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TAXATION: San Beda College of LAW ALABANG GENERAL PRINCIPLES I. Concepts, Nature and Characteristics of Taxation and Taxes.

. Taxation Defined: As a process, it is a means by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of the government. It is merely a way of apportioning the costs of government among those who in some measures are privileged to enjoy its benefits and must bear its burdens. As a po er, taxation refers to the inherent power of the state to demand enforced contributions for public purpose or purposes. Rationa!e of Taxation " The Supreme ourt held! "It is said that taxes are what we pay for civili#ed society. $ithout taxes, the government would be paraly#ed for lack of the motive power to activate and operate it. %ence, despite the natural reluctance to surrender part of one&s hard-earned income to the taxing authorities, every person who is able must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. The s#$%iotic re!ationship is the rationa!e of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. Taxation is a symbiotic relationship, whereby in exchange for the protection that the citi#ens get from the government, taxes are paid.' ( ommissioner of Internal )evenue vs *llegre, Inc.,et al., +,--./, 0eb. 12, 1.--3 Purposes and &%'ecti(es of Taxation 1. Re(enue ) to provide funds or property with which the State promotes the general welfare and protection of its citi#ens. ,. Non"Re(enue 45),657 a. Pro$otion of Genera! *e!fare ) Taxation may be used as an implement of police power in order to promote the general welfare of the people. 4see +ut# vs *raneta (.- 5hil 18-3 and 9sme:a vs 9rbos (;.). <o. ..--/, =ar. >1, 1..>37 b. Re+u!ation ) *s in the case of taxes levied on excises and privileges like those imposed in tobacco or alcoholic products or amusement places like night clubs, cabarets, cockpits, etc. In the case of Caltex Phils. Inc. vs COA (;.). <o. .,?-?, =ay -, 1..,3, it was held that taxes may also be imposed for a regulatory purpose as, for instance, in the rehabilitation and stabili#ation of a threatened industry which is affected with public industry like the oil industry. c. Reduction of Socia! Ine,ua!it# @ this is made possible through the progressive system of taxation where the objective is to prevent the under-concentration of wealth in the hands of few individuals. d. Encoura+e Econo$ic Gro th @ in the realm of tax exemptions and tax reliefs, for instance, the purpose is to grant incentives or exemptions in order to encourage investments and thereby promote the country&s economic growth. e. Protectionis$ @ in some important sectors of the economy, as in the case of foreign importations, taxes sometimes provide protection to local industries like protective tariffs and customs. Taxes Defined Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of government and for public needs. Essentia! Characteristic of Taxes 4 +6=5>S 7 1. It is levied by the !a "$a-in+ %od# of the State The power to tax is a legislative power which under the onstitution only ongress can exercise through the enactment of laws. *ccordingly, the obligation to pay taxes is a statutory liability. ,. It is an enforced contribution * tax is not a voluntary payment or donation. It is not dependent on the will or contractual assent, express or implied, of the person taxed. Taxes are not contracts but positive acts of the government. >. It is generally payable in $one# Tax is a pecuniary burden @ an exaction to be discharged alone in the form of money which must be in legal tender, unless Aualified by law, such as )* >B8 which allows backpay certificates as payment of taxes. 8. It is proportionate in character - It is ordinarily based on the taxpayers ability to pay. ?. It is levied on persons or propert# " * tax may also be imposed on acts, transactions, rights or privileges. /. It is levied for pu%!ic purpose or purposes " Taxation involves, and a tax constitutes, a burden to provide income for public purposes. 2. It is levied by the State which has jurisdiction over the persons or property. - The persons, property or service to be taxed must be subject to the jurisdiction of the taxing state. Theor# and .asis of Taxation /. Necessit# Theor# Taxes proceed upon the theory that the existence of the government is a necessityC that it cannot continue without the means to pay its expensesC and that for those means, it has the right to compel all citi#ens and properties within its limits to contribute. In a case, the Supreme ourt held that! Taxation is a power emanating from necessity. It is a necessary burden to preserve the State&s sovereignty and a means 1

TAXATION: San Beda College of LAW ALABANG to give the citi#enry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citi#enry and those which come with the State&s territory and facilities, and protection which a government is supposed to provide. (Phil. Guaranty Co., Inc. vs Commissioner of Internal evenue, !" #C A $$%&. 0. The .enefits"Protection Theor# The basis of taxation is the reciprocal duty of protection between the state and its inhabitants. In return for the contributions, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property. 1ua!ifications of the .enefit"Protection Theor#: a. It does not mean that only those who are able to pay and do pay taxes can enjoy the privileges and protection given to a citi#en by the government. b. 0rom the contributions received, the government renders no special or commensurate benefit to any particular property or person. c. The only benefit to which the taxpayer is entitled is that derived from his enjoyment of the privileges of living in an organi#ed society established and safeguarded by the devotion of taxes to public purposes. (Gome' vs Palomar, (% #C A )(*& d. * taxpayer cannot object to or resist the payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax. (+oren'o vs Posa,as, -. Phil "%"& 2. Life%!ood Theor# Taxes are the lifeblood of the government, being such, their prompt and certain availability is an imperious need. (Collector of Internal evenue vs. Goo,rich International ubber Co., #ept. -, !*-%& $ithout taxes, the government would be paraly#ed for lack of motive power to activate and operate it. Nature of Taxin+ Po er 1. Inherent in so(erei+nt# @ The power of taxation is inherent in sovereignty as an incident or attribute thereof, being essential to the existence of every government. It can be exercised by the government even if the onstitution is entirely silent on the subject. a. onstitutional provisions relating to the power of taxation do not operate as grants of the power to the government. They merely constitute limitations upon a power which would otherwise be practically without limit. b. $hile the power to tax is not expressly provided for in our constitutions, its existence is recogni#ed by the provisions relating to taxation. In the case of /actan Cebu International Airport Authority vs /arcos, #ept. !!, !**-, as an incident of sovereignty, the power to tax has been described as "unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislative which imposes the tax on the constituency who are to pay it.' 1. su%'ects of Taxation (the persons, property or occupation etc. to be taxed3 0. a$ount or rate of the tax 2. purposes for hich taxes sha!! %e !e(ied pro(ided the# are pu%!ic purposes 3. apportion$ent of the tax 4. situs of taxation 5. $ethod of co!!ection Is the Po er to Tax the Po er to Destro#6 In the case of Churchill, et al. vs Concepcion (". Phil *-*& it has been ruled that! The power to impose taxes is one so unlimited in force and so searching in extent so that the courts scarcely venture to declare that it is subject to any restriction whatever, except such as rest in the discretion of the authority which exercise it. <o attribute of sovereignty is more pervading, and at no point does the power of government affect more constantly and intimately all the relations of life than through the exaction made under it. *nd in the notable case of /cCulloch vs /arylan,, hief Eustice =arshall laid down the rule that the power to tax involves the power to destroy. *ccording to an authority, the above principle is pertinent only when there is no power to tax a particular subject and has no relation to a case where such right to tax exists. This opt-Auoted maxim instead of being regarded as a blanket authori#ation of the unrestrained use of the taxing power for any and all purposes, irrespective of revenue, is more reasonably construed as an epigrammatic statement of the political and economic axiom that since the financial needs of a state or nation may outrun any human calculation, so the power to meet those needs by taxation must not be limited even though the taxes become burdensome or confiscatory. To say that "the power to tax is the power to destroy' is to describe not the purposes for which the taxing power may be used but the degree of vigor with which the taxing power may be employed in order to raise revenue (I ooley 12.-1-13 Constitutiona! Restraints Re: Taxation is the Po er to Destro# $hile taxation is said to be the power to destroy, it is by no means unlimited. It is eAually correct to postulate that the 0power to tax is not the power to destroy while the Supreme Court sits ,1 2 ,. Le+is!ati(e in character @ The power to tax is exclusively legislative and cannot be exercised by the executive or judicial branch of the government. >. Su%'ect to constitutiona! and inherent !i$itations @ *lthough in one decided case the Supreme ourt called it an awesome power, the power of taxation is subject to certain limitations. =ost of these limitations are specifically provided in the onstitution or implied therefrom while the rest are inherent and they are those which spring from the nature of the taxing power itself although, they may or may not be provided in the onstitution. Scope of Le+is!ati(e Taxin+ Po er 4S, * 5 D * =7

TAXATION: San Beda College of LAW ALABANG because of the constitutional restraints placed on a taxing power that violated fundamental rights. In the case of oxas, et al vs C2A (April (-, !*-)&, the S reminds us that although the power of taxation is sometimes called the power to destroy, in order to maintain the general public&s trust and confidence in the ;overnment, this power must be used justly and not treacherously. The Supreme ourt held! "The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimi#e injury to the proprietary rights of a taxpayer. It must be exercised fairly, eAually and uniformly, lest the tax collector kill the F hen that lays the 3ol,en e33&. *nd, in order to maintain the general public& trust and confidence in the ;overnment this power must be used justly and not treacherously.' The doctrine seeks to describe, in an extreme, the conseAuential nature of taxation and its resulting implications, to wit! a. The power to tax must be exercised with caution to minimi#e injury to proprietary rights of a taxpayerC b. If the tax is lawful and not violative of any of the inherent and constitutional limitations, the fact alone that it may destroy an activity or object of taxation will not entirely permit the courts to afford any reliefC and c. * subject or object that may not be destroyed by the taxing authority may not likewise be taxed. (e.g. exercise of a constitutional right3 Po er of 7udicia! Re(ie in Taxation The courts cannot review the wisdom or advisability or expediency of a tax. The court&s power is limited only to the application and interpretation of the law. Eudicial action is limited only to review where involves! 1. The determination of validity on the tax in relation to constitutional precepts or provisions. ,. The determination, in an appropriate case, of the application of the law. Aspects of Taxation 1. Le(# @ determination of the persons, property or excises to be taxed, the sum or sums to be raised, the due date thereof and the time and manner of levying and collecting taxes (strictly speaking, such refers to taxation3 ,. Co!!ection @ consists of the manner of enforcement of the obligation on the part of those who are taxed. (this includes payment by the taxpayer and is referred to as tax administration3 The two processes together constitute the "taxation s#ste$'. .asic Princip!es of a Sound Tax S#ste$ 40*T7 1. 8isca! Ade,uac# ) the sources of tax revenue should coincide with, and approximate the needs of government expenditure. <either an excess nor a deficiency of revenue vis-G-vis the needs of government would be in keeping with the principle. ,. Ad$inistrati(e 8easi%i!it# ) tax laws should be capable of convenient, just and effective administration. >. Theoretica! 7ustice @ the tax burden should be in proportion to the taxpayer&s ability to pay (ability4to4pay principle&. The 1.-2 onstitution reAuires taxation to be eAuitable and uniform. II. C!assifications and Distinction C!assification of Taxes A. As to Su%'ect $atter 1. Persona!, capitation or po!! taxes @ taxes of fixed amount upon all persons of a certain class within the jurisdiction of the taxing power without regard to the amount of their property or occupations or businesses in which they may be engaged in. example! community tax ,. Propert# Taxes @ taxes on things or property of a certain class within the jurisdiction of the taxing power. example! real estate tax >. Excise Taxes @ charges imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation. examples! income tax, value-added tax, estate tax or donor&s tax B. As to .urden 1. Direct Taxes @ taxes wherein both the 0inci,ence1 as well as the 0impact1 or burden of the tax faces on one person. examples! income tax, community tax, donor&s tax, estate tax ,. Indirect Taxes @ taxes wherein the incidence of or the liability for the payment of the tax falls on one person, but the burden thereof can be shifted or passed to another person. examples! H*T, percentage taxes, customs duties excise taxes on certain specific goods I$portant Points to Consider re+ardin+ Indirect Taxes ! 1. $hen the consumer or end-user of a manufacturer product is tax-exempt, such exemption covers only those taxes for which such consumer or end-user is directly liable. Indirect taxes are not included. %ence, the manufacturer cannot claim exemption from the payment of sales tax, neither can the consumer or buyer of the product demand the refund of the tax that the manufacturer might have passed on to him. (Phil. Acetylene Co. inc. vs Commissioner of Internal evenue et. al., +4!*$5$, Au3.!$, !*)$& ,. $hen the transaction itself is the one that is tax-exempt but through error the seller pays the tax and shifts the same to the buyer, the seller gets the refund, but must hold it in trust for buyer. (American ubber Co. case, +4!5*-", April "5, !*-"& >. $here the exemption from indirect tax is given to the contractee, but the evident intention is to exempt the contractor so that such contractor may no longer shift or pass on any tax to the contractee, the contractor may claim tax exemption on the transaction 3

