Chapter 2 - Taxes, Tax Laws and Tax Administration CHAPTER 2 TAXES, TAX LAWS, AND TAX ADMINISTRATION Chapter Overview and Objectives This Chapter discusses tax laws, taxes, and their distinction from similar items, and the administration of the tax system, After this chapter, readers are expected to comprehend and demonstrate knowledge on the following: 1 SNA Pwr so The type of taxation laws Distinction among tax laws, revenue regulations, and rulings Tax, its elements, and classifications Distinction of tax from similar items Tax system and its types The principles of a sound tax system How tax is administered The powers of the Bureau of Internal Revenue (BIR) and the Commissioner of Internal Revenue (CIR) and the non-delegated powers of the CIR The criteria for selection of large taxpayers TAXATION LAW Taxation law refers to any law that arises from the exercise of the taxation power of the State. Types of taxation laws 1. Tax laws - These are laws that provide for the assessment and collection of taxes. Examples: a. The National Internal Revenue Code (NIRC) b. The Tariffand Customs Code c. The Local Tax Code d. The Real Property Tax Code Tax exemption laws - These are laws that grant certain immunity from taxation. Examples: a. The Minimum Wage Law b. The Omnibus Investment Code of 1987 (E.0. 226) c. Barangay Micro-Business Enterprise (BMBE) Law d. Cooperative Development Act 35 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration Sources of Taxation Laws Constitution Statutes and Presidential Decrees Judicial Decisions or case laws Executive Orders and Batas Pambansa Administrative Issuances Local Ordinances ; Tax Treaties and conventions with foreign countries Revenue Regulations a SENanAwWNE 'ypes of Administrative Issuances . Revenue regulations Revenue memorandum orders Revenue memorandum rulings Revenue memorandum circulars Revenue bulletins BIR rulings awn Revenue Regulations are issuances signed by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue (CIR) that specify, prescribe, or define rules and regulations for the effective enforcement of the Provisions of the National Internal Revenue Code (NIRC) and related statutes, Revenue regulations are formal pronouncements intended to clarify or explain the tax law and carry into effect its general provisions by providing details of administration and procedure. Revenue regulation has the force and effect of a law, but is not intended to expand or limit the application of the law; otherwise, it is void. Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, Operations, activities, workflows, methods, and procedures necessary in the implementation of Stated Policies, goals, objectives, plans, and programs of the Bureau in all areas of. operations except auditing. Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the CIR with respect to the provisions of the Tax Code and other tax laws as applied to a specific set of facts, with or without established precedents, and which the CIR ma issue from time to time for the purpose of providing taxpayers guidance on the ay consequences in specific situations. BIR Rulings, therefore, cannot contravene dul issued RMRs; otherwise, the Rulings are null and void ab initio, Revenue Memorandum Circulars (RMCs) are issuances that publish applicable portions as well as amplifications of laws, rules, regulations, issued by the BIR and other agencies/offices. Pertinent and and precedents 36 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration Revenue Bulletins (RB) refer to periodic issuances, notices, and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of Jaw or administration in relation to the provisions of the Tax Code, relevant tax laws, and other issuances for the guidance of the public. BIR Rulings are official positions of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws. Rulings are merely advisory or a sort of information service to the taxpayer such that none of them is binding except to the addressee and may be reversed by the BIR at anytime. Types of rulings 4. Value Added Tax (VAT) rulings 2. International Tax Affairs Division (ITAD) rulings 3. BiRrulings 4, Delegated Authority (DA) rulings Generally accepted accounting principles (GAAP) vs. Tax Laws Generally accepted accounting principles or GAAP are not laws, but are mere conventions of financial reporting. They are benchmarks for the fair and relevant valuation and recognition of income, expense, assets, liabilities, and equity of a reporting entity for general purpose financial reporting. GAAP accounting reports are intended to meet the common needs of a vast number of users in the general public. Tax laws including rules, regulations, and rulings prescribe the criteria for tax reporting, a special form of financial reporting which is intended to meet specific needs of tax authorities. Taxpayers normally follow GAAP in recording transactions in their books. However, in the preparation and filing of tax returns, taxpayers are mandated to follow the tax law in cases of conflict with GAAP. NATURE OF PHILIPPINE TAX LAWS Philippine tax laws are civil and not political in nature. They are effective even during periods of enemy occupation. They are laws of the occupied territory and not by the occupying enemy. Tax payments made during occupations of foreign enemies are valid. Our internal revenue laws are not penal in nature because they do not define crime. Their penalty provisions are merely intended to secure taxpayers’ compliance. 