an eee (On subsequent donation during the year Note: In the case of real properties considered as capital assets, the difference between the FMV and the actual value received in transfers for less than the adequate or full consideration shall not be subject to donor's tax, The rationale is that under Section 24 (d, the FMY itself, If higher than the _gross selling price, is the base for the computation of capital gains tax. In essence, what the seller avoids in the payment of donor’s tax, it pays for the capita gains tax. = Debt condoned or remitted ~ Transfers made in trust for another person ~ Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage” in favor ofthe heirs of he decease spouse or any other person; However, a general renunciatiofi by an heir, Including the surviving spouse; of his/her siate [a= the hereditary estate left by the decedentis fot ”- subject to donor's tax, unless specifically eid categorically done in favor of eee Nelfa the” ‘exclisienor disadvantage ofthe other o6-hélrs in” the hereditary estate. (See. 11,Rev. Reg. 2-2003) ‘See Estate of Fidel Reyes, CTA Case No. 6747, Jan. 16, 2006 where the repudiation by the’heirs of an inheritance was held not to be a donation: Valuation: = Persona! property: FMV at the time of donation — Real Froperty: FMV as determined by the Commissioner or the FMV in the latest schedule of values of the provincial or city assessor, whichever Is HIGHER ‘Computation of Tax (applicable only on donations made to a person who is not a stranger.) on the 1 donation of the year Gross Gift xx Less: deductions mx Net gift wx Multiply by: tax rate mx Donor's tax oy c Gross Gift Less: deductions Net gift Add: prior net gift Aggregate net gifts Multiply by: tax rate Donor’s tax on aggregate gift Less: Prior donor's tax paid Donor’s tax on this date Bis Be ele x x Rates of Tax ‘The applicable donor's tax rate is dependent upon the ‘relationship between the donor and the done. A Stranger for donor's tax purposes is a person who ts not a: | A). Brother, sister (whether by whole or halt-blood), spouse, ancestor an lineal descendant 2), Relative by consanguinity in the collateral tine within the Ath degree of relationship ” __pilegally adopted child is entitied to all the rights ‘and obligations provided by law to legitimate children, and therefore, donation to him shail not bbe considered as donation made te stranger. ~ Donation made between business organizations ‘and those made between an individual and @ business organization shall be considered as donation made to a stranger. ~ _ Mother/Father-in-laws are considered strangers. Donee is NOT a Stranger to the Donor Rate: Graduated Rates EXEMPTION FROM GIFT TAK (SEC. 101) ‘Made by a Resident (2) Dowries or gifts made on account of marriage, before its celebration or within one year thereafter, by parents to each of thelr legitimate, recognized natural, or adopted children to the extent of the first 210,000 ty: Marissa Cabreres, Ay. Michael Dana Montero; Head: Kathrina Matibag, Cari Marlou Saran, LUnderstudies:Justinne Dizon Allan Caro Seller, Kristine Vonzuels— @TAXATION LAW REVIEWER. TNE) Note: Both parents may make dowries and gifts made on account of marriage. Each parent shall be entitied to the exemption above. This has the ‘effect of splitting the value of the gift into half for both spouses so each spouse can claim the ‘exemption. However, both spouses must file separate returns because the husband and wife are considered as distinct entities for purposes of donor's tax. (b}_ Gifts made to oF 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 subdivision of the said Government (c)_ Gifts in favor of an non-profit educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited fion- government organization, trust of philanthropic ‘organization of research institution or organization: provided, not more than 30% 6f said gifts sfiall be ~ sed by such donee for administration purposes. CENTRAL BAR OPERATIONS 2010 NON-PROFIT EDUCATIONAL AND/OR CHARITABLE CORPORATION is one which is ieorporétes as 2 non-stock entty paying no dividends, governed by trustees who received no compensation, and devoting all its income to the accomplishment and promotion of the purposes enumerated in its Articles of incorporation {4)_ Encumbrances on the property donated if assumed by the donee in the deed of donation (e) Donations made to entities as exempted under special laws. (8) Donations to persons not strangers where the total ‘of such net gifts for the calendar year does not exceed P100,000 per year (Sec. $9{A]] Note: To be exempt from donor's tax and to claim full deduction of the donation given to qualified donee institutions duly accredited by the Philippine Council for NGO Certification, Inc(PCNC), the donar engaged in business shall give @ notice of donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the Revenue District Office(RD0) which has Jurisdiction over his place of business within thirty (30) days after receipt ofthe qualified donee institution's duly issued Certificate of Donation, which shell be tached tothe said Notice of Donation, stating that not ‘more than thirty percent (30%) of the sid dlonation/gits for the taxable year shal be used by such ‘qalifed-donee institution for administration purposes pursuant tothe provisions of Section 103(Aj(3)and (82) ofthe Code (RR 2:2003) ‘+ Donative intentis a creature of the mind, Itcannot be perceived except ty the material and tangible ‘acts which manifests presence. This being the case, donative intent presumed present when cone gives a part of ones patrimony to another without consideration, Second, donative intents rot negated when the person donating has other intentions, motives or purpeses which do not 2, contradict donative intent. The Court was not ~ epnvincod that since the purpose ofthe canfribution was to help elect a candidate, there __ was no donative intent. Petitioners’ edntribution of ‘monéy without any material consideration evinces ‘animis donondh. The fact that their purpose for donating was to aid in the election ofthe donae does not negate the presence of donative intent. {abelfo vs Ck, GR No, 120724, 23 February 2005) Any contribution in cash orn kind to any candidate, political party, or coalition of partes for campaign purposes shal be governed by the election Code, as amended. (Section 38 (C}) 2, Made by a Nonresident Alien a Gifts made to the National Government or any entity created by any of its agencies which is not Conducted for profit, or to any political subdivision of the said Government rs Gifts in favor of an non profit educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non- government organization, trust or philanthropic ‘organization or research institution or organization; provided, not more than 30% of said gifts shall be Used by such donee for administration purposes Faculty Adviser: Atty. Marissa Cobrevos, Aity. Michael Dana Montero; Head: Kathrina Matibag, Carl Understudis: Justinne Dizon, Allan Carl Soler, Kristine Venzucla— farfou Saranilo; 86 TAXATION LAW REVIEWER. Net Gift ‘+The net economic benefit from the transfer that accrues to the donee. ‘* Accordingly, if a mortgaged property is transferred 2s a gift, but imposing upan 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 ‘mortgage assumed. Donor’s Tax Credit + Who are entitled to claim credits: only donors who are citizens or residents at the time of the donation + Formula Limitation A {per count 4 Net gifts (foreign country) x Phil. donor's tax Net gifts (world) . Linitation B foy total: Net gifts (outside Philippines) Net gifts (world) Special Rules on Husband and Wife + Husband and wife are considered as separate end distinct taxpayers for purposes ofthe donor's tax, © However, if what was donated is @ conjugal or ‘community property and only the husband signed the deed of donation, there is only one donor for donor's tax purposes, without prejudice to the right, of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and, the Family Code of the Philippines. Compliance Requirements (Sec. 103) ‘Who are liable to file donor's tax return? Every person, whether natural or juridical, resident or non-resident, who transfers or causes to transfer property by ft, whether the gift fs direct or indirect, and whether the property is real or personal, tangible or intangible ‘When to file donor's tax? The donor's tax return shall be filed within 30 days after the date the gift is made or CENTRAL BAR ‘OPERATIONS 2010 completed When to pay the tax? Pay at the time of fling (pey-as you-flle system) Where fled and paid? Unless the Commissioner otherwise permits it shall be filed and the tax paid to an authorized agent bank, revenue district officer, revenue collection officer, duly authorized treasurer of the ‘municipality where the donor was domiciled atthe time of the transfer, Office of the Commissioner (if there be ‘no legal residence in the Philippines). In the case of gifts ‘made by a non-resicent, the return may be fled with the Philippine Embassy or Consulate in the country where he is domicited at the time of the transfer, or itectly with the Office of thecommissioner. Faculty Adviser: Aity. Marissa Cabreros, Aty, Michael Da Understudies:Justinne Dizon, Allan Carla Soller, kristine Vercuele Montero; Head: Kathrina Matibag, Car Marlow Saranilor 64TAXATION LAW REVIEWER VN I. Nature and Characteristics ‘+ VATis an indirect tax levied on goods and services; not on persons, and ultimately pald by consumers in the form of higher prices ‘+ VATis@ tax on consumption levied on the sale, barter, exchange or lease of goods or properties and servicesin the ilippines and on importation of goodsinto the Philippines ‘+ Sellers the one statutorily able for the payment of the tax but the amount of the tax may be shifted or passed on to ‘the buyer, transferee or lessee of the goods, properties or services. In the case of importation, the importer isthe one Mable for the VAT (it vs. COMASERCO, GR. No. 125355, 30 March 2000 VAT isa tax on transaction, imposed at every stage ofthe Aistribution process onthe sale, barter, exchange, of foods or property, and inthe performance of services, evn in the atisence of prof attabutable thereto. The teen “in the course ‘of trade or business” requires the regular conduct or pursuit ota} ° ‘commercial or an economic activity, regariless of whether or rot the entity Is profitcrionted. a Hence, itis immaterial whether the primary pitposeof@ corporation indicates that it receives payment for sendees rendered tots ffliates on a reimbursemeti-on-Soat sis on, without realizing prof, fr purposes of determining bit for VAT on services rendered. As long asthe enly provides ace rie) 1 gy el 1. Any person who, in the course of trade or business ~ Sells, barters, or exchanges goods or properties (seller or transferor) ~ Leases goods or properties (lessor) = Renders services (service provider) 2. Imports goods (importer), whether or not made in the ‘course of trade or business Definition of “inthe course of trade or business (Rue of Regularity) + The regular conductor pursuit of @ commercial or an economic activity, ineluding transactions incidental thereto, by any person regardless of whether or not the person engaged therein a non-stock, nonprofit private ‘organization of government e +. Nonresident persons who perform services in the Phlippines are deemed to be making sles in the course ‘of trade Or business, even ifthe performance of services isnot regular ‘GIR vs. Magsaysay Lines, G.R. No. 146984, 28 uly 2006 ‘The term “course of business” or “doing business" connotes, regularity of activity. Any sale, barter, exchange of goods or ‘Services not in the course of trade or business in not subject, toVaT. fora fee, remuneration of consideration, then the service rendered s sublect to VAT. _ | stanssetion wil be characterized a having been entered ‘Sony Philippines vs. CIR, CTA EB Case No. 90(CTA Case No. (6185), 17 May 2007 ‘The fact that the advertising expense Is subsidized or reimbursed by Sony international does not render the same automatically subject te output VAT. There was no sae, barter or exchange of ‘gods or properties from the questioned transaction. Neither was there an exchange of service. ‘The CIR's reliance on the case of CIR vs. COMASERCO is. ‘misplaced. In the above ruling, COMASERCO rendered services. to its afflates. What was being taxed were these services rendered to its sfiiates. Thus, the SC held that COMASERCO is, liable for output VAT. Considering that there are no sale, barter or exchange of goods, (or properties in the instant case, the imposition of output VAT ‘on subsidized advertising expense has no leg to stand on. (Note Bacall, in order that VAT may be imposed, there must be the existence ofa transaction that is subject to VAT.) CS Gatments vs. GR, CTA case no. 6520, 4 January 2007 into by a person in the course of trade or busines fits (1) regularly conducted; and (2) undertaken In pursuit of a commercial or economic activity are considered as entered into in the course of trade or business. “incidental” means something else as primary; something necessary, appertaining to, or depending upon another, which is termed the principal Hence, an Isolated transaction isnot rnecesserily disqualified from being made incidentally in the course of trade or business. Therefore, the sale of motor vehicle used by its officers is an incidental transaction because the sald vehicle was purchased inthe furtherance of petitioner's business. Exc rule of regularity 1. Any business where the gross sales or receipt do not ‘exceed P100,000 during any 12-month period shall be considered principally for subsistence or tvelthood and rot in the course of trade or business “Faculty Adviser: Aty, Marissa Cabreros, Atty. Michael Dana Montero; Head: Kathrina Matibog, Cael Marlou Sararillo; Understudie: Justinas Dizon, Allan Carl Soller, Kristine Venzuels:2. Services rendered in the Philippines by non-resident foreign persons shall be considered as being rendered in the course of trade or business. ‘+ Everysale, barter or exchange of goods or properties shall be subject to 12% VAT based on the gross selling price or gross value in money of the goods or properties sold. '* Goods: all tangible and intangible objects which are ‘capable of pecuniary estimation, = includes: 12. Real properties held primarily for sale to custorners ‘or held for lease in the ordinary course of business b. the right or the privilege to use patent, copyright, design or model, plan, secret formula or process, ‘g0odwill, trademark, trade brand or other like property or right é ‘¢the right or the privilege to use inthe Philippines of any industrial, commercial or scientific equipment 4d. the right or the privilege to usé motion picture . films, fim tapes and disc €. radio, television, satelite wafsmision anccable television time ‘Gross Selling Price: the totel amount of money of ts ‘equivalent which the purchaser pays ori obligated to pay to. the sellerin consideration of sale, barter of exchange of the goods or properties, excluding the VAT. The excise tay, if any, of auch goods or properties hall fom part of the grost selling orice. er a, The consideration stated in the sales document, or b. The fair market value (FMV) as determined by the Commissioner {zonal value) or FMV as shown in the ‘Schedule of values of the Provincial and City ‘Assessors, whichever Is higher Note: a. Ifthe VAT is not billed separately, the seling price stated in the sales document shall be deemed to be Inclusive of VAT 'b. Ifthe gross selling price is based on the zonal value or market value of the property, the zonal or market value shall be deemed exclusive of VAT. ‘Thus, the zonal/market value, net of the output VAT, should still be higher than the considers the document of sale, exclusive of the VAT. Foculty Adviser: Atty. Marissa Cabreras, Atty. Michael Dana Montara; He Cas ei) OPERATIONS 2010 ‘The following sales by VAT-REGISTERED persons shall be subject to 0% rate: 1. Export sales ‘¢ The sale and actual shipment of goods from the Philippines to a foreign country |. Irrespective of any shipping arrangement I. Paid for in acceptable foreign cusrency or its equivalent in goods or services fi, Aecounted for In accordance with the rules and regulations ofthe 8S? + Sale of raw materials or packaging materials by a \VAT-registered entity to a nonresident buyer 1. fordelivery to resident local export-oriented enterprise “2, il Used in the manufacturing, processing, packing, repacking in the Philippines ofthe said buyer's goods i “Paid for in acceptable foreign currency Iv. Acoounted for in accordance with the rules and regulations of the BSP Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production Sale‘of gold to the BSP ‘Those considered export sales under the Omnibus stment Code of 1987 and other special laws Under Omafous Investment Code: i. thePhillppine port F.0.8, value determined from invoices, bils of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another ‘export producer, or to an export trader that subsequently exports the same; |i, Provided, that sales of export products to ‘another producer or to an export trader shall coy be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents; Constructive Experts: |. sales to bonded manufacturing warehouses of exportoriented manufacturers; Kathrina Mata, Car Mariou Saranilo, LUnderstudies: Justinne Dizon, Allan Carl Soller, Kristine Venzuela—ii sales to export processing zones it, sale to enterprises duly regetered and aocradited wth the Subic Bay Metropolitan Authority pursuant to RA 7227; IM. sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consulation with the Bureau of Internal Revenue (8 and the Bureau of Customs (600); ¥. Sales to cinlomatic missions and other agencies and/or instrumentaiies granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. Note: a) For purposes of zero-ating export sales of registered export traders shall include commission income. Z Exportation of goods on Gonsignment shill not bbe deemed exoort sales until the export products consigned aren ft sold By thé consignee. ae Provided, finally, that sales of eoods properties or services made by a VAT- registered supplier to 8 80Fregistered manufacturer/ producer whose products are 100% exported are considered export sales, ‘Acertification to this effect must bé'tgued by the Board of investment (801) which shal Be 200d for one year uniess subsequently re- ‘sued by the B01, ‘+ The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations Note: Limited to goods, supplies, equipment and {uel pertaining to or attributable to the transport of goods and passengers from a port inthe Philippines directiy to a foreign port without docking or stopping at ary other ports in the Philippines b) a 4) 2. Foreign Currency Denominated Sale {internal exports) ‘+ Sale to @ non-resident of goods, except those mentioned in Section 149 {automobiles} and 150 (non-essential goods) ‘+ Assembled or manufactured in the Philippines ‘+ For delivery to a resident in the Philippines Faculty Adviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Head: Katrina Matibag, Carl Mariou Saranilio; Understuies:ustinne Dizon, Alan Caro Soller, Kestine Veruela Cog peli] OPERATIONS 2010 ‘¢ Paid for in acceptable foreign currency and ‘accounted for in accordance with BSP regulations. Sales to persons or entities whose exemption under ‘special laws or international agreements to which the Philippines isa signatory effectively subjects such sales tozero rate. + Refer to exemptions granted under special laws or ‘treaties which are extended not only to the grantee but also to its supplier ‘Origin Principle/Destination Principle/Cross Border Doctrine ‘+ Origin Principle: only national taxpayers would be ‘exposed to the tax, without distinguishing betwean transactions “consumed!” locally or abroad. Exports taxable, imports exempt. Situs: country of production + Destination Principle: VAT is imposed in the country in ‘hich the products or services are actualy consumed or eed, Exports exempt, imports taxable. - Actual shipment of the goods from the Philippines to a foreign countrys ¢ precondition of an export sele following the destination principle being adhered to by ‘our VAT system. ‘¢ Cross boarder doctrine: No VAT shall be imposed to form part ofthe cost of goods sold destined for constimation outside ofthe territorial boarder of the _tpiine authority GIR v. American Express, G.R, No. 152609, 29 June 2005 ‘As. 