You are on page 1of 12

TAX ADMINISTRATION AND PROCEDURE IN NATIONAL TAXATION A. FUNCTION AND AGENCIES OF TAXATION 1.

Levy * the legislative act which determines that a atx of a certain amount or of a c ertain percentage shall be imposed. * there cannot be an imposition of a tax without the amount or rate being fixed by law. 2. Assessment * The official action of an officer authorized by law in ascertaining the amount of tax due under the law. * It necessarily involves: a) computation; b) giving of notice; and c) making demand 3. Collection * The getting by the proper governmental agencies of the taxes imposed; * Payment of tax by the taxpayer or the voluntary compliance by him with his tax obligations. TAX ADMINISTRATION --> the manner and procedure of assessing and collec ting or enforcing tax liabilities. 2 functions: 1. assessment; 2. collection. ADMINISTRATIVE AGENCIES AND THE COURTS: 1. Bureau of Internal Revenue (BIR) --> charged with the primary functio n of administration of the National Internal Revenue laws and regulations. 2. Bureau of Customs --> charged with the administration of the tariff and customs laws and regulations. NB: BIR and BoC are under the Dept. of Finance 3. Court of Tax Appeals --> exclusive appellate jurisdiction to review on appeal decisions of the CIR and the Commissioner of Customs, and has jurisdic tion over disputed assessments of tax 4. Ordinary Courts --> RTC/MTC; jurisdiction over civil and criminal ca ses for the collection of int4ernal revenue taxes and customs duties in cases wh ich are not within the appellate jurisdiction of the CTA. --> jurisdiction over non-disputed assessm ents and over cases involving local taxes an special laws not administered by th e BIR and Customs. 5. Supreme Court --> the court of last resort

POWERS AND DUTIES, IN GENERAL, OF THE BIR PRINCIPAL FUNCTIONS: (a) Assess and collect all national internal revenue taxes, fees and charges; (b) Enforce all forfeitures, penalties and fines connected therewith; (c) Execute judgments in all cases decided in its favor by the CTA and ordinary

courts; (d) Give effect to and administer the supervisory and police power conferred to it by law; (e) Recommend to the Secretary of Finance all needful rules and regulations for the effective enforcement of the provisions of the NIRC. OTHER FUNCTIONS: (a) Accounting for all revenues collected; (b) Exercising all legal requirements that are appropriate; (c) Preventing and prosecuting tax evasions and other illegal economic activitie s; (d) Exercising supervision and control over its constituent units; and (e) Performing such other functions as may be provided by law. B. ASSESSMENT OF TAXES Internal revenue taxes may be classified into two: 1. those which do not require assessment to establish tax liability * self-assessing taxes * GR: Internal revenue taxes are self-assessing * Why? They do not need a letter of demand or assessment notice. The taxpayer h imself computes his tax liability!!! * Pay-As-You-File System --> applies to individual & corporate income taxes --> since the rates or amounts of tax are fixed by law the role of the tax offic ial is purely to determine the accuracy of the taxpayer's assessment of his tax liability. 2. those which require assessment to establish tax liability instances: a. when the taxable period fixed by law within which to pay a tax of a taxpayer is terminated as when the taxpayer intends to leave the Philippines or hides or conceals his property; b. in case of deficiency taxes for failure to file a return or filing a false or fraudulent return. AUTHORITY OF COMMISSIONER TO TERMINATE TAX PERIOD: GROUNDS: * when it shall come to the knowledge of the Commissioner of Inernal Revenue tha t a taxpayer: 1) is retiring from the business subject to tax; 2) is intending to: a. leave the Philippines; b. remove his properties therefrom; c. hide or conceal his property. 3) is performing any act tending to: a. obstruct the proceeding for collecting the tax for the past or current quarte r or year; or b. render the same totally or partly ineffective, unless such proceeding is begu n immediately. NB: the above-mentioned grounds are also grounds for constructive distraint of p

