ern Ta he SAN BEDA UNIVERSITY COLLEGE OF LAW Centralized Bar Operations eri RE-WEEK NOTES Taxation LawSAN BEDA LAW. CENTRALIZED BAR OPERATIONS 2019 EXECUTIVE COMMITTEE — Over-all Chairperson Chairperson for Academics Chairperson for Hotel Operations Vice Chairperson for Secretartat Vice Chairperson for Operations Vice Chairperson for Finance Vice Chairperson for Audit Vice Chairperson for EDP Vice Chairperson for Logistics Vice Chairperson for Membership Mary Cyriell C. Sumanqui Erica Mae C. Vista Ben Rei E. Barbero Jhelsea Louise B. Dimaano Justin M. Yambao Ma. Angelica B. De Leon Arra Olmaya J. Badangan Jordan N. Chavez Hanz Darry! D.Tin Dohn Alfred E. Aquilizan SUBJECT COMMITTEE Subject Chair for Political Law Subject Chair for Labor Law Subject Chair for Civil Law Subject Chair for Taxation Law Subject Chair for Mercantile Law Subject Chair for Criminal Law Subject Chair for Remedial Law Subject Chair for Legal Ethics Cherish Kim B. Ferrer Kristina D. Cabugao Ma. Cristina D. Arroyo Maria Carissa C. Guinto Dentzen S. Villegas Maria Regina C. Gameng Raymond F. Ramos Rhev Xandra Acuiia LAYOUT:AND:CONTENT EDITORS - Roger P. Cuaresma Gabrielle Anne S. Endona Joelle Mae J. Garcia Micah Regina A. Gonzales Camille Victoria D. Dela Cruz Jose Ronilo V. Ditching Jr. Paulo 0. Hernandez ZenniaS. Turrecha Nestor J. Porlucas, Jr. - SAN BEDA COLLEGE OF LAW... OPN M Eso UR KO), amet Dean Vice Dean Prefect of Student Affairs Administrative Officer Legal Aid Bureau Director Atty. Marciano G. Delson Atty. Risel G. Castillo-Taleon Atty. Adonis V. Gabriel Atty. Francesca Lourdes M. Sefiga Atty. Peter-Joey B. Usita 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS CORE GROUP Mary Camille As Casio, Jonna Garcia Surah . Barcens Fdgar Pale G. Ga Jose Ronlo V- Ditching, Camille Vitoria la Cruz, Paulo O. Hernandez, Nestor J. Porlucas, Jr, Zennia S, Turrecha, Arcturus Viktor R. Palos, Jezryl Blas P. ee ‘Malto, Erin T, Galvez, Marion Patricia L. Rodriguez, Christian Ernest C. Biagtan, Elizabeth Marino, Kenneth Aldwin M ‘Quejada, Aira Marielle Geronimo, Ma. Consolada V. Ben, Raph Kevin L. Santos, Christine Grace 5, Panahon, Cheyenne Hope Dumlao, Corina R. Tampus, Marielle Cielo B. Belgira, Jericho L. Jamig, Katherine F. Dimayacyac, Lex Angelo A. Rosario, ‘Alissa Marie DC. Delos Santos, Angele C. Inovejas, Antonio Jun-Jun C. Manaligod IV, Aifa Regine G. Pangilinan, Roger P. Cuaresma, Gabrielle Anne S.Endona, Joelle Mae J. Garcia, Micah Regina A. Gonzales, Cayenne Mae G. Teodoro, Arvy Keith, Chung, Lorenzo Thaddeus Ruel D. Galandines, Erie Winson F. Cea, Mark Benedict 8, Francisco, Paola Beateiz A. Escobar, Ronalyn A. Gacula, Juan Ifigo S, Miguel, Christopher Angelo Y. VaqullarMARIA CARISSA C. GUINTO Subject Chair SHENA GLADDYS P. BAYLON Assistant Subject Chair ANGELICA MARIE C. MANUEL Subject Electronic Data Processing eel ON ia NE General Principles REINA G. FABREGAS Income Tax ATHENAI FRANCES R. QUINTON CARLOTA N. VILLAROMAN Transfer Tax APOLLO JULIUS S. STA MARIA Value-Added Tax JELLYN C. CLEMENTE Tax Administration, Enforcement, MIGUIEL A. DE ALVA and Remedies Real Property and Local Tax ATHENAI FRANCES R. QUINTON PAESI01 =F) eo ll) LIANNE MAE D. ENRIQUEZ, JEWEL JOICE G. DAYTIA ALYSSA R. ZARRAGA. MIKKAELA S. MONES “TAGMA ESTHER V. GARABILES KATRINA ANN S. PRADO MAREANE MABEL A. CHAVEZ i : Oise Justice JAPAR B. DIMAAMPAO (On Leave) Atty. NICASIO C. CABANEIRO, CPA Atty. DANTE 0. DELA CRUZ, CPASoak Cole OF LAW CENTHALEED OME TABLE OF CONTENTS Poge Number 1. GENERAL PRINCIPLES A. Power of Taxation .... es 1 B. Inherent and Constitutional Limita ion 2 C. Requisites of a Valid Tax ear 4 D. Tax as Distinguished fro Forms of Exactior 5 E. Kinds of Taxe 6 F. Doctrines in T: 6 Ml. NATIONAL TAXATION A. Taxing Authority... 8 B. Income Tax... 18 C. Transfer Taxes .... 29 D. Value-Added Tax .. ae 33 E. Tax Remedies under the NIRC. 7 F. Taxpayer's Remedies... ccc, 45 G. Government Remedies (National) .. 48 MW. LOCAL TAXATION A. Local Government Taxation ...... 49 8. Real Property Taxation ... 54 IV. JUDICIAL REMEDIES . A. Court of Tax Appeal 58 BL Procedures een 61 THIS IS THE INTELLECTUAL PROPERTY OF THE SAN BEDA UNIVERSITY COLLEGE OF LAW CENTRALIZED BAR OPERATIONS, THE UNAUTHORIZED COPYING, REPRODUCTION, MODIFICATION OR DISTRIBUTION OF ANY OF THE CONTENTS OF THIS BOOK IS STRICTLY PROHIBITED. iv [2019 San BEDA LAW CENTRAL ED BAR OPERATIONS,NATURE AND CHARACTERISTICS, 1, Due to rampant film piracy, P.D. No. 1987 was enacted creating a regulatory board vested with powers to regulate and supervise the videogram industry. The decree also included an imposition of a 30% tax (on gross receipts payable to the locai government. VT, a resident citizen, on his own behalf and Purportedly on behalf of all other operators adversely affected, assailed the constitutionality of the said law contending that the tax.imposed is harsh, confiscatory, oppressive, andlor in unlawful restraint of trade in violation of the due process clause of the Constitution. Decide. P.D. No. 1987 is constitutional. A tax does not cease to be valid merely because it regulates, discourages, oF even definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and oo Searching in extent, that the courts scarcely venture to dectare that itis subject fo any restrictions whatever, ‘except such as those rest in the discretion of the authority which exercises it "The subject tax imposed is not only a regulatory but also a revenue measure. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry because of the rampant fim piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. Thus, P.D. No. 1987 is constitutional (Tio v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987). 2 ABC Co. assails tho imposition of the minimum corporate income tax (MCIT) under Section 27(E) of | RA. No. 8424. It claims that the MCIT is unconstitutional because it is highly oppressive, arbitrary, fonfiscatory and amounts to deprivation of property without due process of law. it explains that gross income, as defined under said provision, only considers the cost of goods sold and other anect expenses; whereas other major expenditures, such as administrative and interest expenses are excluded. Thus, pegging the tax base of the MCIT to a corporation's gross income ls tantamount tora sPmnsaation of capital because gross income, unlike net income, is not realized gain. ts the imposition ‘of MCIT violative of the due process clause? x re arposttion of MCIT is not viclative ofthe die process clause, The due process clause may properly be invoked to invalidate, in appropriate cases, a revenue measure or imposition of laxes when it amouee te Gonfiscation of property. An income tax is arbitraty and éonfiscatory itt taxes capital because capital not cet cpomever, the MCIT is not a tax on capital as shown by the fact that it is arrived at by deducting tne Capital spent by a corporation in the sale of its goods, ie. the cost of goods and other direct expenses Tram Fe solani: Siuatly, the capital is not being taxed. Not being arbitrary and eonfiscatory, the MCIT is therefore _ Rolviclative of the due process clause (Chamber of Real Estate and Builders Associations, Inc. v. Execubuy Secretary, G.R. No. 160756, March 9, 2010). Note: Although there is no express prohibition in the LGC, injunctions enjoining the collection of local taxes are frowned upon. Courts, therefore, should exercise extreme caution in issuing such injunctions, Distinguished from Police Power and Eminent Domain 4 AU Foundation (AU), a non-stock, non-profit educational foundation, filed an application for a building Permit for the construction of an 11-storey building of its main campus located at Angeles Cine Cqnpanga. The City Building Official issued a Building Permit Fee Assessment and y Lost?) Suearance Foe to AU. AU paid the fees under protest claiming that itis exempt from the payment atceat because it is exempt from paying taxes under the Local Government Code and under Sos, 8 of Km 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS 1 4ES ea ig No. 6055. AU argued that since the charges bear no relation to the cost of inspection and are payable Into the general revenue of the state, such charges constitute a tax from which AU should be exempted. The Gity of Angeles, on the other hand, asserted that the disputed assessments are regulatory in nature and which are not taxes from which AU is exempt. Is AU liable for the Building Permit and Local Clearance Fees? 20719 PRE-WEEK:-NOT SAN BeoA cousce OFLA CORACEB Nes, AU is lable. A building permit fee is a regulatory imposition highlighted by the fact that in processing an application for a building permit, the Building Official shall see to it that the applicant satisfies and conforma with approved standard requirements on zoning and land use, trvlations implementing the National Building Code. Since building permit fees are not charges on property, Foy, afe ot impositions from which AU is exempt. Hence, AU is liable to pay such fees (Angeles University Foundation v. City of Angeles, G.R. No, 189999, June 27, 2012) Distinguished from Regulation as a Form of Police Power 5. 