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. However, our VAT law itself provides for a clear exception, Under which the supply of service shall be zero-rated when the following requirements are met: (1) the service is performed in the Philippines; (2) the service falls under any of the categories provided in Section 102() of the Tax Code; and (3) its paid for in acceptable foreign currency that is accounted for in accordance with BSP rules, 7» FAXATION LAW REVIEWER tes pe e).1 I OPERATIONS 2010 ‘Transfer, use or consumption not in the course of Automatic vs. Effectively Zero-Rated Sale business of goods or properties originally intended for Although both are taxed similariy, automatic zero-rated sale or for use in the course of business. transactions differ from effectively zero-rated transactions as ‘+ Transfer of goods or properties notin the course of to their source. business can take place when VAT- registered person withdraws goods frors his business for ‘+ an automaticaly zero-rated sale refers to 2 sale of personal use ‘goods, properties and services by a VAT-registered 2. Distribution or transfer to: seller/supplier that is regarded as either an export sale i. Shareholders or investors share inthe profits of ‘or a foreign currency denominated sale under Section VaT registered person 106 of the Tax Code of 1997. (RMAC 50-2007) ‘Property dividends which constitute stocks in trade or property primarily held forsale or + Aneffectively zero-ated sale, on the other hand, refers fease deciared out of Retained Earnings on or to the local sale of goods, properties and services by @ after Janct, 1996 and distributed by the \VAT-registered person to an entity that was granted ‘company to its shareholders shall be subject to indirect tax exemption under special laws or VAT based on the zonal value or fair market international agreements, Since the buyer is exempt” value at the time of distribution, whichever is from indirect tax, the seller cannot pass onthe VAT and applicable. therefore, the exemption enjoyed by the buyer shat! ote “ereditorsin payment of debt or obligation extend to the seller, making the sale effectively zera- 3. Consighment of goods if actual sale Is not made within rated. (RMC 50-2007) g Z == 60.day fllowing the date such goods were consigned 2 ‘¢ Consigned goods returned by the consignee + Automatic zero-rated transaction! genarliy eft the : within the 60-day period are ot deemed sold ‘export sale of goods and supply of services. The tax rate, 5 ~ Retirement from or cessation of business, with respect is set at ero. When applied tothe tai base. Such rate to nventofies of taxable goods existing as of such ‘obviously results inno tax chargeable against the ‘retirement or cessation. purchaser. The seller of such transactions charges ne + Change of ownership of te business (when @ cutputtax, but can claim a refund oftaxcredit 9g single proprietorship incorporates or the certfieate forthe VAT previously charged by supelier. proprietor of a single proprietorship sels his Effectively zero-rated transactions, however, refer to ¢ ‘entire business sale of goods or supply of services to persons érenstes 2° «Dissolution ofa partnership and creation of a whose exemption under special laws or international ~ ‘new partnership which takes over the business agreements to which the Philippines Is a signatory effectively subjects such transactions to zero-rate. ‘or retirement or cessation of business, the tax Again, as applied to the tax base, such rate does not base shall be the acquisition cost or the current market yield any tax chargeable against the purchaser. The price of the goods or properties, whichever is LOWER. seller who charges output tax on such transactions can also claim a refund or tax credit certificate for VAT ‘Changes in or Cossation of Status of a VAT registored Person previously charged by suppliers. (CIR vs. Seagate, G.R. No. 153856, 11 February 2005) 1. subject to 12% output VAT a. change of business activity from VAT taxable status Tansactions deemed sale (in effect, subject to 12% VAT) to VAT-exempt status ', approval of request for cancellation of registration For transactions deemed sales, the output tax shall be based due to reversion to exempt status ‘on the market value of goods deemed sold as of the time of © approval of a request for cancellation of registration ‘the occurrence of the transaction. In the case of a sale where due to @ desire to revert to exempt status after the the gross selling price is unreasonabyy lower than the fair lapse of 3 consecutive years from the time of ‘market value, the actual market value shall be the tax base, registration by 3 person who voluntarily registered despite being exempt under Sec 109 (2) of the Tax code —Faculty Adviser: Atty. Marissa Cabreros, Arty. Michael Dana Montero; Head: Kahrina Matibag, Carl Marlow Saran Understudies: Justinne Dizon, Allan Carlo Soller, Katine Venzuela—UF 2 Allowable a) » TAXATION LAW REVIEWER tS ATENEO 4. approval of 2 request for cancellation of registration cof one who commenced business with the expectation of gross saies or receipt exceeding 1,500,000 but who falled to exceed this amount during the first 12 months of operations not subject to 12% output VAT 2a. change of contrat ofa corporation by the acquisition ofthe controling interest of uch corporation by another stockholder or group of stockholders 41. The goods or properties used in business or those comprising the stockin-trade ofthe corporation, having a change in corporate contral, wil nt be considered sol, bartered or exchanged despite the change in the ownership interest ofthe corporation 2. Exchange of property by corporation acquiring control for the shares ofstocks ofthe target corporation is subject 19 VAT. .changein the trade orcorporete name of the ‘merger or consolidation of corporations 1. The unused input tax of the dissolved, corporation, 22 of the date of merger or consolidation, shall be absotbed by the surviving or new corporation discounts determined and granted at the timéof sal (expressly indicated in the invoice, amount thereof’ should form part of gross sales duly recorded in the ‘books, and the granting of the discount does not depend ‘on the happening of the future event) sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. Sale of Real Properties sale of real properties held primarily forsale to customers or held for lease in the ordinary course of trade or business of the seller shall he subject to VAT sale of real properties may either be on an installment. basis or deferred-payment basis. a, _ sale of real property on installment pian: sale of real property by a reab-estate dealer, the initial payments of which in the year ofsale do not exceed sae iy OPERATIONS 2010 25% of the gross seling price. In this case, the VAT shal be collected on the installment payments. Initial payments: Covers any down payment made and includes all payments actually or constructively received during the year of sale. t excludes amount cof mortgage on the real property sold except when such mortgage exceeds the cost or other basis of the property to the seller in which case the excess shall be considered part ifthe intial payments. It also excludes notes or other evidence of indebtedness issued by the purchaser to the seller at the time of the sale. b. sale on the deferred-payment basis: the transaction shal be treated as cash sale which ‘makes the entire selling price taxable in the month ct sale sale of real property where the initial “paymentexceeds 25% ofthe gross sling price. «The real estate dealer shall be subject to VAT on the _ jpstallment payments, including interest and penalties, ‘actually arid/or constructively received ty the seller. Correspondingly, the buyer can claim the input tax In the ‘same peridd that the seller recognized the output tax, ~ “Realestate dealer” includes any person engaged in the business of buying, developing, selling, exchianging real properties as principal and holding blinself out asa full or part-time dealer in real “estate. Sale of residential lot with gross selling price exceeding PLS million, residential house and lot or other dwellings with gross selling price exceeding P2.5 milion, where the instrument {whether the instrument is nominated as a dead of absolute sale, deed of conditional sale, or ‘otherwise)is executed on or after November 1, 2005 shall be subject to 12% VAT {10% VAT prior to February 41, 2005}. =" Where the instrument of sale was executed prior to November 1, 2005, the price needs only to exceed 1 milion fot he installment sale of residential house and lot or other residential dwellings to be subject to 10% VAT ‘Transmission of property to a trustee shall not be subject to VAT if the property isto be merely held in trust for the trustor and/or beneficiary. However, is the property transferred is one for sale, lease or use in the ‘ordinary course of trade or business and the transfer constitutes a complete gift, the transfer is subject to VAT 5a deemed sale transaction, “Faculty Adviser: Atty. Marsa Cabreros, Aity Michael Dana Montero; Heads Kathrina Matibag, Carl Marlow Saranilioy Understudies:lustinne Dizon, Allan Caro Soller, Kristine Venzvela—TAXATION LAW REVIEWER TENEO RTA 4107 VAT. oops \VAT is imposed on goods brought into the Philippines, whether for use in business or not. The VAT shall be paid by the importer prior to the release of such goods from customs custody. ‘© Importer: refers to any person who brings goods into the Philippines, whether or not made in the course of his trade or business. Includes non-exempt persons or entities who acquire tax-free imported goods from exempt persons, entities or agencies ‘Tax base = total value used by BOC In determining tariff and customs duties, plus custom duties, excise tax, and if any, other charges (postage, commission, and similar charges, prior to the release of the goods from,custorts custody If the valuation used is based on volurtie or quantity of the imported goods, the landed cost shall be the bas for computing VAT. Landed cost customs duties, freight, insurance and.other charges (excise tax shall form part ofthe tax base): Sale, transfer, or exchange of imported good by tax- ‘exempt persons: In the case of goods imported by VAT: ‘exempt persons, entities or agencies which are: subsequently sold, transferred or exchange in the Philippines to non-exempt persons or entties, the tar shall be considered the importers thereof and fable for VAT due on such importation. The tax cue SA" such importation shall constitute alien on the goods, superior to all charges/liens, respective of the possessor of sald goods, ‘OF SERVICE AND. LEASE OF ROPES Sale or exchange of service, as well as the use or lease of properties shall be subject to 12% VAT Sale or Exchange of Service: the performance ofall kind of services in the Philippines for athers for a fee, remuneration or consideration, whether in cash or in kind. Sale or exchange of service shall also include: i. Lease or the use of or the right or privilege to use ‘any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand, or other like property or right CENTRAL BAR OPERATIONS 2010 ii, The lease or the use of, or the right to use any Industrial, commercial or scientific equipment Ii The supply of scientific, echnical, industrial or ‘commercial knowledge or information iv. The supply of any assistance that s ancillary and subsidiary to and furnished as a means of enabling the epplication or enjoyment of any such property, Or right es is mentioned in subparagraph (b) hereot oF any such knowledge or information as is mentioned in subparagraph (c) hereof ¥. 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 ‘oF operation of any brand, machinery, or other ‘apparatus purchased from such nonresident person vi. The supply of technical advise, assistance or services rendered in connection with technical management or administration of any scientific, “Yadustra| or commercial undertaking, venture, prefect or scheme i. Phe lease of motion picture films, film tapes, and discs: i. The lease or use of, or the right to use, radio, television, satelite transmission and cable television time 4. "Lessors of property ~ail forms of property for lease, ‘whether feal or personal, re fable to VAT Gross Ractots: ota! amount of money rs equlaient representing the contract price, compensation, service fee, ‘ental or royalty, including the amount charged for materials supplied withthe services and deposits applied as payments for services rendered and advance payments actualy ot ‘constructively received during the taxable period for the services performed or to be performed for another person, excluding VAT, Gross Receipts exclude amounts earmarked for payment to unrelated third (3rd) party, and amounts received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. Cons rece Occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service ‘without restrictions by the payor. ‘+ Deposit in banks which are made available to the seller of service without restrictios —Feculty Adviser: Atty. Marisa Cabreros, Ay. Michael Dana Montero; Head: Kathrina Matibag, Carl Mavlou Seana Understudies:Jstinne Dizon, Alan Carlo Soller, Kristine Venzusla— ”» TAXATION LAW REVIEWER ‘+ Issuance by the debtor of a notice to offset any debt or ‘obligation and acceptance thereof by the seller as payment for services rendered ‘+ Transfer of amounts retained by the payor to the account of the contractor Advance payments made by lessee for lease of property: ‘Advance payments may be in the form of. a. Aloanto the lessor from the lessee, or b. An option money for the property, or & Asecurity deposit to insure the faithful performence of certain obligations of the lessee to the lessor, or 4. Pre-paid rental + Ifthe advance payment is for the faithful performance of certain obligations of the lessee, it is not Subject to vat + A security deposit that is applied to reital shall be subject to VAT at the time of ts apalication + fthe advance payment conetitutes a pre-paid rental, ‘then such payment is taxable to the lesSot inthe month ‘when received, irrespective of the aécounting method” employed by the lessor z Zero-rated sales of service ‘The following services performed in the Phillopines by @ WAT REGISTERED person shall be subject 1.0% VAT fate: processing, manufacturing, or repacking goods for other persons doing business outside the Philippines, 3. which goods are subsequently exported b. where the services are paid for in acceptable foreign currency accounted for in accordance with the rules and. regulations of the BSP 2. services other than processing, manufacturing, or repacking a. rendered to a person engaged in business conducted outside the Philippines or toa non- resident person not engaged in business who is outside the Philippines when the services are performed (CiR vs. Busmeirter, etal, GR No. 153205, 22 January 2007 require performance of services to nonresident to qualify as zero-rated,) b. The consideration of which Is paid for in acceptable foreign currency bes pe) i). 1 OPERATIONS 2010 & accounted for in accordance with the rules and regulations of the BSP services rendered to persons or entities whose exemptions under special laws or internationat agreements to which the Philippines isa signatory effectively subjects the supply of such services to zero. percent rate services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof ‘Note: shall not pertain to those made to 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 (subject 10 12% var) 5,°"erVies performed by subcontractors and/or contractors in processing, converting, of manufacturing | g00dS Tot an enterprise whose export sles exceed 70% “ofthe total annual production transport of passengers and cargo by domestic air or sea caries from the Phillopines toa foreign country, Note: Gross receipts of international air carriers doing « » business the Philippines and international see carriers doing business in the Philippines are stil Hable to ~ percentage tax. ‘Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using technologies such 2s fuel cells and hydrogen fuels. Note: Zero rating shall apply strictly to the sale of power (or fuel generated through renewable sources of energy, ‘and shall not extend to the sale of services related to the ‘maintenance or operation of plants generating sald power VAT ExXEME 1oNs, (Refer to the sale of goods or properties and/or services end the use or laase of proparties that is not subject to VAT and the seller is not allowed any tax credit of VAT on purchases) —Faculty Adviser: Arty. Marissa Cabreras, Atty. Michael Dana Montero; Head: Kathvina Matibag, Cari Marlou Saranillo; Understudies: Justine Dizon Allan Caro Soller, Kristine Venzuela— nTAXATION LAW REVIEWER es per ee OPERATIONS 2010 manufacture and merchandise of any kind in ‘The following are VAT-exempt transactions: ‘commercial quantity) 2. sale or importation of agricultural and marine food ‘© Belonging to persons coming to settle in the products in their original state, tivestock and poultry of a Philippines kind generally used as, of yielding or producing foods for human consumption; and breeding stock and genetic materials thereof + Livestock: cows, bulls and calves, pigs, sheep, goats ‘and rabbits * Poultry: fowls, ducks, geese and turkey ‘+ For their own use and not for sale, barter or exchange, ‘= Accompanying such persons of arriving within $0 days before or after their arrival ‘© Upon the production of evidence satisfactory to the GR that such persons are actually coming to settle + Does not include fighting cocks, race horses, 200 In the Philippines animals and other animals generally considered as ‘* The change of residence is Bonafide pets services subject to percentage tax = Marine food products: fish and crustaceans, such as services by agricultural contract growers and milling for but not limited to, eels, trout, lobster, shrimps, ‘others of palay Into rice, corn into grits and sugar Into prawns, oysters, mussels and clams 4 raw sugar + Meat, fruit, vegetables end other agricultural ad 6: ,medieal, dental, hospital and veterinary services, except marine food products are considered. i'their those rendered by professionals original state even if hey undergoné the simple process of preparation or preservation for the ‘market: freezing, drying, salting broiling, roastifg, smoking or stripping, shrink wrappings in Plastic,” vacuum packing, tetra-pack, and other similar packaging methods ‘¢ Polished and/or husked rice, coi gritsand ravi cane sugar and molasses, ordinary saltanid copra shall be considered as agricultural product in thet original state = © Sugar whose content of sucrose by/ivelght, in the dry state : parameter reading of 99.5 and above are