear exceptions under which the
supply of services shall be zero-rated, among which are the following:
a.
The service is performed in the Philippines;
b.
The services are within the categories provided for under
the Tax Code; and
c.
It is paid for in acceptable foreign currency of the Bangko
Sentral ng Pilipinas.
American Express renders assistance to its foreign clients by receiving
the bills of service establishments located in the country and forwarding
them to their clients abroad. The services are performed or successfully
completed upon send to its foreign clients the drafts and bills it has gathered
from service establishments here, Its services, having been performed in
the Philippines are therefore also consumed in the Philippines. Thus, its
services are exempt from the destination principle and are zero-rated.
The BIR could not change the law. [Commissioner, of Internal
Revenue v. American Express International, Inc. (Philippine Branch), G. R.
No. 152609, June 29, 2005]
41.
A foreign Consortium composed of BWSC-Denmark,
Mitsui Engineering and Shipbuilding Ltd., and Mitsui and Co., Ltd.,
which entered into a contract with NAPOCOR for the operation and
maintenance of two power barges appointed BWSC-Denmark as its
coordination
manager. BWSCMI
was
established
as
the
subcontractor to perform the actual work in the Philippines. The
Consortium paid BWSCMI in acceptable foreign exchange and
accounted for in accordance with the rules and regulations of the
BSP.
Through a February 14, 1995 ruling the BIR declared that
BWSCMI may choose to register as a VAT persons subject to VAT at
zero rate. For 1996, it filed the proper VAT returns showing zero
rating. On December 29, 1997, believing that it is covered by Rev.
Regs. 5-96, dated February 20, 1996, BWSCMI paid 10% output VAT
for the period April-December 1996, through the Voluntary
Assessment Program (VAP).
On January 7, 1999, BWSCMI was able to obtain a Ruling
from the BIR reconfirming that it is subject to VAT at zerorating. On this basis, BWSCMI applied for a refund of the output VAT
it paid.
a.
Is BWSCMI subject to the 10% VAT or is it zero
rated ?
VAT-exempt
transactions
distinguished
from
a
.
An exempt transaction, on the one hand, involves goods or services
which, by their nature, are specifically listed in and expressly exempted from
the VAT under the Tax Code, without regard to the tax status VAT-exempt
or
not
of
the
party
to
the
transaction.
An exempt party, on the other
hand, is a person or entity granted VAT exemption under the Tax Code, a
special law or an international agreement to which the Philippines is a
signatory, and by virtue of which its taxable transactions become exempt
from VAT. [Commissioner of Internal Revenue v. Toshiba Information
Equipment (Phils.), Inc., G. R. No. 150154, August 9, 2005]
b.
An exempt transaction shall not be the subject of any billing
for output VAT but it shall not also be allowed any input tax credits WHILE an
exempt party being zero-rated is allowed to claim input tax credits.
44.
Transactions are exempt from VAT. (Subject to the
election by a VAT-registered person not to be subject to the value-added
tax), the following shall be exempt from VAT:
(A) Sale or importation of agricultural and marine food products in
their original state, livestock and poultry of a kind generally used as, or
yielding or producing foods for human consumption; and breeding stock and
genetic materials therefor.
Livestock shall include cows, bulls and calves, pigs, sheep, goats
and rabbits. Poultry shall include fowls, ducks, geese and turkey, Livestock
or poultry does not include fighting cocks, race horses, zoo animals and
other animals generally considered as pets.
Marine food products shall include fish and crustaceans, such as,
but not limited to, eels, trout, lobster, shrimps, prawns, oysters, mussels and
clams.
Meat, fruit, fish, vegetables and other agricultural and marine
food Products classified under this paragraph shall be considered in their
original state even if they have undergone the simple processes of
preparation or preservation for the market, such as freezing, drying, salting,
broiling, roasting, smoking or stripping, including those using advanced
technological means of packaging, such as shrink wrapping in plastics,
vacuum packing, tetra-pack, and other similar packaging methods. Polished
and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt,
and copra shall be considered in their original state.
Sugar whose content of sucrose by weight, in the dry state, has a
polarimeter reading of 99.5o and above are presumed to be refined sugar.
Cane sugar produced from the following shall be presumed, for
internal revenue purposes, to be refined sugar:
(1)
(2)
present value using the Consumer Price Index as published by the National
Statistics Office (NSO).
For purposes of the threshold of P1,500,000.00, the husband and
wife shall be cnsidered separate taxpayers. However, the aggregation rule
for each taxpayer shall apply. For instance, if a profesional, aside from the
practice ofhis profession, also derives revenue from other lines of business
which are otherwise subject to VAT, the same shall be combined for purposes
of determining whether the threshold has been exceeded. Thus, the VATexempt sales shall to be icluded in determining the threshold. [NIRC of
1997, Sec. 109 (1), as amended by R. A. No. 9337; words in italics from
Rev. Regs. No. 16-2005, Sec. 4.109-1 (B), words in parentheses supplied]
45.
Tax to be paid by persons exempt from VAT.
a.
Any person, whose sales or receipts are exempt under Sec.
109 (1) (V) of the Tax Code,
(V) Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the preceding paragraphs,
the gross annual sales and/or receipts do not exceed the amount of One
million five hundred thousand pesos (P1,500,000): Provided,That not later
than January 31, 2009 and every three (3) years thereafter, the amount
herein stated shall be adjusted to its present value using the Consumer Price
Index as published by theNational Statistics Office (NSO), from the payment
of VAT and
b.
who is not a VAT-registered person
c.
shall pay a tax equivalent to three percent (3%) of his
gross monthly sales or receipts;
Provided, that cooperatives shall be exempt from the three (3%)
gross receipts tax herein imposed. (Rev. Regs. No. 16-2005, Sec. 4.116-1,
arrangement, numbering and words in italics supplied)
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents, until
controverted by competent evidence, are competent evidence, are prima
facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et
al., 296 SCRA 309, 317)
2.
Individuals required to file an income tax return.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on his
income from sources within the Philippines;
c.
Every alien residing in the Philippines on income derived
from sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or in
the exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC of 1997]
3.
Married
individuals
who
are
earning
compensation income allowed to file separate returns.
purely
4.
Married individuals, whether citizens, resident or nonresident aliens, who do not derive income purely from compensation
shall file a consolidated return for the taxable year to include the
income of both spouses, but where it is impracticable for the spouses to
file one return, each spouse may file a separate return of income but the
returns so filed shall be consolidated by the Bureau for purposes of
verification. [Section 51 (D) of the NIRC of 1997]
5.
Computation of income tax for married individuals
whether citizens, resident or non-resident aliens, who do not derive
income purely from compensation required file a consolidated return
for the taxable year but could not do so. For married individuals, the
husband and wife, subject to no. 2, supra,, shall compute separately their
individual income tax based on their respective total taxable
income: Provided, that if any income cannot be definitely attributed to or
identified as income exclusively earned or realized by either of the spouses,
the same shall be divided equally between the spouses for the purpose of
determining their respective taxable income. [2nd to the last par., Sec. 24
(A) (2), NIRC of 1997 as amended by Rep. Act No. 9504]
6.
Individuals who are not required to file an income tax
return.
a.
An individual whose gross income does not exceed his total
personal and additional exemptions for dependents, Provided, That a citizen
of the Philippines and any alien individual engaged in business or practice of
profession within the Philippines shall file an income tax return regardless of
the amount of gross income [Sec. 51 (A) (2), NIRC of 1997]
b.
An individual with respect to pure compensation income,
derived from such sources within the Philippines, the income tax on which
has been correctly withheld: Provided, That an individual deriving
compensation concurrently from two or more employers at any time during
the taxable year shall file an income tax return [Sec. 51 (A) (2), NIRC of
1997, as amended by Rep. Act No. 9504, paraphrasing supplied]
c.
An individual whose sole income has been subject to final
withholding tax;
d.
A minimum wage earner (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage in
the non-agricultural sector where he/she is assigned), an individual who is
exempt from income tax pursuant to the provisions of the Tax Code and
other laws, general or special. [Sec. 51 (A) (2), NIRC of 1997 in relation to
Sec. 22 (HH), both as amended by Rep. Act. 9504]
7.
Minimum wage earners are exempt from income
taxation. That minimum wage earners (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage in
the non-agricultural sector where he/she is assigned) shall be exempt from
the payment of income tax on their taxable income: Provided, further, That
the holiday pay, overtime pay, night shift differential pay and hazard pay
received by such minimum wage earners shall likewise be exempt from
income tax. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec. 22 (HH), both
as amended by Rep. Act. 9504]
8.
and/or pay the difference between the tax withheld and the tax due on the
income. [1st and 2nd sentences, Sec. 257(B), Rev. Regs. No. 2-98]
18.
The two kinds of creditable withholding taxes are
(a) taxes withheld on income payments covered by the expanded withholding
tax; and (b) taxes withheld on compensation income.
19.