37 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration Tents an enforced proportional contribution levied by the lawmaking body Of the State to raise revenue for public purpose. i te ae be leletby the taxing power having jurisdiction over the object o¢ taxation. : as Weteae Tax must not violate constitutional and inherent limitations. Tax must be uniform and equitable. Tax must be for public purpose. Tax must be proportional in character. Tax is generally payable in money. auaws Classification of Taxes A. As to purpose 1. Fiscal or revenue tax - a tax imposed for general purpose 2. Regulatory - a tax imposed to regulate business, conduct, acts o transactions 3. Sumptuary -a tax levied to achieve some social or economic objectives B. As to subject matter 1. Personal, poll or capitation - a tax on persons who are residents of a Particular territory 2. Property tax - a tax on properties, real or personal 3. Excise or privilege tax - a tax imposed upon the performance of an act, enjoyment of a privilege or engagement in an occupation C. Asto incidence 1. Direct tax - When both the impact and incidence of taxation rest upon the same taxpayer, the tax is said to be direct. The e tax is collected from the person who is intended to pay the same. The statutory taxpayer is the economic taxpayer. 2. Indirect tax - When the tax is Paid by any person o is intended to pay the same, the tax is said to be ij the case of business taxes where the statuto) economic taxpayer, ther than the one who indirect. This occurs in Ty taxpayer is not the The statutory taxpayer is the Person nam economic taxpayer is the one who actually D. As to amount 1, Specific tax.- a tax of a fixed amount imposed n fee per kilo, liter or meter, etc. 9 Per unit basis such as ed by law to ay tl . ays the weet” Pay the tax. An 38 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration object Proportion imposed upon the value of the tax E, Asto rate 1. Proportional fax ~ This is a flat or fixed rate tax. The use of proportional tax emphasizes equality as it subjects all taxpayers with the same rate without regard to their ability to Pay. 2. Progressive or graduated tax - This is a tax which imposes increasing rates as the tax base increase. The use of progressive tax rates results in equitable taxation because it gets more tax to those who are more capable. It aids in lessening the gap between the rich and the poor. 3. Regressive tax i This tax imposes decreasing tax rates as the tax base increase. This is the total reverse of progressive tax. Regressive tax is regarded as anti-poor. It directly violates the Constitutional guarantee of progressive taxation. 4, Mixed tax - This tax manifest tax rates which is a combination of any of the | | 2. Ad valorem - a tax of a fixed | | above types of tax. F._ As to imposing authority 1. National tax - tax imposed by the national government | Examples: a, Income tax ~ tax on annual income, gains or profits b. Estate tax - tax on gratuitous transfer of properties by a decedent upon death c. Donor’s tax - tax on gratuitous transfer of properties by a living donor d. Value Added Tax - consumption tax collected by VAT business taxpayers . e. Other percentage tax - consumption tax collected by non-VAT business taxpayers f. Excise tax - tax on sin products and non-essential commodities such as alcohol, cigarettes and metallic minerals. This should be differentiated with the privilege tax which is also called excise tax. g. Documentary stamp tax - a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. 2. Local tax - tax imposed by the municipal or local government Examples: a. Real property tax b. Professional tax c. Business taxes, fees, and charges 39 Scanned with CamScannertration Chapter 2 - Taxes, Tax Laws and Tax Administrati d, Community tax p hut 10 e. Taxon banks and other financial institutions DISTINCTION OF TAXES wITH SIMILAR ITEMS Tax vs. Revenue i nt for public purpose. Reven; Tax refers to the amount imposed by the governmel Te oon au f the government wi refers to all income collections 0} e The amount impos licenses, toll, penalties and others. collected is revenue. ed is tax but the amount Tax vs. License fee . 7 Tax has a broader subject than license. Tax emanates from oe power and is imposed upon any object such as persons, properties, OF privileges to raise revenue. License fee emanates from police powe ; a privilege such as the commencement of a business or a mmencement of a business or profession whereas Taxes are imposed after the co! ines a license fee is imposed before engagement in those activities. In other words, tax is a post-activity imposition whereas license is a pre-activity imposition. and is imposed to regulate the exercise of profession. Tax vs. Toll Tax is a levy of government; hence, it is a demand of sovereignty. Toll is a charge for the use of other’s property; hence, itis a demand of ownership. The amount of tax depends upon the needs of the government, but the amount of toll is dependent upon the value of the property leased. Both the government and private entities impose toll, but private entities cannot impose taxes. Tax vs. Debt Tax arises from law while debt arises from private contracts, Non-payment of tax leads to imprisonment, but non-payment of debt does not lead to imprisonment. Debt can be subject to set-off but tax is not. Debt can be paid in kind (dacion en pago) but tax is generally payable in money. : Tax draws interest only when the taxpayer is delinquent. Debt draws interest when it is so stipulated by the contracting parties or when the debtor incurs a legal delay. 