Professional Documents
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GENERAL PRINCIPLES
b. Regulation As in the case of taxes levied
I. Concepts, Nature and Characteristics of on excises and privileges like those imposed in
Taxation and Taxes. tobacco or alcoholic products or amusement
places like night clubs, cabarets, cockpits, etc.
In the case of Caltex Phils. Inc. vs COA
Taxation Defined: (G.R. No. 92585, May 8, 1992), it was held that
taxes may also be imposed for a regulatory
As a process, it is a means by which the purpose as, for instance, in the rehabilitation and
sovereign, through its law-making body, raises stabilization of a threatened industry which is
revenue to defray the necessary expenses of the affected with public industry like the oil industry.
government. It is merely a way of apportioning
the costs of government among those who in c. Reduction of Social Inequality this is
some measures are privileged to enjoy its made possible through the progressive system of
benefits and must bear its burdens. taxation where the objective is to prevent the
under-concentration of wealth in the hands of few
As a power, taxation refers to the inherent individuals.
power of the state to demand enforced
contributions for public purpose or purposes.
d. Encourage Economic Growth in the
realm of tax exemptions and tax reliefs, for
Rationale of Taxation - The Supreme Court
instance, the purpose is to grant incentives or
held:
exemptions in order to encourage investments
It is said that taxes are what we pay for
and thereby promote the countrys economic
civilized society. Without taxes, the government
growth.
would be paralyzed for lack of the motive power
to activate and operate it. Hence, despite the
natural reluctance to surrender part of ones e. Protectionism in some important sectors
hard-earned income to the taxing authorities, of the economy, as in the case of foreign
every person who is able must contribute his importations, taxes sometimes provide protection
share in the running of the government. The to local industries like protective tariffs and
government for its part is expected to respond in customs.
the form of tangible and intangible benefits
intended to improve the lives of the people and Taxes Defined
enhance their moral and material values. The
symbiotic relationship is the rationale of Taxes are the enforced proportional
taxation and should dispel the erroneous notion contributions from persons and property levied
that it is an arbitrary method of exaction by those by the law-making body of the State by virtue of
in the seat of power. its sovereignty for the support of government and
Taxation is a symbiotic relationship, for public needs.
whereby in exchange for the protection that the
citizens get from the government, taxes are Essential Characteristic of Taxes [ LEMP3S ]
paid. (Commissioner of Internal Revenue vs
Allegre, Inc.,et al., L-28896, Feb. 17, 1988) 1. It is levied by the law-making body of the
State
Purposes and Objectives of Taxation The power to tax is a legislative power
which under the Constitution only Congress can
1. Revenue to provide funds or property with exercise through the enactment of laws.
which the State promotes the general welfare Accordingly, the obligation to pay taxes is a
and protection of its citizens. statutory liability.
Tax is a pecuniary burden an exaction to a. It does not mean that only those who are
be discharged alone in the form of money which able to pay and do pay taxes can enjoy the
must be in legal tender, unless qualified by law, privileges and protection given to a citizen by the
such as RA 304 which allows backpay certificates government.
as payment of taxes. b. From the contributions received, the
government renders no special or commensurate
4. It is proportionate in character - It is benefit to any particular property or person.
ordinarily based on the taxpayers ability to pay. c. The only benefit to which the taxpayer is
entitled is that derived from his enjoyment of the
5. It is levied on persons or property - A tax privileges of living in an organized society
may also be imposed on acts, transactions, rights established and safeguarded by the devotion of
or privileges. taxes to public purposes. (Gomez vs Palomar, 25
SCRA 829)
6. It is levied for public purpose or purposes - d. A taxpayer cannot object to or resist the
Taxation involves, and a tax constitutes, a burden payment of taxes solely because no personal
to provide income for public purposes. benefit to him can be pointed out as arising from
the tax. (Lorenzo vs Posadas, 64 Phil 353)
7. It is levied by the State which has jurisdiction
over the persons or property. - The persons, 3. Lifeblood Theory
property or service to be taxed must be subject Taxes are the lifeblood of the government,
to the jurisdiction of the taxing state. being such, their prompt and certain availability
is an imperious need. (Collector of Internal
Revenue vs. Goodrich International Rubber Co.,
Theory and Basis of Taxation Sept. 6, 1965) Without taxes, the government
would be paralyzed for lack of motive power to
1. Necessity Theory activate and operate it.
Taxes proceed upon the theory that the
existence of the government is a necessity; that
it cannot continue without the means to pay its Nature of Taxing Power
expenses; and that for those means, it has the
right to compel all citizens and properties within 1. Inherent in sovereignty The power of
its limits to contribute. taxation is inherent in sovereignty as an incident
In a case, the Supreme Court held that: or attribute thereof, being essential to the
Taxation is a power emanating from existence of every government. It can be
necessity. It is a necessary burden to preserve exercised by the government even if the
the States sovereignty and a means to give the Constitution is entirely silent on the subject.
citizenry an army to resist aggression, a navy to a. Constitutional provisions relating to the
defend its shores from invasion, a corps of civil power of taxation do not operate as grants of the
servants to serve, public improvements designed power to the government. They merely constitute
for the enjoyment of the citizenry and those limitations upon a power which would otherwise
which come with the States territory and be practically without limit.
facilities, and protection which a government is b. While the power to tax is not expressly
supposed to provide. (Phil. Guaranty Co., Inc. vs provided for in our constitutions, its existence is
Commissioner of Internal Revenue, 13 SCRA recognized by the provisions relating to taxation.
775). In the case of Mactan Cebu International
Airport Authority vs Marcos, Sept. 11, 1996, as an
2. The Benefits-Protection Theory incident of sovereignty, the power to tax has
The basis of taxation is the reciprocal duty been described as unlimited in its range,
of protection between the state and its acknowledging in its very nature no limits, so that
inhabitants. In return for the contributions, the security against its abuse is to be found only in
taxpayer receives the general advantages and the responsibility of the legislative which imposes
protection which the government affords the the tax on the constituency who are to pay it.
taxpayer and his property.
2. Legislative in character The power to tax
is exclusively legislative and cannot be exercised
Qualifications of the Benefit-Protection by the executive or judicial branch of the
Theory: government.
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3. Subject to constitutional and inherent for which the taxing power may be used but the
limitations Although in one decided case the degree of vigor with which the taxing power may
Supreme Court called it an awesome power, the be employed in order to raise revenue (I Cooley
power of taxation is subject to certain limitations. 179-181)
Most of these limitations are specifically provided
in the Constitution or implied therefrom while the Constitutional Restraints Re: Taxation
rest are inherent and they are those which spring is the Power to Destroy
from the nature of the taxing power itself While taxation is said to be the power to
although, they may or may not be provided in the destroy, it is by no means unlimited. It is equally
Constitution. correct to postulate that the power to tax is
not the power to destroy while the Supreme
Court sits, because of the constitutional
Scope of Legislative Taxing Power [S2 A P K A restraints placed on a taxing power that violated
M] fundamental rights.
In the case of Roxas, et al vs CTA (April
1. subjects of Taxation (the persons, property 26, 1968), the SC reminds us that although the
or occupation etc. to be taxed) power of taxation is sometimes called the power
2. amount or rate of the tax to destroy, in order to maintain the general
3. purposes for which taxes shall be levied publics trust and confidence in the Government,
provided they are public purposes this power must be used justly and not
4. apportionment of the tax treacherously. The Supreme Court held:
5. situs of taxation The power of taxation is sometimes
6. method of collection called also the power to destroy. Therefore it
should be exercised with caution to minimize
Is the Power to Tax the Power to Destroy? injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly,
In the case of Churchill, et al. vs lest the tax collector kill the hen that lays the
Concepcion (34 Phil 969) it has been ruled that: golden egg. And, in order to maintain the general
The power to impose taxes is one so public trust and confidence in the Government
unlimited in force and so searching in extent so this power must be used justly and not
that the courts scarcely venture to declare that it treacherously.
is subject to any restriction whatever, except The doctrine seeks to describe, in an
such as rest in the discretion of the authority extreme, the consequential nature of taxation
which exercise it. No attribute of sovereignty is and its resulting implications, to wit:
more pervading, and at no point does the power a. The power to tax must be exercised with
of government affect more constantly and caution to minimize injury to proprietary rights of
intimately all the relations of life than through the a taxpayer;
exaction made under it. b. If the tax is lawful and not violative of any of
And in the notable case of McCulloch vs the inherent and constitutional limitations, the
Maryland, Chief Justice Marshall laid down the fact alone that it may destroy an activity or
rule that the power to tax involves the power object of taxation will not entirely permit the
to destroy. courts to afford any relief; and
According to an authority, the above c. A subject or object that may not be
principle is pertinent only when there is no power destroyed by the taxing authority may not
to tax a particular subject and has no relation to a likewise be taxed. (e.g. exercise of a
case where such right to tax exists. This opt- constitutional right)
quoted maxim instead of being regarded as a
blanket authorization of the unrestrained use of Power of Judicial Review in Taxation
the taxing power for any and all purposes, The courts cannot review the wisdom or
irrespective of revenue, is more reasonably advisability or expediency of a tax. The courts
construed as an epigrammatic statement of the power is limited only to the application and
political and economic axiom that since the interpretation of the law.
financial needs of a state or nation may outrun Judicial action is limited only to review
any human calculation, so the power to meet where involves:
those needs by taxation must not be limited even 1. The determination of validity on the tax in
though the taxes become burdensome or relation to constitutional precepts or provisions.
confiscatory. To say that the power to tax is the 2. The determination, in an appropriate case, of
power to destroy is to describe not the purposes the application of the law.
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II. Classifications and Distinction 2. When the transaction itself is the one that is
tax-exempt but through error the seller pays the
Classification of Taxes tax and shifts the same to the buyer, the seller
gets the refund, but must hold it in trust for
A. As to Subject matter buyer. (American Rubber Co. case, L-10963, April
30, 1963)
1. Personal, capitation or poll taxes taxes
of fixed amount upon all persons of a certain 3. Where the exemption from indirect tax is
class within the jurisdiction of the taxing power given to the contractee, but the evident intention
without regard to the amount of their property or is to exempt the contractor so that such
occupations or businesses in which they may be contractor may no longer shift or pass on any tax
engaged in. to the contractee, the contractor may claim tax
example: community tax exemption on the transaction (Commissioner of
Internal Revenue vs John Gotamco and Sons, Inc.,
2. Property Taxes taxes on things or property et.al., L-31092, Feb. 27, 1987)
of a certain class within the jurisdiction of the
taxing power. 4. When the law granting tax exemption
example: real estate tax specifically includes indirect taxes or when it is
clearly manifest therein that legislative intention
3. Excise Taxes charges imposed upon the to exempt embraces indirect taxes, then the
performance of an act, the enjoyment of a buyer of the product or service sold has a right to
privilege, or the engaging in an occupation. be reimbursed the amount of the taxes that the
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Tax vs
4. Proportionate Tax tax rates are fixed on a Penalty
flat tax base.
