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    Ramirez Learning Module in Taxation Income Taxation TRAIN Law Updated - Lesson 1

    Uploaded by

    Ginalyn Bisonga

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    © All Rights Reserved
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    Lesson 1 RAL PRINCIPLES OF TAXA Topics - Introduction to Taxation Scope and Legislative Power to Tax Theory and Basis of Taxation 1. Purpose of Taxation Characteristics ofthe Power to Tax Principles of a Sound Tax System The Power to Taxis the Power to Destroy Double Taxation "Forms of Escape from Taxation ). Basic Principles Regarding Tax Exemption |. Grounds for Tax Exemption . Tax Amnesty Act ‘Tax Amnesty on Delinquencies | Construction and Interpretation of Tax Laws . Taxation and the Other Inherent Powers . Tax and Is Essential Characteristics 17, Classification of Taxes 1B, Inherent Limitations 19. Constitutional Limitations 20. Stages of Taxation LEARNING OUTCOMES [tthe end of the lesson, you should be able to: 1 discuss taxation and its scope and legislative power; 2. discuss the theory and basis of taxation; 3. explain the double taxation; 44, discuss the forms of escape from taxation and the basic principles regarding tax exemption; 5. dscuss the tax amnesty act; ‘elaborate the inherent an constitutional imitations of taxation; and 1. discuss the stages of taxation Bil tonic: nraopuciow to taxarion TAXATION is the inherent power by which the sovereign, through its law-making body, raises revenue to defray the nacessary expenses ofthe gavernment. Iisa manner of apportioning the costs of the government among thase who, in some measure, are privileged to enjoy its benefits ‘and must hear its burdens, INHERENT TO THE STATE: I is Inherent in character because Its exercise Ie guaranteed by the mere existence of the state, It could be exercised even in the absence of a constitutional gant: ‘The power to tax proceeds upon the theory thatthe existence of agovernmentis a necessity and this power s an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent state or government. (Pepsi-Cola Bottling Co. of the Phillppines vs ‘Municipaty of Tanauan, Leyte, G.R. No, -31156, February 27, 1976) 1 IVE POWER TO TAX 1. The determination of purposes for which taxes shall be levied provided itis forthe benefit of the public, 2. The determination of subjects of taxation suchas the person, property or occupation within Its jurisdiction, 3. The determination as te the amount or rate of tax unless constitutionally prohibited. ‘The determination as to the kind of tax to be collected (i. property tax, incame tax, inheritance tax, etc). The determination of agencies to collect the taxes. "a power nea or rv or alert nd Jil on ‘The power to grant tax exemptions and condonations. BEERS ND BASIS OF TAXATION 1. life Blood Theory ~ Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. (Commissioner of Internal Revenue vs. Algue; GP No. l= 28896; Feb. 17, 1988) 2. Necessity Theory - government is necessary; however, Itcannot continue without the means cof paying for its existence; hence, thas the right to compel al citizens and property within its power t contribute for the same purpose. (71 Am. Jur 24 346) ‘The power to tax s an attribute of sovereignty. It is 2 power emanating from necessity. Its 2 necessary burden to preserve the State's sovereignty and a means to glve the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of cil servants to serve, publicimprovement designed for the enjoyment of the citizenry ané these which come within the State's territory, and facilities and protection which a government Is. supposed to provide. (Phil. Guaranty Co, Inc vs. CIR; GR No, L-22074; April 30, 965) 3. Symbiotic Relationship Theory - It is said that taxes are what we pay fora culized society. Without taxes, the governimerit would be paralyzed for lack ofthe motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned Income to the taxing authorities, every persan wha ie able to must contribute his share inthe running of the government. The government for its part, is expected to respond in the form cof tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship isthe rationale of tavation and should dispel the erroneous notion that it isan arbitrary method of exaction by those in the seat of power. (Commissioner of Internal Revenue vs. Algue, supra} [BB topic 4: PURPOSE OF TAXATION 1. Primary — to raise revenues; to support the existence of the State and enable the state to promote the general welare 2. Secondary non-revenue or sumptusry 3, Promotion of general welfare — taxation may be used to implement police power (2g. {grant of VAT exemption and Discounts to Senior Citizens); Regulation - where taxes are levied on excises or privileges for purposes of rehabilitation ‘and stabilization of threatened industry which is affected by public interest or to discourage consumption of harmful products (eg, excise taxes on cigarettes and alcohol); ‘& Reduction of Social Inequity ~ This is made possible through the progressive system of, taxation where the objective is to prevent the undue concentration of wealth in the hhands of few individuals, Progressivity is keystoned on the principle that those who are ‘ble to pay should shoulder the bigger portion of the tax burden. (eg, Income tax) 4. Encouragement of economic growth ~ tax incentives and reliefs may be granted to encourage investment {Le., Income Tax Holiday, 5% preferential Gross Income Tax for PEZA registered entities); {e. Protectionism ~ for the protection of local industries, in case of foreign importations, protective tariffs and customs duties and fees (e.g, Special Duties imposed by the Bureau (of Customs) REESE Reo ac curs 11. Comprehensive ~it covers persons, businesses, activities, professions, rights and privileges. 