Professional Documents
Culture Documents
TAXATI0N
by
ABELARDO T. DOMONDON
How to use the Notes: These Notes in the form of
textual materials and representative review questions were
specially prepared by Prof. Domondon for the exclusive
use of Bar Candidates who attended his 2009 lectures on
Taxation, and others he has personally authorized.
The purpose of these Notes is to test the candidates
ability to answer probable questions that may be asked in the
September 33, 2009 Bar Examinations in Taxation. The last
version to be released is Ver. 09.08.17 which may
substantially alter the contents of this Ver. 09.05.12 Be sure
to secure the last version to replace this version.
DO NOT MEMORIZE the suggested answers. Some of
the answers were purposely made to be lengthy in order to
serve as explanatory devices. This is so because you do not
have time anymore to refer back to your review materials.
The materials are arranged in accordance with the bar
examination coverage. The actual bar questions may not be
so arranged. Likewise, these Notes are only indicative of the
areas from where Bar questions may be sourced. The
2.
Why are tax exemptions are strictly construed
against the taxpayer and liberally in favor of the State ?
SUGGESTED ANSWER:
continued existence of the State.
3.
Taxes are what civilized people pay for civilized society. They are
the lifeblood of the nation. Thus, statutes granting tax exemptions
are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of tax exemption must be
clearly shown and based on language in law too plain to be
mistaken. Otherwise stated, taxation is the rule, exemption is the
exception. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G.
R. No. 166408, October 6, 2008 citing Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA
667, 680) The burden of proof rests upon the party claiming the
4.
Rationale for strict interpretation of tax
exemption laws. The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to
minimize differential treatment and foster impartiality, fairness and
equality of treatment among taxpayers. (Quezon City, et al., v. ABSCBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008) He
who claims an exemption from his share of common burden must
justify his claim that the legislature intended to exempt him by
unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the
clearest and most unambiguous language and not left to mere
implications. It has been held that exemptions are never presumed
the burden is on the claimant to establish clearly his right to
exemption and cannot be made out of inference or implications but
must be laid beyond reasonable doubt. In other words, since
taxation is the rule and exemption the exception, the intention to
make an exemption ought to be expressed in clear and
unambiguous terms. (Quezon City, supra citing Agpalo, R.E., Statutory
Construction, 2003 ed., p. 302)
6.
Why
imprescriptible ?
is
the
right
to
collect
taxes
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be
7.
It is said that taxes are the lifeblood of the
government and any delay in its collection would impair the
rendition of government services. May the collection of
taxes be restrained by a court ?
SUGGESTED ANSWER: As a general rule, No court shall
have the authority to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge. (Sec. 218, NIRC)
However, the Court of Tax Appeals is empowered to enjoin the
collection of taxes through administrative remedies when collection
could jeopardize the interest of the government or taxpayer. (Sec. 11,
Rep. Act No. 1125)
8.
Rule 10, RRCTA effective December 15, 2005) with the Court of Tax
Appeals.
The motion for suspension of the collection of the tax may be
filed together with the petition for review or with the answer, or in a
separate motion filed by the interested party at any stage of the
proceedings. (Sec. 3, Rule 10, RRCTA effective December 15, 2005)
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation
is to promote the general welfare and to protect the health, safety or
morals of the inhabitants. It is in the joint exercise of the power of
taxation and police power where regulatory taxes are collected.
Taxation may be made the implement of the states police
power. The motivation behind many taxation measures is the
implementation of police power goals. [Southern Cross Cement
Corporation v. Cement Manufacturers Association of the Philippines,
et al., G. R. No. 158540, August 3, 2005 citing Lutz v. Araneta, 98
Phil. 148, 152 (1955); in turn citing Great Atl. & Pac. Tea Co. v.
Grosjean, 302 U.S. 412; U.S. v. Biutler, 297 U.S. 1; McCulloch v.
Maryland, 4 Wheaton 316] The reader should note that the August 3,
2005 Southern Cross case is the decision on the motion for
reconsideration of the July 8, 2004 Southern Cross decision.
The so-called sin taxes on alcohol and tobacco manufacturers
help dissuade the consumers from excessive intake of these
potentially harmful products. (Southern Cross Cement Corporation v.
Cement Manufacturers Association of the Philippines, et al., G. R. No.
158540, August 3, 2005)
10.
Explain the compensatory purpose of taxation.
SUGGESTED ANSWER:
The compensatory purpose of
taxation is to implement the social justice provisions of the
constitution through the progressive system of taxation, which would
result to equal distribution of wealth, etc.
Progressive income taxes alleviate the margin between rich
and poor.
(Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540,
August 3, 2005)
b.
BASIS: A tax is imposed under the power of taxation
WHILE a license fee is imposed under police power.
c.
AMOUNT: There is no limit as to the amount of a tax
WHILE the amount of license fee that could be collected is limited to
the cost of the license and the expenses of police surveillance and
regulation.
d.
TIME OF PAYMENT: Taxes are normally paid after the
start of a business WHILE a license fee before the commencement
of business.
e.
EFFECT OF NON-PAYMENT: Failure to pay a tax does
not make the business illegal WHILE failure to pay a license fee
makes the business illegal.
f.
SURRENDER: Taxes being the lifeblood of the state,
cannot be surrendered except for lawful consideration WHILE a
license fee may be surrendered with or without consideration.
12.
Distinguish taxation from police power.
SUGGESTED ANSSWER: Taxation is distinguishable from
police power as to the means employed to implement these public
goals. Those doctrines that are unique to taxation arose from peculiar
considerations such as those especially punitive effects (Southern
Cross Cement Corporation v. Cement Manufacturers Association of
the Philippines, et al., G. R. No. 158540, August 3, 2005 citing U. S.
Chief Marshall who once said, the power to tax involves the power to
destroy, McCulloch v. Maryland, 4 Wheaton 316, cited in Sison v.
Ancheta, G. R. No. L 59431, July 25, 130 SCRA 654) and the belief
that taxes are lifeblood of the state. (Southern Cross Cement
Corporation v. Cement Manufacturers Association of the Philippines,
et al., G. R. No. 158540, August 3, 2005 citing [T]axes being the
lifeblood of the government, their prompt and certain availability is of
the essence. Sison v. Ancheta, id., citing Vera v. Fernandez, G. R.
No. L-31364, March 30, 1979, 89 SCRA 199]
These considerations necessitated the evolution of taxation as
a distinct legal concept from police power. (Southern Cross Cement
Corporation, supra)
If the question asks for an enumeration of the distinctions
between the power of taxation and police power, the candidate should
reformulate no. 17 above.
13.
Act ?
SUGGESTED ANSWER: The Sugar Adjustment Act which
increased existing taxes on sugar was enacted to stabilize the sugar
industry to prepare it for the loss of its quota in the U.S. market was
levied for a regulatory purpose to protect and promote the sugar
1.
3.
4.
SUGGESTED ANSWER:
Locus standi is a right of
appearance in a court of justice on a given question. (Abaya v.
Ebdane, G. R. No. 167919, February 14, 2007)
It is a partys personal and substantial interest in the case, such
that the party has sustained or will sustain (Ibid.)direct injury as a
result of the government act being challenged. It calls for more than
just a generalized grievance.
A party need not be a party to the contract to challenge its
validity. (Ibid.)
5.
6.
7.
8.
What are the requirements that must be
met before taxpayers, concerned citizens and legislators
may be accorded standing to sue ?
SUGGESTED ANSWER:
a. The case should involve constitutional issues;
b. For taxpayers, there must be a claim of illegal
disbursement of public funds or that the tax measure is
unconstitutional.
c. For voters, there must be a showing of obvious interest
in the validity of the election law in question.
d. For concerned citizens, there must be a showing that
the issues raised are of transcendental importance which must be
settled early.
e. For legislators, there must be a claim that the official
action complained of infringes upon their prerogatives as legislators.
(David, et al., v. President Gloria Macapagal-Arroyo, etc., et al., G.
R. No. 171396, May 3, 2006)
9.
What are the requisites for challenging
constitutionality of law including a tax law ?
SUGGESTED ANSWER: The party bringing suit must show
not only that the law or act is invalid, but also that he has sustained
or is in immediate, or imminent danger of sustaining some direct
injury as a result of its enforcement and not merely that he suffers
thereby in some indefinite way. (Soriano III v. Lista, et al., G. R. No.
153881, March 24, 2003)
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is a wastage of public
funds through the enforcement of an invalid or unconstitutional law.
(Abaya v. Ebdane, G. R. No. 167919, February 14, 2007)
22. Juliane
the liabilities insured and the risk originally undertaken by the local
insurance company, upon which the reinsurance premiums and
indemnity were based, were all situated in the Philippines. (Alexander
Howden & Co., Ltd. v. Collector of Internal Revenue, 121 Phil. 579; 13
SCRA 601 (1965) cited in Baier-Nickel)
24.
BOAC, a foreign airline company which
does not maintain any flight to and from the Philippines
sold air tickets in the Philippines, through a general sales
agent, relating to the carriage of passengers and cargo
between two points, both outside the Philippines.
Is BOAC subject to income taxes on the sale of the
tickets ?
SUGGESTED ANSWER: Yes. The source of income which is
taxable is that activity which produced the income. The sale of
tickets in the Philippines is the activity that determines whether such
income is taxable in the Philippines.
The tickets exchanged hands here and payments for fares
were also made here in Philippine currency. The situs of the source of
payments is the Philippines. the flow of wealth proceeded from and
occurred, within the Philippine territory, enjoying the protection
accorded by the Philippine Government. In consideration of such
protection, the flow of wealth should share the burden of supporting
the government. (Commissioner of Internal Revenue v. British
Overseas Airways Corporation (BOAC), 149 SCRA 395 cited in
Bauer-Nickel)
NOTES AND COMMENTS: The concept of imposition of the
gross Philippine billings that taxes only flights that originate from the
Philippines apply only to resident foreign corporations doing business
in the Philippines [Sec. 28 (A) (3) (a), NIRC of 1997] AND NOT TO
incomes of non-resident foreign corporations that are taxed on the
gross income. [Sec. 28 (B) (1)]
c.
The tax authorities gave the term tax credit in
Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly
disparate from what R.A. No. 7432 provides. Their interpretation
muddled up the intent of Congress to grant a mere discount privilege
and not a sales discount. The Court, striking down the revenue
regulation, held that an administrative agency issuing regulations
may not enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional requirements not
contemplated by the legislature. (Ibid., Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, 15 April
2005, 456 SCRA 414)
d.
Commissioner
Jose
Ong
issued
Revenue
Memorandum Order (RMO) No. 15-91, as well as the clarificatory
Revenue Memorandum Circular (RMC) 43-91, imposing a 5%
lending investors tax under the 1977 Tax Code, as amended by
Executive Order (E.O.) No. 273, on pawnshops. The Commissioner
anchored the imposition on the definition of lending investors
provided in the 1977 Tax Code which, according to him, was broad
e.
The then acting Commissioner issued RMC 7-85,
changing the prescriptive period of two years to ten years for claims
of excess quarterly income tax payments, thereby creating a clear
inconsistency with the provision of Section 230 of the 1977 Tax
Code. The Court nullified the circular, ruling that the BIR did not
simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress. [Ibid., Philippine Bank of Communications v.
Commissioner of Internal Revenue, 361 Phil. 916 (1999)]
f.
The Supreme Court ruled as invalid RMO 4-87 which
had construed the amnesty coverage under E.O. No. 41 (1986) to
include only assessments issued by the BIR after the promulgation
of the executive order on 22 August 1986 and not assessments
made to that date. The Supreme Court resolved in the negative.
[Ibid., Commissioner of Internal Revenue v. CA, et al., 310 Phil. 392 (1995)]
statute are clear, plain and free from ambiguity, it must be given its
literal meaning and applied without attempted interpretation. (Ibid.)
b.
Administrative regulations must always be in harmony
with the provisions of the law because any resulting discrepancy
between the two will always be resolved in favor of the basic law.
[Commissioner of Internal Revenue v. Fortune Tobacco Corporation, G. R.
Nos. 167274-75, July 21, 2008 citing Landbank of the Philippines v. Court
of Appeals, 327 Phil. 1047, 1052 (1996)]
CONSTITUTIONAL LIMITATIONS
1. What are the constitutional limitations on the power of
taxation ?
SUGGESTED ANSWER: The general or indirect constitutional
limitations as well as the specific or direct constitutional limitations.
2.
10
11
pleadings
during
the
preliminary
investigation.
A
respondent cannot claim denial of due process when she was
given the opportunity to file her affidavits and other pleadings and
submit evidence before the DOJ during the preliminary investigation
of her case and before the Information was filed against her.
Due process is merely an opportunity to be heard. In addition,
preliminary investigation conducted by the DOJ is merely
inquisitorial. It is not a trial of the case on the merits. Its sole
purpose is to determine whether a crime has been committed and
whether the respondent therein is probably guilty of the crime. It is
not the occasion for the full and exhaustive display of the parties
evidence. Hence, if the investigating prosecutor is already satisfied
that he can reasonably determine the existence of probable cause
based on the parties evidence thus presented, he may terminate the
proceedings and resolve the case. (Santos v. People, et al, G. R. No.
173176, August 26, 2008 citing De Ocampo v. Secretary of Justice, G.R.
No. G.R. No. 147932, 25 January 2006, 480 SCRA 71, 81-82)
4.
Equal protection of the law clause is subject to
reasonable classification. If the groupings are characterized by
substantial distinctions that make real differences, one class may be
treated and regulated differently from another. The classification must
also be germane to the purpose of the law and must apply to all those
belonging to the same class. (Tiu, et al., v. Court of Appeals, et al.,
G.R. No. 127410, January 20, 1999)
5.
6.
The law grant of tax and duty-free status
under Rep. Act No. 7227, to retailers inside the SSEZ
without granting the same to those outside the SSEZ. Is
there a violation of the equal protection clause ?