2120 Distinguish tax from regulation as a form of police power. In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of the inblemented measure. f the purpose is primarily to raise revenue, then it will be deemed a tax even though Fie yesure Fesults in some form of regulation. On the other hand. if the purpase is primarly to reguiate, thon i's Seemed a requlation and an exercise of the police power of the stale, even though inetdentaly, revenue 'S generated (Angolos University Foundation v. City of Angotes, G.R. No. 189999, June 27, 2012), “8. Inherent and Constitutional Limitations of Taxation ®*: INHERENT LIMITATIONS What are the inherent limitations on taxation? Explain. (2009 Bar) ‘The inherent limitations on taxation are: Taxes must be exacted for a public purpose. This does not only pertain to those purposes which eeeraitonally viewed es essentially goverment functions, such as building roads and delivery of Prue ces, bul also includes those purposes designed to promote social justice. (Plantors Products, Inc. v. Fertiphil Corp., G.R. No. 166006, March 14, 2008}, International comity. Under this principle a state must recognize the generally accepted tenets’of undertaken, in that capacity (VITUG & ACOSTA, Tax Law, supra at 11): © Non-delegability of the taxing power. As a general rule, the power to tax is exclusively vested in ihe losislative body (DIMAAMPAO, Tax Principles and Remedies, supra at 62). This is embodied in may ant beacim “Potestas Delegata Non Delegari Potost which means, what has been delegated Bur a duty teen gated, This is based on the ethical principle thai a delegated power isnot only aright Puta duty that the delegate must perform through the instrumentality of his own judgment ood oo, Preah, the intervening mind of another (Quezon City PTCA Federation, Ine. v. Doportnent or Education, G.R. No. 188720, February 23, 2016). Government entities, agencies and instrumentalities are generally exempt from taxation, Crratace. it will rooult in the absurd situation of the government taking mony from cine packer ons Pere mn Gnotner (Board of Assessment Appeals of Laguna v. Court of Tax Appoals, GR No L 18125, May 31, 1963), © Teraterality or Situs. The situs of taxation isthe place or authority that has the right to impose and (Commiarieeraxalion may be exercised only within the territorial jurisdiction of the taxing auth (Commissioner of Intermal Revenue v. Marubeni Corp,, G.R. No. 137377, Decomber 18, 2061) Alsport Uneioe n ipternational Airport (MCIAA) operates the Mactan International Airport and Lahug fo poven, naar its charter, RLA. No. 6958, it was exempted from real property taxes, The Giey oh aey doomed waisassed it for real property tax on the theory that the tax exemption of the Melee co, acenitacten Cebu International Aiport Authority v. City of Lapurtapu (G.R. No. 181756, June 15, 2018), the pabreme Court held that MCIAA is not a government-owned or controlled Corporation cole eee Ss (13) of the Introductory Provisions of the Administrative Code because itis not organized 8s a stock eence eo OS SAN BEDA LAW CENTRALIZED BAR OPERATIONS10. TAXATI ONTAWT SopPoration, Neither is MCIAA a goveriment-owned of'Géntrolled corporation under Sec. 16, Article XI of the 4987 Constitution because MCIAA is not required to meet the test of economie viablily. MCIAA ies CBK Power is a domestic li several foreign banks, for It remitted interest payments for a period of 2 years. It allegedly Paitheld final taxes from said payments, and paid the same, based on the following rates: (a) 1650 fer Mate Belgium, Fortis-Nethertands, and Raiffesen Bank; and (b) 20% for Industrial Bank of Japan aed Mizuho Bank: However, according to CBK Power, under the relevant tax treaties betecen the Ebitippines and the respective countries in which each of the banks is a resident, the interest Income derived by the banks are subject only to a proferential tax rate of 10%. Accordingly, GBK Posoy hon Sra rec ratund of its excess final withholding taxes allegedly and erroneously withheld and paid. The Seaeraist Division granted the claim for refund, but upon motion for reconsideration, amended fee 3°, ihe, Obigation to comply with a tax treaty must take precedence over the objective of RM.O. No. 1 Sr reat ime Honored Intemational principle of pacta sunt servanda demands tho performance in goos va of treaty obligations on the treaties has negative impli the consequences sought may be remedied through With the BIR becomes moot in refund tase SEK Power could not have applied for a tax treaty relief 16 days prior to its payment of the final withholding {ar on.ine interest paid to its tenders precisely because it etroneousty paid said taxon ine beets ore regular Bones peseribed by the NIRC, and not on the preferential tax rate provided under the diffecnt se nee (cBK Portas. Bormany Limited v. Commissioner of Internal Revenue, GR. Nos. 195983-64, lsneny ng 2015, Porlas-Bernabe, J). SoM Gort @ registered VAT taxpayer, is a Philippine Branch of LM Inc., a foreign corporation. Itis a OF LINN rte LMM Inc. - Hongkong Branch and is engaged primarily in facilitating tee ssovee oe LAN Com. is entitled to refund because the services rendered are zero-rated. For the supply of service fat ardent the law merely requires that: (1) The service be performed in the Philypines ree ee saceees gy of the categories in Sec. 102 (b) of the Tax Code: and (3) tbe paid ivaceeneatne foreign currency condition Iden arcance with BSP rules and regulations. The law nelther makes a qualfeatia nee ee seretien in determining the tax situs of the zero-rated service. The place where te aon rendered seeemines the jurisdiction to impose VAT. The place of payment is immatsral noch hess oe place where Re ouput of the service will be further or ultimately used: Here, the sormecs renders by UW Corp. are: (Commeciones eressfuly completed in the Philippines. Thus, suich services are subject seq ioe VAT Spogymissioner of itomal Revenue v. American Express International ne (Pha), Gn he 152609, June 29, 2008). CONSTITUTIONAL LIMITATIONS 2019 SAN BEDA LAW CENTRALZED BAR OPERATIONS | 31, 12. 2019 PRE-WEEKWNOTES However, R.A. No. 10701 exempts owners of public utility vehicles and the Government from the Coverage of the 5% transport tax. A group of private vehicle owners sue on the ground that the lav te unconstitutional for contravening the Equal Protection Clause of the Constitution, Rule on the constitutionality and validity of R.A. No. 10701. (2017 Bar) R.A No. 10701 is valid and constitutional. Uniformity of taxation, tke the kindred concept of equal Protection, merely requires that all subjects or objects of taxation, similarly situated, are to be troated alike both inprivleges and labiities (British American Tobacco v. Camacho, G.R. No. 163583, April 15, 2009). However, uniformity does not forfend classification as long as: the standards used therefor are substantial and ot arbitrary: the categorization is germane to achiove the legislative purpose; the law apples, al things being sees so,bom Present and future conditions; and the classification applies equally well to all those belonging to the same class (Tan v. Del Rosario, Jr., G.R. No. 109289, October 9, 1984) A levy of lax is not unconstitutional because itis not intrinsically equal and uniform in its operation. The Co No Tenses aot Prohibit classification for purposes of taxation (British American Tobacco v. Camacho, GB. No. 163583, April 15, 2009). Here, the requirements of a valid classification as enumerated above ha ace met and those which are singled out are a class In themselves, hence, thore is no violation of two Cece Protection Clause of the Constitution. San Juan University is a non-stock, non Saggean City on which its three 2-storey school buildings stood. Two of the bulldings are devoted te Feaesiogrts, laboratories, a canteen, a bookstore and administrative offices. ‘The third bulldiog DOT, Sok ee Teery for student athletes who are granted scholarships for a given academic yeor, Ia Be wernat Juan University eamed income from tuition fees and from leasing a portion of te areiens Giractly end