VIII.

On April 30, 2015, Daryl resigned as the production manager of 52nd Avenue, a television
studio owned by SSS Entertainment Corporation. 52nd Avenue issued to her a Certificate of
Withholding Tax on Compensation (BIR Form No. 2316), which showed that the tax withheld
from her compensation was equal to her income tax due for the period from January 2015 to
April 30 2015.

A month after her resignation, Daryl put up her own studio and started producing short films.
She was able to earn a meager income from her short films but did not keep record of her
production expenses.

Is Daryl qualified for substituted filing for taxable year 2015? Explain your answer. (3%)

No, Daryl is no longer qualified under the "substituted filing" of Annual ITR for the year 2015 because
she is also classified as "with business" for the same year. Under the Revenue Regulation no. 3-2002, an
employee to be classified under the "substituted filing," he must be purely receiving compensation
income or purely deriving income from employment with only one employer within a taxable year.

In the given case, the individual taxpayer is a mixed income earner, having earned compensation income
in the months of January to April, and business income in the succeeding months of the same taxable
year. Hence, even if there was proper and exact withholding on her compensation income, she is no
longer qualified under substituted filing.

Note:
Revenue Regulation no. 3-2002, substituted tax filing only applies to employees who meet all the
following conditions:
(1) Employee receives purely compensation income (regardless of amount) during the taxable year;
(2) Employee receives income from a single employer in the Philippines during the taxable year;
(3) The amount of tax due from the employee at the end of the year equals the amount of tax
withheld by the employer;
(4) If married, the employee’s spouse also complies with all three aforementioned conditions, or
otherwise receives no income;
(5) The employer files BIR Form 1604CF; and
(6) Employee has BIR Form 2316 or Certificate of Final Tax Withheld At Source (BIR Form 2306)
issued by his employer.
 XVIII.

a. Distinguish outright smuggling from technical smuggling. (3%)

Under RA 10863 or “Customs Modernization and Tariff Act (GMTA),” Outright Smuggling refers to an act
of importing goods into the country without complete customs prescribed importation documents, or
without being cleared by customs or other regulatory government agencies, for the purpose of evading
payment of prescribed taxes, duties and other government charges.

On the other hand, Technical Smuggling refers to the act of importing goods into the country by means
of fraudulent, falsified or erroneous declaration of the goods to its nature, land, quality, quantity or
weight, for the purpose of reducing or avoiding payment of prescribed taxes, duties and other charges.

The difference between outright smuggling and technical smuggling lies in the use or non-use of legal
trade channels when bringing the goods into the country. Outright smuggling bypasses the usual and
normal procedure and process of clearing the cargo at the BoC, while technical smuggling involves
fraudulent acts during the processing and releasing of the goods. In both instances, however, the
ultimate objective is to evade the payment of the prescribed taxes, duties and other charges.

b. Distinguish compromise from abatement of taxes. (3%)

Section 204 of the NIRC provides two remedies for the taxpayer: compromise and abatement.

PAYMENT: Compromise involves the payment of a certain percentage of the tax liability, amount
prescribed by law and regulation; while abatement means cancellation of any liability so there will be no
payment of the tax liability.

GROUNDS: Paying any internal revenue tax may be compromised when there is (1) reasonable doubt as
to the validity of the claim against the taxpayer, or (2) the financial position of the taxpayer demonstrates
a clear inability to pay the assessed tax.
On the other hand, abatement or cancelation of tax liability may be made when (1) the tax or any
portion thereof appears to be unjustly or excessively assessed or (2) the administration and collection
costs involved do not justify the collection of the amount due.