SUGGESTED ANSWER: There is no violation of equal
protection because there exists a valid classification as shown below:
a.
Significant distinctions exist between the two groups.
Those outside of the SSEZ maintain their business within Philippine
customs territory while those within the SSEZ operate within the socalled separate customs territory. To grant the same privileges
would clearly defeat the statues intent to carve a territory out of the
military reservations in Subic Bay where free flow of goods and
capital is maintained.
b.
The classification is germane to the purpose of Rep. Act
No. 7227. As held in Tiu, the real concern of the law is to convert the
lands formerly occupied by the US military bases into economic or
industrial areas. In furtherance of such objective, Congress deemed it
necessary to extend economic incentives, in terms of a complete
package of tax incentives and other benefits, to the establishments
within the zone to attract and encourage foreign and local investors.
c.
The classification is not limited to the existing conditions
when the law was promulgated but to future conditions as well,
inasmuch as the law envisioned the former military reservation to
ultimately develop into a self-sustaining investment center.
d.
The classification applies equally to all retailers found
within the secured area. As ruled in Tiu, the individuals and
businesses within the secured area, being in like circumstances or
contributing directly to the achievement of the end purposes of the
law, are not categorized further. They are all similarly treated, both in
privileges granted and in obligations required. (Coconut Oil Refiners
Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527,
July 29, 2005 citing Tiu, et al., v. Court of Appeals, et al., G.R. No.
127410, January 20, 1999, 301 SCRA 278)
7.Is
12
shall be subject to the same burdens and granted the same privileges
without any discrimination whatsoever.
9.
Uniformity may have a restrictive meaning different
from equality and equal protection. It would mean then that the
same rate shall be imposed for the same subjects and objects within
the territorial boundaries of a taxing authority.
10.
It is inherent in the power to tax that the State be
free to select the subjects of taxation, and it has been repeatedly
held that, "inequalities which result from a singling out of one
particular class of taxation, or exemption, infringe no constitutional
limitation." (Commissioner of Internal Revenue, et al., v. Santos, et
al., 277 SCRA 617)
In the same vein, employees of the BIR and the BOC may by
law be entitled to a reward when, as a consequence of their zeal in
the enforcement of tax and customs laws, they exceed their revenue
targets. Public service is its own reward. Nevertheless, public
officers may by law be rewarded for exemplary and exceptional
performance. A system of incentives for exceeding the set
expectations of a public office is not anathema to the concept of
public accountability. In fact, it recognizes and reinforces dedication
to duty, industry, efficiency and loyalty to public service of deserving
government personnel. (ABAKADA Guro Party List, etc., supra)
13
11.
A fixed annual license fee on those engaged in the
business of general enterprise was also imposed on the sale of
bibles by a religious sect. Is this valid or violative of the
constitutionally guaranteed freedom of religion ?
SUGGESTED ANSWER: It is not valid because it violates the
constitutionally guaranteed freedom of religion. As a license fee is
fixed in amount and unrelated to the receipts of the taxpayer, such a
license fee, when applied to a religious sect is actually imposed as a
condition for the free exercise of religion. A license fee restrains in
advance those constitutional liberties of press and religion and
inevitably tends to suppress their exercise.
12.
A lawful tax on a new subject, or an increased tax on
an old one, does not interfere with a contract or impairs its
obligation, within the meaning of the constitution. Even though such
taxation may affect particular contracts, as it may increase the debt of
one person and lessen the security of another, or may impose
additional burdens upon one class and release the burdens of another,
still the tax must be paid unless prohibited by the constitution, nor can
14
16.
15
16
17
20.
Double taxation in its generic sense, this means
taxing the same subject or object twice during the same taxable
period.
In its particular sense, it may mean direct duplicate taxation,
which is prohibited under the constitution because it violates the
concept of equal protection, uniformity and equitableness of taxation.
Indirect duplicate taxation is not anathematized by the above
constitutional limitations.
21.
taxation ?
SUGGESTED ANSWER:
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b. Taxing all of the subjects or objects for the first time
without taxing all of them for the second time.
If any of the elements are absent then there is indirect
duplicate taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
a.
Presence of the 2nd element violates the equal
protection clause. If only the 1st element is present, taxing the same
subject or object twice, by the same taxing authority, etc., there is no
violation of the equal protection clause because all subjects and
objects that are similarly situated are subject to the same burdens and
granted the same privileges without any discrimination whatsoever,
The presence of the 2nd element, taxing all of the subjects and
objects for the first time, without taxing all for the second time, results
to discrimination among subjects and objects that are similarly
situated, hence violative of the equal protection clause.
22. Double taxation a valid defense against the legality of
a tax measure if the double taxation is direct duplicate taxation,
because it would violate the equal protection clause of the
constitution.
23.
When an item of income is taxed in the Philippines
and the same income is taxed in another country, this would be
known as international juridical double taxation which is the
imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical
grounds. (Commissioner of Internal Revenue v. S.C. Johnson and
Son, Inc., et al., G.R. No. 127105, June 25, 1999)
18
25.
Tax credit generally refers to an amount that is
subtracted directly from ones total tax liability, an allowance against
the tax itself, or a deduction from what is owned.
A tax credit reduces the tax due, including whenever
applicable the income tax that is determined after applying the
corresponding tax rates to taxable income. (Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G. R. No. 159647, April
15, 2005)
26.
A tax deduction is defined as a subtraction fro income
for tax purposes, or an amount that is allowed by law to reduce
income prior to the application of the tax rate to compute the amount
of tax which is due.
A tax deduction reduces the income that is subject to tax in
order to arrive at taxable income. (Commissioner of Internal Revenue
v. Central Luzon Drug Corporation, G. R. No. 159647, April 15, 2005)
19
4.
Distinguish between the tax avoidance
and tax evasion.
SUGGESTED ANSWER:
a.
Tax avoidance is legal while tax evasion is illegal.
b.
The objective of tax avoidance in most instances is
merely to reduce the tax that is due while is tax evasion the object is
to entirely escape the payment of taxes.
c.
Tax evasion warrants the imposition of civil,
administrative and criminal penalties while tax avoidance does not.
5.
What are the reasons why national taxes cannot be
the subject of compensation and set-off with debts ?
SUGGESTED ANSWER:
a.
The lifeblood theory;
b.
Taxes are not contractual obligations but arise out of a
duty to, and are the positive acts of government, to the making and
enforcing of which the personal consent of the individual taxpayer is
not required. (Republic v. Mambulao Lumber Co., 4 SCRA 622)
c.
The government and the taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is no such
debt, demand, contract or judgment as is allowed to be set-off.
(Caltex Philippines, Inc. v. Commission on Audit, 208 SCRA 726, 756)
6.
Compensation takes place by operation of law, where
the local government and the taxpayer are in their own right
reciprocally debtors and creditors of each other, and that the debts are
both due and demandable, in consequence of Articles 1278 and 1279
of the Civil Code. (Domingo v. Garlitos, 8 SCRA 443)
7.
In case of a tax overpayment, where the BIRs
obligation to refund or set-off arises from the moment the tax
was paid under the principle of solutio indebeti. (Commissioner
of Internal Revenue v. Esso Standard Eastern, Inc, 172 SRCA 364)
20
b.
So also, the tax exemption of PAGCOR has already
been withdrawn by Rep. Act No. 9337.
12.
Silkair
(Singapore)
PTE,
Ltd.,
an
international carrier, purchased aviation gas from Petron
Corporation, which it uses for its operations. It now claims
for refund or tax credit for the excise taxes it paid claiming
that it is exempt from the payment of excise taxes under
the provisions of Sec. 135 of the NIRC of 1997.
Silkair further anchors its claim on Article 4(2) of the
Air Transport Agreement between the Government of the
Republic of the Philippines and the Government of the
Republic of Singapore (Air Transport Agreement between
RP and Singapore).
Silkair likewise argues that it is exempt from indirect
taxes because the Air Transport Agreement between RP
and Singapore grants exemption from the same customs
duties, inspection fees and other duties or taxes imposed
in the territory of the first Contracting Party. It invokes
Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197
SCRA 771.which upheld the claim for tax credit or refund
by the National Power Corporation (NPC) on the ground
that the NPC is exempt even from the payment of indirect
taxes.
Is Silkair entitled to the tax refund or credit it seeks ?
Reason out your answer.
SUGGESTED ANSWER: Silkair is not entitled to tax refund or
credit for the following reasons:
a.
The excise tax on aviation fuel is an indirect tax. The
proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even if he shifts the burden thereof to
another. (Philippine Geothermal, Inc. v. Commissioner of Internal
Revenue, G.R. No. 154028, July 29, 2005, 465 SCRA 308, 317-318)
The NIRC provides that the excise tax should be paid by the
manufacturer or producer before removal of domestic products from
place of production. Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on
Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport
Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of
the tax, the additional amount billed to Silkair for jet fuel is not a tax
but part of the price which Silkair had to pay as a purchaser.
21
FUNCTIONS
OF
THE
BUREAU
OF
a.
a decedent to determine his gross estate; and
b.
any taxpayer who has filed an application for
compromise of his tax liability by reason of financial incapacity to pay
his tax liability. [Sec. 5 (F), NIRC of 1997]
c.
A taxpayer who authorizes the Commissioner to inquire
into his bank deposits.
2.
Purpose of the NIRC of 1997. Revenue generation
has undoubtedly been a major consideration in the passage of
the Tax Code. (Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
3.
Purpose of shift from ad valorem system to specific
tax system in taxation of cigarettes. The shift from the ad
valorem system to the specific tax system is likewise meant to
promote fair competition among the players in the industries
concerned, to ensure an equitable distribution of the tax burden and
to simplify tax administration by classifying cigarettes, among
others, into high, medium and low-priced based on their net retail
price and accordingly graduating tax rates. (Commissioner of
Internal Revenue v. Fortune Tobacco Corporation, G. R. Nos.
167274-75, July 21, 2008 citing Record of the Senate, pp. 224-225)
TAX ON INCOME
1.
The Tax Code has included under the term
corporation partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies. [Sec. 24 now Sec. 24 (B) of
the NIRC of 1997]
2.
In Evangelista v. Collector, 102 Phil. 140, the Supreme
Court held citing Mertens that the term partnership includes a
syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial
operation, or venture is carried on.
3. Certain business organizations do not fall under the
category of corporations under the Tax Code, and therefore not
subject to tax as corporations, include:
a. General professional partnerships;
b. Joint venture or consortium formed for the purpose of
undertaking construction projects engaging in petroleum, coal,
geothermal, and other energy operations, pursuant to an operation or
consortium agreement under a service contract with the Government.
[1st sentence, Sec. 22 (B), BIRC of 1997]
22
8.
The term taxable income means the pertinent items of
gross income specified in the Tax Code, less the deductions and/or
personal and additional exemptions, if any, authorized for such types
of income by the Tax Code or other special laws. (Sec. 31, NIRC of
1997)
9.
The cancellation and forgiveness of indebtedness
may amount to (a) payment of income; (b) gift; or to a (c) capital
transaction depending upon the circumstances.
10.
If an individual performs services for a creditor who, in
consideration thereof, cancels the debt, it is income to the extent of
the amount realized by the debtor as compensation for his services.
11.
An insolvent debtor does not realize taxable income
from the cancellation or forgiveness. (Commissioner v. Simmons Gin
Co., 43 Fd 327 CCA 10th)
12.
The insolvent debtor realizes income resulting from the
cancellation or forgiveness of indebtedness when he becomes
solvent. (Lakeland Grocery Co., v. Commissioner 36 BTA (F) 289)
13.
If a creditor merely desires to benefit a debtor and
without any consideration therefor cancels the amount of the debt it is
a gift from the creditor to the debtor and need not be included in the
latters income.
14.
If a corporation to which a stockholder is indebted
forgives the debt, the transaction has the effect of payment of a
dividend. (Sec. 50, Rev. Regs. No. 2)
15.
The Global system of income taxation is a system
employed where the tax system views indifferently the tax base and
generally treats in common all categories of taxable income of the
individual. (Tan v. del Rosario, Jr., 237 SCRA 324, 331)
16. The Schedular system of income taxation is a system
employed where the income tax treatment varies and is made to
depend on the kind or category of taxable income of the taxpayer.
(Tan v. del Rosario, Jr., 237 SCRA 324, 331)
17. Under the National Internal Revenue Code the global
system is applicable to taxable corporations and the schedular to
individuals.
23
18.
What are general principles of income
taxation in the Philippines OR the situs of income taxation
in the Philippines OR the source rule of income taxation as
applied in the Philippines ?
SUGGESTED ANSWER:
a.
A citizen of the Philippines residing therein is taxable on
all income derived from sources within and without the Philippines.
b.
A nonresident citizen is taxable only on income derived
from sources within the Philippines.
c.
An individual citizen of the Philippines who is working
and deriving income from abroad as an overseas contract worker is
taxable only on income from sources within the Philippines: Provided,
That a seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade
shall be treated as an overseas contract worker.
d.
An alien individual, whether resident or not of the
Philippines, is taxable only on income derived from sources within the
Philippines.
e.
A domestic corporation is taxable on all income derived
from sources within and without the Philippines.
f.
A foreign corporation, whether engaged or not in trade or
business in the Philippines, is taxable only on income derived from
sources within the Philippines. (Sec. 23, NIRC of 1997)
19.
Compensation income is considered as having been
earned in the place where the service was rendered and not
considered as sourced from the place of origin of the money.
20.
Payment for services, other than compensation
income, is considered as having been earned at the place where
the activity or service was performed.
21.
A non-resident alien, who has stayed in the Philippines
for an aggregate period of more than 180 days during any calendar
year, shall be considered as a non-resident alien doing business in
the Philippines. Consequently, he shall be subject to income tax on
his income derived from sources from within the Philippines. [Sec. 25
(A) (1), NIRC]
He is allowed to avail of the itemized deductions including the
personal and additional exemptions subject to the rule on reciprocity.