2. Unlimited ~it sso unlimited in force and searching in extent that courts scarcely venture to declare that iti subject to any restrictions, except those that such rests in the discretion of the authority which exercises it. (Tiows. Videogram Regulatory Boord, GR No. 75697, lune 58, 1987) 3. Plenary ~ itis complete; unqualified; absolute. Under the Tax Code, the BiR may avall of certain remedies to ensure collection of taxes, Supreme insofar as the selection ofthe subject of taxation is concerned, es 1. Fiscal Adequacy - revenue raised must be sufficient to meet government/public expenditures and other public needs, (Chavez vs. Ongpin; GR No. 76778; June 6, 1990) 2. Administrative Feasibility — tax laws must be clear anc concise; capable of effective and efficient enforcement; convenient as to time and manner of payment, must not obstruct business growth and economic development. The VAT law cannot be considered as violative of the Administrative Feasibility principle because itis principally aimed to rationalize the system on taxes of goods and services, Thus, simplifying tax administration and making the system more equitable to enable the country {attain economic recovery. (Kapatiran ng Mga Nogtlingkod sa Pemahalaan v. Tan; June 30, 1988) 3. Theoretical Justice — must take into consideration the taxpayer's abilty to pay (Ability to Pay Theory). Art. VI, Sec. 28(1) of the 1987 Constitution mandates that the rule on taxation must be uniform and equitable and that the State evolve a progressive system of taxation, IPLES OF A SOUND TAX SYSTEM (FAT) NOTE: Non-observance of Fiscal Adequacy und Administrative Feasibility will render the tox ‘measure unsound but not unconstitutional, However, non-observance of the Principle of Theoretical Justice is invalid because the Constitution itself requires that taxation must be equitable. [Bh toric 7: THe power TO TAX IS THE POWER TO DESTROY According to Justice Marshall: The power to tax includes the power to destroy. Taxation is a destructive power which interferes with the personal and property rights of the paople and takes from them a portion of their property for the support af the government. (MeCullach vs. Maryland, 4 Wheat, 316 4 L ed. 579, 607) However, according to Justice Holmes: The power to tax is not the power to destroy as long as this court (Supreme Court) sits. Taxpayers may seek redress before the courts incase of illegal imposition of taxes and regularities. The Constitution, as the fundamental law, overrides any legislative or executive act that runs counter toi In any case, therefore, wire it can be demonstrated that the challenged statutory provision fails to abide by its command, then the court must declare and adjucge it null. (Sison Jr. v, Ancheto; 6. Ma, 159431; July 25, 1984) IMPRESCRIPTIBILITY OF TAXES: Taxes are generally iinpreserptible, except when the law provides otherwise, eg, the statute of limitations provided under the Tax Code. [BB toric: pouste taxation DOUBLE TAXATION means taxing the same person for the same tax period and the same activity twice, by the same jurisdiction, Double taxation in strict sense is when: Both taxes are imposed on the same property or subject matter; For the same purpose: Imposed by the same taxing authority, Within the same jursdiction; During the same taxing period: Covering the same kind or character of tax. Double Taxation in broad sense is the opposite of direct double taxation and is not legally objectionable. The absence of one or more of the foregoing requisites of obnoxious direct tax makes it indirect Constitutionality of double taxation: Double taxation in its stricter sense is unconstitutional but that in the broader sense is not necessarily <9. Our Constitution does not prohibit double ‘texation. However, double taxetian will not be allowed if it results in e violation of the equal protection clause. Modes of elimi 1. Tax Deduction —an amaunt subtracted from the gross income to arrive at taxable income, 2. Tax Gredit - an amount subtracted from an individuals or entity's tax liability (tax due) to arrive atthe tax lability still due, ‘A deduction differs from a tax credit, in that a deduction reduces taxable income while @ credit reduces tax liability 3. Treaties with other states: a tax treaty sets out the respective rights to tax ofthe state of source (situs) and the state of residence with regard to certaln cases, an exclusive right to tax is conferred on one of tie contracting states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be imposed by the state of sources limited, Itapplies whenever the state of source is given fll or limited right to tax. The treaty makes Itincumbent upon the state of residence to allow reli in order to avoid double taxation ting double taxation NOTE: The Bi? issued AMO No, 1-2000, as amended by RMO No. 72-2010, requiting taxpayers to file for a Tax Treaty Relief Application on or before the transaction date before avorting of the provisions of a tax treaty. However, as held ky the Supreme Court, this administrative requirement cannot defeat the right of any taxpayer enttied to the preferential rates in the tox treaty, [BE toric: Forms oF escape FROM TAXATION 1, shifting ~ the burden of payment is transferred from the statutory taxpayer to nother without violating the law (est, VAT): 2. Capitalization - the reduction inthe price of the taxed abject equal to the capitalized value cof future taxes the purchaser is expected tobe called upon ta pay. 3. Transformation - for manufacturers or producers, upon whom tax are imposed, fesring the loss of his market if he should add to the price, pays the tax and endeavor to recoup himself by improving hs process of production, thereby producing his units ata lower cost. 4, Tax Avoidance ~ exploitation by the taxpayer of legally permissible alternative tax rates or ‘methods of assessing taxable progerty or income, in order to avoid or reduce tax lability Also known a5 "tax minimization.” (eg. utilizing all permissible