PRINCIPLES OF TAXATION 4.

Cooperative Development Act

***Other Tax exemptions: Implied (Omission which is intentional or
Nature, scope, classification, and essential characteristics incidental); Contractual (entered into by Gov’t like bonds and
debentures)
TAXATION CLASSIFICATION OF TAXES
 Inherent power of the State. (Without constitutional grant)  Purpose
 Legislative Process of levying (charge) taxes by legislature. a. Fiscal (general purpose: Revenue = Gov’t Expenses)
 Cost distribution/imposing proportionate burden upon person, property, b. Regulatory (regulate business, inflation, promote investments,
rights or transactions to raise revenue in order to defray gov’t expenses. restrict trade relations etc.)
i. Tools to protect trade relations (SPECIAL DUTIES)
NATURE/CHARACTERISTICS 1. Discriminatory-offset foreign discrimination to
1. Inherent Power of Sovereignty local commerce
 Only national Gov’t exercise the inherent power of taxation not by 2. Countervailing-offset foreign subsidy granted to
LGU’s. imported goods to prejudice local industries
Except: 1. Express constitutional provision 3. Marking- imported article and/or containers
2. Valid delegation of tax power (Local Tax Code) with improper classifications
2. Essential legislative function 4. Dumping – duty taxes on imported goods with
 Non-delegation of Legislative Power to Tax lower prices than local goods.
Tax Delegation (valid) vs. Tax Administration c. Sumptuary (social/economic objectives – distribution of wealth)
Tax legislation is delegated (invalid) but if tax administration is  Subject matter
delegated, non-delegation rule is not violated a) Personal (Natural or Juridical)/Poll/Capitation (residents)
3. For Public Purpose (Common good) b) Property (Property: Real or Personal, and Tangible or Intangible)
4. Territorial in Operation (Only within the territories of the State) c) Excise (privilege(D&E)/transaction/right/Interest)
5. Tax Exemption of Gov’t ( Immunity) d) Custom Duties – import and export
6. Strongest among inherent powers  Incidence
7. Subject to limitations (Inherent and Constitutional) a) Direct (Statutory = Economic taxpayer ex. PT)
b) Indirect (Statutory ≠ Economic taxpayer ex. VAT)
 Amount
Philippine Tax Laws
a) Specific (fixed on per unit)
 Civil and not Political in nature (effective even during
b) Ad Valorem (based on value)
periods of enemy occupation)
 Rate
 Tax payments made during foreign occupation is VALID
a) Proportional (fixed) – Corporate Income Tax and Business Tax
 Not Penal in nature but it is to secure COMPLIANCE b) Progressive (increasing) – Individual Income Tax and Transfer Tax
c) Regressive (decreasing)- Not used in PH
TYPES OF TAXATION LAWS d) Mixed
 Tax Laws  Authority
1. NIRC a) National
2. Tariff and Customs Code i. Income Tax (Profit)
3. Local Tax Code ii. Estate Tax (decedent)
4. Real Property Tax Code iii. Donors Tax (living donor)
 Tax Exemption Laws iv. VAT
1. Minimum Wage Law v. OPT
2. Omnibus Investment Code of 1987 (E.O 226) vi. Excise (sin Products) – non essential
3. Barangay Micro-Business Enterprise (BMBE) Law vii. DST
 b. Local ELEMENTS OF VALID TAX
i. Real Property Tax 1. Levied by taxing power having jurisdiction over the object of taxation
ii. Professional Tax 2. Do not violate inherent and constitutional limitations
iii. Business Tax (Mayor’s Permit) 3. Uniform and equitable
iv. Community Tax 4. For Public Purpose
v. Taxes on Banks and Other Financial Institutions 5. Proportional in character
SCOPE OF TAXATION 6. Payable in money
1. Comprehensive (extent)
2. Supreme (degree) STAGES OF EXERCISE OF TAXATION POWER
3. Plenary (unrestricted and unlimited) – but not absolutely unlimited 1. Levy or Imposition – enactment of Laws (CONGRESS)
due to limitations. (C&I) Legislative discretion in exercise of taxation:
 Determine object of taxation
GAAP vs. Tax Laws  Setting tax rate and amount to be collected
 GAAP are not laws but mere conventions for fair and  Purpose for charging tax
relevant reporting.  Kind of tax
 Follow Tax law over GAAP when preparing Tax returns  Apportionment of tax between national and local
(conflict)  Situs of Taxation
 Method of Collection
2. Assessment and Collection (Tax liabilities-BIR)