22.
What are considered as de minimis
benefits not subject to withholding tax on compensation
income of both managerial and rank and file employees ?
SUGGESTED ANSWER:
a.
Monetized unused vacation leave credits of employees
not exceeding ten (10) days during the year;
b.
Medical cash allowance to dependents of employees not
exceeding P750.00 per employee per semester or P125 per month;
c.
Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice
per month amounting to not more than P1,000.00;
d. Uniforms and clothing allowance not exceeding P3,000.00
per annum;
e. Actual yearly medical benefits not exceeding P10,000.00
per annum;
f.
Laundry allowance not exceeding P300 per month;
g.
Employees achievement awards, e.g. for length of
service or safety achievement, which must be in the form of a
tangible persona property other than cash or gift certificate, with an
annual monetary value not exceeding P10,000.00 received by an
employee under an established written plan which does not
discriminate in favor of highly paid employees;
h.
Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per annum;
i.
Flowers, fruits, books, or similar items given to
employees under special circumstances, e.g. on account of illness,
marriage, birth of a baby, etc.; and
j.
Daily meal allowance for overtime work not exceeding
twenty five percent (25%) of the basic minimum wage.
The amount of de minimis benefits conforming to the ceiling
herein prescribed shall not be considered in determining the P30,000
ceiling of other benefits provided under Section 32 (B)(7)(e) of the
Code. However, if the employer pays more than the ceiling
prescribed by these regulations, the excess shall be taxable to the
employee receiving the benefits only if such excess is beyond the
P30,000.00 ceiling, provided, further, that any amount given by the
employer as benefits to its employees, whether classified as de
minimis benefits or fringe benefits, shall constitute as deductible
expense upon such employer. [Sec. 2.78.1 (A) (3), Rev. Regs. 2-98
as amended by Rev. Regs. No. 8-2000]
23.
Income subject to final tax refers to an income
collected through the withholding tax system. The payor of the
income withholds the tax and remits it to the government as a final
settlement of the income tax as a final settlement of the income tax
due on said income. The recipient is no longer required to include the
income subjected to a final tax as part of his gross income in his
income tax return.
24
24.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to
the taxpayer which are not treated as part of gross income for
purposes of computing the taxpayers taxable income, due to the
following reasons: (1) It is exempted by the fundamental law; (2) It
is exempted by statute; and (3) It does not come within the definition
of income (Sec. 61, Rev. Regs. No. 2) WHILE deductions are the
amounts which the law allows to be subtracted from gross income in
order to arrive at net income.
b.
Exclusions pertain to the computation of gross income
WHILE deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the
taxpayer which do not form part of gross income WHILE deductions
are something spent or paid in earning gross income.
An example of an exclusion from gross income are life
insurance proceeds, and an example of a deduction are losses.
25.
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
b.
Amounts received by the insured as a return of
premiums paid by him under life insurance, endowment or annuity
contracts either during the term, or at maturity of the term mentioned
in the contract, or upon surrender of the contract.
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal injuries
or sickness, plus the amounts of any damages received on whether
by suit or agreement on account of such injuries or sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No.
7641. Retirement received from reasonable private benefit plan after
compliance with certain conditions. Amounts received for beyond
control separation. Foreign social security, retirement gratuities,
pensions, etc. USVA benefits, SSS benefits and GSIS benefits.
26.
What are the conditions for excluding
retirement benefits from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Retirement benefits received under Republic Act No.
7641 and those received by officials and employees of private firms,
whether individual or corporate, in accordance with the employers
reasonable private benefit plan approved by the BIR.
b.
Retiring official or employee
1)
In the service of the same employer for at least
ten (10) years;
2)
Not less than fifty (50) years of age at time of
retirement;
3)
Availed of the benefit of exclusion only once.
[Sec. 32 (B) (6) (a), NIRC of 1997] The retiring official or
employee should not have previously availed of the privilege
under the retirement plan of the same or another employer. [1st
par., Sec. 2.78 (B) (1), Rev. Regs. No. 2-98]
27.
25
c.
Taxes paid or incurred within the taxable year in
connection with the taxpayers profession.
Resident citizens, resident alien individuals and nonresident
alien individuals who are engaged in trade and business, on their
gross incomes other from compensation income are allowed to deduct
these expenses. Domestic corporations, estates and trusts may also
deduct this expense. Nonresident citizens and foreign corporations on
their gross incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
d. Ordinary losses, losses from casualty, theft or
embezzlement; and net operating losses.
Resident citizens, resident alien individuals and nonresident
alien individuals who are engaged in trade and business, on their
gross incomes other from compensation income are allowed to deduct
these expenses. Domestic corporations, estates and trusts may also
deduct this expense. Nonresident citizens and foreign corporations on
their gross incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
e.
Bad debts due to the taxpayer, actually
ascertained to be worthless and charged off within the taxable year,
connected with profession, trade or business, not sustained between
related parties.
Resident citizens, resident alien individuals and nonresident
alien individuals who are engaged in trade and business, on their
gross incomes other from compensation income are allowed to deduct
these expenses. Domestic corporations, estates and trusts may also
deduct this expense. Nonresident citizens and foreign corporations on
their gross incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
f.
Depreciation or a reasonable allowance for the
exhaustion, wear and tear (including reasonable allowance for
obsolescence) of property used in trade or business.
Resident citizens, resident alien individuals and nonresident
alien individuals who are engaged in trade and business, on their
gross incomes other from compensation income are allowed to deduct
these expenses. Domestic corporations, estates and trusts may also
deduct this expense. Nonresident citizens and foreign corporations on
their gross incomes from within may also deduct this expense.
Nonresident alien individuals not engaged in trade or
business in the Philippines are not allowed to deduct this expense.
g. Depletion or deduction arising from the exhaustion of a
non-replaceable asset, usually a natural resource.
26
30.
What are the requisites
deductibility of business expenses ?
for
the
31.
What are the requisites for the
deductibility of ordinary and necessary trade, business, or
professional expenses, like expenses paid for legal and
auditing services ?
SUGGESTED ANSWER:
a.
the expense must be ordinary and necessary;
b.
it must have been paid or incurred during the taxable
year dependent upon the method of accounting upon the basis of
which the net income is computed.
c.
it must be supported by receipts, records or other
pertinent papers. (Commissioner of Internal Revenue v, Isabela
cultural Corporation, G. R. No. 172231, February 12, 2007)
32.
TMG Corporation is issuing the accrual
method of accounting. In 2005 XYZ Law Firm and ABC
Auditing Firm rendered various services which were billed
by these firms only during the following year 2006. Since
the bills for legal and auditing services were received only
in 2006 and paid in the same year, TMG deducted the same
from its 2006 gross income. The BIR disallowed the
deduction ?
Who is correct, TMG or BIR ? Explain.
SUGGESTED ANSWER: The BIR is correct. TMG should
have deducted the professional and legal fees in the year they were
incurred in 2005 and not in 2006 because at the time the services
were rendered in 2005, there was already an obligation to pay them.
(Commissioner of Internal Revenue v, Isabela Cultural Corporation, G.
R. No. 172231, February 12, 2007)
NOTES AND COMMENTS:
a.
Accounting methods for tax purposes comprise a set
of rules for determining when and how to report income and
deductions. (Commissioner of Internal Revenue v, Isabela cultural
Corporation, G. R. No. 172231, February 12, 2007)
The two (2) principal accounting methods for recognition of
income are the (a) accrual method; and the (b) cash method.
b.
Recognition of income and expenses under the
accrual method of accounting. Amounts of income accrue where
the right to receive them becomes fixed, where there is created an
enforceable liability.
Liabilities, are incurred when fixed and
determinable in nature without regard to indeterminacy merely of time
of payment.. (Commissioner of Internal Revenue v, Isabela cultural
Corporation, G. R. No. 172231, February 12, 2007)
The accrual of income and expense is permitted when the allevents test has been met. (Ibid.)
c.
All-events test. This test requires:
1)
fixing of a right to income or liability to pay; and
2)
the availability of the reasonable accurate
determination of such income or liability.
The test does not demand that the amount of such income or
liability be known absolutely, only that a taxpayer has at his disposal
27
33.
The fringe benefits tax is a final withholding tax
imposed on the grossed-up monetary value of fringe benefits
furnished, granted or paid by the employer to the employee, except
rank and file employees. [1st par., Sec. 2.33 (A), Rev. Regs. No. 3-98]
34.
i.
Educational assistance to the employee or his
dependents; and
j.
Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law allows. [Sec.
33 (B), NIRC of 1997; 1st par., Sec. 2.33 (B), Rev. Regs. No. 3-98]
35.
Fringe benefits that are not subject to the fringe
benefits tax:
a.
When the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the employer; or
b.
When the fringe benefit is for the convenience or
advantage of the employer. [Sec. 32(A), NIRC of 1997; 1 st par., Sec.
2.33 (A), Rev. Regs. No. 3-98]
c.
Fringe benefits which are authorized and exempted from
income tax under the Tax Code or under any special law;
d.
Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization benefit plans;
e.
Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not; and
f.
De minimis benefits as defined in the rules and
regulations to be promulgated by the Secretary of Finance upon
recommendation of the Commissioner of Internal Revenue. [1 st par.,
Sec. 32 (C), NIRC of 1997; Sec. 2.33 (C), Rev. Regs. No. 3-98]
28
39.
41.
42.
If in the year the taxpayer claimed deduction of bad
debts written-off, he realized a reduction of the income tax due from
him on account of the said deduction, his subsequent recovery thereof
from his debtor shall be treated as a receipt of realized taxable
income. (Sec. 4, Rev. Regs. 5-99)
43.
If the said taxpayer did not benefit from the deduction of
the said bad debt written-off because it did not result to any reduction
of his income tax in the year of such deduction (i.e. where the result of
his business operation was a net loss even without deduction of the
bad debts written-off), then his subsequent recovery thereof shall be
treated as a mere recovery or a return of capital, hence, not treated
as receipt of realized taxable income. (Sec. 4, Rev. Regs. 5-99)
44.
Depreciation is the gradual diminution in the useful
value of tangible property resulting from ordinary wear and tear and
from normal obsolescence. The term is also applied to amortization
of the value of intangible assets the use of which in the trade or
business is definitely limited in duration.
45.
The methods of depreciation are the following:
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of
Finance upon the recommendation of the Commissioner of Internal
Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
46.
What are personal and additional exemptions ?
SUGGESTED ANSWER: These are the theoretical persona,
living and family expenses of an individual allowed to be deducted
from the gross or net income of an individual taxpayer.
These are arbitrary amounts which have been calculated by our
lawmakers to be roughly equivalent to the minimum of subsistence,
taking into account the personal status and additional qualified
dependents of the taxpayer. They are fixed amounts in the sense that
the amounts have been predetermined by our lawmakers and until our
lawmakers make new adjustments on these personal exemptions, the
amounts allowed to be deducted by a taxpayer are fixed as
predetermined by Congress. [Pansacola v. Commissioner of Internal
Revenue, G. R. No. 159991, November 16, 2006 citing Madrigal and
Paterno v. Rafferty and Concepcion, 38 Phil. 414, 418 (1918)]
29
30
49..
assets:
a.
The machinery and equipment of a manufacturing
concern subject to depreciation;
b. The tractors, trailers and trucks of a hauling company;
c. The condominium building owned by a realty company the
units of which are for rent or for sale;
d.
The wood, paint, varnish, nails, glue, etc. which are the
raw materials of a furniture factory;
e.
Inherited parcels of land of substantial areas located in
the heart of Metro Manila, which were subdivided into smaller lots
then sold on installment basis after introducing comparatively
valuable improvements not for the purpose of simply liquidating the
estate but to make them more saleable ; the employment of an
attorney-in-fact for the purpose of developing, managing,
administering and selling the lots; sales made with frequency and
continuity; annual sales income from the sales was considerable; and
the heir was not a stranger to the real estate business. (Tuazon, Jr. v.
Lingad, 58 SCRA 170)
f. Inherited agricultural property improved by introduction of
good roads, concrete gutters, drainage and lighting systems converts
the property to an ordinary asset. The property forms part of the stock
in trade of the owner, hence an ordinary asset. This is so, as the
owner is now engaged in the business of subdividing real estate.
(Calasanz v. Commissioner of Internal Revenue, 144 SCRA at p. 672)
50.
31
32
61.
MBC was incorporated in 1961 and engaged in
commercial banking operations since 1987. On May 22, 1987, it
ceased operations that year by reason of insolvency and its
assets and liabilities were placed under the charge of a
government-appointed receiver. On June 23, 1999, the BSP
authorized MBC to operate as a thrift bank.
In 2000, It filed its tax return for the year 1999 paying the
amount of P33 million computed in accordance with the
minimum corporate income tax (MCIT). It sought the BIRs
ruling on whether it is entitled to the four (4) year grace period
for paying on the basis of MCIT reckoned from 1999. BIR then
ruled that cessation of business activities as a result of being
placed under involuntary receivership may be an economic
reason for suspending the imposition of the MCIT.
As a result of the ruling MBC filed an application for
refund of the P33 million. Due to the BIRs inaction, MBC filed a
petition for review with the CTA.
The CTA denied the petition on the ground that MBC is not
a newly organized corporation. In a volte facie the BIR now
maintains that MBC should pay the MCIT beginning January 1,
1998 as it did not close its business operations in 1987 but
merely suspended the same. Even if placed under receivership,
the corporate existence was never affected. Thus, it falls under
the category of an existing corporation recommencing its
banking operations.
Should the refund be granted ?
