Taxation Law Reviewer

TAXATION LAW Reviewer (Sources: 2012 Bar Examination Syllabus, De Leon 2011, Aban 2009, Dean Quibod Lecture
Notes, Callanta Notes, UST Golden Notes 2011)
I. GENERAL PRINCIPLES OF TAXATION A. Definition and concept of taxation

Taxation is the inherent power of the sovereign, exercised through the legislature, to impose burdens upon the subjects and objects within its jurisdiction, for the purpose of raising revenues to carry out the legitimate objects of the government. It is the power of the sovereign to impose burdens or charges upon persons, property or property rights for the use and support of the government to be able to discharge its functions. It is one of the inherent powers of the state.
B. Nature of taxation
1) Inherent in sovereignty - There is no need to enact a law to exercise that power as this power springs from the moment a state comes into existence.
2) Legislative in character - Even in the absence of any constitutional provision, the power
falls to the legislature as part of the more general power of law-making. 3) It is subject to constitutional and inherent limitations To a certain extent, Congress will abuse that power. To a certain extent, you have that principle also that the power to tax involves the power to destroy. Congress may abuse that power given to it by the people through the electoral process.
C. Characteristics of taxation
1) An enforced contribution, for its imposition is in no way dependent upon the will or assent of the person taxed; 2) It is generally payable in the form of money, although the law may provide payment in kind; 3) It is laid by some rule of apportionment, which, in case of income taxes, is usually based on ability to pay; 4) Levied upon persons, property or business, acts, transactions, right or privileges, In each case, however it is only a person who pays the tax; 5) It is levied by the State which has jurisdiction over the object taxed. It is necessary that the State has jurisdiction or control over the objects to be taxed in order that the tax can be enforced; 6) Levied by the lawmaking body of the State. The power to tax is a legislative power that only the legislature can exercise. Except: a) Delegated power of the LGUs pursuant to Art. X, Sec. 5 of the Consitution; b) The President pursuant to Art. VI Section 28 (2) on tariff rates, import an export quotas, tonnage and wharfage dues, and other duties and imposts;
By: Adelaine Faith Zerna LLB4 Page 1
c) c)Delegation to administrative agencies of the executive branch such as the BIR, Bureau of Customs and the Department of Finance; and d) Peoples initiative and referendum under RA 6735 where the people is granted power to take back the legislatives authority in enacting tax laws. 7) Levied for public purpose. A tax levied for private purpose is unconstitutional and, therefore, void; it constitutes taking of property without due process of law.
D. Power of taxation compared with other powers

A. TAXATION vs. POLICE POWER vs. EMINENT DOMAIN
1) As to purpose: Taxation for the support of the government
Eminent Domain_- for public use Police Power to promote general welfare, public health, public morals, and public
safety.
2) As to compensation: Taxation Protection and benefits received from the government. Eminent Domain just compensation, not to exceed the market value declared by the
owner or administrator or anyone having legal interest in the property, or as determined by the assessor, whichever is lower.
Police Power The maintenance of a healthy economic standard of society.
3) As to persons affected: Taxation and Police Power operate upon a community or a class of individuals Eminent Domain operates on the individual property owner.
4) As to authority which exercises the power: Taxation and Police Power Exercised only by the government or its political subdivisions.
Eminent Domain may be exercised by public services corporation or public utilities if

granted by law.
5) As to amount of imposition: Taxation Generally no limit to the amount of tax that may be imposed.
Police Power Limited to the cost of regulation Eminent Domain There is no imposition; rather, it is the owner of the property taken
who is just paid compensation.
By: Adelaine Faith Zerna LLB4
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6) As to the relationship to the Constitution: Taxation and Eminent Domain Subject to certain constitutional limitations, including the prohibition against impairment of the obligation of contracts.
Police Power Relatively free from constitutional limitations and superior to the nonimpairment provisions thereof.
B. TAX vs. LICENSE FEE: 1) As to purpose: Tax imposed for revenue WHILE license fee for regulation. Tax for general
purposes WHILE license fee for regulatory purposes only.
2) As to basis: Tax imposed under power of taxation WHILE license fee under police power. 3) As to amount: In taxation, no limit as to amount WHILE license fee limited to cost of the license and expenses of police surveillance and regulation. 4) As to the time of payment: Taxes normally paid after commencement of business WHILE license fee before. 5) As to the effect of payment: Failure to pay a tax does not make the business illegal WHILE failure to pay license fee makes business illegal. 6) as to surrender: Taxes, being lifeblood of the state, cannot be surrendered except for lawful consideration WHILE a license fee may be surrendered with or without consideration.
C. IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.

It is necessary to determine whether a particular imposition is a tax or a license fee, because some limitations apply only to one and not to the other. Furthermore, exemption from taxes does not include exemption from license fees
D. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:

1) toll amount charged for the cost and maintenance of property used; 2) compromise penalty amount collected in lieu of criminal prosecution in cases of tax violations; 3) special assessment levied only on land based wholly on the benefit accruing thereon as a result of improvements of public works undertaken by government within the vicinity. 4) license fee regulatory imposition in the exercise of the police power of the State;
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5) margin fee exaction designed to stabilize the currency 6) custom duties and fees duties charged upon commodities on their being imported into or exported from a country; 7) debt a tax is not a debt but is an obligation imposed by law.
E. SPECIAL ASSESSMENT vs. TAX

1. 2. 3. 4. 5. A special assessment tax is an enforced proportional contribution from owners of lands especially benefited by public improvements. A special assessment is levied only on land. A special assessment is not a personal liability of the person assessed; it is limited to the land. A special assessment is based wholly on benefits, not necessity. A special assessment is exceptional both as to time and place; a tax has general application.
Republic v. Bacolod, 17 SCRA 632

A special assessment is a levy on property which derives some special benefit from the improvement. Its purpose is to finance such improvement. It is not a tax measure intended to raise revenues for the government. The proceeds thereof may be devoted to the specific purpose for which the assessment was authorized, thus accruing only to the owners thereof who, after all, pay the assessment.
Some Rules: An exemption from taxation does not include exemption from a special treatment. The power to tax carries with it a power to levy a special assessment.
F. TOLL vs. TAX

1. Toll is a sum of money for the use of something. It is the consideration which is paid for the use of a road, bridge, or the like, of a public nature. Taxes, on the other hand, are enforced proportional contributions from persons and property levied by the State by virtue of its sovereignty for the support of the government and all public needs. 2. Toll is a demand of proprietorship; tax is a demand of sovereignty. 3. Toll is paid for the used of anothers property; tax is paid for the support of government. 4. The amount paid as toll depends upon the cost of construction or maintenance of the public improvements used; while there is no limit on the amount collected as tax as long as it is not excessive, unreasonable, or confiscatory.
5. Toll may be imposed by the government or by private individuals or entities; tax may be imposed only by the government.
G. TAX vs. PENALTY

1. Penalty is any sanction imposed as a punishment for violation of law or for acts deemed injurious; taxes are enforced proportional contributions from persons and property levied by the State by virtue of its sovereignty for the support of the government and all public needs. 2. Penalty is designed to regulate conduct; taxes are generally intended to generate revenue. 3. Penalty may be imposed by the government or by private individuals or entities ; taxes only by the government.
H. OBLIGATION TO PAY DEBT vs. OBLIGATION TO PAY TAX

1. A debt is generally based on contract, express or implied, while a tax is based on laws. 2. A debt is assignable, while a tax cannot generally be assigned. 3. A debt may be paid in kind, while a tax is generally paid in money. 4. A debt may be the subject of set off or compensation, a tax cannot. 5. A person cannot be imprisoned for non-payment of tax, except poll tax. 6. A debt is governed by the ordinary periods of prescription, while a tax is governed by the special prescriptive periods provided for in the NIRC. 7. A debt draws interest when it is so stipulated or where there is default, while a tax does not draw interest except only when delinquent. Rules re: set off or compensation of debts General rule: A tax delinquency cannot be extinguished by legal compensation. This is so because the government and the tax delinquent are not mutually creditors and debtors. Neither is a tax obligation an ordinary act. Moreover, the collection of a tax cannot await the results of a lawsuit against the government. Finally, taxes are not in the nature of contracts but grow out of the duty to, and are the positive acts of the government to the making and enforcing of which the personal consent of the taxpayer is not required. (Francia v. IAC, 162 SCRA 754 and Republic v. Mambulao Lumber, 4 SCRA 622)
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Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re: claim for payment of unpaid services of a government employee vis--vis the estate taxes due from his estate. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law shows that both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation therefore takes place by operation of law.
Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)

Philex Mining Corporation was to set off its claims for VAT input credit/refund for the excise taxes due from it. The Supreme Court disallowed such set off or compensation.
E. Purpose of taxation
PRIMARY To raise revenue in order to support the government SECONDARY 1) 2) 3) 4) Used to reduce social inequality Utilized to implement the police power of the State Used to protect our local industries against unfair competition Utilized by the government to encourage the growth of local industries
PAL vs. EDU

It is possible for an exaction to be both a tax and a regulation. License fees and charges, looked to as a source of revenue as well as a means regulation. The fees may properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax.
CALTEX vs. CIR

Taxation is no longer a measure merely to raise revenue to support the existence of the government. Taxes may be levied with a regulatory purpose to provide means for rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State.
F. Principles of sound tax system

1) FISCAL ADEQUACY
VIOLATION VALID Sources of revenue should be sufficient to meet the demands of public expenditure Revenues should be elastic or capable of expanding or contracting annually in response to variations in public expenditure Elasticity may be obtained without creating annually any new taxes or any new tax machinery but merely by changes in the rates applicable to existing taxes
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Even if a tax law violates the principle of Fiscal Adequacy , in other words, the proceeds may not be sufficient to satisfy the needs of the government, still the tax law is valid
2) ADMINISTRATIVE FEASIBILITY
VIOLATION VALID The tax law must be capable of effective or efficient enforcement Tax laws should be capable of convenient, just and effective administration Tax laws should close-up the loopholes for tax evasion and deter unscrupulous officials from committing fraud There is no law that requires compliance with this principle, so even if the tax law violates this principle; such tax law is valid.
3) THEORETICAL JUSTICE
VIOLATION INVALID This principle mandates that taxes must be just, reasonable and fair Taxation shall be uniform and equitable Equitable taxation has been mandated by our constitution, as if taxes are unjust and unreasonable then they are not equitable, thus invalid. The tax burden should be in proportion to the taxpayers ability to pay (ABILITY TO PAY PRINCIPLE)
1. Lifeblood theory Taxes are the lifeblood of the nation. Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. (CIR vs. ALGUE) Taxes are the lifeblood of the government and there prompt and certain availability is an imperious need. Taxes are the lifeblood of the nation through which the agencies of the government continue to operate and with which the state effects its functions for the benefit of its constituents
G. Theory and basis of taxation
Illustrations of the lifeblood theory

Collection of the taxes may not be enjoined by injunction Taxes could not be the subject of compensation or set off A valid tax may result in destruction of the taxpayers property Taxation is an unlimited and plenary power
2. Necessity theory Existence of a government is a necessity and cannot continue without any means to pay for expenses
3. Benefits-protection theory (Symbiotic relationship) Reciprocal duties of protection and support between State and inhabitants. Inhabitants pay taxes and in return receive benefits and protection from the State
H. Doctrines in taxation
Imprescriptibility of taxes GENERAL RULE: Taxes are imprescriptible EXCEPTION: They are prescriptible if the tax laws provide for statute of limitations PRESCRIPTIVE PERIODS: 1) Prescriptive periods for the assessment and collection of taxes 10 years if return is tainted with falsity or fraud 3 years if there is no fraud
2) TARIFF AND CUSTOMS CODE After the expiration of 1 year from the payment of final duties. You should impose those custom duties that are supposed to be imposed on the imported articles within the 1 year period, except if it is in the nature of partial liquidation, if there is fraud or protest
3) LOCAL GOVERNMENT CODE Prescriptive periods for local taxes and real property tax 5 years 10 years if fraud has been employed
Progressive system of taxation vs. regressive system of taxation

A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than on indirect taxes, with ability to pay as the principal criterion. A regressive system of taxation exists when there are more indirect taxes imposed than direct taxes. No regressive taxes in the Philippine jurisdiction
I. Classification of Taxes
As to subject matter or object
Personal, poll or capitation tax o Tax of a fixed amount imposed on persons residing within a specified territory, whether citizens or not, without regard to their property or the occupation or business in which they may be engaged, i.e. community tax. Property tax o Tax imposed on property, real or personal, in proportion to its value or in accordance with some other reasonable method of apportionment. Excise tax o A charge imposes upon the performance of an act, the enjoyment of privilege, or the engaging in an occupation.
As to purpose
General/fiscal revenue tax is that imposed for the purpose of raising public funds for the service of the government.
A special or regulatory tax is imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the purpose of raising public funds.
As to who bears the burden

1. Direct tax
A direct tax is demanded from the person who also shoul,ders the burden of the tax. It is a tax which the taxpayer is directly or primarily liable and which he or she cannot shift to another. 2. Indirect tax
An indirect tax is demanded from a person in the expectation and intention that he or she shall indemnify himself or herself at the expense of another, falling finally upon the ultimate purchaser or consumer. A tax which the taxpayer can shift to another.
As to the scope of the tax