TAXATION: San Beda College of LAW ALABANG (Commissioner of Internal evenue vs 6ohn Gotamco an, #ons, Inc., et.al., +4"!5*(, 7eb. ($, !*)$& 8. $hen the law granting tax exemption specifically includes indirect taxes or when it is clearly manifest therein that legislative intention to exempt embraces indirect taxes, then the buyer of the product or service sold has a right to be reimbursed the amount of the taxes that the sellers passed on to him. (/ace,a vs /acarai3,supra& C. As to Purpose 1. Genera!98isca!9Re(enue @ tax imposed for the general purposes of the government, i.e., to raise revenues for governmental needs. 6xamples! income taxes, H*T, and almost all taxes ,. Specia!9Re+u!ator# @ tax imposed for special purposes, i.e., to achieve some social or economic needs. 6xamples! educational fund tax under )eal 5roperty Taxation D. As to :easure of App!ication 1. Specific Tax @ tax imposed per head, unit or number, or by some standard of weight or measurement and which reAuires no assessment beyond a listing and classification of the subjects to be taxed. 6xamples! taxes on distilled spirits, wines, and fermented liAuors ,. Ad ;a!ore$ Tax @ tax based on the value of the article or thing subject to tax. example! real property taxes, customs duties E. As to Date 1. Pro+ressi(e Tax @ the rate or the amount of the tax increases as the amount of the income or earning (tax base3 to be taxed increases. examples! income tax, estate tax, donor&s tax ,. Re+ressi(e Tax @ the tax rate decreases as the amount of income or earning (tax base3 to be taxed increases. <ote! $e have no regressive taxes (this is according to Ie +eon3 >. :ixed Tax @ tax rates are partly progressive and partly regressive. 8. Proportionate Tax @ tax rates are fixed on a flat tax base. examples! real estate tax, H*T, and other percentage taxes F. As to Scope or authorit# i$posin+ the tax 1. Nationa! Tax ) tax imposed by the <ational ;overnment. examples! national internal revenue taxes, customs duties ,. :unicipa!9Loca! Tax @ tax imposed by +ocal ;overnment units. examples! real estate tax, professional tax Re+ressi(e S#ste$ of Taxation (is"<"(is Re+ressi(e Tax * regressive tax, must not be confused with regressive system of taxation. Re+ressi(e Tax: tax the rate of which decreases as the tax base increases. Re+ressi(e S#ste$ of Taxation: focuses on indirect taxes, it exists when there are more indirect taxes imposed than direct taxes. Taxes distin+uished fro$ other I$positions a. To!! (s Tax To!! @ sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge of the like, of a public nature. Tax (s 1. demand of sovereignty ,. paid for the support of the government >. generally, no limit as to amount imposed 8. imposed government only by the To!! 1. demand of proprietorship ,. paid for the use of another&s property >. amount depends on the cost of construction or maintenance of the public improvement used 8. imposed by the government or private individuals or entities

b. Pena!t# (s Tax Pena!t# @ any sanctions imposed as a punishment for violations of law or acts deemed injurious. Tax (s 1. generally intended to raise revenue ,. imposed only by the government Pena!t# 1. designed to regulate conduct ,. imposed by the government or private individuals or entities

c. Specia! Assess$ent (s Tax Specia! Assess$ent @ an enforced proportional contribution from owners of lands especially or peculiarly benefited by public improvements. Tax (s Specia! Assess$ent 1. imposed on persons, 1. levied only on land property and excise ,. personal liability of the ,. not a personal liability of the person assessed person assessed, i.e. his liability is limited only to the land involved >. based on necessity as well >. based wholly on benefits as on benefits received 8. general application (see 8. exceptional both as time and *postolic 5refect vs Treas. 9f place Jaguio, 21 5hil ?823 4

TAXATION: San Beda College of LAW ALABANG e. De%t (s Tax Iebt is based upon juridical tie, created by law, contracts, delicts or Auasi-delicts between parties for their private interest or resulting from their own acts or omissions. Tax 1. based on law (s De%t 1. based on contracts, express or implied ,. assignable >. may be paid in kind 8. may be subject to set-off or compensation ?. no imprisonment for nonpayment of debt /. governed by the ordinary periods of prescriptions 2. draws interest when so stipulated, or in case of default

I$portant Points to Consider Re+ardin+ Specia! Assess$ents: 1. Since special assessments are not taxes within the constitutional or statutory provisions on tax exemptions, it follows that the exemption under Sec. ,-(>3, *rt. HI of the onstitution does not apply to special assessments. ,. %owever, in view of the exempting proviso in #ec. (". of the +ocal Government Co,e, properties which are actually, ,irectly an, exclusively use, for reli3ious, charitable an, e,ucational purposes are not exactly exempt from real property taxes but are exempt from the imposition of special assessments as well.( see Aban& > .The general rule is that an exemption from taxation does not include exemption from special assessment. d. License or Per$it 8ee (s Tax License or Per$it fee @ is a charge imposed under the police power for the purposes of regulation. Tax (s License9Per$it 8ee 1. enforced contribution 1. legal compensation or assessed by sovereign authority reward of an officer for specific to defray public expenses purposes ,. for revenue purposes ,. for regulation purposes >. an exercise of the taxing >. an exercise of the police power power 8. generally no limit in the 8. amount is limited to the amount of tax to be paid necessary expenses of inspection and regulation ?. imposed also on persons ?. imposed on the right to and property exercise privilege /. non-payment does not /. non-payment makes the act necessarily make the act or or business illegal business illegal Three -inds of !icenses are reco+ni=ed in the !a : 1. +icenses for the regulation of useful occupations. ,. +icenses for the regulation or restriction of non-useful occupations or enterprises >. +icenses for revenue only I$portance of the distinctions %et een tax and !icense fee: 1. Some limitations apply only to one and not to the other, and that exemption from taxes may not include exemption from license fees. ,. The power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. (see American /ail +ine vs City of 8utuan, +4!(-.$, /ay "!, !*-$ an, relate, cases& >. *n extraction, however, maybe considered both a tax and a license fee. 8. Jut a tax may have only a regulatory purpose. ?. The general rule is that the imposition is a tax if its primary purpose is to generate revenue and regulation is merely incidentalC but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition of a tax. (see Pro3ressive 9evelopment Corp. vs :ue'on City, !$( #C A -(*&

,. generally, cannot be assigned >. generally payable in money 8. generally not subject to setoff or compensation ?. imprisonment is a sanction for non-payment of tax except poll tax /. governed by special prescriptive periods provided for in the Tax ode 2. does not draw interest except only when delinAuent

Genera! Ru!e: Taxes are not subject to set-off or legal compensation. The government and the taxpayer are not creditors and debtors or each other. 9bligations in the nature of debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity (Philex /inin3 Corp. vs CI , (*. #C A -)$; epublic vs /ambulao +umber Co., - #C A -((& Exception: $here both the claims of the government and the taxpayer against each other have already become due and demandable as well as fully liAuated. (see 9omin3o vs Garlitos, +4 !)*5., 6une (*, !*-"&

Pertinent Case: Phi!ex :inin+ Corp. (s Co$$issioner of Interna! Re(enue ;.). <o. 1,?2B8, *ug. ,-, 1..The Supreme ourt held that! "$e have consistently ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the government. * person cannot refuse to pay a tax on the ground that the government owes him an amount eAual to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.' f. Tax Distin+uished fro$ other Ter$s. 1. Su%sid# @ a pecuniary aid directly granted by the government to an individual or private commercial enterprise deemed beneficial to the public. ,. Re(enue @ refers to all the funds or income derived by the government, whether from tax or from whatever source and whatever manner. 5

TAXATION: San Beda College of LAW ALABANG >. Custo$s Duties @ taxes imposed on goods exported from or imported into a country. The term taxes is broader in scope as it includes customs duties. 8. Tariff @ it may be used in > senses! a. *s a book of rates drawn usually in alphabetical order containing the names of several kinds of merchandise with the corresponding duties to be paid for the same. b. *s duties payable on goods imported or exported (5I <o. ,>B3 c. *s the system or principle of imposing duties on the importationKexportation of goods. ?. Interna! Re(enue @ refers to taxes imposed by the legislative other than duties or imports and exports. /. :ar+in 8ee @ a currency measure designed to stabili#e the currency. 2. Tri%ute @ synonymous with taxC taxation implies tribute from the governed to some form of sovereignty. -. I$post @ in its general sense, it signifies any tax, tribute or duty. In its limited sense, it means a duty on imported goods and merchandise. Inherent Po ers of the State 1. 5olice 5ower ,. 5ower of 6minent Iomain >. 5ower of Taxation Distinctions a$on+ the Three Po ers Taxation P< PO#= - levied for the purpose of raising revenue Po!ice Po er E$inent Do$ain - taking of property for public use 2 A>#7= O7 P - taxes paid become part of public funds #COP= - affects all persons, property and excise 8A#I# public necessity OP= 2C IGD2# - no transfer but only restraint on the exercise of property right exists - affects all persons, property, privileges, and even rights - property is taken by the gov&t upon payment of just compensation - affects only the particular property comprehended

- public necessity -public necessity, and the right of private property is the state and the taken for public use public to selfprotection and self-preservation A<2DO I2C EDICD =?= CI#=# 2D= POE= - only by the - only by the - may be granted to government or government or its public service, its political political companies, or public subdivisions subdivisions utilities III. Li$itations on the Po er of Taxation Li$itations, C!assified a. Inherent Li$itations or those which restrict the power although they are not embodied in the onstitution 45 < I T 67 1. ,. >. 8. ?. Pu%!ic 5urpose of Taxes Non-delegability of the Taxing 5ower Territoria!it# or the Situs of Taxation Exe$ption of the ;overnment from taxes Internationa! omity

" exercised to promote public welfare thru regulations A/O<>2 O7 =?AC2IO> - no limit - limited to the cost of regulations, issuance of the license or surveillance 8=>=7I2# =C=I@=9 - no special or no direct direct benefits benefits but a received but the healthy economic enjoyment of standard of the privileges of society or living in an 0,amnum organi#ed absAue inBuria1 is society attained >O>4I/PAI /=>2 O7 CO>2 AC2# - the impairment - contract may be rule subsist impaired

b. Constitutiona! Li$itations or those expressly found in the constitution or implied from its provision no exaction, compensation paid by the government 1. Due process of law ,. E,ua! protection of law >. 0reedom of Speech and of the press 8. Non"infrin+e$ent of religious freedom ?. Non"i$pair$ent of contracts /. Non"i$prison$ent for debt or non-payment of poll tax 2. 9rigin of Appropriation, )evenue and Tariff Jills -. >nifor$it#, 6Auitability and 5rogressitivity of Taxation .. De!e+ation of +egislative *uthority to 0x Tariff )ates, Import and 6xport Luotas 1B. Tax 6xemption of Properties *ctually, Iirectly, and 6xclusively used for )eligious haritable 11. Hoting reAuirements in connection with the +egislative Grant of Tax 6xemption 1,. <on-impairment of the Supreme Courts& jurisdiction in Tax ases 1>. Tax exemption of Re(enues and *ssets, including ;rants, 6ndowments, Ionations or ontributions to 6ducation Institutions 6

