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hotjurist 2010

1. Discuss the meaning of the Global and Schedular Systems of taxation. 4. What is a tax sparing credit?

Global System: A “tax sparing credit” is a credit granted by the resident country for foreign
The Global system of income taxation is a system employed where the tax taxes that for some reasons were not actually paid to the source country but that would
system views indifferently the tax base and generally treats in common all categories of have been paid under the country’s normal tax rules. The usual reason for the tax not being
taxable income of the individual. paid is that the source country has provided a tax holiday or other tax incentive to foreign
A system which taxes all categories of income except certain passive investors as an encouragement to invest or conduct business in the country.
incomes and capital gains. It prescribes a unitary but progressive rate for the taxable A final withholding tax at the rate of 15% is imposed on the amount of cash
aggregate incomes and flat rates for certain passive incomes derived by individuals. and/or property dividends received by a non-resident foreign corporation from a domestic
The apparent intent of current amendatory laws to the income tax is to corporation, subject to the condition that the country in which the non-resident foreign
maintain by and large, the global treatment on taxable corporation. corporation is domiciled shall allow a credit against the tax due from the non-resident
foreign corporation taxes deemed to have been paid in the Philippines equivalent to 17% for
Schedular System: 2000 onwards [Section 28(B)(5)(b)].
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 5. When is income taxable?
of the taxpayer.
A system which itemizes the different incomes and provides for varied Income, gain or profit is subject to income tax, when the following requisites are
percentages of taxes, to be applied thereto. present:
It is the apparent intention of current amendatory laws to the income tax law a. There is income, gain or profit;
to increasingly shift the income tax system toward the schedular approach in the income b. The income, gain or profit is received, realized, or accrued during the taxable year; and
taxation of individual taxpayers. c. The income, gain or profit is not exempt from income tax.

2. What is meant by the concept of tax avoidance and tax evasion? Distinguish one from 6. What are the essential differences between capital and income?
the other.
a. Capital is a fund, while income is a flow;
Tax avoidance is the use of legally permissible means to reduce the tax while b. A fund of property existing at an instant of time is called capital, while a flow of services
tax evasion is the use of illegal means to escape payment of taxes. rendered by that capital by the payment of money from it or any other benefit rendered
The differences between the two are the following: by a fund of capital in relation to such fund through a period of time is called income;
a. Tax avoidance is legal while tax evasion is illegal. c. Capital is wealth, while income is the service of wealth;
b. The objective of tax avoidance in most instances is merely to reduce the d. Capital is the tree, while income is the fruit; labor is a tree, income the fruit; property is
tax that is due while the object of tax evasion is to entirely escape the a tree, income the fruit. (Madrigal vs. Rafferty, 38 Phil. 414)
payment of taxes. e. Return of capital is not subject to income tax, while income is subject to tax.

3. Distinguish tax amnesty from tax exemption.

a. Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising
from non-payment of taxes while a tax exemption is an immunity from civil liability only.
It is an immunity or privilege, a freedom from a charge or burden to which others are
b. Tax amnesty applies only to past tax periods, hence of retroactive application while tax
exemption has prospective application.

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7. What are the features of the income tax law? 9. What are the kinds of advertising expenditure and their tax treatment?