1. generally intended 1. designed to regulate
examples: real estate tax, VAT, and other
to raise revenue conduct
percentage taxes
2. imposed only by the 2. imposed by the
government government or private
individuals or entities
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4. generally not subject 4. may be subject to 2. Revenue refers to all the funds or income
to set-off or set-off or compensation derived by the government, whether from tax or
compensation from whatever source and whatever manner.
5. imprisonment is a 5. no imprisonment for
sanction for non- non-payment of debt 3. Customs Duties taxes imposed on goods
payment of tax except exported from or imported into a country. The
poll tax term taxes is broader in scope as it includes
6. governed by special 6. governed by the customs duties.
prescriptive periods ordinary periods of
provided for in the Tax prescriptions 4. Tariff it may be used in 3 senses:
Code a. As a book of rates drawn usually in
7. does not draw 7. draws interest when alphabetical order containing the names of
interest except only so stipulated, or in case several kinds of merchandise with the
when delinquent of default corresponding duties to be paid for the same.
b. As duties payable on goods imported or
General Rule: Taxes are not subject to set-off or exported (PD No. 230)
legal compensation. The government and the c. As the system or principle of imposing duties
taxpayer are not creditors and debtors or each on the importation/exportation of goods.
other. Obligations in the nature of debts are due
to the government in its corporate capacity, while 5. Internal Revenue refers to taxes imposed
taxes are due to the government in its sovereign by the legislative other than duties or imports
capacity (Philex Mining Corp. vs CIR, 294 SCRA and exports.
687; Republic vs Mambulao Lumber Co., 6 SCRA
622)
6. Margin Fee a currency measure designed to
stabilize the currency.
Exception: Where both the claims of the
government and the taxpayer against each other
have already become due and demandable as 7. Tribute synonymous with tax; taxation
well as fully liquated. (see Domingo vs Garlitos, L- implies tribute from the governed to some form
18904, June 29, 1963) of sovereignty.
a. If taxation is for a public purpose, the tax b. Administrative Feasibility tax laws should
must be used: be capable of convenient, just and effective
a.1) for the support of the state or administration.
a.2) for some recognized objects of
governments or c. Theoretical Justice the tax burden should
a.3) directly to promote the welfare be in proportion to the taxpayers ability to pay
of the community (taxation as an implement (ability-to-pay principle). The 1987 Constitution
of police power) requires taxation to be equitable and uniform.
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a. Basis: Sec. 10 Art. III. No law impairing quotas, tonnage and wharfage dues, and
the obligation of contract shall be passed. other duties or imposts within the framework
b. Important Points to Consider: of the national development program of the
1. A law which changes the terms of the government.
contract by making new conditions, or changing
those in the contract, or dispenses with those 10. Tax Exemption of Properties
expressed, impairs the obligation. Actually, Directly and Exclusively used for
2. The non-impairment rule, however, Religious, Charitable and Educational
does not apply to public utility franchise since a Purposes
franchise is subject to amendment, alteration or
repeal by the Congress when the public interest a. Basis: Sec. 28(3) Art. VI. Charitable
so requires. institutions, churches and parsonages or
convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, building,
7. Non-imprisonment for non-payment of and improvements actually, directly and
poll tax exclusively used for religious, charitable or
educational purposes shall be exempt from
a. Basis: Sec. 20 Art. III. No person shall be taxation.
imprisoned for debt or non-payment of poll b. Important Points to Consider:
tax. 1. Lest of the tax exemption: the use
b. Important Points to Consider: and not ownership of the property
1. The only penalty for delinquency in 2. To be tax-exempt, the property
payment is the payment of surcharge in the form must be actually, directly and exclusively used
of interest at the rate of 24% per annum which for the purposes mentioned.
shall be added to the unpaid amount from due 3. The word exclusively means
date until it is paid. (Sec. 161, LGC) primarily.
2. The prohibition is against 4. The exemption is not limited to
imprisonment for non-payment of poll tax. property actually indispensable but extends to
Thus, a person is subject to imprisonment for facilities which are incidental to and reasonably
violation of the community tax law other than for necessary for the accomplishment of said
non-payment of the tax and for non-payment of purposes.
other taxes as prescribed by law. 5. The constitutional exemption
applies only to property tax.
8. Origin or Revenue, Appropriation and 6. However, it would seem that under
Tariff Bills existing law, gifts made in favor or religious
charitable and educational organizations would
a. Basis: Sec. 24 Art. VI. All appropriation, nevertheless qualify for donors gift tax
revenue or tariff bills, bill authorizing exemption. (Sec. 101(9)(3), NIRC)
increase of the public debt, bills of local
application, and private bills shall originate 11. Voting Requirements in
exclusively in the House of Representatives, connection with the Legislative Grant for
but the Senate may propose or concur with tax exemption
amendments.
b. Under the above provision, the Senators a. Basis: Sec. 28(4) Art. VI. No law granting
power is not only to only concur with any tax exemption shall be passed without
amendments but also to propose the concurrence of a majority of all the
amendments. (Tolentino vs Sec. of Finance, members of the Congress.
supra) b. The above provision requires the
concurrence of a majority not of attendees
9. Delegation of Legislative Authority to constituting a quorum but of all members of
Fix Tariff Rates, Imports and Export Quotas the Congress.
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and apportion the jurisdiction of the various ROTC, etc. fees, but it also extends to incidental
courts but may not deprive the Supreme income derived from canteen, bookstore and
Court of its jurisdiction over cases dormitory facilities.
enumerated in Sec. 5 hereof. 2. In the case, however, of incidental income,
Sec. 5 (2b) Art. VIII. The Supreme the facilities mentioned must not only be owned
Court shall have the following powers: x x and operated by the school itself but such
x(2) Review, revise, modify or affirm on facilities must be located inside the school
appeal or certiorari x x x final judgments and campus. Canteens operated by mere
orders of lower courts in x x x all cases concessionaires are taxable.
involving the legality of any tax, impost, 3. Income which is unrelated to school
assessment, or toll or any penalty imposed in operations like income from bank deposits, trust
relation thereto. fund and similar arrangements, royalties,
dividends and rental income are taxable.
13. Tax Exemptions of Revenues and 4. The use of the schools income or assets
Assets, including grants, endowments, must be in consonance with the purposes for
donations or contributions to Educational which the school is created; in short, use must be
Institutions school-related, like the grant of scholarships,
faculty development, and establishment of
a. Basis: Sec. 4(4) Art. XIV. Subject to the professional chairs, school building expansion,
conditions prescribed by law, all grants, library and school facilities.
endowments, donations or contributions used
actually, directly and exclusively for
educational purposes shall be exempt from Other Constitutional Provisions related to
tax. Taxation
b. Important Points to Consider:
1. The exemption granted to non-stock, non- 1. Subject and Title of Bills (Sec. 26(1)
profit educational institution covers income, 1987 Constitution)
property, and donors taxes, and custom duties.
2. To be exempt from tax or duty, the Every Bill passed by Congress shall
revenue, assets, property or donation must be embrace only one subject which shall be
used actually, directly and exclusively for expressed in the title thereof.
educational purpose.
3. In the case or religious and charitable in the Tolentino E-VAT case, supra, the E-
entities and non-profit cemeteries, the exemption vat, or the Expanded Value Added Tax Law (RA
is limited to property tax. 7716) was also questioned on the ground that
4. The said constitutional provision granting the constitutional requirement on the title of a
tax exemption to non-stock, non-profit bill was not followed.
educational institution is self-executing.
5. Tax exemptions, however, of proprietary 2. Power of the President to Veto items
(for profit) educational institutions require prior in an Appropriation, Revenue or Tariff Bill
legislative implementation. Their tax exemption (Sec. 27(2), Art. VI of the 1987 Constitution)
is not self-executing.
6. Lands, Buildings, and improvements The President shall have the power to
actually, directly, and exclusively used for veto any particular item or items in an
educational purposed are exempt from property Appropriation, Revenue or Tariff bill but the veto
tax, whether the educational institution is shall not affect the item or items to which he
proprietary or non-profit. does not object.
4. Appropriation of Public Money for the 2. Basic Rule state where the subject to be
benefit of any Church, Sect, or System of taxed has a situs may rightfully levy and collect
Religion (Sec. 29(2), Art. VI of the 1987 the tax
Constitution)
Some Basic Considerations Affecting
No public money or property shall be Situs of Taxation
appropriated, applied, paid or employed, directly 1. Protection
or indirectly for the use, benefit, support of any A legal situs cannot be given to property
sect, church, denomination, sectarian institution, for the purpose of taxation where neither the
or system of religion or of any priest, preacher, property nor the person is within the protection of
minister, or other religious teacher or dignitary as the taxing state
such except when such priest, preacher, minister In the case of Manila Electric Co. vs Yatco
or dignitary is assigned to the armed forces or to (69 Phil 89), the Supreme Court ruled that
any penal institution, or government orphanage insurance premium paid on a fire insurance policy
or leprosarium. covering property situated in the Phils. are
taxable in the Phils. Even though the fire
5. Taxes levied for Special Purpose (Sec. insurance contract was executed outside the
29(3), Art. VI of the 1987 Constitution) Phils. and the insurance policy is delivered to the
insured therein. This is because the Philippines
All money collected or any tax levied Government must get something in return for the
for a special purpose shall be treated as a special protection it gives to the insured property in the
fund and paid out for such purpose only. It the Phils. and by reason of such protection, the
purpose for which a special fund was created has insurer is benefited thereby.
been fulfilled or abandoned the balance, if any,
shall be transferred to the general funds of the
2. The maxim of Mobilia Sequuntur
government.