- direct benefit results in the form of just compensation

- contracts may be impaired

TAXATION: San Beda College of LAW ALABANG c. &ther Constitutiona! Pro(isions re!ated to Taxation 1. Su%'ect and Title of Jills ,. 5ower of the President to Heto an items in an *ppropriation, )evenue or Tariff Jill >. <ecessity of an Appropriation made before money 8. Appropriation of 5ublic =oney ?. Taxes +evied for Specia! 5urposes /. *llotment to LGC Inherent Li$itations *. Pu%!ic Purpose of Taxes /. I$portant Points to Consider: a. If taxation is for a public purpose, the tax must be used! a.13 for the support of the state or a.,3 for some recogni#ed objects of governments or a.>3 directly to promote the welfare of the community (taxation as an implement of police power3 b. The term 0public purpose1 is synonymous with 03overnmental purpose1; a purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals. c. * tax levied for a private purpose constitutes a taking of property without due process of law. d. The purposes to be accomplished by taxation need not be exclusively public. *lthough private individuals are directly benefited, the tax would still be valid provided such benefit is only incidental. e. The test is not as to who receives the money, but the character of the purpose for which it is expendedC not the immediate result of the expenditure but rather the ultimate. g. In the imposition of taxes, public purpose is presumed. ,. Test in deter$inin+ Pu%!ic Purposes in tax a. Dut# Test @ whether the thing to be threatened by the appropriation of public revenue is something which is the duty of the State, as a government. b. Pro$otion of Genera! *e!fare Test @ whether the law providing the tax directly promotes the welfare of the community in eAual measure. .asic Princip!es of a Sound Tax S#ste$ ?8AT@ a. 8isca! Ade,uac# ) the sources of tax revenue should coincide with, and approximate the needs of government expenditure. <either an excess nor a deficiency of revenue vis-G-vis the needs of government would be in keeping with the principle. b. Ad$inistrati(e 8easi%i!it# ) tax laws should be capable of convenient, just and effective administration. a. It shall not contravene any onstitutional provisions or inherent limitations of taxationC b. The delegation is effected either by the onstitution or by validly enacted legislative measures or statuteC and c. The delegated levy power, except when the delegation is by an express provision of onstitution itself, should only be in favor of the local legislative body of the local or municipal government concerned. 8. Tax Le+is!ation (is"<"(is Tax Ad$inistration " 6very system of taxation consists of two parts! a. the elements that enter into the imposition of the tax 4S , * 5 D * =7, or tax regulationC and b. the steps taken for its assessment and collection or tax administration If what is delegated is tax legislation, the delegation is invalidC but if what is involved is only tax administration, the nondelegability rule is not violated. 7 Exceptions: a. 9ele3ation to the Presi,ent (Art.@I. #ec. ()((& !*)$ Constitution& The power granted to ongress under this constitutional provision to authori#e the 5resident to fix within specified limits and subject to such limitations and restrictions as it may impose, tariff rates and other duties and imposts include tariffs rates even for revenue purposes only. ustoms duties which are assessed at the prescribed tariff rates are very much like taxes which are freAuently imposed for both revenue-raising and regulatory purposes (Garcia vs =xecutive #ecretary, et. al., G. . >o. !5!($", 6uly ", !**(& b. 9ele3ations to the +ocal Government (Art. ?. #ec. %, !*)$ Constitution& It has been held that the general principle against the delegation of legislative powers as a conseAuence of the theory of separation of powers is subject to one well-established exception, namely, that legislative power may be delegated to local governments. The theory of non-delegation of legislative powers does not apply in maters of local concern. (Pepsi4Cola 8ottlin3 Co. of the Phil, Inc. vs City of 8utuan, et . al., +4(()!., Au3. (), !*-)& c. 9ele3ation to A,ministrative A3encies with respect to aspects of 2axation not le3islative in character. exampleF assessment an, collection 2. Li$itations on De!e+ation 0. c. Theoretica! 7ustice @ the tax burden should be in proportion to the taxpayer&s ability to pay (ability4to4pay principle&. The 1.-2 onstitution reAuires taxation to be eAuitable and uniform. J. Non"de!e+a%i!it# of Taxin+ Po er 1. Rationa!e: Ioctrine of Separation of 5owersC Taxation is purely legislative, ongress cannot delegate the power to others.

TAXATION: San Beda College of LAW ALABANG . Territoria!it# or Situs of Taxation /. I$portant Points to Consider: a. Territoriality or Situs of Taxation means 0place of taxation1 depending on the nature of taxes being imposed. b. It is an inherent mandate that taxation shall only be exercised on persons, properties, and excise within the territory of the taxing power because! b.13 Tax laws do not operate beyond a country&s territorial limit. b.,3 5roperty which is wholly and exclusively within the jurisdiction of another state receives none of the protection for which a tax is supposed to be compensation. c. %owever, the fundamental basis of the right to tax is the capacity of the government to provide benefits and protection to the object of the tax. * person may be taxed, even if he is outside the taxing state, where there is between him and the taxing state, a privity of relationship justifying the levy. 0. 8actors to Consider in deter$inin+ Situs of Taxation a. kind and lassification of the Tax b. location of the subject matter of the tax c. domicile or residence of the person d. citi#enship of the person e. source of income f. place where the privilege, business or occupation is being exercised I. Exe$ption of the Go(ern$ent fro$ Taxes /. I$portant Points to Consider: Reasons for Exe$ptions: a.13 To levy tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid and thus, the government would be taxing itself to raise money to pay over to itselfC a.,3 In order that the functions of the government shall not be unduly impedeC and a.>3 To reduce the amount of money that has to be handed by the government in the course of its operations. ,. Mnless otherwise provided by law, the exemption applies only to government entities through which the government immediately and directly exercises its sovereign powers (Infantry Post =xchan3e vs Posa,as, %. Phil )--& >. <otwithstanding the immunity, the government may tax itself in the absence of any constitutional limitations. 8. ;overnment-owned or controlled corporations, when performing proprietary functions are generally subject to tax in the absence of tax exemption provisions in their charters or law creating them. 6. Internationa! Co$it# 1. I$portant Points to Consider: a. The property of a foreign state or government may not be taxed by another. b. The grounds for the above rule are! b.13 sovereign eAuality among states b.,3 usage among states that when one enter into the territory of another, there is an implied understanding that the power does not intend to degrade its dignity by placing itself under the jurisdiction of the latter b.>3 foreign government may not be sued without its consent so that it is useless to assess the tax since it cannot be collected b.83 reciprocity among states Constitutiona! Li$itations 1. Due Process of La a. .asis: #ec. ! Art. " 0>o person shall be ,eprive, of life, liberty or property without ,ue process of law x x x.' Re,uisites : 1. The interest of the public generally as distinguished from those of a particular class reAuire the intervention of the stateC ,. The means employed must be reasonably necessary to the accomplishment for the purpose and not unduly oppressiveC >. The deprivation was done under the authority of a valid law or of the constitutionC and 8. The deprivation was done after compliance with fair and reasonable method of procedure prescribed by law. In a string of cases, the Supreme ourt held that in order that due process of law must not be done in an arbitrary, despotic, capricious, or whimsical manner. ,. E,ua! Protection of the La a. .asis: #ec.! Art. " 0 xxx >or shall any person be ,enie, the eAual protection of the laws. I$portant Points to Consider! 1. 6Aual protection of the laws signifies that all persons subject to legislation shall be treated under circumstances and conditions both in the privileges conferred and liabilities imposed ,. This doctrine prohibits class legislation which discriminates against some and favors others. b. )eAuisites for a Halid lassification 1. =ust not be arbitrary ,. =ust not be based upon substantial distinctions >. =ust be germane to the purpose of law. 8. =ust not be limited to exiting conditions onlyC and ?. =ust play eAually to all members of a class. >. >nifor$it#, E,uita%i!it# and Pro+ressi(it# of Taxation a. .asis: Sec. ,-(13 *rt. HI. The rule of taxation shall be uniform and eAuitable. The ongress shall evolve a progressive system of taxation. b. I$portant Points to Consider: 8

TAXATION: San Beda College of LAW ALABANG 1. >nifor$it# (eAuality or eAual protection of the laws3 means all taxable articles or kinds or property of the same class shall be taxed at the same rate. * tax is uniform when the same force and effect in every place where the subject of it is found. ,. E,uita%!e means fair, just, reasonable and proportionate to one&s ability to pay. >. Pro+ressi(e s#ste$ of Taxation places stress on direct rather than indirect taxes, or on the taxpayers& ability to pay 8. IneAuality which results in singling out one particular class for taxation or exemption infringes no constitutional limitation. (see Commissioner vs. +in3ayen Gulf =lectric, !-. #C A ($& ?. The rule of uniformity does not call for perfect uniformity or perfect eAuality, because this is hardly attainable. 8. 8reedo$ of Speech and of the Press a. .asis: Sec. 8 *rt. III. <o law shall be passed abridging the freedom of speech, of expression or of the pressx x x " b. I$portant Points to Consider: 1. There is curtailment of press freedom and freedom of thought if a tax is levied in order to suppress the basic right of the people under the onstitution. ,. * business license may not be reAuired for the sale or contribution of printed materials like newspaper for such would be imposing a prior restraint on press freedom >. %owever, an annual registration fee on all persons subject to the value-added tax does not constitute a restraint on press freedom since it is not imposed for the exercise of a privilege but only for the purpose of defraying part of cost of registration. ?. Non"infrin+e$ent of Re!i+ious 8reedo$ a. .asis: Sec. ? *rt. III. "<o law shall be made respecting an establishment of religion or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall be forever be allowed. x x x' b. I$portant Points to Consider: 1. +icense feesKtaxes would constitute a restraint on the freedom of worship as they are actually in the nature of a condition or permit of the exercise of the right. ,. %owever, the onstitution or the 0ree 6xercise of )eligion clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious materials by a religious organi#ation. (see 2olentino vs #ecretary of 7inance, ("% #C A -"5& /. Non"i$pair$ent of Contracts a. .asis: Sec. 1B *rt. III. "<o law impairing the obligation of contract shall be passed.' b. I$portant Points to Consider: 1. * law which changes the terms of the contract by making new conditions, or changing those in the contract, or dispenses with those expressed, impairs the obligation. ,. The non-impairment rule, however, does not apply to public utility franchise since a franchise is subject to amendment, a. .asis: Sec. ,-(,3 *rt. HI "x x x The ongress may, by law, authori#e the 5resident to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export Auotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the government. 1B. Tax Exe$ption of Properties Actua!!#, Direct!# and Exc!usi(e!# used for Re!i+ious, Charita%!e and Educationa! Purposes a. .asis: Sec. ,-(>3 *rt. HI. " haritable institutions, churches and parsonages or convents appurtenant thereto, mosAues, non-profit cemeteries, and all lands, building, and improvements actually, ,irectly an, exclusively used for religious, charitable or educational purposes shall be exempt from taxation.' b. I$portant Points to Consider: 1. +est of the tax exemption! the use and not ownership of the property ,. To be tax-exempt, the property must be actually, directly and exclusively used for the purposes mentioned. >. The word "exclusively' means "primarily&. 8. The exemption is not limited to property actually indispensable but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. 9 alteration or repeal by the reAuires. ongress when the public interest so

2. Non"i$prison$ent for non"pa#$ent of po!! tax a. .asis: Sec. ,B *rt. III. "<o person shall be imprisoned for debt or non-payment of poll tax.' b. I$portant Points to Consider: 1. The only penalty for delinAuency in payment is the payment of surcharge in the form of interest at the rate of ,8N per annum which shall be added to the unpaid amount from due date until it is paid. (Sec. 1/1, +; 3 ,. The prohibition is against "imprisonment' for "non-payment of poll tax'. Thus, a person is subject to imprisonment for violation of the community tax law other than for non-payment of the tax and for non-payment of other taxes as prescribed by law. -. &ri+in or Re(enue, Appropriation and Tariff .i!!s a. .asis: Sec. ,8 *rt. HI. "*ll appropriation, revenue or tariff bills, bill authori#ing increase of the public debt, bills of local application, and private bills shall originate exclusively in the %ouse of )epresentatives, but the Senate may propose or concur with amendments.' b. Mnder the above provision, the Senator&s power is not only to Aon!# concur ith a$end$entsB but also "to propose amendments'. (2olentino vs #ec. of 7inance, supra& .. De!e+ation of Le+is!ati(e Authorit# to 8ix Tariff Rates, I$ports and Export 1uotas