orenasignaices of food, books, and school supplies. Such eamed income was actosly, directly and exclusively used for educational purposes. Gan fhe City Treasurer ef Catoocan City collect real property taxes on the fand and building of ‘San Juan University? Explain your answer, © is the income earned by San Juan University for the year 2017 subject to income tax? Explain your answer. & Yes, but only on the leased portion Article XIV, Sec. 4 (3) of the 1987 Constitution provides that the tro cas seemrstock, non-profit educational inttution shall be exempt from taxes and duties ony f ihe. came are used actually, directly, and exclusively for educational purposes. The teat of exercoton for taxation is the use of the property for purposes mentioned in the Constiution The loovod Fenty the, ullding may be subject to real property tax since such lease is for commercial purpecee, Frac eine asset from the property tax exemption granted under the Constitution (CIR v. Doce vaale University, Ine. G.R. Nos. 196596, 196841, 198941, November 9, 2016). Also, ae hold ig ‘fora Valley College, ine. v. Aquino (G.R. No. L-39086, June 15, 1986), the commercin vac of Fo aeoney fe not incidental to and reasonably necessary for the accomplishment of the main purboce ot tae which i to educate is students. Hence, only the leased portion is subjoct to real propery tax. be, because the revenues of San Juan University are used actualy, directly, and exclusively for Aausational purposes ae provided under Article XIV, Sec. 4 (3) ofthe 1987 Constitution. The mer ratn Cresergnng the tax exemption under Article XIV, Séc, 4 (3) are as follows: (1) That the toxpover fare Teg ke Gassification non-stock, non-profit educational institution; and (2) That the incone i eocks {phe exempted from taxation is used actually, directly and exclusively for educational purpose trots nec pay eausites aro met, the revenues may be exempl from tax (CIRv. De La Salle University, Inc., supra) SESS CAREGuisites ora ValaTaR What are the requisites of a valid tax? The following are the requisites of a valid tax: = Ore cress, Person oF property taxed be within the jurisdiction of the taxing authority (Reagan v, GIR, G.R. No. L-26379, December 27, 1969): © Tpatthe assessment and collection of certain kinds of taxes guarantee agains injustice to indviduals Trot ibe toy roving notice and opportunity for hearing (VITUG & ACOSTA, Tax Lav, supra str © epaane £0". Public purpose (Pascual v. Secretary of Public Works and Communicator Gi te £-10408, December 29, 1960): &- Thal the rule of taxation be uniform (CONST. Art. VI, Sec. 28, Par. (1)); and 4 | 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS— TAXATIONIPAWSOTRS ae That it must not impinge on the inherent and constitutional limitations on the power of taxation (Basco ¥. Philippine Amusements and Gaming Corp., G.R. No. 91649, May 14, 1991). 13. The Quezon City (QC) Council enacted the Socialized Housing Tax (SHT) of QC Ordinance. It provides that a special assessment equivalent to 0.5% on the assessed value of land in excess of P100,000 shall be collected by the City Treasurer which shall accrue to the Socialized Housing Programs of the QC. Government. On the other hand, Ordinance No. SP-2235 was likewise enacted for the collection of garbage fees on residential properties which shall be deposited solely and exclusively in an earmarked Special account under the general fund to be utilized for garbage collections. X, a QC property owner, questions the validity of the said ordinances. He argues that the SHT is a penalty imposed on real Property owners because it burdens them with expenses to provide funds for the housing of informal settlers, and that it is a class legistation since it favors the latter who occupy properties which is not their own and pay no taxes. X likewise contends that the imposition of garbage feo is tantamount to double taxation because garbage collection is a basic and essential public service that should be paid out from property tax, business tax, transfer tax, amusement tax, community tax certificate, other taxes, and the IRA of the QC Government. a. Rule on the validity of the Socialized Housing Tax imposed by QC Couns b. Is X's argument that garbage fee imposed is tantamount to double taxation and in effect invalid correct? a. The Socialized Housing Tax is valid. Cities are allowed to exercise such other powers and discharge such other functions and responsibilities as are necessary, appropriate, or incidental to efficient and effective provision of the basic services and faciliies. The levy is primarily in the exercise of the police Power for the general welfare of the entire city. i is greatly imbued with public inlorest. Notably, the Public purpose of a tax may legally exist even if the motive which impelled the legisiature to impose. the tax was {0 favor one over another. Inequities which result from a singling out of one particular Glass for taxation or exemption infringe no constitutional limitation (Jose Forrer Jr. v. City Mayor Herbert Bautista-et. al,.G-R. No. 210551, June 30, 2015). . b._ No. X's arguments incorrect. The garbage fee is likewise valid. A municipality has an affirmative duty’ to supervise and control the collection of garbage within ils corporate limits. The LGC specifically @ssigns the responsibilty of regulation’ and oversight of solid waste to local governing bodies Necessarily, LGUs are statutorily sanctioned to impose and collect such reasonable fees and charges for services rendered. “Charges” refer to pecuniary liability, as rents or fees against persons or Property, while “Fee" means a charge fixed by law or ordinance for the regulation or inspection of a business or activity. The fee imposed for garbage collections under Ordinance No. SP-2235 is a charge fixed for the regulation of an activity. Certainly, as opposed to Xs opinion, the garbage fee is Not a tax. Hence, not being a tax, the contention that the garbage fee under Ordinance No. $7°-2235 violates the rute on double taxation must necessarily fail (Jose Ferrer Jr. v. City Mayor Herbert Bautiste: et. al, supra) 14. SM Communications inc. (SM) constructed a tefecommu junsdiction of Municipality of Malvar, Batangas. The Municipality passed Ordinance No. 18 to regulate the establishment of “special projects” within the municipality or removal of the same, when found te be dangerous, defective or otherwise hazardous to the welfare of the inhabitants, and to address the Reresoen “environmental depredation” to be brought about by these “special projects” to the Municipality. Pursuant to these objectives, the Municipality imposed fees on various structures, which giucled telecommunications towers of SM. SM received from the Permit and Licensing Division of the ations tower within the territorial ‘SM is incorrect. Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special projects, the fees imposed in Ordinance No. 18 are primarily regulatory in nature md incidental rena. While the fees may contribute to the revenues of the Municipal, the effect is merely i2cicontal the generation of revenue is the primary purpose and regulation is merely incidontal the imposition 55 4 lat but i regulation is the primary purpose, the fact that incidentally revenue is also obtained dees het Fae ane imposition a tax (Smart Communications, Ine. v. Municipality of Malvar, Batangas, GR. No. 204425, February 18, 2014), 15: Section 1 of the Market Code of Quezon City provides that “privately owned and operated publ Farkets shall pay 10% of the gross receipts from stall rentals to the City as “supervision tec™, Furthermore, Section 4 provides that in case of consistent failure to pay the said percentage tax for 3 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 52019 PRE=W! ERKINOTES' : ‘i ofa couese OF ta CENTRALIED Consecutive months, the City shall, among others, revoke the permit of the privately-owned market to Operate. Three years later, said Market Code was amended by an Ordinanee which imposed a 9% tac Sb ,sross recelpts on rentals or lease of space in privately-owned public markets in Quezon City, PD ‘Marke ground that the said “supervision fe Epon income which the Council may not impose, the same being expressly prohibited by Sec. 433 (a Stun’ Local Government Gode, and which states that the exercise of the taxing powers of provinces, sities, municipalities, and barangays shall not extend to the levy of income taxes. le the tax imposed by Quezon City on gross receipts of stall rentals an income tax? No. The 5% tax imposed by the questioned ordinance is a license tax or fee for the regulation of the business in which PD Corp. is engaged. To be considered a license fee, the ti ‘occupation or activity that so engages the publ Promotion of such public interest; the imposition must also bear a reasonable relation to the probable expences espgulation, taking into account not only the costs of direct regulation but also its incidental consequences ae we ps pardinaly, a charge of a fixed sum which bears no relation at alo the cost of inspocion and regulation may be held to be a tax rather than an exercise of the police power. tere, the gross receipts from stall rentals have been used only as a basis for computing the fees or taxes Gus to cover the latter's administrative expenses. Therefore, the use of the gross amount of sil rota oe pasis for determining the collectible amount of license tax! supervision fee does not by isl, upon tha eee Cang convert oF fender the license tax into a prohibited city tax on income (Progressive Development Cons Quezon City, G.R. No. L-36081, April 24, 1989). 