40 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration Tax vs. Special Assessment Te erent ie fed aque upon persons, properties, or privileges. Special ass rovement. tie d by the government on lands adjacent to a public imp! - It is imposed on land only and is intended to compensate the government for a part of the cost of the improvement. = basis of special assessment is the benefit in terms of the appreciation in land value cau: y the public improvement. On the other hand, tax is levied without expectation of a direct proximate benefit. ae tates spec assessment attaches to the land. It will not become a personal obligation o 1 the land owner. Therefore, the non-payment of special assessment will not result to imprisonment of the owner (unlike in non-payment of taxes). Tax vs. Tariff Tax is broader than tariff. Tax is an amount imposed upon persons, privilege, transactions, or properties. Tariff is the amount imposed on imported or exported commodities. Tax vs. Penalty Tax is an amount imposed for the support of the government. Penalty is an amount imposed to discourage an act. Penalty may be imposed by both the government and private individuals. It may arise both from law or contract whereas tax arises from law. TAX SYSTEM The tax system refers to the methods or schemes of imposing, assessing, and collecting taxes. It includes all the tax laws and regulations, the means of their enforcement, and the government offices, bureaus and withholding agents which are part of the machineries of the government in tax collection. The Philippine tax system is divided into two: the national tax system and the local tax system. Types of Tax Systems According to Imposition 1. Progressive - employed in the taxation of income of individuals, and transfers of properties by individuals 2. Proportional - employed in taxation of corporate income and business 3. Regressive - not employed in the Philippines Types of Tax System According to Impact 1. Progressive system A progressive tax system is one that emphasizes direct taxes. A direct tax cannot be shifted. Hence, it encourages economic efficiency as it leaves no other resort to taxpayers than to be efficient. This type of tax system impacts more upon the rich. 41 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration 2. Regressive system Are rn i ‘gressive tax system is one that emphasizes indirect taxes. Indirect taxes are i : ‘. Shifted by businesses to consumers; hence, the impact of taxation rests upo: 4 : aoe the bottom end of the society. In effect, a regressive tax system is anti. ae widely believed that despite the Constitutional guarantee of a progressive ation, the Philippines has a dominantly regressive tax system due to the Prevalence of business taxes. TAX COLLECTION SYSTEMS A. Withholding system on income tax - Under this collection system, the payor of the income withholds or deducts the tax on the income before releasing the same to the payee and remits the same to the government. The following are the withholding taxes collected under this system: 1. Creditable withholding tax a. Withholding tax on compensation ~ an estimated tax required by the government to be withheld (i.e. deducted) by employers against the compensation income to their employees b. Expanded withholding tax - an estimated tax required by the government to be deducted on certain income payments made by taxpayers engaged in business The creditable withholding tax is intended to support the self-assessment method to lessen the burden of lump sum tax payment of taxpayer and also provides for a possible third-party check for the BIR of non-compliant taxpayers. 2. Final withholding tax - a system of tax collection wherein ‘payors are required to deduct the full tax on certain income payments The final withholding tax is intended for the collection of taxes from income with high risk of non-compliance. Similarities of final tax and creditable withholding tax a. In both cases, the income payor withholds a fraction of the income and remits the same to the government. b. By collecting at the moment cash is available, both serve to minimize cash flow problems to the taxpayer and collection problems to the government. 42 aS Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration Differences between FWT and CWT Final Withholding | Creditable Withholding Tax Tax | Income tax withheld Full Only a portion Coverage of Certain passive income | Certain passive and active withholding income Who remits the actual Income payor Income payor for the CWT and fox the taxpayer for the balance Necessity of income tax Not required Required return for taxpayer B. Withholding system on business tax - when the national government agencies and instrumentalities including government-owned and controlled corporations (GOCCs) purchase goods or services from private suppliers, the law requires withholding of the relevant business tax (i.e. VAT or percentage tax). Business taxation is discussed under Business and Transfer Taxation by the same author. C. Voluntary compliance system - Under this collection system, the taxpayer himself determines his income, reports the same through income tax returns and pays the tax to the government. This system is also referred to as the “Self-assessment method.” The tax due determined under this system will be reduced by: a, Withholding tax on compensation withheld by employers b. Expanded withholding taxes withheld by suppliers of goods or services The taxpayer shall pay to the government any tax balance after such credit or claim refund or tax credit for excessive tax withheld. 