National tax o A national tax is imposed by the national government. Local tax o A local tax is imposed by the municipal corporations or local government units (LGUs).
As to the determination of amount

1. Specific tax A specific tax is a tax of a fixed amount imposed by the head or number or by some other standard of weight or measurement. It requires no assessment other than the listing or classification of the objects to be taxed. 2. Ad valorem tax An ad valorem tax is a fixed proportion of the value of the property with respect to which the tax is assessed. It requires the intervention of assessors or appraisers to estimate the value of such property before due from each taxpayer can be determined.
As to graduation or rate
Proportional tax o Tax based on a fixed percentage of the amount of the property receipts or other basis to be taxed. Example: real estate tax. Progressive or graduated tax o Tax the rate of which increases as the tax base or bracket increases. Digressive tax rate: progressive rate stops at a certain point. Progression halts at a particular stage. Regressive tax o Tax the rate of which decreases as the tax base or bracket increases. There is no such tax in the Philippines.
J. Tax systems
Constitutional mandate
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The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. [Section 28 (1), Article VI, Constitution] Regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to evolve a progressive system of taxation. This is a directive to Congress, just like the directive to it to give priority of the enactment of law for the enhancement of human dignity. The provisions are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights. (Tolentino v. Secretary of Finance.)
Progressive system of taxation vs. regressive system of taxation

A progressive system of taxation means that tax laws shall place emphasis on direct taxes rather than on indirect taxes, with ability to pay as the principal criterion. A regressive system of taxation exists when there are more indirect taxes imposed than direct taxes. No regressive taxes in the Philippine jurisdiction
Summary of classification of taxes:

personal tax also known as capitalization or poll tax; property tax assessed on property of a certain class; direct tax incidence and impact of taxation falls on one person and cannot be shifted to
another;
indirect tax incidence and liability for the tax falls on one person but the burden thereof
can be passed on to another; excise tax imposed on the exercise of a privilege; general taxes taxes levied for ordinary or general purpose of the government; special tax levied for a special purpose; specific taxes imposed on a specific sum by the head or number or by some standards of weight or measurement; ad valorem tax tax imposed upon the value of the article; local taxes taxes levied by local government units pursuant to validly delegated power to tax; progressive taxes rate increases as the tax base increases; and regressive taxes rate increases as tax base decreases.
GENERAL RULE: Taxes are personal to the taxpayer. Corporations tax delinquency cannot be enforced on the stockholder or transfer taxes on the estate be assessed on the heirs.
EXCEPTIONS: 1. 2. stockholders may be held liable for unpaid taxes of a dissolved corporation if the corporate assets have passed into their hands; and heirs may be held liable for the transfer taxes on the estate, if prior to the payment of the same, the properties of the decedent have been distributed to the heirs.
K. Limitations on the power of taxation

Inherent limitations
It must be imposed for a public purpose. If delegated either to the President or to a L.G.U., it should be validly delegated. It is limited to the territorial jurisdiction of the taxing authority. Government entities are exempted. International comity is recognized i.e. property of foreign sovereigns are not subject to tax.
Constitutional limitations Indirect

a) Due process clause b) Equal protection clause c) Freedom of the press d) Religious freedom e) Non-impairment clause f) Law-making process One-subject One-title Rule 3 readings on 3 separate days Rule except when there is a Certificate of Emergency Distribution of copies 3 days before the 3rd reading.
g) Presidential power to grant reprieves, commutations and pardons, and remit fines and forfeitures after conviction by final judgment.
Direct
a) Revenue bill must originate exclusively in H.R. but the Senate may propose with amendments. b) Non-imprisonment for non-payment of poll tax. c) Taxation shall be uniform and equitable. d) Congress shall evolve a progressive system of taxation. e) Tax exemption of charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements ADE (actually, directly , exclusively) used for charitable, religious, and educational purposes. f) Tax exemption of all revenues and assets used actually directly and exclusively for educational purposes of: Non-profit non-stock educational institutions. Proprietary or cooperative educational institutions subject to limitations provided by law including: o restriction on dividends o provisions for re-investments.
g) Tax exemption of grants, endowments, donations or contributions ADE for educational purposes, subject to conditions prescribed by law. h) No tax exemption without the concurrence of a majority of all members of Congress.
i) SC power to review judgments or orders of lower courts in all cases involving Legality of any tax. Impost or toll, Legality of any penalty imposed in relation thereto.
L. SITUS OF TAXATION
Place of taxation The State where the subject to be taxed has a situs may rightfully levy and collect the tax In determining the situs of taxation, you have to consider the nature of the taxes
Example:
1) Poll tax, capitation tax, community tax Residence of the taxpayer 2) Real property tax or property tax Location of the property
We can only impose property tax on the properties of a person whose residence is in the Philippines.
EXCEPTIONS TO THE TERRITORIALITY RULE
A) Where the tax laws operate outside territorial jurisdiction

1) TAXATION of resident citizens on their incomes derived from abroad
B) Where tax laws do not operate within the territorial jurisdiction of the State
1) When exempted by treaty obligations 2) When exempted by international comity
Situs of tax on real property
LEX REI SITUS or where the property is located
REASON: The place where the real property is located gives protection to the real property, hence the property or its owner should support the government of that place
Situs of property tax on personal property

MOBILIA SEQUNTUR PERSONAM

movables follow the owner movables follow the domicile of the owner RULES:
1) TANGIBLE PERSONAL PROPERTY

Where located, usually the owners domicile
2) INTANGIBLLE PERSONAL PROPERTY

G. R. Domicile of the owner
EXCEPTION: The situs location not domicile: Where the intangible personal property has acquired a business situs in another jurisdiction The principle of MobiliaSequnturPersonam is only for purposes of convenience. It must yield to the actual situs of such property. Personal intangible properties which acquires business situs here in the Philippines: 1) Franchise which is exercised within the Philippines 2) Shares, obligations, bonds issued by a domestic corporation 3) Shares, obligations, bonds issued by a foreign corporation, 85% of its business is conducted in the Philippines 4) Shares, obligations, bonds issued by a foreign corporation which shares of stock or bonds acquire situs here 5) Rights, interest in a partnership, business or industry established in the Philippines These intangible properties acquire business situs here in the Philippines, you cannot apply the principle of MobiliaSequnturPersonam because the properties have acquired situs here.
Situs of income tax 1. Domicillary theory

The location where the income earner resides in the situs of taxation
2. NATIONALITY THEORY
The country where the income earner is a citizen is the situs of taxation
i. SOURCE RULE
The country which is the source of the income or where the activity that produced the income took place is the situs of taxation.
Situs of sale of personal property

The place where the sale is consummated and perfected
Situs of tax on interest income

The residence of the borrower who pays the interest irrespective of the place where the obligation was contracted
CIR vs. BOAC

Revenue derived by an of-line international carrier without any flight from the Philippines, from ticket sales through its local agent are subject to tax on gross Philippine billings
Situs of excise tax

Where the transaction performed
HOPEWELL vs. COM. OF CUSTOMS

The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the exercise, nor upon the physical location of the property or in connection with the act or occupation taxed, but depends upon the place on which the act is performed or occupation engaged in. Thus, the gauge of taxability does not depend on the location of the office, but attaches upon the place where the respective transaction is perfected and consummated
M. Double taxation
Taxing same property twice when it should be taxed but once. Taxing the same person twice by the same jurisdiction over the same thing. Also known as duplicate taxation
PEPSI COLA vs. CITY OF BUTUAN

There is no constitutional prohibition against double taxation in the Philippines. It is something not favored but is permissible, provided that the other constitutional requirements is not thereby violated
KINDS OF DOUBLE TAXATION 1) DIRECT DOUBLE TAXATION Double taxation in the objectionable or prohibited sense Same property is taxed twice
REQUISITES:
A) The same property is taxed twice when it should only be taxed once; B) Both taxes are imposed on the same property or subject matter for the same purpose; C) Imposed by the same taxing authority; D) Within the same jurisdiction; E) During the same period; and F) Covering the same kind or character of tax 2) INDIRECT DOUBLE TAXATION Not legally objectionable If taxes are not of the same kind, or the imposition are imposed for different taxing authority and this may involve the same subject matter
EXAMPLES:
A) The taxpayers warehousing business although carried on in relation to the operation of its sugar central is a distinct and separate taxable business
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B) A license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax C) Both a license fee and a tax may be imposed on the same business or occupation for selling the same article and this is not in violation of the rules against double taxation D) When every bottle or container of intoxicating beverages is subject to local tax and at the same time the business of selling such product is also subject to liquors license E) A tax imposed on both on the occupation of fishing and of the fishpond itself F) A local ordinance imposes a tax on the storage of copra where it appears that the finished products manufactured out of the copra are subject to VAT
Means employed to avoid double taxation

1) Tax deductions 2) Tax credits o An amount allowed as a deduction of the Philippine Income tax on account of income taxes paid or incurred to foreign countries. It is given to a taxpayer in order to provide a relief from too onerous a burden of taxation in case where the same income is subject to a foreign income tax and the Philippine Income tax. o WHO CAN CLAIM TAX CREDIT 1) Citizens of the Philippines 2) Domestic corporations
CITY OF BAGUIO vs. DE LEON

The argument against double taxation may not be invoked where one tax is imposed by the state and the other imposed by the city, it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and a political subdivision thereof. And where the statute or ordinance in question applies equally to all persons, firms and corporations placed in a similar situation, there is no infringement of the rule on equality.
VILLANUEVA vs. CITY OF ILOILO

An ordinance imposing a municipal tax on tenement houses was challenged because the owners already pay real estate taxes and also income taxes under the NIRC. The Supreme Court held that there was no double taxation. The same tax may be imposed by the National Government as well as the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the state and a political subdivision thereof. Further, a license tax may be levied upon a business or occupation although the land used in connection therewith is subject to property tax. 3) Provide for exemption 4) Enter into treatise with other states 5) Allowance on the principle of reciprocity
DOCTRINES ON DOUBLE TAXATION 1) Direct Double Taxation (DDT) is not allowed because it amounts to confiscation of property without due process of law 2) You can question the validity of double taxation if there is a violation of the Equal protection clause or Equality or Uniformity of Taxation 3) All doubts as to whether double taxation has been imposed should be resolved in favor of the taxpayer
Escape from taxation

I. SHIFTING Shifting is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else Process by which such tax burden is transferred from statutory taxpayer to another without violating the law It should be borne in mind that what is transferred is not the payment of the tax, but the burden of the tax Only indirect taxes may be shifted; direct taxes cannot be shifted
Ways of shifting the tax burden

1) FORWARD SHIFTING When the burden of the tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer. Example: Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to the retailer, who also shifts it to the final purchaser or consumer
2) BACKWARD SHIFTING When the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factors of production Example: Consumer or purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced, and from the latter to the wholesaler, or finally to the manufacturer or producer
2) ONWARD SHIFTING
When the tax is shifted two or more times either forward or backward Example:
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Thus, a transfer from the seller to the purchaser involves one shift; from the producer to the wholesaler, then to retailer, we have two shifts; and if the tax is transferred again to the purchaser by the retailer, we have three shifts in all.
Impact and Incidence of Taxation
Impact of taxation is the point on which a tax is originally imposed. In so far as the law is
concerned, the taxpayer is the person who must pay the tax to the government. He is also termed as the statutory taxpayer-the one on whom the tax is formally assessed. He is the subject of the tax
Incidence of taxation is that point on which the tax burden finally rests or settle down. It
takes place when shifting has been effected from the statutory taxpayer to another.
Statutory Taxpayer
The Statutory taxpayer is the person required by law to pay the tax or the one on whom the tax is formally assessed. In short, he or she is the subject of the tax. In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax while in indirect taxes, the statutory taxpayer is the one who pay the tax to the government but the burden can be passed to another person or entity.
Relationship between impact, shifting, and incidence of a tax

The impact is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller (manufacturer) who shifts the burden to the customer who finally bears the incidence of the tax.
Impact is the imposition of the tax; shifting is the transfer of the tax; while incidence is
the setting or coming to rest of the tax.
II. CAPITALIZATION Reduction is the price of the taxed object equal to the capitalized value of future taxes on the property sold This is a special form of backward shifting, where the burden of future taxes which the buyer may have to pay is shifted back to the seller in the form of reduction in the selling price
III. TRANSFORMATION The manufacturer in an effort to avoid losing his customers, maintains the same selling price and margin of profit, not by shifting the tax burden to his customers, but by improving his method of production and cutting down or other production cost, thereby transforming the tax into or earn through the medium of production. IV. TAX AVOIDANCE Also known as tax minimization not punished by law Tax avoidance is the exploitation of the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability
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DELPHERS TRADERS CORP vs. IAC (157 SCRA 349)

The Supreme Court upheld the estate planning scheme resorted to by the Pacheco family in converting their property to shares of stock in a corporation which they themselves owned and controlled. By virtue of the deed of exchange, the Pacheco co-owners saved on inheritance taxes. The Supreme Court said the records do not point anything wrong and objectionable about this estate planning scheme resorted to. The legal right of the taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them by means which the law permits cannot be doubted.
Example:
Following the holding period rule in capital gains transaction, by postponing the sale of the capital asset until after twelve months from date of acquisition you can reduce the tax on the capital gains by 50% V. TAX EXEMPTION It is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. It is an immunity or privilege; it is freedom from a financial charge or burden to which others are subjected. Exemption is allowed only if there is a clear provision there for. It is not necessarily discriminatory as long as there is a reasonable foundation or rational basis. Exemptions are not presumed, but when public property is involved, exemption is the rule and taxation is the exemption.
Rationale for granting tax exemptions