Payments to the following are exempt from the
requirement of withholding or when no withholding taxes
required:
a.
National Government and its instrumentalities including
provincial, city, or municipal governments;
b.
Persons enjoying exemption from payment of income taxes
pursuant to the provisions of any law, general or special, such as but not
limited to the following:
1) Sales of real property by a corporation which is registered with and
certified by the HLURB or HUDCC as engaged in socialized housing project
where the selling price of the house and lot or only the lot does not exceed
P180,000.00 in Metro Manila and other highly urbanized areas and
P150,000.00 in other areas or such adjusted amount of selling price for
socialized housing as may later be determined and adopted by the HLURB;
2) Corporations registered with the Board of Investments and enjoying
exemptions from income under the Omnibus Investment Code of 1997;
3)
Corporations exempt from income tax under Sec. 30, of the Tax
Code, like the SSS, GSIS, the PCSO, etc. However, income payments arising
from any activity which is conducted for profit or income derived from real or
personal property shall be subject to a withholding tax. (Sec. 57.5, Rev.
Regs. No. 2-98)
20.
For tax amnesty purposes, the withholding agent is
not a taxpayer. He is made to pay the tax where he fails to withhold as a
penalty and not because the tax is due from him. (Commissioner of Internal
Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999,
the Anscor case)
PENALTIES, INTERESTS AND SURCHARGES
1.
Surtaxes or surcharges, also known as the civil penalties,
are the amounts imposed in addition to the tax required.
They are in the nature of penalties and shall be collected at the same
time, in the same manner, and as part of the tax. [Sec.248 (A), NIRC of
1997]
2.
What are the two (2) kinds of civil penalties ?
SUGGESTED ANSWER:
a.
the 25% surcharge for late filing or late payment [Sec. 248
(A), NIRC of 1997] (also known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud surcharge. [Sec. 248
(B), Ibid.]
3.
Define deficiency income tax.
SUGGESTED ANSWER: Deficiency income tax is the amount by which
the tax imposed under the NIRC of 1997 exceeds the amount shown as the
tax due by the taxpayer upon his return. [Sec. 56 (B) (1), NIRC of 1997]
4.
Deficiency interest, defined. The interest assessed and
collected on any unpaid amount of tax at the rate of 20% per annum or such
higher rate as may be prescribed by regulations, from the date prescribed for
payment until the amount is fully paid. [Sec. 249 (A) (B), NIRC of 1997]
5.
Delinquency interest, defined. The interest assessed
and collected on the unpaid amount until fully paid where there is failure on
the part of the taxpayer to pay the amount die on any return required to be
filed; or the amount of the tax due for which no return is required; or a
deficiency tax, or any surcharge or interest thereon, on the date appearing in
the notice and demand by the Commissioner of Internal Revenue. [Sec.249
(c), NIRC of 1997]
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to discourage
delay in the payment of taxes due to the State and in this sense the
surcharge and interest charged are not penal but compensatory in nature
they are compensation to the State for the delay in payment, or for the
concomitant tuse of the funds by the taxpayer beyond the date he is
supposed to have paid them to the State. (Bank of the Philippine Islands v.
Commissioner of Internal Revenue, G. R. No. 137002, July 27, 2006)
7.
Compromise penalty is the amount agreed upon between
the taxpayer and the Government to be paid as a penalty in cases of a
compromise.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes on
time. Imposed surcharges and interests for such delay, the taxpayer
not invokes good faith with the BIR countering by saying that good
faith is not a valid defense for violation of a special
law. Furthermore, the BIR further raises the defense that the
government is not bound by the errors of its agents. Who is correct ?
SUGGESTED ANSWER: The taxpayer is correct. The settled rule is that
good faith and honest belief that one is not subject to tax on the basis of
previous interpretation of government agencies tasked to implement the tax,
are sufficient justification to delete the imposition of surcharges. (Michel J.
Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, G. R. No.
166786, September 11, 2006)
REPUBLIC ACT NO. 1125, CREATING THE COURT OF TAX APPEALS
INCLUDING JURISDICTION OF THE CTA, AS AMENDED
COURT OF TAX APPEALS, IN GENERAL
1.
Discuss
the
role
of
the
judiciary
in
taxation. SUGGESTED ANSWER: The role of the judiciary is to be the
sympathetic or vigilant court which would check injustices or abuses of the
legislative and administrative agents of the State in their exercise of the
power of taxation.
2. What is the nature and composition of the Court of Tax
Appeals ?
SUGGESTE
D ANSWER: The Court of Tax Appeals is the special tax court created under
Republic Act No. 1125, as amended, and is composed of a Presiding Justice
and eight (8) Associate Justices, organized into three (3) divisions.
3.
What are the purposes for the creation of the Court of
Tax Appeals ?
SUGGESTED
ANSWER:
a.
To prevent delay in the disposition of tax cases by the then
Courts of First Instance (now RTCs), in view of the backlog of civil, criminal,
and cadastral cases accumulating in the dockets of such courts; and
b.
To have a body with special knowledge which ordinary
Judges of the then Courts of First Instance (now RTCs), are not likely to
possess, thus providing for an adequate remedy for a speedy determination of
tax cases. (Ursal v. Court of Tax Appeals, et al., 101 Phil. 209)
4. Jurisdiction of the Court of Tax Appeals.
a.
Exclusive appellate jurisdiction to review by appeal,
as herein provided:
1.
Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties, in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue; (DIVISION)
2.
Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds or internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matter arising under the
National Internal Revenue Code or other laws administered by the Bureau of
Internal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a
denial; (The inaction on refunds in two years from the time tax was
paid. Thus, if the prescriptive period of two years is about to expire, the
taxpayer should interpose a petition for review with the CTA DIVISION)
3.
Decisions, orders or resolutions of the Regional Trial Courts
in local tax cases originally decided or resolved by them in the exercise of
their original or appellate jurisdiction; (If original DIVISION; if appellate EN
BANC)
4.
Decisions of the Commissioner of Customs in cases involving
liability for customs duties, fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs; (DIVISION)
5.
Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the assessment and
taxation of real property originally decided by the provincial or city board of
assessment appeals; (EN BANC)
6.
Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the Commissioner
of Customs which are adverse to the Government under Section 2315 of the
Tariff and Customs Code; (This has reference to forfeiture cases where the
decision is to release the seized articles DIVISION)
7.
Decisions of the Secretary of Trade and Industry, in case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and 302, respectively,
of the Tariff and Customs Code, and safeguard measures under Republic Act
No. 8800, where either party may appeal the decision to impose or not to
impose said duties. (DIVISION)
b.
Jurisdiction over cases involving criminal offenses as
herein provided:
1.
Exclusive original jurisdiction over all criminal
cases arising from violations of the National Internal Revenue Code or Tariff
and Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or
felonies mentioned in this paragraph where the principal amount of taxes and
fees, exclusive of charges and penalties claimed, is less than One million
pesos (P1,000,000.00) or where there is no specified amount claimed shall be
tried by the regular Courts and the jurisdiction of the CTA shall be appellate.
Any provision of law or the Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the recovery of civil
liability for taxes and penalties shall at all times be simultaneously instituted
with, and jointly determined in the same proceeding by the CTA, the filing of
the criminal action being deemed to necessarily carry with it the filing of the
civil action, and no right to reserve the filing of such civil action separately
from the civil action will be recognized.
2.
Exclusive appellate jurisdiction in criminal offenses:
a)
Over appeals from the judgments, resolutions or orders of
the Regional Trial Courts in tax cases originally decided by them, in
their
respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or
orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax cases originally decided by the Metropolitan
Trial
Courts, Municipal Trial Courts and Municipal Circuit Trial Courts
in their respective jurisdiction.
c.
Jurisdiction over tax collection cases:
1.
Exclusive original jurisdiction in tax collection cases
involving final and executory assessments for taxes, fees, charges and
penalties: Provided, however, That collection cases where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less
than One million pesos (P1,000,000) shall be tried by the proper Municipal
Trial Court, Metropolitan Trial Court and Regional Trial Court.
2.
Exclusive appellate jurisdiction in tax collection cases:
a)
Over appeals from judgments, resolutions, or orders
of
the Regional Trial Courts in tax collection cases originally decided
by
them, in their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or
orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax collection cases originally decided by
the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit
Trial Courts, in their respective jurisdiction. (Sec. 7, R. A. No.
1125,
as amended by R. A. No. 9282, emphasis and words in
parentheses
supplied)
The petition for review to be filed with the CTA en banc as the
mode for appealing a decision, resolution, or order of the CTA
Division, under Section 18 of Republic Act No. 1125, as amended, is
not a totally new remedy, unique to the CTA, with a special
application or use therein. To the contrary, the CTA merely adopts the
procedure for petitions for review and appeals long established and practiced
in other Philippine courts. Accordingly, doctrines, principles, rules, and
precedents laid down in jurisprudence by this Court as regards petitions for
review and appeals in courts of general jurisdiction should likewise bind the
CTA, and it cannot depart therefrom. (Santos v. People, et al, G. R. No.