Personam and Situs of Taxation
According to this maxim, which means
An example is the Oil Price Stabilization movable follow the person, the situs of personal
Fund created under P.D. 1956 to stabilize the property is the domicile of the owner. This is
prices of imported crude oil. In a decide case, merely a fiction of law and is not allowed to stand
it was held that where under an executive in the way of taxation of personalty in the place
order of the President, this special fund is where it has its actual situs and the requisite
transferred from the general fund to a trust legislative jurisdiction exists.
liability account, the constitutional mandate
is not violated. The OPSF, according to the Example: shares of stock may have situs
court, remains as a special fund subject to for purposes of taxation in a state in which they
COA audit (Osmea vs Orbos, et al., G.R. No. are permanently kept regardless of the domicile
99886, Mar. 31, 1993) of the owner, or the state in which he corporation
is organized.
6. Allotment to Local Governments
Basis: Sec. 6, Art. X of the 1987
Constitution 3. Legislative Power to Fix Situs
Local Government units shall have a If no constitutional provisions are violated,
just share, as determined by law, in the the power of the legislative to fix situs is
national taxes which shall be automatically undoubted.
released to them.
Example: our law fixes the situs of
intangible personal property for purposes of the
estate and gift taxes. (see Sec. 104, 1997
IV. Situs of Taxation and Double Taxation NIRC)
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Criteria in Fixing Tax Situs of Subject of b. Multiple distinct relationship that may arise
Taxation with respect to intangible personality; and
c. The use to which the property may have
a. Persons Poll tax may be levied upon been devoted, all of which may receive the
persons who are residents of the State. protection of the laws of jurisdiction other than
b. Real Property is subject to taxation in the domicile of the owner
the State in which it is located whether the owner
is a resident or non-resident, and is taxable only Remedy taxation jurisdiction may provide:
there. a. Exemption or allowance of deductions or
tax credit for foreign taxes
Rule of Lex Rei Sitae
b. Enter into treaties with other states
c. Tangible Personal property taxable in
the state where it has actual situs where it is
physically located. Although the owner resides in Double Taxation
another jurisdiction.
Two (2) Kinds of Double Taxation
Rule of Lex Rei Sitae
1. Obnoxious or Direct Duplicate Taxation
(Double taxation in its strict sense) - In the
d. Intangible Personal Property situs or objectionable or prohibited sense means that the
personal property is the domicile of the owner, in same property is taxed twice when it should be
accordance with the principle MOBILIA taxed only once.
SEQUUNTUR PERSONAM, said principle,
however, is not controlling when it is inconsistent Requisites:
with express provisions of statute or when justice 1. Same property is taxed twice
demands that it should be, as where the property 2. Same purpose
has in fact a situs elsewhere. (see Wells Fargo 3. Same taxing authority
Bank v. Collector 70 PHIL 325; Collector v. Fisher 4. Within the same jurisdiction
L-11622, January, 1961) 5. During the same taxing period
6. Same kind or character of tax
e. Income properly exacted from persons
who are residents or citizens in the taxing 2. Permissive or Indirect Duplicate
jurisdiction and even those who are neither Taxation (Double taxation in its broad sense)
residents nor citizens provided the income is This is the opposite of direct double taxation and
derived from sources within the taxing state. is not legally objectionable. The absence of one
or more of the foregoing requisites of the
f. Business, Occupation, and Transaction obnoxious direct tax makes it indirect.
power to levy an excise tax depends upon the
place where the business is done, of the Instances of Double Taxation in its
occupation is engaged in of the transaction not Broad Sense
place. 1. A tax on the mortgage as personal property
when the mortgaged property is also taxed at its
full value as real estate;
g. Gratuitous Transfer of Property 2. A tax upon a corporation for its capital stock
transmission of property from donor to donee, or as a whole and upon the shareholders for their
from a decedent to his heirs may be subject to shares;
taxation in the state where the transferor was a 3. A tax upon a corporation for its capital stock
citizen or resident, or where the property is as a whole and upon the shareholders for their
located. shares;
4. A tax upon depositions in the bank for their
V. Multiplicity of Situs deposits and a tax upon the bank for their
property in which such deposits are invested
There is multiplicity of situs when the 5. An excise tax upon certain use of property
same subject of taxation, like income or and a property tax upon the same property; and
intangible, is subject to taxation in several taxing 6. A tax upon the same property imposed by
jurisdictions. This happens due to: two different states.
a. Variance in the concept of domicile for
tax purposes; Means to Reduce the Harsh Effect of
Taxation
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necessarily true in case of the taxpayer. In CIR the power to assess but errs in the
vs. Suyac, 104 Phil 819, the taxpayer made exercise of that power (Ibid.)
several requests for the reinvestigation of its tax
liabilities such that the government, acceding to
the taxpayers request, postponed the collection Principles Governing Tax Assessments
of its liability. The taxpayer cannot later on be
permitted to raise the defense of prescription 1. Assessments are prima facie
inasmuch as his previous requests for presumed correct and made in good faith.
reinvestigation have the effect of placing him in
estoppel. The taxpayer has the duty of proving
otherwise (Interprovincial Autobus vs.
CIR, 98 Phil 290)
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statutory authority (Maceda vs. Macaraig, The aforesaid rule, however, is subject to
G.R. No. 8829, 8 June 1993). certain exceptions. In the following cases, inquiry
into the income tax returns of taxpayers may be
authorized:
4. The authority vested in the Commissioner
to assess taxes may be delegated. An 1. When the inspection of the return is
assessment signed by an employee for authorized upon the written order of
and in behalf of the Commissioner of the President of the Philippines.
Internal Revenue is valid. However, it is 2. When inspection is authorized under
settled that the power to make final the Finance Regulation No. 33 of the
assessments cannot be delegated. The Secretary of Finance.
person to whom a duty is delegated 3. When the production of the tax return
cannot lawfully delegate that duty to is material evidence in a criminal case
another. (City Lumber vs. Domingo, L- wherein the Government is interested
18611, 30 Jan 1964). in the result. (Cu Unjieng, et. al. vs.
Posadas, etc, 58 Phil 360)
4. When the production or inspection
5. Assessments must be directed to the right thereof is authorized by the taxpayer
party. Hence, if for example, the himself (Vera vs Cusi L-33115, 29 June
taxpayer being assessed is an estate of 1979).
a decedent, the administrator should be
the party to whom the assessment
should be sent (Republic vs. dela Rama, L-
21108, 29 Nov. 1966), and not the heirs of
the decedent B. Assessment Based on the Best Evidence
Obtainable
Means Employed in the Assessment of
Taxes The law authorizes the Commissioner to
assess taxes on the basis of the best evidence
obtainable in the following cases:
A. Examination of Returns: Confidentiality
Rule 1. if a person fails to file a return or other
document at the time prescribed by
The Tax Code requires that after the law; or
return is filed, the Commissioner or his duly 2. he willfully or otherwise files a false or
authorized representative shall examine the fraudulent return or other document.
same and assess the correct amount of tax. The
tax or the deficiency of the tax so assessed shall When the method is used, the
be paid upon notice and demand from the Commissioner makes or amends the return from
Commissioner or from his duly authorized his knowledge and from such information as he
representative. Any return, statement or can obtain through testimony or otherwise.
declaration filed in any office authorized to Assessments made as such are deemed prima
receive the same shall not be withdrawn. facie correct and sufficient for all legal purposes.
However, within three (3) days from the date of (Sec. 6 [B], 1997 NIRC)
such filing, the same may be modified, changed
or amended, provided that no notice for audit or Best Evidence Obtainable refers to any
investigation of such return, statement or data, record, papers, documents, or any evidence
declaration has in the meantime been actually gathered by internal revenue officers from
served upon the taxpayer. (Sec 6[A], 1997 NIRC) government offices or agencies, corporations,
employers, clients or patients, tenants, lessees,
Although Sec. 71 of the 1997 NIRC vendees and from all other sources, with whom
provides that tax returns shall constitute public the taxpayer had previous transactions or from
records, it is necessary to know that these are whom he received any income, after ascertaining
confidential in nature and may not be inquired that a report required by law as basis for the
into in unauthorized cases under pain of penalty assessment of any internal revenue tax has not
of law provided for in Sec 270 of the 1997 NIRC. been filed or when there is reason to believe that
any such report is false, incomplete or erroneous.
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TAXATION: San Beda College of LAW ALABANG
A case in point on the use of the best collection of the tax for the past or
evidence obtainable is Sy Po vs CTA. In that case, current quarter or year or to render
there was a demand made by the Commissioner the same totally or partly ineffective
on the Silver Cup Wine Company owned by unless such proceedings are begun
petitioners deceased husband Po Bien Seng. The immediately.
demand was for the taxpayer to submit to the BIR
for examination the factorys books of accounts The written decision to terminate the tax
and records, so BIR investigators raided the period shall be accompanied with a request for
factory and seized different brands of alcoholic the immediate payment of the tax for the period
beverages. so declared terminated and the tax for the
preceding year or quarter, or such portion thereof
The investigators, on the basis of the as may be unpaid. Said taxes shall be due and
wines seized and the sworn statements of the payable immediately and shall be subject to all
factorys employees on the quantity of raw the penalties prescribed unless paid within the
materials consumed in the manufacture of liquor, time fixed in the demand made by the
assessed the corresponding deficiency income Commissioner (Sec. 6 [d], 1997 NIRC)
and specific taxes. The Supreme Court, on
appeal, upheld the legality of the assessment.
(a) That the taxpayer's books of (c) That there is a fixed starting point
accounts do not clearly reflect his or opening net worth, i.e., a date
income, or the taxpayer has no beginning with a taxable year or
books, or if he has books, he prior to it, at which time the
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c. If the withholding agent is the 1. Where the taxpayer in good faith made
government or any of its agencies, a mistake in the interpretation of the
political subdivisions or instrumentalities, applicable regulations thereby
or a government owned or controlled resulting in delay in the payment of
corporation, the employee thereof taxes. (Connel Bros. Co. vs. CIR, L-
responsible for the withholding and 15470, 26 Dec. 1963)
remittance of the tax shall be personally 2. A Subsequent reversal by the BIR of a
liable for the additions to the tax prior ruling relied upon by the taxpayer
prescribed (Sec. 247[b], 1997 NIRC) such may also be a ground for dispensing
as the 25% surcharge and the 20% with the 25% surcharge. (CIR vs.
interest per annum on the delinquency Republic Cement Corp., L-35677, 10
(Secs. 248 and 249 [C], 1997 NIRC) Aug. 1983)
3. Where a doubt existed on the part of
the Bureau as to whether or not R.A.