Its avowed purpose is some public benefit or interests which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption. The theory behind the grant of tax exemptions is that such act will benefit the body of the people. It is not based on the idea of lessening the burden of the individual owners of property.
Grounds for granting tax exemptions

May be based on contract. In such a case, the public, which is represented by the government is supposed to receive a full equivalent therefor, i.e. charter of a corporation. May be based on some ground of public policy, i.e., to encourage new industries or to foster charitable institutions. Here, the government need not receive any consideration in return for the tax exemption. May be based on grounds of reciprocity or to lessen the rigors of international double or multiple taxation
Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clear provision therefor.
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Nature of tax exemption

It is a mere personal privilege of the grantee. It is generally revocable by the government unless the exemption is founded on a contract which is contract which is protected from impairment. It implies a waiver on the part of the government of its right to collect what otherwise would be due to it, and so is prejudicial thereto. It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis. It is not transferable except if the law expressly provides so.
Kinds of tax exemption according to manner of creation

1) Express or affirmative exemption When certain persons, property or transactions are, by express provision, exempted from all certain taxes, either entirely or in part. 2) Implied exemption or exemption by omission When a tax is levied on certain classes of persons, properties, or transactions without mentioning the other classes. TN: Every tax statute makes exemptions because of omissions. No tax exemption by implication It must be expressed in clear and unmistakable language
CALTEX vs. COA

RULE: Taxation is the rule and exemption is the exception In claiming tax exemption, the burden of proof lies upon the claimant It cannot be created by mere implication It cannot be presumed that you are entitled to tax exemption You must prove it
PROPERTY TAX GOVERNMENT PROPERTY

TEST: - OWNERSHIP Once established that it belongs to the government, the nature of the use of the property whether proprietary or sovereign becomes immaterial. Exemption of public property from taxation does not extend to improvements therein made by occupants or claimants at their own expense. Properties owned by the government whether in their proprietary or governmental capacity are exempt from real estate tax
Kinds of tax exemptions according to scope or extent

1) TOTAL
When certain persons, property or transactions are exempted, expressly or impliedly from all taxes 2) PARTIAL When certain persons, property or transactions are exempted, expressly or impliedly from certain taxes, either entirely or in part. 3) There can be no simultaneous exemptions under two laws, when one grants partial exemption while other grants total exemption.
Does provision in a statute granting exemption from all taxes include indirect taxes?
NO. As a general rule, indirect taxes are not included in the grant of such exemption unless it is expressly stated.
VI. TAX REMISSION OR TAX CONDONATION The word remit means to desist or refrain from exacting, inflicting or enforcing something as well as to restore what has already been taken. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Such a set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370] The condition of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressly provided in the law. [Surigao Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728]
VII. TAX AMNESTY Tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue to collect what otherwise would be due it and, in this sense, prejudicial thereto. It is granted particularly to tax evaders who wish to relent and are willing to reform, thus giving them a chance to do so and thereby become a part of the new society with a clean slate. [Republic v. Intermediate Appellate Court, 196 SCRA 335] Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted by statute. The terms of the amnesty must also be construed against the taxpayer and liberally in favor of the government.
Tax amnesty v. tax condonation v. tax exemption A tax amnesty, being a general pardon or intentional overlooking by the Statute of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it and, in this sense, prejudicial thereto, particularly to tax evaders who wish to relent and are willing to reform are given a chance to do so and therefore become a part of the society with a clean slate. Like a tax exemption, a tax amnesty is never favorednor presumed in law, and is granted by statute. The terms of the amnesty must be strictly construed against the taxpayer and literally in favor of the government. Unlike a tax exemption, however, a tax amnesty has limited applicability as to cover a particular taxing period or transaction only.
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There is a tax condonation or remission when the State desists or refrains from exacting, inflicting or enforcing something as well as to reduce what has already been taken. The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, it should be sustained only when expressed in the law. Tax exemption, on the other hand, is the grant of immunity to particular persons or corporations of a particular class from a tax of which persons and corporations generally within the same state or taxing district are obliged to pay. Tax exemptions are not favored and are construed strictissimijurisagainst the taxpayer.
CIR vs. RIO TUBA

> Law granting partial refund partakes the nature of a tax exemption and therefore must be strictly construed against the taxpayer
CIR vs. TOUR SPECIALIST

> Gross receipts subject to tax under the tax code do not include monies or receipts entrusted to the taxpayer which do not belong to it and does not redound to the taxpayers benefit, and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts.
VIII. TAX EVASION It is also known as tax dodging It is punishable by law Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax.
YUTIVO vs. CTA

Tax evasion is a term that connotes fraud through the use of pretenses or forbidden devices to lessen or defeat taxes ELEMENTS OF TAX EVASION Tax evasion connotes the integration of three (3) factors: 1) The end to be achieved, i.e. payment of less than that known by the taxpayer to be legally due, or paying no tax when it is shown that tax is due 2) An accompanying state of mind which is described as being evil, in bad faith, willful, or deliberate and not accidental 3) A course of action (or failure of action) which is unlawful INDICIA of FRAUD IN TAX EVASION 1) Failure to declare for taxation purposes true and actual income derived from business for two (2) consecutive years; or 2) Substantial underdeclaration of income tax returns of the taxpayer for four (4) consecutive years coupled with unintentional overstatement of deductions EVIDENCE TO PROVE TAX EVASION
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Since fraud is a state of mind, it need not be proved by direct evidence but may be proved from the circumstances of the case.
REPUBLIC vs. GONZALES (13 SCRA 638)

Failure of the taxpayer to declare for taxation purposes his true and actual income derived from his business for two (2) consecutive years is an indication of his fraudulent intent to cheat the government of its due taxes.
a) Tax laws
N. Construction and interpretation
1. Legislative intent Tax statutes are to receive reasonably construction with the view to carry out their purpose and intent. If there is some issue on construction and interpretation, we determine what was the intent of the legislators. We go back to the deliberations, debates, arguments. 2. When there is doubt In case of doubt, they are construed strictly against the government and liberally in favor of the taxpayer. Tax laws are, therefore, given liberal construction for the reason that taxes are burdens. 3. Where the language is plain - But when the language of the tax law is plain and clear, which does not require independent interpretation or construction, the rule of strict construction against the government is not applicable where the language of the tax statute is plain and there is not doubt as to its legislative intent. b) Tax exemption and exclusion General rule: o In the construction of tax statutes, exemptions are not favored and are construed strictissimijurisagainst the taxpayer. The fundamental theory is that all taxable property should bear its share in the cost and expense of the government. o Taxation is the rule and exemption is the exemption. o He who claims exemption must be able to justify his claim or right thereto by a grant express in terms too plain to be mistaken and too categorical to be misinterpreted. If not expressly mentioned in the law, it must be at least within its purview by clear legislative intent. Exceptions
1) When the law itself expressly provides for a liberal construction thereof. 2) In cases of exemptions granted to religious, charitable and educational institutions or to the government or its agencies or to public property because the general rule is that they are exempt from tax.
Strict interpretation does not apply to the government and its agencies
Petitioner cannot invoke the rule on stritissimijuris with respect to the interpretation of statutes granting tax exemptions to the NPC. The rule on strict interpretation does not apply in the case of exemptions in favor of a political subdivision or instrumentality of the government. [Maceda v. Macaraig]
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Davao Gulf v. Commissioner, 293 SCRA 76 (1998)

A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, a claim of exemption from tax payers must be clearly shown and based on language in the law too plain to be mistaken. Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construedstrictissimijurisagainst the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken.
Exemption of the buyer does not extend to the seller

Exemption of the principal does not extend to the accessory
SURIGAO vs. COLLECTOR of CUSTOMS
Tax refunds, condonations and amnesties, they being in the nature of tax exemptions
must be strictly construed against the taxpayer and liberally in favor of the government.
II. National Internal Revenue Code of 1997, as amended (NIRC)

A. Income taxation Income is the flow of wealth which goes into the hands of the taxpayer other than the return of capital. 1. Income tax systems a) Global tax system This is also known as the totality or the aggregate approach.The Global System of Taxation of Income follows the principle that all income are one and the same. There is no variance as to the type, the purpose, the character and the kind of income. b) Schedular tax system This is also known as differentiated or segregated approach. The Schedular System of Taxation recognizes that income are different from each other. There is a distinction and differentiation on tax treatment and character. A type of income is to be differentiated from another type of income. All income are not one and the same.Also includes the system of pay-as-you-go c) Semi-schedular or semi-global tax system 2. Features of the Philippine income tax law a) Direct tax b) Progressive c) Comprehensive d) Semi-schedular or semi-global tax system 3. Criteria in imposing Philippine income tax a) Citizenship principle b) Residence principle
c) Source principle 4. Types of Philippine income tax a) Compensation income b) Business/Trade/Professional Income c) Passive Income One which the taxpayer merely waits for the amount/income to come in. Examples: Royalties, Interests, Prizes. d) Capital Gains Derived from sale of capital assets (Sec. 22, NIRC) or properties 5. Taxable period a) Calendar period b) Fiscal period c) Short period 6. Kinds of taxpayers and taxes imposed (Sec. 23, NIRC) a) Individual taxpayers (i) Citizens (a) Resident citizens Taxable on all income derived from sources within and without the Philippines. (b) Non-resident citizens Taxable only on income derived from sources within the Philippines. But if working abroad, taxable only on income derived from sources within. TN: Seamen who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker. (ii) Aliens (a) Resident aliens One who permanently stays in the Philippines or goes out less than 183 days. (b) Non-resident aliens (1) Engaged in trade or business One who stays in the Philippines for more than 180 days. (2) Not engaged in trade or business TN: These persons are taxable only on income derived from sources within. (iii) Special class of individual employees (a) Minimum wage earner The statutory minimum wage earners are no longer taxable. They are exempted from payment of income tax. The determination of statutory wages is determined on a regular basis by the RTWPB. (R.A. 9504, July 2008) b) Corporations (i) Domestic corporations (ii) Foreign corporations (a) Resident foreign corporations (b) Non-resident foreign corporations (iii) Joint Venture and Consortium
c) Partnerships In the case of business partnerships, they are taxed like corporations. d) General professional partnerships e) Estates and trusts In the case of estates and trusts, they are taxable like individuals. f) Co-ownerships 7. GROSS INCOME A. (Sec. 32, NIRC) Sources of income but not limited to the following: (1) Compensation for services in whatever form paid, salaries, wages, commissions, and similar items; (2) Gross income derived from the conduct of trade or profession; (3) Gains derived from dealings in property; (4) Interests; (5) Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9) Prizes and winnings; (10) Pensions; and (11) Partner's distributive share from the net income of partnership. B) Exclusions from Gross Income (Exempt from Tax): (1) Life Insurance.- When you are indemnified for such loss or insurance proceeds are paid for such loss, what you have is a return of capital. That is excluded and not subject to income tax. But if such amounts are held by the insurer under an agreement to pay interest, then, income is earned by way of the interest but not on the principal amount covering the proceeds of the policy. (2) Amount Received by Insured as Return of Premium. - These are return of premiums. They represent return of capital. They are not income. (3) Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest, devise, or descent: Provided, however, That income from such property, as well as gift, bequest, devise or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income.
including, but not limited to fees, business or the exercise of a
the
general
professional
(4) Compensation for Injuries or Sickness. - These are forms of indemnity. These are return of capital. Actual damages in payment for hospitalization and other medical expenses are not income. Moral damages are not income. But if they are damages for payment of loss of income or loss of earning capacity, then, they are taxable income. (5) Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. (6) Retirement Benefits, Pensions, Gratuities, etc. Retirement benefits received under Republic Act No. 7641 (Labor Code) and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer
REQUIREMENTS FOR EXCLUSION: (1) The private benefit plan must be registered by the employer of with the BIR. (2) Length of service the retiring official or employee has same employer for at least ten (10) years been in the service of the
(3) Age the retiring official or employee is not less than fifty (50) years of age at the time of his retirement (4) That the benefits shall be availed of by an official or employee only once.
Absence of one, the said retirement benefits are taxable. Suppose there is a higher standard of retirement, which will prevail? If the employer sets up a higher standard than the one set up by your tax code, it will be standards of the employer that will be prevail. If you retire lower than the standards set up required by the tax code, your retirement it will be taxable. Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee.
This refers to separation pay.As a rule, separation pay is taxable. It becomes excluded when it is payment by reason of death, sickness or other physical disability or for any cause beyond the control of the said official or employee. If you resign and you are given a separation pay, that is taxable because that is a cause within the control of the employee. There are resignations which are beyond the control of the employee such as in the case of mergers or consolidations. The separation pay given in such circumstances is excluded because despite the resignation, it is a cause beyond the control of the employee. The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public.
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Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration. Benefits received from or enjoyed under the Social Security System in accordance with the provisions of Republic Act No. 8282. Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees.
As a rule, prizes and awards are taxable. They are excluded in the instances provided. (7) Prizes and Awards in Sports Competition. - All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports associations.As a rule, prizes and awards in sports competition are taxable. They are excluded under the conditions aforementioned. (8) 13th Month Pay and Other Benefits. - Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover: (i) Benefits received by officials and employees of the national and pursuant to Republic Act No. 6686; (ii) Benefits received by employees pursuant to Presidential Decree amended by Memorandum Order No. 28, dated August 13, 1986; local No. government 851, as
(iii) Benefits received by officials and employees not covered by Presidential No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and
decree
(iv) Other benefits such as productivity incentives and Christmas bonus: Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering among others, the effect on the same of the inflation rate at the end of the taxable year. (9) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-ibig contributions, and union dues of individuals. (10) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized from the same or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years. (11) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor upon redemption of shares of stock in a mutual fund company as defined in Section 22 (BB) of this Code. 8. Optional Standard Deduction: Before, only individuals engaged in business or practice their profession, who are citizens and resident aliens (excluding non-resident aliens) can avail of OSD. The availment of the OSD is also now allowed to corporations. It used to be 10% of the gross income. It is now 40% of the gross income. 9. Personal Exemptions:
Before, we used to have the scaling of the status of the individual single, head of the family or married. Now, regardless of your status, you have a personal exemption of P 50,000. Additional Exemptions:
It used to be P 8,000, maximum of 4. It is now increased to P 25,000, maximum of 4. 10. Resident Citizens income from outside the Philippines: The foreign income of the resident citizen is not anymore treated as schedular. It will be treated as global. All income from foreign source is taxed at 5% to 32%. There is no distinction as to the kind of income, as long as they are from a foreign source. 11. Corporate income tax Income in general the rate is 35%. Beginning January 1, 2009), the corporate income tax will be reduced to 30%. The rate of 30% of non-resident foreign corporations is at gross (without the benefit of deductions). For the domestic and resident foreign corporations, the 30% tax is based on taxable income, with the benefit of deductions. The treatment of the foreign source income of a domestic corporation, regardless of the nature of that income, is at a global rate of 30%. In the case of GOCCs, the rule is that they are taxable. Those which are not taxable are GSIS, SSS, PhilHealth and PCSO. PAGCOR has been removed under RA 9337 as being exempted. So, PAGCOR is already taxable. In the case of proprietary educational institutions and hospitals, they are subject, as a rule, to the regular corporate income tax. Unless, under the predominance test, where they are entitled to a 10% tax on their taxable income provided that the predominant income is the educational or hospital income. If the predominant income (more than 50%) of the proprietary educational or hospital is from unrelated income or unrelated business, then, it will be subject to regular rates. 12. MINIMUM CORPORATE INCOME TAX or MCIT
Minimum Corporate Income Tax on Domestic Corporations. (Sec. 27, NIRC)