16. Fo an cee celled rule in taxation that @ VAT is-not a property tax but is an excise tax, Generally the erlcnmena Se 12x fs one that is imposed on the performance of an ac, the engaging in an occupation we trmaoyment ofa privilege. A tax upon property because of its ownership isa direct tm, whicioss oe cy Use Of inparee cease ofits use is an excise duty. The VAT being imposed upon Meralco ls an impost on ia Satted eed, amticles and is notin the nature ofa direct tax on the atisies themselves. Very; Morea ces ntlted tothe refund (Manila Electic Co. v. Vera, G.R. Nos. 20987 and 23847, October 22, 1676) 17. Pursuant © Sec. 11 of the "Host Agreement” between the United Nations and the Philippine Propertion shal eas mevided that the World Health Organization (WHO), “its asets, Income andeutee (Ce) was nial, ea) exempt from all direct and indirect taxes.” Precision Construction Comore, FR eas hited to construct the WHO Modical Center in Manila. Upon complation of te tea BIR assessed a 12% VAT on the gross receipts of PCC derive Explain. (2016 Bar) Noite BIR's contention is incorrect. Since World Health Organization (WH), the contractee, is exempt Goer Skeet and indirect taxos pursuant to an international agreement where the Phipps re signatory, the antes! intents rac axes should mean thatthe entiy of person exempt is the contactor eel Son ese bbe shifted to the contractee CONSTRUCTION AND. INTERPRETATION OF TAX. LAWS, RULES, AND REGULATIONS, 18. Ballippine Bank of Communications (PBCom) filed its quarterly income tax returns for the first and Second quarters of 1985, reported profits, and paid the total income tax of PG 016958 Me roe 1986, 6 (2019 SAN BED LAW CENTRALIZED BAR OPERATIONS19, 20. TAXATION'LAW! seinen coe num rune uonton oO Broom earned rental income from its leased properties resulting in remittance by the lessees to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. Thereafter, it filed far tax credit for overpayment of taxes in the first and second quarters of 1985, and refund of creditabie faxes withheld by their lessees for property rentals in 1985 and 1986. On November 18, 1968, and pending investigation by the Commissioner of Internal Revenue, PBCom instituted a Petition fer Review with tho CTA. The GTA outright dismissed the same on the ground that it was filed beyond the {wo year reglementary period provided by law. PBCom argued that it was in good faith wher it relied on the assurances of the BIR in R.M.C. No. 7-85 which provided that the prescriptive period for the refunditax credit of excess quarterly income tax payments Is not two years but ton. Was PBCon correct? Explai No, PBCom was incorrect. The issuance of R.M.C. No. 7-85 created a clear inconsistency with the Person of Sec. 220 of 1977 NIRC. in so doing, the BIR did not simply interpret the law: rather i legislated Guidelines contrary to the statute passed by Congress. Revenue memorandum-circulars are considered administrative rulings which are issued from time to time by the Commissioner of internal Revenue. it iS widely accepted that the interpretation placed upon a statute by the executive officers, whose duty ts to Enforce it is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive anid wi pe Sgnored if judicially found to be erroneous. Thus, PEComn was incorrect in relying on R.M.C. No. 7-85, whch Sor sgoy oonsistent with the NIRC (Philippine Bank of Communications v. CIR, GR. No. 112024, Jonuary 28, 1999). PROSPECTIVITY OF TAX LAWS, 5.0 Ne: 273 was issued in 1987 amending the NIRC by imposing VAT en the sale of goods and seine: Before its effectivity, PhilCare, a health maintenance organization, inquired from the BIR weiner the services it provides are exempt from the payment of the said VAT. In 4888. the CIR resuen 110g stating that PhilCare is exempt from the VAT coverage. However, in 1999, the BIR, contrary to ie previous statement regarding the exemption, sent PhilCare a Preliminary Assessment Notice fe fee engy ts Payment of the VAT for taxable years 1986 and 1997, When the case reached the CTR, the court declared the CIR ruling coverage null and void. Shouid the revocation of the ua ruling be given retroactive effect? Nei S06, 246 ofthe NIRC. as amended, any revocation, modification or reversal f ritings, circulars, Cxpae reaulations promulgated by the CIR shail have no rettoactivo applicalion i it would mejoolee wep Sanaver, une exceptions to this rule, however, are as follows: (1) where the taxpayer deliberately nicer ee Sonar ay acts from his return or in any document required of him by the BIR: (2) whore the hace winore the ee etnered by the BIR are materially afferent from the facts on which the ruling is based, 6) Where the taxpayer acted in bad faith, ce mere sno showing that PhilCare deliberately committed mistakes or omitted material facts when it Sich sume ling from the BIR: PhilCare's failure to deseribe tall ag.a health maintenance sree ter the cares mnect fo VAT. fs not tantamount to bad faith. It believed in good faith that was VAT exert hace, Tonnes Aulng should nat be given retroactive effect (CIR v. Philppine Healt Care Proveure me atte ne 168129, April 24, 2007). IMPRESCRIPTIBILITY OF TAXES AS Corp. filed an income tax return but did not file a return cove income. Thus, the Commi: 409% Feturns of their improperly accums should not apply. Decide, sre, Commissioner of Intemal Revenue is correct. itis well settled that imitations upon the right of the government to assess and collect taxes will not be presumed in the absones of 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 721. 22. 2019 PRE-WEEKINOTE! 21 TOA cout OF vw CENTRAL ZED han OPERATIONS 455 TR No. The argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city it being widely recognized that there is nothing inherently obnoxious m tha poi pcrent that license fees or taxes be exacted with respect to the same occupation, cating or activily by oth the state and the political subdivisions thereof (Punsalan v. Municipal Board of City of Manila, GF Ne irab17, May 26, 1954). Hence, X's contention that occupation tax imposed by the city should bo prohibted ie incorrect. Fe dehnson. # domestic corporation, entered into a license agreement with USA Johnson, a non- Tegident foreign corporation. PH Johnson was granted the right to use the trademark, patents aed technology owned by the latter, including the right to manufacture, package and dictribete the See OP fo It, Pursuant to the most favored nation clause of the RP-US Tax Treaty in relation to the RP.West Germany Tax Treaty. a. Whats the most favored nation clause? > EER Johnson entitled to the most favored nation tax rate of 10% on royalties as provided in the RP-US Tax Treaty, in rotation to the RP-West Germany Tax Treaty? ¢. What is international juridical double taxation? d. How does a tax treaty eliminate double taxation? TONS23. 24, 25. TAXATION'LAW: li, The second method applies whenever the state of source is given a full or limited right to tax together with the state of residence. Here, the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation. There are two methods of relief 1) Exemption method - the income or capital which is taxable in the state of source or silus is exempted in the state of residence. 