5431 abolished the income tax
exemptions of corporations (including
Surcharge
electric power franchise grantees)
The payment of the surcharge is except those exempt under Sec. 27
mandatory and the Commissioner of (now, Sec. 30, 1997 NIRC), the
Internal Revenue is not vested with any imposition of the surcharge may be
authority to waive or dispense with the dispensed with (Cagayan Electreic
collection thereof. In one case, the Power & Light Co. vs CIR, G.R. No.
Supreme Court held that the fact that on 60126, 25 Sept. 1985)
account of riots directed against the 4. In the case of failure to make and file a
Chinese on certain dates, they were return or list within the time prescribed
prevented from paying their internal by law, not due to willful neglect,
revenue taxes on time, does not authorize where such return or list is voluntarily
the Commissioner to extend the time filed by the taxpayer without notice
prescribed for the payment of taxes or to from the CIR or other officers, and it is
accept them without the additional shown that the failure to file it in due
penalty (Lim Co Chui vs. Posadas, 47 Phil time was due to a reasonable cause,
460) no surcharge will be added to the
amount of tax due on the return. In
such case, in order to avoid the
imposition of the surcharge, the
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taxpayer must make a statement extension of time within which to pay a tax or a
showing all the facts alleged as deficiency tax or any part thereof. (Sec. 249[d],
reasonable causes for failure to file the 1997 NIRC)
return on time in the form of an
affidavit, which should be attached to
the return. Administrative Offenses
1. Failure to File Certain Information
Returns
Interest 2. Failure of a Withholding Agent to
Collect and Remit Taxes
This is an increment on any unpaid
amount of tax, assessed at the rate of 3. Failure of a Withholding Agent to
twenty percent (20%) per annum, or such Refund Excess Withholding Tax
higher rate as may be prescribed y rules
and regulations, from the date prescribed
for payment until the amount is fully paid. Sources of revenues:
(Sec. 249 [A], 1997 NIRC) 1. Income tax
2. Estate Tax and donor tax
3. VAT
Interest is classified into: 4. Other percentage taxes
5. Excise tax
1. Deficiency interest
6. Documentary stamp taxes
Any deficiency in the tax due, as the
7. Other as imposed and provided by BIR
term is defined in this code, shall be
subject to the interest of 20% per annum,
REMEDIES OF THE GOVERNMENT
or such higher rate as may be prescribed
by rules and regulations, which shall be
assessed and collected from the date
prescribed for its payment until the full Enumeration of the Remedies
payment thereof (Sec. 249 [B], 1997
NIRC) I. Administrative
1. Distraint of Personal
Property
2. Levy of Real Property
2. Delinquency interest
3. Tax Lien
This kind of interest is imposed in case
4. Compromise
of failure to pay:
5. Forfeiture
(1) The amount of the tax due on 6. Other Administrative
any return required to be filed, Remedies
or
(2) The amount of the tax due for II. Judicial
which no return is required, or 1. Civil Action
(3) A deficiency tax, or any 2. Criminal Action
surcharge or interest thereon
on the due date appearing in Distraint of Personal Property
the notice and demand of the
Commissioner. Distraint- Seizure by the government of
personal property, tangible or intangible, to
enforce the payment of faces, to be followed
by its public sale, if the taxes are not
3. Interest on Extended Payment voluntarily paid.
Imposed when a person required to pay
the tax is qualified and elects to pay the tax on KINDS
installment under the provisions of the Code, but a. Actual There is taking of possession
fails to pay the tax or any installment thereof, or of personal property out of the
any part of such amount or installment on or taxpayer into that of the government.
before the date prescribed for its payment, or In case of intangible property.
where the Commissioner has authorized an Taxpayer is also diverted of the power
of control over the property
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5. Distraint Taxpayer no given the right of property in respect to the tax is assessed. Tax
redemption lien is directed to the property subject to the tax,
Levy Taxpayer can redeem properties regardless of its owner.
levied upon and sold/forfeited to the
government. Note:
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Note: B. Exceptions:
Limitations: 1. Where a fraudulent/false return
a. The agreement extending the period of with intent to evade taxes was filed
prescription should be in writing and a proceeding in court for the
duly signed by the taxpayer and the collection of the tax may be filed
commissioner. without assessment, at anytime
b. The agreement to extend the same within ten years after the discovery
should be mode before the expiration of the falsity or fraud.
of the period previously agreed upon.
Note:
4. Where there is a written waiver or The 10-year prescriptive period for
renunciation of the original 3-year collector thru action does not apply if it
limitation signed by the taxpayer. appears that there was an assessment. In
such case, the ordinary 5-year period (now
Note: 3 years) would apply (Rep. vs. Ret., March
Limitations: 31, 1962)
a. The waiver to be valid must be
executed by the parties before the 2. When the taxpayer omits to file a
lapse of the prescriptive period. return a court proceeding for the
b. A waiver is inefficient I it is executed collection of such tax may be filed
beyond the original three year. without assessment, at anytime
c. The commissioner can not valid agree within 10 years after the discovery
to reduce the prescriptive period to of the omission.
less than that granted by law. 3. Waiver of statute of limitations
any internal revenue tax, which has
C) Imprescriptible Assessments: been assessed within the period
1. Where the law does not provide for any agreed upon, may be collected be
particular period of assessment, the tax distinct or levy of by a proceeding
sought to be assessed becomes in court within the period agreed
imprescriptible. upon in writing before the
2. Where no return is required by law, the expiration of 5-year period.
tax is imprescriptible.
3. Assessment of unpaid taxes, where the Note:
bases of which is not required by law to be Distinction
reported in a return such as excise taxes. a. Agreement to extend period of
(Carmen vs. Ayala Securities Corp., Nov. 21, vs. b. Agreement
1980) renouncing
4. Assessment of compensating and Prescription. It must be made before the
documentary stamp tax. period of prescription
Expiration of the period agreed upon to
II. Prescription of Governments Right to an agreement waiving the defense
Collect Taxes of
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be valid. Note:
Prescription is till binding to the When it should commence? : The five (5)
year prescriptive period shall begin to run
Taxpayer although made beyond from the
such a. Day of the commission of the violation,
prescriptive period. if know.
b. If not known, from the time of
4. Where the government makes discovery and the institution of judicial
another assessment on the basis of proceeding for its investigation and
reinvestigation requested by the punishment.
taxpayer the prescriptive period When it is interrupted:
for collection should be counted a. When a proceeding is instituted
from the last assessment. (Rep. vs. against the guilty person
Lopez, March 30, 1963) b. When the offender is absent from the
Philippines.
When it should run again : When the
proceeding is dismissed for reason not
5. Where the assessment is revised Constituting
because of an amended return jeopardy.
the period for collection is counted When does the defense of prescription
from the last revised assessment. may be raised:
a. In civil case If not raised in the lower
6. Where a tax obligation is secured court, it is bailed permanently.
by a surety bond the government - If can not be raised for the first time on
may proceed thru a court action to appeal.
forfeit a bond and enforce such b. In criminal case It can be raised even
contractual obligation within a if the case has been decided by the
period of ten years. lower court but pending decision on
appeal.
7. Where the action is brought to
enforce a compromise entered into IV. Interruption of the Prescriptive Period
between the commission and the
taxpayer the prescriptive period 1. Where before the expiration of the
is ten years. time prescribed for the assessment
of the tax, both the commissioner
C. When tax is deemed collected for and the taxpayer have consented in
purposes of the prescriptive period. writing to its assessment after such
time, the tax may be assessed prior
1. Collection by summary remedies It is to the expiration of the period
effected by summary methods when agreed upon.
the government avail of distraint and 2. The running of statute of limitations
levy procedure. on making an assessment and the
2. Collection by judicial action The beginning of distraint/levy or a
collection begins by filing the proceeding in court for collection
complaint with the proper court. (RTC) shall be suspended for the period.
3. Where assessment of the
commissioner is protected & appealed a. During which the
to the CTA the collection begin when Commissioner is prohibited
the government file its answer to from making the assessment
taxpayers petition for review. or beginning distraint/levy or
a proceeding in court and for
60 days thereafter;
III. Rules of Prescription In Criminal Cases e.g.
Filing a petition for review in
A. Rule: All violations of any provision of the
the CTA from the decision of
tax code shall prescribe after five (5) the Commissioner. The
years.
commissioner is prevented
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Note: Administrative
If the taxpayer informs the
Commissioner of any change in (1) Before Payment
address the statute will not be
suspended. a. Filing of a petition or request
d. When the warrant of distraint for reconsideration or
or levy is duly served upon reinvestigation (Administrative
any of the following person: Protest);
1. taxpayer b. Entering into compromise
2. his authorized
representative (2) After Payment
3. Member of his household a. Filing of claim for tax refund;
with sufficient discretion and
and no property could be b. Filing of claim for tax credit
located.
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If the protest is denied in whole or part, or is the agreed portion of the tax is paid
not acted upon within one hundred eighty (180) first;
days from submission of documents, the taxpayer g. Itemized schedule of the adjustments
adversely affected by the decision or inaction with which the taxpayer does not
may appeal to the CTA within 30 days from agree;
receipt of the said decision, or from lapse of the h. Statement of facts and/or law in
one hundred (180)-day period: otherwise, the support of the protest; and
decision shall become final and executory i. Documentary evidence as it may deem
necessary and relevant to support its
protest to be submitted within sixty
Several issues in the assessment notice but (60) days from the filing of the protest.
taxpayer only disputes/protests validity of some If the taxpayer fails to comply with this
of the issues requirement, the assessment shall
become final (Revenue Regulation No.
Taxpayer required to pay the deficiency
12-85, dated Nov. 27, 1985.)
tax or taxes attributable to the undisputed
A request for reconsideration or
issues.
reinvestigation of an assessment shall be
Collection letter to be issued calling for
accompanied by a waiver of the Statute of
the payment of deficiency tax, including
Limitations in favor of the Government.
applicable surcharge and/or interest.
No action shall be taken on the disputed Effect of taxpayers failure to file an
issues until payment of deficiency taxes administrative protest or to appeal BIRs decision
on undisputed issues to the CTA
Prescriptive period for assessment or
collection of taxes on disputed issues shall
be suspended. As provided in Sec. 228 of the Tax Code, if
the taxpayer fails to file an administrative
protest within the reglementary 30-day
Failure of taxpayer to state the facts, the from receipt of the assessment notice,
applicable law, rules and regulations, or assessment becomes final.
jurisprudence on which his protest is based shall After the lapse of the 30-day period, the
render his protest void and without force and assessment can no longer be disputed
effect. either administratively or judicially
through an appeal in the CTA.