A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year.
Minimum Corporate Income Tax on Resident Foreign Corporations. (Sec. 28, NIRC)
A minimum corporate income tax of two percent (2%) of gross income, as prescribed under Section 27(E) of this Code, shall be imposed, under the same conditions, on a resident foreign corporation taxable under paragraph (1) of this Subsection. The MCIT applies to both domestic corporations and to the resident foreign corporations. In its application, the tax due computed during the tax year at 35% is compared to the 2% of gross income. The tax due payable is whichever is higher.
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When we say that the MCIT applies beginning on the 4th taxable year immediately following the year in which the corporation commenced business, it means that newly established corporations will not yet be subject to the MCIT. When the corporation has been in the business and operating for 4 years or more at the time this tax became effective, then, that provision is covered. Prior to RA 9337, the MCIT was annualized you determine the tax to be paid, whether MCIT or 35%, at the end of the year. When RA 9337 took effect in 2005, the application of the MCIT is now on a quarterly basis. Corporations are required to file quarterly returns. In the case of corporations subject to MCIT, they have to determine at the end of the quarter the taxable income computed under the MCIT and under the 35% rate. There is no 4th quarter return for you will have the annual return.
13. Imposition of Improperly Accumulated Earnings Tax. (Sec. 29, NIRC) The improperly accumulated earnings tax is in addition to your income tax. This actually operates more as a penalty tax or a surtax. It is imposed on the improperly accumulated taxable income of the corporation. For improperly accumulating earnings beyond the reasonable needs of the business, the corporation will be subject to 10% on the improperly accumulated taxable income. When corporations are set up and it continues to accumulate profits beyond the reasonable means of the business, the tax code penalizes these corporations because corporations should not accumulate beyond its business needs. It should distribute their earnings to the stockholders, to the owners of the corporations, whether individuals or corporations. Otherwise, if they would accumulate earnings beyond the reasonable means of the business, then, it would be penalized and subject at 10% improper accumulated earnings tax on the basis of improperly accumulated taxable income. This is in addition to the regular corporate income tax that it will pay. The improperly accumulated earnings tax shall apply to every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation by permitting earnings and profits to accumulate instead of being divided or distributed. So as not to be penalized, the corporation has to declare dividends. If the corporation accumulates earnings, there must be a business purpose for it not to be penalized. This penalty tax will not apply to: 1. Publicly-held corporations; (corporations which are traded in the stock exchange) 2. Banks and other non-bank financial intermediaries 3. Insurance companies Remember that the distribution of dividends to the individual taxholders is a taxable distribution, except when the distribution is made to another corporation where it is taxfree distribution of dividends.
14. DEDUCTIONS (See Sec. 34, 35, 37, and 61) Prior to RA 9504, corporate taxpayers were only entitled to avail of the itemized deductions. Now, under RA 9504, both the individual and corporate taxpayers may avail the itemized or the optional standard deduction (OSD).
15. ESTATE TAX 1. Basic principles Transfer taxes - imposed upon the privilege of disposing gratuitously private properties. These are levied on the transmission of properties from a decedent to his heirs or from a donor to a donee. 2. Definition It is an excise tax imposed upon the privilege of transmitting property at the time of death and on the privilege that a person is given in controlling to a certain extent the disposition of his property to take effect upon death. The tax should not be construed as a direct tax on the property of the decedent although the tax is based thereon. Estate Tax vs. Inheritance Tax Inheritance tax - It is the tax on the privilege to receive property from a deceased person. This has been abolished by P.D. 69 passed on November 24, 1972, effective January 1, 1973 due to administrative difficulty in its collection. Note: Presently, there is no inheritance tax imposed by law. Only estate taxes are imposed. 3. Nature They are excise taxes; not property taxes. Note: They are not property taxes because their imposition does not rest upon general ownershipbut rather they are privilege tax since they are i 4. Purpose or object 1. Generate additional revenue for the government 2. Reduce the concentration of wealth 3. Provide for an equal distribution of wealth 4. Compensate the government for the protection given to the decedent that enabled him to prosper and accumulate wealth Note: Generally, the purpose of the estate tax is to tax the shifting of economic benefits and enjoyment of property from the dead to the living 5. Time and transfer of properties Q: When are the properties and rights transferred to successors? A: The properties and rights are transferred to the successors at the time of death. (Art. 777,
Civil Code)
Q: What law governs the imposition of the estate tax? A: The statute in force at the time of death of the decedent. Q: When does estate tax accrue? A: The estate tax accrues as of the death of the decedent. The accrual of the tax is distinct from the obligation to pay the same which is 6 months after the death of the decedent. 6. Classification of decedent
Q: Who are the taxpayers liable to pay estate tax? A: Only individuals 1. Resident citizen 2. Non-resident citizen 3. Resident alien 4. Non-resident alien Note: Domestic and foreign corporations are subject only to donors tax and not to estate tax because it is not capable of death but may enter into a contract of donation. 7. Gross estate vis--vis net estate Q: What is the estate tax formula? Gross estate(Sec. 85) Less: (1) Deductions (Sec 86) (2) Net share of the surviving spouse___ Net Estate x Tax rate(Sec. 84) Estate tax due Less: Tax credit (if any) (Sec. 86(E) or 110(B)) Estate Tax Due, if any 8. Determination of gross estate and net estate Q: How is the gross estate determined? 1. If the decedent is a resident or non-resident citizen, or a resident alien All properties, real or personal, tangible or intangible, wherever situated. 2. If the decedent is a non-resident alien Only properties situated in the Philippines provided that, intangible personal property is subject to the rule of reciprocity provided for under Section 104 of the NIRC. (Section 85, NIRC) 9. Composition of gross estate 1. Decedent's interest 2. Transfer in contemplation of death 3. Revocable transfer 4. Property passing under general power of appointment 5. Proceeds of life insurance 6. Prior interests 7. Transfers of insufficient consideration Note: Nos. 2, 3, 4 and 7- properties not physically in the estate (these have already been transferred during the lifetime of the decedent but are still subject to payment of estate tax) are transfers inter-vivoswhich are considered part of gross estate. 10. Items to be included in gross estate A: If the decedent is a resident If the decedent is a non-resident alien citizen, non-resident citizen, or resident alien Value at the time of death of all: Value at the time of death of all: 1. Real property wherever situated 1. Tangible personal property situated in the 2. Personal property, tangible or Philippines intangible, wherever situated 2. Intangible personal property with situs in 3. To the extent of the interest therein of the Philippines unless exempted on the basis the decedent at the time of his death. of reciprocity
F. Tax remedies under the NIRC
What are the remedies available to the taxpayer?
1. Administrative Before payment of taxes: a. Dispute Assessment (Protest) i. Request for reconsideration ii. Request for reinvestigation b. Entering a compromise agreement After payment of taxes: a. Claim for Tax Refund 2. Judicial a. Civil b. Criminal 3. Substantive a. Question validity of tax statute/ regulation b. Non-retroactivity of rulings c. Must be informed of the legal and factual bases of assessment d. Preservation of books of accounts and examination once a year
Importance of tax remedies:

1. To the government - For the regular collection of revenue necessary for the existence of the government. 2. To the taxpayer - They are safeguards of the taxpayers rights against arbitrary action.
Subjects of tax remedies in internal revenue taxation

They include the action of the BIR where there may be controversy between the taxpayer and the State such as: 1. Assessment of internal revenue taxes 2. Collection of internal revenue taxes 3. Refund of internal revenue taxes 4. Imposition of administrative or civil fines, penalties, interests or surcharges; promulgation and/or enforcement of administrative rules and regulations for the effective and efficient enforcement of internal revenue laws 5. Prosecution of criminal violations of internal revenue laws.
Q: State the No injunction to restrain tax collection rule.
A: GR: Under this rule, No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue, tax, fee or charge. (Sec. 219, R.A. 8424) XPN: The CTA can issue injunction in aid of its appellate jurisdiction if in its opinion the same may jeopardize the interest of the government and/or the taxpayer. In this instance, the court may require the taxpayer either to deposit the amount claimed or file a surety bond for not more than double the amount with the court. (RA 1125 as amended by RA 9282) Note: The Lifeblood doctrine requires that the collection of taxes cannot be enjoined, without taxation, a government can neither exist nor endure.
Assessment
It is a written notice to a taxpayer to the effect that the amount stated therein is due as tax and containing a demand for the payment. It is a finding by the taxing agency that the taxpayer has not paid his correct taxes.
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Note: A notice of assessment contains not only a computation of tax liabilities but also a demand for the payment within a prescribed period. It also signals the time when penalties and interests begin to accrue.
Importance of a tax assessment

AS TO THE GOVERNMENT 1. In the proper pursuit of judicial and extrajudicial remedies 2. To enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interests; 3. To inform the taxpayer of his liabilities; 4. In the establishment of tax liens; and 5. In estimating the revenues that may be collected by the government. AS TO THE TAXPAYER 1. In the proper pursuit of judicial and extrajudicial remedies 2. In the application of the Statute of Limitations; 3. To determine the period within which to protest. 4. To determine prescription of government claim.
Nature of an assessment
It is merely a notice to the effect that the amount stated therein is due as tax and containing a demand for the payment. (Alhambra Cigar Mfg. Co. v. CIR, GR L-23226, Nov. 28, 1967)
Q: Who has the burden of proof in pre-assessment proceedings?

A: The burden of proof is on the taxpayer for there is a presumption of correctness on the part of the CIR. Otherwise, the finding of the CIR will be conclusive and the CIR will assess the taxpayer. If the taxpayer does not controvert, such finding is conclusive, even if the CIR is wrong.
Principles governing tax assessments (PAD3)

Assessments are: a. Prima facie presumed correct and made in good faith; b. Should be based on actual facts; (estimates can also be a basis given that it is not arrived at arbitrarily or capriciously) c. Discretionary on the part of the Commissioner; d. Must be directed to the right party; e. Authority to assess maybe delegated.
Q: Is the assessment made by the CIR subject to judicial review?

A: No, for such power is discretionary. What may be the subject of a judicial review is the decision of the CIR on the protest against the assessment, not the assessment itself.
Q: Are taxes self-assessing?