TAXATION: San Beda College of LAW ALABANG ?. property tax. /. %owever, it would seem that under existing law, gifts made in favor or religious charitable and educational organi#ations would nevertheless Aualify for donor&s gift tax exemption. (Sec. 1B1(.3(>3, <I) 3 11. ;otin+ Re,uire$ents in connection ith the Le+is!ati(e Grant for tax exe$ption a. .asis: Sec. ,-(83 *rt. HI. "<o law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the ongress.' b. The above provision reAuires the concurrence of a majority not of attendees constituting a Auorum but of all members of the ongress. 1,. Non"i$pair$ent of the Supre$e CourtsC 'urisdiction in Tax Cases a. .asis: Sec. ? (,3 *rt. HIII. "The ongress shall have the power to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the Supreme ourt of its jurisdiction over cases enumerated in Sec. ? hereof.' Sec. ? (,b3 *rt. HIII. "The Supreme ourt shall have the following powers! x x x(,3 )eview, revise, modify or affirm on appeal or certiorari x x x final judgments and orders of lower courts in x x x all cases involving the legality of any tax, impost, assessment, or toll or any penalty imposed in relation thereto.' 1>. Tax Exe$ptions of Re(enues and Assets, inc!udin+ +rants, endo $ents, donations or contri%utions to Educationa! Institutions a. .asis: Sec. 8(83 *rt. OIH. "Subject to the conditions prescribed by law, all grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes shall be exempt from tax.' b. I$portant Points to Consider: 1. The exemption granted to non-stock, non-profit educational institution covers income, property, and donor&s taxes, and custom duties. ,. To be exempt from tax or duty, the revenue, assets, property or donation must be used actually, directly and exclusively for educational purpose. >. In the case or religious and charitable entities and non-profit cemeteries, the exemption is limited to property tax. 8. The said constitutional provision granting tax exemption to non-stock, non-profit educational institution is self-executing. ?. Tax exemptions, however, of proprietary (for profit3 educational institutions reAuire prior legislative implementation. Their tax exemption is not self-executing. /. +ands, Juildings, and improvements actually, directly, and exclusively used for educational purposed are exempt from property tax, whether the educational institution is proprietary or non-profit. c. Depart$ent of 8inance &rder No. /2D"ED, dated Dec. /5, /FED The constitutional exemption applies only to The following are some of the highlights of the I90 order governing the tax exemption of non-stock, non-profit educational institutions! 1. The tax exemption is not only limited to revenues and assets derived from strictly school operations like income from tuition and other miscellaneous feed such as matriculation, library, )9T , etc. fees, but it also extends to incidental income derived from canteen, bookstore and dormitory facilities. ,. In the case, however, of incidental income, the facilities mentioned must not only be owned and operated by the school itself but such facilities must be located inside the school campus. anteens operated by mere concessionaires are taxable. >. Income which is unrelated to school operations like income from bank deposits, trust fund and similar arrangements, royalties, dividends and rental income are taxable. 8. The use of the school&s income or assets must be in consonance with the purposes for which the school is createdC in short, use must be school-related, like the grant of scholarships, faculty development, and establishment of professional chairs, school building expansion, library and school facilities. &ther Constitutiona! Pro(isions re!ated to Taxation 1. Su%'ect and Tit!e of .i!!s ?Sec. 05?/@ /FED Constitution@ "6very Jill passed by ongress shall embrace only one subject which shall be expressed in the title thereof.' in the Tolentino 6-H*T case, supra, the 6-vat, or the 6xpanded Halue *dded Tax +aw ()* 221/3 was also Auestioned on the ground that the constitutional reAuirement on the title of a bill was not followed. ,. Po er of the President to ;eto ite$s in an Appropriation, Re(enue or Tariff .i!! ?Sec. 0D?0@, Art. ;I of the /FED Constitution@ "The 5resident shall have the power to veto any particular item or items in an *ppropriation, )evenue or Tariff bill but the veto shall not affect the item or items to which he does not object.' >. Necessit# of an Appropriation $ade %efore $one# $a# %e paid out of the Treasur# ?Sec. 0F?/@, Art. ;I of the /FED Constitution@ "<o money shall be paid out of the Treasury except in pursuance of an appropriation made by law.' 8. Appropriation of Pu%!ic :one# for the %enefit of an# Church, Sect, or S#ste$ of Re!i+ion ?Sec. 0F?0@, Art. ;I of the /FED Constitution@ '<o public money or property shall be appropriated, applied, paid or employed, directly or indirectly for the use, benefit, support of any sect, church, denomination, sectarian institution, or system of religion or of any priest, preacher, minister, or other religious teacher or dignitary as such except when such priest, 10

TAXATION: San Beda College of LAW ALABANG preacher, minister or dignitary is assigned to the armed forces or to any penal institution, or government orphanage or leprosarium.' ?. Taxes !e(ied for Specia! Purpose ?Sec. 0F?2@, Art. ;I of the /FED Constitution@ "*ll money collected or any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. It the purpose for which a special fund was created has been fulfilled or abandoned the balance, if any, shall be transferred to the general funds of the government.' *n example is the 9il 5rice Stabili#ation 0und created under 5.I. 1.?/ to stabili#e the prices of imported crude oil. In a decide case, it was held that where under an executive order of the 5resident, this special fund is transferred from the general fund to a "trust liability account,' the constitutional mandate is not violated. The 95S0, according to the court, remains as a special fund subject to 9* audit (OsmeGa vs Orbos, et al., G. . >o. **))-, /ar. "!, !**"& /. A!!ot$ent to Loca! Go(ern$ents .asis: Sec. 5, Art. G of the /FED Constitution "+ocal ;overnment units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.' Exa$p!e: shares of stock may have situs for purposes of taxation in a state in which they are permanently kept regardless of the domicile of the owner, or the state in which he corporation is organi#ed. 2. Le+is!ati(e Po er to 8ix Situs If no constitutional provisions are violated, the power of the legislative to fix situs is undoubted. Exa$p!e: our law fixes the situs of intangible personal property for purposes of the estate and gift taxes. (see Sec. /H3, /FFD NIRC3 Note: In those cases where the situs for certain intangibles are not categorically spelled out, there is room for applying the mobilia rule. 8. Dou%!e Taxation and the Situs Li$itation (see later topic3 Criteria in 8ixin+ Tax Situs of Su%'ect of Taxation a. Persons @ 5oll tax may be levied upon persons who are residents of the State. b. Rea! Propert# @ is subject to taxation in the State in which it is located whether the owner is a resident or non-resident, and is taxable only there. Ru!e of Lex Rei Sitae c. Tan+i%!e Persona! propert# @ taxable in the state where it has actual situs @ where it is physically located. *lthough the owner resides in another jurisdiction. Ru!e of Lex Rei Sitae d. Intan+i%!e Persona! Propert# @ situs or personal property is the domicile of the owner, in accordance with the principle A:&.ILIA SE1>>NT>R PERS&NA:B, said principle, however, is not controlling when it is inconsistent with express provisions of statute or when justice demands that it should be, as where the property has in fact a situs elsewhere. (see Eells 7ar3o 8anH v. Collector $5 PDI+ "(%; Collector v. 7isher +4!!-((, 6anuary, !*-!& e. Inco$e @ properly exacted from persons who are residents or citi#ens in the taxing jurisdiction and even those who are neither residents nor citi#ens provided the income is derived from sources within the taxing state. f. .usiness, &ccupation, and Transaction @ power to levy an excise tax depends upon the place where the business is done, of the occupation is engaged in of the transaction not place. g. Gratuitous Transfer of Propert# @ transmission of property from donor to donee, or from a decedent to his heirs may be subject to taxation in the state where the transferor was a citi#en or resident, or where the property is located. ;. :u!tip!icit# of Situs 11

I;. Situs of Taxation and Dou%!e Taxation Situs of Taxation 1. Situs of Taxation literally means the P!ace of Taxation. ,. .asic Ru!e @ state where the subject to be taxed has a situs may rightfully levy and collect the tax So$e .asic Considerations Affectin+ Situs of Taxation /. Protection * legal situs cannot be given to property for the purpose of taxation where neither the property nor the person is within the protection of the taxing state In the case of /anila =lectric Co. vs Catco (-* Phil )*& , the Supreme ourt ruled that insurance premium paid on a fire insurance policy covering property situated in the 5hils. are taxable in the 5hils. 6ven though the fire insurance contract was executed outside the 5hils. and the insurance policy is delivered to the insured therein. This is because the Philippines Government must 3et somethin3 in return for the protection it 3ives to the insure, property in the Phils. an, by reason of such protection, the insurer is benefite, thereby. 0. The $axi$ of Mobilia Sequuntur Personam and Situs of Taxation *ccording to this maxim, which means 'movable follow the person,' the situs of personal property is the domicile of the owner. This is merely a fiction of law and is not allowed to stand in the way of taxation of personalty in the place where it has its actual situs and the reAuisite legislative jurisdiction exists.

TAXATION: San Beda College of LAW ALABANG There is multiplicity of situs when the same subject of taxation, like income or intangible, is subject to taxation in several taxing jurisdictions. This happens due to! a. Hariance in the concept of "domicile' for tax purposesC b. =ultiple distinct relationship that may arise with respect to intangible personalityC and c. The use to which the property may have been devoted, all of which may receive the protection of the laws of jurisdiction other than the domicile of the owner Re$ed# @ taxation jurisdiction may provide! a. 6xemption or allowance of deductions or tax credit for foreign taxes b. 6nter into treaties with other states Dou%!e Taxation T o ?0@ Iinds of Dou%!e Taxation 1. &%noxious or Direct Dup!icate Taxation (9ouble taxation in its strict sense& - In the objectionable or prohibited sense means that the same property is taxed twice when it should be taxed only once. 1. ,. >. 8. ?. /. Re,uisites: Same property is taxed twice Same purpose Same taxing authority $ithin the same jurisdiction Iuring the same taxing period Same kind or character of tax * deduction differ from a tax credit in that a deduction reduces taxable income while credit reduces tax liability >. Exe$ptions 8. Treaties with other States ?. Princip!e of Reciprocit# Constitutiona!it# Iouble Taxation in its stricter sense is undoubtedly unconstitutional but that in the broa,er sense is not necessarily so. Genera! Ru!e: 9ur onstitution does not prohibit double taxationC hence, it may not be invoked as a defense against the validity of tax laws. a. $here a tax is imposed by the <ational ;overnment and another by the city for the exercise of occupation or business as the taxes are not imposed by the same public authority ( City of 8a3uio vs 9e +eon, Oct. "!, !*-)& b. $hen a )eal 6state dealer&s tax is imposed for engaging in the business of leasing real estate in addition to )eal 6state Tax on the property leased and the tax on the income desired as they are different kinds of tax c. Tax on manufacturer&s products and another tax on the privilege of storing exportable copra in warehouses within a municipality are imposed as first tax is different from the second d. $here, aside from the tax, a license fee is imposed in the exercise of police power. Exception: Iouble Taxation while not forbidden, is something not favored. Such taxation, it has been held, should, whenever possible, be avoided and prevented. a. Ioubts as to whether double taxation has been imposed should be resolved in favor of the taxpayer. The reason is to avoid injustice and unfairness. b. The taxpayer may seek relief under the Mniformity )ule or the 6Aual 5rotection guarantee. 8or$s of Escape fro$ Taxation 1. ,. >. 8. ?. /. Six .asic 8or$s of Escape fro$ Taxation Shifting Capitali#ation Transformation Evasion Avoidance Exemption

,. Per$issi(e or Indirect Dup!icate Taxation (9ouble taxation in its broa, sense& @ This is the opposite of direct double taxation and is not legally objectionable. The absence of one or more of the foregoing reAuisites of the obnoxious direct tax makes it indirect. Instances of Dou%!e Taxation in its .road Sense 1. * tax on the mortgage as personal property when the mortgaged property is also taxed at its full value as real estateC ,. * tax upon a corporation for its capital stock as a whole and upon the shareholders for their sharesC >. * tax upon a corporation for its capital stock as a whole and upon the shareholders for their sharesC 8. * tax upon depositions in the bank for their deposits and a tax upon the bank for their property in which such deposits are invested ?. *n excise tax upon certain use of property and a property tax upon the same propertyC and /. * tax upon the same property imposed by two different states. :eans to Reduce the Jarsh Effect of Taxation 1. Tax Deduction ) subtraction from gross income in arriving a taxable income ,. Tax Credit ) an amount subtracted from an individual&s or entity&s tax liability to arrive at the total tax liability

1. Shiftin+ @ Transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to another or someone else I$pact of taxation @ is the point at which a tax is originally imposed. Incidence of Taxation @ is the point on which a tax burden finally rests or settles down. Re!ations a$on+ Shiftin+, I$pact and Incidence of Taxation @ the impact is the initial phenomenon, the shifting is the intermediate process, and the incidence is the result. Iinds of Shiftin+: a. 8or ard Shiftin+ @ the burden of tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer 12