presumed to be refined sugar ‘= Bagasse is not included in the exemption provided for under this section implements, wearing apparel, domestic animals, and personal household effects except any vehicle, vessel, aircraft, machinery and other goods for use in the be Ss Laboratory services are exempted ‘* ifthe hospital or clinic operates @ pharmacy or drug. {2 store, the sale of drugs and merchandise is subject to VAT, However, sales of drugs to in-patients of hospitals are considered part of hospital services, which are exempt from VAT. “Educational services rendered by private educational institutions duly accredited by the DepED, CHED and ‘TESDA afid those rendered by government educational institutions. '* Bes not include seminars, in-service training, review classes and other similar services rendered. by persons who are not accredited by the DepED, ‘the CHED and/or TESDA Services rendered by individuals pursuant to an. . sale or importation of fertilizers, seeds, seediings and employer-employee relationship fingerlings, fish, prawn, livestock and poultry feeds, Services rendered by regional or area HQ established in including ingredients, whether locally produced or tthe RP by multinational corporations which act as Imported, used in the manufacture of finished feeds supervisory, communications and coordinating centers {except specialty feeds for race horses, fighting cocks, for their affvates, subsidiaries or branches in the Asi aquarium fishes, 200 animals and other animals Pacific Region and do not earn or derive income from generally considered as pets) the Philippines importation of personal and household effects k. Transactions which are exempt under international '* belonging to residents of the Philippines returning agreements to which the Philippines isa signatory, from abroad and non-resident citizens coming to except those under PD 523 (Petroleum Exploration resettle in the Philippines Concesslonalres under the Petroleum Act of 1943) ‘© such goods are exempt fro customs duties under |. sales by agricultural cooperatives duly registered and in the Tariff and Customs Code of the Philiapines ‘good standing with the CDA to their members, as well as 4. Importation of professional instruments and sale for their produce, whether in its original state or processed form, to non-members their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and —Faculty Adviser: Atty, Marissa Cabreres, Arty. Michael Dana Montero: Heed: Kathrine Matibag, Carl Mariou Sarenilo; n Understudies:lstinne Dizon, Allan Cart Sola, Kestine Venzuela—TAXATION LAW REVIEWER ATENEO ‘exclusively in the production and/or processing oftheir produce + Sale by gricuitural cooperatives to non-members can only be exempted from VAT ifthe producer of ‘the agricultural products sold is the cooperative itself. the cooperative is not the producer (e., trader), then only those sales to its members shall be exempted from VAT; + However, the sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer ee er) OPERATIONS 2010 purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value of the lots donot exceed. 15M Lease of residential units ‘© Monthly RENTAL: not exceeding 10,000 * Gross receipts from rentals exceeding P10,000 per month per unit shal! be subject to VAT ifthe ‘aggregate annual gross receipts from said units ‘only (not including the gross recelpts from units leased for not more than P10,000) exceeds 1.5. Otherwise, subject 10 3% percentage tax im. Gross receipts from lending activities by credit or multi- purpose cooperatives duly registered and in good Sale, Importation, printing or publication of books and standing with:the CDA, any newspaper, magazine, review, or bulletin 1. Sales by non-agricultural, non-electric and non-credit + which appears at regular intervals cooperatives duly registered with and in good standing + with fixed prices for subscription and sate with the CDA ¢. which is not devoted principally to the publication ‘+ Share capital contribution of each memibér does not of paid advertisements exceed 15,000 and regardless of thé aggregate: ‘Sale, importation, or lease of passenger or cargo vessels. capital gnd net surplus ratably distributed among ‘ad alreraft, including engine, equipment and spare the members f £ ports thereof for domestic or international transport ‘+ Importation of machineries axial equipment, > “operations Including spare parts thereof, to be used by them ‘+ Limited to 150 tons and above, including engine are subject to VAT : aS and spre parts of said vessels ©. Export sales by persons who are not VAi registered ‘Comply with the age limit requirement, atthe time P. The following sales of real properties.are exempt from of acqlisition counted from the date of he vessel's vat: orighal commissioning + Not primarily held for sale to customets or held for <= 5 = Passenger/cargo vessel: 15 years old lease in the ordinary course of tratle.or business 2° Tankers: 10 years ald ‘+ Sale of real properties utlized for low-zost housing — High-speed passenger crafts: 5 years olé = Asubdivision or a condominium registered ands" Exemption shal be subject to the provisions of “The licensed by the HLURB : * ‘Domestic Shipping Development Act” ~ Undertaken by the gov tor private developers {Importation of ie-saving equipment, safety and rescue + Utilized for socialized housing equipment and communication and navigational safety ‘+ Residential lot valued at 1.5M and below, or house equipment, steel plates and ather metal plates including and lot and other residential dwellings valued at tmarine-grade aluminum plates, used for shipping 2.5M and below ‘transport operations; Provided, thatthe exemption shall — Instrument must be executed on or after ly bbe subject to the provisions of Section 4 of Republic Act 4, 2006. ‘No, 9295, otherwise known as The Domestic Shipping = Provided, That not later than January 31, 2009 Development Act of 2004"; and every three (3) years thereafter, the 1u, Importation of cepital equipment, machinery, spare amounts stated herein shall be adjusted to its parts lifesaving and navigational equipment, steel present value using the Consumer Price index, Bletes and other metal plates including marine grade 2s published by the National Statistics Office aluminum plates to be used in the construetion, repair, (NSO); Provided, further, that such adjustment renovation or alteration of any merchant marine vessel shall be published through revenue regulations ‘operated or to be operated in the domestic trade, to be issued not later than March 31 of each Provided, that the exemption shall be subject to the year. provisions of Section 19 of Republic ActNo. $285, = Iftwo or more adjacent residential lots are sold otherwise known as “The Domestic Shipping ot disposed in favor of one buyer, forthe Development Act of 2004'; Faculty Adviser: Atty, Massa Cabrevos, Ay. Michael Dana Montero; Head: Kathrine Watibag Cal Warlou Sevan; "8 Understudies:Sustinne Dizon, flan Calo Soller, Kristine Venzuela-—» TAXATION LAW REVIEWER a Pee \. Importation of fuel, goods and supptes by persons engaged in international shipping or air transport ‘operations + Shall be used exclusively or shal pertain tothe transport of goods and/or passengers from a port in the Philippines directly to a foreign port without stopping at any other pot inthe Philippines Ww. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries subject to percentage tax such as money changers and pawnshops x Sale or lease af goads or properties or the performance of services other then the transaction mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed 1.5M. ‘+ For purposes of the threshold of 1.5M, the husband ‘and wife shall be considered separate taxpayer “The aggregation rule for each taxpayerhall apply For instance, ifa professional, aside from the practice of his profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same shalle combinatl for, purposes of determining whether the threstold has been exceeded. Thus, the VAr-biemptsalesshall not be included in determining the thréshold: AVAT-registered person may, elect that that the éxemption, shall not apply to his sales of goods or services or properties ‘which is irrevocable for @ period of 3 veers. Zero-Rated vs. VAT-Exempt Transaction Si, CR vs. Cebu Toyo Corporation, G.R, No. 149073, 16 February 2005, Azero-rated transaction differs from VAT-exempt transaction on the following points: a. azero-rated sale isa taxable transaction but does not result in an output tax while an exempted transa not subject to cutput tax. b. The input tax on purchases of a VAT-registered person. with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction Is not entitled to any input tax on his purchases despite the Issuance of a VAT invoice or receipt. 6. Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register while registration is optional for VAT-exernpt persons. ple) OPERATIONS 2010 ‘Exempt Transaction vs. Exempt Party The object of exemption from the VAT may either be the transaction itself or the parties to the transaction, [An exempt transaction, on the one hand, involves goods or services which, by thele nature, are specifically listed and expressly exempted from the VAT under the Tax Code, without regard to the tax status [VAT exempt or not) of the party to the transaction. Such transaction isnot subject to \VAT, but the sellers not allowed any tax refund of or credit, for any input taxes paid, | An exempt party, on the other hand, isa person or entity | ranted VAT exemption under the Tex Code,» spec ew or | international agreement to which the Pippin 3 signatory, and by virtue of which its taxable transactions [become exempt from VAT. Such party i also not subject to VAT, but may be entitled toa tax refund or ere fr input taxes paid; depending on its registration a8 a VAT or nom-VAT | faxpayet: (CIR vs, Seagote Technology, G.R. No, 153866, 11 february 2008) wi vat ‘On Payments to Nonresidents {creditable withholding yar) « “(Rule applies to payments by government or any of its polltical sbdhisione, nstrumentaltes or agencies, including {GG as well ax private corporations individuals estates aid trots, whether large or on large taxpayers) a. Payments to non-residents, with respect to lease or use of property or property rights in the Philippines ‘owned by such non-residents, are subject to withholding VAT. The VAT shall be based on the contract price. b. Other services rendered in the Philippines by non- residents Services rendered in the Philippines, such as providing assistance in establishing tender price of a project and designing materials, by a non-resident, shall be subject fo the 1296 withholding VAT. Note: ~The party required to withhold is the payor, regardless of whether or not he is VAT-registered, + The VAT is passed on to the resident withholding agent, Faculty Adviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Head: Kathrina Matibag, Carl Marlou Saranilla, LUnderstudies: Justine Dizon, flan Carlo Soller, Kristine Vonzvela— v4TAXATION LAW REVIEWER axle ~The payor shall claim this as input tax upon filing of his ‘own VAT return, subject to the rule of allocation of Input tax, VAT withheld and paid for the non-resident recipient, which VAT Is passed on to the resident withholding agent by the non-resident recipient of the income, may bbe claimed as input tax by said VAT-registered «withholding agent upon filing his own VAT return, subject to the rule on allocation of input tax among taxable sales, zero-reted sales and exempt sales. Ifthe resident withholding agent is a non-VAT taxpayer, said passed-on VAT by the non-resident recipient of the income, shall form part of the cost of purchased services, which may be treated either as an “asset” or “expense,” whichever is applicable, of the resident withholding agent. VAT withheld shall be remitted within 10 days foltowitig the end of the month the withholding wasfiade. 2. On Payments by Government (fal witnolding VAT) + The Government or any ofits lca subysins;” instrumentafies or agencies include govethmnent owned or controled corporation (GOCE shall, before making payment on accollnt oF 1 purchase ‘of goods and/or services taxed at 12% shall deduct and withhold a final VAT of 5% ofthe mss = payment : + The five percent (5%) final VAT withholding rate shall represent the nt VAT payable ofthe seller. + The remaining seven percent (7%) effectively, accounts for the standard input VAT for sales of © z00ds or services fo government or any ofits Polical subdivisions instrumentals or agencles including GOCCs, in ew of the acta! input VAT directly atirbutableorrtablyepportioned to such sales. + Should actual input VAT attributable to sale to government exceed seven percent (79%) of gross payment, the excess may form part of the sellers expense or cost. + factual input VAT attributable to sale to government less than 2% of gross payment, the Giference must be cosed to expense ot coste Vill. Credits for input Tax * The VAT due on or paid by a VAT-registered person on Importation of goods oF lacal purchases of goods, properties, or services, including lease or use of properties, in the course of trade or business Faculty Adviser: Atty Marissa Cabreros, Ay: Michael Dana Montara; Head: Kathrina Matibag, Corl Marlow Sranillo; ‘Understudles:Justinne Dizon, Allan Carlo Soler, Kristine Venzuela— es De 7 I] OPERATIONS 2010 Include the transitional and the presumptive input tax Includes input taxes which can be directly attributed to ‘transactions subject to the VAT plus @ ratable portion of any input taxes which cannot be directly attributed to either the taxable or exempt activity Evidenced ky 8 VAT invoice or offical receipt issued by a VaT-tegietered person Adjustments to input Tax Addition to Creditable input Tax Input tax arising from qualified transactions inthe current month or quarter Input tax carried-over from the preceding month or quarter Reduction in Creditable Inout Tax ‘Amount of claim for VAT refund or Tax Credit Certificate (whether fled with the BIR, the Department “of finance, the Board of Investments or the BOC) (Other adjustments, such as purchase returns oF 5, input tax attributable to exempt sales and attributable to sales subject to final VAT withholding. ‘Sources of input tax L 4, 5. 6 7 Purchase or impartation of goods a) Forsile;or 'b) _For’conversion into or intended to form part of a finished product for sale, including packaging materials; or For use as supplies the course of business; oF For use as raw materials supplied in the sale of ) For use in trade or business for which deduction for depreciation of amortization is allowed under the Tax Code Purchase of real properties for which a VAT has actualy been paid Purchases of services in which a VAT has actualy been paid ‘Transactions deemed sale “Transitional input tax Presumptive Input tax Transitional input tax credits allowed under the transitory arid other provisions of these Regulations Creditabile Withholding VAT cn payments to neon: residents 15TAXATION LAW REVIEWER Fan epee Persons who Can Avail of the Input Tax Credit 1. to the importer upon payment of VAT prior to the release of goods from customs custody 2. Tothe purchaser of the domestic goods or properties upon consummation of the sale; or 3. To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee ‘Transitional/Presumptive Input Tax Credits + Aperson who becomes liable to VAT or any person who elects to be 2 VAT-registered person shall be allowed to claim input tax on his beginning inventory of goods, ‘materials and supplies equivalent to 2% of the value of such inventory or the actual VAT paid on such goods; ‘materials and supplies, whichever is higher. Presumptive input Tax Credits (4%) + Covered: Persons or rms engagedin the proces of. sardines, mackerel, and milk and nthe manufacturing tefined stigar, cooking ol and packed nodle-tased = Instant meals = The term “processing” shell mean'pasteurigation, canning and activities which through physical or chemical process alter the exterior texture or form or Inner substance of a product in such mariner as to. prepare it for special use to which it could ndtthave been put in its original form or condition. ‘+ Rate: 4% of the gross value in money of their purchases cf primary agricultural proclucts which are used as Inputs to their production (Claim for Input Tax on Depreciable Goods - Requisites: '¢_ AVAT-registered person purchases or imports capital goods (which are depreciable goods for Income tax purposes) ‘¢ If aggregate acquisition cost of al capital goods {exclusive of VAT) in a calendar month exceeds PL ‘milion, the input tox cannot be claimed outright but should be subject to amortization over @ period of S ‘years of useful life of the capital goods, whichever is lower. ‘+ Ifthe aggregate acquisition cost of all capital goods in calendar month does not exceed Pt million, the input ‘tax may be claimed outright as credit against output tax. ‘Aggregate acquisition cost refers to the total price agreed upon for one or more assets acquired and not the payments actually made during the calendar month. 'b, Manner of claiming input tax of more than P1 milion 1. estimated useful lfe ofa capital good is 5 years or more: ‘a, Input tax spread evenly over a period of 60 months b. commenced in the calendar month when the ‘capital good is acquired 2, estimated useful iff less than S years: a \put tax spread evenly on monthly basis by the actual ruber of months comprising the estimated “useful ife ofthe capital good B.. “eammencedin the calendar month when the {ital good is acquired {IF the depreciable capital good is sold/transferred within the Dériod of 5 years or prior tothe exhaustion ofthe smortzable input tax thereon’ entire unamortized input tax ‘on the capital goods sold, can be ciaimed as input taxcredit power to compromise. ‘The power to compromise is esti in th@ GR the NIRC allows the CI to compromise the dvi 35 wel as criminal cases, arising thereunder. Na similar provision exists, vis-a-vis the Collector or Commissioner of Customs, n regard to voltions of the Tariff and Customs Code. (Pegple'ys, Desiderio 420805, 29 November 1965). - fan offer of compromise i rejected by the taxpayer, the compromize penalty cannot be snforced thru an action in court or by ditrant and levy. The CIR should lea criminal ation ithe believes thatthe taxpayer is criminally Hable for violation ofthe tax law asthe only way to enforce 2 penalty. (Commissioner vs. Abad, L-19627, 27 lune 1968}. Limitations for compromise of tax liability (Sec. 204) 1. Minimum compromise rate: a} In case of financial incapacity, 10% of basic assessed tax b) Inother cases, 40% of basic assessed tax 2. Compromise subject to approval of Evaluation Board (composed of Commissioner and 4 Deputy Commissioners} 3} when basic tax Involved exceeds 1,000,000 or ed] OPERATIONS 2010 b) where the settlement offered is less than the prescribed minimum rates = Extent of the Commissioner's discretion to ‘compromise criminal violations 1. Before the complaint is filed with the prosecutor's office: the CIR has full discretion to compromise except those involving fraud 2. After the complaint is filed with the prosecutor's office but before the information Is fled with the court: the CIR can still ‘compromise provided the prosecutor must sive consent. 