173176, August 26, 2008)
5.
It is the Regional Trial Court that has jurisdiction to rule
upon the constitutionality of a tax law or a regulation issued by the
taxing authorities. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative
agency in the performance of its quasi-legislative function, the regular courts
have jurisdiction to pass upon the same. The determination of whether a
specific rule or set of rules issued by an administrative agency contravenes
the law or the constitution is within the jurisdiction of the regular courts.
Indeed, the Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the courts,
including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments. Judicial power
includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
d.
If the taxpayer attends the informal conference and the
examiner is satisfied with the explanation of the taxpayer, the process is again
ended.
If the taxpayer ignores the invitation to the informal conference, or if
the examiner is not satisfied with taxpayers explanation,, and he believes
that proper taxes should be assessed, the Commissioner of Internal Revenue
or his duly authorized representative shall then notify the taxpayer of the
findings in the form of a pre-assessment notice. The pre-assessment notice
requires the taxpayer to explain within fifteen (15) days from receipt why no
notice of assessment and letter of demand for additional taxes should be
directed to him.
e.
If the Commissioner is satisfied with the explanation of the
taxpayer, then the process is again ended.
If the taxpayer ignores the pre-assessment notice by not responding or
his explanations are not accepted by the Commissioner, then a notice of
assessment and a letter of demand is issued.
The notice of assessment must be issued by the Commissioner to the
taxpayer within a period of three (3) years from the time the tax return was
filed or should have been filed whichever is the later of the two
events. Where the taxpayer did not file a tax return or where the tax return
filed is false or fraudulent, then the Commissioner has a period of ten (10)
years from discovery of the failure to file a tax return or from discovery of the
fraud within which to issue an assessment notice. The running of the above
prescriptive periods may however be suspended under certain instances.
The notice of assessment must be issued within the prescriptive period
and must contain the facts, law and jurisprudence relied upon by the
Commissioner. Otherwise it would not be valid.
f.
The taxpayer should then file an administrative protest by filing
a request for reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to the Court of
Tax Appeals because there is no decision yet of the Commissioner that could
be the subject of a review.
To be valid the administrative protest must be filed within the
prescriptive period, must show the error of the Bureau of Internal Revenue
and the correct computations supported by a statement of facts, and the law
and jurisprudence relied upon by the taxpayer. There is no need to pay under
protest. If the protest was not seasonably filed the assessment becomes final
and collectible and the Bureau of Internal Revenue could use its
administrative and judicial remedies in collecting the tax.
g.
Within sixty (60) days from filing of the protest, all relevant
supporting documents shall be submitted, otherwise the assessment shall
become final and collectible and the BIR could use its administrative and
judicial remedies to collect the tax.
Once an assessment has become final and collectible, not even the BIR
Commissioner could change the same. Thus, the taxpayer could not pay the
tax, then apply for a refund, and if denied appeal the same to the Court of Tax
Appeals.
h.
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from the submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the adverse
decision, or from the lapse of the one hundred eighty (180-) day period, with
an application for the issuance of a writ of preliminary injunction to enjoin the
BIR from collecting the tax subject of the appeal.
If the taxpayer fails to so appeal, the denial of the Commissioner or
the inaction of the Commissioner would result to the notice of assessment
becoming final and collectible and the BIR could then utilize its administrative
and judicial remedies to collect the tax.
i.
A decision of a division of the Court of Tax Appeals adverse to
the taxpayer or the government may be the subject of a motion for
reconsideration or new trial, a denial of which is appealable to the Court of
Tax Appeals en banc by means of a petition for review.
The Court of Tax Appeals, has a period of twelve (12) months from
submission of the case for decision within which to decide.
j.
If the decision of the Court of Tax Appeals en banc affirms the
denial of the protest by the Commissioner or the assessment in case of failure
by the Commissioner to decide the taxpayer must file a petition for review on
certiorari with the Supreme Court within fifteen (15) days from notice of the
judgment on questions of law. An extension of thirty (30) days may for
justifiable reasons be granted. If the taxpayer does not so appeal, the
decision of the Court of Tax Appeals would become final and this has the
effect of making the assessment also final and collectible. The BIR could then
use its administrative and judicial remedies to collect the tax.
2.
The word assessment when used in connection with
taxation, may have more than one meaning. More commonly the word
assessment means the official valuation of a taxpayers property for purpose
of taxation. The above definition of assessment finds application under tariff
and customs taxation as well as local government taxation.
taxable income larger than that reported. Necessarily, this inquiry would have
to be outside of the books because they supported the return as filed. He
may take the sworn testimony of the taxpayer, he may take the testimony of
third parties; he may examine and subpoena, if necessary, traders and
brokers accounts and books and the taxpayers books of accounts. The
Commissioner is not bound to follow any set of patterns. The existence of
unreported income may be shown by any particular proof that is available in
the circumstances of the particular situation. (Commissioner of Internal
Revenue v. Hantex Trading Co., Inc. G. R. No. 136975, March 31, 2005)
6. General rule: When the Commissioner of Internal Revenue
may rely on estimates. The rule is that in the absence of accounting
records of a taxpayer, his tax liability may be determined by estimation. The
petitioner (Commissioner of Internal Revenue) is not required to compute
such tax liabilities with mathematical exactness. Approximation in the
calculation of taxes due is justified. To hold otherwise would be tantamount
to holding that skillful concealment is an invincible barrier to proof.
(Commissioner of Internal Revenue v. Hantex Trading Co., Inc. G. R. No.
136975, March 31, 2005)
However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously. (Ibid.)
7.
Meaning of "best evidence obtainable" under Sec. 6 (B),
NIRC
of
1997. This means that the original documents must be
produced. If it could not be produced, secondary evidence must be
adduced. (Hantex Trading Co., Inc. v. Commissioner of Internal Revenue, CA
- G.R. SP No. 47172, September 30, 1998)
8. The following are the general methods developed by the
Bureau of Internal Revenue for reconstructing a taxpayers
income where the records do not show the true income or where no return
was filed or what was filed was a false and fraudulent return
(a) Percentage method;
(b) Net worth method.;
(c) Bank deposit method;
(d) Cash expenditure method;
(e) Unit and value method;
(f) Third party information or access to records method;
(g) Surveillance and assessment method. (Chapter XIII. Indirect
Approach to Investigation, Handbook on Audit Procedures and Techniques
Volume I, pp. 68-74)
b.
Request for reinvestigation which refers to a plea for reevaluation of an assessment on the basis of newly-discovered evidence or
additional evidence that a taxpayer intends to present in the investigation. It
may also involve a question of fact or law or both. (Commissioner of Internal
Revenue v. Philippine Global Communication, Inc., G. R. No. 167146, October
31, 2006 citing Rev. Regs. No. 12-85)
3.
What is that type of protest that suspends the running
of the statute of limitations for the beginning of distraint or levy or a
proceeding in court for collection ? Why ?
SUGGESTED ANSWER: It is that type of protest when the taxpayer
requests for a reinvestigation which is granted by the Commissioner (Sec.
223, NIRC of 1997), that suspends the running of the statute of limitations for
collection of the tax. (Commissioner of Internal Revenue v. Philippine Global
Communication, Inc., G. R. No. 167146, October 31, 2006 citing Sec. 271,
now Sec. 223, NIRC of 1997) When a taxpayer demands a reinvestigation,
the time employed in reinvestigation should be deducted from the total period
of limitation. [Commissioner of Internal Revenue, supra citing Republic v.
Lopez, 117 Phil. 575, 578; 7 SCRA 566, 568-569 (1963)]
Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a reconsideration
of a tax assessment which will be limited to the evidence already at hand; this
justifies why the former can suspend the running of the statute of limitations
on collection of the assessed tax, while the latter cannot. (Commissioner of
Internal Revenue v. Philippine Global Communication, Inc., G. R. No. 167146,
October 31, 2006 citing Bank of Philippine Islands v. Commissioner of
Internal Revenue, G. R. No. 139736, 17 October 2005, 473 SCRA 205, 230231)
4.
What are the requirements for the validity of a
taxpayers protest ?
SUGGESTED ANSWER:
a.
It must be filed within the reglementary period of thirty (30)
days from receipt of the notice of assessment.
b.
The taxpayer must not only show the errors of the Bureau of
Internal Revenue but also the correct computation through
1)
A statement of the facts, the applicable law, rules and regulations,
or jurisprudence on which the taxpayers protest is based,
2)
If there are several issues involved in the disputed assessment and
the taxpayer fails to state the facts, the applicable law, rules and regulations,
or jurisprudence in support of his protest against some of the several issues
4.