2) Credit method - the income or capital is taxed in the state of source and in the state of ‘esidence, but the tax paid in the former is credited against the tax levied in the latter (Commissioner of internal Revenue v. S.C. Johnson and Son, supra) Pursuant to the provisions of the Local Government Code (LGC), the Sangguniang Panlalawigan of Bulacan passed an Ordinance imposing a 10% tax on the fair market value of stones, sand, gravel, earth, and other quarry resources extracted from public lands and public waters within its territorial jurisdiction. in accordance thereto, the Provincial Treasurer of Bulacan assessed RC Corp. 2,524,692.13 of tax for extracting limestone, shale and silica from several parcels of private land in the province. RC Corp. paid the said tax under protest, contending that National internal Revenue Code (NIRC) already imposed tax on the same subject. Hence, assessment made by the Provincial Treasurer on the same subject will constitute double taxation and should be prohibited. Is the contention of RC Corp. correct? ‘Yes. The NIRC levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources from private land. as the same are already taxed under NIRC. The LGC, however, empowers Provinces to tax only those stones, sand, gravel. earth and other quarry resources extracted from public lands (Province of Bulacan v. CA, G.R. No. 126292, November 27, 1998). Hence, RC Corp. is correct that tax Imposed by the province in the extractions from private land should be prohibited. ESCAPE FROM TAXATION. FAG, Inc. is corporation engaged in the manufacture and sate of oxygen and acetylene gases. During the period from June 2, 2018 to June 30, 2019, it made various sales of its products to the National Power Corporation (NPC) and to the Voice of America (VOA), on account of which, the Commission of Internal Revenue assessed and demanded from PAC, Inc. the payment of P12,910.60. The corporal donied liabil VOA are exempt from taxation, and that ity thus given would be impaired by the imposition of a tax on sales made to it because while the tax Ie Paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former. ls the contention correct? 7 No. The tax imposed on the sales made by PAC, Inc. is a tax on the manufacturer or producer and not a tax on the purchaser. It may indeed be that the economic burden of the tax finally falls on the purchaser. when, it does. the tax becomes a part of the price which the purchaser must pay. Itdoes not matter that an additional Amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining {axable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is stil the same, namely, that tho purchaser does net ay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get-the goods and for nothing eise. Accordingly, its levy Cn the sales made to tax-exempt entities like the NPC is permissible (Phil. Acetylene Inc v. Commissioner of Internal Revenue, G.R. No, L-19707, August 17, 1967). HTTG Inc. is a corporation engaged in the importation of textiles from abroad. It entered into an arrangement with Pan-Asiatic Commercial, its sister corporation, whereby the latter withdraws the Imported goods from Customs, and pays, in the name of HTC inc., the corresponding advance soles tax under the Tax Code. Thereafter, the Collector of Internal Revenue assessed against HTTC Ine, deficiency sales taxes and surcharges in the aggregate sum of P89,123.59 including a penalty of 50% on the amount of deficiency sales taxes Imposed. HTTC Inc. questions this assessment on the ground that the importation papers were placed in its name only for purposes of accommodation and that it Was not in a financial position'to make the subject importations. Is the imposition of the penalty Justified? Explain. NNo, itis not justified. Its a settled principle that a taxpayer may diminish his liability by any means which the law permits. An attempt to minimize one’s tax does not necessarily constitute fraud. The intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence ‘amounting to more than mere preponderance, and cannot, be justified by mere speculation, But as far as the {ight of the government to collect the taxes is concemed, HTTG Inc. was the real importer, and hence must be the one to shoulder the tax burden. Therefore, in the absence of fraud, the imposition of a penalty on the amount of taxes imposed is unwarranted (Heng Tong Textiles Co., Inc. v. Cammissioner of Intemal Recon, GR. No, L-19737, August 26, 1968) 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 926. 2. 28, 2019 PRE-WEEK ‘NOTES "i0 Bibs COUEGE OF LAW CENTRALIZED Ba OPERATIONS 2018" {In 1989, Cl Corp. authorized X, its President and owner of 99.991% of ts issued and outstanding capital stock, to sell the Cl Building and land on which the building stands for an amount not less than P90 million. Later, X sold the properties to Y for P100 million, who in turn, sold the same to Z Inc. for P200 inillion. For the sale to Z Inc., ¥ paid capital gains tax in the amount of P10 million. Subsequently, Cl Corp. filed its corporate annual income tax return declaring its gain from the sale of said properties in the amount of P75,728.021, and paying P26,341,207 for its net taxable income of P75,987 725, Betore X died, he sold his entire shares of stocks in Cl Corp. to B for P12.5 million. Years after his death, the Estate of X received a Notice of Assessment for deficiency income tax for the year 1989 in the amount of P79,099,099.22. The estate filed a protest. The Commissioner however, dismissed the same, stating that a fraudulent scheme was deliberately perpetuated by the Cl Corp. which was wholly owned and Controlled by X, by covering up the additional gain of P100 million, resulting in evasion of the higher corporate income tax rate of 35%. Moreover, it was discovered that prior to the purported sale of the Properties to Y, Cl Corp. received P40 million from Z ln, ind that another P40 million Was debited and reflected in Z Inc.'s trial balance as “Other-Inv.-Cl Bldg.” Was there tax evasion? Explain, Yes, Tax evasion connotes the integration of three factors: (1) the end to be achieved, 1e., the payment of less than that known by the taxpayer lo be legally due, or the non-payment of tax whon itis shown thet fax'is due; (2) an accompanying state of mind which is described as being “evil” in "bad faith." “willful” oF PCeliberate and not accidentat’; and (3) a course of action or failure of action which is unlawful. The three itormediany transfer was prompted only by the desire to mitigate tax lables and no! by @ business purpose (Commissioner of intemal Revenue v. Estate of Benigno P. Toda, Jt, G.R. No. 147168, Septomber 14, 2094) EXEMPTION FROM TAXATION Be uke’s Medical Center Hospital is organized as a non-stock and non-profit corporation. It accepts Poth paying and non-paying patients. The BIR assessed St. Luke's Medical Center for deficiency tance for Income tax, VAT, and withholding tax in 2018. The BIR claimed that St. Luke's should be Neola tee icome tax at a preferential rate-of 10% as provided fer by Section 27(B} of the NIRC. The BIR alse Claimed that the hospital was actually operating for profit in 2018 because only 13% of its revenues Game {rom charitable purposes. In addition, the hospital's board of trustees, officers and employese iectly benefit from its profits and assets. On the other hand, the hospital maintained that Ite oso, Fock and non-profit institution organized for purposes of charity and social welfare and thus, exmpt fron income tax under Section 30 (E) and (H) of the NIRC. It argued that the making of profit per fe does not destroy its income tax exemption, 3 Did Section 27 (B) of the NIRC remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and (H)? b._ Is St. Luke's liable to 10% preferential income tax? 2. No. Section 27(6) onone hand, and Section 30(E) and (G) on the other hand, can be construed {seth without the removal of such tax exemption. The effect of Section 27(B) is to subject tho \axable income of two specific institutions, namely, proprietary non-profit educational institutions and proprietary non-profit hospitals, among the institutions covered by Section 30, to the 10% preferential Ble under Section 27/6) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1). Verily, Section 27(B) of the NIRC did not remore tre inocrn tax exemption of propristary non-profit hospitals. De Yes. To be exempt from income taxes, Section 30 of the NIRC requires that a charitable institution must be “organized and operated exclusively" for charitable purposes. Even ifthe charitable institution ust be “organized and operated exclusively” for charitable purposes, itis nevertheless allowed te Sagage in jactivilies Conducted for profit” without losing its tax-exempt status for its notfor-proft actlvities. The only consequence is that the "income of whatever kind and character’ of » chereatie institution regardless of the disposition made of such income, shall be subject to tax St. Luke's is @ corporation that is not “operated exclusively” for charitable or social welfare Pare gses insofar as its revenues from paying patients are concerned. However, although St. Lees rasieameet the requirements to be completely exempt trom tax, kt remains @ proprietary non-oeet hospital under Section 27(8) of the NIRC as Poesia ne tcf the Philippines (LCP), a non-stock, non-profit entity, owns a parcel of land wherein a poset Recracted. The ground floor is being leased to a canteen, Medical professionals alse wee wa Ground floor as their private clinics. The right portion of the lot Is belng leased for commera 10 | 2019 SAN BEDA LAW CENTRALIZED GAR OPERATIONS29. 