SUGGESTED ANSWER: Yes. The MCIT shall be imposed
beginning in the fourth taxable year immediately following the year in
which the corporation commenced its business operations. [Sec. 27
(E) (1), NIRC of 1997]
The date of commencement of operations of a thrift bank is the
date it was registered with the SEC or the date when the Certificate of
Authority to Operate was issued to it by the Monetary Board,
whichever comes later. (Sec. 6, Rev. Regs. No. 4-95)
Clearly then. MBC is entitled to the grace period of four years
from June 23, 1999 when it was authorized by the BSP to operate as
a thrift bank before the MCIT should be applied to it. (Manila Banking
Corporation v. Commissioner of Internal Revenue, G. R. No. 168118,
August 26, 2006)
NOTES AND COMMENTS:
a.
The MCIT and when should be imposed and the four
(4) year grace period. A minimum corporate income tax of two
percent (2%) of the gross income as of the end of the taxable year, as
defined herein, is hereby imposed on a corporation taxable under this
Title, beginning on the fourth taxable year immediately following the
ESTATE TAXES
1.
2.
33
DONORS TAXES
3.
4.
For purposes of the donors tax, what is meant
by net gifts ?
SUGGESTED ANSWER: The net economic benefit from
the transfer that accrues to the donee. Accordingly, if a
mortgaged property is transferred as a gift, but imposing upon
the donee the obligation to pay the mortgage liability, then the
net gift is measured by deducting from the fair market value
of the property the amount of the mortgage assumed. (last
par., Sec. 11, Rev. Regs.No.2-2003)
5.
How are gifts of personal property to be valued
for donors tax purposes ?
34
6.
What is the valuation of donated real property
for donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised
at its fair market value as of the time of the gift.
However, the appraised value of the real property at the time of
the gift shall be whichever is the higher of:
a.
the fair market value as determined by the
Commissioner of Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values
fixed by the Provincial and City Assessors. [Sec. 102, in relation to
Sec. 88 (B) both of the NIRC of 1997]
b.
Supposing that instead of a general
renunciation, B renounced her hereditary share in As
estate to X who is a special child, would your answer be
the same ? Explain.
SUGGESTED ANSWER: My answer would be different. The
renunciation in favor of X would be subject to donors tax.
This is so because the renunciation was specifically and
categorically done in favor of X and identified heir to the exclusion
or disadvantage of Y and Z, the other co-heirs in the hereditary
estate. (4th par., Sec. 11, Rev. Regs. No. 2-2003)
a.
The first P100,000.00 net donation during a calendar
year is exempt from donors tax [Sec. 99 (A), NIRC of 1997] made by
a resident or non resident;
b.
The donation by a resident or non-resident of a prize to
an athlete in an international sports tournament held abroad and
sanctioned by the national sports association is exempt from donors
tax (Sec. 1, Rep. Act No. 7549)
c.
Political contributions made by a resident or non-resident
individual if registered with the COMELEC irrespective of whether
donated to a political party or individual.
However, the Corporation Code prohibits corporations from
making political contributions. (Corp. Code, Title IV, Sec. 36.9)
d.
Dowries or gifts made on account of marriage and
before its celebration or within one year thereafter by residents who
are parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first ten thousand pesos
(P10,000.00);
e.
Gifts made by residents or non-residents to or for the
use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political
subdivisions of the said Government;
f.
Gifts made by residents or non residents in favor of an
educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization
or research institution or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall be used by such
donee for administration purposes. [Sec. 101 (A), NIRC of 1997,
numbering and arrangement supplied]
g.
Gifts made by non-resident aliens outside of the
Philippines to Philippine residents are exempt from donors taxes
because taxation is basically territorial. The transaction, which should
have been subject to tax was made by non-resident aliens and took
place outside of the Philippines.
35
1.
2.
4.
The VAT is a tax on consumption. Explain the
meaning of consumption as used under the VAT system.
Give an example.
SUGGESTED ANSWER: Consumption is "the use of a thing
in a way that thereby exhausts it."
Applied to services, the term means the performance or
"successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" Unlike
goods, services cannot be physically used in or bound for a specific
36
5.
SUGGESTED ANSWER:
a.
Any person who, in the course of his trade or business,
1)
Sells, barters, exchanges or leases goods or
properties, or
2)
renders services, and
b.
any person who imports goods xxx
However, in the case of importation of taxable goods, the
importer, whether an individual or corporation and whether or not
made in the course of his trade or business, shall be liable to VAT
xxx. (Rev. Regs. No. 16-2005,Sec. 4.105-1, paraphrasing supplied)
6.
What are the various VAT methods and
systems ?
SUGGESTED ANSWER:
a.
Cost deduction method. This is a single-stage tax
which is payable only by the original sellers. [Abakada Guro Party
List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1,
2005 and companion cases citing Deoferio, Jr. V. A. and Mamalateo,
V.C., The Value Added Tax in the Philippines (First Edition 2000)]
This was subsequently modified and a mixture of cost deduction
method and tax credit method was used to determine the valueadded tax payable. (Ibid.)
b.
Tax credit method. This method relies on invoices, an
entity can credit against or subtract from the VAT charged on its
sales or outputs the VAT paid on its purchases, inputs and imports.
[Commissioner of Internal Revenue v. Seagate Technology
(Philippines), G. R. No. 153866, February 11, 2005 citing various
cases and authorities; Abakada Guro Party List (etc.) v. Ermita, etc.,
et al., G. R. No. 168056, September 1, 2005 and companion cases)
7.
The VAT being imposed on the increase in
worth merit or improvement of the goods or services.
How is this done ?
SUGGESTED ANSWER: The VAT utilizes the concept of the
output and input taxes.
8.
9.
SUGGESTED ANSWER: The VAT due on or paid by a VATregistered person on importation of good or local purchases of
goods or services, including lease or use of properties, in the course
of his trade or business. (Rev. Regs. No. 4.110-1, 1st par.)
10.
37
12.
What is the concept of transitional input tax
credits on beginning inventories ?
SUGGESTED ANSWER:
Taxpayers who become VATregistered persons upon exceeding the minimum turnover of
P1,500,000.00 in any 12-month period, or who voluntarily register
even if their turnover does not exceed P1,500,000.00 (except
franchise grantees of radio and television broadcasting whose
threshold is P10,000,000.00) shall be entitled to a transitional input
tax on the inventory on hand as of the effectivity of their VAT
registration, on the following:
a.
goods purchased for resale in their present condition;
b.
materials purchased for further processing, but which
have not yet undergone processing;
c.
goods which have been manufactured by the taxpayer;
d.
goods in process for sale; or
e.
goods and supplies for use in the course of the
taxpayers trade or business as a VAT-registered person. [Rev.
Regs. No. 16-2005, Sec.4.111-1, (a), 1st par., arrangement and
numbering supplied]
14.
credits ?
SUGGESTED ANSWER:
Persons or firms engaged in the
processing of sardines, mackerel, and milk, and in manufacturing
refined sugar, cooking oil and packed noodle-based instant meals,
shall be allowed a presumptive input tax, creditable against the
output tax, equivalent to four percent (4%) of the gross value in
money of their purchases of primary agricultural products which are
used as inputs to their production.
As used in this paragraph, the term processing shall mean
pasteurization, canning and activities which through physical or
38
17. Under
19.
to VAT ?
39
business of the seller shall be subject to VAT. (Rev. Regs. No. 162005, Sec. 4.106-3, 1st par.)
Thus, capital transactions of individuals are not subject to
VAT. Only real estate dealers are subject to VAT.
20.
On Jan. 10, 2008, X, a domestic corporation
engaged in the real estate business, sold a building for
P10,000,000.00. Is the sale subject to the value-added tax
(VAT)? If so, how much? Explain.
SUGGESTED ANSWER: Yes. 12% on the gross selling price
because the sale was made in the ordinary course of trade of
business of X, a domestic corporation engaged in the real estate
business.
21.
VAT ?
SUGGESTED ANSWER:
The following sales of real
properties are exempt from VAT, namely:
a.
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business;
b.
Sale of real properties utilized for low-cost housing as
defined by RA No. 7279, otherwise known as the Urban and
Development Housing Act of 1992 and other related laws, such as
RA No. 7835 and RA No. 8763.
xxx
xxx
xxx
c.
Sale of real properties utilized for socialized housing
as defined under RA No. 7279, and other related laws wherein the
price ceiling per unit is P225,000.00 or as may from time to time be
determined by the HUDCC and the NEDA and other related laws.
xxx
xxx
xxx
d.
Sale of residential lot valued at One Million Five
Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot
and other residential dwellings valued at Two Million Give Hundred
Thousand Pesos (P2,500,000.00) and below where the instrument of
sale/transfer/disposition was executed on or after November 1,
2005, provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amounts stated herein shall be
adjusted to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO); provided, further,
that such adjustment shall be published through revenue regulations
to be issued not later than March 31 of each year.
If two or more adjacent residential lots are sold or disposed in
favor of one buyer, for the purpose of utilizing the lots as one
residential lot, the sale shall be exempt from VAT only if the
22.
What is the VAT on services and lease of
properties ?
SUGGESTED ANSWER:
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to ten percent (10%) of
gross receipts
c.
derived from the sale or exchange of services,
1)
including the use or lease of properties.
d.
Provided,
That
the
President,
upon
the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
1)
Value-added tax collection as a percentage of
Gross Domestic product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
2)
National government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent
(1 1/2%). [NIRC of 1997, Sec. 108 (A), as amended by R.A.
No. 9337, arrangement and numbering supplied]
23.
40
j.
lending investors;
k.
transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire
and other domestic common carriers by land relative to their
transport of goods or cargoes;
l.
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines;
m.
sales of electricity by generation companies,
transmission, and/or distribution companies;
n.
franchise grantees of electric utilities, telephone
and telegraph, radio and television broadcasting and all other
franchise grantees except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos (P10,000,000.00),
and franchise grantees of gas and water utilities;
o.
non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and
bonding companies; and
p.
similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or
mental faculties. [NIRC of 1997, Sec. 108 (A), as amended by R.A.
No. 9337; Rev. Regs. No. 16-2005, Sec. 4,108-2, 1 st par.,
arrangement and numbering supplied]
24.
X
Corporation
rendered
technical
services through its work engineers to PNB and SSS in
the construction of their buildings. The work engineers
acted as overseers of X Corporation, rendering their
professional services as employees of X corporation.
Should X Corporation be subjected to VAT or should it be
subjected to tax on the professional services of those
employees themselves? Decide the case with reason.
SUGGESTED ANSWER: X Corporation is subject to VAT.
c.
The supply of scientific, technical, industrial or
commercial knowledge or information;
d.
The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling the application
or enjoyment of any such property, or right as is mentioned in
subparagraph (2) hereof or any such knowledge or information as is
mentioned in subparagraph (3) hereof; or
e.
The supply of services by a non-resident person or his
employee in connection with the use of property or rights belonging
to, or the installation or operation of any brand, machinery or other
apparatus purchased from such non-resident person;
f.
The supply of technical advice, assistance or services
rendered in connection with technical management or administration
of any scientific, industrial or commercial undertaking, venture,
project of scheme;
g.
The lease of motion picture films, film tapes and
discs;
h.
The lease or the use of or the right to use radio,
television, satellite transmission and cable television time. (Rev.
Regs. No. 16-2005, Sec. 4.108-2, 2nd par.)
41
29.
VAT ?
SUGGESTED ANSWER: As a general rule, the VAT system
uses the destination principle as a basis for the jurisdictional reach
of the tax.
Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are
taxed.
30.
principle ?
42
31.
The
Philippine VAT system adheres to the Cross Border Doctrine,
according to which, no VAT shall be imposed to form part of the cost
of goods destined for consumption outside of the territorial border of
the taxing authority. [Commissioner of Internal Revenue v. Toshiba
Information Equipment (Phils.), Inc., G. R.. No. 150154, August 9,
2005]
The Cross Border Doctrine is also known as the destination
principle.
Hence, actual or constructive export of goods and services
from the Philippines to a foreign country must be zero-rated for VAT;
while, those destined for use or consumption within the Philippines
shall be imposed the twelve percent (12%) VAT.
33.
a.
It regularly renders in the Philippines the service of
facilitating the collection and payment of receivables belonging to a
foreign company that is a clearly separate and distinct entity.
b.
Such service is commercial in nature; carried on over a
sustained period of time; on a significant scale with a reasonable
degree of frequency; and not at random, fortuitous, or attenuated.
c.
For this service, it definitely receives consideration in
foreign currency that is accounted for in conformity with law.
d.
It is not an entity exempt under any of our laws or
international agreements. (Commissioner, of Internal Revenue v.
American Express International, Inc. (Philipppine Branch), G. R. No.
152609, June 29, 2005)
40.
A foreign Consortium composed of BWSCDenmark, Mitsui Engineering and Shipbuilding Ltd., and
Misui and Co., Ltd., which entered into a contract with
NAPOCOR for the operation and maintenance of two
power barges appointed BWSC-Denmark as its
43
b.
Could it obtain a refund of the VAT it paid
through the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund
of the 10% output VAT it paid the based on the non-retroactivity of
the prejudicial revocation of the BIR Rulings which held that its
services are subject to 0% VAT and which BWSCMI invoked in
applying for refund of the output VAT. (Commissioner of Internal
Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc., supra)
41.
a.
The sale of goods or properties and/or services and the
use or lease of properties that is
b.not subject to VAT (output tax) and
c.
the seller is not allowed any tax credit on VAT (input
tax) purchases.
The person making the exempt sale of goods, properties or
services shall not bill any output tax to his customers because the
said transaction is not subject to VAT. [Rev. Regs. No. 16-2005,
Sec. 4.109-1 (A), arrangement and numbering supplied]
44
(D) Importation
of
professional
instruments
and
implements, wearing apparel, domestic animals, and personal
household effects (except any vehicle, vessel, aircraft, machinery,
other goods for use in the manufacture and merchandise of any kind
in commercial quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within ninety (90) days
before or after their arrival, upon the production of evidence
satisfactory to the Commissioner of Internal Revenue, that such
persons are actually coming to settle in the Philippines and that the
change of residence is bona fide;
(E) Services subject to percentage tax under Title V of the Tax
Code, as enumerated below:
(1)
Sale or lease of goods or properties or the
performance of services of non-VAT-registered persons,
other than the transactions mentioned in paragraphs (A) to
(U) of Sec. 109 (1) of the Tax Code, the annual sales and/or
receipts of which does not exceed the amount of One
Million Five Hundred thousand Pesos (P1,500,000.00),
Provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price
Index, as published by the National Statistics Office (NSO).