SOURCES OF TAXATION LAWS INHERENT POWERS OF STATE
1. Constitution
2. Statutes and Presidential Decrees Difference Taxation Police Eminent Domain
3. Judicial Decisions and Case laws Authority Gov’t Gov’t Gov’t and Private
4. Executive orders and Batas Pambansa Utilities
5. Administrative Issuances Purpose Support General Public Purpose
 Revenue Regulations – defined rules and regulations (signed Gov’t Welfare
by Secretary of Finance/Recommendations of CIR) Persons Community Community/ Owner
 Revenue Memorandum Orders – Affected /Individuals Individuals
directives/instructions/guidelines in implementation of tax Amount of Unlimited Limited No amount
laws. Imposition (Cost of imposed (just
 Revenue Memorandum rulings –rulings/opinions/ Regulation) compensation)
interpretation of CIR Importance Most Most Important
 Revenue Memorandum Circulars – applicability and Important Superior
amplification of laws Rel. with Inferior Superior Superior
 Revenue Bulletins – Periodic Issuances by CIR Constitution
 BIR rulings – official position of BIR to queries (maybe reverse Limitation Constitutio Public Public purpose
by BIR anytime) nal and interest and and just
Other rulings: Inherent due process compensation
i. VAT rulings *Similarities: necessary, inherent, legislative, ways to interfere private rights and
ii. International Tax Affairs rulings (ITAD) property, independent of Constitution, presuppose equivalent form of
iii. Delegated Authority rulings (DA) compensation, LGU exercise of these powers is limited by National Legislature.
6. Local Ordinances
7. Tax Treaties and Conventions with Foreign Countries
8. Revenue Regulations
TAX COLLECTING SYSTEM 3. Others: Cases require expedient and effective admin and
1. Withholding implementation of assessment and collection of taxes
a. Compensation (employed) – creditable to IT  Territoriality of Taxation (within its boundaries)
b. Expanded ( self-employed professionals ex. Doctors) – creditable Exceptions: (within and outside PH)
to IT 1. Income Tax: RC and DC are taxable on income derived
c. Final – Not creditable to IT 2. Transfer Tax: Residents or Citizen are taxable on transfer
d. Gov’t payments (Gov’t and GOCC’s) – net of tax of properties
2. Voluntary  International Comity (reciprocity)
3. Assessment/Enforcement (non-compliant tax payers) (Gov’t) Embassies, or consular agencies of foreign gov’t including
(GOCC’s) international orgs and their non-Filipino staff are not
SIMILAR TERMS TO TAX subject to income tax.
1. Revenue – All income collections of gov’t ( Tax and GOCC’s 2. Constitutional Limitations
2. License Fee – Police power/imposed before engagement in activity  Due Process of Law (trial and hearing)
3. Toll – charge for use of property o Substantive – reasonable and not oppressive
4. Debt – Private Contracts/ do not lead to imprisonment due to non- o Procedural – opportunity to be heard in proper court
payment/can be paid in kind litigation before judgment
5. Special assessment – land only/appreciation in land/non-payment to  Equal protection of law (same circumstances taxed the same)
gov’t do not lead to imprisonment  Uniformity rule ( dissimilar circumstances are not taxed the same)
6. Tariffs/Custom Duties- imported and exported goods – progressive tax system
7. Penalty – payment imposed to discourage act  Non- Impairment of obligation and contracts
8. Subsidy-monetary aid  Non-imprisonment for non-payment of debt or basic community
9. Margin Fee –tax in forex designed to curb the excessive demands upon tax (poll tax) only. (debt: estafa – crime) (non-payment of
our international reserves. additional community tax: tax evasion – imprisonment)
 Free Worship rule – tithes and offerings not subject to tax but
Principles of sound Tax System (FAT) income from properties or activities that are commercial in nature
 Fiscal Adequacy (sufficient to cover gov’t cost) are taxable
 Administrative Feasibility (efficient and effective compliance)  Exemption from Property Tax: Properties used PRIMARILY for
o EFPS charitable, religious or educational entities, non-profit cemeteries,
o Substituted filing System for employees church and mosques, lands, buildings and improvements.