a. Income tax is a “direct tax” because the tax burden is borne by the income recipient Advertising is generally of two kinds: (1) advertising to stimulate the current
upon whom the tax is imposed. It is a tax demanded from the very person who, it is sale of merchandise or use of services and (2) advertising designed to stimulate the future
intended or desired, should pay it, while ‘indirect tax” is a tax demanded in the first sale of merchandise or use of services. The second type involves expenditures incurred, in
instance from one person in the expectation and intention that he can shift the burden whole or in part, to create or maintain some form of goodwill for the taxpayer's trade or
to someone else. (Commissioner vs. Tours Specialists, 183 SCRA 402) business or for the industry or profession of which the taxpayer is a member. If the
b. Income tax is a progressive tax, since the tax base increases as the tax rate increases. expenditures are for the advertising of the first kind, then, except as to the question of the
It is founded on the ability to pay principle and is consistent with the Constitutional reasonableness of amount, there is no doubt such expenditures are deductible as business
provision that the “Congress shall evolve a progressive system of taxation”. (Sec. expenses. If, however, the expenditures are for advertising of the second kind, then normally
28(1), Art. III, 1987 Constitution) they should be spread out over a reasonable period of time. (Commissioner vs. General
c. The Philippines has adopted the most comprehensive system of imposing by adopting Foods, GR No. 143762, April 24, 2003)
the citizenship principle, the residence principle, and the source principle. Any one of
the three principles is enough to justify the imposition of income tax of a resident 10. Define the net capital loss carry over and net operating loss carry over. Distinguish
citizen and domestic corporation that are taxed on worldwide income. the two concepts and discuss the tax implications of each.
d. The Philippines follows the semi-schedular or semi-global system of taxation, although
certain passive investment incomes, and capital gains from sale of capital assets are a. Concept: Net capital loss carry over means the deduction from net capital gains of a
subject to final taxes at preferential tax rates. succeeding year the net capital loss suffered during the prior year. Net operating loss
carry over is the deduction from gross income for the next three (3) consecutive
8. C Bank receives its passive interest income net of final withholding tax (FWT) of 20%. taxable years following the year of such loss, the excess of allowable deduction over the
The BIR assessed C Bank for gross receipts tax (GRT) which includes the interest gross income.
income withheld as payment for the 20% FWT. C Bank protested said assessment
contending that the interest income does not form part of its taxable gross receipts. b. Distinction:
 Source: The source of net capital loss carry over are capital losses only while the
a. Is the interest income part of C Bank’s taxable gross receipts? source of net operating loss carry over are from the ordinary trade and business
Yes. The term “gross receipts” means the entire receipts without any of the taxpayer.
deduction. The concept of a withholding tax on income obviously and necessarily implies that  Who may enjoy the carry over: Only taxpayers other than corporations may enjoy
the amount of the tax withheld comes from the income earned by the taxpayer. Since the net capital loss carry over while only corporations may enjoy the net operating
amount of the tax withheld constitutes income earned by the taxpayer, then that amount loss carry over.
manifestly forms part of the taxpayer’s gross receipts. c. Any taxpayer, other than a corporation (individuals including trusts and estates), who
sustains in any taxable year a net capital loss form capital transactions involving capital
b. If the interest income forms part of the gross receipts subject to GRT, is this a assets (other than real property or shares of stock not listed or traded in the stock
form of double taxation? exchange), is allowed to treat during the succeeding year such net capital loss as a loss
No. The gross receipts tax is a business tax under Title V of the Tax Code, from the sale or exchange of a capital asset (other than a real property or shares of
while the final withholding tax is an income tax under Title II of the Code. There is no double stock not listed and traded in the stock exchange), held for more than twelve months.
taxation if the law imposes two different taxes on the same income, business or property. [Sec. 39(D), 1997 NIRC]
(China Banking Corp. vs. Court of Appeals, GR Nos. 147938 & 146749, June 10, 2003)