30. TAXATION LAW* a8 ‘516 8 COLLEGE OF LAW CENTRALEO BAR OPERATIONS 019. iption from realty taxes on the ground that itis a charitabl tution. of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The City Assescor and the CBAA denied the same. Is LCP exempt from real property tax? ‘Yes, but the exemption is limited only to those portions actually, directly and exclusively used for charitable Purposes. Section 28(3), Article VI of the Constitution provides: “Charitable institutions, churches. and Parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, direclly and exclusively used for religious, charitable or educational purposes spall be ‘exempt from taxation”. In order to be entitled to exemption from real property tax, there must be clear and unequivocal proof that: (1) itis @ charitable institution and (2) its real properties are ACTUALLY, DIRECTLY, and EXCLUSIVELY used for charitable purposes, {ere, even though LCP is a charitable institution, the portions of its real property being leased to private entities are not exempt from real property laxes as these are not actually, directly and exclusively used for Charitable purposes. On the other hand, the portions of the land occupied by the hospital and the portions of Be hospital used for its patients, whether paying or non-paying, are exempt from real properly taxes (Lug Center of the Philippines v, Quozon City, G.R. No. 144104, June 28, 2004) EQUITABLE RECOUPMENT From January 1, 1946 to June 30, 1950, UST paid P13,590.03 representing 2% tax on its gross receipts derived from its printing and binding jobs for the public as well as the different departments within the university. On October 17, UST requested from the Collector of Internal Reveriue the refund of the sum the undectared recelpts derived from the printing and binding of annuals, and further orderes the University to pay P100 as compromise penalty. Ruling on the dispute, the CTA denied the clsia for qelund tothe extent of P5,642.27, the same boing barred by prescription, but recognized the deficiency tax assessment of P2,451.04 for percentage taxes and surcharges. Tho CTA considered the latter of, Seamed paid by way of recoupment, to the extent of the amount of P2,451.04 which UST erroneously ald for the period January 1, 1943 to June 30, 1950. According to the CTA, the application of the sanctioned by Secs. 306 and 309 of the Tax Code, serving as @ cushion fo the harsh ana iniquitous effects of the statute of limitations. Was the CTA correct in applying the doctrine of equitable recoupment? Explain, Cia taxpayer to a set-off or credit where, because of the expiration of the period of prescription, his ight to o (eluns 's already barred. Its true that under Sec. 309, itis provided that the Collector -may" credit oc retuea {axes erroneously or illegally received, but the word “may” clearly implies discretion, which, under euch 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 1431. 32. 2019 PRE*WEEKNO: oie WEEK:NOMES re ka secannat be the subject of set-off or compensation forthe following reasons: (1) taxes are of distinct kind, essence and nature, and these Ssinary obligations: (2) the applicable laws and principles governing each are pecan 's tax liability against a claim for Power Corporation (NAPOCOR), then pending with the BIR, in the andwhich was supposedly a receivable account of PNOC from NAPOGOR tax liability. On June 9, 1987, PNOC made another offer 'e, however, PNOC proposed a compromise by paying FP £1003. 129.89, representing 30% of the P303,343,766.29 basic tax, in accordacee wits provisions OF E.O. No. 44, Compromes Sranted the SIR Commissioner or his duly authorized representatives the power to 'sment oF delinquent account pending as of December 31, 1985, upon fax assessed; in which case, the corresponding asseseinont cgearaities shall be condoned. For instances where the BIR had’ ahesdy Wena oe lity could still be compromised under E.0. No. 44 only if utory on or before December 31, 1985 and, therofere, OF (2) the assessment had been disputed or protested fx Hab ecegality of the decision to compromise the tax liability of PNOC. and Slated Maca ei uabilty should have. been collected in full. May the tax liablities ot PNOC we subject of compromise?, Nie ae oe, Could apply fora conipromise ofits tax ails not under E.O. No.-44, but under See, 264 of the NIRC, as amended. - eo scuikd not apply for a compromise under E.O. No. 44 because its tax lability was not a delinquent, Since (1) Hwan pet eeassossment a8 of December 31, 19865. It cannot bo considered a delinquent secon since (1) it was n defi assessment agains an assessment that could have been disputed or protested on or before December 31, 1985, having been issued at a later date. Sr smal issued betweon January 1 to August 21, 1986 could stil be compromised by Payment of 327% ofthe basic lax assessed, not anymore pursuant io E.0. No. 44 but pursuant io Seca aty ea NIRC, PAW (faceived assessment notices from tho BIR for taxable year 2001. After it requested for domoniogg ran from the CIR, the BIR issued a Final Decision on Disputed Acscaseny (FDDA) somanding full payment of the deficiency taxes. Later, PAWI filed with the Bitte application for PHaRTeNt ofits tax liabilities for year 2001. The BIR donied the application en te ground that the Cra pmapacome final, executory, and demandable because PAW falled to appesh ne eng at the SCAM then partially paid its deficiency taxes by paying only the deficiony withholding tax and Ptenwards availed of tax amnesty under R.A. No. 9480. PAW! comones wie ee necessary requirements of R.A. No, 9480. hin the prescribed period. Further, PAWr's availment of amnesty had ne effort denial caawegment due to the finality of the FODA prior to PAWI's tax amnesty avalmer in BIR's denial correct? race Gompletion of the requirements provided under the tax amnesty taw shall be deemed full ompance with the tax amnesty program, and the taxpayer shall thereafter be Iammune nants payment of 12 | 2019 SAN BEDA LAW CENTRALZED BAR OPERATIONSTAXATION LAW@S60 T=” xes, ate additions thereto. as well as the appurtenant penaties under the NIRC, arising fom fallore to pay aiequaincatong onal fevenue taxes. Therefore, compliance with the requirements and ‘te ieee ny TAXPAYER'S SUIT 35. Te redevelop the Agoo Public Plaza, Mayor EE was authorized by the Municipality's ‘Sangguniang Rajan'e obtain a loan from Bank LBP and to execute several mortgages to serve a5 collate te ane the negputnorized to assign a portion ofits internal revenue allotment and the monthly income fees Pa obo Bo en erolect in favor of the Bank. Consequently, the Bank extended a loan amoumertrre Posting tg eaereatter; Mayor EE was again authorized to obtain a second loan from the some gone the Bank extended a second loan in the amount of 28,000,000. Cacayuren, ality, vehemently objected to the construction of the commercial conten Cryeking his right as taxpayer, he filed a Complaint against Bank LBP's officers, claiming Ua tee Tare ramen Of the Agoo Plaza into a commercial center, as funded by the proceeds from Lath iene, caeefughly irregular, violative of the taw, and detrimental to public interests, Bank LEP argued’ wee Sacayaran did not have any standing to contest the project as it was funded through the oracetat fo any ot the teases 2nd not from public funds, and that besides, Cacayuran was Rot even a party to any of the foans, and was thus precluded from questioning the same. Decide, ark LEF’s arguments are untenable. A taxpayer is allowed to sue where there isa claim that public funds ot pubis Riese arsed. o* that public money is being detected to any improper purpose, or hat theres waiors Sf public funds through the enforcement of an invalid or unconstitutional law. A person suing oe a taxpayer, oweyer, must show that the act complained ofcrecty involves the legal disbursement of public bade ae tek femacation: In other words, fora taxpayors suit to prosper two requisites must be met namely, (1) public Taare rived from taxation are disbursed by a political subdivision or nstrumontality and in done ces where the preesede retmeaulaity is commited; and (2) the petiioner is drecly affected by the alleged act Neve: tare cee Eom the subject loans had already been converted into publi funds by the municipalities versie Peet and Cacayuran, resident-taxpayer of the municipality, he is drecty affected by the comeacen en ne penetra the requisites oblzin in this case, Cacayuran has standing o fle Une sul (Land Bagh or ‘he Philippines v. Cacayuran, G.R. No. 191667, April 17, 2019, Perlas-Bernabe, J ‘A-Taxing Authority’ JURISDICTION, POWER AND FUNCTIONS OF COM! SION OF INTERNAL REVENUE 34. Are the powers of the Commissioner of Internal Revenue deiegabie? 