allowable deductions) 5. Tax Exemption ~ grant of immunity to particular persons or corporations of a particular class from 8 tax which persons or cornarations generally whin the same rate or taxing district are obliged to aay. i 10: BASIC PRINCIPLES REGARDING TAX EXEMPTION 11. Exemptions are highly disfavored by law and he who claims an exemption must be able to justify his claim by the clearest grant of law. An exemption from the common burden cannot be permitted ta exist upon vague implication, (Asiatic Petroleum Co. vs Llanes, 49 Phil. 466; see olso House vs. Posadas, 53 Phil. 38)" (Collector of int. Revere us. Manila Jockey Club, Inc, G.R. No, L-8755, March 24, 1956) 2. He who claims exemption should prove his factual and legal basis for exemption. (Commissioner of internal Revenue v. Acesite (Philopines) Hotel Corporation, 6.R. No. 4147295, February 16, 2007) 3, Tax exemptions are strictly construed agsinst the person daiming it (E550 Standard Easter, nc. vs Acting Commissioner of Customs; GR No, -21841; Oct. 28, 1966) 4. Constitutional grant of exemptions are self-executing. 5. Inthe same way that taxes are personal, tax exemptions ae also personal. 4 6. Deductions from income tax purposes partake of the nature of tax exemptions, therefore should also be construed strictly against the taxpayer. (Commissioner of internal Revenue vs Genera! Foods (Phils), In; GR No. 143672; Apri 24, 2003) 7. Same treatments are given to tax refunds. (Commissioner of Internal Revenue v. Eastern Telecommunicetions Phils, Inc, 6.R. No. 163835, July 7, 2010) [BB topic 11: Grounns ror Tax EXEMPTION ‘4, Contract ~ the grant of tax exemption is usually contained in the charter of the corporation to which the exemption Is granted b. Public policy - to encourage new and necessary industries, or to foster charitable institutions. & Reciprocity ~ to reduce the rigers of international double or multiple taxation, tax ‘exemptions maybe granted in treaties, A tax exemption is a personal orivlege of the grantee and therefore not assignable; itis generally evocable by the government, unless founded on contract and must not be discriminatory. Revocation of Tax Exemption: if the grant af an exemption does nat constitute a contract, but merely “a spontaneous concession by the legislature, not cannected with {any service or duty imposed” it's REVOCABLE by the power wiich made the grant. Thus, If the basis of the tax exemptions Is by virtue of a franchise granted by Congress, the exemption may be revoked. However, ifthe tax exemption constitutes a binding cantract and for a valuable consideration, the government cannot unilaterally revoke the tax exemption, 4. Tax Evasion — use of a taxpayer of illegal or froudulent means to defeat or lessen the ‘payment of tax. Also known as "tax dodging,” it presupposes malice, fraud, bad faith, or wilful intent on the part ofthe taxpayer either to underdeclare income or overdeclare deductions to defeat tax liability CConnotes the integration of 3 Factors: 3) The end tobe achieved, ue, the payment of less than that known by the taxpayer tobe legally due; 2). Anaceompanying state of mind which is described as being “evil, n "oad fait “wilful”, or “deliberate and not merely accidental’, and 3). Acourse of action or failure of action which is unlawful. ‘&. Compensation or Set-off as a general rule, taxes cannot be the subject of a set-off or compensation because of the lifeblood doctrine; they are not contractual obligations but arise cut of duty to the government; and the government and the taxpayer are not mutually debtors and creditors of each other, (Francta vs, JAC No, (-67645, June 28, 1988) ‘Taxes are of distinct kind, essence and nature, and these impositions cannot be classed in merely the same category as ordinary obligations; the applicable laws and principles joverning each are peculiar, not necessary common, to each; and public policy is better subserved if the integrity and independence of taxes are maintained. (Republic vs Mombulo Lumber Co.) & person cannot refuse to pay tax on the basis that the {government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. (Philex (Mining Corp. v. Commissioner) Doctrine of Equitable Recoupment: is a doctrine in commen law applicable where the taxpayer has aclalm for refund but he was not able to file awrite claim due tothe lapse tf the prescriation period within which to make a refund. The taxpayer is allowed to credit such refund to his existing tax liabty, This doctrine fs not allowed in the Philippines. Note thatthe prescription of tax refunds in this juriseletion stwo years fram the date of payment (for ilegally collected or erroneously paid taxes), and the lapse of such period bars recovery. {. Compromise and Abatement ~ these are powers granted to the Commissioner of Internal Revenue to reduce tax lisilties and/or penalties. (see Tox Remedies) Tax Amnesty refers to the articulation of the absolute waiver by a sovereign afitsrisht ta collect taxes and power to impose penalties an persons or entities guilty of violating 5 tax law. Taxamnesty aims to grant @ general reprieve to tax evaders who wish to come clean by glving them an opportunity to straighten out thelr records. (Metropolitan Bank ‘and Trust Co. v. Commissioner of in¢erna! Revenue, G.R. No. 178797, 4 August 2009) Distinguished with tax exemption: Tax Amnesty Tax Exemption Immunity from all criminal and civil Immunity from evil ability only obligations from non-payment of taxes ir sa general pardon given to all taxpayers | Immunity or privilege granted to qualifiee taxpayers from a charge or burden of which others are subjected (Flarer vs. Sheridan, 4137 Ind. 28, 36 NE 365) It apples only to past tax periods, (People vs.