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11. What is Minimum Corporate Income Tax (MCIT)? 13. Are legal officers of the BIR authorized to institute appeal proceedings without the
participation of the Solicitor General?
A MCIT of 2% of the Gross Income (GI) as of the end of the taxable year is No. The institution or commencement before a proper court of civil and
imposed upon any domestic corporation and resident foreign corporation beginning on the criminal actions and proceedings arising under the Tax Reform Act which shall be conducted
4th taxable year immediately following the year in which such corporation commence its by legal officers of the BIR is not in dispute. An appeal from such court, however, is not a
business. matter of right. It is still the Solicitor General who has the primary responsibility to appear
a. It is imposed only where 2% of the GI is more than the normal income tax rates for the government in appellate proceedings. (Commissioner vs. La Suerte Cigar and
b. Any excess of the minimum corporate income tax over the normal income shall be Cigarette Factory, GR No. 144942, July 4, 2002)
carried forward and credited against the normal income tax for the three
immediately succeeding taxable years. 14. What are the distinctions between compromise and compromise penalty?
c. This is applied on annual basis and not to be used in the quarterly corporate
returns. a. Definition: A compromise penalty is an amount of money paid by a taxpayer to
d. The Sec. of Finance is authorized to suspend this MCIT on account of – compromise a tax violation that he has committed, which may be the subject of criminal
(1) Prolonged labor dispute prosecution, while a compromise is an amount of money paid by the taxpayer to settle
(2) Force majeure his civil liability for tax assessed by the government.
(3) Legitimate business reverses b. Basis of amount paid: In compromise, the basis of the amount paid is the basic tax
assessed; in compromise penalty, the basis is the gross sales or receipts during the
12. Mr. Emi Grante, a Canadian citizen and a resident of Ontario, Canada, sends a gift of year or the tax due.
US $20,000.00 to his future daughter-in-law who is to be married to his only son in c. Minimum amount prescribed: In compromise, the law sets a limit as to the amount that
the Philippines. The marriage actually took place on the date the gift was received. may be accepted by the government, depending on the legal grounds used by the
a. Is the donation by Mr. Grante subject to tax? Would your answer be the same if taxpayer; in compromise penalty, the amount set depends on the nature of the tax
Mr. Grante is a Filipino citizen but is a non-resident? violation and the minimum amount is generally not less than P1,000.
b. What is the tax consequence, if any, to the Mr. Grante’s daughter-in-law?
15. In a criminal complaint for tax evasion filed by the Commissioner of Internal Revenue
a. Yes, because a non-resident alien is exempt only from the payment of with the Department of Justice, can the revenue-officers’ Affidavit Report attached
donor’s taxes if his gifts are made to or for the use of the National Government or any thereto be construed as a formal assessment against the taxpayer?
entity created by any of its agencies which is not conducted for profit, or to any political
subdivision of the said government. No. An assessment must be sent to and received by a taxpayer, and must
He is subject to tax because the gift was not made in favor of an demand payment of the taxes described therein within a specified period. It is deemed made
educational and/or charitable, religious, cultural or social welfare corporation, only when the collector of internal revenue releases, mails or sends such notice to the
institution, foundation, trust or philanthropic organization, or research institution or taxpayer.
corporation which does not use more than 30% of the donation for administration That the BIR examiners’ Joint Affidavit contained some details of the tax
purposes. liabilities of the taxpayer does not ipso facto make it an assessment. The purpose of the Joint
If Mr. Grante was a non-resident Filipino, the answer would still be the Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. It
same. merely contained a computation of the taxpayer’s liability. It did not state a demand or a
b. None. The amount should not be considered as part of her income as period for payment. Worse, it was addressed to the Justice Secretary, not to the taxpayer.
the same is one of the exclusions. Neither is there any donor’s tax due from her (CIR vs. Pascor Realty & Development Corp., June 29, 1999)
because the tax is to be paid by the donor and not the recipient.

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16. Is an assessment necessary before criminal charges for tax evasion may be h. Suspension of business operations in violation of VAT
instituted? i. Enforcement of Administrative Fine

No. Section 222 of the NIRC specifically states that in cases where a false or 19. What are the remedies of the taxpayer under the NIRC?
fraudulent return with intent to evade tax is submitted or in cases of failure to file a return,
proceedings in court may be commenced without an assessment. Furthermore, Section 205 a. Administrative
of the same Code clearly mandates that the civil and criminal aspects of the case may be  Before payment
pursued simultaneously. (CIR vs. Pascor Realty & Development Corp., June 29, 1999) (1) Filing a protest within 30 days from receipt of assessment, or
A crime is complete when the violator has knowingly and willfully filed a (2) Entering into a compromise
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is  After payment
grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, Filing of claim for refund or tax credit within 2 years from date of payment
and the government’s failure to discover the error and promptly to assess has no regardless of any supervening cause
connections with the commission of the crime. (Ungab vs. Cusi, May 30, 1980) b. Judicial
 Civil Action
17. Can a court issue an injunction to restrain the collection of an internal revenue tax? (1) Appeal to the CTA within 30 days from receipt of decision or from the lapse of
180 days due to inaction of the Commissioner
No. Section 218 of the 1997 NIRC provides that “no court shall have the (2) Action to contest forfeiture
authority to grant injunction to restrain the collection of any national internal revenue tax, (3) Action for damages against revenue officer
fee or charge imposed by said Code.” This is because it is upon taxation that the Government  Criminal Action
chiefly relies to obtain the means to carry on its operations and it is of the utmost (1) Filing of criminal complaint against erring BIR officials
importance that the means adopted to enforce the collection of taxes levied should be (2) Injunction
summary and interfered with as little as possible.
The rule against injunction however admits of one exception: the CTA is 20. What cases may be the subject of compromise settlement?
empowered to suspend the collection of internal revenue taxes and customs duties only when
there was a - a. Delinquent accounts
a. the collection of tax may jeopardize the interest of the Government b. Cases under administrative protests
and/or the taxpayer, c. Civil tax cases being disputed before the courts
b. deposit of the amount claimed or file a surety bond for not more than d. Collection cases filed in courts
double the amount of tax with the court when required; and e. Criminal violations, other than those already filed in court or those involving criminal
c. showing by taxpayer that appeal is not frivolous or dilatory. tax fraud; and,
f.Cases covered by pre-assessment notices but taxpayer is not agreeable to the findings of
18. What are the remedies of the government against the taxpayer for non-payment of the audit office as confirmed by the review office. (Sec.2, Rev. Reg. 7-2001)

a. Compromise
b. Distraint (Actual and Constructive)
c. Levy
d. Tax Lien
e. Civil action
f. Criminal action
g. Forfeiture of Property