5 Assessment or enforcement system - Under this collection system, the government identifies non-compliant taxpayers, assesses their tax dues including penalties, demands for taxpayer's voluntary compliance or enforces collections by coercive means such as summary proceeding or judicial proceedings when necessary. PRINCIPLES OF A SOUND TAX SYSTEM According to Adam Smith, governments should adhere to the following principles or canons to evolve a sound tax system: 1. Fiscal adequacy 2. Theoretical justice 3. Administrative feasibility 43 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration Fiscal adequacy Fiscal adequacy requires that the sources of government funds must be sufficient to cover government costs. The government must not incur a deficit. A budget deficit paralyzes the government's ability to deliver the essential public Services ty the people. Hence, taxes should increase in response to increase in government spending. Theoretical justice Theoretical justice or equity suggests that taxation should consider the taxpayers ability to pay. It also suggests that the exercise of taxation should not be oppressive, unjust, or confiscatory. Administrative feasibility Administrative feasibility suggests that tax laws should be capable of efficient ang effective administration to encourage compliance. Government should make jt easy for the taxpayer to comply by avoiding administrative bottlenecks ang reducing compliance costs. The following are applications of the principle of administrative feasibility: 1. E-filing and e-payment of taxes 2. Substituted filing system for employees 3. Final withholding tax on non-resident aliens or corporations 4. Accreditation of authorized agent banks in the filing and payment of taxes TAX ADMINISTRATION Tax administration refers to the management of the tax system. Tax administration of the national tax system in the Philippines is entrusted to the Bureau of Internal Revenue which is under the supervision and administration of the Department of Finance. Chief Officials of the Bureau of Internal Revenue 1. 1Commissioner 2. 4 Deputy Commissioners, each to be designated to the following: a. Operations group b. Legal Enforcement group c. Information Systems Group d. Resource Management Group POWERS OF THE BUREAU OF INTERNAL REVENUE 1. Assessment and collection of taxes 2. Enforcement of all forfeitures, penalties and fines, and judgments in all cases decided in its favor by the courts 44 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration 3. Lk ot Giving effect to, and administering the supervisory and police powers conferred to it by the NIRC and other laws ‘ Assignment of internal revenue officers and other employees to other duties Provision and distribution of forms, receipts, certificates, stamps, etc. to proper officials Issuance of receipts and clearances Submission of annual report, pertinent information to Congress and reports to the Congressional Oversight Committee in matters of taxation POWERS OF THE COMMISSIONER OF INTERNAL REVENUE 1. To interpret the provisions of the NIRC, subject to review by the Secretary of Finance To decide tax cases, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals, such as: a. Disputed assessments b. Refunds of internal revenue taxes, fees, or other charges c. Penalties imposed d. Other NIRC and special law matters administered by the BIR To obtain information and to summon, examine, and take testimony of persons to effect tax collection Purpose: For the CIR to ascertain: a. The correctness of any tax return or in making a return when none has been made by the taxpayer b. The tax liability of any person for any internal revenue tax or in correcting any such liability c. Tax compliance of the taxpayer Authorized acts: a. To examine any book, paper, record or other data relevant to such inquiry b. To obtain on a regular basis any information from any person other than the person whose internal revenue tax liability is subject to audit c. To summon the person liable for tax or required to file a return, his employees, or any person having possession and custody of his books of accounts and accounting records to produce such books, papers, records or other data and to give testimony d. To take testimony of the person concerned, under oath, as may be relevant or material to the inquiry e. To cause revenue officers and employees to make canvass of any revenue district To make assessment and prescribe additional requirement for tax administration and enforcement 45 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration 5. To examine tax returns and determine tax due thereon ; ize the examinati The CIR or his duly