ersonal property. AUTHORITY TO ASSESS VESTED IN COMMISSIONER * GR: The authority to make assessments of internal revenue is vested by law i n the CIR. * EXCEPTION: The authority may be delegated to subordinate officers like the Chief of the Income Tax Division * LIMITATION: The Commissioner cannot delegate the power to make a final asses sment to his subordinate as he himself is the one entrusted by law to make final assessments. * Presumption of correctness and made in good faith --> the burden of proof to show that the assessment is illegal or improper is wi th the taxpayer PROCEDURE OF ASSESSMENT * PROTESTING OF ASSESSMENTS: 1. When the CIR or his duly authorized representative finds that proper taxes sh ould be assessed, he shall first notify the taxpayer of his findings; 2. If the taxpayer fails to respond, the CIR shall issue an assessment based on his findings; 3. Such assessment may be protested administratively --> File a request for reconsideration or reinvestigation within 30 days from re ceipt of assessment --> Within 60 days from filing of the protest, all relevant supporting documents shall become final --> If denied in whole or in part, or is not acted upon within 180 days from sub mission of documents * Taxpayer may APPEAL to the CTA within 30 days from receipt of said decision; O R * From the lapse of the 180 days period, otherwise, the decision shall become fi nal, executory and demandable. * DEFICIENCY --> the amount by which the tax imposed (amount payable) by the l aw exceeds the amount shown as the tax (amount paid) by the taxpayer upon his re turn. * DEFICIENCY ASSESSMENTS --> those made after an examination or inspection of the taxpayer's return or re4cords or after an independent investigation in which a deficiency is found. * DELINQUENCY --> the failure of the taxpayer to pay due on the date fixed by law or indicated in the assessment notice or letter of demand. * An assessment that has not been received by the person liable for the payment of the tax, cannot become final and executory (Republic vs. dele Rama, 178 SCRA 861). C. COLLECTION OF TAXES

REMEDIES --> taxes are the lifeblood of the government and their prompt and ce rtain availability is an imperious need. Hence, it is imperatively necessary tha

t taxes be paid or collected promptly, delay cannot be tolerated. The legislativ e may adopt any reasonable method for the effective enforcement of the collectio n of taxes. REMEDIES AVAILABLE TO THE GOVERNMENT: 1. DISTRAINT OF PERSONAL PROPERTY * The seizure by the government of personal property, tangible or intangible, to enforce the payment of taxes, to be followed by its public sale, if the taxes a re not voluntarily paid. * Kinds of distraint: a. actual distraint --> the taking possession of the personal property out of th e taxpayer into that of the government. --> in case of intangible property, the taxpayer is also divested of the power of control over his property. b. Constructive distraint --> the owner is merely prohibited from disposing of his personal property. * The remedies of distraint and levy cannot be availed of where the amount of ta x involved does not exceed P100.00. * Requisites for exercise of remedy of distraint (& levy): 1. Delinquent payment of tax by the taxpayer (not essential in constructive dist raint); 2. There must be a subsequent demand for its payment; 3. The taxpayer failed to pay the delinquent tax at the time required; 4. The period within which to assess or collect the tax has not yet prescribed. * The distraint of personal property shall be made by: (a) CIR or his duly authorized representative, if the amount is in excess of P1, 000,000.00. (b) Revenue District Officer, if it is P1million or less. * PROCEDURE FOR ACTUAL DISTRAINT OF PERSONAL PROPERTY: 1. Service of warrant of distraint upon the taxpayer or upon the person in posse ssion of the taxpayer's personal property; 2. Posting of notice in not less than 2 public places in the municipality or cit y and notice to the taxpayer specifying the time and place of sale and the artic les distrained; 3. Sale at public auction to the highest bidder; and 4. Disposition of the proceeds of sale. * Any residue over and above what is required to pay the entire claim including expenses, shall be returned to the owner of the property sold. Embraces only the ACTUAL EXPENSES of seizure and preservation of the property pe nding the sale * release of distrained property prior to sale --> all proper charges are paid to the officer conducting the sale at anytime pr ior to the consummation of the sale --> NB: taxpayer is not given the right to redeem after the sale of personal pro perty at public auction!!! * Purchase by Government of property distrained