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21. What cases may not be the subject of compromise settlement? 25. What are the requirements for the validity of a taxpayer’s protest?

a. Withholding tax cases; The following are the requirements for the validity of a taxpayer’s protest:
b. Criminal tax fraud cases; a. It must be filed within the reglementary period of thirty (30) days from
c. Criminal violations already filed in court; receipt of the notice of assessment.
d. Delinquent accounts with duly approved schedule of installment payments; b. The taxpayer must show the errors of the BIR as well as the correct
e. Cases where final reports of reinvestigation or reconsideration have been issued computation through:
resulting to reduction in the original assessment and the taxpayer is agreeable to such (1) A statement of facts, the applicable law, rules and regulations, or
decision. jurisprudence on which the taxpayer’s protest is based, otherwise, his
f. Cases which become final and executory after final judgment of a court. (Sec.2, Rev. protest shall be considered void and without force and effect;
Reg. 7-2001) (2) If there are several issues involved in the disputed assessment and the
taxpayer fails to state the facts, the applicable law, rules and
22. When may the Commissioner compromise any internal revenue tax? regulations, or jurisprudence in support of his protest against some of
the several issues on which the assessment is based, the same shall be
The Commissioner may compromise any internal revenue tax when – considered undisputed issue or issues, in which case, the taxpayer shall
(a) a reasonable doubt as to the validity of the claim against the taxpayer be required to pay the corresponding deficiency tax or taxes
exists; or attributable thereto. (Sec. 3.1.5, Rev. Regs. 12-99)
(b) the financial position of the taxpayer demonstrates a clear inability to c. Within sixty (60) days from filing of the protest, the taxpayer shall submit all
pay the assessed tax. relevant supporting documents. [Sec. 228(e), 1997 NIRC]
The compromise settlement of any tax liability based on financial incapacity
to pay shall be subject to the minimum compromise rate equivalent to the 10% of the basic 26. What is the difference between a tax refund and a tax credit?
assessed tax. In this case, the taxpayer’s offer to compromise shall not be considered Tax refund takes place when there is actually a reimbursement of the tax. As
unless and until he WAIVES IN WRITING his privilege under R.A. 1405 or under other general or to a tax credit, the Government issues a tax credit certificate or tax credit memo covering
special laws, and such waiver shall constitute the authority of the Commissioner to inquire the amount determined to be reimbursable, which can be applied after proper verification
into his bank deposits. For other cases, a minimum compromise rate equivalent to 40% of against any sum that may be due and collectible from the taxpayer.
the basic tax assessed shall be imposed.
23. When may the Commissioner compromise criminal violations? 27. What are the statutory requirements for refund claims?

All criminal violations under the Tax Code may be compromised EXCEPT: a. A written claim for refund or tax credit must be filed by the taxpayer with the
a. Those already filed in court Commissioner;
b. Those involving fraud. b. The claim for refund must be a categorical demand for reimbursement; and
c. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must
24. On what grounds may the Commissioner abate or cancel internal revenue tax be commenced in court within two years from date of payment of the tax or penalty
liabilities? regardless of any supervening cause.

Under Section 204(B), in relation to Sections 7(c) and 290 of the Tax Code,
the CIR has the authority to abate or cancel internal revenue tax liabilities of certain
taxpayers based on any of the following grounds:
a. The tax or any portion thereof appears to be unjustly or excessively assessed; or
b. The administration and collection costs involved do not justify the collection of the
amount due.