Instances where the Court of Tax Appeals would have
jurisdiction even if there is no decision yet by the Commissioner of
Internal Revenue:
a. Where the Commissioner has not acted on the disputed assessment
after a period of 180 days from submission of complete supporting
documents, the taxpayer has a period of 30 days from the expiration of the
180 day period within which to appeal to the Court of Tax Appeals. (last par.,
Sec. 228 (e), NIRC of 1997; Commissioner of Internal Revenue v. Isabela
Cultural Corporation, G.R. No. 135210, July 11, 2001)
b. Where the Commissioner has not acted on an application for refund
or credit and the two year period from the time of payment is about to expire,
the taxpayer has to file his appeal with the Court of Tax Appeals before the
expiration of two years from the time the tax was paid.
It is disheartening enough to a taxpayer to be kept waiting for an
indefinite period for the ruling,. It would make matters more exasperating for
the taxpayer if the doors of justice would be closed for such a relief until after
the Commissioner, would have, at his personal convenience, given his go
signal. (Commissioner of Customs, et al, v. Court of Tax Appeals, et al., G.R.
No. 82618, March 16, 1989, unrep.)
5.
The characteristic of a BIR denial of a protest such as
would enable the taxpayer to appeal the same to the Court of Tax
Appeals. The Commissioner of Internal Revenue should always indicate to
the taxpayer in clear and unequivocal language whenever his action on an
assessment questioned by a taxpayer constitutes his final determination on
the disputed assessment.
On the basis of his 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 at the opportune time. Without needless difficulty, the taxpayer
would be able to determine when his right to appeal to the tax court
accrues. (Commissioner of Internal Revenue v. Bank of the Philippines
Islands, G. R. No. 134062, April 17, 2007)
COLLECTION OF INTERNAL REVENUE TAXES
1.
General
rule: Collection
of
taxes
is
imprescriptible. While this may be so, statutes may provide for periods of
prescription,
2.
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be
liberally
construed,
and
exemptions
are
not
given
retroactive
application, considering that taxes are the lifeblood of the government and in
Holmes memorable metaphor, the price we pay for civilization, tax laws must
be faithfully and strictly implemented. (Commissioner of Internal Revenue v.
Acosta, etc.,G. R. No. 154068, August 3, 2007) However, statutes may
provide for prescriptive periods for the collection of particular kinds of taxes.
b.
Tax laws, unlike remedial laws, are not to be applied
retroactively. Revenue laws are substantive laws and their application must
not be equated with remedial laws. (Acosta, supra)
3.
What is the prescriptive period for collecting internal
revenue taxes ?
SUGGESTED ANSWER: There are four (4) prescriptive periods for the
collection of an internal revenue tax:
a.
Collection upon a false or fraudulent return or no return
without assessment. In case of a false or fraudulent return with the intent to
evade tax or of failure to file a return, a proceeding in court for the collection
of such tax may be filed without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud or omission. [Sec. 222 (a),
NIRC of 1997]
b.
Collection upon a false or fraudulent return or no return with
assessment. Any internal revenue tax which has been assessed (because the
return is false or fraudulent with intent to evade tax or of failure to fail a
return), within a period of ten (10) years from discovery of the falsity, fraud
or omission may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax. [Sec.
222 (c), in relation to Sec. 222 (a) NIRC of 1997, emphasis supplied]
c.
Collection upon an extended assessment. Where a tax has
been assessed with the period agreed upon between the Commissioner and
the taxpayer in writing (which should initially be within three (3) years from
the time the return was filed or should have been filed), or any extensions
before the expiration of the period agreed upon, the tax may be collected
by distraint or levy or by a proceeding in court within the period
agreed upon in writing before the expiration of the five (5) year
period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed
upon. [Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997,
emphasis supplied]
d.
Collection upon a return that is not false or fraudulent, or
where the assessment is not an extended assessment. Except as provided in
Section 222, internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period; Provided, That
in case where a return is filed beyond the period prescribed by law, the three
(3) year period shall be computed from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed by law
for the filing thereof shall be considered filed on such last day. (Sec. 203,
NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three (3)-year
period, it has another three (3) years within which to collect the tax due by
distraint, levy, or court proceeding. The assessment of the tax is deemed
made and the three (3)-year period for collection of the assessed tax begins
to run on the date the assessment notice had been released, mailed or sent
to the taxpayer. [Bank of Philippine Islands (Formerly Far East Bank and
Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing BPI v. Commissioner of Internal Revenue,
G.R. No. 139736, 17 October 2005, 473 SCRA 205, 222-223]
NOTES AND COMMENTS:
a.
Both the former Sec. 269, NIRC of 1977 and Sec.222
of NIRC of 1997 do not refer to a regular return. It is clear that in
enacting Sec. 222, entitled Exceptions as to the period of limitation of
assessment and collection of taxes, the NIRC of 1997 has eliminated subparagraph c of the former Sec. 269 of the NIRC, also entitled Exceptions as
to the period of limitation of assessment and collection of taxes. Said Sec.
269 (c), reads Any internal revenue tax which has been assessed within the
period of limitation above-prescribed may be collected by distraint or levy or
by a proceeding in court within three years following the assessment of the
tax.
A perusal of Sec. 222 of the NIRC is clear that it covers only three
scenarios only. 1) No assessment was made upon a false or fraudulent
return or omission to file a return; 2) an assessment was made upon a false
or fraudulent return or omission to file a return; and 3) an extended
assessment issued within a period agreed upon by the Commissioner and the
taxpayer. The same scenarios are those referred to in the former Sec. 269
which provided for a prescriptive period for collection of three (3) years.
It is clear therefore that neither Sec. 222 nor the former Sec.
269 provide for an instance where the assessment was made upon a regular
return or one that is not false or fraudulent, or that there was an agreement
to extend the period for assessment.
Resort should therefore be made to the three (3) year period referred
to in Sec. 203 of the NIRC of 1997 which reads, Except as provided in
Section 222, internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such
taxes x x x (paraphrasing and emphasis supplied)
4. What is a compromise ?
SUGGESTED ANSWER: A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only
signify that there was no agreement that had effectively been reached
between the parties. (Vda. de San Agustin, et al., v. Commissioner of
Internal Revenue, G. R. No. 138485, September 10, 2001)
5. What tax cases may be the subject of a compromise ?
SUGGESTED ANSWER: The following cases may, upon taxpayers
compliance with the basis for compromise, be the subject matter of
compromise settlement:
a.
Delinquent accounts;
b.
Cases under administrative protest after issuance of the
Final Assessment Notice to the taxpayer which are still pending in the
Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer
Service (LTS), Collection Service, Enforcement Service and other offices in the
National Office;
c.
Civil tax cases being disputed before the courts;
d.
Collection cases filed in courts;
e.
Criminal violations, other than those already filed in court, or
those involving criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002)
6. What tax cases could not be the subject of compromise ?
SUGGESTED ANSWER:
a.
Withholding tax cases unless the applicant-taxpayer invokes
provisions of law that cast doubt on the taxpayers obligation to withhold.;
b. Criminal tax fraud cases, confirmed as such by the Commissioner of
Internal Revenue or his duly authorized representative;
c.
d.
payments;
e.
Cases where final reports of reinvestigation or reconsideration
have been issued resulting to reduction in the original assessment and the
taxpayer is agreeable to such decision by signing the required agreement
form for the purpose. On the other hand, other protested cases shall be
handled by the Regional Evaluation Board (REB) or the National Evaluation
Board (NEB) on a case to case basis;
f.
Cases which become final and executory after final judgment of
a court where compromise is requested on the ground of doubtful validity of
the assessment; and
g.
Estate tax cases where compromise is requested on the ground
of financial incapacity of the taxpayer. (Sec. 2, Rev. Regs. No. 30-2002)
7. When may the Commissioner of Internal Revenue
compromise the payment of any internal revenue tax ? Alternatively,
what are the grounds for a compromise, and what are the amounts
for which a compromise may be entered into ?
SUGGESTED ANSWER:
a.
A reasonable doubt as to the validity of the claim against the
taxpayer exists provided that the minimum compromise entered into is
equivalent to forty percent (40%) of the basic tax; or
b.
The financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax provided that the minimum compromise
entered into is equivalent to ten percent (10%) of the basic assessed tax
In the above instances the Commissioner is allowed to enter into a
compromise only if the basic tax involved does not exceed One million pesos
(P1,000,000.00), and the settlement offered is not less than the prescribed
percentages. [Sec. 204 (A), NIRC of 1997]
In instances where the Commissioner is not authorized, the
compromise shall be subject to the approval of the Evaluation Board
composed of the Commissioner and the four (4) Deputy Commissioners.
8. When is the Commissioner of Internal Revenue authorized
to abate or cancel a tax liability ?:
SUGGESTED ANSWER:
a. The tax or any portion thereof appears to be unjustly or excessively
assessed; or
b. The administration and collection costs involved do not justify the
collection of the amount due. [Sec. 204 (B), NIRC of 1997]
9.
The collection of a tax may not be suspended. Only the
Court of Tax Appeals may issue an order suspending the collection of a tax.