--> When the amount of the bid of the peroperty under distrained is: * Not equal to the amount of tax; or * Very much less than the actual market value of the articles offered for sale --> The amount of taxes, penalties and costs due thereon shall be the purchase p rice to be paid by the government; --> The taxpayer is not liable for any deficiency! CONSTRUCTIVE DISTRAINT: * Purpose: to prevent the taxpayer from disposing of his property pending final determination of his tax liability. Hence, it can be imposed even if the taxpaye r is not delinquent. * Procedure for Constructive Distraint: Effected by requiring the taxpayer or any person having possessi on or control of such property to: 1. Sign a receipt covering the property distrained; and 2. Obligate himself to preserve the same intact & unaltered and not to dispose o f the same in any manner whatsoever without the express authority of the CIT. If there is refusal: 1. The officer shall proceed to prepare a list of such properties; 2. In the presence of 2 witnesses, leave a copy thereof in the premises where th e property distrained is located. Said property shall be deemed to have been placed under constructive distrain t. 2. LEVY OF REAL PROPERTY * The act of seizure of REAL PROPERTY in order to enforce the payment of taxes. The property may be sold at public sale, if after seizure, the taxes are not vol untarily paid. It may be repeated if necessary until the full amount including a ll expenses, is collected. * Procedure for levy of real estate: 1. Preparation of a duly authenticated certificate showing the name of the taxpa yer and the amounts of the tax and the penalty due from him; 2. Writing upon said certificate a description of the property upon which levy i s made; 3. Service of written notice to the delinquent of the property; * The proper Register of Deeds of the province or city where the property is locat ed shall also be notified of the levy 4. advertisement of the time and place of sale of the taxpayer's property; 5. sale at public auction to the highest bidder; and 6. disposition of proceeds of sale * the excess of the proceeds shall be turned over to the owner of the property NB: real property placed under levy may be sold at public auction fo r less than its market value since the taxpayer is given the RIGHT TO REDEEM. * Forfeiture by Government of property levied upon

In case: (a) There is no bidder for real property exposed for sale; or (b) If the highest bid is for an amount insufficient to pay the taxes, penalties and costs. ? The duty of the Reg. Of Deeds will be to transfer the title to the property fo rfeited to the government without the necessity of a court order. ? The forfeiture does not operate as a total discharge of the claim; ? If the market value of the property is more than the amount claimed, the taxpa yer is not entitled to the excess --> Right of Redemption * Redemption of Property Sold or Forfeited ? The delinquent taxpayer or anyone for him shall have the right to redeem the p roperty sold or forfeited; ? If the redemption is made by one who is not the owner of the property, the own er may recover the property from him; ? The time to redeem may be exercised within a NON-EXTENDIBLE PERIOD OF 1 YEAR f rom the date of sale or forfeiture. 1-year period begins from the registration of the deed of sale or declaration of forfeiture. 3. ENFORCEMENT OF FORFEITURE * Implies a divesture of property without compensation, in consequence of a defa ult or offense. The property is transferred to another (government) without the consent of the owner and wrongdoer. * EFFECT: Forfeiture is directed against the Res, the property itself, and its e ffect is to transfer the title to the specific thing from the owner to the gover nment to restrain the commission of an offense and to aid in its prevention. * Forfeiture of personal property is enforced by SEIZURE AND SALE or DESTRUCTION of the specific forfeited property. * Forfeiture of REAL PROPERTY is enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require. * Forfeited property shall not be destroyed until at least 20 days after seizure . * In case of sale of forfeited goods all the proceeds of the sale go to the gove rnment * In case of sale of chattel/real property, the excess after payment of taxes, p enalties, costs, go to the taxpayer. 4. ENFORCEMENT OF TAX LIEN * A legal claim or charge on property, either real o personal, established by la w as a security in default of the payment of taxes. * NB: There is no tax lien when there is no obligation to pay a tax. * GR: the lien attaches to the property irrespective of ownership or transfer t hereof. * EXCEPTION: Not valid against any mortgagee, purchaser or judgment creditor unt il NOTICE of such lien is filed by the CIR in the Office of the Register of Deed

s of the Province or City where the property of the taxpayer is located. Without such notice, the government can no longer recover the property and enfor ce its lien thereon. * The lien secures only the payment of the tax. * The residue, after payment of taxes, goes to the taxpayer or owner of the prop erty. * A tax lien on specified property of a taxpayer is also a lien on his other pro perty. * "Rights to Property" include products of the attached property. * Extinguishment of tax lien: 1. By payment or remission of the tax; no more tax liability 2. By prescription of the right of the government to assess or collect (Sec. 202, 222 NIRC) 3. By failure to file notice of such lien in the office of the Reg. Of Deeds, as against mortgagee, taxpayer is still purchaser, or judgment creditor (Sec. 207 B) liable 4. By destruction of the property subject to the lien 5. COMPROMISE OF TAX LIABILITY * A contract whereby the parties, reciprocal concessions (essence of compromise) , avoid a litigation or put an end to one already commenced. * It is to be expected that neither of the parties will be able to maintain his initial demands wholly unaltered. * NATURE: Mutual agreement between the parties. * An Offer of Compromise do not assume the category of compromise until it is vo luntarily accepted by the other. * REQUISITES OF A TAX COMPROMISE: 1. The taxpayer must have a tax liability; 2. There must be an offer by the taxpayer/CIR, as the case maybe, of an amount t o be paid by the taxpayer; and 3. There must be acceptance of the offer in settlement of the original claim. * WHO MAY COMPROMISE TAX CASES: ? GR: Only the CIR --> power is purely discretionary --> in order to assure that no improper compromise is made to the prejudice of t he government ? Subordinate officials may enter into a PRELIMINARY COMPROMISE. * It is not final and may be reviewed by the CIR * If rejected by a subordinate, it shall be final and binding, unless revoked by the CIR. ? Tax assessments by the Regional offices involving basic deficiency taxes of P5 00,000.00 or less and minor criminal violations may be compromised. * EXTENT OF POWER TO COMPROMISE: 1. In civil cases, the CIR is without authority to compromise the payment of any internal revenue taxes if it is clear from the evidence that the taxpayer is li able and the tax unpaid can be collected.