| Apalies prospectively after the grant of the Castaiteda, G.R, No. (46881, September 15, | exemption or from qualification therefrom 1988) Il topic 32: tax amnesty act TAX AMNESTY ACT (Republic Act No. 12243): towards the policy of the State in protecting and enhancing revenue administration and collection, the State shal: 41). Provide one-time opportunity to settle estate tax obligations through an estate tax arsnesty program that will give reasonable relief to estates with deficiency estate taxes 2) Enhance revenue collection by providing a tax amnesty on delinquencies to ‘minimize administrative costs in pursuing tax cases and declog the dockets of the BIR and the courts; and 3) Provide 9 more equitable tax system by adopting a comprehensive tax reform program that wil simplify the requirements on tax amnesties with the use of simplified forms and utilization of information technology in broading the tax base. General Amnesty: the law orignaly includes a general tax amnesty to cover all other taxes, but this portion of the law (Title il) was vetaed entirely by the President stating that “without the pravisions breaking dwn the walls of bank secrecy, setting the legal framework for us ta comply with international standards on exchange of information for tax purposes, and safeguarding against those who abuse the amnesty by declaring an untruthful asset or net worth, 2 general amnesty that is overgenerous and unregulated would create an environment ripe for future tax evasion, the very thing we wish to address.” Estate Tax Amnesty: ‘2, Coverage: estate of decedents who died on oF before December 31, 2017, with or without assessments duly issued therefor, whose estate Lares have remained unpaid or hhave accrued as of December 31, 2017. b, Exceptions ta the Coverage: the Fstate Tax Amnesty shallot extend to cases which shall hhave become final and executory and to properties involved in cases pending in ‘appropriate courts: 1) Falling under the jurisdiction of the Presidential Commission on Good Government; 2). Involved in unexplained or unlawfully acquired wealth under RA.No. 3019, or the [Anti-Graft and Corrupt Practices Act and RA No. 7089 or the Plunder Act 3) Involving violations of RA No. 8160, or the Anti*Money Laundering Act, as amended; 4) Involving tax evasion and criminal offenses under the Tax Code, as amended; and 5) Involving felonias of frauds, illegal exactions and transactions, and malversation of public funds and property under the Revised Pensl Code. Tax Base: |. Total net estate at the time of death, or the gross estate los al allowable deductions as provided in the Tax Code, 2s amended, or the applicable estate tax laws prevailing at te fine of death of the decedent; 6 ii. (Fan estate tox return was previously filed, the estate tax shall be based on net undeclared estate, The net estate previously declared is presumed to have been reduced with all the allowable deductions; thus, only the share of the surviving spouse ‘on the undeclared conjugal properties, if any, may be deducted from the undeclared ‘state. (AR No. 62019) d. Tax Rate: 5% e. Tax Due: shall be 6% of the Net Estate at the time of death without penalties at every stage of transfer of property in cognizance with the rules of succession ofthe Civil Code of the Philipines. Provided, that the minimum estate amnesty tax for the transfer ofthe estate fof each decedent shall be 5,000, The provisions of the NIRC af 1997, as amended, or the applicable estate/inheritance t2x laws provalling atthe time of death of the decedent with respect to valuation, manner of computation, and other related matters shall apply suppletoriy £ Composition of the estate: J, Residents and Citizens worldwide estate ii, Non-Resident Aliens~estate within the Philippines Valuation: shall be the fair market value atthe time of death of the decedent following the rules of valuation applicable to real proverties and shares of siockfor estate taxation. Deductions: For purposes of determining the Net Estate, the gross estate may be reduced by the deductions allowed by the estate tax law applicable at the time of death of the decedent. (AR No, 6-2019) the lst of deductions are enumerated under Annex A of RR ‘No. 6-2019, as updated by RMC No. 103-2019, 2 Who will avail: i. The executor or administrator ofthe estate, or if there is no executor or administrator appointed, the legal heirs, transferees or beneficiaries hh. Period of availment: 2 years from the effectivity of RR No 6-201, |. Where to File: the sworn Estate Tax Amnesty Return shall be fled with the ADO of the BIR which has jurisdiction over the last residence of the decedent. For non-residents, the return shall be filed and the tax paid at ROO No, 39, |. Time of payment: atthe time of the fing of the return k. Previous transfers of property: the Tax Amnesty Act originally provided thst the estate Invalved properties which are sulin the name of another decedent ar donar, the present holder, heirs, executors or administrators shall fll only 1 Estate Tax Amnesty Return and pay the corresponding taxes therean based on the total net estate at the time of death of the LST decedent covering all accrued taxes under the Tax Code, arising from the transfer of such estate from all prior decedents or donors through which the property/les comprising the estate shall pass, The President, however, vetoed such provision, the message providing that the taxis imposed not because of the property itself but on the privilege of transferring property tothe heirs, As the message provides, the fat rate of 6% estate amnesty tax, without penalties, imposed at EVERY STAGE OF TRANSFER is more than a fair imposition on the privilege |. No admission of liability: the aveilment of the Estate Tax Amnesty and the issuance of the corresponding Acceptance Payment Form do not imply admission of criminal, civil or ‘administrative lability on the part of the avaling estate, 1m, NO Presumption of Correctness of the Estate Tax Amnesty Returns: the TAA originally provides that the Estate Tax Amnesty Returns shall be conclusively presumed as true, correct {and final upon fing and shall be deemed comalete upon full payment of the amount due. However, the President vetoed this provision stating that beyond the transfer of property, rights and obligations to the heirs, legatees, and devisees, the valuation of the subject properties is @ technical aspect that cannot be left to mere self-declaration and that there ‘must be an opportunity for implementing agencies to evaluate the truthfulness of the declarations made by the taxpayers. 