5755. AS provided by Sec. 7 of the NIRC, the CIR may generally delegate the powers vested in him to any cannot re sgaffcal with the rank equivalent to @ division chi or higher. However, the folowine mee cannot be delegated (RICA): & poner to Recommend the promulgation of rules and regulations by the Secretary of Finance: Gomer to Issue rulings of fst impressions or to reverse, revoke, or modify any existing raizg ofthe Bureau; © ements Sompromise or abate any tax tabilty except matters which may be compromised by the Regional Evaluation Board and National Evaluation Board: and & Comer fo Assign or reassign intemal revenue officers to establishments where articles subject to excise tax are produced or kept. 35, and Billing Division of the BIR the ich contains denial of the taxpayer's =fes; The act of issuance of the demand letter by the Chief of the Accounts Recoivable and Billing Division Seas petal under any ofthe exceptions provided fr the Sec. 7 of te NIRC. Furthormose So eet Miner xides thatthe authority to make tax assessmonts may be delegaled to subordinets sass (Oceanic Wireless Network v. Commissioner of intemal Revenue, G.R. No. 148380, December 2008). 01S SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 132019 PRE-WEEK NOTES 36. Explain how the authority of the Commissioner to prescribe Real Property Values is exercised. In exercising this authority, the following shall be observed: (M-P3-A) ‘a. Mandatory consuitation with both private and public competent appraisers before division of the Philippines into zones. b. Brior notice to affected taxpayers before the determination of fair market values of the real properties. . Publication or posting of adjustments in zonal value in a newspaper of general circulation in the province, city or municipality concerned. <. d. The basis of valuation and records of consultation shall be Public records open to the inquiry of any taxpayer. @. Zonal valuations shall be automatically Adjusted once every three years (NIRC, as amended. by TRAIN Law, Sec. 6 (E)). ye and take 37. What is the power of the Commissioner to obtain information, and to summon, exat testimony of persons? In ascertaining the correctness of any retum, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in ‘evaluating tax compliance, the Commissioner is authorized: (EOSTC) : a. To Examine any book, paper, record, or other data which may be relevant or material to such inquiry: b. To Obiain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local government government agencies and instrumentalites, including the BSP and GOCCs, any information; ¢. To Summon the person liable for tax or required to fle a return, or any officer or employes of such Person, or any person having possession, custody, or care of the books of accounts and of accounting records, or any other person, to appear before the Commissioner or his duly author representative anc to produce such books, papers, records, or other data, and to give testimony;.. To Cause revenuic officers and employees to make a canvass from time to time of any revenue dis “or region and inquire after and conceming all persons therein who may be liable to pay any intet revenue tax, and all persons owning or having the care, management or possession of any object _Tespect to whicha tax is imposed (NIRC, as amended by TRAIN Low, Sec. 6). nae 'NOf@: Nothing listed above shall be construed as granting the Commissioner the authority to inquire into tak: deposits other than as provided for in Section 6(F) of the Tax Code (NIRC, as amended by TRAIN Law, Se a, 38. How 15 the power of the Commissioner to obtain information, and to summon, examine and take. testimony of persons strengthened by the TRAIN Law? ee ee Cooperative ‘Development Authority shail submit to the Bureau a tax incentive report, which shall include information on the: come tax, value-added tax; and other tax incentives availed of by cooperatives registered and enjoying incentives under RA. ‘No: 6938, as amended and that the information submitted by the Cooperative: Development Authority to the Bureau shall be submitted to the Department of Finance and shalll be include’ inthe database created under R.A. No. 10708, otherwise known as The Tax Incentives Management and ‘Transparency Act (TIMTA) (NIRC, as amended by TRAIN Law, Sec. 5 (6). RULE-MAKING AUTHORITY OF THE SECRETARY OF FINANCE 39. Whats the rule-making authority of the Secretary of Finance? The Secretary of Finance, upon the recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Code (NIRC, Sec. 244). 40. In issuing its Rules and Regulations, is BIR exercising its quasi-judicial capacity? No. BIR’s act of issuing rules and regulations is not in the exercise of any quasi-judicial capacity. It is in the exercise of BIR's quasi-legislative or rule-making powers (Clark Investors and Locators Association Ine. v. Secretary of Finance, G:R. No, 200670, July 6, 2015) Note: Thus, petition for certiorari under Rule 65 of the Rules on Civil Procedure is not the proper remedy against act of issuing rules and regulations of the Secretary (Clark Investors and Locators Association Ina. v. ‘Secretary of Finance, G.R. No. 200670, supra). 14 12019 SAN BEDA LAW CENTRALIZED BAR OPERATIONSa. 42. 43. 45, TAXATION LAW DEFINITION, NATURE, AND GENERAL PRINCIPLES What is the factor used in determining the taxability of non-resident aliens? iene important factor which determines the sources of income of personal services isthe place where the te Phitppine ineuualy fendered. Non-resident aliens, whether or not engaged in trade or business, are subject Kesemaubping income taxation on their income recoived from all sources within the Philppinec. has oe Tater’ in determining the taxabilty of non-resident aliens is the income's source (Commesioney of haek ns Revenue v. Baler-Nickel, G.R. No. 153793, August 29, 2006). 7 Distinguish capital and income. sane essential difference between capital and income is that capital is @ fund; income is a flow. A fund of Sth Deen nascanttal. A flow of services rendered by that capital by the payment of money fromm tor any eet enelt rendered by a fund of capital in relation to such fund through a period of time Ie called ioc Gaital is wealth, while income fs the service of wealth. Income Tax Law, as the name implios, relers te hae “pon income and not upon capital and property (Madrigal v. Rafferty, G.R. No. L-12287, August 7, 1010) Explain the tax liability on the income of general professional partnership aid its partners. 2 general Professional parinership is an ently where the partners themselves, not the partnership are pute forthe payment of income tax in their individual capacity computed on their respective ord eicte ain, SRareS OF Profits, In the determination of the tax labillty, a partner does so as an individual, and there te no decreas va Matter: in fine, under the Tax Code on income axation, the general professional partnership deemed to be no more than’a mere mechanism or a fi it the ultimate distribution of such income to, GR. No. 109289, October 3, 1994). Explain the tax liability on the inconie of co-owned inherited properties. nent aos timership of itherted properties is automatically converted into an-inrogistored partnership the Mntane te the Said common properties andlor the incmes derived therefrom aré used as a common fant with ‘pronto produce profits for the heirs in proportion to their respective shares inthe inherltance ae detornined 2,2 brolect partition either duly executed in an extrajudicial settlement or approved by the coun in tee Corresponding testate or intestate proceeding 2 gates Partition, an heir allows his share tobe held in common with his co-heirs undora single management J gang with the intont of making profit thereby in proportion to his share, thare can be no doubt inet ovo parmcocument oF instrument