TAXATION: San Beda College of LAW ALABANG b. .ac- ard Shiftin+ @ effected when the burden of tax is transferred from the consumer or purchaser through the factors of distribution to the factor of production c. &n ard Shiftin+ @ this occurs when the tax is shifted two or more times either forward or backward ,. Capita!i=ation, defined @ the reduction in the price of the taxed object eAual to the capitali#ed value of future taxes which the purchaser expects to be called upon to pay >. Transfor$ation @ The method whereby the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units of products at a lower cost. 8. Tax E(asion @ is the use of the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax. Indicia of 8raud in Taxation a. 0ailure to declare for taxation purposes true and actual income derived from business for two consecutive years, and b. Substantial underdeclaration of income tax returns of the taxpayer for four consecutive years couple, with overstatement of ,e,uction. 6vasion of the tax takes place only when there are no proceeds. 6vasion of Taxation is tantamount, fiscally speaking, to the absence of taxation. ?. Tax A(oidance @ is the use by the taxpayer of legally permissible alternative tax rates or method of assessing taxable property or income in order to avoid or reduce tax liability. Tax *voidance is not punishable by law, a taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid by means which the law permits. Distinction %et een Tax E(asion and A(oidance Tax E(asion (s Tax A(oidance accomplished by breaking accomplished by legal the letter of the law procedures or means which maybe contrary to the intent of the sponsors of the tax law but nevertheless do not violate the letter of the law ;I. Exe$ption fro$ Taxation *. Tax Exe$ption @ is a grant of immunity, express or implied, to particular persons or corporations from the obligations to pay taxes. J. Nature of Tax Exe$ption 1. It is merely a personal privilege of the grantee ,. It is generally revocable by the government unless the exemption is founded on a contract which is protected from impairment, but the contract must contain the other essential elements of contracts, such as, for example, a valid cause or consideration. >. It implies a waiver on the part of the government of its right to collect what otherwise would be due to it, and in this sense is prejudicial thereto. 8. It is not necessarily discriminatory so long as the exemption has a reasonable foundation or rational basis. . Rationa!e of tax Exe$ption 5ublic interest would be subserved by the exemption allowed which the law-making body considers sufficient to offset monetary loss entailed in the grant of the exemption. (CI vs 8othelo #hippin3 Corp., +4(!-"", 6une (*, !*-$; CI vs PA+, +4(5*-5, Oct. "!, !*-)& I. Grounds for Tax Exe$ptions 1. =ay be based on a contract in which case, the public represented by the ;overnment is supposed to receive a full eAuivalent therefore ,. =ay be based on some ground of public policy, such as, for example, to encourage new and necessary industries. >. =ay be created in a treaty on grounds of reciprocity or to lessen the rigors of international double or multiple taxation which occur where there are many taxing jurisdictions, as in the taxation of income and intangible personal property 6. E,uit#, not a +round for Tax Exe$ption There is no tax exemption solely on the ground of eAuity, but eAuity can be used as a basis for statutory exemption. *t times the law authori#es condonation of taxes on eAuitable considerations. (Sec ,2/, ,22, +ocal ;overnment ode3 0. Iinds of Tax Exe$ptions 1. *s to %asis a. Constitutiona! Exe$ptions ) Immunities from taxation which originate from the onstitution b. Statutor# Exe$ptions ) Those which emanate from +egislation *s to for$ a. Express Exe$ption ) $henever expressly granted by organic or statute of law b. I$p!ied Exe$ption ) 6xist whenever particular persons, properties or excises are deemed exempt as they fall outside the scope of the taxing provision itself *s to extent a. Tota! Exe$ption ) onnotes absolute immunity b. Partia! Exe$ption ) 9ne where collection of a part of the tax is dispensed with ;. Princip!es Go(ernin+ the Tax Exe$ption 1. 6xemptions from taxation are highly disfavored by law, and he who claims an exemption must be able to justify by the clearest grant of organic or statute of law. (Asiatic Petroleum vs +lanes, .* PDI+ .--; Collector of Internal evenue vs. /anila 6ocHey Club, *) PDI+ -$5& >. ,.

13

TAXATION: San Beda College of LAW ALABANG ,. %e who claims an exemption must justify that the legislative intended to exempt him by words too plain to be mistaken. (@isayan Cebu 2erminal vs CI , +4!*%"5, 7eb. ($, !*-%& >. %e who claims exemptions should convincingly proved that he is exempt 8. Tax exemptions must be strictly construed (Phil. Acetylene vs CI , +4!*$5$, Au3. !$, !*-$& ?. Tax 6xemptions are not presumed. (+eal,a =lectric Co. vs CI , +4!-.(), Apr. "5, !*-"& /. onstitutional grants of tax exemptions are self-executing (Opinion >o. !"5, !*)$, #ec. Of 6ustice& 2. Tax exemption are personal. -. Ieductions for income tax purposes partake of the nature of tax exemptions, hence, they are strictly construed against the tax payer .. * tax amnesty, much like a tax exemption is never favored or presumed by law (CI vs CA, G. . >o. !5)%$-, 6an. (5, !***& 1B. The rule of strict construction of tax exemption should not be applied to organi#ations performing strictly religious, charitable, and educational functions ;II. &ther Doctrines in Taxation It provides that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities should be pertinent only to taxes arising from the same transaction on which an overpayment is made and underpayment is due. This doctrine, however, was rejected by the Supreme ourt, saying that it was not convinced of the wisdom and proprietary thereof, and that it may work to tempt both the collecting agency and the taxpayer to delay and neglect their respective pursuits of legal action within the period set by law. (Collector vs <#2, !5. PDI+ !5-(& Taxpa#erCs Suit " It is only when an act complained of, which may include legislative enactment, directly involves the illegal disbursement of public funds derived from taxation that the taxpayer&s suit may be allowed. ;III. Interpretation and Construction of Tax Statutes I$portant Points to Consider: 1. 9n the interpretation and construction of tax statutes, legislative intention must be considered. ,. In case of doubt, tax statutes are construed strictly against the government and liberally construed in favor of the taxpayer. >. The rule of strict construction against the government is not applicable where the language of the tax law is plain and there is no doubt as to the legislative intent. 8. The exemptions (or eAuivalent provisions, such as tax amnesty and tax condonation3 are not presumed and when granted are strictly construed against the grantee. ?. The exemptions, however, are construed liberally in favor of the grantee in the following! a. $hen the law so provides for such liberal constructionC b. 6xemptions from certain taxes granted under special circumstances to special classes of personsC c. 6xemptions in favor of the ;overnment, its political subdivisionsC d. 6xemptions to traditional exemptees, such as, those in favor of charitable institutions. /. 2. The tax laws are presumed valid. The power to tax is presumed to exist.

Prospecti(it# of Tax La s Genera! Ru!e: Taxes must only be imposed prospectively Exception: The language of the statute clearly ,eman,s or express that it shall have a retroactive effect. Important Points to Consider 1. In order to declare a tax transgressing the due process clause of the onstitution it must be so harsh and oppressive in its retroactive application (7ernan,e' vs 7ernan,e', ** PDI+*".& ,. Tax laws are neither political nor penal in nature they are deemed laws of the occupied territory rather than the occupying enemy. (Dila,o vs Collector, !55 PDI+ ())& >. Tax laws not being penal in character, the rule in the onstitution against the passage of the ex post facto laws cannot be invoked, except for the penalty imposed. I$prescripti%i!it# of Taxes Genera! Ru!e: Taxes are imprescriptible Exception: $hen provided otherwise by the tax law itself. 6xample! <I) provides for statutes of limitation in the assessment and collection of taxes therein imposed Important Point to Consider 1. The law on prescription, being a remedial measure, should be liberally construed to afford protection as a corollary, the exceptions to the law on prescription be strictly construed. (CI vs CA. G. . >o. !5.!$!, 7eb. (., !***& Doctrine of E,uita%!e Recoup$ent

14

TAXATION: San Beda College of LAW ALABANG TAG AD:INISTRATI&N AND EN8&RCE:ENT A+encies In(o!(ed in Tax Ad$inistration 1. Jureau of Internal )evenue and the Jureau of ustoms for internal revenue and customs law enforcement. It is noteworthy to note that the JI) is largely decentrali#ed in that a great extent of tax enforcement duties are delegated to the )egional Iirectors and )evenue Iistrict 9fficers. 5rovincial, ity and =unicipal assessors and treasures for local and real property taxes. It is a settled rule of law that in the performance of its governmental functions, the state cannot be estopped by the neglect of its agents and officers. <owhere is it more true than in the field of taxation (CI vs. Aba,, et. al., +4!*-($, 6une ($, !*-) 3. 6stoppel does not apply to preclude the subseAuent findings on taxability (Ibid.3 The principle of tax law enforcement is! $he "overnment is not estopped by the mista%es or errors of its a!ents& erroneous appli'ation and enfor'ement of law by publi' offi'ers do not blo'% the subsequent 'orre't appli'ation of statutes (=. o,ri3ue', Inc. vs. Collector of Internal evenue, +4("5.!, 6uly "!, !*-*.& Similarly, estoppel does not apply to deprive the government of its right to raise defenses even if those defenses are being raised only for the first time on appeal (CI vs Procter I Gamble Phil. G. . >o. --)"), !% April !*)).& Exceptions: The ourt ruled in Commissioner of Internal evenue vs. C.A., et. al. G. . >o. !!$*)(, - 7eb !**$ that like other principles of law, the non-application of estoppel to the government admits of ex'eptions in the interest of (usti'e and fair play) as where in(usti'e will result to the taxpayer* Estoppe! A+ainst the Taxpa#er $hile the principle of estoppel may not be invoked against the government, this is not necessarily true in case of the taxpayer. In CI vs. #uyac, !5. Phil )!* , the taxpayer made several reAuests for the reinvestigation of its tax liabilities such that the government, acceding to the taxpayers reAuest, postponed the collection of its liability. The taxpayer cannot later on be permitted to raise the defense of prescription inasmuch as his previous reAuests for reinvestigation have the effect of placing him in estoppel.

,.

A+ents and Deputies for Co!!ection of Nationa! Interna! Re(enue Taxes Mnder Sec. 1, of the 1..2 <I) , the following are constituted as agents of the ommissioner! a. b. c. The ommissioner of ustoms and his subordinates with respect to the collection of national internal revenue taxes on imported goodsC The head of the appropriate government office and his subordinates with respect to the collection of energy taxC and Janks duly accredited by the ommissioner with respect to receipt of payments of internal revenue taxes authori#ed to be made through banks.

.ureau of Interna! Re(enue Po ers and Duties a. b. c. d. e. f. 6xclusive and original power to interpret provisions of the <I) and other tax laws, subject to review by the Secretary of 0inanceC *ssessment and ollection of all national internal revenue taxes, fees and chargesC 6nforcement of all forfeitures, penalties and fines connected therewithC 6xecution of judgment in all cases decided in its favor by the ourt of Tax *ppeals and the ordinary courts. 6ffecting and administering the supervisory and police powers conferred to it by the Tax ode or other laws. 9btaining information, summoning, examining and taking testimony of persons for purposes of ascertaining the correctness of any return or in determining the liability of any person for any internal revenue tax, or in collecting any such liability.

Nature and +inds of ssessments n assessment is the offi'ial a'tion of an administrative offi'er determinin! the amount of tax due from a taxpayer) or it may be the noti'e to the effe't that the amount therein stated is due from the taxpayer that the payment of the tax or defi'ien'y stated therein* (8isaya +an, 2ransportation Co. vs CI , !5% Phil !"")& C!assifications: a. Se!f"assess$ent" Tax is assessed by the taxpayer himself. The amount is reflected in the tax return that is filed by him and the tax is paid at the time he files his return. (#ec. %- JAK L!K, !**$ >I C& Deficienc# Assess$ent- This is an assessment made by the tax assessor whereby the correct amount of the tax is determined after an examination or 15

Rule of No Estoppel !ainst the "overnment#

%.

TAXATION: San Beda College of LAW ALABANG investigation is conducted. The liability is determined and isC therefore, assessed for the following reasons! 1. The amount ascertained exceeds that which is shown as tax by the taxpayer in his returnC ,. <o amount is shown in the return orC >. The taxpayer did not file any return at all. (#ec. %- J8K K!K an, J(K !**$ >I C& c. I!!e+a! and ;oid Assess$ents" This is an assessment wherein the tax assessor has no power to act at all (@ictorias /illin3 vs. C2A, +4(.(!", !" /ar !*-)& Erroneous Assess$ent ) This is an assessment wherein the assessor has the power to assess but errs in the exercise of that power (Ibid.3

8. The authority vested in the ommissioner to assess taxes may be delegated. n assessment si!ned by an employee for and in behalf of the Commissioner of Internal Revenue is valid* /owever) it is settled that the power to ma%e final assessments 'annot be dele!ated* $he person to whom a duty is dele!ated 'annot lawfully dele!ate that duty to another* ,City +umber vs. 9omin3o, +4!)-!!, "5 6an !*-.&. ?. *ssessments must be directed to the right party. /en'e) if for example) the taxpayer bein! assessed is an estate of a de'edent) the administrator should be the party to whom the assessment should be sent , epublic vs. ,ela ama, +4 (!!5), (* >ov. !*--&) and not the heirs of the de'edent :eans E$p!o#ed in the Assess$ent of Taxes A. Exa$ination of Returns: Confidentiality Rule The Tax ode reAuires that after the return is filed, the ommissioner or his duly authori#ed representative shall examine the same and assess the correct amount of tax. The tax or the deficiency of the tax so assessed shall be paid upon notice and demand from the ommissioner or from his duly authori#ed representative. *ny return, statement or declaration filed in any office authori#ed to receive the same shall not be withdrawn. %owever, within three (>3 days from the date of such filing, the same may be modified, changed or amended, provided that no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. (#ec -JAK, !**$ >I C& *lthough Sec. 21 of the 1..2 <I) provides that tax returns shall constitute public records, it is necessary to know that these are confidential in nature and may not be inAuired into in unauthori#ed cases under pain of penalty of law provided for in Sec ,2B of the 1..2 <I) . The aforesaid rule, however, is subject to certain exceptions. In the following cases, inAuiry into the income tax returns of taxpayers may be authori#ed! 1. ,. >. $hen the inspection of the return is authori#ed upon the written order of the 5resident of the 5hilippines. $hen inspection is authori#ed under the 0inance )egulation <o. >> of the Secretary of 0inance. $hen the production of the tax return is material evidence in a criminal case wherein the ;overnment is interested in the result. (Cu <nBien3, et. al. vs. Posa,as, etc, %) Phil "-5& $hen the production or inspection thereof is authori#ed by the taxpayer himself (@era vs Cusi +4 ""!!%, (* 6une !*$*&.

d.