(Sec. 116, Tax Code)
(2)
Services rendered by domestic common carriers
by land for the transport of passengers and keepers of
garages. (Sec. 117)
(3)
Services rendered by international air/shipping
carriers. (Sec. 118)
(4)
Service rendered by franchise grantees of radio
and/or television broadcasting whose annual gross receipts
of the preceding year do not exceed Ten Million Pesos
(P10,000,000.00) and by franchises of gas and water
utilities. (Sec. 119)
(5)
Service rendered for overseas dispatch message
or conversation originating from the Philippines. (Sc. 120)
(6)
Services rendered by any person, company or
corporation (except purely cooperative companies or
associations ) doing life insurance business of any sort in the
Philippines. (Sec. 123)
(7)
Services rendered by fire, marine or
miscellaneous insurance agents of foreign insurance
companies. (Sec. 124)
(8)
Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing exhibitions
45
(M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development
Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus ratably
distributed among the members;
Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
(O) Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business, or real property utilized for low-cost and socialized housing
as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws, such
as RA No. 7835 and RA No. 8765, residential lot valued at One
million five hundred thousand pesos (P 1,500,000) and below, house
and lot, and other residential dwellings valued at Two million five
hundred thousand pesos (P 2,500,000) and below: Provided, That
not later than January 31, 2009 and every three (3) years thereafter,
the amounts herein stated shall be adjusted to their present values
using the Consumer Price Index, as published by the National
Statistics Office (NSO);
(Q) Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P 10,000) Provided, That not later
than January 31, 2009 and every three (3) years thereafter, the
amount herein stated shall be adjusted to its present value using the
Consumer Price Index as published by the National Statistics Office
(NSO);
(R) Sale, importation, printing or publication of books and
any newspaper, magazine, review or bulletin which appears at
regular intervals with fixed prices for subscription and sale and
which is not devoted principally to the publication of paid
advertisements;
(S)
Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations; Provided,
that the exemption from VAT on the importation and local purchase
of passenger and/or cargo vessels shall be limited to those of one
hundred fifty (150) tons and above, including engine and spare parts
of said vessels; Provided, further, that the vessels be imported shall
comply with the age limit requirement, at the time of acquisition
counted from the date of the vessels original commissioning, as
46
follows: (i) for passenger and/or cargo vessels, the age limit is
fifteen years (15) years old, (ii) for tankers, the age limit is ten (10)
years old, and (iii) For high-speed passenger cars, the age limit is
five (5) years old, Provided, finally, that exemption shall be subject
to the provisions of section 4 of Republic Act No. 9295, otherwise
known as The Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport operations;
Provided, that the said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or
passenger from a port in the Philippines directly to a foreign port
without stopping at any other port in the Philippines; provided,
further, that if any portion of such fuel, goods or supplies is used for
purposes other than that mentioned in this paragraph, such portion
of fuel, goods and supplies shall be subject to 10% VAT (now 12%);
(U) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries; and
(V) Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed
the amount of One million five hundred thousand pesos
(P1,500,000): Provided, That not later than January 31, 2009 and
every three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price Index as
published by the National Statistics Office (NSO).
For purposes of the threshold of P1,500,000.00, the husband
and wife shall be cnsidered separate taxpayers. However, the
aggregation rule for each taxpayer shall apply. For instance, if a
profesional, aside from the practice ofhis profession, also derives
revenue from other lines of business which are otherwise subject to
VAT, the same shall be combined for purposes of determining
whether the threshold has been exceeded. Thus, the VAT-exempt
sales shall to be icluded in determining the threshold. [NIRC of
1997, Sec. 109 (1), as amended by R. A. No. 9337; words in italics
from Rev. Regs. No. 16-2005, Sec. 4.109-1 (B), words in
parentheses supplied]
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents, until
controverted by competent evidence, are competent evidence, are
prima facie correct with respect to the entries therein. (Ropali Trading
v. NLRC, et al., 296 SCRA 309, 317)
2.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a return for the taxable year to include
the income of both spouses, but where it is impracticable for the
spouses to file one return, each spouse may file a separate return of
income but the returns so filed shall be consolidated by the Bureau
for purposes of verification. [Section 51 (D) of the NIRC of 1997]
3.
Individuals required to file an income tax return.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on
his income from sources within the Philippines;
47
c.
Every alien residing in the Philippines on income derived
from sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or
in the exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC
of 1997]
4. Individuals who are not required to file an income tax
return.
a.
An individual whose gross income does not exceed his
total personal and additional exemptions for dependents, Provided,
That a citizen of the Philippines and any alien individual engaged in
business or practice of profession within the Philippines shall file an
income tax return regardless of the amount of gross income;
b.
An individual with respect to pure compensation income
for services in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items, derived from
sources within the Philippines, the income tax on which has been
correctly withheld, Provided, That an individual deriving compensation
concurrently from two or more employers at any time during the
taxable year shall file an income tax return: Provided, further, That an
individual whose pure compensation income derived from sources
within the Philippines exceeds Sixty thousand pesos (P60,000.00),
shall also file an income tax return;
c.
An individual whose sole income has been subject to
final withholding tax;
d.
An individual who is exempt from income tax pursuant to
the provisions of the NIRC of 1997, and other laws, general or special.
[Sec. 51 (A) (2), NIRC of 1997]
NOTES AND COMMENTS: Amendments under Rep. Act No.
9504 are not incouded.
5.
An individual who is not required to file an income
tax return may nevertheless be required to file an information
return. [Sec. 51 (A) (3), NIRC of 1997]
6.
A corporation files its income tax return and pays its
income tax four (4) times during a single taxable year. Quarterly
returns are required to be filed for the first three quarters, then a final
adjustment return is filed covering the total taxable income for the
whole taxable year, be it calendar or fiscal.
7.
An individual earning from the practice of his
profession or who engages in trade or business files his income
tax return and pays his income tax four (4) times during a single
taxable year. Quarterly returns are required to be filed for the first
three quarters, then an annual income tax return is filed covering the
total taxable income for the whole of the previous calendar year.
8.
The purpose of the above four (4) times a year
requirement is to make available sufficient funds to meet the
budgetary requirements, on a quarterly basis thereby increasing
government liquidity. It also eases hardships on the part of individuals
who are required to make this four time return. Thus, the taxpayer
does not have to raise large sums of money in order to pay the tax.
9.
An individual earning purely compensation income
files only one annual income tax return covering the total taxable
compensation income for the whole of the previous calendar year.
10.
Under the withholding tax system, taxes imposed or
prescribed by the NIRC of 1997 are to be deducted and withheld
by the payors from payments made to payees for the former to
pay directly to the Bureau of Internal Revenue. It is also known as
collection of the tax at source.
11.
A withholding agent is explicitly made personally
liable under the Tax Code for the payment of the tax required to
be withheld, in order to compel the withholding agent to withhold the
tax under any and all circumstances. In effect, the responsibility for
the collection of the tax as well as the payment thereof is
concentrated upon the person over whom the Government has
jurisdiction.
(Filipinas Synthetic Fiber Corporation v. Court of
Appeals, et al., G.R. Nos. 118498 & 124377, October 12, 1999) The
system facilitates tax collection.
12.
The two (2) types of withholding at source are the 1) final
withholding tax; and 2) creditable withholding tax.
13. Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as a
full and final payment of the income due from the payee on the
said income. [1st sentence, 1st par., Sec. 2.57 (A), Rev. Regs. No. 298]
The liability for payment of the tax rests primarily on the payor
or the withholding agent.. Thus, in case of his failure to withhold the
tax or in case of under withholding, the deficiency tax shall be
collected from the payor withholding agent. The payee is not required
to file an income tax return for the particular income.
14.
Under the creditable withholding tax system, taxes
withheld on certain income payments are intended to equal or at
48
least approximate the tax due from the payee on the said
income. The income recipient is still required to file an income tax
return and/or pay the difference between the tax withheld and the tax
due on the income. [1 st and 2nd sentences, Sec. 257(B), Rev. Regs.
No. 2-98]
15.
The two kinds of creditable withholding taxes are (a)
taxes withheld on income payments covered by the expanded
withholding tax; and (b) taxes withheld on compensation income.
16.
Payments to the following are exempt from the
requirement of withholding or when no withholding taxes
required:
a.
National Government and its instrumentalities including
provincial, city, or municipal governments;
b.
Persons enjoying exemption from payment of income
taxes pursuant to the provisions of any law, general or special, such
as but not limited to the following:
1) Sales of real property by a corporation which is
registered with and certified by the HLURB or HUDCC as
engaged in socialized housing project where the selling price of
the house and lot or only the lot does not exceed P180,000.00
in Metro Manila and other highly urbanized areas and
P150,000.00 in other areas or such adjusted amount of selling
price for socialized housing as may later be determined and
adopted by the HLURB;
2)
Corporations registered with the Board of
Investments and enjoying exemptions from income under the
Omnibus Investment Code of 1997;
3)
Corporations exempt from income tax under Sec.
30, of the Tax Code, like the SSS, GSIS, the PCSO, etc.
However, income payments arising from any activity which is
conducted for profit or income derived from real or personal
property shall be subject to a withholding tax. (Sec. 57.5, Rev.
Regs. No. 2-98)
17. A erroneously withheld the amount of 15% from the
selling price of books authored by W when the correct rate
should have been 10% only. Since W is out of the country, A
applied for a refund of the excess withholding of 5%. May A
properly apply for the refund ? Explain.
SUGGESTED ANSWER: Yes. In applications for refund, the
withholding agent is a taxpayer because if he does not pay the tax
shall be collected from him. (Commissioner of Internal Revenue v.
Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA
377, 383-386),
49
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to
discourage delay in the payment of taxes due to the State and in this
sense the surcharge and interest charged are not penal but
compensatory in nature they are compensation to the State for the
delay in payment, or for the concomitant tuse of the funds by the
taxpayer beyond the date he is supposed to have paid them to the
State. (Bank of the Philippine Islands v. Commissioner of Internal
Revenue, G. R. No. 137002, July 27, 2006)
7.
Compromise penalty, defined. The amount agreed
upon between the taxpayer and the Government to be paid as a
penalty in cases of a compromise.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes
on time. Imposed surcharges and interests for such delay, the
taxpayer not invokes good faith with the BIR countering by
saying that good faith is not a valid defense for violation of a
special law. Furthermore, the BIR further raises the defense that
the government is not bound by the errors of its agents. Who is
correct ?
ANSWER: The taxpayer is correct. The settled rule is that
good faith and honest belief that one is not subject to tax on the basis
of previous interpretation of government agencies tasked to
implement the tax, are sufficient justification to delete the imposition
of surcharges. (Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of
Internal Revenue, G. R. No. 166786, September 11, 2006)
50
return not on the date when the taxes were paid on a quarterly basis.
(Philippine Bank of Communications v. Commissioner of Internal
Revenue, et al., G.R. No. 112024, January 28, 1999)
Generally speaking it is the Final Adjustment Return, in which
amounts of the gross receipts and deductions have been audited and
adjusted, which is reflective of the results of the operations of a
business enterprise. It is only when the return, covering the whole
year, is filed that the taxpayer will be able to ascertain whether a tax is
still due or refund can be claimed based on the adjusted and audited
figures. (Bank of the Philippine Islands v. Commissioner of Internal
Revenue, G.R. No. 144653, August 28, 2001)
51
the time the tax return was filed or should have been filed whichever
is the later of the two events. Where the taxpayer did not file a tax
return or where the tax return filed is false or fraudulent, then the
Commissioner has a period of ten (10) years from discovery of the
failure to file a tax return or from discovery of the fraud within which to
issue an assessment notice. The running of the above prescriptive
periods may however be suspended under certain instances.
The notice of assessment must be issued within the
prescriptive period and must contain the facts, law and jurisprudence
relied upon by the Commissioner. Otherwise it would not be valid.
f. The taxpayer should then file an administrative protest by
filing a request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to
the Court of Tax Appeals because there is no decision yet of the
Commissioner that could be the subject of a review.
To be valid the administrative protest must be filed within the
prescriptive period, must show the error of the Bureau of Internal
Revenue and the correct computations supported by a statement of
facts, and the law and jurisprudence relied upon by the taxpayer.
There is no need to pay under protest. If the protest was not
seasonably filed the assessment becomes final and collectible and
the Bureau of Internal Revenue could use its administrative and
judicial remedies in collecting the tax.
g. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall be submitted, otherwise the assessment
shall become final and collectible and the BIR could use its
administrative and judicial remedies to collect the tax.
Once an assessment has become final and collectible, not
even the BIR Commissioner could change the same. Thus, the
taxpayer could not pay the tax, then apply for a refund, and if denied
appeal the same to the Court of Tax Appeals.
h. If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from the submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30) days
from receipt of the adverse decision, or from the lapse of the one
hundred eighty (180-) day period, with an application for the issuance
of a writ of preliminary injunction to enjoin the BIR from collecting the
tax subject of the appeal.
If the taxpayer fails to so appeal, the denial of the
Commissioner or the inaction of the Commissioner would result to the
notice of assessment becoming final and collectible and the BIR could
then utilize its administrative and judicial remedies to collect the tax.
i. A decision of a division of the Court of Tax Appeals
adverse to the taxpayer or the government may be the subject of a
11.
Requisites for Formal Letter of Demand and
Assessment Notice. The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the facts, the law, rules
and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall
be void. The same shall be sent to the taxpayer only by registered
mail or by personal delivery.
11-A.. What is the burden of taxpayers seeking tax refunds
or credits ?