o Final Withholding Tax on NRA NRFC (DOCTRINE OF USE)
o AABs (Landbank, BPI etc.)  Public money not for religious purpose (separation of the State
 Theoretical Justice (ability to pay) – should not be oppressive, unjust or and church)
confiscatory. Note: Compensation to priest working in military, penal
Limitations on the power of taxation institutions, orphanage or leprosarium is not religious
1. Inherent Limitation (PENTI) appropriation.
 Public Purpose (common good not for private interest)  Exemption from taxes of revenues and assets of non-profit, non-
 Exemption of Gov’t stock educational institutions including grants, endowments,
 Non-delegation of taxing power – legislative taxing power is donations, or contributions EDUCATIONAL PURPOSES.
vested only to CONGRESS  Gov’t educational institutions –exempt from IT
Exceptions:  Private educational Institutions – minimal 10% IT
1. Constitution: LGU are allowed to exercise power to tax  Congress Granting Tax Exemption – ABSOLUTE MAJORITY OFF ALL
(fiscal autonomy) MEMBERS OF CONGRESS.
2. Tariff and Custom Code : President is empowered to fix Note: Withdrawal of tax exemption only RELATIVE MAJORITY
the amount of tariffs to flexible trade conditions  Non-diversification of tax collections (Public Purpose)
  Non-delegation of the power of taxation (CONGRESS ONLY)
Note: BIR and Dept. of Finance – only interpret and clarify Types
 Supreme Court: Final Judgment and Jurisdiction of Tax cases  DIRECT – All elements exist (Income Taxes)
 Appropriations, Revenue or Tariff Bills shall originate exclusively in  INDIRECT – at least one secondary element exist (National and LGU)
HR, but Senate may propose or concur with amendments
 Each LGU’s shall exercise the power to create its own source of MINIMIZATION OF DOUBLE TAXATION
revenue (legislative branch of LGU’s) and shall have share with  Tax exemptions
national taxes.  Foreign Tax Credit
Tax evasion vs. Tax Avoidance  Reciprocity Rule
ESCAPES FROM TAXATION  Treaties and Bilateral Agreements
1. Result to loss of Gov’t Revenue
o Tax Evasion (illegal) – under Income Over Expense Legislation of Tax laws
o Tax Avoidance (Legal) – Options/Tax Planning
o Tax Exemption – Tax Holiday/ Immunity BRANCHES OF GOVERNMENT
***All forms of exemptions can be revoked by the Congress except
those granted by Constitution and Contracts. (Implement) (Make) (Interpret)
2. Does not result to loss of Gov’t Revenue Executive Legislative Judiciary
o Shifting (Forward (VAT) ,Backward (Importation), Onward)  President  Congress  Courts
o Capitalization- Value of Asset  House of Representatives
o Transformation – eliminate loss or waste to form savings  Senate
TAX AMNESTY  The Bill becomes law if the
Pardon/absolute forgiveness/retrospective/to enable taxpayer fresh start/Civil and president signed otherwise
Criminal Liability/Conditional Payment of Taxpayer vetoed by president
(Item Veto)
TAX CONDONATION  Inaction of president within
Tax remission/forgiveness/prospective (paid portion not refunded)/Civil Liability/No 30 days after date of receipt
Payment required causes the bill to become
law
Situs/Place of Taxation  If President vetoed the bill
1. Business Tax – Place of business is conducted 2/3 of the members of
2. Income Tax (Services) – Place rendered Congress is required to
3. Income Tax (Sale of goods) – Place of sale make the bill into a law
4. Property Tax – Location of Property
5. Personal Tax – Place of Residence Impact of taxes in nation building
BASIS OF TAXATION
Double Taxation (taxed twice same tax jurisdiction and same thing)
ELEMENTS
SERVICE
1. Primary: Same OBJECT
2. Secondary: GOV’T PEOPLE
a. Same Tax type
TAXES