authorized representatives may a ea Failure to fn of any taxpayer and the assessment of the correct Se exaailiauonl . a return shall not prevent the CIR from authorizing the Tax or deficiency assessments are due upon notice and demand by the CIR or his representatives, Returns, statements or declarations shall not be wine oe Be be modified, changed and amended by the taxpayer within 3 years : late of filing, except when a notice for audit or investigation has been actually served upon the taxpayer. When a return shall not be forthcoming within the prescribed deadline or when there is a reason to believe that the return is false, incomplete or erroneous, the CIR shall assess the proper tax on the basis of best evidence available, In case a person fails to file a required return or other documents at the time Prescribed by law or willfully files a false or fraudulent return or other documents, the CIR shall make or amend the return from his own knowledge and from such information obtained from testimony. The return shall be presumed prima facie correct and sufficient for all legal purposes. To conduct inventory taking or surveillance To prescribe presumptive gross sales and receipts for a taxpayer when: a. The taxpayer failed to issue receipts; or b. The CIR believes that the books or other records of the taxpayer do not correctly reflect the declaration in the return. The presumptive gross sales or receipt shall be derived from the performance of similar business under similar circumstances adjusted for other relevant information. 8. To terminate tax period when the taxpayer is: a. Retiring from business b. Intending to leave the Philippines c. Intending to remove, hide, or conceal his property d. Intending to perform any act tending to obstruct the Proceedings for the collection of the tax or render the same ineffective The termination of the taxable period shall be communicated through a notice to the taxpayer together with a request for immediate Payment. Taxes shall be due and payable immediately. 46 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration 9. 10. 1 o 12. 13. 14. 15. 16. To prescribe real property values The CIR is authorized to divide the Philippines into zones and prescribe real property values after consultation with competent appraisers, The values prescribed are referred to as zonal value. For purposes of internal revenue taxes, fair value of real property shall mean whichever is higher of: a. Zonal value prescribed by the Commissioner b. Fair market value as shown in the schedule of market values of the Provincial and City Assessor’s Office The NIRC previously used the assessed value which is merely a fraction of the fair market value. Assessed value is the basis of the real property tax in local taxation. The value to use nowis the full fair value of the property. To compromise tax liabilities of taxpayers . To inquire into bank deposits, only under the following instances: a. Determination of the gross estate of a decedent b. To substantiate the taxpayer's claim of financial incapacity to pay tax in an application for tax compromise In cases of financial incapacity, inquiry can proceed only if the taxpayer waives his privilege under the Bank Deposit Secrecy Act. To accredit and register tax agents The denial by the CIR of application for accreditation is appealable to the Department of Finance. The failure of the Secretary of Finance to act on the appeal within 60 days is deemed an approval. To refund or credit internal revenue taxes To abate or cancel tax liabilities in certain cases To prescribe additional procedures or documentary requirements To delegate his powers to any subordinate officer with a rank equivalent to a division chief of an office Non-delegated power of the CIR The following powers of the Commissioner shall not be delegated: & 2 The power to recommend the promulgation of rules and regulations to the Secretary of Finance. The power to issue rulings of first impression or to reverse, revoke or modify any existing rulings of the Bureau. 47 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration 3. The power to compromise or abate any tax liability Exceptionally, the Regional Evaluation Boards may compromise tax liabilitie, under the following: sc aibilcia Whats nthe a. assessments are issued by the regional offices involving basic deficiency tax of P500,000 or less, and minor criminal violations discovered by regional and district officials Composition of the Regional Evaluation Board a. Regional Director as chairman b. Assistant Regional Director 5 ¢. Heads of the Legal, Assessment and Collection Division d. Revenue District Officer having jurisdiction over the taxpayer 4. The power to assign and reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. Rules in assignments of revenue officers to other duties 1. Revenue officers assigned to an establishment where excisable articles are kept shall in no case stay there for more than 2 years. 2. Revenue officers assigned to perform assessment and collection function shal not remain in the same assignment for more than 3 years. 3. Assignment of internal revenue officers and employees of the Bureau to | special duties shall not exceed 1 year. | Agents and Deputies for Collection of National Internal Revenue Taxes The following are constituted agents for the collection of internal revenue taxes: 1. The Commissioner of Customs and his subordinates with respect to collection of national internal revenue taxes on imported goods. 