SUGGESTED ANSWER: It has always been the rule that
those seeking tax refunds or credits bear the burden of proving the
factual basis of their claims and of showing, by words too plain to be
mistaken, that the legislature intended to entitle them to such claims.
(Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G. R. No. 145526, March 16,
2007, See Commissioner of Internal Revenue v. Seagate Technology
(Philippines) G. R. No. 153866, 11 February 2005, 451 SCRA 132)
12.
What is the nature of proceedings before the Court
of Tax Appeals ?
SUGGESTED ANSWER:
First, a judicial claim for refund or tax credit in the CTA is by no
means an original action, but rather an appeal by way of petition for
review of a previous, unsuccessful administrative claim.
Therefore, as in every appeal or petition for review, a petitioner
has to convince the appellate court that the quasi-judicial agency a
quo did not have any reason to deny its claims.
52
53
14.
Applicability of Proton Pilipinas Corporation vs.
Republic, etc., G. R. No. 165027, October 16, 2006. The case was
decided on factual antecedents before R. A. No. 9282 which grants
criminal jurisdiction to the Court of Tax Appeals if the value of the tax
is P1 million or more.
Interpreting the provisions of Republic Act No. 8249, which
provides that the civil action for recovery of civil liability should be
jointly determined in the criminal proceeding by the Sandiganbayan or
appropriate courts, the prohibition of reservation of the criminal
aspect, the Supreme Court said that tax collection cases may be tried
separately, and not before the Sandiganbayan in Rep. Act No. 3019
cases. This is so because, Rep. Act No. 3019 is silent on the
definition of civil liability and the application of Art. 104 of the Revised
Penal Code does not cover taxes. Consequently, the Supreme Court
ruled that on the tax collection case the RTC would have jurisdiction.
Interpretation by the author in the light of Rep. Act. 9282. If
it is a criminal case cognizable by the Sandiganbayan, then this court
retains jurisdiction, with the civil jurisdiction being cognizable by the
CTA or the lower courts depending on the amount.
If the issue is a purely tax case, even if it involves cases
cognizable by the Sandiganbayan, then jurisdiction vests upon the
CTA or the lower courts depending on the amount of the tax.
15.
On January 24, 1995, the then Secretary of
Finance, through the recommendation of the then
Commissioner of
Internal
Revenue
issued
Revenue
Regulations [Rev. Reg.] No. 1-95, providing the Rules and
Regulations to Implement the Tax Incentives Provisions Under
Paragraphs (b) and (c) of Section 12, [R.A.] No. 7227,
[o]therwise known as the Bases Conversion and Development
Act of 1992. Subsequently, Rev. Reg. No. 12-97 was issued
providing for the Regulations Implementing Sections 12(c)
and 15 of [R.A.] No. 7227 and Sections 24(b) and (c) of [R.A.]
No. 7916 Allocating Two Percent (2%) of the Gross Income
Earned by All Businesses and Enterprises Within the Subic,
Clark, John Hay, Poro Point Special Economic Zones and other
Special Economic Zones under PEZA. On September 27, 1999,
Rev. Reg. No. 16-99 was issued Amending [RR] No. 1-95, as
54
this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. (as amended by the NIRC of
1997, emphases supplied, Asia International Auctioneers, Inc., etc et
al., .v. Parayno, Jr., etc.,, et al., G. R. No. 103445, December 18,
2007)
NOTES AND COMMENTS: The author disputes this doctrine.
The decisions of the Commission under other matter refers to the
quasi-judicial decisions and not to the quasi-legislative powers of the
Commissioner.
55
2)
On the part of the Commissioner of Internal
Revenue, this would encourage his office to conduct a careful
and thorough study of every questioned assessment and
render a correct and define decision thereon in the first
instance.
3)
This would also deter the Commissioner of
Internal Revenue from unfairly making the taxpayer grope in
the dark and speculate as to which action constitutes the
decision appealable to the tax court.
4)
Of greater import, this rule of conduct would meet
a pressing need for fair play, regularity, and orderliness in
administrative action. . (Commissioner of Internal Revenue v.
Bank of the Philippines Islands, G. R. No. 134062, April 17,
2007 citing Oceanic Wireless Network, Inc. v. Commissioner of
Internal Revenue, G. R. No. 148380, 9 December 2005, 477
SCRA 205, 211-212, citing Surigao Electric Co., Inc. v. Court of
Tax Appeals, G. R. No. L-254289, 28 June 1974, 57 SCRA
523)
not only is the Notice the only response received: its content and
tenor supports the theory that it was the CIRs final act regarding the
request for reconsideration. The very title expressly indicated that it
was a final notice prior to seizure of property. The letter itself clearly
stated that the taxpayer was being given this LAST OPPORTUNITY
to pay; otherwise, its properties would be subjected to distraint and
levy.
18.
The taxpayer seasonably protested the
assessment issued by the Commissioner of Internal
Revenue. During the pendency of the protest the CIR
issued a warrant of distraint and levy to collect the taxes
subject of the protest.
As counsel what advice shall you give the taxpayer.
Explain briefly your answer.
SUGGESTED ANSWER: The taxpayer should appeal, by way
of a petition for review, to the Court of Tax Appeals not on the ground
of the denial of the protest but on other matter arising under the
provisions of the National Internal Revenue Code. The actual
issuance of a warrant of distraint and levy in certain cases cannot be
considered a final decision on a disputed assessment.
To be a valid decision on a disputed assessment, the decision
of the Commissioner or his duly authorized representative shall (a)
state the facts, the applicable law, rules and regulations, or
jurisprudence on which such decision is based, otherwise, the decision
shall be void, in which case the same shall not be considered a
decision on the disputed assessment; and (b) that the same is his final
decision. (Sec. 3.1.6, Rev. Regs. 12-99) These conditions are not
complied with by the mere issuance of a warrant of distraint and levy.
(Commissioner of Internal Revenue v. Union Shipping Corp., 185
SCRA 547)
Furthermore, a motion for the suspension of the collection of
the tax may be filed together with the petition for review (Sec. 3, Rule
10, RRCTA effective December 15, 2005) because the collection of
the tax may jeopardize the interest of the taxpayer.
18-A. As a general rule, there must always be a decision of
the Commissioner of Internal Revenue or Commissioner of
Customs before the Court of Tax Appeals, would have
jurisdiction. If there is no such decision, the petition would be
dismissed for lack of jurisdiction unless the case falls under any of the
following exceptions.
56
20.
57
58
59
34.
60
61
d.
The desirability of
requirements of the NIRC. (Ibid.)
bolstering
the
record-keeping
42.
43.
The signatures of both the Commissioner
and the taxpayer, are required for a waiver of the
prescriptive period, thus a unilateral waiver on the part of the
taxpayer does not suspend the prescriptive period. [Commissioner of
Internal Revenue v. Court of Appeals, et al., G.R. No. 115712,
February 25, 1999 (Carnation case)]
44.
The act of requesting a reinvestigation alone does
not suspend the running of the prescriptive period. The request
for reinvestigation must be granted by the CIR. The Supreme
Court declared that the burden of proof that the request for
reinvestigation had been actually granted shall be on the
Commissioner of Internal Revenue. Such grant may be expressed
in its communications with the taxpayer or implied from the action of
the Commissioner or his authorized representative in response to
the request for reinvestigation. [Bank of Philippine Islands (Formerly
Far East Bank and Trust Company) v. Commissioner of Internal
Revenue, G. R. No. 174942, March 7, 2008]
45.
Philippine Journalists, Inc. (PJI) filed its Annual
Income Tax Return for the calendar year ended December 31,
1994 which showed a net income of P30 million and the tax due
as P10 million. An examination of PJIs books of account and
other accounting records for the period January 1, 1994 to
December 31, 1994 showed deficiency VAT, Income Tax and
Withholding Tax in the total amount of P1`27 million. During the
September 22, 1997 informal conference with the Revenue
District Officer, PJIs Comptroller executed a waiver of statute of
limitations provided for under sections 223 and 224 of the NIRC.
On October 5, 1998, the BIR issued a Pre-Assessment Notice
which was followed by Assessment/Demand No.33-1-000757-94
stating a total deficiency taxes in the amount of P111 million for
income tax, VAT and expanded withholding taxes, inclusive of
interest and compromise penalty.
On March 16, 1999, the BIR sent to PJI a Preliminary
Collection Letter to pay the assessment within 10 days from
receipt. On November 10,1999, a Final Notice Before Seizure
was issued giving PJI 10 days from receipt within which to pay.
PJI received the final notice on November 24, 1999 and on
November 26, 1999 PJI asked that it be clarified on how the tax
liability of P111 million was arrived at and requested for an
extension of 30 days from receipt of the clarification within
62
46.
47.
What is that type of protest that suspends
the running of the statute of limitations for the beginning of
distraint or levy or a proceeding in court for collection ?
Why ?
SUGGESTED ANSWER: It is that type of protest when the
taxpayer requests for a reinvestigation which is granted by the
Commissioner (Sec. 223, NIRC of 1997), that suspends the running
of the statute of limitations for collection of the tax. (Commissioner of
Internal Revenue v. Philippine Global Communication, Inc., G. R. No.
167146, October 31, 2006 citing Sec. 271, now Sec. 223, NIRC of
1997) When a taxpayer demands a reinvestigation, the time
employed in reinvestigation should be deducted from the total period
of limitation. [Commissioner of Internal Revenue, supra citing
Republic v. Lopez, 117 Phil. 575, 578; 7 SCRA 566, 568-569 (1963)]
Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment which will be limited to the
evidence already at hand; this justifies why the former can suspend
the running of the statute of limitations on collection of the assessed
tax, while the latter cannot. (Commissioner of Internal Revenue v.
Philippine Global Communication, Inc., G. R. No. 167146, October 31,
2006 citing Bank of Philippine Islands v. Commissioner of Internal
Revenue, G. R. No. 139736, 17 October 2005, 473 SCRA 205, 230231)
48.
What are the requirements for the validity
of a taxpayers protest ?
63
SUGGESTED ANSWER:
a.
It must be filed within the reglementary period of thirty
(30) days from receipt of the notice of assessment.
b.
The taxpayer must not only show the errors of the
Bureau of Internal Revenue but also the correct computation through
1)
A statement of the facts, the applicable law, rules
and regulations, or jurisprudence on which the taxpayers
protest is based,
2)
If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the
applicable law, rules and regulations, or jurisprudence in
support of his protest against some of the several issues on
which the assessment is based, the same shall be considered
undisputed issue or issues, in which case, the taxpayer shall be
required to pay the corresponding deficiency tax or taxes
attributable thereto. (Sec. 3.1.5, Rev. Regs. 12-99)
c.
Within sixty (60) days from filing of the protest, the
taxpayer shall submit all relevant supporting documents. [4 th par.,
Sec. 228 (e), NIRC of 1997]
49. What is the procedure for suspension of collection
of taxes ?
SUGGESTED ANSWER: Where the collection of the amount
of the taxpayers liability, sought by means of a demand for
payment, by levy, distraint or sale of property of the taxpayer, or by
whatever means, as provided under existing laws, may jeopardize
the interest of the government or the taxpayer, an interested party
may file a motion for the suspension of the collection of the tax
liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with
the Court of Tax Appeals.
The motion for suspension of the collection of the tax may be
filed together with the petition for review or with the answer, or in a
separate motion filed by the interested party at any stage of the
proceedings. (Sec. 3, Rule 10, RRCTA effective December 15,
2005)
50-A.
compromise ?
64
c.
Collection upon an extended assessment. Where a tax
has been assessed with the period agreed upon between the
Commissioner and the taxpayer in writing (which should initially be
within three (3) years from the time the return was filed or should have
been filed), or any extensions before the expiration of the period
agreed upon, the tax may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing
before the expiration of the five (5) year period. The period so
agreed upon may be extended by subsequent written agreements
made before the expiration of the period previously agreed upon.
[Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997,
emphasis supplied)
d.
Collection upon a return that is not false or fraudulent, or
where the assessment is not an extended assessment. Except as
provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing
of the return, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of
such period; Provided, That in case where a return is filed beyond
the period prescribed by law, the three (3) year period shall be
computed from the day the return was filed. For purposes of this
Section, a return filed before the last day prescribed by law for the
filing thereof shall be considered filed on such last day. (Sec. 203,
NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three
(3)-year period, it has another three (3) years within which to collect
the tax due by distraint, levy, or court proceeding. The assessment
of the tax is deemed made and the three (3)-year period for
collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent to the
taxpayer. [Bank of Philippine Islands (Formerly Far East Bank and
Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing
BPI v. Commissioner of Internal
Revenue, G.R. No. 139736, 17 October 2005, 473 SCRA 205, 222223)
NOTES AND COMMENTS:
a.
Both the former Sec. 269, NIRC of 1977 and Sec.222
of NIRC of 1997 do not refer to a regular return. It is clear that
in enacting Sec. 222, entitled Exceptions as to the period of limitation
of assessment and collection of taxes, the NIRC of 1997 has
eliminated sub-paragraph c of the former Sec. 269 of the NIRC, also
entitled Exceptions as to the period of limitation of assessment and
collection of taxes. Said Sec. 269 (c), reads Any internal revenue
tax which has been assessed within the period of limitation aboveprescribed may be collected by distraint or levy or by a proceeding in
court within three years following the assessment of the tax.
65
56.
The filing of an administrative claim for
refund with the BIR, before filing a case with the Court of
Tax Appeals, is necessary for the following reasons:
a. To afford the Commissioner an opportunity to correct his
errors or that of subordinate officers. (Gonzales v. Court of Tax
Appeals, et al., 14 SCRA 79)
b. To notify the Government that such taxes have been
questioned and the notice should be borne in mind in estimating the
revenue available for expenditures. (Bermejo v. Collector, G.R. No. L3028, July 28, 1950)
66
NIRC of 1997 is required where the case filed before the CTA is a
refund case, which is not premised upon a disputed assessment.