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28. LOCCO Corp. paid to the BIR on May 20, 1992 the tax withheld on income earned by the three years from the date of filing of the original return, statement or declaration, and (b) no
company for the first quarter of 1991. However, the business operations of the notice of audit or investigation of such return, statement or declaration has, in the
company resulted in a loss in the same year as reflected in the corporate final meantime, been actually served upon the taxpayer. (Sec. 6A, 1997 NIRC)
adjustment return subsequently filed with the BIR filed on April 15, 1992. When will the The prescriptive period for assessment starts to run from the filing of the
2-year prescriptive period to claim refund start to run? original return, if the same is sufficiently complete to enable the Commissioner to
intelligently determine the proper amount of tax to be assessed. However, where the
The prescriptive period starts to run on April 16, 1992. The Tax Code provides amended return is substantially different from the original return, the right of the BIR to
that the refundable amount, in case a refund is due a corporation, is that amount which is assess the tax is counted from the filing of the amended return.
shown on its final adjustment return, not only on its quarterly returns. When the taxpayer
paid the quarterly income tax on May 20, 1992, it would not have been able to ascertain on 32. A bachelor was employed by Corporation X on the 1 st working day of January 2002 on
that date, that the said amount was refundable. Clearly, the prescriptive period of two years a part-time basis with a salary of P3,000 a month. In September 2002, he accepted
should commence to run only from the time that the refund is ascertained. another part-time job from Corporation B from which he received a total
compensation of P15,000 for the year 2002. The correct total taxes were withheld
29. When is the payment of taxpayer’s liability deemed effected under the withholding tax from both earnings. With the withholding taxes already paid, would he still be
system for the purpose of applying the two-year prescriptive period for tax refund? required to file an income tax return for his 2002 income?

A taxpayer whose income is withheld at the source will be deemed to have Yes, because what is exempt from filing are those individuals who have total
paid his liability when the same falls due at the end of the tax year. A taxpayer, resident or compensation income not exceeding P60, 000 with the taxes correctly withheld only by one
non-resident, who contributes to the withholding tax system, does so not really to deposit an employer. In this case, even if his aggregate compensation income and that total withholding
amount to the Commissioner of Internal Revenue, but in truth, to perform and extinguish his taxes were correctly withheld by his employers, the fact that he derives compensation
tax obligation for the year concerned. In other words, he is paying his tax liabilities for that income concurrently form two employers at anytime during the taxable year, does not
year. It is of no consequence whatever that a claim for refund or credit against the amount exempt him from filing his income tax return.
withheld at the source may have been presented and may have remained unresolved since
the delay of the Collector in rendering decision does not extend the peremptory period fixed 33. The BIR discovered that Gener, a businessman, did not file his income tax returns for
by the statute (Gibbs vs. CIR, November 29, 1965). the taxable years 1998 and 1999. A pre-assessment notice for back taxes was then
issued in the amount of P2 million which ultimately matured into an assessment
30. When may the running of prescriptive periods for assessment and collection of taxes notice. The BIR arrived at the additional tax due after using the “net worth” method
be suspended? and access to records of Gener’s purchases from his suppliers of raw materials. He
now disputes the assessment for lack of legal basis because of the use of the “net
a. When the CIR is prohibited from making the assessment or beginning the distraint or worth” which is not authorized under the Tax Code and for violation of his
levy or a proceeding in court, and for sixty (60) days thereafter; constitutional rights when his purchase records were accessed from his suppliers.
b. When the taxpayer requests for a reconsideration which is granted by the CIR; Rule on his dispute.
c. When the taxpayer cannot be located in the address given by him in the return, unless
he informs the CIR of any change in his address. Gener’s dispute is bereft of merit. Since Gener did not file his income tax
d. When the warrant of distraint or levy is duly served, and no property is located; and returns, which reports are required by law as a basis for assessment, then, the BIR
e. When the taxpayer is out of the Philippines (Sec. 223, 1997 NIRC). Commissioner shall assess the tax on the best evidence available. The BIR Commissioner is
authorized to secure records from public or private entities to assist him in the assessment.
31. What is the effect of filing an amended return? Furthermore, the BIR may use such methods as in the opinion of the Commissioner clearly
reflects the income and the net worth method is one of these reasonable methods.
The taxpayer is granted the right to file an amended return, statement or
declaration, subject to the following conditions: (a) the amendment shall be made within