2. The head of appropriate government offices and his subordinates with respect to the collection of energy tax. 3. Banks duly accredited by the Commissioner with respect to receipts of payments of internal revenue taxes authorized to be made thru banks. These are referred to as authorized government depositary banks (AGDB). OTHER AGENCIES TASKED WITH TAX COLLECTIONS OR TAX INCENTIVES RELATED FUNCTIONS 1. Bureau of Customs 2. Board of Investments 3. Philippine Economic Zone Authority 4, Local Government Tax Collecting Unit 48 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration Bureau of Customs (BOC) eg ec functions, the bureau of Customs is tasked to administer a 's on imported articles and collection of the Value Added Tax on importation. Together with the BIR, i Department of Finance. , the BOC is under the supervision of the The Bureau of Customs is headed by the Customs Commissioner and is assisted by five Deputy Commissioners and 14 District Collectors. Board of Investments (BOT) The BO! is tasked to lead the promotion of investments in the Philippines by assisting Filipinos and foreign investors to venture and prosper in desirable areas of economic activities. It supervises the grant of tax incentives under the Omnibus Investment Code. The BOI is an attached agency of the Department of Trade and Industry (DTI). The BOlis composed of five full-time governors, excluding the DTI secretary as its chairman. The President of the Philippines shall appoint a vice chairman of the board who shall act as the BO!’s managing head. Philippine Economic Zone Authority (PEZA) The PEZA is created to promote investments in export-oriented manufacturing industries in the Philippines and, among other myriads of functions, supervise the grant of both fiscal and non-fiscal incentives. PEZA registered enterprises enjoy tax holidays for certain years, exemption from import and export taxes including local taxes. The PEZA is also an attached agency of the DTI. The PEZA is headed by a director general and is assisted by three deputy directors. Local Government Tax Collecting Units Provinces, municipalities, cities and barangays also imposed and collect various taxes to rationalize their fiscal autonomy. The special tax treatments of BOl-registered or PEZA-registered enterprises including the local taxes imposed by local governments will be discussed under Local & Preferential Taxation by the same author. 49 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration ‘TAXPAYER CLASSIFICATION FOR PURPOSES OF TAX ADMINISTRATION i purposes of effective and efficient tax administration, taxpayers are Classifigg nto: 1. Large taxpayers - under the supervisi Servi i erv! the Large Taxpayer ice (L: of the BIR National Office, pervision of the Larg: 1 2. Non-large taxpayers - under the supervision of the respective Reveny, District Offices (RDOs) where the business, trade or profession of the taxpaye, is situated Criteria for Large Taxpayers: A. As to payment 1. Value Added Tax - At least P200,000 per quarter for the preceding year 2. Excise Tax - At least P1,000,000 tax paid for the pr eceding year | 3. Income Tax - At least P1,000,000 annual income tax paid for the preceding year : 4. Withholding Tax - At least P1,000,000 annual withholding tax payments o, remittances from all types of wi ithholding taxes 5. Percentage tax - At least P200,000 percentage quarter for the preceding year 6. Documentary stamp tax - At least P1,000,000 aggregate amount per year tax paid or payable per | B. As to financial conditions and results of operations | 1. Gross receipts or sales - P1,000,000,000 total annual gross sales or receipts 2. Net worth - P300,000,000 total net worth at the close of each calendar or fiscal year 3. Gross purchases - P800,000,000 total annual purchases for the preceding year 4. Top corporate taxpayer listed and published by the Securities and Exchange | Commission Automatic classification of taxpayers as large taxpayers The following taxpayers shall be automatically classified as large taxpayers upon notice in writing by the CIR: 1. All branches of taxpayers under the Large Taxpayer's Service 2. Subsidiaries, affiliates, and entities of conglomerates or group of companies of a | large taxpayer 3. Surviving company in case of merger or consolidation of a large taxpayer 4. A corporation that absorbs the operation or business in case of spin-off of any large taxpayer 5. Corporation with an authorized capitalization of at least P300,000,000 registered with the SEC 50 Scanned with CamScannerChapter 2 - Taxes, Tax Laws and Tax Administration 6. 7. 8. 9. Multinational enterprises with an authorized capitalization or assigned capital of at least P300,000,000 Publicly listed corporations Universal, commercial, and foreign banks (the regular business unit and foreign currency deposit unit shall be considered one taxpayer for purposes of classifying them as large taxpayer) Corporate taxpayers with at least P100,000,000 authorized capital in banking, insurance, telecommunication, utilities, petroleum, tobacco, and alcohol industries 10. Corporate taxpayers engaged in the production of metallic minerals 51 Scanned with CamScanner