There is no need for a prior application for refund or credit, if the
refund is merely a consequence of the resolution of the BIRs denial of
a protested assessment.
58. What is the nature of the taxpayers remedy of either
to ask for a refund of excess tax payments or to apply the same
in payment of succeeding taxable periods taxes ?
SUGGESTED ANSWER: Sec. 69 of the 1977 NIRC (now
Sec. 76 of the NIRC of 1997) provides that any excess of the total
quarterly payments over the actual income tax computed in the
adjustment or final corporate income tax return, shall either (a) be
refunded to the corporation, or (b) may be credited against the
estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year. To ease the administration of tax collection,
these remedies are in the alternative and the choice of one precludes
the other. Since the Bank has chosen the tax credit approach it
cannot anymore avail of the tax refund. (Philippine Bank of
Communications v. Commissioner of Internal Revenue, et al., G.R.
No. 112024, January 28, 1999)
NOTES AND COMMENTS:
a.
The choice, is given to the taxpayer, whether to
claim for refund under Sec. 76 or have its excess taxes applied as
tax credit for the succeeding taxable year, such election is not final.
Prior verification and approval by the Commissioner of Internal
Revenue is required. The availment of the remedy of tax credit is not
absolute and mandatory. It does not confer an absolute right on the
part of the taxpayer to avail of the tax credit scheme if it so chooses.
Neither does it impose a duty on the part of the government to sit
back and allow an important facet of tax collection to be at the sole
control and discretion of the taxpayer. (Paseo Realty & Development
Corporation v. Court of Appeals, et al., G. R. No. 119286, October 13,
2004)
provided in the BIR form) its intention either to carry over the excess
credit or to claim a refund. To facilitate tax collection, these
remedies are in the alternative and the choice of one precludes the
other. [Systra Philippines, Inc., v. Commissioner of Internal Revenue,
G. R. No. 176290, September 21, 2007 citing Philippine Bank of
Communications v. Commissioner of Internal Revenue, 361 Phil. 916
(1999)]
This is known as the irrevocability rule and is embodied in
the last sentence of Section 76 of the Tax Code. The phrase such
option shall be considered irrevocable for that taxable period means
that the option to carry over the excess tax credits of a particular
taxable year can no longer be revoked.
The rule prevents a taxpayer from claiming twice the excess
quarterly taxes paid: (1) as automatic credit against taxes for the
taxable quarters of the succeeding years for which no tax credit
certificate has been issued and (2) as a tax credit either for which a
tax credit certificate will be issued or which will be claimed for cash
refund. (Systra Philippines, Inc., supra citing De Leon, Hector, THE
NATIONAL INTERNAL REVENUE CODE, Seventh Edition, 2000, p.
430)
60. In the year 2000 Systra derived excess tax credits
and exercised the option to carry them over as tax credits for
the next taxable year. However, the tax due for the next taxable
year is lower than excess tax credits. It now applies for a
refund of the unapplied tax credits.
May its refund be
granted ? If the refund is denied, does Systra lose the
unapplied tax credits ? Explain briefly your answer.
SUGGESTED ANSWER: Systras claim for refund should
be denied. Once the carry over option was made, actually or
constructively, it became forever irrevocable regardless of whether
the excess tax credits were actually or fully utilized Under Section
76 of the Tax Code, a claim for refund of such excess credits can no
longer be made. The excess credits will only be applied against
income tax due for the taxable quarters of the succeeding taxable
years.
Despite the denial of its claim for refund, Systra does not lose
the unapplied tax credits. The amount will not be forfeited in favor
of the government but will remain in the taxpayers account.
Petitioner may claim and carry it over in the succeeding taxable
years, creditable against future income tax liabilities until fully
utilized. (Systra Philippines, Inc., v. Commissioner of Internal
Revenue, G. R. No. 176290, September 21, 2007 citing Philam
Asset Management, Inc. v. Commissioner of Internal Revenue, G.R.
Nos. 156637/162004, 14 December 2005, 477 SCRA 761)
67
68
Sec. 204 [C], NIRC of 1997), and for filing suit in court under Sec.
230, NIRC (now Sec. 229, NIRC of 1997), unlike in protests of
assessments under Sec. 229 (now Sec. 228, NIRC of 1997), which
fixed the period (thirty days from receipt of decision) for appealing to
the court, thus clearly implying that the prior decision of the
Commissioner is necessary to take cognizance of the case.
(Commissioner of Internal Revenue v. Bank of Philippine Islands, etc.
et al., CA-G.R. SP No. 34102, September 9, 1994; Gibbs v. Collector
of Internal Revenue, et al., 107 Phil, 232; Johnston Lumber Co. v.
CTA, 101 Phil. 151)
63.
The grant of a refund is founded on the assumption
that the tax return is valid, i.e. that the facts stated therein are true
and correct. (Commissioner of Internal Revenue v. Court of Tax
Appeals, G. R. No. 106611, July 21, 1994, 234 SCRA 348) Without
the tax return it would be virtually impossible to determine whether the
proper taxes have been assessed and paid. After all, it is axiomatic
that a claimant has the burden of proof to establish the factual basis
of his or her claim for tax credit or refund. Tax refunds, like tax
exemptions, are construed strictly against the taxpayer. (Paseo Realty
& Development Corporation v. Court of Appeals, et al., G. R. No.
119286, October 13, 2004)
However, in BPI-Family Savings Bank v. Court of Appeals, 386
Phil. 719; 326 SCRA 641 (2000), refund was granted, despite the
failure to present the tax return, because other evidence was
presented to prove that the overpaid taxes were not applied. (Ibid.)
65.
What are the three (3) conditions for the
grant of a claim for refund of creditable withholding tax ?
SUGGESTED ANSWER:
a.
The claim is filed with the Commissioner of Internal
Revenue within the two-year period from the date of the payment of
the tax.
b.
It is shown on the return of the recipient that the income
payment received was declared as part of the gross income; and
c.
The fact of withholding is established by a copy of a
statement duly issued by the payee showing the amount paid and the
amount of tax withheld therefrom. (Banco Filipino Savings and
Mortgage Bank v. Court of Appeals, et al., G. R. No. 155682, March
27, 2007)
NOTES AND COMMENTS:
a.
Proof of fact of withholding. Sec. 10. Claim for tax
credit or refund. (a) Claims for Tax Credit or Refund of Income tax
deducted and withheld on income payments shall be given due
course only when it is shown on the return that the income payment
received has been declared as part of the gross income and the fact
of withholding is established by a copy of the Withholding Tax
Statement duly issued by the payor to the payee showing the amount
paid and the amount of the tax withheld therefrom xxx (Rev. Regs.
No. 6-85, as amended)
The document which may be accepted as evidence of the third
condition, that is, the fact of withholding, must emanate from the
payor itself, and not merely from the payee, and must indicate the
name of the payor, the income payment basis of the tax withheld, the
amount of the tax withheld and the nature of the tax paid. . (Banco
Filipino Savings and Mortgage Bank v. Court of Appeals, et al., G. R.
No. 155682, March 27, 2007)
69
falls on the taxpayer. (Far East Bank Trust and Company, etc., v.
Commissioner of Internal Revenue, et al., G. R. No. 138919, May 2,
2006)
66.
c.
Extent of exemption. The tax exemption enjoyed by
employees trust is absolute irrespective of the nature of the tax. It
does not apply only to the tax on interest income from money market
placements, bank deposits, other deposit substitute instruments and
government security, because the source of the interest income does
not have any effect on the exemption enjoyed by employees trusts.
(Far East Bank Trust and Company, etc., v. Commissioner of Internal
Revenue, et al., G. R. No. 138919, May 2, 2006)
67. A bank-trustee of employee trusts filed an
application for the refund of taxes withheld on the interest
incomes of the investments made of the funds of the
employees trusts. Instead of presenting separate accounts for
interest incomes made of these investments, the bank-trustee
instead presented witness to establish that it would next to
impossible to single out the specific transactions involving the
employees trust funds from the totality of all interest income
from its total investments. On the above basis will the
application for refund prosper ?
SUGGESTED ANSWER: No. The application for refund will
not prosper.
The bank-trustee needs to establish not only that the refund is
justified under the law (which is so because incomes of employees
trusts are tax exempt), but also the correct amount that should be
refunded.
Tax refunds partake of the nature of tax exemptions and are
thus construed strictissimi juris against the person or entity claiming
the exemption. The burden in proving the amount to be refunded
necessarily falls on the bank-trustee, and there is an apparent failure
to do so.
A necessary consequence of the special exemption enjoyed
alone by employees trusts would be a necessary segregation in the
accounting of such income, interest or otherwise, earned from those
trusts from that earned by the other clients of the bank-trustee.
(Far East Bank and Trust Company, etc., v. Commissioner, etc., et
al., G.R. No. 138919, May 2, 2006) The amounts that are the
exempt earnings of the employees trust has not been shown as they
have been commingled with the interest income of the other clients
of the bank-trustee.
68. CTA Circular No. 1-95 clearly requires that
photocopies of the receipts or invoices must be pre-marked
and submitted to the CTA to verify the correctness of the
summary listing and the CPA certification. CTA Circular No. 1-95,
issued on 25 January 1995, reads:
70
1.
The party who desires to introduce as evidence such
voluminous documents must present: (a) Summary containing the
total amount/s of the tax account or tax paid for the period involved
and a chronological or numerical list of the numbers, dates and
amounts covered by the invoices or receipts; and (b) a Certification
of an independent Certified Public Accountant attesting to the
correctness of the contents of the summary after making an
examination and evaluation of the voluminous receipts and invoices.
Such summary and certification must properly be identified by a
competent witness from the accounting firm.
2. The method of individual presentation of each and every
receipt or invoice or other documents for marking, identification and
comparison with the originals thereof need not be done before the
Court or the Commissioner anymore after the introduction of the
summary and CPA certification. It is enough that the receipts,
invoices and other documents covering the said accounts or
payments must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the
adverse party whenever he/she desires to check and verify the
correctness of the summary and CPA certification. However, the
originals of the said receipts, invoices or documents should be ready
for verification and comparison in case doubt on the authenticity of
the particular documents presented is raised during the hearing of
the case. (Emphasis supplied)
69. Manila Electric Company a grantee of a legislative
franchise under Act No. 484, as amended by Republic Act No.
4159 and Presidential Decree No. 551,2[3] had been paying a 2%
franchise tax based on its gross receipts, in lieu of all other
taxes and assessments of whatever nature.
Upon the
effectivity of Executive Order No. 72 on February 10, 1987,
however, respondent became subject to the payment of regular
corporate income tax.
For the last quarter ending December 31, 1987,
respondent filed on April 15, 1988 its tentative income tax
reflecting a refundable amount of P101,897,741, but only
P77,931,812 was applied as tax credit for the succeeding
taxable year 1988.
Acting on a yearly routinary Letter of Authority No.
0018064 NA dated June 27, 1988 issued by petitioner, directing
the investigation of tax liabilities of respondent for taxable year
1987, an investigation was conducted by Revenue Officer
Frederick Capitan which showed that respondent was liable for
2
[3]
Id. at 11.
71
SUGGESTED ANSWER:
Importation begins when the
conveying vessel or aircraft enters the jurisdiction of the Philippines
with intention to unlade therein. (Sec. 1202, TCCP)
The jurisdiction of the Bureau of Customs to enforce the
provisions of the TCCP including seizure and forfeiture also begins
from the beginning of importation. Thus, the Bureau of Customs
obtains jurisdiction over imported articles only after importation has
begun.
2.
OF
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the
tariff or tax assessed upon merchandise imported from, or exported
to, a foreign country. (Nestle Phils. v. Court of Appeals, et al., G.R.
No. 134114, July 6, 2001)
FUNCTIONS
OF
THE
BUREAU
72
6. The special customs duties are imposed for the
protection of consumers and manufacturers, as well as
Philippine products.
8.
73
imposed.
Law ?
SUGGESTED ANSWER: It has a triple meaning.
a.
the documents filed at the Customs house;
b.
the submission and acceptance of the documents; and
c.
Customs declaration forms or customs entry forms
required to be accomplished by passengers of incoming vessels or
passenger planes as envisaged under Sec. 2505 of the TCCP
(Failure to declare baggage). (Jardeleza v. People, G.R. No.
165265, February 6, 2006)
29. A flight stewardess arrived from Singapore. Upon her
arrival she was asked whether she has anything to declare. She
answered none, and she submitted her Customs Baggage
Declaration Form which she accomplished and signed with
nothing or written on the space for items to be declared. When
her hanger bag was examined some pieces of jewelry were
found concealed within the lining of said bag.
She was then convicted of violating of Sec. 3601 of the
Tariff and Customs Code for unlawful importation which
penalizes any person who shall fraudulently import or bring into
the Philippines any article contrary to law.
She now appeals claiming that lower court erred n
convicting her under Sec. 3601 when the facts alleged both in
the information and those shown by the prosecution constitute
the offense under Sec. 2505 Failure to Declare Baggage, of
which she was acquitted. Is she correct ?
SUGGESTED ANSWER: No. Sec. 3601 does not define a
crime. It merely provides, inter alia, the administrative remedies
which can be resorted to by the Bureau of Customs when seizing
dutiable articles found the baggage of any person arriving in the
Philippines which is not included in the accomplished baggage
declaration submitted to the customs authorities, and the
administrative penalties that such person must pay for the release of
such goods if not imported contrary to law.
Such administrative penalties are independent of the criminal
liability for smuggling that may be imposed under Sec. 3601, and
other provisions of the TCC which can only be determined after the
appropriate criminal proceedings, prescinding from the outcome in
any administrative case that may have been filed and disposed of by
the customs authorities.
74
75
38.