10. As a general rule, No court shall have the authority to
grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge. (Sec. 218, NIRC)
No appeal taken to the CTA from the decision of the Commissioner of
Internal Revenue or the Commissioner of Customs or the Regional Trial Court,
provincial, city or municipal treasurer or the Secretary of Finance, the
Secretary of Trade and Industry and Secretary of Agriculture, as the case may
be shall suspend the payment, levy, distraint, and/or sale of any property of
the taxpayer for the satisfaction of his tax liability as provided by existing law:
Provided, however, That when in the opinion of the Court the collection by the
aforementioned government agencies may jeopardize the interest of the
Government and/or the taxpayer the Court at any stage of the proceeding
may suspend the said collection and require the taxpayer either to deposit
the amount claimed or to file a surety bond for not more than double the
amount with the Court. (Sec. 11, Rep. Act No. 1125, as amended by Sec. 9,
Rep. Act No. 9282 )
The Supreme Court may enjoin the collection of taxes under its general
judicial power but it should be apparent that the source of the power is not
statutory but constitutional.
11. What is the procedure for suspension of collection of
taxes ?
SUGGESTED ANSWER: Where the collection of the amount of the
taxpayers liability, sought by means of a demand for payment, by levy,
distraint or sale of property of the taxpayer, or by whatever means, as
provided under existing laws, may jeopardize the interest of the government
or the taxpayer, an interested party may file a motion for the suspension of
the collection of the tax liability (Sec. 1, Rule 10, RRCTA effective December
15, 2005) with the Court of Tax Appeals.
The motion for suspension of the collection of the tax may be filed
together with the petition for review or with the answer, or in a separate
motion filed by the interested party at any stage of the proceedings. (Sec.
3, Rule 10, RRCTA effective December 15, 2005)
REFUND OF INTERNAL REVENUE TAXES
1.
What are the grounds for refund or credit of internal
revenue taxes ?
SUGGESTED ANSWER: The grounds for refund or credit or internal
revenue taxes are the following:
a.
The tax was illegally collected. There is no law that
authorizes the collection of the tax.
b.
The tax was excessively collected. There is a law that
authorizes the collection of a tax but the tax collected was more than what
the law allows.
c.
The tax was paid through a mistaken belief that the taxpayer
should pay the tax (solution indebeti)
2.
What are the three (3) conditions for the grant of a
claim for refund of creditable withholding tax ?
SUGGESTED ANSWER:
a.
The claim is filed with the Commissioner of Internal Revenue
within the two-year period from the date of the payment of the tax.
b.
It is shown on the return of the recipient that the income
payment received was declared as part of the gross income; and
c.
The fact of withholding is established by a copy of a
statement duly issued by the payee showing the amount paid and the amount
of tax withheld therefrom. (Banco Filipino Savings and Mortgage Bank v.
Court of Appeals, et al., G. R. No. 155682, March 27, 2007)
NOTES AND COMMENTS:
a.
Proof of fact of withholding. Sec. 10. Claim for tax
credit or refund. (a) Claims for Tax Credit or Refund of Income tax
deducted and withheld on income payments shall be given due course only
when it is shown on the return that the income payment received has been
declared as part of the gross income and the fact of withholding is established
by a copy of the Withholding Tax Statement duly issued by the payor to the
payee showing the amount paid and the amount of the tax withheld
therefromxxx (Rev. Regs. No. 6-85, as amended)
The document which may be accepted as evidence of the third
condition, that is, the fact of withholding, must emanate from the payor itself,
and not merely from the payee, and must indicate the name of the payor, the
income payment basis of the tax withheld, the amount of the tax withheld and
the nature of the tax paid. (Banco Filipino Savings and Mortgage Bank v.
Court of Appeals, et al., G. R. No. 155682, March 27, 2007)
3.
What should be established by a taxpayer for the
grant of a tax refund ? Why ?
a
.
a.
To afford the Commissioner an opportunity to correct his
errors or that of subordinate officers. (Gonzales v. Court of Tax Appeals, et
al., 14
SCRA79)
9.
As a
general rule the filing of an application for refund or credit with the
Bureau of Internal Revenue is an administrative precondition before a
suit
may
be
filed
with
the
Court
of
Tax
Appeals
?
SUGGEST
ED ANSWER:
S
UGGESTED
SUGGESTED ANSWER: Yes. The failure to first file a
written claim for refund or credit is not fatal to a petition for review involving
a disputed assessment where an assessment was disputed but the protest
was
carry over the excess credit or (2) to apply for the issuance of a tax credit
certificate or to claim a cash refund. If the option to carry over the excess
credit is exercised, the same shall be irrevocable for that taxable period.
In exercising its option, the corporation must signify in its annual
corporate adjustment return (by marking the option box provided in the BIR
form) its intention either to carry over the excess credit or to claim a refund.
To facilitate tax collection, these remedies are in the alternative and the
choice of one precludes the other. [Systra Philippines, Inc., v. Commissioner
of Internal Revenue, G. R. No. 176290, September 21, 2007 citing Philippine
Bank of Communications v. Commissioner of Internal Revenue, 361 Phil. 916
(1999)]
This is known as the irrevocability rule and is embodied in the last
sentence of Section 76 of the Tax Code. The phrase such option shall be
considered irrevocable for that taxable period means that the option to
carry over the excess tax credits of a particular taxable year can no longer
be revoked.
The rule prevents a taxpayer from claiming twice the excess
quarterly taxes paid: (1) as automatic credit against taxes for the taxable
quarters of the succeeding years for which no tax credit certificate has been
issued and (2) as a tax credit either for which a tax credit certificate will be
issued or which will be claimed for cash refund. (Systra Philippines, Inc.,
supra citing De Leon, Hector, THE NATIONAL INTERNAL REVENUE
CODE, Seventh Edition, 2000, p. 430)
13.
In the year 2000 Systra derived excess tax credits and
exercised the option to carry them over as tax credits for the next
taxable year. However, the tax due for the next taxable year is
lower than excess tax credits. It now applies for a refund of the
unapplied tax credits. May its refund be granted ? If the refund is
denied, does Systra lose the unapplied tax credits ? Explain briefly
your answer.
SUGGESTED ANSWER: Systras claim for refund should be
denied. Once the carry over option was made, actually or constructively, it
became forever irrevocable regardless of whether the excess tax credits
were actually or fully utilized Under Section 76 of the Tax Code, a claim for
refund of such excess credits can no longer be made. The excess credits will
only be applied against income tax due for the taxable quarters of the
succeeding taxable years.
Despite the denial of its claim for refund, Systra does not lose the
unapplied tax credits. The amount will not be forfeited in favor of the
government but will remain in the taxpayers account. Petitioner may claim
and carry it over in the succeeding taxable years, creditable against future
income tax liabilities until fully utilized. (Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007
citing Philam Asset Management, Inc. v. Commissioner of Internal Revenue,
G.R. Nos. 156637/162004, 14 December 2005, 477 SCRA 761)
Supposing in the above problem that Systra permanent
ceased operations, what happens to the unapplied credits ?
SUGGESTED ANSWER: Where, the corporation permanently ceases
its operations before full utilization of the tax credits it opted to carry over, it
may then be allowed to claim the refund of the remaining tax credits. In
such a case, the remaining tax credits can no longer be carried over and the
irrevocability rule ceases to apply. Cessante ratione legis, cessat ipse
lex. (Footnote no. 23, Systra Philippines, Inc., v. Commissioner of Internal
Revenue, G. R. No. 176290, September 21, 2007)
NOTES AND COMMENTS: The holding in State Land Investment
Corporation v. Commissioner of Internal Revenue, G. R. No. 171956,
January 18, 2008 that the taxpayer is entitled to a refund because during
the succeeding year there was no tax due against which the excess tax
credits may be applied is not doctrinal. This is so because it interpreted the
provisions of then Sec. 69 of the NIRC, which did not provide for the
irrevocability rule now contained in Sec. 76 of the NIRC of 1997.
14.
A simultaneous filing of the application with the BIR
for refund/credit and the institution of the court suit with the CTA is
allowed. There is no need to wait for a BIR denial. REASONS:
a. The positive requirement of Section 230 NIRC (now Sec. 229, NIRC
of 1997);
b. The doctrine that delay of the Commissioner in rendering decision
does not extend the peremptory period fixed by the statute;
c. The law fixed the same period two years for filing a claim for refund
with the Commissioner under Sec. 204, par. 3, NIRC (now Sec. 204 [C], NIRC
of 1997), and for filing suit in court under Sec. 230, NIRC (now Sec. 229,
NIRC of 1997), unlike in protests of assessments under Sec. 229 (now Sec.
228, NIRC of 1997), which fixed the period (thirty days from receipt of
decision) for appealing to the court, thus clearly implying that the prior
decision of the Commissioner is necessary to take cognizance of the
case. (Commissioner of Internal Revenue v. Bank of Philippine Islands, etc. et
al., CA-G.R. SP No. 34102, September 9, 1994; Gibbs v. Collector of Internal
Revenue, et al., 107 Phil, 232; Johnston Lumber Co. v. CTA, 101 Phil. 151)
15.