Assessed already tax collectible.
Contents:
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a. Protest 4. Compromise
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4. Bank accounts may be distrained with out 11. Sale at public auction to highest bidder.
violating the confidential nature of bank
accounts for no inquiry is made. BIR 12. Disposition of proceeds of sale.
simply seizes so much of the deposit with
out having to know how much the deposits The excess shall be turned over to owner.
are or where the money or any part of it
came from. Redemption of property sold or forfeited
5. If at any time prior to the consummation e. Person entitled: Taxpayer or anyone for
of the sale, all proper charges are paid to him
the officer conducting the same, the
goods distrained shall be restored to the f. Time to redeem: one year from date of
owner. sale or forfeiture
6. When the amount of the bid for the - Begins from registration of the deed of
property under distraint is not equal to the sale or declaration of forfeiture.
amount of the tax or is very much less
than the actual market value of articles, - Cannot be extended by the courts.
the CIR or his deputy may purchase the
distrained property on behalf of the g. Possession pending redemption owner
national government. not deprived of possession
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5. It is the duty of the Register of Deeds Enforcement of Tax Lien vs. Distraint
concerned upon registration of the
declaration of forfeiture, to transfer the A tax lien is distinguished from disttraint
title to the property with out of an order in that, in distraint the property seized must be
from a competent court that of the taxpayer, although it need not be the
6. The remedy of distraint or levy may be property in respect to the tax is assessed. Tax
repeated if necessary until the full lien is directed to the property subject to the tax,
amount, including all expenses, is regardless of its owner.
collected.
Note:
Enforcement of Tax Lien
3. This is superior to judgment claim of
Tax Liena legal claim or charge on private individuals or parties
property, either real or personal, established by
law as a security in default of the payment of 4. Attaches not only from time the warrant
taxes. was served but from the time the tax was
due and demandable.
2. Nature:
Compromise
A lien in favor of the government of the
Philippines when a person liable to pay a
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Compromisea contract whereby the regional offices involving basic taxes of P 500 K
parties, by reciprocal concessions, avoid litigation or less.
or put an end to one already commenced.
Remedy in case of failure to comply:
Requisites:
The CIR may either:
4. Taxpayer must have a tax liability.
3. enforce the compromise, or
5. There must be an offer by taxpayer or CIR,
of an amount to be paid by taxpayer. 4. Regard it as rescinded and insists upon
the original demand.
6. There must be acceptance of the offer in
settlement of the original claim. Compromise Penalty
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3. cigars
Note: The Register of Deeds is duty bound to
4. cigarettes, and other transfer the title of property forfeited to the
manufactured products of government with our necessity of an order from a
tobacco competent court.
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TAXATION: San Beda College of LAW ALABANG
committed with in the view of the Internal Civil and Criminal Actions:
Revenue Officer or EE.
1. Brought in the name of the
9. Deportation in case of aliens on Government of the Philippines.
the following grounds
2. Conducted by Legal Officer
c. Knowingly and fraudulently of BIR
evades payment of IR taxes.
3. Must be with the approval of
d. Willfully refuses to pay such the CIR, in case of action, for recovery of
tax and its accessory penalties, after taxes, or enforcement of a fine, penalty or
decision on his tax liability shall have forfeiture.
become final and executory.
16. Inquiring into bank deposit Does not exonerate taxpayer his civil
accounts of liability to pay the tax due. Thus, the
government may still collect the tax in the same
c. A deceased person to action.
determine gross estate Reason: Tax is an obligation, does not arise from
a criminal act.
d. Any taxpayer who filed
application for compromise by reasons Effect of Satisfaction of Tax Liability on
of financial incapacity his tax liability. Criminal Liability
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Purpose:
b. When the Commissioner failed to 1. Where the law does not provide for any
allege in his answer to the taxpayers particular period of assessment, the tax
petition for review when the case is sought to be assessed becomes
appealed to the CTA. imprescriptible.
c. When the Commissioner raised the 2. Where no return is required by law, the
question of fraud only for the first time tax is imprescriptible.
in his memorandum which was filed
the CTA after he had rested his case.
3. Assessment of unpaid taxes, where the
d. Where the BIR itself appeared, not bases of which is not required by law to be
sure as to the real amount of the reported in a return such as excise taxes.
taxpayers net income. (Carmen vs. Ayala Securities Corp., Nov.
21, 1980)
e. A mere understatement of income
does not prove fraud, unless there is a 4. Assessment of compensating and
sufficient evidence shaving fraudulent documentary stamp tax.
intent.
E. Exceptions:
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TAXATION: San Beda College of LAW ALABANG
11. Where the government makes c. Day of the commission of the violation,
another assessment on the basis of if know.
reinvestigation requested by the
taxpayer the prescriptive period for d. If not known, from the time of
collection should be counted from the discovery and the institution of judicial
last assessment. (Rep. vs. Lopez, proceeding for its investigation and
March 30, 1963) punishment.
13. Where a tax obligation is secured d. When the offender is absent from the
by a surety bond the government Philippines.
may proceed thru a court action to
forfeit a bond and enforce such
contractual obligation within a period When it should run again:
of ten years.
When the proceeding is dismissed for
14. Where the action is brought to reason not Constituting jeopardy.
enforce a compromise entered into
between the commission and the When does the defense of
taxpayer the prescriptive period is prescription may be raised:
ten years.
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TAXATION: San Beda College of LAW ALABANG
c. In civil case If not raised in the lower d. When the taxpayer cannot be
court, it is bailed permanently; if can not located in the address given by him
be raised for the first time on appeal. in the return.
d. In criminal case It can be raised even Note: If the taxpayer informs the
if the case has been decided by the lower Commissioner of any change in
court but pending decision on appeal. address the statute will not be
suspended.
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TAXATION: San Beda College of LAW ALABANG
tax against a tax refused to which the liability, or in evaluating tax compliance,
taxpayer is entitled. the Commissioner is authorized:
(A) To examine any book, paper,
__________________________________________________ record, or other data which may be
_____SOME IMPORTANT PROVISIONS ON THE TAX relevant or material to such
REFORM ACT OF 1997 inquiry;
concerning all persons therein who proper tax on the best evidence
may be liable to pay any internal obtainable.
revenue tax, and all persons In case a person fails to file a
owning or having the care, required return or other document
management or possession of any at the time prescribed by law, or
object with respect to which a tax willfully or otherwise files a false or
is imposed. fraudulent return or other
document, the Commissioner shall
The provisions of the foregoing make or amend the return from his
paragraphs notwithstanding, own knowledge and from such
nothing in this Section shall be information as he can obtain
construed as granting the through testimony or otherwise,
Commissioner the authority to which shall be prima facie correct
inquire into bank deposits other and sufficient for all legal purposes.
than as provided for in Section 6(F)
of this Code. (C) Authority to Conduct Inventory-
taking, surveillance and to Prescribe
SEC. 6. Power of the Commissioner to Presumptive Gross Sales and
Make assessments and Prescribe Receipts. - The Commissioner may,
additional Requirements for Tax at any time during the taxable year,
Administration and Enforcement. - order inventory-taking of goods of
(A) Examination of Returns and any taxpayer as a basis for
Determination of Tax Due. - After a determining his internal revenue tax
return has been filed as required liabilities, or may place the business
under the provisions of this Code, operations of any person, natural or
the Commissioner or his duly juridical, under observation or
authorized representative may surveillance if there is reason to
authorize the examination of any believe that such person is not
taxpayer and the assessment of declaring his correct income, sales
the correct amount of tax: or receipts for internal revenue tax
Provided, however; That failure to purposes. The findings may be used
file a return shall not prevent the as the basis for assessing the taxes
Commissioner from authorizing the for the other months or quarters of
examination of any taxpayer. the same or different taxable years
Any return, statement of declaration and such assessment shall be
filed in any office authorized to deemed prima facie correct.
receive the same shall not be When it is found that a person has
withdrawn: Provided, That within failed to issue receipts and invoices
three (3) years from the date of in violation of the requirements of
such filing, the same may be Sections 113 and 237 of this Code,
modified, changed, or amended: or when there is reason to believe
Provided, further, That no notice for that the books of accounts or other
audit or investigation of such return, records do not correctly reflect the
statement or declaration has in the declarations made or to be made in
meantime been actually served a return required to be filed under
upon the taxpayer. the provisions of this Code, the
(B) Failure to Submit Required Commissioner, after taking into
Returns, Statements, Reports and account the sales, receipts, income
other Documents. - When a report or other taxable base of other
required by law as a basis for the persons engaged in similar
assessment of any national internal businesses under similar situations
revenue tax shall not be or circumstances or after
forthcoming within the time fixed considering other relevant
by laws or rules and regulations or information may prescribe a
when there is reason to believe minimum amount of such gross
that any such report is false, receipts, sales and taxable base,
incomplete or erroneous, the and such amount so prescribed shall
Commissioner shall assess the be prima facie correct for purposes
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forty percent (40%) of the basic Senate and House of Representatives, every six
assessed tax. (6) months, a report on the exercise of his powers
Where the basic tax involved exceeds One million under this Section, stating therein the following
pesos (P1,000.000) or where the settlement facts and information, among others: names and
offered is less than the prescribed minimum addresses of taxpayers whose cases have been
rates, the compromise shall be subject to the the subject of abatement or compromise; amount
approval of the Evaluation Board which shall be involved; amount compromised or abated; and
composed of the Commissioner and the four (4) reasons for the exercise of power: Provided, That
Deputy Commissioners. the said report shall be presented to the
Oversight Committee in Congress that shall be
(B) Abate or Cancel a Tax Liability, when: constituted to determine that said powers are
reasonably exercised and that the government is
(1) The tax or any portion thereof appears not unduly deprived of revenues.
to be unjustly or excessively assessed; or CHAPTER II
(2) The administration and collection CIVIL REMEDIES FOR COLLECTION OF TAXES
costs involved do not justify the collection
of the
amount due. SEC. 205. Remedies for the Collection of
Delinquent Taxes. - The civil remedies for the
All criminal violations may be collection of internal revenue taxes, fees or
compromised except: (a) those already charges, and any increment thereto resulting
filed in court, or (b) those involving fraud. from delinquency shall be:
(C) Credit or refund taxes erroneously or illegally (a) By distraint of goods, chattels, or
received or penalties imposed without authority, effects, and other personal property of
refund the value of internal revenue stamps when whatever character, including stocks and
they are returned in good condition by the other securities, debts, credits, bank
purchaser, and, in his discretion, redeem or accounts and interest in and rights to
change unused stamps that have been rendered personal property, and by levy upon real
unfit for use and refund their value upon proof of property and interest in rights to real
destruction. No credit or refund of taxes or property; and
penalties shall be allowed unless the taxpayer
files in writing with the Commissioner a claim for (b) By civil or criminal action.
credit or refund within two (2) years after the
payment of the tax or penalty: Provided, Either of these remedies or both
however, That a return filed showing an simultaneously may be pursued in the
overpayment shall be considered as a written discretion of the authorities charged with
claim for credit or refund. the collection of such taxes: Provided,
however, That the remedies of distraint
A Tax Credit Certificate validly issued under the and levy shall not be availed of where the
provisions of this Code may be applied against amount of tax involve is not more than
any internal revenue tax, excluding withholding One hundred pesos (P100).
taxes, for which the taxpayer is directly liable.