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same Tax Period THEORIES OF TAX COST ALLOCATION
 Benefit Received
  Ability to Pay
o Vertical Equity- Gross (ability/extent) 200k vs. 400k income
o Horizontal Equity- Net (circumstances) with or without child
LIFE BLOOD DOCTRINE (Tax is essential and indispensable)
“Tax is the lifeblood of Gov’t to cover its expenses”
 Tax is imposed even in absence of Constitutional grant (inherent)
 Claims for tax exemptions are construed against tax payer
 Gov’t reserves the right to choose object of taxation
 Courts are not allowed to interfere collection of taxes
 In Income Taxation:
o Deferred Income – Taxable
o Capital Expenditures and Prepayments- not allowed as deduction
o Claimable expense with limit – Lower amount
o Multiple Tax Base – Higher Tax Base
OTHER FUNDAMENTAL DOCTRINES IN TAXATION
 Marshall Doctrine – Police Power/Power to destroy
 Holme’s Doctrine – Power to build
 Prospectivity of tax laws
 Non Compensation or set-off (off-set)
 Non-assignment of taxes (shifting)
 Imprescriptibility in taxation
Note:
1. Collection w/ assessment – 5 years from date of assessment
2. Collection w/o assessment – 3 years from the date the return is
required to be filed
3. No return filed/fraudulent – do not prescribe
 Doctrine of estoppel – error of gov’t employee does not bind gov’t
 Judicial non-interference
 Strict Construction of Tax Laws
“Taxation is the rule, exemption is the exception”
***Vague Tax Law – no tax law
***Vague Exemption Law – no exemption law
 Equitable Recoupment – Tax refund as payment to unsettled tax
liabilities as long as arise from same transactions
 Compromise
 CIR – civil and criminal liabilities
 Collector of Customs – remission of duties
 Customs Commissioner – subject to approval by Sec. of Finance
(fines, surcharge and forfeitures)
Ethical Tax compliance and administration
Tax administration is a system of collecting taxes in accordance with tax policies
(Assessment and Collection) it is entrusted to BIR which is under the supervision
and administration of Dept. of Finance
ADMINISTRATIVE PROVISIONS
Requirements for compliance of taxpayer employed or engaged in business:
 BIR FORMS: See Attached File
 Registration
a. Appropriate Revenue office (RDO)
b. Secure Tax Identification Number (only one)
Exceptions:
1. FCDU is merely a division of local or foreign bank in the PH is
assigned with another TIN (Final Tax Compliance.
2. Registered Tax Payer dies – Estate (new TIN)
Registration Period:
1. Within 10 days from date of employment
2. On or before the commencement of business
3. Before payment of any tax due
4. Upon filing of a return or statement of declaration as required in
the Tax Code
***Annual Registration Fee: Php 500 for every separate or distinct establishment
before the last day of January.
Contents of Registration Form:
1. Tax Payer’s name and Type of Business
2. Place of Business
3. Other Info required by CIR
BIR FORM 0605 (Payment Form):
1. Annual Registration Fee
2. Upon receipt of Assessment notice/collection letter from BIR
BIR FORM 1905 (Application for Registration Update):
1. Used to update taxpayers information (Chang in Tax Type and
other taxpayers details)
Transfer of Ownership Rules: (Owner dies)
1. No additional payment for remaining period which tax is paid
2. Person continue: submit inventories of goods to BIR 30 days
from death of decedent
*same rules if change of name of establishment
Transfer if Business Place:
1. Same RDO: Form 1905
2. Different RDO: Secure necessary tax clearance
***Any tax return currently due must still be filed with the RDO
where taxpayer is presently registered to avoid 25% surcharge due to
wrong RDO.