When allowed? a. there is reasonable doubt as to the validity of the claim against the taxpaye r; or b. the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. ? A civil case that has been appealed may still be compromised as the suit is no t yet deemed terminated. 2. In criminal cases, criminal violations may be compromised except: a. those already filed in the court; and b. those involving the commission of fraud by the taxpayer. 3. in other cases, compromise is allowed at the discretion of t he CIR. ? But after the matter reaches the Prosecutor's Office, the prosecutor must give his consent. ? If once the information is filed in court, there can be no more compromise. * GR: A compromise has upon the parties the effect and authority of RES JUDICAT A. * EXCEPTION: if there is fraud, intimidation, violence, mistake, undue influenc e or falsity of documents --> compromise is VOIDABLE * Judicial Compromise can be enforced by mere execution. * Any other compromise is EXTRA-JUDICIAL and can be enforced only by a court lit igation. * REMEDY IN CASE OF FAILURE OF TAXPAYER TO COMPLY WITH A COMPROMISE: 1. enforce the compromise; or 2. regard it as rescinded and insist upon the original demand. 6. REQUIRING The FILING OF BONDS * To secure payment of taxes or to assure compliance with certain provisions of tax laws or regulations. * Instances are: a. estate tax and donor's tax (Sec. 91, NLRC) b. excise taxes (Sec. 137) c. exporter's bond (Sec. 159) d. manufacturer's and importer's bond (Sec. 162) 7. REQUIRING PROOF OF FILING INCOME TAX RETURNS * Before a license to engage in trade, business or occupation or to practice a p rofession can be issued to a person, partnership, association or corporation req uired by law to file an income tax return, he must present to the officer issuin g such license or permit, proof that he or it has filed his income tax return du ring the preceding year and that income taxes have been paid thereon. 8. GIVING OF REWARDS TO INFORMERS * PURPOSE: to encourage the public ton extend full cooperation in eradicating s muggling.

A. FOR VIOLATIONS OF THE TAX CODE: 1. any person EXCEPT an internal revenue official or employee or other public of ficial or employee or his relatives within the 6th degree of consanguinity; 2. who voluntarily gives definite and sworn information not yet in the possessio n of the BIR; 3. leading to the discovery of frauds upon the internal revenue laws or violatio ns of any of the provisions thereof; 4. thereby resulting in: a). discovery of revenues, surcharges and fees; and/or b). the conviction of the guilty party; and/or c). the imposition of any fine or penalty; 5. is entitled to be rewarded in the sum equivalent to 10% of the revenues, surc harges or fees recovered and/or fine or penalty imposed and collected or P1milli on per case, whichever is lower. * In case of compromise, the same amount shall be given to the informer. * If no revenue, surcharges or fees is actually recovered or collected or if the information refers to a case already investigated --> NO REWARD SHOULD BE GIVEN TO THE INFORMER * Taxes collected from other taxpayers as a logical and necessary consequence of the information given by the informer although not included in the list furnish ed shall be included in the computation of the reward. B. FOR DISCOVERY AND SEIZURE OF SMUGGLED GOODS. A cash reward equivalent to 10% of the fair market value smuggled and co nfiscated goods or P1million per case, whichever is lower. 9. IMPOSITION OF SURCHARGE AND INTEREST * SURCHARGE --> an amount imposed by law as addition to the main tax in case o f delinquency. --> the CIR shall impose surcharges on the amount due as ff: a. false or fraudulent returns willfully made --> 50% of the tax or delinquency tax b. willful neglect to file return; c. neglect to file return and pay tax not willful; d. return filed not with officer designated by law; e. prima facie evidence of a false or fraudulent return. * INTEREST --> 20% per annum or such higher rate until fully paid. 10. MAKING ARREST, SEARCH AND SEIZURE 11. DEPORTATION IN The CASE OF ALIENS * Any alien who: a. knowingly and fraudulently evades the payment of any internal revenue tax; or b. willfully refuses to pay such tax and its accessory penalties after the decis ion by the CIR or the CTA or any competent judicial tribunal shall have become f inal and executory. * The remedy of deportation is not a bar to any proceeding, administrative or ju dicial, which may be taken by the government to enforce the collection of tax de