1. Duties ofthe BIR: the RDO shall issue an acceptance form for the Authorized Agent Bank Cr the revenue collection agent or municipal treasurer concerned, to accept the tax amnesty 7 payment. After payment, a Certificate of Avsilment of the Estate Tax Amnesty shal beissued by the BIR within 15 calendar days from submission te the BIR of the Acceptance Payment Form and the Estate Tax Amnesty Return, Otherwise, the duplicate copies of the Acceptance Payment Form and the Estate Tax Amnesty Retum shall be deemed sufficient proof of avaliment (0. Immunities and Privileges: Fstates covered by the Fstate Tax Amnesty, which have fully ‘with the conditions set forth above, including the payment of the estate amnesty tax shall be immune from the payment of all estate taxes for taxable year 2017 and prior vyears, and from all appurtenant cv, criminal and administrative cases and penalties under the Tax Code, as amended. . Documents: Document BIR Form/Reference Estate Tax Amnesty Retuin (ETAR) | BIR From No, 2118-EA (Annex B of RR No. 6-19) Aeceptanea Payment Form Estate | BR Form Wo, 0623-CA (Annex of AR Tox Amnesty No. 4-19), Certificate of Availment of Estate Tax | Annex) of RR No. 6-2019 Amnesty [BB toric 13: Tax amnesty ON DELINQUENCIES ‘2. Coverage: all national internal revenue taxes collected by the BIR, including VAT and excise taxes collected by the Bureau of Customs Delinquencies covered and Applicable Rates: Delinquency Covered Applicable Rate A | Delinquencies and assessments, which have become final and | 40% of the basic tax lexeculory including delinquent tax account, where theapplication assessed for compromise has been requested but was denied by the Regional Evaluation Board or the National fvaluation Board, as the case may be, on or before the IRR takes effect. 18 | Pending criminal cases with the DOJ or the caurts for tax evasion 603 of the basic tax and other criminal offenses under the Tax Code, as amended, with assessed lor without assessments issued. | Tax cases subject of final end executory judgment by the courts on 50% of the basic tax orbefore the IRRtakes effect. assessed 1 | Withholding tax agents who withheld taxes but failed to remit the | 100% of the bacic tax same to the BIR assessed Delinquent Account: pertains to tax due from a taxpayer arising from the audit ofthe BIR which had been issued Assessment Notices that have become final ang executory due to the following instances: i. Failure to file a valid Protest, whether a request for reconsideration or reinvestigation, within 30 days from receipt thereof. |i, Failure to file an appeal with the CTA or an administrative appeal before the CIR within 30 days from receipt of the decision denying the request for reinvestigation or reconsideration; or li, Failure to file an appeal with the CTA within 30 days from receipt of the decis fof the CIR denying the taxpayer's administrative appeal to the FODA. Basic Tax Assessed: refers to: J, Tax due shown on the Assessment Notice, net of any basic tax paid prior to the effectivity of RR No. 4-2019, exclusive of civil penalties; |The computed basic tax labilities as shown in the criminal complaint filed by the BIR with the DOI/ Prosecutor's Office or information filed in the Courts for violations of tax laws and regulations; and ili, The basic tax liabilities as per Court’ Final and executory decision Deficiency Withholding Taxes in assessments or tax cases: the tax rat shall stillbe 100% under letter D above, evenin cases of non-remittance of withholding taxes falling under letters &, Band Cabove, With Pending Compromise Settlement Application under letter A above: ifthe delinquent taxis, stibject of an application for compromise settlement, whather denied or pending, the amount of payment shall be based on the NET basic tax as certified by the concemed office ILLUSTRATION: B Comoany received a Final Assessment Notice with @ 1,000,000 basic tax deficiency. It applied for compromise and paid P400,000 as the minimum amount required. If 8 ‘Company applied for Tax Amnesty, how much would it pay? BasicTax per FAN, 1,000,000 Basic Tax paid per Compromise Settlement Application (400,000) Net Basic Tax prior to the effectivity of the Regulation ~won05— Amnesty Rate 405% Amnesty Tax to be paid ~PxA0;OO- Partiai/instaliment Payments: the amount of payment shall be based on the NET amount as certified by the concerned office. b, When and Where to File: Any person, natural or juridical, who wishes to avail of the Tax ‘Amnesty on Delinguencies shall, within one year from the effectivity of the IR file with the appropriate office of the BIR, which has jurisdiction over the residence or principal place of husiness of the taxpayer, a sworn Tax Amnesty on Delinquencies Return ‘accompanied by a Certification of Delinquency. The payment of the amnesty taxshall be ‘made atthe time ofthe filing of the Return, Similar tothe Estate Tax Amnesty, the RDO shall isue and endorse an Acceptance Payment Form authorizing the authorized agent bank, ar inthe absence thereof, the revenue eallection agent ar municipal treasurer ‘concerned, to accept the amnesty tax payment. & No admission of liability: the availment of the Tax Amnesty on Delinquencies and the Issuance of the corresponding Acceptance Payment Form do not imply admission of Criminal, cil or administrative lability on the part of the avaling taxpayer. , Immunities and Privileges: The tox delinavency of those who aval of