Cancellation of Registration: FORM 1905
 Printing of Receipts, Sales or Commercial Invoice
 Sales or Commercial Invoice – Goods v. Report to Congressional Oversight Committee in matters of
Receipts – Service taxation
Requirements: ***Agents of BIR
1. BIR Authority to Print ( FORM 1906) *Commissioner of Customs – imported goods taxes
2. Other requirements: *Head of Appropriate Gov’t Office-Energy Taxes
a. Serially numbered *AAB’s – Collection of Tax dues
b. Name, business style, TIN, address ***Composition of BIR
c. Other Requirements promulgated by Sec. Of  One Commissioner
Finance upon recommendation of CIR (VAT  4 Deputy Commissioner
Taxpayer) i. Legal and Enforcement group
 Issuance of Receipts, Sales or Commercial Invoice Rules ii. Operation Group
1. Time of issuance iii. Information System Group
2. Value of sale is Php 25.00 or more required to issue receipt/invoice iv. Resource Management Group
(NON VAT)  Regional Revenue Director
3. Receipt is not required:  Revenue District Office
a. Below Php 25.00  Revenue Office
b. Exempted by CIR
4. Issuance of Receipt is required POWERS OF BIR COMMISSIONER
a. Payment of rentals, commissions, compensations or fees 1. Interpret provisions of NIRC to be reviewed by Sec. of Finance
b. VAT to VAT sale taxpayers 2. Decide tax cases subject to reversal of CTA (DROP)
5. Name(if any), address of purchaser is required if: a. Disputed assessments
a. Payment of rentals, commissions, compensations or fees b. Refunds
b. VAT to VAT sale taxpayers c. Penalties
6. Validity of receipt/invoice as to BIR (3 years) d. Other NIRC and Special Laws under BIR
 Certificate of Payment (Rules) 3. Obtain info and summon and take testimony of persons to effect tax
***Annual Registration Fee – displayed in place of business. collection (assessment)
**** Without fixed place – kept in possession of the holder and a. Correctness
presented upon demand by revenue officer b. Tax Liability
c. Compliance
Organization of BIR, BOC, Local Gov’t Tax Collecting Units, BOI and PEZA Authorized acts:
BIR 1. Examine book or records
 Under supervision of Dept. of Finance which is under the Office of 2. Obtain any info from other persons
President 3. Summon employee/person in custody of records to give
 Primary in-charge to assess and collect national taxes testimony
 Enforce all forfeitures, penalties and fines 4. Take testimony of person concerned
 Execute judgment in all cases decided in its favor by CTA and 5. Cause revenue officers/employees to canvass of any revenue
ordinary courts district
 Give effect to and administer the supervisory and police power 4. To make assessment and prescribe additional requirement for tax admin
conferred to it by the Code or Other Laws. and enforcement
i. Assign officers to other duties 5. Examine returns and determine tax due (Returns can be amended within 3
ii. Provision and distribution of forms, receipts, certificates, years from date of filling/due date of filing whichever is earlier, except if
stamps, etc. to proper officials your already under assessment)
iii. Issuance of receipts and clearance 6. Conduct inventory taking
iv. Submission of Annual Report to Congress 7. Prescribe presumptive gross sales when:
 a. Tax payer failed to issue receipts  Commissioner
b. CIR believes fraudulent return (understatement of tax due)  Deputy Commissioner
8. Terminate tax period: o Customs Revenue Collection Monitoring Group
a. Retiring from business o Customs Assessment and Operations Coordinating Group
b. Intended to leave PH o Intelligence and Enforcement Group
c. Intending to hide, remove or conceal property o Internal Administration Group
d. Intending to obstruct collection of tax or same effect o Management System Technology Group
9. Prescribe real property values (ZONAL VALUE)  14 District Collectors
*** Whichever higher Zonal vs. Assessed Value (City/Province Assessor *** Appointment of Commissioner and Deputy Commissioners (By the President)
Office)
10. Compromise tax liabilities of taxpayer LOCAL GOV’T TAX COLLECTING UNITS
11. Inquire bank deposits under the ff. Scope: Provinces, municipalities, cities and barangays
a. Determine gross estate Sanggunian: Local Taxing Authority (Thru Local Ordinances)
b. Substantiate financial incapacity (compromise) Treasurer of LGU: Venue of filing local tax, fees and charges