A: GR: Taxes are generally self-assessing and do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer.
XPNs: 1. Improperly Accumulated Earnings Tax (Sec. 29, NIRC) 2. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC) 3. In case of deficiency tax liability arising from a tax audit conducted by the BIR (Sec. 56 [B], NIRC) 4. Tax lien (Sec. 219, NIRC) 5. Dissolving corporation (Sec. 52 [c], NIRC)
Requisites for Valid Assessment

1. Be in writing and signed by the BIR; 2. Contain the law and the facts on which the assessment is made; and 3. Contain a demand for payment within the prescribed period. (Sec. 228, NIRC)
Different kinds of assessments

1. Pre-Assessment informs the taxpayer of the findings of the examiner who recommends a deficiency assessment. The taxpayer is usually given 10 days from notice within which to explain his side. 2. Self-Assessment one in which the tax is assessed by the taxpayer himself. 3. Official Assessment issued by the BIR in case the taxpayer fails to respond to the preassessment, or his explanation is not satisfactory to the CIR. 4. Illegal and Void Assessment tax assessor has no power to assess at all. 5. Erroneous Assessment assessor has power to assess but errs in the exercise thereof. 6. Jeopardy Assessment a delinquency tax assessment made without the benefit of a complete or partial investigation by a belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayers failure to: a. Comply with audit and investigation requirements to present his books of accounts and/or pertinent records, or b. Substantiate all or any of the deductions, exemptions or credits claimed in his return. Note: This is issued when the revenue officer finds himself without enough time to conduct an appropriate or thorough examination in view of the impending expiration of the prescriptive period for assessment. To prevent the issuance of a jeopardy assessment, the taxpayer may be required to execute a waiver of the statute of limitations.
Powers of the Commissioner in the assessment of taxes

The CIR or his duly authorized representative is authorized to use the following powers: (Sec. 6, NIRC) 1. Examination of return and determination of tax due 2. Use of the best evidence available
3. Authority to conduct inventory taking, surveillance and prescribe gross sales and receipts if there is reason to believe that the taxpayer is not declaring his correct income, sales or receipts for internal revenue purposes 4. Authority to terminate taxable period in the following instances: a. Taxpayer is retiring from business subject to tax; b. Taxpayer is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property and c. Taxpayer is performing any act tending to obstruct the proceedings for the collection of taxes. 5. Authority to prescribe real property values 6. Authority to inquire into bank deposits accounts in the following instances: a. A decedent to determine his gross estate; b. Any taxpayter who has filed an application for compromise of his tax liability by reason of financial incapability to pay; c. A specific taxpayer/s is subject of a request for the supply of tax information a foreign tax authority pursuant to an intentional convention or agreement on tax matters to which the Philippines is a signatory or a party of. Provided that the requesting foreign tax authority is able to demonstrate the foreseeable relevance of certain information required to be given to the request. (Sec. 3 & 8, RA 10021) d. Where the taxpayer has signed a waiver authorizing the Commissioner or his duly authorized representative to inquire into the bank deposits. 7. Authority to accredit and register tax agents 8. Authority to prescribe additional procedural or documentary requirements.
When is Assessment Made

When it is released, mailed or sent by the collector of internal revenueto the taxpayer within the three-year or ten-year period, as the case may be. (CIR v. Pascor, GR 128315, June 29, 1999)
Q: A notice of assessment was mailed within the period prescribed by law but the same was received by the taxpayer beyond the period. Was there a valid assessment?
A: Yes. There was an assessment made within the period. If the notice is sent through registered mail, the running of the prescriptive period is stopped. What matters is the sending of the notice is made within the period of prescription. It is the sending of the notice and not the receipt that tolls the prescriptive period. (Basilan v. CIR, GR L-22492, Sept. 5, 1967)
Prescriptive Periods
Rationale To secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are beneficial to the government because tax officers will be obliged to act
promptly in the assessment and collection of the taxes, for when such period have lapsed their right to assess and collect would be barred by the statute of limitations. Rules on prescription 1. When the tax law itself is silent on prescription, the tax is imprescriptible; 2. When no return is required, tax is imprescriptible and tax may be assessed at any time as the prescriptive periods provided in Sec. 203 and 222, NIRC are not applicable. Remedy of the taxpayer is to file a return for the prescriptive period to commence. Note: Limitation on the right of the government to assess and collect taxes will not be presumed in the absence of a clear legislation to the contrary. 3. Prescription is a matter of defense, and it must be proved or established by the party (taxpayer) relying upon it. 4. Defense of prescription is waivable, such defense is not jurisdictional and must be raised seasonably, otherwise it is deemed waived. 5. The law on prescription, being a remedial measure, should be interpreted liberally in order to protect the taxpayer. 6. If the last day of the period falls on a Saturday, a Sunday or a legal holiday in the place where the Court sits, the time shall not run until the next working day. (Sec. 1, Rule 22, Rules of Court) Note: Assessment and collection by the government of the tax due must be made within the prescribed period as provided by the Tax Code; otherwise, the right of the government to collect will be barred. Computation of prescriptive period It is computed based on the Administrative Code. Sec. 31 of the Administrative Code of 1987 provides that a year shall be understood to be 12 calendar months. Both Article 13 of the Civil Code and Sec. 31 of the Administrative Code of 1987 deal with the same subject matter the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months and the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, Sec. 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law governs the computation of legal periods. (CIR v. Primetown Property Group, Inc., GR 162155, Aug. 28, 2007)
Prescriptive Period for Assessment

1. Where a return was filed: GR: The period for assessment is within 3 years after the date the return was due or if the return is filed after the due date prescription will start on the date the return was filed.
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XPNS: a. If there is failure to file the required return, the period is within 10 years after the date of discovery of the omission to file the return. Note: Date of discovery must be made within the three-year period following the general rule. b. If the return is filed but it is false or fraudulent and made with intent to evade the tax, the period is 10 years from the date of discovery of the falsity or fraud. Note: Nothing in Sec. 222 (A) shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree. c. Where the CIR and taxpayer, before the expiration of the 3-year period have agreed in writing to the extension of the period, the period so agreed upon may thereafter be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. d. Where there is a written waiver or renunciation of the original 3-year limitation signed by the taxpayer. Note: Requests for reconsideration of tax assessments, as required by the BIR, must be accompanied by a waiver of statute of limitations accomplished by the taxpayer. 2. The return was amended substantially The prescriptive period shall be counted from the filing of the amended return.
Q: What is the effect of filing a defective return?

A: If the return was defective, it is as if no return was filed. The corollary prescription will be 10 years from and after the discovery of the failure or omission and not the 3 year prescriptive period. There is an omission when the taxpayer failed to file a return for the particular tax required by law. (Butuan Sawmill v. CTA, GR L-20601, Feb. 28, 1966)
False, Fraudulent and Non-filing of Returns

Prescriptive period where the return was false, fraudulent or there was no return filed - The prescription period is 10 years from the discovery of the falsity, fraud or from the omission to file the return. (Sec. 222, NIRC)
Q: When is a return considered fraudulent?

A: Fraud is never presumed and the circumstances constituting it must be alleged and proved to exist by clear and convincing evidence. It may be established by the: 1. Intentional and substantial understatement of tax liability by the taxpayer; 2. Intentional and substantial overstatement of deductions of exemptions; and/or 3. Recurrence of the above circumstances
Q: When is a return considered false?

A: When there is a deviation from the truth due to mistake, carelessness or ignorance.
Q: Distinguish a false return from a fraudulent return.

A: False Return is a deviation from the truth or fact whether intentional or not; while fraudulent return is intentional and deceitful with the sole aim of evading the correct tax due (Aznar v. CIR, GR L-20569, Aug. 23, 1974)
Substantial Amendments
1. There is under declaration (exceeding 30% of that declared) of taxable sales, receipts or income; 2. There is overstatement (exceeding 30% of deductions) (Sec. 248, NIRC)
Q: Is it necessary that the notice of assessment be received by the taxpayer within the prescriptive period?
A: No, notice of the assessment must be released, mailed or sent to the taxpayer within the 3 year period. It is not required that the notice be received by the taxpayer within the prescribed period, but the sending of the notice must clearly be proven. (Basilan Estate, Inc. v. CIR, GR L22492, Sept. 5, 1967)
Suspension of Running of Statute of Limitations

Grounds When taxpayer cannot be Located in the address given by him in the return, unless he informs the CIR of any change in his address thru a written notice to the BIR; 2. When the taxpayer is Out of the Philippines (Sec. 223, NIRC) 3. When the Warrant of distraint and levy is duly served upon the taxpayer, his authorized representative or a member of his household with sufficient discretion and no property is located (proper only for suspension of the period to collect); 4. Where the CIR is prohibited from making the assessment or beginning distraint or levy or a proceeding in court for 60 days thereafter, such as where there is a Pending petition for review in the CTA from the decision on the protested assessment (Republic v. Ker & Co., GR L-21609); 5. Where CIR and the taxpayer Agreed in writing for the extension of the assessment, the tax may be assessed within the period so agreed upon (Sec. 222 [b], NIRC); 6. When the taxpayer Requests for reinvestigation which is granted by the Commissioner (Collector v. Suyoc Consolidated Mining Co., GR L-11527, Nov. 25, 1958); Note: A request for reconsideration alone does not suspend the period to assess/collect. 7. When there is an Answer filed by the BIR to the petition for review in the CTA (Hermanos v. CIR, GR. No. L-24972.Sept. 30, 1969) where the court justified this by saying that in the answer filed by the BIR, it prayed for the collection of taxes.
Waiver of the Satute of Limitations

Requisites: 1. Entered before the expiration of the 3 year period for assessment of the tax;
2. In writing; 3. Signed by the taxpayer; 4. Must specify a definite date agreed upon between the parties within which to assess and collect taxes; 5. Signed and accepted by the CIR or his duly authorized representative; and 6. Date of acceptance must be indicated. (RMC 06-05)
Pre-assessment Notice
It is a communication issued by the Regional Assessment Division, or any other concerned BIR Office, informing a taxpayer who has been audited of the findings of the RO, following the review of these findings. If the taxpayer disagrees with the findings stated in the PAN, he have 15 days from receipt of the PAN, to file a written reply contesting the proposed assessment. (Sec. 3.1.2, RR 12-99) Otherwise, the taxpayer shall be considered in default, in which case a formal letter of demand and assessment notice shall be issued by the BIR. (Sec. 3.1.2, RR 12-99) Requisites: 1. In writing; and 2. Should inform the taxpayer of the law and the facts on which the assessment is made (Sec. 228, NIRC) Note: This is to give the taxpayer the opportunity to refute the findings of the examiner and give a more accurate and detailed explanation regarding the assessments. The absence of any of the requirements shall render the assessment void. Exceptions to Issuance of PAN 1. When the finding for any deficiency tax is the result of Mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or 2. When the Excise tax due on excisable articles has not been paid; or 3. When a Discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or 4. When an article locally purchased or imported by an Exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons; or 5. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have Carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. (Sec 3.1.3, RR 12-99)
Notice of Assessment/Formal Letter of Demand (FAN)
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It is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a PAN within the prescribed period of time, or whose reply to the PAN was found to be without merit. It shall be issued by the Commissioner or his duly authorized representative. It must be: 1. In writing; and 2. Shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the FANshall be void. (Sec. 228, NIRC; Sec. 3.1.4 RR 12-99)
The taxpayer may protest the assessment within 30 days from receipt otherwise the assessment becomes final, executory, demandable and not appealable to the CTA.
Protesting Assessment
It is the act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as shown in the notice of assessment and letter of demand. Prescriptive period provided by law to make collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer protests the assessment and requests for its cancellation. Kinds of protest to an assessment 1. Request for reconsideration - a claim for re-evaluation of the assessment based on existing records without need of additional evidence. It may involve a question of fact or law or both. It does not toll the statute of limitations. 2. Request for reinvestigation - a claim for re-evaluation of the assessment based on newlydiscovered or additional evidence. It may also involve a question of fact or law or both. It tolls the the statute of limitations. Note: Under Sec. 223, NIRC, the running of the prescriptive period can only be suspended by a request for reinvestigation, not a request for reconsideration. Requisites of a protest 1. In writing; 2. Addressed to the CIR; 3. Accompanied by a waiver of the Statute of Limitations in favor of the Government. Without the waiver the prescriptive period will not be tolled; (BPI v. CIR, GR 139736, Oct. 17, 2005) 4. State the facts, applicable law, rules and regulations or jurisprudence on which the protest is based otherwise the protest would be void; and 5. Must contain the following: a. Name of the taxpayer and address for the immediate past 3 taxable years; b. Nature of the request, specifying the newly discovered evidence to be presented;
c. Taxable periods covered by the assessment; d. Amount and kind of tax involved and the assessment notice number; e. Date of receipt of the assessment notice or letter of demand; f. Itemized statement of the finding to which the taxpayer agrees (if any) as basis for the computation of the tax due, which must be paid upon filing of the protest; g. Itemized schedule of the adjustments to which the taxpayer does not agree; h. Statements of facts or law in support of the protest; and i. Documentary evidence as it may deem necessary and relevant to support its protest to be submitted 60 days from the filing thereof. Procedure 1. BIR issues assessment notice. 2. The taxpayer files an administrative protest against the assessment. Such protest may either be a request for reconsideration or for reinvestigation. The protest must be filed within 30 days from receipt of assessment. 3. All relevant documents must be submitted within 60 days from filing of protest; otherwise, the assessment shall become final and unappealable. 4. In case the CIR decides adversely or if no decision yet at the lapse of 180 days, the taxpayer may appeal to the CTA Division, 30 days from the receipt of the decision or from the lapse of the 180 days otherwise the decision shall become final, executory and demandable. (RCBC v. CIR, GR 168498, Apr. 24, 2007) 5. If the decision is adverse to the taxpayer, he may file a motion for reconsideration or new trial before the same Division of the CTA within 15 days from notice thereof. 6. In case the resolution of a Division of the CTA on a motion for reconsideration or new trial is adverse to the taxpayer, he may file a petition for review with the CTA en banc. 7. The ruling or decision of the CTA en banc may be appealed with the Supreme Court through a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
In Case of Inaction by Commissioner within 180 days from Submission of Documents