Princip!es Go(ernin+ Tax Assess$ents /. ssessments are prima fa'ie presumed 'orre't and made in !ood faith* The taxpayer has the duty of proving otherwise (Interprovincial Autobus vs. CI , *) Phil (*5& In the absence of any proof of any irregularities in the performance of official duties, an assessment will not be disturbed. (#y Po. @s. C2A, G. . >o )!..-, ) Au3 !*)) *ll presumptions are in favor of tax assessments (9ayrit vs. Cru', +4"**!5, (- #ept. !*))& 0ailure to present proof of error in the assessment will justify judicial affirmation of said assessments. (CI vs C.C. G. . >o. !5.!%! an, !5%%-", !5 /ar !**%& * party challenging an appraiser&s finding of value is reAuired to prove not only that the appraised value is erroneous but also what the proper value is (Caltex vs. C.C. G. . >o. !5.$)!, !5 6uly !**)&

,. *ssessments should not be based on presumptions no matter how logical the presumption might be. In order to stand the test of judicial scrutiny it must be based on a'tual fa'ts. >. *ssessment is discretionary on the part of the ommissioner. Mandamus will not lie to 'ompel him to assess a tax after investi!ation if he finds no !round to assess* Mandamus to 'ompel the Commissioner to assess will result in the en'roa'hment on exe'utive fun'tions ,/eralco #ecuirities Corp. vs. #avellano, +4"-!)! an, +4"-$.), (" Oct !**(&. =xceptF $he -IR Commissioner may be 'ompelled to assess by mandamus if in the exer'ise of his dis'retion there is eviden'e of arbitrariness and !rave abuse of dis'retion as to !o beyond statutory authority ,/ace,a vs. /acarai3, G. . >o. ))(*, ) 6une !**".*

8.

16

TAXATION: San Beda College of LAW ALABANG

.. Assess$ent .ased on the .est E(idence &%taina%!e The law authori#es the ommissioner to assess taxes on the basis of the best evidence obtainable in the following cases! 1. ,. if a person fails to file a return or other document at the time prescribed by lawC or he willfully or otherwise files a false or fraudulent return or other document.

2* $ermination of $axable Period The ommissioner shall declare the tax period of a taxpayer terminated at any time when it shall come to his knowledge! a. b. c. d. That the taxpayer is retiring from business subject to taxC That he intends to leave the 5hilippines or remove his property therefromC That the taxpayer hides or conceals his propertyC or That he performs any act tending to obstruct the proceedings for the collection of the tax for the past or current Auarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately.

$hen the method is used, the ommissioner makes or amends the return from his knowledge and from such information as he can obtain through testimony or otherwise. *ssessments made as such are deemed prima facie correct and sufficient for all legal purposes. (#ec. - J8K, !**$ >I C& -est Eviden'e 0btainable refers to any data, record, papers, documents, or any evidence gathered by internal revenue officers from government offices or agencies, corporations, employers, clients or patients, tenants, lessees, vendees and from all other sources, with whom the taxpayer had previous transactions or from whom he received any income, after ascertaining that a report reAuired by law as basis for the assessment of any internal revenue tax has not been filed or when there is reason to believe that any such report is false, incomplete or erroneous. * case in point on the use of the best evidence obtainable is #y Po vs C2A. In that case, there was a demand made by the ommissioner on the Silver up $ine ompany owned by petitioner&s deceased husband 5o Jien Seng. The demand was for the taxpayer to submit to the JI) for examination the factory&s books of accounts and records, so JI) investigators raided the factory and sei#ed different brands of alcoholic beverages. The investigators, on the basis of the wines sei#ed and the sworn statements of the factory&s employees on the Auantity of raw materials consumed in the manufacture of liAuor, assessed the corresponding deficiency income and specific taxes. The Supreme ourt, on appeal, upheld the legality of the assessment.

The written decision to terminate the tax period shall be accompanied with a reAuest for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or Auarter, or such portion thereof as may be unpaid. Said taxes shall be due and payable immediately and shall be subject to all the penalties prescribed unless paid within the time fixed in the demand made by the ommissioner (#ec. - J,K, !**$ >I C3

E. 8ixin+ of Rea! Propert# ;a!ues 0or purposes of computing any internal revenue tax, the value of the property shall be whichever is the higher of ! (13 the fair market value as determined by the ommissionerC or (,3 the fair market value as shown in the schedule of values of the 5rovincial and ity *ssessors for real tax purposes (#ec - J=K, !**$ >I C&. 8. In,uir# into .an- Deposits 6xamination of bank deposits enables the ommissioner to assess the correct tax liabilities of taxpayers. %owever, bank deposits are confidential under ).*. 18B?. <otwithstanding any contrary provisions of ).*. 18B? and other general or special laws, the ommissioner is authori#ed to inAuire into the bank deposits ofC 1. a decedent to determine his gross estateC and

C* Inventory1$a%in!) Surveillan'e and Presumptive "ross Sales and Re'eipts The ommissioner is authori#ed at any time during the taxable year to order the inventory-taking of goods of any taxpayer as a basis for assessment. If there is reason to believe that a person is not declaring his correct income, sales or receipts for internal revenue tax purposes, his business operation may be placed under observation or surveillance. The finding made in the surveillance may be used as a basis for assessing the taxes for the other months or Auarters of the same or different taxable years. (#ec. - JCK, !**$ >I C&

,. any taxpayer who has filed an application for compromise of his tax liability under Sec. ,B8 (*3 (P3 of the Tax ode by reason of his financial incapacity to pay his tax liability. In this case, the application for compromise shall not be considered unless and until he waives in writin3 his privilege under ).*. 18B?, or under other general or special laws, and such waiver shall constitute the authority of the ommissioner to inAuire into bank deposits of the taxpayer (#ec. -J7K, !**$ >I C&. 17

TAXATION: San Beda College of LAW ALABANG Net *orth :ethod in In(esti+ation The basis of using the <et $orth =ethod of investigation is Re(enue :e$orandu$ Circu!ar No. 32"D0 . This method of investigation, otherwise known as "inventory method of income tax verification' is a very effective method of determining taxable income and deficiency income tax due from a taxpayer. net orth or the expenditures ,Need for eviden'e of the sour'es of in'ome.. In all leading cases on this matter, courts are unanimous in holding that when the tax case is civil in nature, direct proof of sources of income is not essential-that the government is not reAuired to negate all possible non-taxable sources of the alleged net worth increases. The burden of proof is upon the taxpayer to show that his net worth increase was derived from non-taxable sources. *s stated by the Supreme ourt, in civil cases, the assessor need not prove the specific source of income. This reasonable on the basic assumption that most assets are derived from a taxable source and that when this is not true, the taxpayer is in a position to explain the discrepancy. (Pere' vs. C2A, supra3 Dowever, when the taxpayer is criminally prosecuted for tax evasion, the need for evidence of a likely source of income becomes a prereAuisite for a successful prosecution. The burden of proof is always with the ;overnment. onviction in such cases, as in any criminal case, rests on proof beyond reasonable doubt. ?c@ That there is a fixed startin+ point or openin+ net orth, i.e., a date %e+innin+ ith a taxa%!e #ear or prior to it, at hich ti$e the taxpa#erCs financia! condition can %e affir$ati(e!# esta%!ished ith so$e definiteness. This is an essential condition, considered to be the cornerstone of a net worth case. If the starting point or opening net worth is proven to be wrong, the whole superstructure usually fails. The courts have uniformly stressed that the validity of the result of any investigation under this method will depend entirely upon a correct opening net worth. ?d@ That the circu$stances are such that the $ethod does not ref!ect the taxpa#erCs inco$e ith reasona%!e accurac# and certaint# and proper and 'ust additions of persona! expenses and other non"deducti%!e expenditures ere $ade and correct, fair and e,uita%!e credit ad'ust$ents ere +i(en %# a# of e!i$inatin+ non"taxa%!e ite$s. ,Proper ad(ustments to 'onform to the in'ome tax laws. 5roper adjustments for non-deductible items must be made. The following non-deductibles, as the 18

8asic Concept an, 2heory The method is an extension of the basic accounting principle! assets minus liabilities eAuals net worth . The taxpayer&s net worth is determined both at the beginning and at the end of the same taxable year. The increase or decrease in net worth is adjusted by adding all non-deductible items and subtracting therefrom nontaxable receipts. The theory is that the unexplained increase in net worth of a taxpayer is presumed to be derived from taxable sources.

Le+a! Source of authorit# for use of the :ethod The ommissioner&s authority to use the net worth method and other indirect methods of establishing taxable income is found in Sec. 8>, 1..2 <I) . This authority has been upheld by the courts in a long line of cases, notable among which is the leading case of Pere' vs. C2A, !5" Phil !!-$. The method is a practical necessity if a fair and efficient system of collecting revenue is to be maintained. =oreover, Sec. /4J7, 1..2 <I) , provides for a broad and general investigatory power to assess the proper tax on the best evidence obtainable whenever a report reAuired by law as basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report is false, incomplete or erroneous. Conditions for the use of the $ethod ?a@ That the taxpa#erKs %oo-s of accounts do not c!ear!# ref!ect his inco$e, or the taxpa#er has no %oo-s, or if he has %oo-s, he refuses to produce the$ ,Inadequate Re'ords.* The ;overnment may be forced to resort to the net worth method of proof where the few records of the taxpayer were destroyedC for, to reAuire more would be tantamount to holding that skillful concealment is an inevitable barrier to proof. ?%@ That there is e(idence of a possi%!e source or sources of inco$e to account for the increase in

TAXATION: San Beda College of LAW ALABANG case may be, must be added to the increase or decrease in the net worth! 1. ,. >. personal, living or family expensesC premiums paid on any life insurance policyC losses from sales or exchanges of property between members of the familyC 8. income taxes paidC ?. estate, inheritance and gift taxesC /. other non-deductible taxesC 2. election expenses and other expenses against public policyC -. non-deductible contributionsC .. gifts to othersC 1B. net capital loss, and the like 9n the other hand, non-taxable items should be deducted therefrom. These items are necessary adjustments to avoid the inclusion of what otherwise are non-taxable receipts. They are! 1. ,. >. 8. ?. /. inheritance, gifts and beAuests receivedC non-taxable capital gainsC compensation for injuries or sicknessC proceeds of life insurance policiesC sweepstakes winningsC interest on government securities and the like

(13 civil penalty, otherwise known as surchar3e, which may either be ,?N or ?B N of the tax depending upon the nature of the violationC (,3 interest either for a deficiency tax or delinAuency as to paymentC (>3 other civil penalties or administrative fines such as for failure to file certain information returns and violations committed by withholding agents. (#ecs. (.$ to (%(, !**$ >I C& Genera! Considerations on the Addition to tax a. *dditions to the tax or deficiency tax apply to all taxes, fees, and charges imposed in the Tax ode. b. The amount so added to the tax shall be collected at the same time, in the same manner, and as part of the tax. c. If the withholding agent is the government or any of its agencies, political subdivisions or instrumentalities, or a government owned or controlled corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed (#ec. (.$JbK, !**$ >I C& such as the ,?N surcharge and the ,BN interest per annum on the delinAuency (#ecs. (.) an, (.* JCK, !**$ >I C&

Increase in net worth are not taxable if they are shown not to be the result of unreported income but to be the result of the correction of errors in the taxpayer&s entries in the books relating to indebtedness to certain creditors, erroneously listed although already paid. (7ernan,e' Dermanos Inc. vs. CI , +4(!%%!, "5 #ept. !*-*&

Surchar+e Enforce$ent of 8orfeitures and Pena!ties Statutor# &ffenses and Pena!ties /. Additions to the Tax The payment of the surcharge is man,atory and the ommissioner of Internal )evenue is not vested with any authority to waive or dispense with the collection thereof. In one case, the Supreme ourt held that the fact that on account of riots directed against the hinese on certain dates, they were prevented from paying their internal revenue taxes on time, does not authori#e the ommissioner to extend the time prescribed for the payment of taxes or to accept them without the additional penalty (+im Co Chui vs. Posa,as, .$ Phil .-5& The ommissioner is not vested with any authority to waive or dispense with the collection therof. (CI vs. CA, supra&. The penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have 19

*dditions to the tax are increments to the basic tax incident due to the taxpayer&s non-compliance with certain legal reAuirements, like the taxpayer&s refusal or failure to pay taxes andKor other violations of taxing provisions. *dditions to the tax consist of the!