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34. Distinguish the final withholding tax system from creditable withholding tax system. withheld and remitted to the BIR withholding creditable taxes. Thus, on August 7,
1987, PBCom filed a claim for refund of creditable taxes withheld by their lessees.
Under the final withholding tax system the amount of income tax withheld by Pending investigation by the CIR, PBCom instituted a Petition for Review on November
the withholding agent is constituted as a full and final payment of the income due from the 18, 1988 before the CTA. The CTA denied the request for the year 1985 on the ground
payee on the said income. [Sec. 2.57 (A), Rev. Regs. 2-98] that it was filed beyond the two-year reglementary period and its claim for 1986 on
The liability for payment of the tax rests primarily on the payor or the the ground that it has already opted for an automatic tax credit. Petitioner argues
withholding agent. Thus, in case of his failure to withhold the tax or in case of under that its claim for refunds for the year 1985 are not yet barred relying on the
withholding, the deficiency tax shall be collected from the payor withholding agent. The payee applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The
is not required to file an income tax return for the particular income. circular states that overpaid income taxes are not covered by the two-year
Under the creditable withholding tax system, taxes withheld on certain prescriptive period under the Tax Code and that taxpayers may claim refund or tax
income payments are intended to equal or at least approximate the tax due from the payee credits for the excess quarterly income tax with the BIR within ten (10) years under
on the said income. The income recipient is still required to file an income tax return and/or Art. 1144 of the Civil Code. Decide.
pay the difference between the tax withheld and the tax due on the income. [Sec. 2.57(B),
Rev. Regs. 2-98] The relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period. The rule states that the taxpayer may file a
35. ABC Corporation filed its income tax returns in January 1995 for its income for the claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years
year 1994. In October 1997, March 1998, and May 1998, ABC Corp. through its after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period
authorized representative signed three (3) separate waivers of the “Statute of provided, should be computed from the time of filing the adjustment Return and final payment
Limitations under the NIRC.” The waivers were not signed by the BIR Commissioner or of the tax for the year. (See Sec. 229, NIRC)
his agents. When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess quarterly
In 1999, the BIR issued letters of demand, accompanied by assessment income tax payments, such circular created a clear inconsistency with the provision of Sec.
notices asking the corporation to pay the deficiency internal revenue taxes for its 230 of 1977 NIRC (now Sec. 229 NIRC). In so doing, the BIR did not simply interpret the law;
income for the year 1994. ABC Corp. disputed the assessment and requested a rather it legislated guidelines contrary to the statute passed by Congress.
reinvestigation. The BIR Commissioner denied the protest. ABC Corp. appealed to the It bears repeating that Revenue memorandum-circulars are considered
Court of Tax Appeals, on the ground of prescription. Decide. administrative rulings (in the sense of more specific and less general interpretations of tax
laws) which are issued from time to time by the Commissioner of Internal Revenue. It is
The BIR’s authority to assess has already prescribed. The three (3) waivers widely accepted that the interpretation placed upon a statute by the executive officers,
did not suspend the running of the prescriptive period. whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
The only agreement that could suspend the running of the prescriptive period interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus,
for the collection of the tax in question is a written agreement between ABC Corp.and the BIR courts will not countenance administrative issuances that override, instead of remaining
entered into before the expiration of the three (3) year prescriptive period, extending the consistent and in harmony with, the law they seek to apply and implement. (Philippine Bank
said period. of Communications vs. Commissioner, et al., GR No. 112024, January 28, 1999)
Since what is required is the signatures of both the Commissioner and the
taxpayer, a unilateral waiver on the part of the taxpayer does not suspend the prescriptive

36. PBCom reported profits in its quarterly income tax returns for the first and second
quarters of 1985. However, PBCom suffered losses so that when it filed its Annual
Income Tax Returns, it declared a net loss. For the succeeding year, it again reported
a net loss. But during these two years, PBCom earned rental income. The lessees

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37. State the rule on non-retroactivity of rulings. Give exceptions. 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
Section 246 of the 1997 NIRC provides: “Any revocation, modification or jurisdiction.
reversal of any of the rules and regulations promulgated in accordance with the preceding Thus, the withholding agent is the constituted agent both of the government
Sections or any of the rulings or circulars promulgated by the Commissioner shall not be and the taxpayer. With respect to the collection and/or withholding of the tax, he is the
given retroactive application if the revocation, modification, or reversal will be prejudicial to Government’s agent. In regard to the filing of the necessary income tax return and the
the taxpayers, except in the following cases: payment to the government, he is the agent of the taxpayer. The withholding agent,
(1) Where the taxpayer deliberately misstates or omits material facts from therefore, is no ordinary government agent especially because under the Tax Code he is
his return or any document required of him by the Bureau of Internal personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of
Revenue; Internal Revenue and his deputies are not made liable under the law. (Filipinas Synthetic
(2) Where the facts subsequently gathered by the Bureau of Internal Corp. vs. Court of Appeals, GR Nos. 118498 & 124377, October 12, 1999)
Revenue are materially different from the facts on which the ruling is
based; or 40. What is the principle of preemption in local taxation?
(3) Where the taxpayer acted in bad faith.”
Preemption in taxation refers to an instance wherein the National
38. The Commissioner of Internal Revenue is authorized under the Tax Code to delegate Government elects to tax a particular area, impliedly withholding from the local government
the powers vested in him under the pertinent provisions of the Tax Code to any the delegated power to tax the same field. The rule withholds from the taxing power of local
subordinate official with the rank equivalent to a division chief or higher. What are governments the authority to impose various taxes and charges which are levied under the
the powers of the Commissioner that he could not delegate? National Internal Revenue Code, Tariff and Customs Code and other special laws.