12. Accredit and register tax agents (Expanded withholding tax) Timing: First 20 days of January or of each subsequent quarters as the case maybe
13. Refund tax ***Sanggunian concerned may extend filing for justifiable reason but for only a
14. Abate or Cancel tax liabilities period not exceeding six months
15. Prescribe additional procedures/requirements
16. Delegate Powers to any subordinate office with rank equivalent to division BOARD OF INVESTMENTS (BOI)
chief of an office Role: Promotion of investments in PH by assisting Filipino or Foreign investors to
***Non-delegated Power of CIR venture/Supervise the grant of tax incentives (Omnibus Investment Code)/Attached
a. Promulgation of Regulations to Sec. of Finance agency of DTI
b. Power to issue rulings of first impression or to reverse/revoke/modify Composition: (7) Governors:
existing BIR rulings DTI Secretary (Chairman); Vice Chairman (Appointed by President); (3)
c. Power to compromise or abate tax due Undersecretaries of DTI (Appointed by President); (3) representatives from other
Exception: gov’t agencies and private sectors
Regional Evaluation Boards may compromise tax liabilities
 Assessments issued by Regional offices involving basic PHILIPPINE ECONOMIC ZONE AUTHORITY
deficiency of 500,000 or less Purpose: Promote investments in export-oriented manufacturing industries
 Minor criminal violations discovered by regional or district ***PEZA registered enterprises enjoy TAX HOLIDAY for certain years (Exemption
officials from import or export taxes including local taxes.
Composition of REV *** Also attached agency of DTI
 Regional Director (chairman) *** Also assist investors who locate facilities inside selected areas in the country
 Assistant RD (PEZA Special Economic Zones) – business process outsourcing and knowledge
 Heads of Legal/Assessment and Collection Division process outsourcing firms.
 RDO of the taxpayer Composition: Secretary of DTI (chairman); Vice Chairman (Director General of PEZA;
d. Power to assign and reassign revenue officers to other duties Members of Board (Undersecretaries of nine (9) key gov’t departments
 Revenue officer – excisable articles (2 years) Incentives Offered:
 Revenue officer – Assessment and Collection function (3  Fiscal
years) o Income tax holiday (100% exempt from CIT)
 Revenue officer – Special duties (1 year) o Tax and Duty free importation of raw materials
BUREAU OF CUSTOMS (International Taxes) o Exempt from wharfage dues and export tax, import or fees
***Collection of Tariffs and Vat on Importation
***Composition
 o VAT zero rating of local purchases subject to compliance BIR and
PEZA requirements
o Exempt from Local Taxes
o Exemption in administering Expanded Withholding Tax
 Non Fiscal
o Simplified import-export procedure, extended VISA facilitation
assistance to foreign national lands
o Spouses and dependents, special VISA multiple entry privileges
and others.
 Ready to Occupancy Business Locations in World-Class Economic Zones
and IT parks and buildings.

OTHER TAX ENFORCERS:

LTO (Registration and Motor Vehicle Tax) – Also Tax Admin
Authorize Accredited Banks (Tax Dues)
Courts
Register of Deeds
Secretary of Public Works and Highways

LARGE TAXPAYERS (UNDER SUPERVISION OF LARGE TAXPAYER SERVICE)

***Non-Large (respective RDO’s)
Types:
 As to Payment
o VAT/PT – 200,000/quarter
o Excise(preceding year)/Income(preceding year)/WT(all
types)/DST(aggregate) – 1,000,000/year
 As to Financial conditions and operations
o Gross receipts/Sales – 1,000,000,000
o Net worth – 300,000,000
o Gross Purchases(preceding year) – 800,000,000
o Top Corporate Taxpayer listed and Published by SEC
Automatic LTP:
1. Branches of LTP
2. Subsidiaries, Affiliates and entities of conglomerates or group of LTP
3. Surviving Company (Merger/Consolidation)
4. Corporation who absorbs operations of bankrupt LTP
5. Corp. with capitalization if at least 300,000,000 with SEC
6. Multinational Enterprise with capitalization if at least 300,000,000
7. Publicly Listed Corp.
8. Universal, Commercial and Foreign Banks (even as branch whole entity LTP)
9. Banking, Insurance, Telecom, Utilities, Petroleum, Tobacco and Alcohol Industry
(100,000,000 Capital)
10. Metallic Materials Corporations.