3. After information i lled with the court: the CIR Is no longer permitted to compromise with ‘or without the consent of the Prosecutor (People vs. Magdaluyo, G.R. No, L-16235, 20 April 1961) ‘1p, This fs more so when the court has rendered a final judgment. As a mere agent of the Government, the Commissioner is not authorized to accept anything less than whet s adjudicated in favor of the government by virtue of such © final judgment; the government has already acquired a vested rights. — _Natite ofa Compromise In Extraluicl Setiement alte Taxpayer's Criminal ibility for his Violation it is consensual in character, hence; may not be imposed on the taxpayer without his consent. The BIR may only suggest settlement of his tax liability through a compromise. The extra-judicat settlement and the amount of the suggested compromise penalty should conform with the schedule of compromise penalties provided under the relevant BIR regulations or orders. Remedy in case the taxpayer refuses or fails to abide the tax compromise 1. Enforce the compromise {fit isa judicial compromise, itcan be enforced by mere execution. A judicial compromise is ‘one where a decision based on the ‘compromise agreement is rendered by the courton request of the parties = Any cther compromise is extrajudicial and tke ‘ny other contract can only be enforced by court action Faculty Adviser: Aity. Marissa Cabreros, Atty. Michael Dana Montero; Mead: Kathrina Matibag, Cat Mariou Saran; LUnderstudles:Justinne Dizon, Allan Carlo Soller, Kristine Venzuela— “9TAXATION LAW REVIEWER AEN Openers 2. Regard itas rescinded and insist upon original demand (Art 2041, Civil Code) + Other consideration on compromise agreements Compromise Penatty: It is the amount of money which the taxpayer pays to compromise tax violations. This is paid in lieu of criminal prosecution. & taxpayer cannot be compelled to pay a compromise penalty if he does not want to pay, in which case, the CIR must Institute @ criminal action. “Abatement vs, Compromise in Abatement, there's a cancellation of the entire ‘ax liability, while compromise involves a mere reduction of the tax, ABATEMENT é ‘+ The Commissioner may abate or cancel’ tax liability when: 1. The tax or any portion thereof éppears to be.» / unjustly or excessively assessed (Sec 208 (6) = When the filing of the return/paymnent is made at the wrong venue s — When the taxpayer's mistake ih payment 3 his taxis due to erroneous written official advice ofa revenue officer When the taxpayer fais to file the return and: pay the tax on time due to suBstantal losses from prolonged labor dispute, force majeure, legitimate business reverses, providedt;the abatement shail only cover the surcharges and the compromise penalty and not the interest Imposed under Sec. 249 = When the assessment is brought ebout or the result of taxpayer's non-compliance with the law due toa dificult interpretation of said law — When the taxpayer fatto file the return and pay the correct taxon time due to circumstances beyond his control, provided, the abatement shall cover only the surcharges and the compromise penalty and not the interest imposed under Sec 249 Late payment of the tax under meritorious circurnstances (Sec. 2, RR 13-2001) 2. The administration and collection costs involved do not justify tive collection of the amount due (Sec 204 (b) 3. Abaternent of penalties on assessment confirmed by the lower court but appealed by the taxpayer to ahigher court Faculty Adviser: Atty. Marisa Cabreras, Atty, Michael Dana Montero; Head: Kathrina Matibag, Cari Matlou Saranilo 4, Abatement of penalties on withholding tax assessment under meritorious circumstances 5. Abatement of penalties on delayed installment payment under meritorious circumstances 6. Abatement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment 7. Such other circumstances which the Commissioner ‘may deem analogous to the enumerations above (Sec. 3, RR 13-2001) B. DISTRAINT (only for personal property) Definition and Nature Distraintis the seizure by the government of personal property, tangible or intangible, to enforce the payment of taxes on the goods, chattels or © [effects ofthe taxpayer, including other personal properties of whatever character. The property may ‘be offered in public sale if taxes are not voluntarily paid its @ summary remed (2° 5° The warrant is a summary procedure forcing the ‘taxpayer t9 pay. The receipt of a warrant may or may. not partake the character ofa final decision. fits an indication of a final decision, the taxpayer may appeal to ‘the CTA within 30 days from service of the warrant. Requisites for the exercise of the remedy of straint: 1. The taxpayer must be delinquent (except in constructive distraint} in the payment of taxes 2. There must be a subsequent dernand for payment 3, The taxpayer must have falled to pay the tax at the time required; and 4, The period within which to assess or collect the tax hhas not yet prescribed. ‘Types of Distrai 1. Actual Distraint = There is taking of possession of the personal property from the taxpayer by the government. Physical transfer of possession isnot always required. This Is true in case of intangible property such as stocks and credits. ~ _ Resorted to only when taxpayer is detinguent. — There s actual seizure of the property of the delinquent taxpayer. Understudles:ustinne Dizon, Allan Carl Soler, Kristine Venzuale—=, TAXATION LAW REVIEWER ATENEO beg eh ay} OPERATIONS 2010 2. constructive Distrint (0) Goods, effects, chattel and ther personal = There may be no actual delinquency. property = Taxpayers profited trom doping ofthe Ira copy ofan account ofthe property propery and mutt preserve the same Gistrlned signed by the officer, shal be lef either withthe owner othe person from EME SEE whom the property was taken or atthe Pivadeoniyonthe propery | madecn the property of any welingor place of busines of such person ca delinquent taxpayer | taxpayer, whether delinquent, and with someone of stable age and ornet discretion Heeger | te taaaer eReRT 2. together wth statement ofthe sum “postescon ohiblled ftom disposing of demanded : his property. Re 3. and also a note ofthe time and place of sale Fffected by leaving alist of | Effected by requiring the strained property or by | taxpayer to sign a receipt of service of awarrant of | the property or by the distraint or garnishment | revenue officer preparing and taxpayer AND upon the president, manager, leaving a list of such. property treasurer or other responsible officer of the (b} Stocks and other Securities = serving a copy of the warrant upon the [an iainiediate step tor F hot immediate” i itsuing corporation, company, association collection of taxes _| step tor collection of taxes — Both (6) _Détits and Crecits =A “Teaving a copy of the warrant with the person, —Qwing the debts or having in his possession such credits or his agent. 2. the warrant shall be sufficient authority to the person served to pay to the Commissioner the amount of such debts or credits = Are summary remedies for the collestion of taxes, <5 1. Refer only to personal property 2. Cannotbe availed of where the amount of the tax involved is not more than P 190° : * () Bank accounts (garnishment) prernry co end X servea werrant of garnishment upon the ‘Commissioner or his duly authorized. | in extese of ‘taxpayer AND upon the president, manager, representative Pupon i 7 treasurer or ther response fen ofthe { Revenue istrict Officer (See 207A). | P,000,000 or ess. 2. Bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient Procedure for the actual. or garnishmes {Sec.208) Qn t fF cist 2} Report on the distraint (Commencement of distraint Heder denon teeta proceedings) (a}_ Notice specifying the time and place of sale and the articles disdained. ‘The posting shall be made in not less than 2 public places in the city or municipality where the distraint is made. {c} One of the places for posting of such notice is the Office of the Mayor of such city or municipality {a} by the distratning officer submitted within 10 days from receipt of the warrant to the Revenue District a Officer oF Revenue Regional Officer. (b)_by the Revenue Regional Director - a consolidated report, as may be required by the Commissioner ‘The order of distraint may be lifted by the Commissioner or his representative (Sec. 207(a)) cited Patent bistrined 2) Service of warrant of distraint. Procedures with respect to: ‘Faculty Adviser: Atty, Marissa Cabreros, Atty. Michael Oana Montero; Head: Kathrina Matibag, Carl Marlow Sarat Understudies:Juctinne Dizon, Allan Caro Soller, Kristine Venzucla— soTAXATION LAW REVIEWER 1) When: [ HORID ] (Sec. 206) {a) taxpayer Hides or conceals his property {b) taxpayer performs any act tending to Obstruct the proceedings for collection of any tax due {c]_ taxpayer is Retiring from any business subject to tax (a) taxpayer is Intending to leave the Phil. or to Remove his property therefrom (e} taxpayer is Detinquent 2) Procedure (2). Require the taxpayer or any person having ppossession/contrl ofthe property to 41, signa receipt covering property distrained ae 2. obligate himself to preserve the same intact ‘and unaltered; and s 3, not to dispose of the property in any manner, without the express authority of the commissioner. s (b)_ Where taxpayer or person in possesicn réfust® to sign: Pe = distraining officer shall prepate a list’ the property distraines — inthe presence of 2 witnesses leave a copy in the premises where the property located after which the said property shall be détned to Cape) | S OPERATIONS 2010 It may be exercised before, simultaneously or after the distraint of personal property belonging to the taxpayer Procedure of levy on real property 1. Prepare Certificate of Levy Internal revenue officer shall prepare a duly authenticated certificate showing the name of the ‘taxpayer and amounts of tax and penalty due. Enforceable throughout the Philippines officer shall write upon the certificate a description of the property upon which levy s made 2. written notice of levy shall be mailed or served upon both: a. the delinguent taxoayer, oF = ‘ifhe is absent from the Philippines, to his agent ‘or-manager ifthe business in respect to which “the liability arose, or = If there be no agent, to the occupant of the Droperty. b. the Register of Deeds where the property is located = (Sec. 207(6)) ‘Advertisesient of the time and place of sale, which shall contait ve amount of tax and penalties due be? Name of the taxpayer 2° Short description of the property to be sold have been placed under constructive distraint (Sees 205) LEVY (only for real property) Levys the seizure of real property of the taxpayer and Interests or rights to such property for the satisfaction of taxes due from the delinquent taxpayer to enforce the payment thereof. The property may be offered ina public sale, if after selzure, the taxes are not voluntarily paid. When may levy be effected? Itis effected by issuing a warrant of levy and giving a written notice to the taxpayer and the Register of Deeds, after which the real property shall be sold at a public sale to satisfy the tax obligation of the taxpayer. ‘The advertisement shall be made within 20 days after the levy, and the same shall be for @ period of at least 30 days. It shall be effected by: posting anotice at the main entrance of the ‘municipal building or the city hall and in public and ‘conspicuous place in the barrio or district where the property's located ji by publication once a week for 3 consecutive weeks in newspaper of general circulation in the ‘municipality or city where the property is located (Sec, 213) 4. Sale of property. Faculty Adviser: Aty. Marissa Cabreres, Aity. Michael Dana Montero; Head: Kathrina Matibag, Cari Marlou Seranillo; Understudias:Justinae Dizon, Alan Carlo Solley, Kristine Venzuel2— 92as se OPERATIONS 2010 ‘Otherwice, 2 clever taxpayer who Is also able to conceal most Refers to personal property _ | involves real property of the valuable part of his property would escape payment of forfeiture of the property’ | Forfefture authorized FG his tax iabilty by sacrificing an insignificant portion of his | fvorofthe governments holdings. not provided ‘or (o) Ifthe highest bid is insufficient to pay the taxes, 2. TAXLIEN z a <2 | penalties ahd costs ‘There isno right of ‘There's aright of "Tax Lien isa legal claim or charge on property, ether redemption on the personal | redemption in case of real real or personal, established by law as a security in property property levied upon and default of the payment of taxes (51 AmJur 881). sold or forfeited to the ‘Generally it attaches to the property respective of government ‘ownership or transfer thereot. ath ‘summary remecies for collection I canfot be avaled of where amount involveddo rot exeend P10 Redemption of Property Sold Within 1 year from the date of sale, theproperty may be" redeemed by the delinquent taxpayer of any one fro him, ‘upon the payment of the taxes, penalties andinterest thereon from the date of delinquency i the date of sale together with interest on purchase prite'#t 15% per annum from the date of sale tothe date of rederistion. (See. 214) ‘The owner shall not be deprived of the possession of the sald property and shall be entitled to the rents and other income, thereof until the expiration of the time allowed for its redemption, Forfeiture to the Government If there is no bidder in the public sale or ifthe amount of the highest bid is insufficient to pay the taxes, penalties and costs, the real property shall be forfeited to the Government ‘Within one (1) year from such forfeiture, the taxpayer, or any cone for him, may redeem said property by paying the full amount of taxes and penalties, together with interest thereon, and the cost of sale. ifthe property be not redeemed, the forfeiture shall become absolute. (Sec. 215) Further Distraint and Levy ‘The remedy of distraint and levy may be repeated if ‘necessary until the full amount of the tax delinquency due including all expenses is collected from the taxpayer. (Sec 217) ‘+ Nature: 2 lenin favor of the Government ofthe Philippines when a person liable to paya tax neglects or {fuses to do so upon demand ‘+ _Bitration: lien exists from the time assessment is made by the Comissioner until psid, with interests, penalties _| and osts that may accrue in addition thereto “-Bxlent: upon all property and rights to property “longing tothe taxpayer + Sifectvity against thitd persons: only when notice of “gut len tafled by the Commissioner in the Register of * Deeds inthe province/city where the property is situated (Sec. 219) Néte: ‘¢Atagitien is superior to judgment claim of private _pétson. attaches not only from the time the warrant was served BUT from the time tax was due and demandable (from the time when the assessment was made [Sec. 219}. co pee Directed against the Need not be directed against property subject to the tax__| the property subject to tax Regardless of the owne? of | Property seized must be the property ‘owned by the taxpayer & aviLactions ‘© For tax remedy purposes, these are actions instituted by the government to collect internal revenue taxes. Includes fling by the government with the probate court claims against the deceased taxpayer. = Resorted to when the tax ibility becomes final and ‘unappealable, or when the decision of the Commissioner becomes final or executor. Faculty Adviser: Atty. Marisa Cabreres, Atty. Michael Dana Montero; Head: Kathrina Matibag, Carl Mariou Saran; 3 Understudies:Justinne Dizon, Allan Carl Soller, Kristine Venzuela—When: 2. Ataxis assessed and the assessment becomes final and unappealable because the taxpayer falls to file _an administrative protest with the BIR within 30 days from the receipt of the assessment. b. When an administrative protest fled by the taxpayer against the assessment is — denied, inwhole and in part or ~ _Isnot acted upon within 80 days from submission ofthe documents, and ~ The taxpayer adversely affectod by the decision or inaction fils to fle an appeal with ‘the CTA within 30 days from receipt of said {ecision or from the lapse of the 180 day period. ‘After the lapse of 180 days and within 30.day therefrom, the taxpayer is given the option either toelevate the protest to the CTA, of to await the decision of the CIR and elevate said decision within 30 days therefrom. The taxpayer may opt to walt Until the commissioner finaly makes a final décsfon ‘onhis protest, and need not lodge‘sh appeal tothe CTA after the lapse of the 180-day petiod arovided = under Section 228. On the otherhand;ifthe:* taxpayer would want to, then hé can already elevate his case tothe CTA after the lapse ofthe 1B0-day period. (CIR ws. Lascona'tand, CTA Cose No, $777, 4 January 2000; reiterated it-Alied Bank vs Parayno, CTA Case No. 6565, 3 November 2004) Where to File: 1) Court of Tex Appeals — where the principal amount of taxes and fees exclusive of charges and penalties claimed is one milion pesos and above 2) RTC, Mun. TC, Metro TC— where the principal amount of taxes and fees, exclusive of charges and penalties claimed is less than P1,000,000.00 (Sec Tie), RA S282) ‘The approval of the CIR is essential in civil cases (See. 220). However under Sec. 7 of NIRC, the Commissioner ‘may delegate such power to a Regional Director. Defenses which are Precluded by Final and Executory Assessment a. Invalidity or illegality of the assessment and b. Prescription of the government's right to assess Cede ee OPERATIONS 2010 B \CTIONS “The judgment in the criminal cases shall not only impose the penalty but shalt also order the payment of taxes. subject ofthe criminal case as finally decided by the ‘Commissioner {Sec 205) Resorted not only for the collection of the taxes but also for the enforcement of statutory penalties of all sorts. Where tofile 1) Courtof Tax Appeals ~ on criminal offenses arising from violations ofthe NIRC of TCC and other laws ‘administered by the BIR and the BOC, where the principal amount of taxes and fees, exclusive of ‘charges and penalties clsimed 1 P1,000,000.00 and above. “2} RTC, Mun. TC, Metro TC— on criminal offenses “arising from violations of the NIRC or TCC and other - davis adrministered by the BIR and the BOC, where the principal amount of taxes and fees exclusive of charges and penelties claimed is less than 009,000.00, or where there ino specified amount claimed (Sec 7[b], RA 9282) in criminal ease does not lity to pay taxes ‘Acquittal of the taxpay ‘exonerate him from li Under the Penal Code, the cull liability is incurred by reason of thecofender's criminal act, Stated differently, the criminal Jiablity gives birth to the civil obligation such that generally, “ifone is not criminally table under the Penal Code, he cannot become civilly liable thereunder. ‘The situation under the income tax law is the exact opposite, Civil iablty to pay taxes arises from the fact, for instance, ‘that one has engaged himself in business, and not because of any criminal act committed by him. The criminal Habilty arises upon failure of the debtor to satisfy hs civil obligation, ‘The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not posing civil indemnity on the criminal infractor of the. income tax law. (Republic vs, Patonao, GR No. L-22356, 21 uly 1967) Effect of subsequent satisfaction of civil ity The subsequent satisfaction of civil ability by payment or prescription does not extinguish the taxpayers criminal tabi ity. Faculty Adviser: Atty, Marissa Cabreros, Aty, Michael Dana Montero; Head: Kathrina Mattoag, Carl Marlow Sereno; Understudies: ustinne Dizon, Allan Carlo Sole, kristine Venuela— 3TAXATION LAW REVIEWER (os per Tied 1) WL Be No subsidiary imprisonment In case of insolvency on the part of the taxpayer subsidiary imprisonment cannot be imposed as regards the tax which he is sentenced to pay. However, it may be imposed in cases of failure to pay the fine imposed. (Sec 280) Criminal action may be filed during the pendency of an administrative protest in the BIR — {tls not a requirement for the filing thereof that there bbe a precise computation and assessment of the tax, since what is involved in the criminal action s not the collection of tax but a criminal prosecution for the violation of the NIRC. Provided, however, that there is 3 prima facie showing ofa wilful attempt to evade taxes. = An assessment of a deficiency isnot necessafy toa criminal prosecution for willful attempt t6 defeat and evade the income tax. A.crime is complete when the violator has knowingly and wiliully filed a fraudulent. ‘return with intent to evade and defeat the tax:The erpetration of the crime is grounded upor knowledae fon the partof the taxpayer that he has made en, inaccurate return, and the governineit’s faire to-<" discover the error and promptiy to-assess has'no. connections with the commission of the crime. (Ungab vs. Cusi, L-41919-24, 30 May 1980) © : = See also CIR vs. Pascor Realty, GR No. 128315, 29 June 1999, which reached the sarne conclusion as iriUngab. — HOWEVER, in the case of Cus. CA, CTA, & Fortune Tobacco (GR No. 119761, 29 August 1996), the CIR held ‘a contrary position ‘CIVIL AND CRIMINAL ACTIONS 1. Must be brought in the name of the Government of tthe Philippines 2. Conducted by legal officers of the BIR 3. _In-case of actions for recovery of taxes or enforcement of a fine, penalty or forfeiture, must be filed with the approval of the Commissioner {Sec. 220) G. FORFEITURE (SEC. 224-225) Forfeiture is the divestiture of property without n, in consequence of a default or offense. Effect of the Forfeiture of Property ~ _Theeffect is to transfor the title to the specific thing from the owner to the government. All the proceeds in case ofa sale go to the coffers of the government. The provisions in the Code which entitles the taxpayer to the balance of the proceeds Inexcess of the tax lal s entirely inapplicable ‘0 forfeited property. It relates solely to the sale of property distrained to pay taxes of delinquents and the disposition of the proceeds thereof. (US ws. Surla, 20 Pil 163). — Forfeited property shall not be destroyed until at least 20 days from selzure. + There is a great difference between a selzure under %, forfeture and a seizure to enforce a tax lien In the 22, Mormercall the proceeds derived from the sale of “thé thing forfelted are turned over to the Collector of internal Revenue; i the latter the residue of ~~ such proceeds over and atove what Is required to pay the tax sought to be realized, including expenses, is retumed to the owner of the property. (Gank of Phi Island vs. Trinidad, 42 Phil 220) ASSES: A ION ‘Retter of authority i an official document that empowers a revenut officer to examine and scrutinize the taxpayer's Lbgoks of accounts and other accounting records, in order to ‘determine the taxpayer's correct internal revenue tax abilities, ‘Who issues letter of authority? 