The grant of a refund is founded on the assumption that
the tax return is valid,i.e. that the facts stated therein are true and
correct. (Commissioner of Internal Revenue v. Court of Tax Appeals, G. R.
No. 106611, July 21, 1994, 234 SCRA 348) Without the tax return it would be
virtually impossible to determine whether the proper taxes have been
assessed and paid. After all, it is axiomatic that a claimant has the burden of
proof to establish the factual basis of his or her claim for tax credit or
refund. Tax refunds, like tax exemptions, are construed strictly against the
taxpayer. (Paseo Realty & Development Corporation v. Court of Appeals, et
al., G. R. No. 119286, October 13, 2004)
However, in BPI-Family Savings Bank v. Court of Appeals, 386 Phil.
719; 326 SCRA 641 (2000), refund was granted, despite the failure to
present the tax return, because other evidence was presented to prove that
the overpaid taxes were not applied. (Ibid.)
16. Discuss the difference between tax refund and tax
credit..
SUGGESTED ANSWER: There are unmistakable formal and practical
differences between the two modes. Formally, a tax refund requires a
physical return of the sum erroneously paid by the taxpayer, while a tax credit
involves the application of the reimbursable amount against any sum that
may be due and collectible from the taxpayer.
On the practical side, the taxpayer to whom the tax is refunded would
have the option, among others, to invest for profit the returned sum, an
option not proximately available if the taxpayer chooses instead to receive a
tax credit. (Commissioner of Customs v. Philippine Phosphate Fertilizer
Corporation, G. R. No. 144440, September 1, 2004)
NOTES AND COMMENTS: It may be that there is no essential
difference between a tax refund and a tax credit since both are moves of
recovering
taxes
erroneously
or
illegally
paid
to
the
government. (Commissioner of Customs v. Philippine Phosphate Fertilizer
Corporation, G. R. No. 144440, September 1, 2004)
17.
A bank-trustee of employee trusts filed an
application for the refund of taxes withheld on the interest incomes
of the investments made of the funds of the employees
trusts. Instead of presenting separate accounts for interest incomes
made of these investments, the bank-trustee instead presented
witness to establish that it would next to impossible to single out
the specific transactions involving the employees trust funds from
the totality of all interest income from its total investments. On the
above basis will the application for refund prosper ?
SUGGESTED ANSWER: No. The application for refund will not
prosper.
The bank-trustee needs to establish not only that the refund is
justified under the law (which is so because incomes of employees trusts
are tax exempt), but also the correct amount that should be refunded.
Tax refunds partake of the nature of tax exemptions and are thus
construed strictissimi jurisagainst the person or entity claiming the
exemption. The burden in proving the amount to be refunded necessarily
falls on the bank-trustee, and there is an apparent failure to do so.
A necessary consequence of the special exemption enjoyed alone by
employees trusts would be a necessary segregation in the accounting of
such income, interest or otherwise, earned from those trusts from that
earned by the other clients of the bank-trustee. (Far East Bank and Trust
Company, etc., v. Commissioner, etc., et al., G.R. No. 138919, May 2,
2006) The amounts that are the exempt earnings of the employees trust
has not been shown as they have been commingled with the interest income
of the other clients of the bank-trustee.
18.
CTA Circular No. 1-95 clearly requires that
photocopies of the receipts or invoices must be pre-marked and
submitted to the CTA to verify the correctness of the summary listing
and the CPA certification. CTA Circular No. 1-95, issued on 25 January
1995, reads:
1.
The party who desires to introduce as evidence such
voluminous documents must present: (a) Summary containing the total
amount/s of the tax account or tax paid for the period involved and a
chronological or numerical list of the numbers, dates and amounts covered
by the invoices or receipts; and (b) a Certification of an independent
Certified Public Accountant attesting to the correctness of the contents of the
summary after making an examination and evaluation of the voluminous
receipts and invoices. Such summary and certification must properly be
identified by a competent witness from the accounting firm.
2. The method of individual presentation of each and every receipt
or invoice or other documents for marking, identification and comparison
with the originals thereof need not be done before the Court or the
Commissioner anymore after the introduction of the summary and CPA
certification. It is enough that the receipts, invoices and other
documents covering the said accounts or payments must be premarked by the party concerned and submitted to the Court in order
In case the articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs. (Sec. 1202, TCCP) The
Bureau of Customs loses jurisdiction to enforce the TCCP and to make
seizures and forfeitures after importation is deemed terminated.
3. The flexible tariff clause is a provision in the Tariff and
Customs Code, which implements the constitutionally delegated power to
the Congress to further delegate to the President of the Philippines, in the
interest of national economy, general welfare and/or national security upon
recommendation of the NEDA (a) to increase, reduce or remove existing
protective rates of import duty, provided that, the increase should not be
higher than 100% ad valorem; (b) to establish import quota or to ban imports
of any commodity, and (c) to impose additional duty on all imports not
exceeding 10% ad valorem, among others.
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the tariff or
tax assessed upon merchandise imported from, or exported to, a foreign
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No. 134114, July 6,
2001)
5. Special customs duties are additional import duties imposed
on specific kinds of imported articles under certain conditions. The
special customs duties under the Tariff and Customs Code (TCCP) are the
anti-dumping duty, the countervailing duty, the discriminatory duty, and the
marking duty, and under the Safeguard Measures Act (SMA) additional tariffs
as safeguard measures.
6. The special customs duties are imposed for the protection of
consumers and manufacturers, as well as Philippine products.
7. Dumping duty is an additional special duty amounting to
the difference between the export price and the normal value of such
product, commodity or article (Sec. 301 (s) (1), TCC, as amended
by Rep. Act No. 8752, Anti-Dumping Act of 1999.) imposed on the
importation of a product, commodity or article of commerce into the
Philippines at less than its normal value when destined for domestic
consumption in the exporting country which is causing or is threatening to
cause material injury to a domestic industry, or materially retarding the
establishment of a domestic industry producing the like product. [Sec. 301
(s) (5), TCC, as amended by Rep. Act No. 8752, Anti-Dumping Act of 1999]
31.
How is smuggling committed ?
SUGGESTED ANSWER: Smuggling is committed by any person who:
a.
fraudulently imports or brings into the country any article
contrary to law;
b.
assists in so doing any article contrary to law; or
c.
receives, conceals, buys, sells or in any manner facilitates
the transportation, concealment or sale of such goods after importation,
knowing the same to have been imported contrary to law. (Jardeleza v.
People, G.R. No. 165265, February 6, 2006 citing Rodriguez v. Court of
Appeals, G. R. No. 115218, September 18, 1995, 248 SCRA 288, 296)
NOTES AND COMMENTS:
a.
Importation consists of bringing an article into the country
from the outside. Importation begins when the conveying vessel or aircraft
enters the jurisdiction of the Philippines with intention to unload therein.
b.
When unlawful importation is complete. In the
absence of a bona fide intent to make entry and pay duties when the
prohibited article enters the Philippine territory. Importation is complete
when the taxable, dutiable commodity is brought within the limits of the port
of entry. Entry through a custom house is not the essence of the
act. (Jardeleza v. People, G.R. No. 165265, February 6, 2006)
32. The Collector of Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear and determine all
questions touching on the seizure and forfeiture of dutiable
goods. RTCs are precluded from assuming cognizance over such
matters even through petitions of certiorari, prohibition or
mandamus. (The Bureau of Customs, et al., v. Ogario, et al., G.R. No.
138081, March 20, 2000)
What is the rationale for this doctrine ?
SUGGESTED ANSWER:
a.
Regional Trial Courts have no jurisdiction to replevin a
property which is subject to seizure and forfeiture proceedings for violation of
the Tariff and Customs Code otherwise, actions for forfeiture of property for
violation of the Customs laws could easily be undermined by the simple
device of replevin. (De la Fuente v. De Veyra, et al., 120 SCRA 455)
b.
The doctrine of exclusive customs jurisdiction over customs
cases to the exclusion of the RTCs is anchored upon the policy of placing no
unnecessary hindrance on the governments drive, not only to prevent
smuggling and other frauds upon Customs,
c.
but more importantly, to render effective and efficient the
collection of import and export duties due the State, which enables the
government to carry out the functions it has been instituted to perform. (Jao,
et al., v. Court of Appeals, et al., and companion case, 249 SCRA 35, 43)
d.
The issuance by regular courts of writs of preliminary
injunction in seizure and forfeiture proceedings before the Bureau of Customs
may arouse suspicion that the issuance or grant was for consideration other
than the strict merits of the case. (Zuno v. Cabredo, 402 SCRA 75 [2003])
e. Under the doctrine of primary jurisdiction, the Bureau of Customs
has exclusive administrative jurisdiction to conduct searches, seizures and
forfeitures of contraband without interference from the courts. It could
conduct searches and seizures without need of a judicial warrant except if the
search is to be conducted in a dwelling place.