a. power to Recommend the promulgation of rules and regulations by the 41. The City of Manila enacted an ordinance imposing a tax on all manufacturers of
Sec. of Finance underwear garments within its jurisdiction. RTW Corporation has been paying such
b. power to Issue rulings of first impression or to Reverse, revoke modify taxes since May 10, 2001. On June 20, 2003, said ordinance was declared null and void
any existing rule of the BIR by the competent court. Can the RTW Corporation validly claim for the refund of the
c. power to Compromise or Abate any tax liability taxes it paid?
EXCEPT, the regional evaluation board may compromise:
(1) assessments issued by regional offices involving deficiency Yes. Unlike the refund or credit of internal revenue taxes, the 2 year period
taxes of P500,000 or less and for filing claims for refund or credit of local taxes is counted not necessarily from the date
(2) minor criminal violations as may be determined by the rules of payment but from the date the taxpayer is entitled to refund or credit. This would mean
and regulations that in local taxation, the supervening clause applies.
d. power to Assign or reassign internal revenue officers to establishments
where articles subject to excise tax are kept.

39. DEF Corp. brought to court the issue of whether it should be made liable for the
payment of the withholding tax at source since it is merely an agent and not the
taxpayer. Rule on the issue with reasons.

DEF Corp. as the withholding agent is explicitly made personally liable under
the Tax Code for the payment of the tax required to be withheld.
The law sets no conditions for the personal liability of the withholding agent
to attach. This is in order to compel the withholding agent to withhold the tax under any and

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42. The City of Manila enacted an ordinance providing for an increase in the valuation of c. Machineries and equipment that are actually, directly and exclusively used by local
real properties. Taxpayer Lopez filed a case for the declaration of nullity of said water utilities and GOCC’s engaged in the supply and distribution of water and/or
ordinance with the RTC. City of Manila moved to dismiss on the ground of failure to electric power;
exhaust administrative remedies. Lopez claims that the question of the d. Real property owned by duly registered cooperatives as provided for in RA 6938; and
constitutionality of the city ordinance may be raised on appeal, either to the e. Machinery and equipment used for pollution control and environmental protection.
Secretary of justice or the RTC, both having concurrent jurisdiction over the case.
Decide. 45. Meralco was granted a franchise to operate an electric light and power service in
Calamba, Laguna sometime in 1983 under PD No. 551. Under the franchise Meralco
The case should be dismissed. Section 187 of RA No. 7160 provides, that the pays 2% franchise tax on its gross receipts and “any law to the contrary
taxpayer may question the constitutionality or legality of tax ordinance on appeal within notwithstanding be in lieu of all taxes and assessments of whatever nature imposed by
thirty (30) days from the effectivity thereof, to the Secretary of Justice. The petitioner after any national or local authority or earnings, receipts, income and privilege of
finding that his assessment is unjust, confiscatory, or excessive, must have brought the case generation, distribution and sale of electric current.” Pursuant to the Local
before the Secretary of Justice for questions of legality or constitutionality of the city Government Code, the province of Laguna enacted an ordinance imposing a franchise
ordinance. of 50% of 1% of the gross annual receipts of business enjoying a franchise realized
Under Section 226 of RA 7160, an owner of real property who is not satisfied during the preceding calendar year within the province including cities located
with the assessment of the property may, within sixty (60) days from notice of assessment, therein. Rule on the validity of the tax ordinance.
appeal to the Board of Assessment Appeals.
Should the taxpayer question the excessiveness of the amount of tax, he must The tax ordinance is valid. Under the now prevailing Constitution, where
first pay the amount due, in accordance with Section 252 of RA 7160. Then, he must first there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist
request the annotation of the phrase “paid under protest” and accordingly appeal to the although Congress may provide statutory limitations and guidelines. The basic rationale for
Board of Assessment Appeals by filing a petition under oath together with copies of the tax the current rule is to safeguard the viability and self-sufficiency of local government units by
declarations and affidavits or documents to support his appeal. (Lopez vs. City of Manila, GR directly granting them general and broad tax powers. Nevertheless, the fundamental law did
No. 127139, February 19, 1999) not intend the delegation to be absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government units are being strengthened and
43. What are the fundamental principles governing real property taxation? made more autonomous, the legislature must still see to it that (a) the taxpayer will not be
overburdened or saddled with multiple and unreasonable impositions; (b) each local
a. Real property shall be appraised at its current and fair market value; government will have its fair share of available resources; (c) the resources of the national
b. Real property shall be classified for assessment purposes on the basis of actual use. government will not be unduly disturbed; and (d) local taxation will be fair, uniform and just.
c. Real property shall be assessed on the basis of uniform classification within each LGU Indicative of the legislative intent to carry out the constitutional mandate of
d. The appraisal, assessment, levy and collection of RP Tax shall not be let to any private vesting broad tax powers to local government units, the Local Government Code has
person effectively withdrawn, under Section 193 thereof, tax exemptions or incentives theretofore
e. The appraisal and assessment of real property shall be equitable. enjoyed by certain entities.