Any request for conversion into refund of The judgment in the criminal case shall
unutilized tax credits may be allowed, subject to not only impose the penalty but shall also
the provisions of Section 230 of this Code: order payment of the taxes subject of the
Provided, That the original copy of the Tax Credit criminal case as finally decided by the
Certificate showing a creditable balance is Commissioner.
surrendered to the appropriate revenue officer for
verification and cancellation: Provided, further, The Bureau of Internal Revenue shall
That in no case shall a tax refund be given advance the amounts needed to defray
resulting from availment of incentives granted costs of collection by means of civil or
pursuant to special laws for which no actual criminal action, including the preservation
payment was made. or transportation of personal property
distrained and the advertisement and sale
The Commissioner shall submit to the Chairmen thereof, as well as of real property and
of the Committee on Ways and Means of both the improvements thereon.
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SEC. 206. Constructive Distraint of the Provided, That the Commissioner or his duly
Property of a Taxpayer. - To safeguard the authorized representative shall, subject to rules
interest of the Government, the Commissioner and regulations promulgated by the Secretary of
may place under constructive distraint the Finance, upon recommendation of the
property of a delinquent taxpayer or any Commissioner, have the power to lift such order
taxpayer who, in his opinion, is retiring from any of distraint: Provided, further, That a consolidated
business subject to tax, or is intending to leave report by the Revenue Regional Director may be
the Philippines or to remove his property required by the Commissioner as often as
therefrom or to hide or conceal his property or to necessary.
perform any act tending to obstruct the
proceedings for collecting the tax due or which (B) Levy on Real Property. - After the
may be due from him. expiration of the time required to pay the
delinquent tax or delinquent revenue as
The constructive distraint of personal property prescribed in this Section, real property may be
shall be affected by requiring the taxpayer or any levied upon, before simultaneously or after the
person having possession or control of such distraint of personal property belonging to the
property to sign a receipt covering the property delinquent. To this end, any internal revenue
distrained and obligate himself to preserve the officer designated by the Commissioner or his
same intact and unaltered and not to dispose of duly authorized representative shall prepare a
the same ;in any manner whatever, without the duly authenticated certificate showing the name
express authority of the Commissioner. of the taxpayer and the amounts of the tax and
penalty due from him. Said certificate shall
In case the taxpayer or the person having the operate with the force of a legal execution
possession and control of the property sought to throughout the Philippines.
be placed under constructive distraint refuses or
fails to sign the receipt herein referred to, the Levy shall be affected by writing upon said
revenue officer effecting the constructive certificate a description of the property upon
distraint shall proceed to prepare a list of such which levy is made. At the same time, written
property and, in the presence of two (2) notice of the levy shall be mailed to or served
witnessed, leave a copy thereof in the premises upon the Register of Deeds for the province or
where the property distrained is located, after city where the property is located and upon the
which the said property shall be deemed to have delinquent taxpayer, or if he be absent from the
been placed under constructive distraint. Philippines, to his agent or the manager of the
business in respect to which the liability arose, or
SEC. 207. Summary Remedies. - if there be none, to the occupant of the property
in question.
(A) Distraint of Personal Property. - Upon
the failure of the person owing any delinquent tax In case the warrant of levy on real property is not
or delinquent revenue to pay the same at the issued before or simultaneously with the warrant
time required, the Commissioner or his duly of distraint on personal property, and the
authorized representative, if the amount involved personal property of the taxpayer is not sufficient
is in excess of One million pesos (P1,000,000), or to satisfy his tax delinquency, the Commissioner
the Revenue District Officer, if the amount or his duly authorized representative shall, within
involved is One million pesos (P1,000,000) or thirty (30) days after execution of the distraint,
less, shall seize and distraint any goods, chattels proceed with the levy on the taxpayer's real
or effects, and the personal property, including property.
stocks and other securities, debts, credits, bank
accounts, and interests in and rights to personal Within ten (10) days after receipt of the warrant,
property of such persons ;in sufficient quantity to a report on any levy shall be submitted by the
satisfy the tax, or charge, together with any levying officer to the Commissioner or his duly
increment thereto incident to delinquency, and authorized representative: Provided, however,
the expenses of the distraint and the cost of the That a consolidated report by the Revenue
subsequent sale. Regional Director may be required by the
Commissioner as often as necessary: Provided,
A report on the distraint shall, within ten (10) further, That the Commissioner or his duly
days from receipt of the warrant, be submitted by authorized representative, subject to rules and
the distraining officer to the Revenue District regulations promulgated by the Secretary of
Officer, and to the Revenue Regional Director: Finance, upon recommendation of the
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Commissioner, shall have the authority to lift place for the posting of such notice shall be at the
warrants of levy issued in accordance with the Office of the Mayor of the city or municipality in
provisions hereof. which the property is distrained.
SEC. 208. Procedure for Distraint and At the time and place fixed in such notice, the
Garnishment. - The officer serving the warrant said revenue officer shall sell the goods, chattels,
of distraint shall make or cause to be made an or effects, or other personal property, including
account of the goods, chattels, effects or other stocks and other securities so distrained, at
personal property distrained, a copy of which, public auction, to the highest bidder for cash, or
signed by himself, shall be left either with the with the approval of the Commissioner, through
owner or person from whose possession such duly licensed commodity or stock exchanges.
goods, chattels, or effects or other personal
property were taken, or at the dwelling or place In the case of Stocks and other securities, the
of business of such person and with someone of officer making the sale shall execute a bill of sale
suitable age and discretion, to which list shall be which he shall deliver to the buyer, and a copy
added a statement of the sum demanded and thereof furnished the corporation, company or
note of the time and place of sale. association which issued the stocks or other
securities. Upon receipt of the copy of the bill of
Stocks and other securities shall be distrained by sale, the corporation, company or association
serving a copy of the warrant of distraint upon shall make the corresponding entry in its books,
the taxpayer and upon the president, manager, transfer the stocks or other securities sold in the
treasurer or other responsible officer of the name of the buyer, and issue, if required to do so,
corporation, company or association, which the corresponding certificates of stock or other
issued the said stocks or securities. securities.
Debts and credits shall be distrained by leaving Any residue over and above what is required to
with the person owing the debts or having in his pay the entire claim, including expenses, shall be
possession or under his control such credits, or returned to the owner of the property sold. The
with his agent, a copy of the warrant of distraint. expenses chargeable upon each seizure and sale
The warrant of distraint shall be sufficient shall embrace only the actual expenses of seizure
authority to the person owning the debts or and preservation of the property pending ;the
having in his possession or under his control any sale, and no charge shall be imposed for the
credits belonging to the taxpayer to pay to the services of the local internal revenue officer or his
Commissioner the amount of such debts or deputy.
credits.
SEC. 210. Release of Distrained Property
Bank accounts shall be garnished by serving a Upon Payment Prior to Sale. - If at any time
warrant of garnishment upon the taxpayer and prior to the consummation of the sale all proper
upon the president, manager, treasurer or other charges are paid to the officer conducting the
responsible officer of the bank. Upon receipt of sale, the goods or effects distrained shall be
the warrant of garnishment, the bank shall tun restored to the owner.
over to the Commissioner so much of the bank
accounts as may be sufficient to satisfy the claim SEC. 211. Report of Sale to Bureau of
of the Government. Internal Revenue. - Within two (2) days after
the sale, the officer making the same shall make
SEC. 209. Sale of Property Distrained and a report of his proceedings in writing to the
Disposition of Proceeds. - The Revenue Commissioner and shall himself preserve a copy
District Officer or his duly authorized of such report as an official record.
representative, other than the officer referred to
in Section 208 of this Code shall, according to SEC. 212. Purchase by Government at Sale
rules and regulations prescribed by the Secretary Upon Distraint. - When the amount bid for the
of Finance, upon recommendation of the property under distraint is not equal to the
Commissioner, forthwith cause a notification to amount of the tax or is very much less than the
be exhibited in not less than two (2) public places actual market value of the articles offered for
in the municipality or city where the distraint is sale, the Commissioner or his deputy may
made, specifying; the time and place of sale and purchase the same in behalf of the national
the articles distrained. The time of sale shall not Government for the amount of taxes, penalties
be less than twenty (20) days after notice. One and costs due thereon.
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Property so purchased may be resold by the and subsequent sale, both in cases of personal
Commissioner or his deputy, subject to the rules and real property including improvements found
and regulations prescribed by the Secretary of on the latter. In his monthly collection reports,
Finance, the net proceeds therefrom shall be such advances shall be reflected and supported
remitted to the National Treasury and accounted by receipts.
for as internal revenue.