Requisites
for
forfeiture
of
imported
goods:
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or
delivery by the same person of any invoice, letter or paper all
touching on the importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or
paper; and
c.
an intention on the part of the importer/consignee to
evade the payment of the duties due. (Republic, etc., v. The Court of
Appeals, et al., G.R. No. 139050, October 2, 2001)
39.
On January 7, 1989, the vessel M/V Star Ace,
coming from Singapore laden with cargo, entered the Port of
San Fernando, La Union for needed repairs. When the Bureau of
Customs later became suspicious that the vessels real purpose
in docking was to smuggle cargo into the country, seizure
proceedings were instituted and subsequently two Warrants of
Seizure and Detention were issued for the vessel and its cargo.
Cesar does not own the vessel or any of its cargo but
claimed a preferred maritime lien. Cesar then brought several
cases in the RTC to enforce his lien. Would these suits
prosper ?
SUGGESTED ANSWER: No. The Bureau of Customs having
first obtained possession of the vessel and its goods has obtained
jurisdiction to the exclusion of the trial courts.
When Cesar has impleaded the vessel as a defendant to
enforce his alleged maritime lien, in the RTC, he brought an action in
rem under the Code of Commerce under which the vessel may be
attached and sold.
However, the basic operative fact is the actual or constructive
possession of the res by the tribunal empowered by law to conduct
the proceedings. This means that to acquire jurisdiction over the
vessel, as a defendant, the trial court must have obtained either
actual or constructive possession over it. Neither was accomplished
by the RTC as the vessel was already in the possession of the Bureau
of Customs. (Commissioner of Customs v. Court of Appeals, et al., G.
R. Nos. 111202-05, January 31, 2006)
NOTES AND COMMENTS:
a.
Forfeiture of seized goods in the Bureau of Customs
is in the nature of a proceeding in rem, i.e. directed against the res
or imported goods and entails a determination of the legality of their
importation. In this proceeding, it is in legal contemplation the
property itself which commits the violation and is treated as the
offender, without reference whatsoever to the character or conduct of
the owner.
The issue is limited to whether the imported goods should be
forfeited and disposed of in accordance with law for violation of the
Tariff and Customs Code. .(Transglobe International, Inc. v. Court of
Appeals, et al., G.R. No. 126634, January 25, 1999)
Forfeiture of seized goods in the Bureau of Customs is a
proceeding against the goods and not against the owner. (Asian
Terminals, Inc. v. Bautista-Ricafort, G .R. No. 166901, October 27,
2006 citing Transglobe)
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40. The Collector of Customs upon probable cause that
the articles are imported or exported, or are attempted to be
imported or exported, in violation of the tariff and customs laws
shall issue a warrant of seizure. (Sec. 6, Title III, CAO No. 9-93)
If the search and seizure is to be conducted in a dwelling place,
then a search warrant should be issued by the regular courts not the
Bureau of Customs.
There may be instances where no warrants issued by the
Bureau of Customs or the regular courts is required, as in search and
seizures of motor vehicles and vessels.
41. Smuggled goods seized by virtue of a court warrant
should be surrendered to the court that issued the warrant and
not to the Bureau of Customs because the goods are in custodia
legis.
1.
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surveys and maps, as the case may be, the number of the official
receipt issued to him.
Exemption: Professionals exclusively employed in the
government shall be exempt from payment. (Sec. 139, LGC)
NOTE: For the purpose of collecting the tax, the provincial or city
treasurer or his duly authorized representative shall require from such
professionals their current annual registration cards issued by
competent authority before accepting payment of their professional
tax for the current year. The PRC shall likewise require the
professionals presentation of proof of payment before registration of
professionals or renewal of their licenses. (last par., Art. 228, Rules
and Regulations Implementing the Local Government Code of 1991)
2.
3.
78
154126, October 11, 2005 citing Reyes v. Almanzor, 196 SCRA 322,
327 (1991)])
Preparation of fair market values:
a.
The city or municipal assessor shall prepare a schedule
of fair market values for the different classes of real property situated
in their respective Local Government Units for the enactment of an
ordinance by the sanggunian concerned; and
b. The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality
concerned or the posting in the provincial capitol or other places as
required by law. (Lopez v. City of Manila, et al., G.R. No. 127139,
February 19, 1999)
Proposed fair market values of real property in a local
government unit as well as the ordinance containing the
schedule must be published in full for three (3) consecutive days
in a newspaper of local circulation, where available, within ten (10)
days of its approval, and posted in at lease two (2) prominent places
in the provincial capitol, city, municipal or barangay hall for a
minimum of three (3) consecutive weeks.
(Figuerres v. Court of
Appeals, et al,. G.R. No. 119172, March 25, 1999)
5.
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not form part of the public roads since the former are constructed over
the latter in such a way that the flow of vehicular traffic would not be
impaired. The carriageways and terminals serve a function different
from the public roads. Furthermore, they are not open to use by the
general public hence not exempt from real property taxes. Even
granting that the national government owns the carriageways and
terminal stations, the property is not exempt because their beneficial
use has been granted to LRTA a taxable entity. (Light Rail Transit
Authority v. Central Board of Assessment Appeals, et al., G. R. No.
127316, October 12, 2000)
c.
The Supreme Court of New York in Consolidated Edison
Company of New York, Inc., et al., v. The City of New York, et al., 80
Misc. 2d 1065 (1975) cited in FELS Energy, Inc., v. Province of
Batangas, G. R. No. 168557, February 16, 2007 and companion case,
held that barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which
supplied fuel oil to the power plant barges, and the accessory
equipment mounted on the barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that
[d]ocks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake or coast
are considered immovable property by destination being intended by
the owner for an industry or work which may be carried on in a
building or on a piece of land and which tend directly to meet the
needs of said industry or work.
8. The restriction upon the power of courts to impeach tax
assessment without a prior payment, under protest, of the taxes
assessed is consistent with the doctrine that taxes are the
lifeblood of the nation, and as such their collection cannot be
curtailed by injunction or any like action; otherwise, the state or, in this
case, the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled.
(Manila Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
Thus, the trial court has no jurisdiction to entertain a petition for
prohibition absent payment under protest of the tax assessed. (Ibid.)
NOTES AND COMMENTS: While the above May 18, 2001
decision was set aside by the Supreme Court when it granted the
petitioners second motion for reconsideration on June 29, 2004, the
author submits that the above doctrine in the May 18, 2001 decision is
still valid, because what was reversed in the second motion for
reconsideration was the garnishment of Meralcos assets. The
remand to the lower court was for the resolution of whether or not an
assessment was issued to Meralco.
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12.
The concurrent and simultaneous remedies afforded
local government units in enforcing collection of real property
taxes:
a.
Distraint of personal property;
b.
Sale of delinquent real property, and
c.
Collection of real property tax through ordinary court
action.
13.
The remedy of levy can be pursued by putting up for
sale the real property subject of tax, i.e., the delinquent property
upon which the tax lien attaches, regardless of the present owner or
possessor thereof. However this remedy is only one of the other
remedies. (Manila Electric Company v. Barlis, G.R. No. 114231, May
18, 2001)
NOTE: The above May 18, 2001 decision was set aside by the
Supreme Court when it granted the petitioners second motion for
reconsideration on June 29, 2004. The author submits that the above
ruling in the May 18, 2001 decision is still valid, not on the basis of the
May 18, 2001 decision, in the light of pronouncements of the
Supreme Court in other cases. Thus, do not cite the doctrine as
emanating from the May 18, 2001 decision.
14.
The LGU could also avail of the remedy of distraint
and levy of personal property subjecting any personal property
of the taxpayer to execution. thus, the issuance of the warrants of
garnishment over MERALCOs bank deposits was not improper or
irregular. (Manila Electric Company v. Barlis, et al., G.R. No. 114231,
May 18, 2001)
NOTE: The above May 18, 2001 decision was set aside by the
Supreme Court when it granted the petitioners second motion for
reconsideration on June 29, 2004. The author submits that the above
ruling in the May 18, 2001 decision is still valid, not on the basis of the
May 18, 2001 decision, in the light of pronouncements of the
Supreme Court in other cases. Thus, do not cite the doctrine as
emanating from the May 18, 2001 decision.
58.
Notice and publication, as well as the legal
requirements for a tax delinquency sale, are mandatory, and the
failure to comply therewith can invalidate the sale. The prescribed
notices must be sent to comply with the requirements of due process.
(De Knecht, et al,. v. Court of Appeals; De Knecht, et al., v. Honorable
Sayo, 290 SCRA 223,236)
16.
The reason behind the notice requirement is that tax
sales are administrative proceedings which are in personam in
81
82
d.
The Local Board of Assessment Appeals has 120 days
from receipt of the appeal within which to decide.
e.
The adverse decision of the Local Board of Assessment
Appeals should be appealed within thirty (30) days from receipt to the
Central Board of Assessment Appeals.
f.
The adverse decision of the Central Board of
Assessment Appeals shall be appealed to the Court of Tax Appeals
(En Banc) by means of a petition for review within thirty (30) days
from receipt of the adverse decision.
g.
The decision of the CTA may be the subject of a motion
for reconsideration or new trial after which an appeal may be
interposed by means of a petition for review on certiorari directed to
the Supreme Court on pure questions of law within a period of fifteen
(15) days from receipt extendible for a period of thirty (30) days.
22.
A City Ordinance adopting a method of assessment
was nullified by the Supreme Court. A taxpayer who has paid
his real property taxes on the basis of the nullified ordinance
now posits that the return of the real property tax erroneously
collected and paid is a necessary consequence of the Supreme
Courts nullification of the ordinance and there is no need to
claim for a refund. Is this correct ?
SUGGESTED ANSWER: No. The entitlement to a tax refund
does not necessarily call for the automatic payment of the sum
claimed. The amount of the claim being a factual matter, it must still
be proven in the normal course and in accordance with the
administrative procedure for obtaining a refund of real property taxes,
as provided under the Local Government Code. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, September 15, 2006)
NOTE: In the above Allied Banking case, the Supreme Court
provided for the starting date of computing the two-year prescriptive
period within which to file the claim with the Treasurer, which is from
finality of the Decision. The procedure to be followed is that shown
below.
23. Procedure for refund of real property taxes based on
validity of the tax measure or solutio indebeti.
a.
Payment under protest not required, claim must be
directed to the local treasurer, within two (2) years from the date the
taxpayer is entitled to such reduction or readjustment, who must
decide within sixty (60) days from receipt.
b.
The denial by the local treasurer of the protest would fall
within the Regional Trial Courts original jurisdiction, the review being
the initial judicial cognizance of the matter. Despite the language of
Section 195 of the Local Government Code which states that the
83
City, et al., etc., G. R. No. 144104, June 29, 2004 citing Province of
Abra v. Hernando, 107 SCRA 105)
30.
The Manila International Airport Authority
(MIAA) was subject to real property taxes by the municipality of
Paranaque on its airport lands, and buildings on the ground
that the Local Government Code has withdrawn exemptions
previously enjoyed by government-owned and controlled
corporations. MIAA contends otherwise as it claims it is not a
government owned or controlled corporation. Who is correct.
SUGGESTED ANSWER: MIAA is correct because it is not
a government owned or controlled corporation but an instrumentality
of the government that is exempt from taxation.
It is not a stock corporation because its capital is not divided
into shares, neither is it a non-stock corporation because there are
no members. It is instead an instrumentality of the government
upon which the local governments are not allowed to levy taxes,
fees or other charges.
An instrumentality refers to any agency of the National
Government, not integrated within the department framework vested
with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes
regulatory agencies chartered institutions and government-owned or
controlled corporations. [Sec. 2 (10), Introductory Provisions,
Administrative Code of 1987] It is an instrumentality exercising not
only governmental but also corporate powers.
It exercises
governmental powers of eminent domain, police power authority,
and levying of fees and charges.
Finally, the airport lands and buildings are property owned
by the government that are devoted to public use and are properties
of the public domain. (Manila International Airport Authority v. City of
Pasay, et al., G. R. No. 163072, April 2, 2009 citing Manila
International Airport Authority v. Court of Appeals, et al., G. R. No.
155650, July 20, 2006)
84
31. A telecommunications company was granted by
Congress on July 20, 1992, after the effectivity of the Local
Government Code on January 1, 1992, a legislative franchise
with tax exemption privileges which partly reads, The grantee,
its successors or assigns shall be liable to pay the same taxes
on their real estate, buildings and personal property, exclusive
of this franchise, as other persons or corporations are now or
hereafter may be required by law to pay. This provision
existed in the companys franchise prior to the effectivity of the
Local Government Code. A City then enacted an ordinance in
1993 imposing a real property on all real properties located
within the city limits, and withdrawing all tax exemptions
previously granted. Among properties covered are those
owned by the company from which the City is now collecting
P43 million.
The properties of the company were then
scheduled by the City for sale at public auction.
The company then filed a petition for the issuance of a
writ of prohibition claiming exemption under its legislative
franchise. The City defended its position raising the following:
a.
There was no exhaustion of administrative
remedies because the matter should have first been filed before
the Local Board of Assessment Appeals;
b.
The companys properties are exempt from tax
under its franchise.
Resolve the issues raised.
SUGGESTED ANSWERS:
a.
There is no need to exhaust administrative remedies as
the appeal to the LBAA is not a speedy and adequate remedy within
the law. This is so because the properties are already scheduled for
auction sale.
Furthermore one of the recognized exceptions to the rule on
exhaustion is that if the issue is purely legal in character which is so
in this case.
b.
The properties are exempt from taxation. The grant of
taxing powers to local governments under the Constitution and the
Local Government Code does not affect the power of Congress to
grant tax exemptions.
The term exclusive of this franchise is interpreted to mean
properties actually, directly and exclusively used in the radio or
telecommunications business. The subsequent piece of legislation
which reiterated the phrase exclusive of this franchise found in the
previous tax exemption grant to the company is an express and real
intention on the part of Congress to once against remove from the
LGCs delegated taxing power, all of the companys properties that
are actually, directly and exclusively used in the pursuit of its
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT
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