Where an administrative office has obtained a technical expertise in a
specific subject, even the courts must defer to this expertise.
NOTES AND COMMENTS: The Bureau of Customs could search and
seize articles without need of a judicial warrant unless the place to be
searched is a dwelling place. In such a case customs requires a judicial
warrant.
33.
A claiming to be the owner of a vessel which is the
subject of customs warrant of seizure and detention sought the
intercession of the RTC to restrain the Bureau of Customs from
interfering with his property rights over the vessel. Would the suit
prosper?
SUGGESTED ANSWER: No. His remedy was not with the RTC but
with the CTA, as issues of ownership of goods in the custody of customs
officials are within the power of the CTA to determine.
The Collector of Customs has exclusive jurisdiction over seizure and
forfeiture proceedings and trial courts are precluded from assuming
cognizance over such matters even through petitions for certiorari,
prohibition or mandamus. (Commissioner of Customs v. Court of Appeals,
et al., G. R. Nos. 111202-05, January 31, 2006)
34.
The customs authorities do not have to prove to the
satisfaction of the court that the articles on board a vessel were
imported from abroad or are intended to be shipped abroad before
they may exercise the power to effect customs searches, seizures, or
arrests provided by law and continue with the administrative
hearings. (The Bureau of Customs, et al., v. Ogario, et al., G.R. No. 138081,
March 20, 2000)
35. The Tariff and Customs Code allows the Bureau of Customs to
resort to the administrative remedy of seizure, such as by enforcing
the tax lien on the imported article when the imported articles could
be found and be subject to seizure and forfeiture.
36. The Tariff and Customs Code allows the Bureau of Customs to
resort to the judicial remedy of filing an action in court when the
imported articles could not anymore be found.
37. Section 2301 of the TCCP states that seized articles may
not be released under bond if there is prima facie evidence of fraud
in their importation. Commissioner of Customs v. Court of Tax Appeals, et
al., G. R. No. 171516-17, February 13, 2009
Section 2301. Warrant for Detention of Property-Cash Bond. Upon
making any seizure, the Commissioner shall issue a warrant for the
detention of the property; and if the owner or importer desires to secure the
release of the property for legitimate use, the Collector shall, with the
approval of the Commissioner of Customs, surrender it upon the filing of a
cash bond, in an amount fixed by him, conditioned upon the payment of the
appraised value of the article and/or any fine, expenses and costs which may
be adjudged in the case: Provided, That such importation shall not be
released under any bond when there is prima facie evidence of fraud
in the importation of the article: Provided,further, That articles the
importation of which is prohibited by law shall not be released under any
circumstances whatsoever: Provided, finally, That 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 article. (emphasis supplied)
38.
Instances where there is no right of redemption of
seized and forfeited articles:
a.
There is fraud;
b.
The importation is absolutely prohibited, or
c.
The release of the property would be contrary to
law. (Transglobe International, Inc. v. Court of Appeals, et al., G.R. No.
126634, January 25, 1999)
39.
In Aznar v. Court of Tax Appeals, 58 SCRA 519, reiterated
in Farolan, Jr. v. Court of Tax appeals, et al., 217 SCRA 298, the Supreme
Court clarified that the fraud contemplated by law must be actual and
8.
Taxing power of the local government is limited. The
taxing power of local governments is limited in the sense that Congress can
enact legislation granting tax exemptions.
While the system of local government taxation has changed with the
onset of the 1987 Constitution, the power of local government units to tax is
still limited.
While the power to tax by local governments may be exercised by
local legislative bodies, no longer merely be virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of
the Constitution, the basic doctrine on local taxation remains essentially the
same, the power to tax is [still] primarily vested in the Congress. (Quezon
City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169
in turn referring to Mactan Cebu International Airport Authority, v.
Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA 667, 680)
9.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the fiscal
position of municipal corporations? Section 5 does not change the doctrine
that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general power
to levy taxes and otherwise create sources of revenue. They no longer have
to wait for a statutory grant of these powers. The power of the legislative
authority relative to the fiscal powers of local governments has been reduced
to the authority to impose limitations on municipal powers. Moreover, these
limitations must be consistent with the basic policy of local autonomy. The
important legal effect of Section 5 is thus to reverse the principle that doubts
are resolved against municipal corporations. Henceforth, in interpreting
statutory provisions on municipal fiscal powers, doubts will be resolved in
favor of municipal corporations. It is understood, however, that taxes
imposed by local government must be for a public purpose, uniform within a
locality, must not be confiscatory, and must be within the jurisdiction of the
local unit to pass. (Quezon City, et al., v. ABS-CBN Broadcasting
Corporation, G. R. No. 166408, October 6, 2008 citing City Government of
Quezon City, et al. v. Bayan Telecommunications, Inc., G.R. No. 162015,
March 6, 2006, 484 SCRA 169)
10.
Reconciliation of the local governments authority to
tax and the Congressional general taxing power. Congress has the
inherent power to tax, which includes the power to grant tax
are:
a.
Appraisal at current and fair market value;
b.
Classification for assessment on the basis of actual use;
c.
Assessment on the basis of uniform classification;
d.
Appraisal, assessment, levy and collection shall not be let to
a private person;
e.
Appraisal and assessment shall be equitable.
NOTES AND COMMENTS: Real properties shall be appraised at the
current and fair market value prevailing in the locality where the property is
situated and classified for assessment purposes on the basis of its actual
use. (Allied Banking Corporation, etc., v. Quezon City Government, et al., G.
R. No. 154126, October 11, 2005)
2.
The reasonable market value is determined by the
assessor in the form of a schedule of fair market values.
The schedule is then enacted by the local sanggunian.
3.
Fair market value is the price at which a property may
be sold by a seller who is not compelled to sell and bought by a buyer
who is not compelled to buy, taking into consideration all uses to which
the property is adopted and might in reason be applied.
The criterion established by the statute contemplates a hypothetical
sale. Hence, the buyers need not be actual and existing purchasers. (Allied
Banking Corporation, etc., v. Quezon City Government, et al.,G. R. No.
154126, October 11, 2005 )
NOTES AND COMMENTS: In fixing the value of real property,
assessors have to consider all the circumstances and elements of value and
must exercise prudent discretion in reaching conclusions. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,
October 11, 2005)
Preparation of fair market values:
a.
The city or municipal assessor shall prepare a schedule of
fair market values for the different classes of real property situated in their
respective Local Government Units for the enactment of an ordinance by
the sanggunian concerned; and
b. The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality
concerned or the posting in the provincial capitol or other places as required
by law. (Lopez v. City of Manila, et al., G.R. No. 127139, February 19, 1999)
Proposed fair market values of real property in a local
government unit as well as the ordinance containing the schedule
must be published in full for three (3) consecutive days in a newspaper of
local circulation, where available, within ten (10) days of its approval, and
posted in at lease two (2) prominent places in the provincial capitol, city,
municipal or barangay hall for a minimum of three (3) consecutive
weeks. (Figuerres v. Court of Appeals, et al,. G.R. No. 119172, March 25,
1999)
4.
Approaches in estimating the fair market value of real
property for real property tax purposes ?
a.
Sales Analysis Approach. The sales price paid in actual
market transactions is considered by taking into account valid sales data
accumulated from among the Registrar of Deeds, notaries public, appraisers,
brokers, dealers, bank officials, and various sources stated under the Local
Government Code.
b.
Income Capitalization Approach. The value of an incomeproducing property is no more than the return derived from it. An analysis of
the income produced is necessary in order to estimate the sum which might
be invested in the purchase of the property.
c.
Reproduction cost approach is a formal approach used
exclusively n appraising man-made improvements such as buildings and other
structures, based on such data as materials and labor costs to reproduce a
new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the data
gathered to arrive at the estimated fair market value to be included in the
ordinance containing the schedule of fair market values. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,
October 11, 2005 citing Local Assessment Regulations No. 1-92)
5. An ordinance whereby the parcels of land sold, ceded,
transferred and conveyed for remuneratory consideration after the
effectivity of this revision shall be subject to real estate tax based on
the actual amount reflected in the deed of conveyance or the current
approved zonal valuation of the Bureau of Internal Revenue
prevailing at the time of sale, cession, transfer and conveyance,
whichever is higher, as evidenced by the certificate of payment of the
capital gains tax issued therefore is INVALID being contrary to public
policy and for restraining trade for the following reasons:
a.
It mandates an exclusive rule in determining the fair market
value and departs from the established procedures such as the sales analysis
approach, the income capitalization approach and the reproduction approach
provided under the rules implementing the statute. It unduly interferes with
the duties statutorily placed upon the local assessor by completely dispensing
with his analysis and discretion which the Local Government Code and the
regulations require to be exercised. An ordinance that contravenes any
statute is ultra vires and void.
b.
The consideration approach in the ordinance is illegal since
the appraisal, assessment, levy and collection of real property tax shall not
be let to any private person, it will also completely destroy the fundamental
principle in real property taxation that real property shall be classified,
valued and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it. Allowing the parties to a
private sale to dictate the fair market value of the property will dispense with
the distinctions of actual use stated in the Local Government Code and in the
regulations.
c.