SEC. 214. Redemption of Property Sold. -
SEC. 213. Advertisement and Sale. - Within Within one (1) year from the date of sale, the
twenty (20) days after levy, the officer delinquent taxpayer, or any one for him, shall
conducting the proceedings shall proceed to have the right of paying to the Revenue District
advertise the property or a usable portion thereof Officer the amount of the public taxes, penalties,
as may be necessary to satisfy the claim and cost and interest thereon from the date of delinquency
of sale; and such advertisement shall cover a to the date of sale, together with interest on said
period of a least thirty (30) days. It shall be purchase price at the rate of fifteen percent
effectuated by posting a notice at the main (15%) per annum from the date of purchase to
entrance of the municipal building or city hall and the date of redemption, and such payment shall
in public and conspicuous place in the barrio or entitle the person paying to the delivery of the
district in which the real estate lies and ;by certificate issued to the purchaser and a
publication once a week for three (3) weeks in a certificate from the said Revenue District Officer
newspaper of general circulation in the that he has thus redeemed the property, and the
municipality or city where the property is located. Revenue District Officer shall forthwith pay over
The advertisement shall contain a statement of to the purchaser the amount by which such
the amount of taxes and penalties so due and the property has thus been redeemed, and said
time and place of sale, the name of the taxpayer property thereafter shall be free form the lien of
against whom taxes are levied, and a short such taxes and penalties.
description of the property to be sold. At any time
before the day fixed for the sale, the taxpayer The owner shall not, however, be deprived of the
may discontinue all proceedings by paying the possession of the said property and shall be
taxes, penalties and interest. If he does not do so, entitled to the rents and other income thereof
the sale shall proceed and shall be held either at until the expiration of the time allowed for its
the main entrance of the municipal building or redemption.
city hall, or on the premises to be sold, as the
officer conducting the proceedings shall SEC. 215. Forfeiture to Government for
determine and as the notice of sale shall specify. Want of Bidder. - In case there is no bidder for
real property exposed for sale as herein above
Within five (5) days after the sale, a return by the provided or if the highest bid is for an amount
distraining or levying officer of the proceedings insufficient to pay the taxes, penalties and costs,
shall be entered upon the records of the Revenue the Internal Revenue Officer conducting the sale
Collection Officer, the Revenue District officer and shall declare the property forfeited to the
the Revenue Regional Director. The Revenue Government in satisfaction of the claim in
Collection Officer, in consultation with the question and within two (2) days thereafter, shall
Revenue district Officer, shall then make out and make a return of his proceedings and the
deliver to the purchaser a certificate from his forfeiture which shall be spread upon the records
records, showing the proceedings of the sale, of his office. It shall be the duty of the Register of
describing the property sold stating the name of Deeds concerned, upon registration with his
the purchaser and setting out the exact amount office of any such declaration of forfeiture, to
of all taxes, penalties and interest: Provided, transfer the title of the property forfeited to the
however, That in case the proceeds of the sale Government without the necessity of an order
exceeds the claim and cost of sale, the excess from a competent court.
shall be turned over to the owner of the property.
Within one (1) year from the date of such
The Revenue Collection Officer, upon approval by forfeiture, the taxpayer, or any one for him may
the Revenue District Officer may, out of his redeem said property by paying to the
collection, advance an amount sufficient to Commissioner or the latter's Revenue Collection
defray the costs of collection by means of the Officer the full amount of the taxes and penalties,
summary remedies provided for in this Code, together with interest thereon and the costs of
including ;the preservation or transportation in sale, but if the property be not thus redeemed,
case of personal property, and the advertisement the forfeiture shall become absolute.
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(e) Provided, however, That nothing in the injurious to public health or prejudicial to the
immediately preceding and paragraph (a) enforcement of the law.
hereof shall be construed to authorize the
examination and investigation or inquiry All other articles subject to excise tax, which have
into any tax return filed in accordance been manufactured or removed in violation of
with the provisions of any tax amnesty law this Code, as well as dies for the printing or
or decree. making of internal revenue stamps and labels
SEC. 223. Suspension of Running of Statute which are in imitation of or purport to be lawful
of Limitations. - The running of the Statute of stamps, or labels may, upon forfeiture, be sold or
Limitations provided in Sections 203 and 222 on destroyed in the discretion of the Commissioner.
the making of assessment and the beginning of
distraint or levy a proceeding in court for Forfeited property shall not be destroyed until at
collection, in respect of any deficiency, shall be least twenty (20) days after seizure.
suspended for the period during which the
Commissioner is prohibited from making the SEC. 226. Disposition of funds Recovered in
assessment or beginning distraint or levy or a Legal Proceedings or Obtained from
proceeding in court and for sixty (60) days Forfeitures. - all judgments and monies
thereafter; when the taxpayer requests for a recovered and received for taxes, costs,
reinvestigation which is granted by the forfeitures, fines and penalties shall be paid to
Commissioner; when the taxpayer cannot be the Commissioner or his authorized deputies as
located in the address given by him in the return the taxes themselves are required to be paid, and
filed upon which a tax is being assessed or except as specially provided, shall be accounted
collected: Provided, that, if the taxpayer informs for and dealt with the same way.
the Commissioner of any change in address, the
running of the Statute of Limitations will not be SEC. 227. Satisfaction of Judgment
suspended; when the warrant of distraint or levy Recovered Against any Internal Revenue
is duly served upon the taxpayer, his authorized Officer. - When an action is brought against any
representative, or a member of his household Internal Revenue officer to recover damages by
with sufficient discretion, and no property could reason of any act done in the performance of
be located; and when the taxpayer is out of the official duty, and the Commissioner is notified of
Philippines. such action in time to make defense against the
same, through the Solicitor General, any
SEC. 224. Remedy for Enforcement of judgment, damages or costs recovered in such
Forfeitures. - The forfeiture of chattels and action shall be satisfied by the Commissioner,
removable fixtures of any sort shall be enforced upon approval of the Secretary of Finance, or if
by the seizure and sale, or destruction, of the the same be paid by the person used shall be
specific forfeited property. The forfeiture of real repaid or reimbursed to him.
property shall be enforced by a judgment of
condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may No such judgment, damages, or costs shall be
require. paid or reimbursed in behalf of a person who has
acted negligently or in bad faith, or with willful
SEC. 225. When Property to be Sold or oppression.
Destroyed. - Sales of forfeited chattels and
removable fixtures shall be effected, so far as
practicable, in the same manner and under the TITLE X
same conditions as the public notice and the time STATUTORY OFFENSES AND PENALTIES
and manner of sale as are prescribed for sales of
personal property distrained for the non-payment CHAPTER I
of taxes. ADDITIONS TO TAX
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shall be collected at the same time, in the Commissioner pursuant to the rules and
same manner and as part of the tax. regulations to be promulgated by the
(b) If the withholding agent is the Secretary of Finance, shall constitute
Government or any of its agencies, prima facie evidence of a false or
political subdivisions or instrumentalities, fraudulent return: Provided, further, That
or a government-owned or controlled failure to report sales, receipts or income
corporation, the employee thereof in an amount exceeding thirty percent
responsible for the withholding and (30%) of that declared per return, and a
remittance of the tax shall be personally claim of deductions in an amount
liable for the additions to the tax exceeding (30%) of actual deductions,
prescribed herein. shall render the taxpayer liable for
(c) the term "person", as used in this substantial underdeclaration of sales,
Chapter, includes an officer or employee receipts or income or for overstatement of
of a corporation who as such officer, deductions, as mentioned herein.
employee or member is under a duty to SEC. 249. Interest. -
perform the act in respect of which the
violation occurs. (A) In General. - There shall be assessed and
SEC. 248. Civil Penalties. - collected on any unpaid amount of tax, interest at
(A) There shall be imposed, in addition to the rate of twenty percent (20%) per annum, or
the tax required to be paid, a penalty such higher rate as may be prescribed by rules
equivalent to twenty-five percent (25%) of and regulations, from the date prescribed for
the amount due, in the following cases: payment until the amount is fully paid.
(1) Failure to file any return and
pay the tax due thereon as (B) Deficiency Interest. - Any deficiency in the
required under the provisions of tax due, as the term is defined in this Code, shall
this Code or rules and regulations be subject to the interest prescribed in
on the date prescribed; or Subsection (A) hereof, which interest shall be
(2) Unless otherwise authorized by assessed and collected from the date prescribed
the Commissioner, filing a return for its payment until the full payment thereof.
with an internal revenue officer
other than those with whom the
return is required to be filed; or (C) Delinquency Interest. - In case of failure to
(3) Failure to pay the deficiency tax pay:
within the time prescribed for its
payment in the notice of (1) The amount of the tax due on any
assessment; or return to be filed, or
(4) Failure to pay the full or part of (2) The amount of the tax due for which
the amount of tax shown on any no return is required, or
return required to be filed under (3) A deficiency tax, or any surcharge or
the provisions of this Code or rules interest thereon on the due date
and regulations, or the full amount appearing in the notice and demand of the
of tax due for which no return is Commissioner, there shall be assessed
required to be filed, on or before and collected on the unpaid amount,
the date prescribed for its interest at the rate prescribed in
payment. Subsection (A) hereof until the amount is
(B) In case of willful neglect to file the fully paid, which interest shall form part of
return within the period prescribed by this the tax.
Code or by rules and regulations, or in (D) Interest on Extended Payment. - If any
case a false or fraudulent return is willfully person required to pay the tax is qualified and
made, the penalty to be imposed shall be elects to pay the tax on installment under the
fifty percent (50%) of the tax or of the provisions of this Code, but fails to pay the tax or
deficiency tax, in case, any payment has any installment hereof, or any part of such
been made on the basis of such return amount or installment on or before the date
before the discovery of the falsity or fraud: prescribed for its payment, or where the
Provided, That a substantial Commissioner has authorized an extension of
underdeclaration of taxable sales, receipts time within which to pay a tax or a deficiency tax
or income, or a substantial overstatement or any part thereof, there shall be assessed and
of deductions, as determined by the collected interest at the rate hereinabove
prescribed on the tax or deficiency tax or any
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part thereof unpaid from the date of notice and The sugar industrys promotion, protection and
demand until it is paid. advancement therefore redound greatly to
the general welfare. Thus, the contention of
SEC. 250. Failure to File Certain Information plaintiff that the Act was promulgated not for
Returns. - In the case of each failure to file an public purpose cannot be upheld.
information return, statement or list, or keep any
record, or supply any information required by this
Code or by the Commissioner on the date (CIR vs Algue 158 SCRA 9)
prescribed therefor, unless it is shown that such
failure is due to reasonable cause and not to It is said that taxes are what we pay for
willful neglect, there shall, upon notice and civilized society. Without taxes, the government
demand by the Commissioner, be paid by the would be paralyzed for lack of the motive power
person failing to file, keep or supply the same, to activate and operate it. Hence, despite the
One thousand pesos (1,000) for each failure: natural reluctance to surrender part of one's hard
Provided, however, That the aggregate amount to earned income to the taxing authorities, every
be imposed for all such failures during a calendar person who is able to must contribute his share in
year shall not exceed Twenty-five thousand pesos the running of the government. The government
(P25,000). for its part, is expected to respond in the form of
tangible and intangible benefits intended to
SEC. 251. Failure of a Withholding Agent to improve the lives of the people and enhance their
Collect and Remit Tax. - Any person required moral and material values. This symbiotic
to withhold, account for, and remit any tax relationship is the rationale of taxation and
imposed by this Code or who willfully fails to should dispel the erroneous notion that it is an
withhold such tax, or account for and remit such arbitrary method of exaction by those in the seat
tax, or aids or abets in any manner to evade any of power.