TAXATION: San Beda College of LAW ALABANG paid them to the ;overnment. (Philippine efinin3 Company vs. C.A., G. . >o. !!))$*., ) /ay !**-&. *n extension of time to pay taxes granted by the ommissioner does not excuse payment of the surcharge (CI vs. Cu <nBien3, +4(-)-*, - Au3. !*$%& The following cases, however, show the instances when the imposition of the ,?N surcharge had been waived! 1. $here the taxpayer in good faith made a mistake in the interpretation of the applicable regulations thereby resulting in delay in the payment of taxes. (Connel 8ros. Co. vs. CI , +4!%.$5, (- 9ec. !*-"& * SubseAuent reversal by the JI) of a prior ruling relied upon by the taxpayer may also be a ground for dispensing with the ,?N surcharge. (CI vs. epublic Cement Corp., +4"%-$$, !5 Au3. !*)"& $here a doubt existed on the part of the Jureau as to whether or not ).*. ?8>1 abolished the income tax exemptions of corporations (including electric power franchise grantees3 except those exempt under Sec. ,2 (now, Sec. >B, 1..2 <I) 3, the imposition of the surcharge may be dispensed with (Ca3ayan =lectreic Power I +i3ht Co. vs CI , G. . >o. -5!(-, (% #ept. !*)%& In the case of failure to make and file a return or list within the time prescribed by law, not due to willful neglect, where such return or list is voluntarily filed by the taxpayer without notice from the I) or other officers, and it is shown that the failure to file it in due time was due to a reasonable cause, no surcharge will be added to the amount of tax due on the return. In such case, in order to avoid the imposition of the surcharge, the taxpayer must make a statement showing all the facts alleged as reasonable causes for failure to file the return on time in the form of an affidavit, which should be attached to the return. and regulations, which shall be assessed and collected from the date prescribed for its payment until the full payment thereof (#ec. (.* J8K, !**$ >I C& 0. pay! (13 The amount of the tax due on any return reAuired to be filed, or (,3 The amount of the tax due for which no return is reAuired, or (>3 * deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the ommissioner. De!in,uenc# interest This kind of interest is imposed in case of failure to

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2. Interest on Extended Pa#$ent Imposed when a person reAuired to pay the tax is Aualified and elects to pay the tax on installment under the provisions of the ode, but fails to pay the tax or any installment thereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the ommissioner has authori#ed an extension of time within which to pay a tax or a deficiency tax or any part thereof. (#ec. (.*J,K, !**$ >I C& Ad$inistrati(e &ffenses 1. 0ailure to 0ile ertain Information )eturns ,. 0ailure of a $ithholding *gent to ollect and )emit Taxes >. 0ailure of a $ithholding *gent to )efund 6xcess $ithholding Tax Sources of re(enues: 1. Income tax ,. 6state Tax and dono&r tax >. H*T 8. 9ther percentage taxes ?. 6xcise tax /. Iocumentary stamp taxes 2. 9ther as imposed and provided by JI) )6=6II6S 90 T%6 ;9H6)<=6<T 6numeration of the )emedies I. *dministrative 1. Iistraint of 5ersonal 5roperty ,. +evy of )eal 5roperty >. Tax +ien 8. ompromise 20

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8.

Interest This is an increment on any unpaid amount of tax, assessed at the rate of twenty percent (,BN3 per annum, or such higher rate as may be prescribed y rules and regulations, from the date prescribed for payment until the amount is fully paid. (#ec. (.* JAK, !**$ >I C& Interest is classified into! /. Deficienc# interest *ny deficiency in the tax due, as the term is defined in this code, shall be subject to the interest of ,BN per annum, or such higher rate as may be prescribed by rules

TAXATION: San Beda College of LAW ALABANG ?. /. II. Eudicial 1. ,. 0orfeiture 9ther *dministrative )emedies ivil *ction riminal *ction 1. ,. >. 8. Service of warrant of distraint upon taxpayer or upon person in possession of taxpayer&s personal property. 5osting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained. Sale at public auction to highest bidder Iisposition of proceeds of the sale. *mount Involved In excess of 51,BBB,BBB.BB 51,BBB,BBB.BB or less

Iistraint of 5ersonal 5roperty $ho may effect distraint 1. commissioner or his due authori#ed representative ,. )I9

Iistraint- Sei#ure by the government of personal property, tangible or intangible, to enforce the payment of faces, to be followed by its public sale, if the taxes are not voluntarily paid. DI<IS a. *ctual @ There is taking of possession of personal property out of the taxpayer into that of the government. In case of intangible property. Taxpayer is also diverted of the power of control over the property onstructive @ The owner is merely prohibited from disposing of his personal property.

%ow *ctual Iistraint 6ffected 1. In case of Tangible 5roperty! a. opy of an account of the property distrained, signed by the officer, left either with the owner or person from whom property was taken, at the dwelling or place of business and with someone of suitable age and discretion Statement of the sum demanded. Time and place of sale.

b.

*ctual vs. =ade on the property only of a delinAuent taxpayer. There is actual taking or possession of the property. 6ffected by having a list of the distraint property or by service or warrant of distraint or garnishment. *n immediate step for collection of taxes where amount due is definite.

onstructive Iistraint =ay be made on the property of any taxpayer whether delinAuent or not Taxpayer is merely prohibited from disposing of his property. 6ffected by reAuiring the taxpayer to sign a receipt of the property or by leaving a list of same Such immediate step is not necessaryC tax due may not be definite or it is being Auestioned.

b. c. ,.

In case of intangible property! a. Stocks and other securities Serving a copy of the warrant upon taxpayer and upon president, manager, treasurer or other responsible officer of the issuing corporation, company or association. Iebts and credits 1. +eaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent. ,. $arrant shall be sufficient authority for such person to pay I) his credits or debts. Jank *ccounts @ garnishment 1. Serve warrant upon taxpayer and president, manager, treasurer or responsible officer of the bank. ,. Jank shall turn over to I) so much of the bank accounts as may be sufficient.

b.

)eAuisites! 1. ,. >. 8. Taxpayer is delinAuent in the payment of tax. SubseAuent demand for its payment. Taxpayer must fail to pay delinAuent tax at time reAuired. 5eriod within to assess or collect has not yet prescribed. In case of constructive distraint, reAuisite no. 1 is not essential (see Sec. ,B/ T 3

c.

%ow constructive Iistraint 6ffected 1. )eAuire taxpayer or person in possession to a. Sign a receipt covering property distrained b. 9bligate him to preserve the same properties. c. 5rohibit him from disposing the property from disposing the property in any manner, with out the authority of the I). $here Taxpayer or person in possession refuses to sign! 21

$hen remedy not available! $here amount involved does not exceed 51BB (Sec. ,B? T 3. In keeping with the provision on the abatement of the collection of tax as the cost of same might even be more than 51BB. 5rocedure!

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TAXATION: San Beda College of LAW ALABANG a. b. 9fficer shall prepare list of the property distrained. In the presence of two witnesses of sufficient age and discretion, leave a copy in the premises where property is located. Jegins from registration of the deed of sale or declaration of forfeiture. annot be extended by the courts. 5ossession pending redemption @ owner not deprived of possession 5rice! *mount of taxes, penalties and interest thereon from date of delinAuency to the date of sale together with interest on said purchase price at 1?N per annum from date of purchase to date of redemption. c. d. ;rounds of onstructive Iistraint 1. ,. >. 8. ?. <ote! >. 1. Jank accounts may be distrained with out violating the confidential nature of bank accounts for no inAuiry is made. JI) simply sei#es so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from. If at any time prior to the consummation of the sale, all proper charges are paid to the officer conducting the same, the goods distrained shall be restored to the owner. $hen the amount of the bid for the property under distraint is not eAual to the amount of the tax or is very much less than the actual market value of articles, the I) or his deputy may purchase the distrained property on behalf of the national government. 8. Taxpayer is retiring from any business subject to tax. Taxpayer is intending to leave the 5hilippinesC or To remove his property there from. Taxpayer hides or conceals his property. Taxpayer acts tending to obstruct collection proceedings.

Iistraint and +evy compared 1. ,. Joth are summary remedies for collection of taxes. Joth cannot be availed of where amount involved is not more than 51BB. Iistraint @ personal property +evy @ real property Iistraint @ forfeiture by government, not provided +evy @ forfeiture by government authori#ed where there is no bidder or the highest bid is not sufficient to pay the taxes, penalties and costs. Iistraint @ Taxpayer no given the right of redemption +evy @ Taxpayer can redeem properties levied upon and soldKforfeited to the government. It is the duty of the )egister of Ieeds concerned upon registration of the declaration of forfeiture, to transfer the title to the property without an order from a competent court The remedy of distraint or levy may be repeated if necessary until the full amount, including all expenses, is collected.

,. >.

?.

<ote! 1. ,.

+evy of )eal 5roperty +evy @ *ct of sei#ure of real property in order to enforce the payment of taxes. The property may be sold at public sale, if after sei#ureC the taxes are not voluntarily paid. The reAuisites are the same as that of distraint.

6nforcement of Tax +ien

Tax +ien! * legal claim or charge on property, either real or personal, established by law as a security in default of the payment of taxes. 1. <ature! * lien in favor of the government of the 5hilippines when a person liable to pay a tax neglects or fails to do so upon demand. ,. Iuration! 6xists from time assessment is made by the I) until paid, with interests, penalties and costs. >. 6xtent! Mpon all property and rights to property belonging to the taxpayer. 8. 6ffectivity against third persons! 9nly when notice of such lien is filed by the I) in the )egister of Ieeds concerned. 6xtinguishment of Tax +ien 1. ,. >. 5ayment or remission of the tax 5rescription of the right of the government to assess or collect. 0ailure to file notice of such lien in the office of register of Ieeds, purchases or judgment creditor. 22

5rocedure! 1. International )evenue officer shall prepare a duly authenticated certificate showing a. <ame of taxpayer b. *mount of tax and c. 5enalty due. - enforceable through out the 5hilippines 9fficer shall write upon the certificate a description of the property upon which levy is made. Service of written notice to! a. The taxpayer, and b. )I where property is located. *dvertisement of the time and place of sale. Sale at public auction to highest bidder. Iisposition of proceeds of sale. The excess shall be turned over to owner.

,. >. 8. ?. /.

)edemption of property sold or forfeited a. b. 5erson entitled! Taxpayer or anyone for him Time to redeem! one year from date of sale or forfeiture

TAXATION: San Beda College of LAW ALABANG 8. Iestruction of the property subject to the lien. In case <os. 1 and ,, there is no more tax liability. Mnder nos. > and 8, the taxpayer is still liable. 6! The )egional 6valuation Joard may compromise the assessment issued by the regional offices involving basic taxes of 5 ?BB D or less. )emedy in case of failure to comply! The I) may either! 1. enforce the compromise, or ,. )egard it as rescinded and insists upon the original demand. ompromise 5enalty 1. It is a certain amount of money which the taxpayer pays to compromise a tax violation. ,. It is pain in lieu of a criminal prosecution. >. Since it is voluntary in character, the same may be collected only if the taxpayer is willing to pay them. ompromise ompromise! * contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced. )eAuisites! 1. ,. >. Taxpayer must have a tax liability. There must be an offer by taxpayer or I), of an amount to be paid by taxpayer. There must be acceptance of the offer in settlement of the original claim. 6nforcement of forfeiture

6nforcement of Tax +ien vs. Iistraint * tax lien is distinguished from disttraint in that, in distraint the property sei#ed must be that of the taxpayer, although it need not be the property in respect to the tax is assessed. Tax lien is directed to the property subject to the tax, regardless of its owner. <ote! 1. ,. This is superior to judgment claim of private individuals or parties *ttaches not only from time the warrant was served but from the time the tax was due and demandable.

0orfeiture! Implies a divestiture of property with out compensation, in conseAuence of a default or offense. Includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer. 1. ,. 6ffect! Transfer the title to the specific thing from the owner to the government. $hen available! a. <o bidder for the real property exposed for sale. b. If highest bid is for an amount insufficient to pay the taxes, penalties and costs. - $ith in two days thereafter, a return of the proceeding is duly made. %ow enforced! a. In case of personal property @ by sei#ure and sale or destruction of the specific forfeited property. b. In case of real property @ by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may reAuire. $hen forfeited property to be destroyed or sold! a. To be destroyed @ by order of the I) when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law! (at least ,B days after sei#ure3 1. distilled spirits ,. liAuors >. cigars 8. cigarettes, and other manufactured products of tobacco ?. playing cards /. *ll apparatus used in or about the illicit production of such articles. b. To be sold or destroyed @ depends upon the discretion of I) 1. *ll other articles subject to exercise tax, (wine, automobile, mineral 23

$hen taxes may be compromised! 1. ,. >. * reasonable doubt as to the validity if the claim against the taxpayer existsC The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. riminal violations, except! a. Those already filed in court b. Those involving fraud.