The taxpayer has two alternative options: 1. File a petition for review with the CTA within 30 days after the expiration of the 180-day period; or 2. Wait for the final decision of the CIR on the disputed assessment and appeal the final decision to the CTA within 30 days from the receipt of the decision.
What are the administrative remedies of the government for collection of delinquent taxes under the NIRC? (CELCED)
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1. 2. 3. 4. 5. 6.
Distraint of personal property Levy of real property Enforcement of forfeiture Enforcement of tax lien Compromise and Abatement Civil penalties
Distraint
It is a summary remedy whereby the collection of tax is enforced on the goods, chattels or effects of the taxpayer (including other personal property of whatever character as well as stocks and other securities, debts, credits, bank accounts and interest in or rights to personal property.) The property may be offered in a public sale, if taxes are not voluntarily paid. Requisites (DeFDeP) 1. 2. 3. 4. Taxpayer is Delinquent in payment of tax; There must be subsequent Demand to pay; Taxpayer Failed to pay delinquent tax on time; and Period within which to assess and collect the tax due has not yet prescribed.
Kinds 1. Actual resorted to when there is actual delinquency in tax payment. 2. Constructive a preventive remedy which aims at forestalling a possible dissipation of the taxpayers assets when delinquency sets in. Hence, no actual delinquency in payment is necessary. Procedure: 1. Commencement of distraint proceedings by the CIR or his duly authorized representatives or by the revenue district officer as the case may be 2. Service of warrant of distraintupon taxpayer or upon any person in possession of the property 3. Posting of notice in not less than 2 public places in the municipality or city and notice to taxpayer specifying the time and place of sale and the articles distrained 4. Sale at public auction to be held not less than 20 days after notice to the owner or possessor of the property and publication or posting of such notice 5. Disposition of proceeds of the sale 6. Residue over and above what is required to pay the entire claim, including expenses, shall be returned to the owner of the property sold
Levy
It is the seizure of real property and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer. How made: It may be effected by serving upon the taxpayer a written notice of levy in the form of a duly authenticated certificate prepared by Revenue District Officer containing: [DNA] 1. Description of the property upon which levy is made; 2. Name of the taxpayer; 3. Amount of tax and penalty due.
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TN: Its timely service suspends the running of the prescriptive period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collections. In those cases, the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. Thus, the enforcement of tax collection through summary proceedings may still be carried out as the service of warrant of distraint or levy suspends the prescriptive period for collection. (RP v. Hizon, GR 130430, Dec. 13, 1999) Procedure: 1. Preparation of a duly authenticated certificate which shall operate with force of a legal execution throughout the Philippines. 2. Service of the written notice to the: a. Delinquent taxpayer, or b. If he is absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or c. If there be none, the occupant of the property. d. The Registry of Deeds of the place where the property is located shall also be notified; 3. Advertisement of the time and place of sale within 20 days after the levy by posting of notice and by publication for three consecutive weeks. 4. Sale at a public auction. 5. Disposition of proceeds of sale. 6. Residue to be returned to the owner. Possession of the property levied The owner shall not be deprived of the property until the expiration of the redemption period and shall be entitled to rents and other income until the expiration of the period for redemption.
(Sec. 214, NIRC)
Redemption by the taxpayer It shall entitle the taxpayer, the delivery of the certificate issued to the purchaser and a certificate from the Revenue District Officer that he has redeemed the property. The Revenue District Officer shall pay the purchaser the amount by which such property has been redeemed and said property shall be free from lien of such taxes and penalties. (Sec. 214, NIRC) Similarities of Distraint and Levy 1. Summary in nature 2. Requires notice of sale 3. May not be resorted to if the amount involved is less than P100 Distinctions among warrants of distraint, levy and garnishment DISTRAINT Personal property owned by and in possession of the taxpayer Personal property distrained are purchased by the Government and resold to meet deficiency
Subject matter
LEVY
GARNISHMENT
Acquisition by the Government

Real property subject to levy is forfeited to the Government then sold to meet the deficiency.
Real property owned and in Personal property owned by the possession of the the taxpayer but in the taxpayer possession of the third party Personal property garnished are purchased by the Government and resold to meet deficiency
Advertisement of Sale
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No newspaper publication required
The sale of realty subject to levy is required to be published once a week for 3 consecutive weeks in a newspaper of general circulation in the municipality or city where the property is located.
No newspaper publication required
Forfeiture
It is the divestiture of property without compensation, in consequence of a default or offense. Property forfeited is transferred to another without consent of the defaulting taxpayer or wrongdoer. Forfeiture transfers the title to the specific thing from the owner to the government. Also there would no longer be any further levy for such would be for the total satisfaction of the tax due. (Sec 215, NIRC)
Procedure 1. In case of personal property By seizure and sale or destruction of property (Secs. 224 and
225, NIRC)
2. In case of real property By judgment of condemnation and sale in a legal action or proceeding (Sec. 224, NIRC) Difference between forfeiture and seizure to enforce a tax lien FORFEITURE Ownership is transferred to the Government
Ownership
SEIZURE
Disposition of the proceeds of sale
Taxpayer retains ownership of property seized Excess returned to taxpayer
Excess not returned to the taxpayer Rules on forfeiture
1. If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes, penalties and costs, the real property shall be forfeited to the government. 2. The Register of Deeds shall transfer the title of forfeited property to the Government without necessity of a court order. 3. Within 1 year from the date of sale, the property may be redeemed by the delinquent taxpayer or any one for him, upon payment of taxes, penalties and interest thereon and cost of sale; if not redeemed within said period, the forfeiture shall become absolute. (Sec. 215, NIRC)
Enforcement of Tax Lien

Tax Lien It is a legal claim or charge on property, personal or real, established by law as a sort of security for the payment of tax obligations.
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It is enforced as payment of tax, interest, penalties, costs upon the entire property and rights to property of the taxpayer. However, to be valid against any mortgagee, purchaser or judgment creditor, notice of such lien has to be filed by CIR with the Registry of Deeds. (Sec. 219, NIRC) It is applied when:
With respect to personal property Tax lien attaches when the
taxpayer neglects or refuses to pay tax after demand and not from the time the warrant is served (Sec. 219, NIRC) With respect to real property from time of registration with the register of deeds.
Note: A valid assessment is required to be issued before a tax lien shall be annotated at the proper registry of property. Extinguishment 1. 2. 3. 4. 5. Bypayment orremissionof the tax Byprescription of the right of government to assess or collect Byfailure to file notice of such tax lien in the office of Register of Deeds Bydestruction of property subject to tax lien By replacing it with a bond
Note: A buyer in an execution sale acquires only the rights of the judgment creditor. Lien vs. Distraint LIEN
Directed against what?
DISTRAINT
The property subject to the tax
To whom directed?
The property itself regardless of the present owner of the property Compromise and Abatement Compromise
Need not be directed against the property subject to tax The property should be presently owned by the taxpayer
It is an agreement between two or more persons who,amicably settle their differences on such terms and conditions as they may agree on to avoid any lawsuit between them. It implies the mutual agreement by the parties in regard to the thing or subject matter which is to be compromised. It is a contract whereby the parties, by reciprocal concessions avoid litigation or put an end to one already commenced Made when: o Criminal cases Compromise must be made prior to the filing of the information in court. o Civil cases Before litigation or at any stage of the litigation, even during appeal, although legal propriety demands that prior leave of court should be obtained.
Requisites
1. Tax liability of the taxpayer; 2. An offer of the taxpayer of an amount to be paid by him; and 3. The acceptance (the CIR or the taxpayer) of the offer in the settlement of the claim Note: If the offer to compromise was rejected by the taxpayer, the compromise penalty cannot be enforced thru an action in court, or by distraint or levy. If the CIR wants to enforce a penalty he must file a criminal action in the courts. (CIR v. Abad GR L-19627, June 27, 1968) Cases which may be compromised 1. Delinquent accounts 2. Cases under Administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the RO, RDO, Legal Service, Large Taxpayer Service, Collection Service, Enforcement Service, and other offices in the National Office 3. Civil tax cases disputed before the courts 4. Collection cases filed in courts 5. Criminal violations except: a. Those already filed in courts; and b. Those involving criminal tax fraud. (Sec.3, RR 30-2002) Cases which cannot be compromised 1. Criminal tax Fraud cases, confirmed as such by the CIR or his duly authorized representative. 2. Cases where Final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. 3. Cases which become Final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment. 4. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. 5. Withholding tax cases, unless the applicant taxpayer invokes provisions of law that cast doubt on the taxpayers obligation to withhold. 6. Criminal violations already filed in courts. 7. Delinquent accounts with duly approved schedule of instalment payments. Note: The CTA may issue an injunction to prevent the government from collecting taxes under a compromise agreement when such would be prejudicial to the government. Grounds 1. Doubtful validity of assessment; 2. Financial incapacity Requisites 1. Clear inability to pay the tax; and 2. The taxpayer must waive in writing his privilege of the secrecy of bank deposit under RA 1405 or other general or special laws, which shall constitute as the CIRs authority to inquire into said bank deposits (Sec. 6 [F], NIRC) Who may compromise
The CIR may compromise with respect to criminal and civil cases arising from violations of the NIRC as well as the payment of any internal revenue tax when: o A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is equivalent to 40% of the basic tax; or o The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax provided that the minimum compromise entered into is equivalent to 10% of the basic assessed tax.
Note: In these instances, the CIR is allowed to enter into a compromise only if the basic tax involved does not exceed P1M and the settlement offered is not less than the prescribed percentages. (Sec. 204 [A], NIRC) If the basic tax involves exceeds P1 million or when the settlement offered is less than the prescribed minimum rates the approval of the Evaluation Board is needed. A preliminary compromise may be entered into by subordinate officials subject to review by the CIR. The Regional Evaluation Board (REB) may compromise: o Tax assessments by revenue officers involving basic deficiency taxes of P500,000 or less; and o For minor criminal violations (RR 7-2001)
Note: The REB shall becomposed of: a. The Regional Director as Chairman; b. The Assistant Regional Director; c. Chief, Legal Division; d. Chief, Assessment Division; e. Chief, Collection Division; and f. Revenue District Officer having jurisdiction over the taxpayer-applicant Prescription As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer enters into a compromise with the BIR, the obligation of the taxpayer becomes one based on contract. Compromise is a contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced. (Art. 2028 NCC) Since it is a contract, the prescriptive period to enforce the same is 10 years based on Art. 1144 NCC reckoned from the time the cause of action accrued.
Abatement
Cancellation of a tax liability. It is made when: o The tax or any portion thereof appears to be unjustly or excessively assessed; or o The administration and collection costs involved do not justify the collection of the amount due. (Sec. 204[B], NIRC) Abatement vs. Compromise Compromise Involves a reduction of the taxpayers liability.
Abatement Involves the cancellation of the entire tax liability of a taxpayer.