such tax or the payment thereof, shall, in addition
to other penalties provided for under this (American Bible Society vs. City of Manila
Chapter, be liable upon conviction to a penalty 101 PHIL 386)
equal to the total amount of the tax not withheld,
or not accounted for and remitted. It was contended that said ordinances imposing
license fee on the distribution and sale of
SEC. 252. Failure of a Withholding Agent to bibles and other religious literature, impair
refund Excess Withholding Tax. - Any the free exercise of religion, specifically the
employer/withholding agent who fails or refuses right to disseminate religious information. As
to refund excess withholding tax shall, in addition between taxation and religion, the latter
to the penalties provided in this Title, be liable to prevails.
a penalty to the total amount of refunds which
was not refunded to the employee resulting from
any excess of the amount withheld over the tax (Lladoc vs. Commissioner of Internal
actually due on their return Revenue 14 SCRA 292)
CASES and DOCTRINES The exemption under Sec. 22(3) Art. VI of the
Constitution only covers taxes assessed on
(Lutz vs Araneta 98 Phil 148) cemeteries, churches, and parsonages or
If objective and methods are alike constitutionally convents, appurtenant thereto and all lands,
valid, no reason is seen why the state may not buildings and improvements used exclusively for
levy taxes to raise funds for their prosecution and religious purposes. These taxes are property
attainment. Taxation may be made the taxes as contra-distinguished from excise taxes.
implement of the state's police power. It is In the case at bar, whats being assessed was a
inherent in the power to tax that a State be free donees gift tax not on the properties themselves.
to select the subjects of taxation and it has been The gift tax was an excise tax upon the use made
repeatedly held that irregularities which result of the properties, upon the exercise of the
from a singling out of one particular class for privilege of receiving the properties. This kind of
taxation or exemption infringe no Constitutional tax is not within the exempting provision of the
limitation. constitution. Therefore, the petitioner as
substituted by the Head of the Diocese, is liable
to pay the said gift tax.
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The exemption under Sec. 22(3) Art. VI of the 1988. The examination resulted in
Constitution only covers property taxes recommendation for the issuance of an
assessed on cemeteries, churches, and assessment of P7,498,434.65 and P3,015,236.35
parsonages or convents, appurtenant thereto for 1986 and 1987, respectively.
and all lands, buildings and improvements On March 1, 1995, Commissioner filed a
used exclusively for religious purposes. criminal complaint for tax evasion against PRDC,
its president and treasurer before the DOJ.
(Abra Valley College vs. Aquino 162 SCRA Private respondents filed immediately an urgent
106) request for reconsideration on reinvestigation
disputing the tax assessment and tax liability.
The phrase used exclusively for educational On March 23, 1995, private respondents
purposes is not limited to property actually received a subpoena from the DOJ in connection
indispensable therefor but extends to with the criminal complaint. In a letter dated, May
facilities, which are incidental to and 17, 1995, the Commissioner denied private
reasonably necessary to the accomplishment respondents request for reconsideration
of said purposes (reinvestigation on the ground that no formal
assessment has been issued which the latter
elevated to the CTA on a petition for review. The
(Bishop of Nueva Segovia vs. Province of Commissioners motion to dismiss on the ground
Ilocos Norte 51 PHIL 352 of the CTAs lack of jurisdiction inasmuch as no
formal assessment was issued against private
Exemption from payment of land tax, which refers respondent was denied by CTA and ordered the
to lots used as home of the priest who Commissioner to file an answer but did not
preside over the church must include not instead filed a petition with the CA alleging grave
only the lot actually occupied by the church abuse of discretion and lack of jurisdiction on the
but also the adjacent ground destined to part of CTA for considering the affidavit/report of
meet the ordinary incidental uses of man. the revenue officers and the endorsement of said
report as assessment which may be appealed to
he CTA. The CA sustained the CTA decision and
(San Miguel Brewery, Inc. vs. City of dismissed the petition.
Cebu/Cebu Portland Cement Co. vs. Naga,
Cebu February 20, 1973) Issues:
This is because double taxation is not 1. Whether or not the criminal complaint for
prohibited by the Constitution. Furthermore, tax evasion can be construed as an
there is double taxation only when the same assessment.
person is taxed by the same jurisdiction for the 2. Whether or not an assessment is
same purpose. In the first case, the annual necessary before criminal charges for tax
business tax is a license tax to engage in the evasion may be instituted.
business of wholesale liquor in Cebu City. Such
license tax constitutes a regulatory measure in Held:
the exercise of police power, whereas that which The filing of the criminal complaint with
is imposed by the ordinance is a typical tax or the DOJ cannot be construed as a formal
revenue measure. assessment. Neither the Tax Code nor the
revenue regulations governing the protest
assessments provide a specific definition or form
of an assessment.
Subject Matter: Criminal Action; Tax An assessment must be sent to and
Assessment received by the taxpayer, and must demand
payment of the taxes described therein within a
specific period. The revenue officers affidavit
CIR V PASCOR REALTY & DEVT CORP et. al. merely contained a computation of respondents
(GR No. 128315, June 29, 1999) tax liability. It did not state a demand or period
for payment. It was addressed to the Secretary of
Facts: Justice not to the taxpayer. They joint affidavit
The CIR authorized certain BIR officers to was meant to support the criminal complaint for
examine the books of accounts and other tax evasion; it was not meant to be a notice of
accounting records of Pascor Realty and tax due and a demand to private respondents for
Development Corp. (PRDC) for 1986, 1987 and
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the payment thereof. The fact that the complaint complaint and prosecutors orders be
was sent to the DOJ, and not to private dismissed/set aside or alternatively, that the
respondent, shows that commissioner intended to preliminary investigation be suspended pending
file a criminal complaint for tax evasion, not to determination by CIR of Fortunes motion for
issue an assessment. reconsideration/reinvestigation of the August 13,
An assessment is not necessary before 1993 assessment of taxes due.
criminal charges can be filed. A criminal charge The trial court granted the petition for a
need not only be supported by a prima facie writ of preliminary injunction to enjoin the
showing of failure to file a required return. The preliminary investigation on the complaint for tax
CIR had, in such tax evasion cases, discretion on evasion pending before the DOJ, ruling that the
whether to issue an assessment, or to file a tax liability of private respondents first be settled
criminal case against the taxpayer, or to do both. before any complaint for fraudulent tax evasion
can be initiated.
Subject Matter: Criminal Action
Issue:
Whether the basis of private respondents
CIR V CA tax liability first be settled before any complaint
G.R. No. 119322, June 4, 1996 for fraudulent tax evasion can be initiated.
Facts: Held:
A task force was created on June 1, 1993 Fraud cannot be presumed. If there was
to investigate tax liabilities of manufacturers fraud on willful attempt to evade payment of ad
engaged in tax evasion schemes. On July 1, 1993, valorem taxes by private respondent through the
the CIR issued Rev. Memo Circ. No. 37-93 which manipulation of the registered wholesale price of
reclassified certain cigarette brands the cigarettes, it must have been with the
manufactured by private respondent Fortune connivance of cooperation of certain BIR officials
Tobacco Corp. (Fortune) as foreign brands subject and employees who supervised and monitored
to a higher tax rate. On August 3, 1993, Fortune Fortunes production activities to see to it that
questioned the validity of said reclassification as the correct taxes were paid. But there is no
being violative of the right to due process and allegation, much less evidence, of BIR personnels
equal protection of laws. The CTA, on September malfeasance at the very least, there is the
8, 1993 resolved that said reclassification was of presumption that BIR personnel performed their
doubtful legality and enjoined its enforcement. duties in the regular course in ensuring that the
In the meantime, on August 3, 1993, correct taxes were paid by Fortune.
Fortune was assessed deficiency income, ad Before the tax liabilities of Fortune are
valorem and VAT for 1992 with payment due finally determined, it cannot be correctly asserted
within 30 days from receipt. On September 12, that private respondents have willfully attempted
1993, private respondent moved for to evade or defeat any tax under Secs. 254 and
reconsideration of said assessment. Meanwhile 256, 1997 NIRC, the fact that a tax is due must
on September 7, 1993, the Commissioner filed a first be proved.
complaint with the DOJ against private
respondent Fortune, its corporate officers and 9
other corporations and their respective corporate
officers for alleged fraudulent tax evasion for AZNAR CASE (August 23, 1974)
non-payment of the correct income, ad valorem
and VAT for 1992. The complaint was referred to Facts:
the DOJ Task Force on revenue cases which found Matias Aznar died on May 15, 1958. His
sufficient basis to further investigate the charges income tax returns from 1945 to 1951 were
against Fortune. examined by the BIR. Doubting the truth of the
A subpoena was issued on September 8, income that he had reported, the Commissioner
1993 directing private respondent to submit their ordered the investigation of the case on the basis
counter-affidavits. But it filed a verified motion to of the net worth method. Substantial under-
dismiss or alternatively, a motion to suspend but declarations of income were discovered. On
was denied and thus treated as their counter- November 28, 1952, the BIR notified AZNAR of a
affidavit. All motions filed thereafter were denied. tax delinquency of P723,032.66 which was later
January 4, 1994, private respondents filed reduced to P381,096.07 upon reinvestigation.
a petition for certiorari and prohibition with On February 20, 1953, AZNARs properties
prayer for preliminary injunction praying the CIRs were placed under distraint and levy. On April 1,
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TAXATION: San Beda College of LAW ALABANG
Issues:
Whether or not the right of the
Commissioner to assess AZNARs deficiency
income taxes for 1946, 1947 and 1948 had
prescribed at the time the assessment was made.
Held:
On the issue of prescription the count
applied the 10-year prescriptive period and ruled
that prescription had not set in. the court opined
that AZNARs returns were false because the
under-declaration of income constituted a
deviation from the truth. The court stated that
the ordinary prescriptive period of 5 years (now 3
years) would apply under normal circumstances
but whenever the government is placed at a
disadvantage as to prevent its lawful agent from
making a proper assessment of tax liabilities due
to false or fraudulent returns intended to evade
payment of taxes or failure to the returns, the
period of 10 years provided for in the law from
the discovery of the falsity, fraud or omission
even seems to be inadequate and should be the
one enforced.
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