the Tax Amnesty fon Delinquencies and have Fully compliad with all the conditions and upon payment of the amnesty tax shall be considered settled and the criminal case under Sec. 18) of the Tax Code, as amended, as such relate to the taxpayer's assets, liabilities, networth and intemal revenue taxes that are subject of the tax amnesty, and from such other Investigations or suits, Proof of Avallment and Compliance; effects thereof: Any notices of levy, attachments ‘and/or warrants of garnishment issued against the taxpayer shall be set aside pursuant to the lifting of notice of levy/garnishment duly issued by the BIR. ‘The Authority to Cancel Assescment shall be issued in favor of the taxpayer within 15 days ftom submission to the BIR of the Acceptance Payment Form and the Tax Amnesty ‘on Delinquencies Return. Otherwise, the duplicate coples, stamped as received, of the [Acceptance Paymant Form, and the Tax Amnesty on Oalinquencies Return shall be deemed sufficient proof afavailment. The Form and the Return shall be submitted to the ROO after complete paymentand the completion of these requirements shallbe deemed full compliance with the provisions of the TAA, After full compliance with all the conditions and payment of the corresponding tax on delinquency, the tax amnesty granted shall become fina and irevocsble. Confidentiality and Non-Use of Information and Data: any information or data contained In, derived from or provided by the taxpayer in the Tax Amnesty Return and appurtenant documents shall be confidential in nature and shall not be used in any investigation or prosecution before any judicial, quasi-judicial and acministrative bodies, Documents: Document BIR Form/Reference ‘Tax Amnesty Return BIR Form No. 2118: DA(Annex A oF AR No. & 19) ‘Acceptance Payment Form BIR Form No. 0521-DA (Annex B of RRNo. 4 19) Certificate of Tax Delinquencies/Tax ‘Annex Cof RR No. 4-2019 Uabilties Offenses and Penalties: Offense Penalty Untzuful Divulgence of information ~ any officer or employee af | Fine ~P50,000 to 0,0, the BIR who divulge to any person or makes known inany other | imprisonment ~2 years to S ‘manner than may be provided by law, information regarcing the | years; business, income, or estate of any taxoayer, the secrets, pe ‘operations ste of work or apparatus of any manufacturer oF ‘producer or confidential information regarding the business of ‘ny taxpayer, knowadge af which was acquired by him inthe sdscharge of his oficial duties, Fine -P500,000 ts P3,000,0005, Dulgenceinany ether mannertoany person ather than the | Imprisonment = 2 years requesting Foreign taxauthoriy information obtainedfvom | "05 "5 Or both ‘banks and financial institutions, knawiedge or information acquire by him inthe elscrarge of his ofclal duties Uniuful Dwulgence of Tax Amnesty Retumand Appurterant | Fine P150,000; Decuments ~ any person having knowledge ef the Tax Amnesty | imprisonment - 6 years to 20 Return and appurtenant documents who dscloses any years, information relative thereto, and any violation hereof oat ifthe offender isan officer or employee ofthe BIR or any Fine -P50,000 10 100,000, government entity Impsonment —2 years tos years; Oebeth Plus perpetual disquaifiction to hela punt orice [BB Toric 24: CONSTRUCTION AND INTERPRETATION OF TAX LAWS Tax laws must be construed reasonably to carry out the purpose, intent and the objective ofthe law. As a rule, ifthe tax law is clear and free of ambiguity, i will be applied inits literal import. If there is doubt as to its validity or if ts ambiguous, the lay will be construed strictly against the Government and liberally in favor ofthe taxpayer. ‘Tax Exemptions; deductions and refund: in case of ambiguity, the law will be construed strietly ‘against the taxpayer and liberally in favor of the government, excer Where the statute granting exemption expressly provides fora iberal interpretation; Special taxes relating to special cases and affecting only special classes of persons; Property held in private ownership: Traditional exemptees, such as those in favor of religious and charitable institutions; In favor of the government, its political subdivisions or instruments; and By clear legislative intent, ‘Tax exemptions are never presumed. i must be established and proved by the taxpayer; must be limited to what the law says; and personal to the person entitled to the same, 10 [BB toric 15: TaxaTion AND THE OTHER INHERENT POWERS 1. Taxation is the power of the State to demand from the members of society their proportionate share or contribution in the maintenance ofthe government. 2. Eminent tomein the power ofthe sate tofordhyacqlr priate property, upon payment of ist compensation for some intended publicuse 3. Police Powers the power ot the State to regulate iberty and property fr the promotion of general welfare sunaanrmies: 1, Inherent inthe State and need not be conferred by the Constitution: 2 indispensable in thatthe State cannot continue or be effective unlesitisable to exercise the 3. Methoris whereby the State interferes wih privaterights; 4, Presuppose an equivalent compensation, tangible of otherwise, forthe private rights interfered with nd 5. Primeriy exercised by the legislature DIFFERENICES: Taxation Police Power Eminent Domain Ralse revenue Promote public welfare | Facilitate the taking of Purpose through regulations private property for public use Nolimit BUT mustbe | Limitedtothecost ef | No specific amount BUT equal to the needs ofthe | regulstion and issuance | just compensation must Amount of | government of license or surveillance be paid tothe owner Exaetion fees Which is equivalent to the market value of the property Ne direct benefit; only | Ne direct benefit; only a | Direct benefit in the form Benefits : Ree general benefit of healthy economic of just compensation protection standard of society Non- Contracts may NOT be | Contracts MAY be Contracts MAY be Impairment