1. Commissioner for those units reporting directly under him Regional Directors ~for taxpayers covered by Particular region. if the Commissioner has already issued @ letter of authority to investigate a particular taxpayer, the Regional Director shall desist from issuing another Letter of Authority for the same taxpayer. 2. ‘What are the instances when no letter of authority is needed? L Cases involving civl/criminal tax fraud which fa under the jurisdiction ofthe tax fraud division 2. Policy cases under audit by the special tears in national offices —Feeulty Adviser: Atty Marissa Cabreros, Atty. Michael Dana Montero; Head: Kathrina Matibag, Cae] Mailou Saranillo; Understudes: Justinne Dizon, Allan Carlo Soller, Kristine Venzuela 95TAXATION LAW REVIEWER ee OPERATIONS 2010 bok What are the steps in the assessment of taxes? 1 Pre-Assessment Stage Step 1: Notice of informal Conference: = Awritten notice informing a taxpayer that the findings of the aucit conducted on his accounting records indicate that additional taxes of deficiency assessment has to be paid. ~ if after the culmination of an audit, a revenue officer recommends the imposition of deficiency tax assessment, this recommendation is communicated by the BIR to the taxpayer during an informal conference. The taxpayer shall have 15 days from the receipt ofthe notice of informal conference to ‘explain his side. Step 2: lnformal Conference: F =" Discussion on the merits of thedssessment = Attempt of taxpayer to conwince the examiner tocenduct a reinvestntlon/-examination — Evaluate ifthe submissiog of the waiver oF statute of limitation is necessary (evaluation may extend beyond three years) ~ Taxpayer should advise the é position paper will be submitted ‘Step 3: Issuance of Pre-Assessment Notice (PAN) Communication issued by the BIR informing @ taxpayer who has been audited 8f the findings © by the BIR. The assessment shall be inwriting, and should inform the taxpayer of the law arid ===" the facts on which the assessment Is made; otherwise, the assessment [s void, — Ifthe taxpayer disagrees with the PAN, he has 15 days to file a written reply to contest the proposed assessment. — There is @ presumption of correctness end ‘2004 faith on the part of the CIR, thus, the burden lies on the taxpayer. Otherwise, the finding of the CIR will be conclusive and he will ‘assess the taxpayer. The same fs true even if the CIR is wrong, ifthe taxpayer does not controvertit. (Cagayan Robina Sugar Milling vs. CA, G.R. No. 122451, 12 October 12, 2000) — Instances where a pre-assessment notice NEED NOT be given: MET DC a, when the finding for deficiency taxis a result of Mathematical error in the computation of tax appearing on the face of the return; or 2 b. Discrepancy is determined between the tax withheld and the amount actually remitted by the withholding agent c. 2 taxpayer who opted to claim a refund or tax credit was determined to have Carried over and applied the amount against succeeding tax liabilities 4. Excise tax has not been paid e. an articie locally purchased or imported by an exempt person has been sold, traded or Transferred to nomexempt persons Formal Assessment Stage = Anotice of assessment [sa formal ietter of demand where a declaration of deficiency taxes is issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time, or whose reply to the PAN was found to be without merit. This ‘commonly known as the final assessment ipotice, {COLLECTION OE TAXES, SOUECTION OETAKES ‘The periods are designated to secure the taxpayers ‘against urireasonable investigation after the lapse of the Period prescribed. They are also beneficial to the goverment because while there can be no civil action toénforce collection before the assessment procedures “provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a ctiminal prosecution under the Code. (Ungab vs. Cusi 1-41919- 24, 30 May 1980) Sections 203 and 222 of the NIRC, provides for a statute of imitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable invest Unreasonable Investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that Itwil no longer be subjected to further investigation for taxes after the expiration ofa reasonable period of time. AS was held in Republic of the Phils. vs. Ablaza: *..The law on prescription being a remedial measure should be Interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval ofthe law.” (Phil Journalists, inc. vs. CIR, GR 162852, Dec. 16,2004) “Faculty Adviser: Aty. Marissa Cabreros, Atty. Michael Dana Mooteco; Head: Kathrina Matibag, Carl Marlou Sararallo; Understudies:lustinne Dizon, Allan Carle Soller, Kristine VeozueloSs, TAXATION LAW REVIEWER TENEO Rules on Prescription 1. When the tax law itself is silent on prescription, the taxis imprescriptibie When no return is required, tax is imprescriptible Note: Remedy of taxpayer isto flea return What Constitutes an Assessment? = An assessment contains not only a computation of {ax liabilities but also a demand for payment within the prescriptive period. = There is no form for an assessment. tt can be written anywhere as long a itis signed by the BIR, Any notice sent to the taxpayer demanding the tax Fablity isan assessment. ~The law requires that the taxpayer shall be informed in writing ofthe law and the facts on hich the assessment is made; otherwise, the assessment shall be Voi. (Sec. 228) Prescriptive Period for the Assessment of Taxes GENERAL RULE ~ 3 years after the date the retiitn is die or. fled, whichever is tater (See203} Note: Areturn filed before the lst day prctbtl by le fling shall be considered as filed on the last day. As EXCEPTIONS: or 1. Failure to file return: 10 years from date of discovery of te omission to fle the return (Sec 2228) 2. False or fraudulent return with intention tovevade the tax: 0 year from the date ofthe discovery f=" the falsity or fraud (Sec 222A) 2. Nothing In Sec 2224 shal be construed to authorize the examination and investigation or inquiry nto any tax ceturn fled in accordance with the provisions of any tax amnesty law or decree. Fraud must be alleged end proved as a eck t rust be the procuct ofa deliberate intent to evade taxes. itmay be establthed bythe: =" intentional and substantial understatement of the tax abit by the taxpayer (eubstanta underdeclaration of income; >30% of that, declared (Sec. 248]) intentional and substantial overstatement of deductions of exemptions (230% of the actual deductions See, 248) «. False constitutes a devistion from the truth due vo mistake, carelessnes or ignorance. Cad yp 7 | OPERATIONS 2010. Note: 11. Agreement in writing to the extension of the period to assess between the CIR and the taxpayer before the expiration of the 3 year period. The extension period agreed upon can further be extended by a subsequent. written agreement made before the expiration of the extended period previously agreed upon, (Sec, 222(b)) 2. Notice of the assessment must be released, mailed or sent to the taxpayer within the 3 year period, tis not required that the notice be received by the taxpayer within the prescribed period, But the sending of the notice must clearly be proven. (Basilan Estate vs. CIR, GR, No. 1-22492, 5 September 1967). ‘Amendment of Return {the amended return s substantially cifferent fram the ‘origifial,return, the prescriptive period shall be counted from the fling’of the amended return. (Ci vs. Phoenix Assurance €0, £19727, May 20, 1965) "Prescriptive Period forthe Collection of Taxes ‘__Syears—ffpm assessment or within period for ‘collection agreed upon in writing before expiration of | the yearperiod (Sec 222] + A0years = afer ciscoveryin case of fle or frudulent return with intent o evade or faire to le etum, withguit need for an assessment (Sec 222) _Préstriptive Period where the Government's Action is on a ‘Bond which the Taxpayer Executes in Order to Secure the Payment of his Tax Obligation © Loyears under Art. 1144[1) of the Civil Code and not 3 years under the NIRC. In this case, the taxpayers falled to pay the installments due despite demand. Hence, the Government sued on the bond which isa separate and distinct obligation of the parties thereto. The action is for the enforcement of a contractual obligation (Republic vs. Araneto, GR No. L-14142, 30 May 1961) Grounds for Suspension of the Running of the Statute of Limitation 1. when the CIR is prohibited from making the assessment or beginning the distraint or levy ora proceeding in court, and for 60 days thereafter 2. when the taxpayer requests for a reconsideration which is granted by the CIR Faculty Adviser: Atty. Massa Cabreros, Aty, Michael Dana Montero; Head: Kathrin Matibag, Carl Marlou Seranllo; Understudies: Justinne Dizon, Allan Caro Soller, Kristine Vonzuela— 7TAXATION LAW REVIEWER TENEO when the taxpayer cannot be located in the address given by him in the return, unless he informs the CR of any change in his address ‘when the warrant of distraint or levy is duly served and no property is located when the taxpayer is out of the Philippines (Sec. 223) ‘ATax Return is Considered Filed for Purposes of Starting the Running of the Period of Limitation The return s val ~ It has complied substantially with the requirements of the lew The return is appropriate - itis @ return for the particular tax required by law. A defective tax return is the same as if no return was filed at all. Prescrigtve Period for the Vaton of Any Prin ofthe ‘Tax Code (Sec. 281) should be filed S years from the: ray ‘day of the commission ofthe violation of he aw, and if tbe same shall be not known, fron the (2) discovery thereof end the institution of the judi proceedings forts investigation and puisheneit_ (Lim vs. CA, 190 SCRAGI6) = eS PART HI, REMEDIES AVAILABLE TO THE TAXPAYER (GENERAL REMEDIES 1. Administrative A. Before payment of taxes 2 a) Protest of assessment 'b) Entering into a compromise (Sec. 204) BL After payment of taxes Claim for refund or tax credit within 2 years from the date of payment regardless of any supervening cause. (Sec, 228) Judicial Relief A. GWil Action a} Appeal to the CTA b) Action to contest forfeiture of chattel at any time before the sale or destruction thereof, to recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net proceeds realized at sale CENTRAL BAR OPERATIONS 2010. )__ Action for damages against a revenue officer by reason of any act done in the performance of official duty (Sec 227) BL Criminal Action ) Against erring BIR officials and employees ) Injunction Procedures for the Protest of Assessment 1. Flea request for reinvestigation or reconsideration within 30 days from receipt of the assessment 2. request for reinvestigation — a plee for re- evaluation of an assessment on the basis of newly discovered or additional evidence that @ taxpayer intends to present in the reinvestigation. Involves a question of fact or law or both, 2b: -fequest for reconsideration —a plea for re- eyaluation of the assessment on the basis of existing records without need of adgitional etidence. involves a question of factor iaw or both. 2. Within 60 days from fling of protest, all relevant supporting documents should have been submitted, ‘otherwise, the assessment shall become FINAL {cannot be appealed). (Sec. 228) Note: ‘Submission of documents within the 60 days period 's optionat to the taxpayer. The relevant supporting documents mentioned in the law refers to such documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner fee's should be submitted, otherwise the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer couki not produce. (standard chartered Bank vs. CTA, CTA Case No. 5696, 16 August 2001) A protest isa vital document which is a formal declaration of resistance of the taxpayer. Itis a repository of all arguments. it can be used in court in case of administrative remedies have been cethausted. itis also the formal act of the taxpayer questioning the official actuations of the CIR. Th equivalent to a plea —Faculty Adviser: Atty. Marissa Cebreras, Atty. Michael Dana Monteco; Head: Kathrina Matibag, Carl Marlou Saranllo; Understudier:Justinne Dizon, Al 1 Carlo Soller, Kristine Venzucla—3, Appeal of Protest to the CTA (Judicial Relief}: (Sec. 228) Grounds: 2. ifthe protest is denied in whole or in part or b. isnot acted upon within 180 days from submission of documents Period to appeal within 30 days from receipt of decision denying the protest or b. 30 days from the lapse of 180 day period Effect of failure to appeal: the decision shall be final, executory and demandable (NOTE! See the CTA case of Lascona which gives the*taxpayer the ‘option either to appeal to the CTA after 180 days or to await the decision of the OR.) 4. Remedy if Decision of CTA is Adverse'te the Taxpayer a. Fiig®'fnotion for reconsideration before the same division of the CTA within 15 days from notice of decision, b. If motion for reconsideration denied, fle petition for review with the CTA€n banc . _Iftaxpayer not satisfied with decision of, CTA en bane, file a petition for review on certiorari t= the Supreme Court pursuant to Rule 45 of the Rules of Court. ees Cg ul Oe IMlustration of the Remedies of the Taxpayer BIR makes a tax assessment a I taxpayer isnot satisfied with the assessment file a protest within 30 days from the receipt thereof eee ee a Submit supporting documents within 60 days from date of the fling ofthe protest a | tfprotestis denied, elevate the matter to the CIR within 30 | daysfrom the receipt ofthe decision of the CiR's duly authorized representative ae a ‘Appeal to the Division of CTA within 30 days from the receipt of the final decision of CIR or his duly authorized representative (otherwise, the decision will be considered tinal, executory and damandable ) a If the CI orhisrep fails to act on the protest within 180 days from date of submission by taxpayer, the latter may appeal within 30 days from lapse of the #80 day period. a ‘Appeal to the CTA en bane from receipt ofthe decision of CTA division (after denial by CTA division of mation for reconsideration) a Appeal to the SC within 5 days from the receipt of the CTAen bane decision + which serves as a Basis for Appeal to CTA ~ Filing by the BIR ofa civil suit for collection of the deficiency tax (CIR vs. Union Shipping Corp. 185 SCRA 547, 21 May 1990} Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial. (CIR vs. Union Shipping Corp. 185 SCRA 547, 21 May 1990) —Foculty Adviser Atty, Marisa Cabreros, Ay, Michael Dana Montero; Head: Kathrina Matlbag, Cal Marlow Saranlloy Understudies:Justinne Dizon, Allan Carla Sol 9 : Krstine Venevela—TAXATION LAW REVIEWER ATENEO — BIR demand letter reiterating his previous demand to pay, sent to taxpayer after his protest of the assessment (Surigao Electric Co, Inc. vS. CTA, 57 SCRA 523, 28 lune 1974) = The actual issuance of a warrant of distraint and lewy in certain cases cannot be considered a final decision on a disputed settlement (CIR vs. Union ‘Shipping Corp. 185 SCRA 547, 21 May 1980} +The Final Notice Before Selzure cannot but be considered as the commissioner's decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response recelved: is content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The very title expressly indicated that itwas a fina notiée prior to seizure of property, The letter itselftiearly stated that respondent was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to distraint and levy. How then could it, have been made to believe that its request for” reconsideration was still pending determination; despite” the actual threat of seizure of ts properties? ast, Jurisprudence dictates that final demand eter fo payment of delinquent taxes may be¢onsideted a ‘decision on a disputed or protested assessment. In this case, the second notice received by private respondent. verly Indicated is nature= that twas ia, Unequivocebly, therefore, t was tantambunt toa rejection of the request for reconsideration es Isabela Cultural Corp., GR No. 135210, 11 July 2001) + ncoze the Commistoner fled to act onthe disputed assesment within the 180-49y period from date of submiston of documents, taxpayer cn ether) fle 9 petition for review withthe Court of Tax Appeals within 5o days after the expiration ofthe 180-dy period, or 2) await the final decsion of the Cmmisione onthe disputed assessment and appeal such final decision to the Court of fax Appeal within 0 days after eclptof copy ofsich decison. However, thece options are rtully exclusive, nd resort to one bars the aplication ofthe other. (ACEC. CIR GR, No. 168498, 24 April 2007) FILING OF CLAIM FOR TAX REFUND OR TAX CREDIT Parties Entitled to Refund GENERAL RULE: The person entitled to ask for a refund isthe taxpayer who paid the same CENTRAL BAR OPERATIONS 2010 errr arr Bice ‘Where tax | The taxpayer(even | Because the sales tax has been | iftaxhas been ts imposed directly on shifted | actually shifted by | the selleras an the taxpayer tohis | occupation tax for customersasin sales | selling Once taxandevenifthe | recovered, the eller taxhasbeen bited | must hold the asa separate itemin | refunded taxes in the invoice) (CiRvs. | trust forthe American Rubber, | individuol purchasers GR. No.1-19667, | who advanced 29 November 1966) | payment thereof and hase name must appear on his records whee “| Theasrecesere = fpayerisnot | not entitled to claim ‘he taxpayer | Fefund of such taxes (egetheater | (Medina vs cy of ‘onrierswho. | Bagule, GA. No, t- poiditegal” | 4060, ‘municipal | 29 August 1952) taxes bled toand collected from theater goers} Where Withhoiding agent | "Taxpayer is any payeris (Cin vs. Procter & | person subject to tax withholding | Gamble, 6A. No. t- | imposed by this tte agent 55838, fincome tax). The | 45 Apri 2988) withnolding agent directy and | independenty fable | for the correct amount of tax that | shoulo be withnet, and of deficiency | casecsments, surcharges and penalties Where | Sonee it he proper donor'stax’ | party to claim was refund ofthe assumed oy. | donors tax even tf donee | the taxwes advancedby the enor) culty Adviser ty. Marsa Cabreros, ity. Michael Darla Montero; Head: Kathrina Matibag Carl Marlow Saraniloy Understudies: ustinne Dizon, Jan Gate Sale, Krist venuela— 100CENTRAL BAR ee What is the nature of as a claim for refund? {tpartakes of the nature of an exemption and is strictly construed against the claimant. The burden of proof ison the taxpayer claiming the refund that he is entitled to the ‘same (CIR vs. Tokyo Shipping Ltd, 244 SCRA 332). When are there erroneously paid, or illegally assessed or collected taxes? Taxes are erroneously paid when a taxpayer pays under 2 mistake of fact, such as, he is not aware of an existing exemption in his favor atthe time that payment is made. Taxes are ilegally collected when payments are made under duress, ‘When may taxes be refunded or credited? 