linquency. 12. INSPECTION OF BOOKS (Section 235 {k} NIRC) 13. USE OF THE NATIONAL TAX REGISTER * Record of the names of persons residing in each city or municipality kept and maintained by every revenue regional director or every regional district. 14. OBTAINING INFORMATION ON TAX LIABILITY OF ANY PERSON (Sec. 5, NIRC) 15. INVENTORY- TAKING OF STOCK-IN-TRADE AND MAKING SURVEILLANCE (Section 6, NIRC ) 16. PRESCRIBING PRESUMPTIVE GROSS SALES OR RECEIPTS * The CIR may prescribe a minimum amount of gross receipts, sales and taxable ba se of other persons engaged in similar business under similar situations/circums tances when it found that: a. a person has failed to issue receipts and invoices in violation of the requir ements of the Tax Code; or b. when there is reason to believe that the books of accounts or other records d o not correctly reflected the declarations made or to be made in a return requir ed to be filed under the law. 17. TERMINATION OF TAX PERIOD 18. PRESCRIBING REAL PROPERTY VALUES The Philippines is divided in different zones or areas. The CIR, upon co nsultation with competent public and private appraisers, determine the FMV of re al property located in each zone/area. The value of the property shall be whichever is higher of: 1) the FMV as determined by the Commissioner; or 2) the FMV as shown in the schedule of values of the Provincial or City Assessor s. 19. INQUIRING INTO BANK DEPOSITS * The CIR is authorized by the Tax Code to inquire into the bank deposits of: A) a decedent or deceased person to determine his gross estate; B) any taxpayer who has filed an application for compromise of his tax liabilit y by reason of financial incapacity to pay his tax liability. His application shall not be considered, unless and until he waives in writing h is privilege under the law and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer. 20. REGISTRATION OF TAXPAYERS

JUDICIAL REMEDIES --> Civil or criminal action for the collection of taxes may be pursued in t he discretion of the authorities charged with the collection of taxes without or together with the pursuit of DISTRAINT & LEVY * A taxpayer cannot dispute an assessment which is being enforced by ordinary court action as he should have disputed it before it was brought to Court. * Where the disputed assessment of the CIR is appealed by the taxpayer to the CT A, the judicial action for collection of the tax is begun by the filing by the g overnment of its answer to the taxpayer's petition for review, wherein payment o f the tax is prayed for. * The judgment in the criminal case shall not only impose the penalty but also o rder payment of the taxes subject to the criminal case as finally decided by the CIR. * An assessment of a tax deficiency is not necessary to a criminal prosecution f or tax evasion. But for criminal prosecution to proceed before assessment, there must be a prima facie showing of willful attempt to evade.

EFFECT OF ACQUITTAL ON TAX LIABILITY ? If the taxpayer is acquitted in the criminal case, such acquittal DOES NOT EXO NERATE him from his CIVIL LIABILITY to PAY The TAX DUE. REASON: payment of a tax is an obligation imposed by statute and does no t arise from a criminal act. EFFECT OF SATISFACTION OF TAX LIABILITY ON CRIMINAL LIABILITY ? Any subsequent satisfaction of the tax liability, by payment or prescription, will not operate to extinguish his criminal liability. ? Satisfaction of civil liability is not one of the grounds for the extinction o f criminal action. * The law requires that NO CIVIL & CRIMINAL ACTION for RECOVERY OF TAXEWS or the ENFORCEMENT OF ANY FINE, PENALTY or FORFEITURE SHALL BEGUN WITHOUT THE APPROVAL OF THE CIR. REASON: to allow taxpayers to enter into compromise agreements with the BIR.

?? ?? ??

?? 1 1 danadyosa