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Officers authorized to compromise: CIR and Regional Evaluation Board Grounds: 2. Reasonable doubt as to the validity of assessment; 3. Financial incapacity of the taxpayer
Officer authorized to abate or cancel tax, penalties and/or interest: CIR Grounds: 1. The tax or any portion thereof appears to be unjustly or excessively assessed; or 2. The administration and collection costs involved do not justify the collection of the amount due
JUDICIAL REMEDIES GOVERNMENT TAXPAYER
If express
1. Must follow and observe the legal parameters set forth in the law. (e.g. An action for collection by the BIR (Sec. 205, NIRC) must be filed within the prescriptive period (Sec. 222, NIRC); 2. Must be approved by the CIR (Sec.
Judicial remedies are exclusive. Thus, the CIR decision must be appealed to the CTA and the CTA en banc decision must be appealed to the SC.
Civil Action
For tax remedy 220, NIRC) purposes, these are If implied actions May avail of the usual judicial remedies May resort to the laws of general instituted by for convenience and expediency. application. Thus, a declaratory relief the may be availed of if the law does not government provide for judicial remedies. to collect internal revenue taxes in the regular courts after assessment by CIR has become final and executory. It includes, however, the filing by the government of claims against the deceased taxpayer with the probate court. Once an action is filed with the regular courts, the taxpayer can no longer assail the validity or legality of assessment. Form and Procedure 1. Civil actions shall be brought in the name of the Government of the Philippines. 2. It shall be conducted by legal officers of the BIR. 3. The approval by the Solicitor General together with the approval of the CIR for civil actions for collection of delinquent taxes is required before they are filed. (Sec. 220 NIRC) Note: BIR legal officers deputized as Special Attorneys who are stationed outside Metro Manila may file verified complaints with the approval of the Solicitor General. Provided that a copy of
the complaint is furnished to the Solicitor General. The Solicitor General must file a notice of appearance in the court where it was filed. Court Jursidiction COURTS Municipal Trial Courts outside Metro Manila Municipal Trial Courts within Metro Manila Regional Trial Courts outside Metro Manila Regional Trial Courts within Metro Manila AMOUNT OF TAXES INVOLVED Amount does not exceed 300,000 Amount does not exceed 400,000 300,001 to 999,999 400,001 to 999,999
Criminal Action
Criminal complaint is instituted not to demand payment but to penalize taxpayer for the violation of the NIRC. Criminal action is resorted to not only for collection of taxes but also for enforcement of statutory penalties of all sorts. Crimes Punishable 1. Willful attempt to evade or defeat tax (Sec. 254, NIRC) 2. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation (Sec. 255, NIRC) Filing of the Information 1. CTA - on criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR and the BOC where the principal amount of taxes and fees, exclusive of charges and penalties claimed is P1 million and above. 2. RTC, MTC, MeTC- on criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR and the BOC where the principal amount of taxes and fees, exclusive of charges and penalties claimed is less than P1 million. (Sec. 7, RA 9282) Prescriptive Period The period is 5 years from commission or discovery of the violation, whichever is later. (Sec.
281, NIRC)
The cause of action for willful failure to pay deficiency tax occurs when the final notice and demand for the payment thereof is served upon the taxpayer. The 5-year prescriptive period commences to run only after receipt of the final notice and demand and the taxpayer refuses to pay. Note: In addition to the fact of discovery of the filing of a fraudulent return, there must be a judicial proceeding for the investigation and punishment of the tax offense before the 5-year limiting period to institute a criminal action for filing a fraudulent return begins to run. The crime of filing false returns can be considered "discovered" only after the manner of commission, and the nature and extent of the fraud have been definitely ascertained. Note the conjunctive word
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and between the phrases the discovery thereof and the institution of judicial proceedings for its investigation and proceedings. (Lim, Sr. v. CA, GR 48134-37, Oct. 18, 1990)
IV. Jurisdiction of the Court of Tax Appeals The CTA was originally created under RA 1125. The law creating the Court of Tax Appeals was under RA 1125 way back in 1954. The objectives of the creation of the court are: 1) to entrust tax cases to a specialize court composed of men technically qualified in the field of taxation and to develop expertise on the subject; 2) to expedite the disposition of tax cases and collection of taxes and provide adequate and speedy remedy to the taxpayers. The objective was addressed to enforce collection of taxes and to provide protection also and remedy to the taxpayers. The Court under RA 1125 was sitting like the RTC. And the adjudicator sitting in the court was called a judge. Since it was then like the RTC, the adjudicators then were called judges. The RTC was then was only exercising what we call exclusive appellate jurisdiction. And the cases that are decided by the CTA are decisions of the Commissioner of the Internal Revenue and the decisions of the Commissioner of Customs. While it used to include the Central Board of Assessment Appeals, but when the Real Property Tax Code took effect, it changed the jurisdiction where the decisions of the Central Board of Assessment Appeals were no longer brought to the CTA but to the Court of Appeals. The taxes then that were handled by the Court of Tax Appeals were the decisions of the Commissioner of the Internal Revenue and of the Commissioner of Customs. Such that from the CIR or the Commissioner of Customs, it is brought to the CTA, to the CA and then, the Supreme Court. This was the flow of the remedies on the tax cases. The local tax cases have their own separate remedies. The venue was not the CTA. It had a separate venue. Likewise, on the decisions of the Central Board on the Real Property Tax, also provided a different avenue where to pursue the cases, but not to the CTA under RA 1125. In March 2004, the entire picture of the CTA was completely changed. RA 9282 expanded the jurisdiction of the CTA. The CTA was treated as an equivalent of the CA. As an effect, the tax cases will no longer pass through the CA because the CTA now was sitting as an equivalent of the CA. While you have here (RA 1125) the adjudicators called judges equivalent to the RTC, you have now here (RA 9282) justices. And its jurisdiction, by reason of that expansion of its jurisdiction, was now exclusive appellate and original jurisdiction. It has an exclusive original jurisdiction as well as an exclusive appellate jurisdiction. So, under the new law, the CTA now sits as an equivalent of the Court of Appeals. So, you have justices there, no longer called judges. The jurisdiction has been expanded, not only exclusive appellate jurisdiction but also exclusive original jurisdiction. Such that when cases are brought to the CTA, it is CTA by division, then, CTA en banc then, you have the Supreme Court.
The mode of appeal, we will follow Rule 43 in the petition brought before the CTA. And when it is brought to the Supreme Court, we follow Rule 45 a petition or appeal by way of certiorari.
Rule 43 Rule 45 CTA (division) CTA (en banc) SC
Under RA 9282, the law here provides that: SECTION 1.Court; Justices; Qualifications; Salary; Tenure. There is hereby created a Court of Tax Appeals (CTA) which shall be of the same level as the Court of Appeals, possessing all the inherent powers of a Court of Justice, and shall consist of a Presiding Justice and five (5) Associate Justices. xxx This court sits in 2 divisions. It sits en banc and in 2 divisions, consisting of 3 justices per division. For en banc purposes, 4 justices shall constitute a quorum and 2 justices for session by division. SECTION. 2. Sitting En Banc or Division; Quorum; Proceedings. The CTA may sit en banc or in two (2) Divisions, each Division consisting of three (3) Justices. Four (4) Justices shall constitute a quorum for sessions en banc and two (2) Justices for sessions of a Division: Provided, That when the required quorum cannot be constituted due to any vacancy, disqualification, inhibition, disability, or any other lawful cause, the Presiding Justice shall designate any Justice of other Divisions of the Court to sit temporarily therein. The affirmative votes of four (4) members of the Court en banc or two (2) members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution. The place of office for the CTA will be based in Metro Manila. SEC. 6. Place of Office. The CTA shall have its principal office in Metro Manila and shall hold hearings at such time and place as it may, by order in writing, designate In cases brought to the CTA en banc: SEC. 18. Appeal to the Court of Tax Appeals En Banc. No civil proceeding involving matters arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act. A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc. So, from the CTA by division, it is brought again to the CTA en banc. From the decision of the CTA en banc, any adverse party, whether you are government or the taxpayer, your last resort will be the Supreme Court and the mode is under Rule 45. Under RA 9282:
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SEC. 19. Review by Certiorari. A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure. Then, we have this jurisdiction of the Court of Tax Appeals. What are the cases brought to the CTA? One, you have the exclusive appellate jurisdiction of the CTA to review by appeal: 1. Decisions of the Commissioner of Internal Revenue involving disputed assessment, refunds
and all other matters arising under the NIRC or other laws administered by the BIR
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenuein cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
Remember that in Section 228 (NIRC), when the taxpayer protests the assessment, it is filed with the Commissioner of Internal Revenue. From the decision of the Commissioner of Internal Revenue, you have 30 days to appeal to the CTA. Protest Refunds Assessment, CIR CTA
You also have cases of refunds. It is as well filed with the Commissioner of Internal Revenue and from the decision of the Commissioner, it is filed with the CTA. This includes all other matters in the NIRC which are decided by the Commissioner. So, they are all appealed to the CTA, including all other laws administered by the BIR. So, you have these controversies to be resolved by the Commissioner. The decision of the Commissioner is appealed also to the CTA. 2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds, etc.
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; What are these? Inaction by the Commissioner of Internal Revenue. Remember in the assessment cases, the protest is filed with the CIR and the CIR has 180 days to decide. In Section 228 (NIRC), the period within which the Commissioner has to decide is 180 days. If there is no decision within 180 days, the taxpayer should appeal to the CTA within 30 days from the lapse of the 180-day period to decide.
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In case of inaction by the Commissioner, you are given 30 days from the lapse of the 180day period to go now to the CTA. Assessment CIR (180 days to decide) CTA (w/n 30 days from lapse)
In the case also of refunds in the NIRC, you have the date of payment where you file your claim for refund with the CIR and finally to the CTA, it is required that from the date of payment and up to the time the case will reach the CTA, it should be within the 2-year period from payment. Remember that in Section 229 (NIRC): SECTION 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In other words, the claim for refund is lodged, at the outset, administratively before the Commissioner. And then, from that claim, it is converted into a judicial action when you bring now the case to the CTA. And you bring the case to the CTA when it will be denied by the Commissioner. In the event that the denial is still forthcoming, your claim is pending with the Commissioner and the 2-year period from payment is about to lapse, do not wait for the 2-year period to expire. You must now bring the action within reasonable time to the CTA because of the inaction of the Commissioner on your claim for refund. So, the law provides a prescriptive period. You have now inaction by the Commissioner on these refund cases, when the 2-year period is about to prescribe and the Commissioner has not yet decided and you believe that his decision is that it will be denied. So, you can appeal to the CTA. Refunds Date of Payment CIR CTA
Then, on other matters where the law provides that there is a period within which to bring the action and to decide and when there is no decision, then, you now go and appeal to the CTA from the lapse of the period. In the claim for refund, do not wait for the lapse of the period, unlike in the other cases meronkang waiting time for the decision. Kung walang decision, you are given generally 30 days to appeal to the CTA. In the claim for refund, do not wait for the 2-year period to expire, otherwise, your petition to the CTA will be barred or dismissed. You have that jurisdiction inaction by the CIR. 3. Decisions, orders, or resolutions of the RTC in local tax cases originally decided or resolved in
its appellate jurisdiction.

(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction;
Take note, dati 2 langiyong jurisdiction. includes local tax cases.
Now, it has expanded its jurisdiction.
Now, it
What are the local taxes where it will fall or pass through the RTC? i. issue on the legality of the ordinance When you have a case involving the legality of the ordinance, it is filed with the DOJ. From the DOJ, the action is brought to the regular courts since this involves a case not subject to pecuniary estimation, the jurisdiction is with the RTC. From the RTC, it is brought to the CTA. DOJ RTC CTA
So, you have local tax cases where the RTC decides in its original jurisdiction. ii. protest local tax assessments. You also have the protest. In protesting local tax assessments, the action is initiated with the local treasurer. So, you file your protest with your local treasurer. From the local treasurer, it is filed either to the RTC or to the MTC, depending on the jurisdictional amount. If the assessment involves within such amount falling within the RTC, it is filed with the RTC. If the amount is less, it is filed with the MTC. From the RTC, in its original jurisdiction, it is filed with the CTA. From the MTC, it will not go directly to the CTA but it will pass through the regular procedures. From MTC to RTC, deciding now in its appellate jurisdiction.Then, to the CTA. So, you have the case of protesting tax assessments. You file your protest with the local treasurer. The local treasurer will decide or there is a lapse or inaction. But nevertheless, the flow of the remedy is to bring it to the next level, whether to the RTC or MTC, depending on the jurisdictional amount. RTC Protesting Local Tax Assessments Local Treasurer MTC RTC CTA CTA
iii. local tax refunds