of | impaired impaired impaired Contracts Transfer of | Taxes bacome part of the | Notransterbutonly | Transterin favor of the Property public funds restraintinitseverclee State Rights scope ‘All persons, property and | All persons, property and | Only upon aparticular excises privileges |property ‘Only by the government | Only by the government | May be by (1) the andiis political andits political government orits Whoexercises | SUbdbsions subdivisions politica subdivisions OR he paer (2) public service ‘companies or public Utlties granted with such power, ID ITS ESSENTIAL CHARACTERISTICS. TAXES: are enforced proportional contributions from the persons and property levied by thelaw- making body of the State by virtue of its sovereignty in support of government and for public needs, ESSENTIAL CHARACTERISTICS OF TAX 1. Imposed by the State which has jurisdiction over the person, property or excises (activity 2. Lovied by the Legislature; 3._ Is an enforced contribution; 4. Generally payable in meney, 5. Proportionate in character ~ based on the taxpayers ability to pa a Levied on persons, property or excises; Levied for pubile purpose; Paid at regular periods of intervals; Personal to the taxpayer I ores ctssexiow oF races 1. Asto purpos 4, General/iscal or Revenue ~ purzose i to raise revenue forthe government's ordinary needs: b. Speciai/Reguatory oF Sumptuary — purposes some socal or economic ends irrespective cof whether revenue is actualy raced. 2. Astosubject matter: 4 Personal, poll or capitation = those imposed upon residents ofa territory, regardless of citizenship, property, occupation, business. . Property —thote imposed upon real ane personal property depending on thei value © Exdise or prvlege — those imposed upon the performance of an oct, enjoyment of a privilege, or engaging in an occupation, orofession or business. 3. Ato ineiden 4, Direct — where the burden forthe payment ofthe tax as well s the impact falls on the same person; as such, the person who pays isthe person who is statutory lable to pay the ta (eg, income tan) b Indizect~ where the incidence fall on one person but the burden fll another (e4 vat). 4. Astoamount: {Specific —amounts Fed and s imposed by the hea¢ or number or some measurement, hhence, no valuation is needa excep forthe ist of things to be taxed b, Ad valorem one which is based on the value of the object tobe taxed. 5. Astorate/progresion: a. Progressive taxrates increase asthe tax base or bracket increases, b. Regressive tox rate decreases as tx base or bracket increases © Proportionate ~ tax is based on 2 fixed percentage of the amount of the proverty, receipts or other bases to be taxed 6. As to authority imposing the tax: {National levied by the national government and enforced by the BR; b. Local ~ levied by the local government through its sanggunian arid enforced by the treasurer. ‘TAX VS. LICENSE FEES Tax License Fee Basis Taxation power Police power Purpose Revenue Regulation Limitation on Amount | Subject only to inherent and Limited to the cost af issuance of ‘constitutional imitations license and cast of inspection and surveillance When pald After the startof business Before the start of business Surrender vis-a-vis, Cannot be surrencered except for | Lawful consideration not necessity of louful consideration necessary consideration Effect of non-payment | Will not render the business Will render the business illegal legal BUT criminal presecuten wl result IMPORTANCE OF DISTINCTION: 1. Government instrumentality cancerned may not be autharired to exact taxes but authorized to exaet license fees 2. Person imposed upon may be exempt from taxes BUT NOT exempt from license fees Tax, NOT fees, may be claimed as income tax deduction for income tax purpose. However, ‘fees may be considered as expenses ordinary and necessary for business. 2 4. In Lecal Government Taxation, See. 187 of the Local Government Code covers only “tax” ‘ordinance. Such that, ifthe ordinance is regulatory, it does not come within the purview of ‘Sec. 187 and the CTA does nat have Jurisdiction over the legality of the seme, Jurisdiction ‘thereof being under the RTC, TAKYS. TOLL Tax Toll Definition Demand of sovereignty for | Amount charged for the cost and raising revenue maintenance of property used Purpose For support of the 'As compensation for use of another's government property Determination of Amount ‘Who may impose Determined by the sovereign Imposed by the State Determined by the cost ofthe property or improvernent Imposed by the government or private individual ‘TAX VS. PENALTY Tax Penalty Definition Enforced proportional ‘Sanction imposed for violation of laws ceontebutions from persons, and property| Purpose For revenue “To regulate conduct ‘Authority Imposed only by the Imposed either by the government or by government private individuals or entities ‘TAX VS. SPECIAL ASSESSMENT Tox ‘Special Assessment Definition Dernand of sovereignty for | Special levy on lands comprised within the raising revenue ‘territorial jurisdiction of s Province, City or Municipality specially benefitted by public works, projects, improvements funded by ‘the UGU concerned Subject Imposed on lands, persons, | Imposed on land only Property, income, business, etc. ability Personal Non-personal Basis Based on necessity (and Based solely on benefits partially on benefits) Application General Special to a particular time and place TAKS, CUSTOMS DUTIES Tax ‘Custom Duties Purpose Raising Controlling the flow of the goods of the revenue ‘country Broadness Broader “Tariff or tax on the Importation (usually) or term ‘exportation (unusually) of goods TAX vs. DEBT Tax Debt is Law Contract/ judgment Effect of failure to pay ‘Mode of payment Giviland criminality Money Givi ability only (Ne imprisonment) Money, property or service Assignability| 8 Yes Subjectivtyto | No Yes Compensation/ Yes, if deficient or delinquent. | General Rule: no