1. Grounds for Tax refunded or credited: a) Taxes erroneously or illegally b) a OTR Penalties imposed without auth ‘Any sum alleged to have. ssively or in any manner wrongfully collected Refund the value of internal revenue stamps a meee of the return upon which payment was made, ‘payment appears to be erroneous. Sec. 204 C, 29) ‘Tax Credit Certificate a) may be applied against any internal revenue tax, EXCEPT withholding taxes b) original copy is surrendered to the revenue officer ‘no tax refund will be given resulting from avaiiment of incentives granted by law where no actual payment was made (Sec. 204 C) a Forfeiture of cash refund/tax credit a) Forfeiture of refund in favor of the government ‘when a refund check or warrant remains unclaimed or uncashed within 5 yrs. from date of mailing or delivery 9) _ Forfeiture of Tax Credit ~ a tax credit certificate which remains unutilized after 5 yrs. from date ‘of issue, shall be invalid, UNLESS revalidated. when returned in good condition by aes ga Nae ec. 230) eee nee pee "e Redeem or change unused "Commencement of 2-year period °° “unfit for use and refund t c of destruction, in the. of the i Commissioner £2. Eitthetaxgought | From date tax 2. Procedure for credit/refund pie igife was paid (CR v 2) msn es nwrting wn epson iggy or Victorias a claim for credit or refund ieously Miling) b) application must be filed within 2 yrs: ell collected payment ofthe tax or penalty (no sutt or the taxis paidia | From date of © | Thefetsno o proceeding shall begun after the expiration of lnstaliment of = | the last or final | payment until the the said 2 yrs regardless of any supervening ‘only in part installment or | whole/entire tax: cause that may arse after the payment) (Gis. Preto, | Kabiity is aly )__@ return fled showing an overpayment shall be A G.R.No.t- pai ‘considered a written claim for credit or refund - | aa912, (0° | 30September 4 3. Suit or proceeding for refund be «| 1960) 2) acim for refund or credit has been filed with Leia acl ye the Commissioner the taxpayer | From Merely making a ) the suit may be maintained whether or not merely madea | conversion of | deposits not such tax/penalty/sum has been paid under deposit the depositto | equivalent to Protest payment payment until the Qin any case, suit must be filed in court within 2 (Union Garment | amounts actualy yrs. from date of payment ofthe tax/penalty vs. Coll applied tothe ‘regardless of any supervening cause that may purpose for which arise after payment it was deposited 4) the Commissioner may, even without a written claim, refund or credit a tax, where on the face Faculty Adviser: Atty. Marissa Cobroros, Ay. Michool Dana Montero; Head: Kathvina Matbag, Cari Marlow Saranilo, Understudies: Justinne Dizon, allan Carlo Soler, Kristine Verzuala— aoCENTRAL BAR a ee bash | Framdaten | Ataspayer who: withheld from | falls due at the | contributes to the ‘Similarly, payment under protest is not necessary in refund source (through | end of the | withholding tax for local taxes. (Sec. 196 LGC), however, payment under ‘the withholding | taxable year __| system performs protests necessary is case of: taxsystem) (Gibbs wsciR | and eninguishes GR.No.t- | histaxobligation (o}_ real property taxes (Sec. 252 LGC) 17406, forthe year (6) custom duties (Sec 2308 TCC) 29November | concemed. gi 1965) Suspension of the 2 yr Prescriptive Period Corporate ‘At the earliest, | itis only then that oo taxpayer onthe date of | the corporation 1. thereis a pending tigation between the the fling of the | can ascertain government and the taxpayer 2. The Commissioner in that Itigated case agreed to abide by the decision of the SCs tothe collection of taxes relative thereto (Panay Electric Co. vs. adjusted final | whether it made return (ACCPA | profits orincurred taal losses. a TRG Be ‘collector, May 28, 1858) datas oF refund or credit, ‘legally paid but arises, there is ‘aDombaamae the taxpayer absolutely no ‘became entitied © basis toflea : ‘ to refund because claim with the CR, 8% dfsuperning, | of payment (ct | br cammence a Jas Government anotbe required to pay ret on nes in ys taxpayer in the absence of a statutory eames nan | SMInam LS pousion deal or express directing or authoring such | azucarera, GR. f= egpene (cto. Sweeney 206 Pats) | Wo. 20467 February 28, ° roraps eh ‘CIR acted with patent arbitrariness. iness presupposes inexcusable or obstinate ard of legal provisions. (CIR vs. Victoria Miting, L- 19667, Nov. 29, 1966) Under Sec. 79(c)(2) with respect to income taxes withheld on the wages of the employees + §230 ofthe NIRC provides for a 2-yr preseritive period 2/)) to be counted "irom the date of payment Stax” for actions for refund of corporate income tax. Thi Yr period should be reckoned from the actual ling of the Adjustment Return or Annual TR, because at this point, it can be determined whether there has been an ‘overpayment of tax CR vs, CA, CTA & BIR (GR 117254, 21 January 1999) Rise ‘+ Ifa Revenue Regulation provides for a prescriptive period different from the NIRC, then the regulation invalid and the NIRC period should be used. (PCom vs. ‘OR, GR 112024, 28 January 1999) Payment Under Protest is NOT Necessary under NIRC A suit or proceedings for tax refund may be maintained whether or not such tax, penalty or sum has been paid under, protest or duress (Sec. 229) Faculty Raviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Head: Kathrina Matibag, Cal Marlou Saran Understudies: justine Dizon, Alan Cari Soler, Kristine Venzuela— ialaD Ye TITLE DC COMPLIANCE REQUIREMENTS ‘Non-Retroactivity of Rulings (Sec. 246, NIRC) ‘Any revocation, modification or reversal of any of the rules ‘and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application ifthe revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (@) Where the taxpayer deliberately misstates or omits ‘material facts from his return or any document required of him by the BIR; (b) Where the facts subsequently gathered by the BIR are ‘materially different from the facts on which the ruling is based; or (€) Where the taxpayer acted in bad faith (See. 247-252) Definitions oe ‘Increments tothe basic tax incident ito wie taxpayers non-compliance with certain legal” requirements. = Surcharge isa civil penalty imposed by law as aq addition to. the main tax required to be paid. itis not a crimifiatpenalty but a civil administrative sanction provided primarily as" eie= sefeguard forthe protection ofthe State revenue and to reimburse the government for the expenses of investigation and the loss resulting from the taxpayer's fraud. A surcharge added to the main taxis subject to interest. ‘Seneral Provisions The additions tothe tax or deficiency tax apply toa ‘taxes, fees and charges imposed in this Code. 2. The amount so added to the tax shall be collected at the same time, in the same manner and as part of the tax. 3. Hf the withholding agents the Government or any of ts agencies, politcal subdivisions ornstrumentaltes, or 3 GOCE, the employee responsible forthe withholding ‘and remittance ofthe tax shal be personally liable for the additions to the tax. = Theterm ‘person’, includes an officer or employee of a corporation who as such officer, employee or ‘member is under a duty to perform the actin respect of which the violation occurs. —Faailty Adviser: Atty. Marissa Cabreros, Atty Michael Dana Montero; Head: Katha Matibag, Cari Marfou Saranlo; Understudies: Justine Dizon, Allan Caro Soller, Kristine Venzuela— ETT ‘Additions to Tax 1. Gwil Penalties (Sec. 248) A) Penalty: 25%6 of the amount due, in addition to the tax required to be paid in case of the following: RIDT (lets get RID of Tox) ) Failure to file any Return and pay the tax on the date prescribed; or b) Fling a return with an Internal revenue officer ‘other than those with whom the return is. required to be filed, unless otherwise authorized by the Commissioner; of ©) Failure to pay the Deficiency tax within the ‘time prescribed for its payment in the notice of assessment; oF 4d) Failure to pay on or before the date prescribed = _ for its payment: 1. the full or part of the amount of Tax shown on any return required to be filed; 2, the full amount of tax due for which no return is required to be filed. Penalty: 50% of the tax or ofthe deficiency tax, in case any payment has been made on the basis of a retufn before the discovery of the falsity or fraud. In @ase of: { FiEa | £5) Willful neglect to file the return within the period prescribed; or ) False or fraudulent retum is wilfully made, in ‘ase any payment has been made on the basis of such return before the discovery of the falsity or fraud, ‘* Prima facie evidence of a false or fraudulent return as determined by the Commissioner pursuant to the rules and regulations promulgated by the Sec. of Finance 1. substantial under declaration of taxable sales, receipts or income ~ failure to report sales, receipts or income in an amount ‘exceeding 30% of that declared per return 2. substantial overstatement of deductions — claim of deductions in an amount exceeding 30% of actual deductions 1032 » ATENEO Interest (Sec. 249) 4, A) There shall be assessed and collected an Interest at 200% per annum on any unpaid amount of tax 8) OR higher rate prescribed by rules and regulations. from the date prescribed for payment until the ‘amount is fully paid. )_ FROM the date prescribed for its payment until the full payment. a) Deficiency Interestin the tax due 'b) Delinquency interest - In case of failure to pay: 1. taxdueon any return required to be filed, or 2. taxdue for which no return is required, or 3. Adeficiency tax, or any surcharge or 5. interest thereon on the due date appearing in the notice and demand of the Commissioner em 8) Interest sal fom prtorhetan ° Note: Pursuant to Section 249 ofthe Fix Code, the imposition of interest on delinquency is mandato Uamora vs. Meer, 74 Phil. 22) The imposition oe Dit ay OPERATIONS 2010 cove the tax 48 In case any employer/withholding agent fails or refuses to 6 refund excess withholding tax. Failure of a Withholding Agent to Collect and Remit Tax (Sec. 251) |A)_ Penalty: Amount of the taxnot withheld, or not ‘accounted for and remitted plus other penalties. '8) Liable only upon conviction ©) Incase of the following: a. Any person required to withbold, account for, and remit any tax; oF b. Who wilfully fails to withhold such tax, or ‘account for and remit such tex; oF Aids or abetsin any manner to evade any such taxor the payment thereof, Failure of a Withholding Agent to Refund Excess Withholding Tax. (See.252) ty: Amount of refund which was not refunded to the resulting from any excess of the amount withheld ‘actually due on their return plus other penalties isbuta just compensation tothe stot foe diy Whe. ©" CHAPTER the payment ofthe tax, and for the . the taxpayer of funds that rightfully sfiduld Be in the General Provisions (Sec. 253) government's hands. (BIR Ruling No. 049-03); E) Interest on extended payment. a. any person who is qualified the tax on installment but fails or any installment, or any part on oF date prescribed; or elects the tax, ethe Rasessstie b. where the Commissioner has authorized an 3 ‘extension of time within which to pay atax or a deficiency tax or any part thereof, . from the date of notice and demand unti itis paid, Failure to File Certain Information Returns (Sec. 250) 4 A} Penalty: P1,000 for each failure to file: a. information return; b. statement or ist keep any record; 5 gellar intemal revenue taxes based on the colletign ofthe!" 2. _Suéffine or other penalty shall be imposed atthe third cal year preceding the current fiscal vedas, _ gut scretion ofthe court. follows...(¢) On the third year and thereafter, 40% °°3522°""93, The Sanggunian Barangay may prescribe a fine of not (Sec. 284, RA 7160) tess than P100 nor more than P1000. 2. SOX share in collections forthe ft (2% par, Sec. 283, m IRC) 2. VAT on sale of goods or properties under Se. 106, LGUs are authorized to adjust the tax rates as prescribed IRC herein not oftener than once every 5 years, and in no case b, VATon sale of services and use or lease of shall such adjustment exceed 10% of the rates fixed under properties under Sec. 108, NIRC the tec. Percentage taxes under Sec. 116, NIRC Power to Grant Local Exemptions (Sec. 192 1G) Power to Create Sources of Revenue LGUs, may through ordinances duly approved, grant tax Each local government unit has the power to: exemptions, incentives or relies under such terms and conditions s they may deem necessary. 1. create its own sources of revenue and 2. levy taxes, fees, and charges subject to the provisions Tax exemptions shall be conferred through the fsuance of a herein, consistent with the basi policy of local non-transferable tax exemption certificate. ‘autonomy. (Sec. 129) "Faculty Adviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Mead: Kathvina Matibag, Carl Marlou Saranlo, Understudies:Justinne Dizon, Allan Carlo Soller, Kristine Venzuela—TAXATION LAW REVIEWER. u 6c: Unless otherwise provided by the LGC, tax exemptions or incentives granted to, or presentiy enjoyed by all persons, whether natural or juridical including GOCCs are hereby withdrawn upon the effectivity of the LGC except the ff: 1. local water districts, 2. cooperatives duly registered under RA 6938, non-stock ‘and non-profit hospitals and 3. educational institutions. ‘Tax Exemptions not applicable to Regulatory Fees, The power to grant tax exemptions, tax incentives and tax ‘elifs shall aot apply to regulatory fees which ae levied under the police power of the LGU. Incentives and Tax Reliefs 1. Onthe grant of tax exemptions or tax eligfs, a. the same may be granted in case¥ Of calamities, cil disturbance, genéfal faite of crops, oF adverse economic eureitions sith as substantial decrease in prices of agricultural or gr based products. eas b. The grant shall be through an ce c. Any exemption or relief granted to ‘business shall apply to all business sini situated, d. The same shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided by the ordinance. In the case of shared revenue, the exemption or relief shall only extend to the LGU gramting such ‘exemption or relief. 2. Onthe grant of tax incentives a. The same shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefore. b. The grant shall be for a definite period of not exceeding 1 calendar year. &_ The grant shall be by ordinance passed prior to the 1 day of January of any year. d. Any grant to a type or kind of business shall apply to all businesses similarly situated, ee ay es Faculty Adviser: Atty, Marissa Cabreros, Atty. Michael Dana Montero; Head: Kathvina Matibag, Car Mariou Sarenllo; Understudies:lustinne Dizon, Allan Carlo Soller, Kristine Venauela— REQUISITES: The procedure applicable to local gov't ordinances in ‘general should be observed. (Sec. 187, LGC) 2. Procedural details (Secs. $4, 55, and 59 LGC): a. necessity of quorum 'b. submission for approval by the local chief executive . the matter of veto and overriding the same d._ the publication and affectivity 3. Public hearings are required before any local tax ‘ordinance is enacted (Sec. 187, LGC) 4, Within 10 days after their approval, publication in full for 3 consecutive days in a newspaper of general Circulation. In absence of such newspaper in the province, city or municipality, then the ordinance may XEN. ye posted in atleast two conspicuous and publidy "ges laces (ec 189.6 ®. shu Tad Povirs of the LGU Sec, 86160) 1GUs have the power to levy taxes, fees or charges on any base or subject NOT: a. specifically enumerated in LGC 'b. taxed under the provisions of the NIRC, as amended other applicable faws. 9% That the taxes, fees or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to dectared national policy. b. The ordinance levying such taxes, fees or charges. shall not be enacted without any prior public hearing conducted for the purpose. Limitations of the Residual Power 1. Constitutional limitations on taxing power 2. Common limitations prescribed in Sec. 133 of UGC 3. Fundamental principles governing the exercise ofthe taxing power of the LGUs prescribed under Se. 130 of the LGC 4. The ordinance levying such residual taxes shall not be ‘enacted without any prior pubic hearing conducted for the purpose and. 5. The principle of preemption. 107MON UMITAS ET LGUs CANNOT LEVY: | IDECTA_BEV_TRELEBI } (@) Income tax, except on banks and other financial institutions; (NOTE: Since income taxis already imposed by the 2 National Government under NIRC, LGUs cannot impose 3, the same even on banks and other financial institutions. ‘The exception Is referring to the percentage tax on banks’ specified income.) Documentary stamp tax; 4 Estate Tax, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided; . Customs duties, registration fees of vessel and wharfage ‘on wharves, tonnage dues, and all other kinds of customs fees, charges and dues, except wharfage on ‘wharves constructed and maintained by the local {government unit concerned; Toes, fees, and charges and other in {00ds carriedinto or out of, or passing tfough, the territorial jurisdictions of local governfient units in the guise of charges for wharfage, tolls for bridges oF otherwise, ee Be Taxes, fees or charges on Agricultural a NG gs products when sold by marginal farmérs oF fi 2 Taxes on business enterprises ceri to bl pe (0) @ a) te) 0 Oh [Excise taxes on articles enumerated under the ni Internal Revenue Code, as amended, afid taxes, charges on petroleum products; sy Percentage or VAT on sales, barters or exchaligesor similar transactions on goods or services except a5. ‘otherwise provided; Taxes on the gross receipts of Transportation contractors and persons engaged inthe transportation ‘of passengers or freight by hire and common carriers by air, land or water, except as provided in the Code: ‘Taxes on premiums paid by way of Reinsurance or retrocession; ‘Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of Licenses or permits for the driving thereof, except tricycles; {om) Taxes, fees, or other charges on Philippine products . ‘actually Exported, except as otherwise provided; Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. 