The invalidity is not cured by the prhase whichever is
higher because an integral part of that system still permits valuing real
property in disregard of its actual use.
d.
The ordinance would result to real property assessments
more than once every three (3) years and that is not the congressional intent
as shown in the provisions of the Local Government Code and the
regulations. Consequently, the real property tax burden should not be
interpreted to include those beyond what the Code or the regulations
expressly clearly state.
e.
The proviso would provide a chilling effect on real property
owners or administrators to enter freely into contracts reflecting the
increasing value of real properties in accordance with prevailing market
conditions.
While the Local Government Code provides that the assessment of real
property shall not be increased once every three (3) years, the questioned
proviso subjects the property to a higher assessment every time a sales
transaction is made. Real property owners would therefore postpone sales
until after the lapse of the three (3) year period, or if they do so within the
said period they shall be compelled to dispose of the property at a price not
exceeding the last prior conveyance in order to avoid a higher tax
assessment.
In the above two scenarios real property owners are effectively
prevented from obtaining the best price possible for their properties and
unduly hampers the equitable distribution of wealth. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,
October 11, 2005)
6. Examples of personal property under the civil law that
may be considered as real property for purposes of taxes. Personal
property under the civil law may be considered as real property for purposes
of taxes where the property is essential to the conduct of the business.
a.
Underground tanks are essential to the conduct of the
business of a gasoline station without which it would not be
operational. (Caltex Phils., Inc. v. Central Board of Assessment Appeals, et
al., 114 SCRA 296)
b. Light Rail Transit (LRT) improvements such as buildings,
carriageways, passenger terminals stations, and similar structures do not
form part of the public roads since the former are constructed over the latter
in such a way that the flow of vehicular traffic would not be impaired. The
carriageways and terminals serve a function different from the public
roads. Furthermore, they are not open to use by the general public hence not
exempt from real property taxes.
Even granting that the national
government owns the carriageways and terminal stations, the property is not
exempt because their beneficial use has been granted to LRTA a taxable
entity. (Light Rail Transit Authority v. Central Board of Assessment Appeals,
et al., G. R. No. 127316, October 12, 2000)
c.
Barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel
oil to the power plant barges, and the accessory equipment mounted on the
barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that [d]ocks and
structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast are considered immovable
property by destination being intended by the owner for an industry or work
which may be carried on in a building or on a piece of land and which tend
directly to meet the needs of said industry or work. (FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and companion
case)
7. Unpaid realty taxes attach to the property and is chargeable
against the person who had actual or beneficial use and possession of
it regardless of whether or not he is the owner. To impose the real
property tax on the subsequent owner which was neither the owner not the
beneficial user of the property during the designated periods would not only
be contrary to law but also unjust.
Consequently, MERALCO the former owner/user of the property was
required to pay the tax instead of the new owner NAPOCOR. (Manila Electric
Company v. Barlis, G.R. No. 114231, May 18, 2001)
NOTES AND COMMENTS: The above May 18, 2001 decision was set
aside by the Supreme Court when it granted the petitioners second motion
for reconsideration on June 29, 2004. The author submits that the above
ruling in the May 18, 2001 decision is still valid, not on the basis of the May
18, 2001 decision but in the light of pronouncements of the Supreme Court in
other cases. Thus, do not cite the doctrine as emanating from the May 18,
2001 decision.
8. Secretary of Justice can take cognizance of a case involving
the constitutionality or legality of tax ordinances where there are
e.
The adverse decision of the Local Board of Assessment
Appeals should be appealed within thirty (30) days from receipt to the Central
Board of Assessment Appeals.
f. The adverse decision of the Central Board of Assessment Appeals
shall be appealed to the Court of Tax Appeals (En Banc) by means of a
petition for review within thirty (30) days from receipt of the adverse decision.
g.
The decision of the CTA may be the subject of a motion for
reconsideration or new trial after which an appeal may be interposed by
means of a petition for review on certiorari directed to the Supreme Court on
pure questions of law within a period of fifteen (15) days from receipt
extendible for a period of thirty (30) days.
18.
The entitlement to a tax refund does not necessarily
call for the automatic payment of the sum claimed. The amount of the
claim being a factual matter, it must still be proven in the normal course and
in accordance with the administrative procedure for obtaining a refund of real
property taxes, as provided under the Local Government Code. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, September 15, 2006)
NOTES AND COMMENTS: In the above Allied Banking case, the
Supreme Court provided for the starting date of computing the two-year
prescriptive period within which to file the claim with the Treasurer, which is
from finality of the Decision. The procedure to be followed is that shown
below.
19.
Procedure for refund of real property taxes based on
validity of the tax measure or solutio indebeti.
a.
Payment under protest not required, claim must be directed
to the local treasurer, within two (2) years from the date the taxpayer is
entitled to such reduction or readjustment, who must decide within sixty (60)
days from receipt.
b.
The denial by the local treasurer of the protest would fall
within the Regional Trial Courts original jurisdiction, the review being the
initial judicial cognizance of the matter. Despite the language of Section 195
of the Local Government Code which states that the remedy of the taxpayer
whose protest is denied by the local treasurer is to appeal with the court of
competent jurisdiction, labeling the said review as an exercise of appellate
jurisdiction is inappropriate since the denial of the protest is not the judgment
or order of a lower court, but of a local government official. (Yamane , etc. v.
BA Lepanto Condominium Corporation, G. R. No. 154993, October 25, 2005)
c.
The decision of the Regional Trial Court should be appealed
by means of a petition for review directed to the Court of Tax Appeals
(Division).
d.
The decision of the Court of Tax Appeals (Division) may be
the subject of a review by the Court of Tax Appeals (en banc).
e.
The decision of the Court of Tax Appeals (en banc) may be
the subject of a petition for review on certiorari on pure questions of law
directed to the Supreme Court.
20.
Charitable institutions, churches and parsonages
or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings and improvements that are actually, directly
and exclusively used for religious, charitable or educational purposes
are exempt from taxation. [Sec.28 (3) Article VI, 1987 Constitution]
21.
The constitutional tax exemptions refer only to
real property that are actually, directly and exclusively used for religious,
charitable or educational purposes, and that the only constitutionally
recognized exemption from taxation of revenues are those earned by nonprofit, non-stock educational institutions which are actually, directly and
exclusively used for educational purposes.(Commissioner of Internal Revenue
v. Court of Appeals, et al., 298 SCRA 83)
The constitutional tax exemption covers property taxes only. What is
exempted is not the institution itself, those exempted from real estate taxes
are lands, buildings and improvements actually, directly and exclusively used
for religious, charitable or educational purposes. (Lung Center of the
Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
22.
The 1935 Constitution stated that the lands, buildings,
and improvements are used exclusively but the present
Constitution requires that the lands, buildings and improvements are
actually, directly and exclusively used. The change should not be
ignored. Reliance on past decisions would have sufficed were the words
actually as well as :directly are not added. There must be proof therefore
of the actual and direct use to be exempt from taxation. (Lung Center of the
Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
23. The actual, direct and exclusive use of the property for
charitable purposes is the direct and immediate and actual
application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property
e.
Machinery and equipment used for pollution control and
environmental protection.
27. Manila International Airport Authority (MIAA) it is not a
government owned or controlled corporation but an instrumentality
of the government that is exempt from taxation.
It is not a stock corporation because its capital is not divided into
shares, neither is it a non-stock corporation because there are no
members. It is instead an instrumentality of the government upon which
the local governments are not allowed to levy taxes, fees or other charges.
An instrumentality refers to any agency of the National
Government, not integrated within the department framework vested with
special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes regulatory agencies
chartered
institutions
and
government-owned
or
controlled
corporations. [Sec. 2 (10), Introductory Provisions, Administrative Code of
1987] It is an instrumentality exercising not only governmental but also
corporate powers. It exercises governmental powers of eminent domain,
police power authority, and levying of fees and charges.
Finally, the airport lands and buildings are property owned by the
government that are devoted to public use and are properties of the public
domain. (Manila International Airport Authority v. City of Pasay, et al., G. R.
No. 163072, April 2, 2009)
28.
A telecommunications company was granted by
Congress on July 20, 1992, after the effectivity of the Local
Government Code on January 1, 1992, a legislative franchise with
tax exemption privileges which partly reads, The grantee, its
successors or assigns shall be liable to pay the same taxes on their
real estate, buildings and personal property, exclusive of this
franchise, as other persons or corporations are now or hereafter may
be required by law to pay. This provision existed in the companys
franchise prior to the effectivity of the Local Government Code. A
City then enacted an ordinance in 1993 imposing a real property on
all real properties located within the city limits, and withdrawing all
tax exemptions previously granted. Among properties covered are
those owned by the company from which the City is now collecting
P43 million. The properties of the company were then scheduled by
the City for sale at public auction.