Interest, unless expressly stipulated or after demand fs made Authority Public authority Private individuals Prescription Determined by the TaxCode | Determined by the Civil Code SOURCES OF REVENUE: the following are considered national intemal revenue taxes: Income tax: Estate and donors taxes; Value-added tax; Other percentage taxes; Excise taxes: Documentary Stamp Taxes; and Such other taxes as are or hereafter may be impased and collected by the Bureau of internal Revenue. [Bp Toric 12: INHERENT LimiTaTIONs AIT MUST AE FOR A PUBLIC PURPOSE ‘Arevenue measure must be lad fora public pursose determined by the legislature. The proceeds of the tax must be used either for the suaport of the State or for some recognized objective of, government or directly to promote the welfare of the community.The public purpose must exist at the time the law is enacted. (Pascual vs. Secretary of Public Works, GR No. L-10405, Dec. 29, 1960) ‘ests in determining public purpose: 41. Duty Test ~ whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State, as a government, 2. Promotion of General Welfare Test — whether the law providing the tax directly promotes the welfare ofthe community in equal measure. ne sector is not benefited: Public purpose is nat destrayed by the fact thatthe tax aw may not bbebeneficial to one group. The fac: that one sector fs benefited and in the process another sector is being in a way prejudiced would not diminish the public character ofthe tax (Tov. Videoaram Regulatory Board, 6.R. 75697, une 1987) B. EXEMPTION OF GOVERNMENT ENTITIES, AGENCIES and INSTRUMENTALITIES ‘As a rule, the government, Its agencies and instrumentaliies performing govermental function are exempt from VAT. This is because taxes are financial burdens imposed for the ppurpoce of ralsing cevenues to defray the cost of the operation of the Government, and a tax ‘on property of the Gavernment, whether national or local, would merely have the effect of taking money from one pocket to put itin anather pocket (Beard of Assessment of Appeals ‘of laguna vs. CTA, GR. No, -35683, May 7, 1987). Exceptions: 1. Agencies performing proprietary functions: 2, When the charter creating the agency or instrumentality or the law provides that they fare subject to tx, 3, Ifthe government wishes to tax itself GOCCs: performing proprietary functions ae taxable similar to a corporation, However, Sec. 27{c)of the Tax Code provides forthe following corporations as exempt 1, Government Service Insurance System (GSI) 2. Social Security System (S55) 3, Philippine Health Insurance Corporation (PHIC] 4, Local Water Districts 14 PAGCOR: is no lange exempt fear income tax by its omission from the above lst. (PAGCOR vs. ‘BIR, GR No. 12087, March 15, 2011) However, PAGCOR remains exempt from Income tax for its income arising from casino operations which are subject to franchise tax in lieu of all taxes. (PAGCOR vs, BIR, GR No, 215427, Dec. 19, 2014) CSO: was removed under the TRAIN andl is thus taxable beginning January 2, 2018, (C. THE POWER TO TAXIS INHERENTLY LEGISLATIVE (NON-DELEGABILITY) Taxation isthe inherent power of the state and itis exercised primarily by the Legislature as delegates of the people. In accordance with the latin maxim, potestas delegates non delegare potest, which means, what has been delegated can no longer be delegated, as a rule, only the Congress (to whom the leuislative power has been delegated by the people) can exercise this power. Exceptions 1. Delegation to local Government - the Constitution, as implemented by the Local Government Code, empowers the local government units (LGU) to create its own sources of revenue and to levy taxes, fees and charges which shall accrue exclusively to the LGU. (Sec 5.Art, X ofthe Constitution 2. Delegation to the President ~ the Constitution, as implemented by the Tariff and Customs Code, allows the President ta fx tariff rates, import and export quatas, tonnage and wharfage dues and other duties or imposts. (Sec. 28(2}. Art. VI of the Constitution) Likewise, the Prasident may exercise emargency powers (Sec. 23/2), Art. VI ofthe Constitution) and enter into executive agreements or treaties which may contain tax exemptian provisions subject to the concurrence of the Senate. (See. 27, Art. Vilof the Censtitution) 3, Dolagation to Administrative Agencies ~ administrative agencies may Issue rules and regulations to implement tax laws, under their quasitegisative powers, subject to the following tests: 2. Completeness test ~in order for the delegation to he valid, the law must be complete in all aspects when It leaves the leglslature. The only thing eft forthe delegate to do Is to ‘implement the law, b._ Sufficiently Determinable Standards test ~ there must exist sufficient standards which should limit the boundaries of the delegate’s authority by defining legislative policy and the circumstance under which itis to be pursued and implemented, Technically, no, 3is not really an exception as the powers of the administrative agencies are limited to implementing and/or interpreting the tax laws issued by Congress. D. INTERNATIONAL COMITY ‘The principle of international comity recognizes that States are co-equal sovereigns such that fone cannot exercise its inherent sovereign powers over another, induding the power to tax, States find it mutually advantageous to create self-imposed restraints on ther taxing powers with reference to properties of foreign governments. Moreover, when on state enters the territary of anather, there s an Implied understanding that the former does not intend to degrade its dignity by placing itself under the jurisciction of the latter, note that a foreign state cannot be sued without its consent, thus it would be useless to impose or assess a tax Which cannot be callected. E. TERRITORIAL IN APPLICATION (SITUS) Taxis terttorial in application inthe

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