6810 and R.A. 6938 (Cooperative Code of the Philippines); and ‘Taxes, fees or charges of any kind on the National Government, its agencies and Instrumentalities, and focal government units. (n) “ a Co) 0 fn) (0) — Faculty Adviser: Atty. Marissa Cabrers, Atty. Michael Dana Montero; Mead: Kathrina Matibag, Carl Marlow Saranilo, Understudies:Justinne Dizon, Allan Caro Soller, Kristine Verzucla— ed) 2 OPERATIONS 2010 Classification of Common Limitations, ‘Taxes which are levied under the NIRC unless otherwise provided by the LGC (*a, b,c, 1) ‘Taxes, fees, etc. which are imposed under the TCC (*d) Taxes fees and charges where the Imposition of which contravenes existing gov tal policies or which are Violative of the fundamental principles of taxation (*e,f, eksm,n,s) Taxes, fees and charges imposed under special laws. (* I The imposition of 5% tax on the gross receipts on rentals orlease of space in privately-owned public markets are not income tax, rather, these constitutes as valid ficense fees for the regulation ofthe business. (Progressive Development Copr. vs. Quezan City, GR. No. 36081, ‘ = ‘April 24, 1989 } ‘The fundamental principles governing the exercise of the taxing and other revenue-raising powers of LGUs are [UUPT- a, Taxation shall be Uniform in each focal government unit; “Taxes, fees, charges and other impositions shall (EPudul): 4 3) be Equitable and based as far 2s practicable on the s ability to pay; fie ae collected ont for ube porposes; ‘not be undust, excessive, oppressive, oF confiscatory; 4) not be contrary to Law, public policy, national economic policy, or in the restraint of trade; The collection of iocal taxes, fees, charges and other Jmpositions shall in no case be Let to any private person; The revenue collected shall Inure solely to the benefit of the local government unit levying the tax, fee, charge or ‘other imposition unless otherwise specifically provided herein; and, Each local government unit shal, as far as practicable, evolve a Progressive system of taxation. (Sec. 130) quality and uniformity in focal taxation means tat all taxable articles or kinds of property of the same class shall be taxed at the same rate within the territorial jurisdiction ofthe taxing authority or local government unit and not necessarily in comparison with other units although belonging to the same political subdivision. In fine, uniformity is required only within the geographical limits ofthe taxing authority. (Punzalan vs. Cty of ‘Manilo, 6.8. No. 4817, May 26, 1954)ot eT OPERATIONS 2010 “ATENEO © Acity can validly tax the sales to customers outside the city as long as the orders were booked and pald for in, ‘the company's branch office in the city. A different interpretation would defeat the tax ordinance in ‘question or encourage tax evasion by simply arranging, for the delivery at the outskirts of the city. (Philippine ‘Match Company vs. City of Gebu, 6.R. No. 30745 January 18, 1978) or Exclusion Where the national government elects to tax a particular area, it impliedly withholds from the local government the delegated power to tax the same field. This doctrine principally rests on the intention of Congress. eT ‘¢ Excluded impositions pursuant to the preemption: ~ 1 2 3 contravenes existing gov'tal oles the indent prinap of ets é + Aprovince may not lev excise taxes on aris already taxed by the NIRC. The curent Tax Cade already 5; pes imposes taxon AL quarry resources, tegaaess of tigi, hence, the Province may no longer additional amounts from Republic Cement. (Province Sf Bulacan vs. CA, GR. No. 126232, November 27, 1998) gs 4. Taxes, fees and other charges imposed under special faw. Faculty Adviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Head: Kathvina Matibag, Cari Marlou Saranilo; Understudies:ustinne Dizon, Allan Calo Soler, Kristine Venmuela— 109ort ‘uozig euupsn s0jpmszepun ‘ojuezes Nove HED “BeqRENY euLUL) —arenauan 2 Wi Any ‘Soveige9 esse “Any BSIAPY Aainoe|— TENT STEREOS FOTOS BA TEU STR ST TOBURETEGY ‘papinoid sazeid jes99s Ul §) eogoeid oy 0589 u] 20450 3us/0y 9204 40 uO xe) sun jo quawiked OU UT TEUE IAG SuISTP ‘Aew vesymejeiUed BuejundBues a1 se Uoneayysser> ajqeuoseas ue aunowe yons ay ‘ip B10}Sq 70 UO ped ag SL ‘jue Sezunosey Auenb ayy s194m AeBuEieR, OE - paqedXarsie seoinoses Auents acces MIJRDIPIUNIN, 20 AID AuaLEdED oe TRinoranecomjesueuprestnen sec QuLanad jouinoud axa Aq Arse anes) oq ieys ssounosas wesone 04 uwied ous ‘AQE20) Bua U) anjearaXEW 3] UL S1932M D}IGNd O4R0-DL ‘eypan ‘suieans ‘stan ‘saye} ‘seas40'spoq uy wow 40 spue|ay9nd Woy parsEIDe saounoses Aven sayie'pue ‘yaues "ano8 ‘pues ‘sauoys Aleujp1o uo'sexen i295 /pue Ata) eu eouinoud au). sa2unosay ‘Aseria 49420 uo jano49 ‘Duds Uo x01: “quoungbau)jede> avg, paB0xe 264 ous x63 sng paises ALMA "yeysy woq sdweKsag ijeys saga aus Aq paqunsaid ‘sanuaiaja1 0 sy Jools UBUaseMUIJenide> 9uB JO %6t 40 02/1 pasoK9 sou jjeys xe 2 ‘ssaulsng payers AMEN, t ‘4eo4 sepuiaje> Bujparaid ay, 40} sidjanau jenuue ssou2-919, 40567 40 05 Buipe@2x—I0N ‘lp. uo xe} e-asodui; Aew aduypoid au “uoryaauigng pub Bunuud fo: ased Ae Souneué ou souno Auadoud j0@y fo 4afsuo1s uo Ce [0 reer Ce Fi) OFM A UaIMEIATY MYT NOLLVXV.L—eronzu2, suns ur oe very ‘vozig euupsnr soppnisiepun ‘ojueses noveN WED Beqaenl EvAVEN PEOH UO} 2UeG |aeyDIA “ALR 'S028.989 ess EWN “Any esiApY A4NDE— Ue A ew a “y sraponay 10 ‘sia0ag ‘fo saiasaiourn ‘siaonpaig 40 siaima0fnuoy fo uDp 40 onus Avantag Aa 404 xo pans joruuny pao seo0jd uowesnwe yons aay fyodojuns 249 pursaueld auaAq Aienbapaieys | seit 10-9204 dadadooxe agiieysxes wewasnive oun wos spasroid | ‘suonewareidyeau0ies0 ‘uy Sanjeusg pue aseieny‘saBieunins asocu, AeUduefmejeiueg Bue\unBBues au ‘Aed vainiej 10 prey jo 9822.41 xE1)0 842 40) SUO)}pUOD pue sua) WeUUELL 249 aqusnid Aew ueBimeteiuee Buc ‘suoniqiyxa we pue Bunujed P “$89),.UO|SsKUpe ‘siey9e4 ‘seue/p “Sya2U0y | Wo4; Sidjada ss0l8 ‘sevedojo8upjeyeus | ei Jossoe ueus u0W30N “00'00¢4 paeaxs aseo ne Eee O | NE 5 ri ej Pee aE Pa) MAMAIATY MVT NOLLVXVLISCOPE: Municipalities may levy taxes, fees and charges not ‘otherwise levied by provinces. (Sec. 142)} |. Taxon Business ‘The municipality may impose taxes on the following: 4 Onmanufacturers, assemblers, repackers, processors, brewers, cstilers, rectifiers, and compounders of liquors, cistiled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature. b. On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature. © Onexporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of the following essential commodities (where the rate prescribed is only % of the regular rate [Sec. 143, tec) eo +. Riceand corn; é 2 wheat or casve our es af routs locally manufactured, proce: sugar, salt and other agriculture, marine, ste water products, whether in t * Zale not ‘ Cooking otland cooking gus;| Ss 9 oe 5. Agricultufal implements, equipment aid post... harvest facilities, fertilizers, pasted othe farm inputs; SPeh 6. Poultry feeds and other animal eed, 7. Schoo! supplies; and & Cement. On retailers. (On contractors and other independent contractors (On banks and other financial institutions, ‘On peddlers engaged in the sale of any merchandise or article of commerce h. On any business, which the Sanggunian concerned may deem proper to tax. For businesses subject to the excise, value-added or percentage tax, the tax rate shall not exceed 2% of gross sales of the preceding calendar year. woes Notes: ‘+ Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed for a- h. (See. 144) ‘+The Sanggunian concerned may prescribe a schedule of graduated tax rates but in no case shall exceed the rates prescribed in the LGC. CENTRAL BAR OPERATIONS 2010 Laundry soap, detergents, and inedidifie; 7 The taxis payable for every separate or distinct establishment or place where business s conducted. (Sec. 145) ‘*Atax that hears a direct relation to the volume of sales for when there isa set ration on the volume of sales and ‘the amount of tax, such may not be imposed by the local ‘government since these amounts to percentage tax on sales. (Serafica vs. Treasurer of Ormoc City, G.R. NO. L- 24813, April 28, 1969) ‘© However, ifthe tax is based on past quarterly sales, these could be valid. (MMIC vs. Hinobangan) I, Fees and Charges ‘Municipalities may impose: ‘emai, The municipality may impose and collect such able fees and charges on business and occupation professional taxes reserved for provinces. (Sec 147) Reasonable fees for the sealing and licensing of weights. and measures. (Sec 148) Fishery rentals, fees and charges, including the authority to grant fishery privileges within municipal waters, as “/well as issue licenses for the operation of fishing vessels of three tons or less. (Sec. 149) bayer unas Tene: iv payable fot evel separate or dinnct _p@tablishment or place whiére the business subject to the taxis conducted and one line of business does not become exempt by being inducted with some other ‘Business for which suet has been pai b. “Thetax ona business must be paid by the person éonducting the same. ” c.f’ Ingases.where.a person conducts or operates 2 or more thie businesses mentioned in Section 143 of LGC, the tax shall be computed as follows: 1. If these are subject to the same rate of tax, the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related businesses. 2. fthese are subject to different rates of tax, the Eross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. Faculty Adviser: Atty, Marisa Cabroros, Atty. Michael Dana Montara; Heed: Willom Gan; Understudles: Car Sarai, Kathrina Matibag— 42TAXATION LAW REVIEWER: Excise Tax - not dependent on the domicile of the taxpayer, but on the place in which the acts performed or the ‘occupation is engaged in; not upon the location of the office, but the place where the place is perfected. (Allied Thread 0, Inc. vs. City Mayor of Manila, G.R. No. L-4029, November 21, 1984) Sales Tax its the place of the consummation of the sale, associated with the delivery of the things which are the subject matter of the contract that determines the situs of the contract for purposes of taxation, and not merely the place of the perfection of the contract. (Shell Co,, Inc. vs. ‘Municipality of Sipocot, Camarines Sur, 105 Phil 1263) 1b. Situs According to Section 150 of LGC. Rule 1: For purposes of collection ofthe taxes tier Section 143 (tax on business), businesses maintainiig or operating branch or sales outlet elsewhere shall recbrd the sale in the: branch or sales outlet making the sale: of transaction toe thereon shall acre and shal be pid to where such branch or sales outlet is manipaty where the sal made, the ale recorded in the principal office and the taxes. Spo acerue and be paid to such city or municipality. : Rule 3: The following sales allocation for sales réteded in the principal office of businesses with factories, project offices, plants, and plantations: © 30% ofall sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and * 70% of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, Project office, plant, or plantation is located. Rule 4: Where the plantation located at a place other than the place where the factory is located, the above mentioned ‘70% shall be divided as follows: + 60% to the city or municipality where the factory is located; and ‘+ 40% to the city or municipality where the plantation is, located. ss a ee Rule S: Where there are 2 or more factories, project offices, pants, or plantations located in different localities, the above ‘mentioned 70% shall be prorated among the localities where the factories, project offices, plants, and plantations are. ocated in proportion to thelr respective volumes of ‘production during the period for which the taxis due. (Sec. 150) Note: In case of manufacturers or producers which engage the services of an independent contractor to produce or ‘manufacture some of their products, these rules shall apply except that the factory or plant and warehouse of the contractor utilized for the production and storage of the ‘manufacturers’ products shall be considered as the factory or plant and warehouse of the manufacturer. (IRR) ‘The city or municipality where the port oflaading is located rot levy and collect reasonable fees unless the exporter Fangs {in satd city or municipality its principal office, a branch, sales office, or warehouse, factory, plant or «_ plantation in hil tase, the rule on the matter shall apply accordiily. (IRR) ‘The city may levy the taxes, fees, and charges which the province gx municipality may impose. ‘=, The tax tes that the city may levy may exceed the ~ 2 maxim rates allowed for the province or municipality en than SO% except the rates of professional wsement taxes. (Sec. 151) ee vot feaanears ‘Scope of Taxing Powers: The-tdrangays may levy the followijig taxes and charges, which shall exclusively accrue to (thert: (TOBS] . (2). Tékes -Ot stores or retailers with fixed business establishments with gross sales of receipts ofthe preceding calendar year of P50,000.00 or less for cies and P30,000.00 or less, inthe case of municipalities, ate =nat exceeding 1% on gross sales or receipts. {b) Service Fees or Charges for services rendered in connection withthe regulations or the use of borangay- owned properties or service facilities such as paay, copra, or tobacco dryers. (0) Barangay Gearance.- No city or municipality may issue any license or permit for any business or activity unless a clearances first obtzined from the barangay where such business or activity i located or conducted. Faculty Adviser: Atty Marissa Cabrevos, Aly, Michael Dana Montero; Head: Wiliam Gan; Understudies: Cal Saanilo, Kathrina Matibag— 113Ss, TAXATION LAW REVIEWER > (4) Other fees and Charges. - The barangay may levy reasonable fees and charges: (CRB) 1. On commercial breeding of fighting Cocks and cockpits; (On places of Recreation which charge admission « fees;and (On Billboards, signboards, neon signs, and outdoor ads. (Sec. 152) ‘COMMON REVENUE-RAISING POWERS OF LGUS (Secs. 153. 1ss){ SPT} ‘Service Fees and Charges for services rendered 'b. Bubic Utiity Charges for the operation of public utilities ‘owned, operated and maintained by LGUs within their jurisdiction, & Toll Fees or Charges for the use of any public road, pier, ‘oF wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the LGU co CENTRAL BAR eT ey B. Juridical Personalities (Sec. 158) Corporations, no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in, the Philippines are afso lable to pay an annual community tex. Rate: P500.00 and an anrwal additional tax, which shall not exceed P10,000.00 in accordance with the following, schedule: a. For every P5,000.00 worth of real property in the Philippines owned by it during the preceding year based ‘on the valuation used for the payment of real property tax-P2.00; and For every P5,000.00 of gross receipts derived by it from its business in the Philippines during the preceding year- 2.00. Except: dends received by a corporation shal, for the 1. officers and enlisted men of the AFRfid PNP on purpose ofthe additional tax, be considered as part of the mmission, gg oss receipts br eings of Said corporation. 2. post office personnel delivering al, ee Oe 3. physically-handicapped, and disabled ci s are sixty-five (65) years or older. Ee Zi MUN months. | + Gties or municipalities may levy a commurity a 156) € TPR 8. ce anne of Payment ‘A. Individuals Uable to Community Tax HER) a. inhabitant of the Phil arias b. Eighteen years of age or over © Regularly employed on a wage or salary basis for at * least 30 consecutive working days during any calendar year, or who Is engaged in business or ‘occupation, or who owns real property with an ‘aggregate assessed value of P1,000.00 or more, or ‘who is required by law to file an income tax return, Rate: P5.00 and an annual additional tax of P1.00 for every, 1,000.00 of income regardless of whether from business, exercise of profession or from property which in no case shall ‘exceed P5,000.00. In the case of husband and wife, the tax imposed shall be ‘based upon the total property owned by them and the total {gross receipts or earnings derived by them. (Sec. 157) stagletrment-picet residence often, inthe place where thesincipal office of the jurileal entity Is located. (Sec. 160) “ime for Payment - acc on the 1* day ofan. of ‘each year which shollbe paid not ater than the last doy ‘Of Feb, of each year i Penalties or Delinquency. - An interest of 24% per annum from the due date unt itis paid shall be added “onthe amount due. > Acommunity tax certificate may also be issued to any person or corporation not subject to the community tax. ‘upon payment of P1.00. (Sec. 162) E. Presentation of Community Tax Certificate on Certain Occasions: (See. 163, LGC) — Faculty Adviser Atty, Marissa Cabreros, Aty. Michael Dana Montero; Head: Wiliam Gan; Understudles: Car Saraillo, athrina Matibag— aTAXATION LAW REVIEWER st es ee A. individual Interest on other unpaid revenues —_On any other source of ‘L._ When an individual subject to the comm. tax revenue, LGUs are authorized to imposed an interest of a acknowledges any document before a notary ‘maximum of 2% per month, maximum of 36 months, on the public; amount unpaid. 2. Takes the oath of office upon election or appointment to any position in the government Collection of Revenues by the Local Treasurer — service; 3. Receives any license, certificate or permit from any All local taxes, fees and charges shall be collected by the public authority; provincial, city, municipal or barangay treasurer, or their duly 4. Paysany tax or fee; authorized deputies. 5. Receives any money from any public fund; 6. Transacts other offical business: or ‘The provincial, city or municipal treasurer may designate the 7. Receives any salary or wage from any person or barangay treasurer or his deputy to collect local taxes, fees corporation. or charges. In case a bond is required forthe purpose, the provincial city or municipal government shall pay premiums The presentation ofthe CTC shall not be required in ‘thereon in addition to the premiums ofthe bond that may be connection with the registration of a voter. required under the Code. 8, Corporation ‘Lrebeives any license, certificate orp public authority; 2." “pays any tax or fee; f 3. receives any money from any public fund; or 4. transacts other official business. Lg R.3.