44. What properties are exempt from real property taxes? 46. What is meant by customs duties under the Tariff and Customs Code?

a. Real property owned by the government except when the beneficial use thereof has Customs duties is the name given to taxes on the importation and exportation
been granted to a taxable person; of commodities, the tariff or tax assessed upon merchandise imported from, or exported to,
b. Charitable institutions, churches, personages or convents appurtenant thereto, a foreign country.
mosques, non-profit or religious cemeteries and all lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational
purposes (Art. VI, Sec. 28, Constitution);

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47. What are special duties under the Tariff and Customs Code? 50. (a) What is the basis of the automatic review procedure in the Bureau of Customs?

Special duties are those which are imposed and collected in addition to the Automatic review is intended to protect the interest of the Government in the
ordinary customs duties usually to protect local industries against foreign competition. collection of taxes and customs duties in seizure and protest cases. Without such automatic
There are four kinds: review, neither the Commissioner of Customs nor the Secretary of Finance would know about
a. Dumping duty, or the duty levied on imported goods where it appears that a specific the decision laid down by the Collector of Customs favoring the taxpayer. The power to
kind or class of foreign article is being imported into or sold or is likely to be sold in the decide seizure and protest cases may be abused if no checks are instituted. Automatic
Philippines at a price less than its fair value; review is necessary because nobody is expected to appeal the decision of the Collector of
b. Countervailing duty, or the duty imposed upon foreign goods enjoying subsidy granted Customs which is favorable to the taxpayer and adverse to the Government. This is the
by the foreign country which allows the sale of goods at lower prices to the detriment reason why whenever the decision of the Collector of Customs is adverse to the Government,
of similar goods locally produced; the said decision is affirmed by the Commissioner of Customs. The same shall be
c. Marking duty, or the duty imposed, on an ad valorem basis, upon goods not properly automatically elevated to and finally reviewed by the Secretary of Finance. (Yaokasin vs.
marked as to their place of origin; and Commissioner of Customs, 180 SCRA 591 [1989])
d. Discriminatory duty, or the duty imposed upon goods coming from countries which
discriminate against the commerce of the Philippines. (b) When does automatic review of cases occur?

48. What is Transaction Value under RA 8181? (1) Decision of the Collector favorable to the taxpayer; (by the coc)
(2) Decision of the Commissioner of Customs favorable to the taxpayer
It is the invoice value of the goods plus freight, insurance, costs, expenses and which is automatically elevated to the Secretary of Finance;
other necessary expenses which is used as basis for the determination of dutiable value. This (3) Decision of the Secretary of Finance if adverse to the taxpayer is
replaces the Home Consumption Value which is based on the value declared in the consular, appealable to the Court of Tax Appeals.
commercial, trade, or sales invoice. The change to transaction value was a consequence of
the Philippine’s participation in the Uruguay Round of the GATT.

49. Do RTCs have jurisdiction to pass upon the validity or regularity of a seizure and
forfeiture proceedings?

No. The RTCs are devoid of any competence to pass upon the validity or
regularity of seizure and forfeiture proceedings. The question of whether probable cause
exist is not for the RTC to determine. The Customs authorities do not have to prove to the
satisfaction of the court that articles on a vessel are imported from abroad before they may
exercise the power to effect customs searches or arrests as provided by law.
The Collector of Customs sitting in the seizure and forfeiture proceedings,
has exclusive jurisdiction to hear and determine all questions touching on the seizure and hotjurist 2010
forfeiture of dutiable goods. (Jao vs. Court of Appeals, 249 SCRA 35) In foro conscientiae

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