You also have the local tax refunds. With the local tax refunds, again, it is initiated with the local treasurer, your claim for refund. When there is a denial or inaction, depending on the jurisdictional amount, it shall be filed with the RTC then to the CTA; MTC to the RTC then to the CTA. RTC Local Tax Refunds Local Treasurer MTC RTC CTA CTA
You have this flow chart or flow of the remedies. These are the local tax cases where the RTC will decide either in its original jurisdiction or decide in its appellate jurisdiction. But nevertheless, the decision of the RTC is appealed to the CTA, whether the RTC is deciding in its original or appellate jurisdiction.
4. Decisions of the Commissioner of Customs on protest cases, seizure and forfeiture, and other
matters arising under the Tariff and Customs Code and other laws administered by the Bureau of Customs
(4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs; So, you have the decisions of the Commissioner of Customs on protest cases involving liability for customs duties, seizure and forfeiture cases or other matters under the Tariff and Customs Code and all other laws administered by the Bureau of Customs. Whether it involves seizure or protest cases, the action is originally initiated with the collector. From the Collector of Customs, it is brought to the Commissioner of Customs. From the Commissioner of Customs, to the CTA. Collector of Customs Commissioner of Customs CTA
5. Decisions of the Central Board of Assessment Appeals (CBAA) (5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board1 of assessment appeals; What are the decisions of the Central Board of Assessment Appeals? i. You have the property assessments; issues involving property assessments When the issue involves property assessment on the valuation of real properties, the issue is lodged with the Local Board of Assessment Appeals. From the Local Board of Assessment Appeals, you have the Central Board of Assessment Appeals, then, to the CTA. ii. Issues involving special levy In the case of a special levy ,it is also brought to the Local Board of Assessment Appeals, to the Central Board and then, to the CTA. Special levy LBAA CBAA CTA
ii. Protesting payments of the real property tax You have to pay under protest, indicating in your receipt that you are paying under protest. Where do you lodge your protest? You lodge that with the local treasurer. From the local treasurer, it is appealed to the Local Board of Assessment Appeals, to the Central Board, and then, to the CTA. Protesting Payments of RPT Local LBAA CBAA Treasurer CTA
iii. Refunds on Real Property Tax
Or what we call the local board of assessment appeals
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Again, claim for refunds is filed with the Local Treasurer. From the Local Treasurer, you file with the Local Board of Assessment Appeals, to the Central Board and then, to the CTA. Refunds on RPT Local LBAA CBAA CTA Treasurer
These are the decisions in real property taxation made by the Central Board of Assessment Appeals. From the decision of the Central Board, it is appealed to the Court of Tax Appeals
Decisions of the Secretary of Finance on customs cases elevated by automatic review from the decisions of the Commissioner of Customs adverse to the government.
6. (6) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code; There are decisions rendered by the Collector of Customs which are adverse to the government in customs cases. The decision of the Collector of Customs is elevated to automatic review to the Commissioner of Customs. When the Commissioner of Customs decides adverse to the government, it is elevated to the Secretary of Finance for automatic review. The decision of the Secretary of Finance is appealed now to the CTA. Here, at the outset, you have the collector, the Commissioner of Customs, the DOF and the CTA. These are in cases where the decisions are adverse to the government. In customs cases, when decisions are adverse to the government, it still passes through the regular procedure. Sa next rank of the administrative officer who will decide. Collector CoC DoF CTA
If it is not adverse to the government, etoang proceedings, from CoC, to the CTA, if it is adverse to the taxpayer. But since it is adverse to the government, it will pass first through the DOF. From the DOF to the Court of Tax Appeals. 7. Decisions of the DTI or DA on cases involving dumping duty and countervailing or safeguard
measure
(7) Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties. The DTI or the DA on cases involving dumping duty, countervailing or safeguard measure will come in depending on the product. If it involves non-agri products, cases involving dumping duty, countervailing or safeguard measure, the protest is filed with DTI. Non-agri products
DTI
CTA
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If it involves agri products, where the dumping duty, countervailing or safeguard measure is imposed, the remedy or the protest is lodged with the Department of Agriculture. Agri products DA CTA
Such that the decision of the DTI or the DA is appealed to the CTA. Depending on what is the product, whether agricultural or non-agricultural, you file that with the DA or DTI. When government imposes a dumping duty and there is an importer who would protest that imposition or the imposition of a countervailing or a safeguard measure, the importer may bring that action to the proper office, whether DTI if non-agri and DA if it involves agri products. From that decision of the Secretary of the DTI or DA, it is appealed to the Court of Tax Appeals. The other one is the exclusive original jurisdiction. The CTA has exclusive original jurisdiction on: 1. criminal offenses for violation of the NIRC or the Tariff and Customs Code and other laws
administered by the BIR/BoC where the principal amount of taxes and fees is more than P1 Million or more
Take note that the amount is insofar as the taxes and fees. Therefore, it excludes penalties, interests and other surcharges. (b) Jurisdiction over cases involving criminal offenses as herein provided: (1) Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized. (2) Exclusive appellate jurisdiction in criminal offenses: (a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction. (b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. The criminal offense is filed directly with the Court of Tax Appeals in its exclusive original jurisdiction.
2. Tax collection cases on final and executory assessments where the principal amount of taxes
and fees is P 1 Million or more.

This is a collection proceeding initiated when the assessment has become final and executory. So, the original jurisdiction is with the CTA. (c) Jurisdiction over tax collection cases as herein provided: (1) Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court. (2) Exclusive appellate jurisdiction in tax collection cases: (a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction. (b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction."
Less than P 1 Million on the criminal offenses or tax collection cases

It is filed with the RTC or MTC, depending on the amount therein. From RTC, CTA. From MTC, RTC, CTA in the exercise of its appellate jurisdiction. (gi-number 3 itosa original jurisdiction sa board, pero appellate man siya)
RTC Criminal Offenses/ Tax Collection Cases MTC RTC
CTA
CTA
So, you have that exclusive original jurisdiction of the Court of Tax Appeals. Another matter is that there are cases where when it is processed with the CTA, it is filed originally by division. However, there are cases when it is brought to the CTA, en banc na. Hindi nadadaansa division.
What are the cases when it will be directly brought to the CTA, en bancna and not passing thru the division? We have only 2. 1. Decision of the Central Board of Assessment Appeals
In the case of the decision of the Central Board of Assessment Appeals, from the Central Board of Assessment Appeals, it is now with the CTA en banc, not by division. And then, to the Supreme Court. 2. RTC deciding in its appellate jurisdiction of the local tax cases In the local tax cases, where it is brought to the MTC, then to the RTC and then, the CTA. The CTA here is en banc. Then, to the Supreme Court. In local tax cases where the decision of the RTC is in its appellate jurisdiction, the appeal to the CTA is not by division. It is CTA by en banc na. But when it is in the RTC in its original jurisdiction, dadaanmunasa division bago mag-en banc. Only when the RTC decides in its appellate jurisdiction where the appeal to the CTA is already en banc. As to the rest, except for the two, it will have to pass through the CTA by division, and then, en banc and then, Supreme Court, including in the original action. In the original action, ganun pa rin CTA by division, CTA by en banc and then, Supreme Court. Local Taxes MTC RTC CTA SCen banc
So, you have this exclusive appellate and original jurisdiction of the Court of Tax Appeals. Appeal The Commissioner of Customs or the Commissioner of Internal Revenue shall appeal to the Court of Tax Appeals. The matter that is brought on appeal is the party adversely affected by the decision or ruling. This same provision is carried under the new law, under the amended provision of Section 11 of RA 125, as amended by RA 8292. Under this provision: SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or inaction2 of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein. Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction, appeal shall be made by filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear the case en banc.
Inaction is now a matter which upon the lapse of that period, it will now be brought on appeal before the Court of Tax Appeals
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All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a motion for reconsideration of new trial before the same Division of the CTA within fifteen (15) days from notice thereof: Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and appeal shall likewise apply. No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture, as the case may be, shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction. In other words, the CTA has this exclusive appellate jurisdiction and exclusive original jurisdiction. You have the criminal offenses involving taxes and fees involving the amount of P 1 Million or more or the tax collection cases or assessments which have become final and executory in the amount of P 1 Million or more, the filing should be made directly to the CTA in its exclusive original jurisdiction. From the decision of the CTA by division, the next mode is to appeal that to the CTA en banc. A party adversely affected by the decision or the resolution of the division of the CTA on a motion for reconsideration or new trial may file a petition for review with the CTA en banc. What do we have in these provisions? In other words, decisions, rulings and inactions of the Commissioner of Internal Revenue, Commissioner of Customs, Department of Finance, DTI, DA and the RTC in its original jurisdiction, the appeal is to the CTA by division. And the mode is Rule 42, file a petition for review.
Decisions/ Rulings/ Inaction w/ original jurisdiction
CIR/COC DOF/DTI DA & RTC
Appeal to CTA division Review
Rule 42 CTA Petition en for banc Review
Rule 43 Petition for
SC
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But the decisions and rulings of the Central Board of Assessment Appeals and the RTC in its appellate jurisdiction, the appeal is to the CTA en banc by way of petition for review under Rule 43.
Decisions/Rulings of CBAA & RTC in its appellate jurisdiction
Appeal to CTA en banc
Rule 43 Petition for Review
From the division, you are not precluded to file a motion for reconsideration. From the denial of the motion for reconsideration, you can now go to the CTA en banc. Here, the mode is Rule 43. From the en banc, to the Supreme Court under Rule 45. Here, from the en banc to the Supreme Court, Rule 45 appeal by certiorari. Now, take note that the appeal that is brought to the CTA are not only decisions but you also have rulings. You have cases like taxpayer confronted with a tax problem. So, he writes to the BIR for a particular tax query and asks for a ruling. So, he writes to the Commissioner for a tax query asking for a tax ruling in particular transaction, whether you will be taxable or not, exempted or not. The ruling or the reply of the CIR may either be to grant the query or not. The reply of the Commissioner may involve to have the transaction, either it will be taxable or not exempted or it may be not taxable or exempted.
Taxable/ Adverse Ruling Not Exempted Appeal Non-Taxable/ Exempted CTA
Tax Query
writes CIR for tax ruling
Reply of CIR
If it is not taxable or you are exempted, there is no problem. The taxpayer will not pursue anymore kasi he will not be taxable. He will be declared exempted from the tax transaction. What if he receives an adverse ruling, wherein there will be a ruling from the Commissioner that in that transaction he will be taxable or that he will not be exempted? Can you appeal the ruling? If it is yes, where will you appeal the ruling? Remember that this is (not ?) a tax case, which is not an ordinary tax case when you compare it to assessments or refunds. In this situation, when the taxpayer is confronted with a tax problem and lodged it with the BIR regarding his query of his taxability or exemption in a transaction and he gets an adverse ruling, the law allows the taxpayer to appeal the ruling. Where will he appeal the ruling? The appeal is with the CTA, not with any other courts or even the regional trial courts because the provision in the law is not only the decisions but also rulings. So, the rulings therefore include tax queries asked by the taxpayer asking for a ruling, kung taxable basiya or exempted basiya in a transaction. In the event that he gets an adverse ruling, his remedy is to appeal that ruling to the Court of Tax Appeals. Again, the basis is found under the law. And this provision is found not only in the old law but it is carried over in the amended law.
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The decided case here is the LEAL vs. COMMISSIONER. (Not sure but I think it is the Commissioner vs. Leal November 18, 2002 case, walakasingbinigaynacitation .. check it out ) Josefina Leal was the operator of a pawnshop and wrote to the BIR with regard to the business of her pawnshop, whether she would be subject to the VAT or the percentage tax or to this type of business tax. The BIR made a reply that the business is taxable and she should pay the percentage tax or now, the VAT (not sure if tama pagdinigko) With that adverse ruling, she went to the RTC to question the ruling of the Commissioner. With the denial, she went to the Court of Appeals and then, finally to the Supreme Court. Of course, the petition was dismissed because it was the wrong remedy. While the taxpayer is allowed to question a tax ruling made by the Commissioner, the mode of where to pursue the action is not with the regular courts. It should be, as in the case of Leal, it should be brought to the CTA or the Court of Tax Appeals, In the case of Leal, it cited the statutory provision. Even under the old law, under RA 1125, the matter that is brought on appeal to the CTA, any party adversely affected by a decision or ruling. So, it includes therefore, the rulings of the Commissioner of Internal Revenue or his administrative officers. So, you could appeal the ruling therefore to the CTA. And under the jurisdiction of the Court of Tax Appeals, its exclusive appellate jurisdiction, involves the decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, then, you have, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. That provision is allowing the taxpayer to appeal that to the CTA and not to any other courts. You have that legal basis to pursue your appeal for that ruling, not to the regular courts, but to the CTA.
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TAXATION LAW Reviewer (Sources: 2012 Bar Examination Syllabus, De Leon 2011, Aban 2009, Dean Quibod Lecture

Notes, Callanta Notes, UST Golden Notes 2011)

I. GENERAL PRINCIPLES OF TAXATION A. Definition and concept of taxation

D. Power of taxation compared with other powers

Police Power The maintenance of a healthy economic standard of society.

Eminent Domain may be exercised by public services corporation or public utilities if

By: Adelaine Faith Zerna LLB4

C. IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.

D. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:

By: Adelaine Faith Zerna LLB4

E. SPECIAL ASSESSMENT vs. TAX

Republic v. Bacolod, 17 SCRA 632

F. TOLL vs. TAX

G. TAX vs. PENALTY

H. OBLIGATION TO PAY DEBT vs. OBLIGATION TO PAY TAX

By: Adelaine Faith Zerna LLB4

Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)

PAL vs. EDU

CALTEX vs. CIR

F. Principles of sound tax system

By: Adelaine Faith Zerna LLB4

G. Theory and basis of taxation

Illustrations of the lifeblood theory

Progressive system of taxation vs. regressive system of taxation

As to who bears the burden

As to the scope of the tax

As to the determination of amount

By: Adelaine Faith Zerna LLB4

Progressive system of taxation vs. regressive system of taxation

Summary of classification of taxes:

K. Limitations on the power of taxation

Constitutional limitations Indirect

EXCEPTIONS TO THE TERRITORIALITY RULE

A) Where the tax laws operate outside territorial jurisdiction

Situs of tax on real property

LEX REI SITUS or where the property is located

Situs of property tax on personal property

MOBILIA SEQUNTUR PERSONAM

1) TANGIBLE PERSONAL PROPERTY

2) INTANGIBLLE PERSONAL PROPERTY

Situs of income tax 1. Domicillary theory

Situs of sale of personal property

Situs of tax on interest income

CIR vs. BOAC

Situs of excise tax

HOPEWELL vs. COM. OF CUSTOMS

PEPSI COLA vs. CITY OF BUTUAN

By: Adelaine Faith Zerna LLB4

Means employed to avoid double taxation

CITY OF BAGUIO vs. DE LEON

VILLANUEVA vs. CITY OF ILOILO

Escape from taxation

Ways of shifting the tax burden

By: Adelaine Faith Zerna LLB4

Impact and Incidence of Taxation

Relationship between impact, shifting, and incidence of a tax

By: Adelaine Faith Zerna LLB4

DELPHERS TRADERS CORP vs. IAC (157 SCRA 349)

Rationale for granting tax exemptions

Grounds for granting tax exemptions

By: Adelaine Faith Zerna LLB4

Nature of tax exemption

Kinds of tax exemption according to manner of creation

CALTEX vs. COA