- COLLECTION OF T we ‘Taxable Period ~ The tax period of all local taxes, fees and charges shall be the calendar year, nl othe . provided in the Code. SOR ATES co tos % f a _pby administrative action through distraint of 1. Local Government's Lien — Local taxes, fees, charges and ‘other revenues, constitute a lien, superior to all liens, charges of encumbrances in favor of any person, _q enforceable by any abpropriate administrative or judicial Accrual of Tax— All local taxes, fees, and char a personal property and'by levy upon real property. fs day of anary of each yar ures otherse OMedancind™b. Bysutial acon. in the Code. 7 “Either of these remedies or aft nay be pursued concurrently ‘Time of Payment — ALL local taxes, fees, and charges shall be ‘or Sitaieousy atte discretion othe LSU concerned. aid within the first twenty (20) days of January or of each as ‘ subsequent quarter, as the case may be, unless otherwise Ube ee provided in the Code. SF os Surcharges and Penalties on Unpaid Taxes, Fees, or Charges = The Sanggunian may impose a surcharge not exceeding ‘twenty five percent (25%) of the unpaid taxes, fees or charges not paid on time. They may impose interest at the rate not exceeding two percent (2%) per month of the Unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the total interest on ‘the unpaid amount or portion thereof exceed thirty six (36) months. Faculty Adviser: Atty. Marisa Cabreros,Aty. Michael Dana Mont; Head: Wiliam Gan; Understudies: Cor Saran, Kathina Matibag— 15==, TAXATION LAW REVIEWER 2 aL a es 11, Procedure for distraint Deficiency a ‘Seizure or confiscation of personal property belonging to the ‘person subject to tax or subject to len in sufficient quantity to Ill. Procedure for Levy Deficiency a Lewy of real property before, simultaneously or after distraint of satis thefablity personal propery belonging tothe delinquent taxpayer. a a ‘Accounting for drained goods local treasurer shal prepare a dul authenticated cerficte showing the name ofthe taxpayer and amount oft, fee aid u penaty due him. Posting of naices ofthe sal of dirined properties in nt less than 3 public and conspicuous place, including the office ofthe a chief executive, in the territory of the LGU concerned. a Ey ‘The Sale shal Be scheduled in not less than 20 days after notice Written notice of levy to the assessor, register of deeds ofthe ‘province or city where the property islocated and the deknquent taxpayer. to the owner oF possessor ofthe property and the publication and posting the property shall be sold to the highest bidder. The a {ocal treasurer shall make a report of the proceedings within 5 Report on levy within 10 days from levy by the levying officer. days from the sale. i Lehre | a Disposition of the proceeds ofthe sale by application of such proceeds tothe delinquency and expenses of sale and return of the balance tothe owner. {f property is not disposed of within 120 days from date of distraint, the property shall be considered soldto the GU |" ‘Advertisement of the sale of the property through sale or auction within 30 days after levy. The advertisement shall be effected by: (a) posting a notice in the main entrance of the ‘municipal building or city hall and a conspicuous place in the barangay where the real property is located. (b) publication ‘oncea week for3 consecutive weeks in a newspaper of general ‘érculation inthe province, ity or municipality where the property is located. ‘concerned for the amount of the assessment made thereon by the Committee on Appraisal. The tax delinquency shall be ~o cancelled to the extent of such amount. Sale of levied property fae ms Es a Issuance of the certificate of sale to the purchaser. The owner of ‘the property has 1 year from date of sale to redeem. a I property redeemed, a certificate of redemption willbe issued. not redeemed, a final deed of sale shal be issued to the purchaser. ‘The local treasurer shall purchase the property on betalf ofthe LGU it (a there ino bidder forthe real property (b) the highest bid is insufficient to pay the deficiency tax. n this case, the ‘owner also has 1 yearto redeem, —Faculty Adviser: Atty. Marissa Cabrero, Ay. Michael Dana Montoro; Heed: Wiliam Gan; Understudles: Carl Sararill, Katheina Matibag— Sad‘TAXATION LAW REVIEWER es |W, Jurisdiction of Courts Over Local Taxation Cases 1, With the amendment brought by RA No. 9282, the Court of Tax Appeals now has appellate jurisdiction over local taxation cases decided by the RTC in the exercise ofits appellate or original jurisdiction. 2. Regular judicial courts are not prohibited from enjoi the collection of local taxes, subject to Rule SB. {preliminary injunction) of the Rules of Court. NOTE: Unlike the NIRG, the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. Such statutory apse or intent may have alowed preliminary injunction where local taxes are involved. But it cannot negate the procedural rules and requirements under Rule 58 ofthe Rutes of Court (Valley Trading Co. vs. CF of tsabelafs: 1988) é V. Prescriptive Periods for Assessment aL they becarne due (sec. 194, 1GC) |, & When there fraud or intent to evade ‘Charges —ten (10) years fr fraud or intent to evade payment (sec. VI. Prescriptive Period for Collection Local taxes, fees or charges may be collected withig five years from the date of assessment by administrative OP i judicial action. No such action shall be instituted after the expiration of such period. (sec. 194, LGC) Vi. Grounds for the Suspension of the Running of the Prescriptive Periods 1, The treasurer is legally prevented from the assessment (or collection of the tax; 2. The taxpayer requests for a reinvestigation and executes a waiver in writing before the expiration of the period ‘within which to assess or coliect; and 3, The taxpayer is out of the country or otherwise cannot be located. (sec. 194, 160) Tt OPERATIONS 2010 TAX REMEDIES OF THE TAXPAYER administrative 1. Before assessment. Protest against a newly enacted ordinance —any question on constitutionalty or legality of tax ordinance within 30 days from effectivity thereof to Secretary of lustce (sec. 187, L6C) ‘Such appeal shall not have the effect of suspending the effectivity of the ordinance and the acrual and payment of we 2 After Assessment ‘a. Protest — within 60 days from receipt of assessment (sec. 195, LGC), Payment under protest is not necessary. “rb, Payment and subsequent refund or tax credit — in 2 years from payment of tax to local reé{Sec. 196, LGC). Itis tobe noted thet, ‘unlike in internal revenue taxes, the supervening ‘couse applies in local taxation because the period forthe fling of the claims for refund or credit of local taxes is counted not necessarily from the date of payinent but from the date of taxpayer's entitled within 30 days after receipt of decision or lapse of 60 days of Secretary-of ustice’s inaction (sec. 187, 6c) ‘within 30 days from receipt when protest of assessment'is dénied (sec. 195, LGC) if no action is taken by the treasurer in refund cases and the two year period is about to lapse (sec. 195, tsq) d._ if remedies available does not provide plain, speedy and adequate remedy. 2. Aetion for Declaratory Relief 3. Injunction - if irreparable damage would be caused to the taxpayer and no adequate remedy is available. Faculty Adviser: Atty Marissa Cabreros, Atty. Michael Oana Montero; Head: Wiliam Gan; Understudles: Cal Saranilo, Kathrina Matibag— a7A TENEO TaD OPERATIONS 2010 Real Property Taxis a direct tax on ownership of lands and buildings or other improvements thereon payable regardless ‘of whether the property is used or not, although the value may vary in accordance with such factor. Real Property Taxation covers the administration, appraisal, assessment, levy and collection of Reat Property Tax, i.e. tax (on land and building and other structures and improvements ‘nit, including machineries. (Subject to the definition given by Art. 415 of the Civil Code) Improvement - valuable addition made to a property or ‘amelioration in its condition amounting to more than a mere. replacement of parts involving capital expenditures and labor. |. Characteristic of Real Property Tax[UPAD] us 1. Direct tax on the ownership of real pro 2. Ad'Valorem tax. The value is based orfthe tax base 3. Proportion - the taxis calculated on the basis ofa certain percentage of the value assessed 4. Indivisible single obligation 5. Local Tax opie for ea Property fgee ‘According to the Local Government Code, Real froper lable for Real Prop tax ae: land ey, Buildings Machinery and Other improvements not otherwise exempted under said code (Sec 232 ‘Note: Although the term real property has not been expressly defined in the LGC, early decisions of the Supreme Court in Mindanao Bus Co. vs. City Assessor of Cagayan de Oro; Board of Assessment Appeals vs. Meralco; Manila Flectric Co. vs. Board of Assessment Appeals, seem to suggest that Art 415 of the Civil Code could also be controlling. ‘Machinery ~ embraces machines, equipment, mechanicat contrivances, instruments, appliances or apparatus which ‘may or may not be attached, permanently or temporarily, to the real property. It includes the physical faclities for production, the installations and appurtenant service ‘facilities, those which are mobile, self-powered or self- Faculty Adviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Head: Wiliam Gan; Understudies: Carl Saranilo, kathrina Matibag— OES propelled, and those not permanently attached to the reat ‘property which are actually, directly, and exclusively used to ‘meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, ‘or necessary to its manufacturing, mining, logging, ‘commercial, industrial or agricultural purposes. (Sec. 199 fo], usc) Machinery which are of goneral purpose use including but not limited to office equipment, typewriters, telephone ‘equipment, breakable or easily damaged containers (glass or cartons}, microcomputers, facsimile machines, telex ‘machine, cash dispensers, furniture and fixtures, freezers, refrigerators, display cases or racks, frit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be considered within the definition of machinery. (Sec. 290 {0}, IRR of RA 7160) c ification of Land for Purposes of Assessment - Sec. 2186) 4. Gominercil 6. Timberland 2 ‘Raricutural 7. Special 3+ Residential 4 Minetal 5 Industrial tals Culyal and scientific purposes and used by local water districts 48 rendering essential public services in the supply and distribution of water and/or generation or transmission ofelectri¢gower. Properties Exempt from Real Property Tax (Sec. 234) 1.‘ Owfted by the REPUBLIC ofthe PLS or its poltcal * subdivisions. ‘when beneficial use has been erated tsa takable person 2. Charitable institutions, churches, parsonages, convents: appurtenant thereto, mosques, non-proft or religous cemeteries, buildings and improvements actually, dlvectly and exclusively used for eeligious, charitable or ‘edueational purposes. 3. Machinery and Equipment actually, rectly, and exclusively used by local Water districts and GOCCS engaged in the supply and distribution of water and/or generation and transmission of electric power 4. Real property owned by duly registered Cooperatives under RA 6938 5. Machinery & equlament fr pollution control and Enylronment protection ue‘TAXATION LAW REVIEWER FS ATENE Exemptions previously granted, (not falling within the above enumeration) are withdrawn. Se > Although powertess to grant RPT exemption, LGU in MM ‘can exempt the 5% ad valorem tax on idle lands. > LGUs (within and outside MM) may also grant ‘condonation which actually partake of exemption. VL. Proof of Tax Exemption: Every person by or for whom real property is dedared who shall claim the exemption shall file with the provincial, city or ‘municipal assessor within 30 days from date of declaration of teal property sufficient documentary evidence in support of such claim (Le. corporate charters, title of ownership, articles of incorporation, contracts, affidavits, etc.) Vi. Actual Use of Property 2s Basis for Assessment: 27) . i # Real property sfial be classified, valued and sssessed on the downs, and whoever uses it. Unpaid realty taxes attach to the property zie chargeable: asain person who hal use and possession oft regardless of the ome Tapes the BP on te eee ore hich wa nether the owner or the bef se fh property during the designated periods would net on! contrary to law but also unjust. (Estate of Li ws. City of Mania, GR No, 90639, Feb 21,1990) a OPERATIONS 2010 ee re basis of actual Use regardless of where located, whoever -- eee b. Additional Ad Valorem on the Lands~ not exceeding 5% of the assessed value of the property (Sec. 236) & For Public Works ~ on lands specially benefited by public works, projects or improvements funded by the LGU ‘© May be imposed even by municipalities outside MM provid ‘© Special levy shall not exceed 60% of the actual cost of such projects and improvements, Including the costs of acquiring land and such ‘other real property in connection therewith ‘not apply to lands exempt from basic real property tax and the remainder of the land had been donated to the local government unit concerned for the construction of said projects. (Sec. 240) What Are Considered as Idle Lands: (See. 237) tural fands~ More than 3 hectare if more than % of Which remain uncultivated or unimproved by the ‘owner of the property or person having legal interest therein. Not ie Lands: ‘Agricultural lands planted to permanent of. perennial crops with at least 50 trees to a hectare Lands actually used for grazing purposes. Lands — More than 1,000 sq. m. in area _hayfig legal interest fhetin, Ky VII Fundamental Principles in Assessment ot nel ene fier Se. 238 ofthe 1S idle lands may be exempt from ‘Taxes (Sec. 198) [CUANE] 1, CURRENT and fair market value isthe basis of appraisal 2. UNIFORMITY in classification in each local government Unit should be observed 3. ACTUALUSE of the property should be the basis of classification 4. Appraisai, assessment, levy and collection should NOT BE LET to any private person. 5. EQUITABLE appraisal and assessment 1K. Types of Real Property Tax 1. Basic reat property tax 2. Special tevies: Special Education Fund (SEF) ~ 1% additional reat estate tax to finance the SEF (Sec. 236) within MM. area only taxby reason of force majeure tii disturbance, natural ‘alplal anv cause which Bhiysically or legally prevents the the property or person having legal interest therein f Ftogiapome te land docdindhalamenantcateiactter ‘STEP 1 - DECLARATION OF REAL PROPERTY 1, Dectared by Owner or Administrator (Sec 202-203) ‘+ If newly acquired property — file with the assessor within 60 days from date of transfer a sworn statement containing FMV and description of property ‘+ _Ifimprovement on real property file w/in 60 days ‘upon completion or occupation (whichever is earlier) a swom statement of FMV and desc. of property —Faculty Adviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Head: Wiliam Gan; Understudies: Carl Saranillo, Kathrina Matibag— a9G ‘>>, TAXATION LAW REVIEWER O eI AL OPERATIONS 2016 ‘FOR MACHINERY 2. Declared by Provincia / City / Municipal Assessor (Sec 204) ‘© This isdone only when the person under Sec 202 refuses or fails to make the Dedaration within the prescribed time. No oath by the assessor is required. For brand new machinery: FMV is equivalent to acquisition cost Inallother cases: /= Remaining eco. life X Replacement cost Estimated eco. life ‘STEP 4: DETERMINE ASSESSED VALUE (Sec 28) NOTE (2): If fling for exemption under Sec. 206 of LGC, the person claiming exemptions must file with assessor sufficient documentary evidence to support claim within 30 days from the date of declaration of property. {the required evidence is not submitted within 30 days, the Procedure 1. takethe schedule of FMV 2. Assessed value = FMV X Assessment level 3. Tax Assessed value X Tax rate property will be listed as taxable. STEP 5: PAYMENT AND COLLECTION OF TAX NOTE (2): If property is declared for the first time, Sec. 222 of UGC states thatthe property shal be assessed for back taxes for not mare than 10 years prior to the date of initial _. assessment The taxes shal be computed on thei ‘of ‘STEP 2: LISTING OF REAL PROPERTY IN THE ROUS (See205,207) within the jurisdiction of LGU. & All declarations shall be kept and filed ils uunifogm dlassification system to be established by the provindal, ty or municipal assessor. STEP 3: APPRAISAL AND VALUATION OF REAL PROPERTY (Sec 212-214, 224-225) How to determine Fair Market Value: FOR LAND 1, Assessor of the province/city or municipality may summon the owners of the properties to be affected and may take depositions concerning the property, its ‘ownership, amount, nature and value. Assessor prepares a schedule of FMV for different classes of properties, ‘Sanggunian enacts an ordinance The schedule of FMV is published in a newspaper of generat circulation in the province, city or municipality ‘concerned or in the absence thereof, shal be posted in ‘the provincial capitol city or municipal hail places therein. WHEN: January 1 of every year (Sec 246) HOW — 2, basic real prop tax in 4 equal installments (Mar era 31, Jun 30, Sep 30, Dec 3) sea ey ove yon, ih ire icles for late payment =" ‘two percent (2%) each month on unpaid amt. Lunt the delinquent amt is paid. Provided in no case shall the total interest exceed ‘thity si (36) months i {G NOTE (2: Adyance and prompt payment “advance payment - discount not exceeding 20% fom tax (Sec 251, LGC) prompt payment -siscount not exceeding 10% of ff wnvaltex due(art 342 IRR) ity, municipal or barangay ena wenceva coutcr Sec 27 within five (5) yrs from the date they become due EF ‘within fn (10) yrs. from discovery of fraud, in case there is fraud or intent to evade Period of prescription shall be SUSPENDED when: (Sec 270, 16¢) L 2 local treasurer is legally prevented to collect tax the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect 3. the owner is out of the country or cannot be located Faculty Adviser: Atty. Marissa Cabreros, ty. Michael Dana Montero; Head: Wiliam Gan; Understudles: Carl Saranilo, Matibag— ath 1202 OPERATIONS 2010 ‘TAX REMEDIES IN. ‘TAX REMEDIES OF THE GOVERNMENT A. Administrative 1. Lien (Sec. 257, LGC) —superior to all liens, charges or encumbrances and is enforceable by administrative or 3. Distraint (Sec. 254, LGC) -with notice of delinquency posted and published. Personal property may be distrained to effect payment. B. budicial Chil Action (Sec. 266, 270, LGC) filed by the local treasurer ‘within 5 oF 10 years as provided in Sec. 270 of the LGC. Judicial action. It is extinguished only upon payment of 1EDII (E TAXPAYER taxand other expenses. A. Administrative 2. Levy (Sec. 258, LGC) 1. Protest Issuance of warrant bythe LGU weasurer (on or before or slmuttaneousy with the isituion of el action for olecton Pay the taxundr protest of detinguent tax) a a gern [ Fle witen protest with al treasure [within 30 days from Advertise'salp'or auction (within 30 days after service of rent of tar) £ :arrant) by posting and publication r a Bu | Treasurer decides within 0 dos fron recip f protest) sat ‘sale 7 a na a anied Report of sale (within 30 days after sale). Preparation of certificate of sale containing the name of the purchaser, description ofthe property, amount of delinquent tax and its interest, expenses. a — Redemption (within 1 year from date of sale) a Issuance of Final Deed to purchaser (upon the delinquent ‘taxpayers fallure to redeem) a Purchase of property by local treasurer for want of bidder in case there is no bidder forthe real property advertised or i the highest bid is insufficient to pay the RPT and other cost. +The proceeds of the sale in excess of the delinquent tax, the interest due thereon and the expenses of the sale shall be remitted to the owner of real property or person having legal interest. a ‘Appeal with the LBAA | «25 of denial or inaction of ‘the treasurer after the lapse of 60 days) a ‘Appeal with the CBAA. (within 30 days from eo ‘receipt of adverse decision f ot of LBAA) a ‘Appeal to CTA (within 30 days from receipt of adverse decision of CBAA) a ‘Appeal to SC (within 15 days from receipt of| adverse decision of CTA) —Facubty Adviser: Atty. Marissa Cabreros, Atty. Michael Dana Montero; Head: Wiliam Gan; Understudies: Carl Saraitl, wa Katheina Matibog—