were executed for the purpose, for tax purposes, at least, an unrerisiora Partnership is formed (Ona v. Commissioner of Intemal Revente, G.R. No. £19342, May 25, 19/2) INCOME + Salient features of TRAIN Law in Income Taxation. Legend: RC ~ Resident Citizen NRC — Non-Resident Citizen RA- Resident Alien NRA — ETB - Non- Resident Alien engaged in trade or business NRA — NETB - Non- Resident Allen not engaged in trade or business. january 1, 2018 iSceneee aN 1. Taxable net income subject to graduated rate of 20% to 35% |_| (NIRC, as amended by TRAIN Law, Sec. 24(A)(2)(a)); or []2. Option to be taxed at 8%: of Purely Self Employed | |IndividualProfessionals and Mixed Income Earners on Gross ‘Sales/Receipts for those who fall below the VAT threshold (NIRC. as amended by TRAIN Law, Sec. 24(A)(2)(b) and Sec. 24(A)(2)(c)) £2018 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 152019 PRE-W! _|Note: Option no. 2s only available for RC, NRC and RA. RA-NETS EEK NOTES is stil subject to 25% Final Income tax on the gross income (NIRC, ‘as amended by TRAIN, Soc. 25(6)) Personaf-ani additional Exemptions [on Individual Taxpayers: REMOVED by TRAIN Law. Increased threshold for non-taxable 43th month pay and other benefits, [Changes on De Minimis.Benefts Threshold P30, 000 4. Medical Cash Allowance to Dependents of Employees ~ Noll exceeding P1,500 per employee per semester or P250 per month, 2. Rice Subsidy - P2,000 or one ‘sack of 50kg rice per month amounting to not more'than P2,000 per month; and 3. Uniform and clothing allowance - Not exceeding P6,000 per year. Optional Standard Deduction (OSD) for General Professional Partnership (GPPs) 7 TRAIN Law provides that OSD may be availed only once either by the GPP or the partners comprising the partnership (NIC, as amended by TRAIN Law, Sec. 34 (L). Note: The partners comprising the GPP can no longer claim further | ‘deduction from their distributive share in the net income of the GPP ‘and are not allowed to avail of the 8% income tax raté option since their distributive share from the GPP is already net of cost and expenses (RR. No, 08-2018, Sec. 8) Changes on Passi Rates 1. Philippine ‘Charity Sweepstakes (PCSO) and lotto winnings ‘a. PCSO and lotto winnings above P'10,000- 20% (NIRG, as amended by TRAIN Law, Sec. 24(B)(1)); and | b. PCSO and lotto winnings 10,000 or less - EXEMPT (NIRC, as amended by TRAIN Law, Sees. 24(8)(1)) Note:‘This is NOT applicable to NRA-NETB. On the other hand, Sec. 25(A)(2) of NIRC was not amended by TRAIN Law. Hence, NRA-ETB’s PCSO and lotto winnings are still EXEMPT! regardiess of the amount. | 2. Interest income from Expanded Foreign Currency Deposit Units (FCDUs),- 15% ‘Final Tax (oniy for RESIDENT Taxpayers). otherwise, excmpt (NIRC, as amended by TRAIN Law, Secs. 24(B)(1) and 25(4)(2)). ‘Change on Capital Gains Tax (¢GT) on Sale of shares of stock not traded in the stock exchange | Increase in i Rate UMEEanec thon eseaaesn ues Final Tax 15% of Net Selling Price (NIRC, as amended by TRAIN| Law, Secs. 24(C) and 27(0)(2)). Note: his applies to both individuals and demestic corporations. 35% (INIRO, as amended by TRAIN, Sec. 33(A)). Note: FBT rato for NRA-NETB shall still be at 25% (NIRO, as amended by TRAIN, Sec. 25(8)). fy swsepaten Ofc TAXABLE Corporation REMOVED by TRAIN Law. i 16 | 2015 SAN BEDA LAW CENTRALIZED BAR OPERATIONS.46. 47. 48, 49, TAXATION LAW lo is a resident Filipino Citizen. He purchased a parcel of land in Makati City in 1970 at 2 consideration of P1 Million. In 2011, the land, which remained undeveloped and idle, had a fair market aire of F20 Million. Mr. Antonio Ayala, another Filipino citizen, is very much interested in the property and he offered to buy the same for P20 Million. The Assessor of Makati Gity re-assessed in 2017 the property at P10 Million. Is Mr. Castillo liable for income tax in 2011 based on the offer to buy by Mr. Ayala? Explain your answer. (2012 Bar) No. Mr. Castillo is not liable for income tax. Tax lability for Income tax attaches only if there is a gain ‘alized resulting from a closed and complete transaction (Madrigal v. Rafferty, G.R. No. L-12267, August 7, 1915), Here, Mr. Ayala's mere offer to buy is not tantamount to a sale or complete transaction. Hence, Mr Casto is not liable for income tax in 2011 because no income is realized by him during that year fabela Cultural Corporation (ICC) is a domestic corporation using the accrual method of accounting. The BIR assessed ICC for deficiency income for the year 2014. In the company's 2014 incomes statement, it recorded expenses from legal and auditing services rendered by its lawyers and auditors 2013 and 2012. ICG had the same lawyers and auditors since 2008. The BIR disallowed these prior years’ expenses and accordingly assessed the company. The company interposed the defense thet although the professional services were rendered in 2013 and 2012, the cost of the services were not yet determinable at that time, hence, it could consider them as deductible expenses only in 2014 when ‘they finally received the billing statements for these services. Is ICC correct? No, the accrual of income and expense is permitted when the all-events test has been met. The all-ovents {est requires (1) the right to income or labiliy be fixed, and (2) the amount of such income or labilly be Setermined with reasonable accuracy. However, the test does not demand that the amount of income oF lability Pe nnown absolutely. Here, the expenses for professional fees consist of expenses for legal and auditing Rarvices. From the nature of the claimed deductions and the span of time during which the firm was retained, Teeecan, be expected to have reasonably known the retainer end professional feos charged agains! i, Thus, ICC's claim for deduction should be disallowed. The propriety of an accrual must be judged by tne facts that (eaves knew, oF could reasonably be expected to have known, atthe closing of its Dooks for the taxable year (Conimissioner of Internal Revenue v. Isabela Cultural Corp., G.R. No. 172231, February 12, 2007) Note: The amount of liability does not have to be determined exactly; it must be determined with Feasonable accuracy.” Accordingly, the term "reasonable accuracy” implies something less than an exact or ‘completely accurate amount: % May income tax form pait of the operating expenses? No, income tax paid is inconsistent with the nature of operating expenses. Operating expenses are those Which are reasonably incurred in connection with business operations to yield revenue or income while ineorne {gx is imposed on an individual or entity as a form of excise tax or a tax on the privilege of earning income, Clearly, income tax payments are not expenses which contribute to or are incurred in connection with the Production of profit: No benefit is derived by the customers for the taxes paid by such ently and no direct Contribution is made by the payment of income tax to the operation for purposes of ganeraling revenus oF profit. Accordingly, the burden of paying income tax should be taxpayer (company) alone and should not be anifted to the consumers by including the same in the-computation of its operating expenses (Republic v Manila Electric Company, G.R. No, 141314, November 15, 2002) What is a tax-free exchange? A tax-free exchange is one where the gain or loss on the sale or exchange of property is not recognized. Under the NIRC, the following are the instances of a tax-free exchange. 2. A corporation which is a party to a merger or consolidation, exchanges property solely for stock in a corporation, which is a party to the merger or consolidation (property for stock): b. A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely {or the stock of another corporation also a party to the merger or consolidation (stock for stock); ©. A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities in such corporation, solely for stock or securities in another corporation, a party to the ‘merger or consolidation (security for stock); oF ¢- If property is transferred to a corporation by a person in exchange for stock or unit of participation in Such a corporation of which as a result of such exchange said person, alone or together with others, ot exceeding four persons, gains control of sald corporation: Provided, That stocks Issued for services shall not be considered as issued in return for property (estate planning) (NIRC. Sec. 40 (vey. Note: Control means ownership of stocks in a corporation possessing at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled to vote (NIRC, Sec. 40 (C)(6)(c)), 2019 SAN BEDA LAW CENTRALIZED BAR OPERATIONS | 47