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8.

+imitations! 1. =inimum compromise rate! a. 1BN of the basic tax assessed @ in case of financial incapacity. b. 8BN of basic tax assessed @ other cases. Subject to approval of 6valuation Joard a. $hen basic tax involved exceeds 51,BBB,BBB.BB or b. $here settlement offered is less than the prescribed minimum rates.

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Ielegation of 5ower to ompromise ;)! The power to compromise or abate shall not be delegated by the commissioner.

TAXATION: San Beda College of LAW ALABANG products, manufactured oils, miscellaneous products, non-essential items a petroleum products3 manufactured or removed in violation of the Tax ode. Iies for printing or making I) stamps, labels and tags, in imitation of or purport to be lawful stamps, labels or tags. 2. Inspection of books Jooks of accounts and other accounting records of taxpayer must be preserved, generally within three years after date the tax return was due or was filed whichever is later. Mse of <ational Tax )egister 9btaining information on tax liability of any person Inventory @ Taking of stock-in-trade and making surveillance. 5rescribing presumptive gross sales or receipt! a. 5erson failed to issue receipts and invoices b. )eason to believe that records do not correctly reflect declaration in return. 5rescribing real property values InAuiring into bank deposit accounts of a. * deceased person to determine gross estate b. *ny taxpayer who filed application for compromise by reasons of financial incapacity his tax liability. )egistration of Taxpayers.

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-. .. 1B. 11.

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2.

$here to be sole! a. 5ublic sale! provided, there is notice of not less than ,B days. b. 5rivate sale! provided, it is with the approval of the Secretary of 0inance. )ight of )edemption! a. 5ersonal entitled @ taxpayer or anyone for him b. Time to redeem @ with in one (13 year from forfeiture c. *mount to be paid @ full amount of the taxes and penalties, plus interest and cost of the sale d. To whom paid @ ommissioner or the )evenue ollection 9fficer e. 6ffect of failure to redeem @ forfeiture shall become absolute. <ote! The )egister of Ieeds is duty bound to transfer the title of property forfeited to the government with our necessity of an order from a competent court. 9ther *dministrative )emedies 1. )eAuiring filing of bonds @ in the following instances! a. 6state and donor&s tax b. 6xcise taxes c. 6xporter&s bond d. =anufacturer&s and importer&s bond )eAuiring proof of filing income tax returns Jefore a license to engage in trade, business or occupation or to practice a profession can be issued. ;iving reward to informers @ Sum eAuivalent to 1BN of revenues, surcharges or fees recovered andKor fine or penalty imposed and collected or 51, BBB,BBB.BB per case, whichever is lower. Imposition of surcharge and interest. =aking arrest, search and sei#ure +imited to violations of any penal law or regulation administered by the JI), committed with in the view of the Internal )evenue 9fficer or 66. Ieportation in case of aliens @ on the following grounds a. Dnowingly and fraudulently evades payment of I) taxes. b. $illfully refuses to pay such tax and its accessory penalties, after decision on his tax liability shall have become final and executory.

1,. 1>.

18.

Eudicial )emedies

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ivil and riminal *ctions! 1. Jrought in the name of the ;overnment of the 5hilippines. ,. onducted by +egal 9fficer of JI) >. =ust be with the approval of the I), in case of action, for recovery of taxes, or enforcement of a fine, penalty or forfeiture. *. ivil *ction *ctions instituted by the government to collect internal revenue taxes in regular courts ()T or =T s, depending on the amount involved3 $hen assessment made has become final and executory for failure or taxpayer to! a. Iispute same by filing protest with I) b. *ppeal adverse decision of I) to T* J. riminal *ction * direct mode of collection of taxes, the judgment of which shall not only impose the penalty but also order payment of taxes. *n assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion, provided there is a prima facie showing of willful attempt to evade.

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8. ?.

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6ffect of *cAuittal on Tax +iability! Ioes not exonerate taxpayer his civil liability to pay the tax due. Thus, the government may still collect the tax in the same action. )eason! Tax is an obligation, does not arise from a criminal act. 6ffect of Satisfaction of Tax +iability on riminal +iability 24

TAXATION: San Beda College of LAW ALABANG ,. $ill not operate to extinguish taxpayer&s criminal liability since the duty to pay the tax is imposed by statute, independent of any attempt on past of taxpayers to evade payment. This is true in case the criminal action is based on the act to taxpayer of filing a false and fraudulent tax return and failure to pay the tax. <ote! The satisfaction of civil liability is not one of the grounds for the extinction of criminal action. 5urpose! 0or purposes of Taxation, statue of limitation is primarily designed to protect the rights of the taxpayer&s against unreasonable investigation of the taxing authority with respect to assessment and collection of Internal )evenue Taxes. I. 5rescription of ;overnment&s )ight to *ssess Taxes! *. ;eneral )ule! Internal )evenue Taxes shall be assessed within three (>3 years after the last day prescribed by law for the filing of the return or from the day the return was filed, in case it is filed beyond the period prescribed thereof. (Section ,B> of the Tax ode3 <ote! * return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. In case a return is substantially amended, the government right to assess the tax shall commence from the filing of the amended return ( I) vs. 5hoenix, =ay ,B, 1./?C Dei Q o. vs. ollector, 8 S )* -2,3 In computing the prescriptive period for assessment, the latter is deemed made when notice to this effect is released, mailed or sent by the ommissioner to the correct address of the taxpayer. %owever, the law does not reAuire that the demandKnotice be received within the prescriptive period. (Jasilan 6states, Inc. vs. ommissioner ,1, S )* 12C )epublic vs. * *pril >B, 1.-23 *n affidavit executed by a revenue office indicating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment. ( I) vs. 5ascoi )ealty orp. Eune ,., 1...3 * transcript sheets are not returns, because they do not contain information necessary and reAuired to permit the computation and assessment of taxes (Sinforo *lca vs. ommissioner, Iec. ,., 1./83 5)6S )I5TIH6 56)I9ISKST*TMT6 90 +I=IT*TI9< $here a return was filed but the same was false or fraudulent @ within ten (1B3 years from the discovery of falsity or fraud. 0raudulent return vs. 0alse return The filing thereof is intended and It merely implies a Ieceitful with the aim of evading the deviation from truth of correct tax due. fact whether intentional.

<ote!

<ature of 0raud! a. 0raud is never presumed and the circumstances consisting it must be alleged and proved to exist by clear Q convincing evidence ()epublic vs. Deir, Sept. >B, 1.//3 b. The fraud contemplated by law is actual and not constructive. It must amount to intentional wrongdoing with the sole object of avoiding the tax. * mere mistake is not a fraudulent intent. (*#nar case, *ug. ,>, 1.283 c. * fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cogni#ance of in the civil or criminal action for the collection thereof. (Sec. ,,, paragraph (a33 0raud may be established by the following ! (Jadges of 0raud3 a. Intentional and substantial understatement of tax liability of the taxpayer. b. Intentional and substantial overstatement of deductions of exemption c. )ecurrence of the foregoing circumstances. InstancesK ircumstances negating fraud! a. $hen the ommissioner fails impute fraud in the assessment noticeKdemand for payment. b. $hen the ommissioner failed to allege in his answer to the taxpayer&s petition for review when the case is appealed to the T*. c. $hen the ommissioner raised the Auestion of fraud only for the first time in his memorandum which was filed the T* after he had rested his case. d. $here the JI) itself appeared, "not sure' as to the real amount of the taxpayer&s net income. e. * mere understatement of income does not prove fraud, unless there is a sufficient evidence shaving fraudulent intent. $here the commissioner and the taxpayer, before the expiration of the three (>3 year period of limitation have agree in writing to the extension of said period.

J.3 6xceptions! (Sec. ,,, ic3 1. $here no return was filed - within ten (1B3 years after the date of discovery of the omission.

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<ote! 25

TAXATION: San Beda College of LAW ALABANG +imitations! a. The agreement extending the period of prescription should be in writing and duly signed by the taxpayer and the commissioner. b. The agreement to extend the same should be mode before the expiration of the period previously agreed upon. $here there is a written waiver or renunciation of the original >-year limitation signed by the taxpayer. filed without assessment, at anytime within 1B years after the discovery of the omission. $aiver of statute of limitations @ any internal revenue tax, which has been assessed within the period agreed upon, may be collected be distinct or levy of by a proceeding in court within the period agreed upon in writing before the expiration of ?-year period.

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8.

<ote! +imitations! a. The waiver to be valid must be executed by the parties before the lapse of the prescriptive period. b. * waiver is inefficient I it is executed beyond the original three year. c. The commissioner can not valid agree to reduce the prescriptive period to less than that granted by law. 3 Imprescriptible *ssessments! 1. $here the law does not provide for any particular period of assessment, the tax sought to be assessed becomes imprescriptible. ,. $here no return is reAuired by law, the tax is imprescriptible. >. *ssessment of unpaid taxes, where the bases of which is not reAuired by law to be reported in a return such as excise taxes. ( armen vs. *yala Securities orp., <ov. ,1, 1.-B3 8. *ssessment of compensating and documentary stamp tax. II. 5rescription of ;overnment&s )ight to ollect Taxes *. ;eneral )ule! 1. $here an assessment was made @ *ny internal revenue tax which has been assessed within the period of limitation may be collected by distraint or levy or by proceeding in court within ? years following the date of assessment. ,. $here no assessment was made and a return was filed and the same is not fraudulent or falsethe tax should be collected within > years after the return was due or was filed, whichever is later. 6xceptions! 1. $here a fraudulentKfalse return with intent to evade taxes was filed a proceeding in court for the collection of the tax may be filed without assessment, at anytime within ten years after the discovery of the falsity or fraud. <ote! The 1B-year prescriptive period for collector thru action does not apply if it appears that there was an assessment. In such case, the ordinary ?-year period (now > years3 would apply ()ep. vs. )et., =arch >1, 1./,3 ,. $hen the taxpayer omits to file a return @ a court proceeding for the collection of such tax may be

<ote! Iistinction a. *greement to extend period of b. *greement renouncing 5rescription. It must be made before the period of prescription 6xpiration of the period agreed upon to agreement waiving the defense of be valid. 5rescription is till binding to the Taxpayer although made beyond such prescriptive period. 8.

vs.

an

$here the government makes another assessment on the basis of reinvestigation reAuested by the taxpayer @ the prescriptive period for collection should be counted from the last assessment. ()ep. vs. +ope#, =arch >B, 1./>3

?.

$here the assessment is revised because of an amended return @ the period for collection is counted from the last revised assessment. $here a tax obligation is secured by a surety bond @ the government may proceed thru a court action to forfeit a bond and enforce such contractual obligation within a period of ten years. $here the action is brought to enforce a compromise entered into between the commission and the taxpayer @ the prescriptive period is ten years.

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2.

J.

$hen tax is deemed collected for purposes of the prescriptive period. 1. ,. >. ollection by summary remedies @ It is effected by summary methods when the government avail of distraint and levy procedure. ollection by judicial action @ The collection begins by filing the complaint with the proper court. ()T 3 $here assessment of the commissioner is protected Q appealed to the T* @ the collection begin when the 26

TAXATION: San Beda College of LAW ALABANG government file its answer to taxpayer&s petition for review. b. III. )ules of 5rescription In riminal ases *. <ote! )ule! *ll violations of any provision of the tax code shall prescribe after five (?3 years. $hen it should commenceR ! The five (?3 year prescriptive period shall begin to run from the a. Iay of the commission of the violation, if know. b. If not known, from the time of discovery and the institution of judicial proceeding for its investigation and punishment. $hen it is interrupted! a. $hen a proceeding is instituted against the guilty person b. $hen the offender is absent from the 5hilippines. $hen it should run again ! $hen the proceeding is dismissed for reason not onstituting jeopardy. $hen does the defense of prescription may be raised! a. In civil case @ If not raised in the lower court, it is bailed permanently. - If can not be raised for the first time on appeal. b. In criminal case @ It can be raised even if the case has been decided by the lower court but pending decision on appeal. its collection may jeopardi#es the government and Kor the taxpayer. $hen the taxpayer reAuests for reinvestigation which is granted by commissioner.

<ote! * mere reAuest for reinvestigation without any action or the part of the ommissioner does not interrupt the running of the prescriptive period. The reAuest must not be a mere proformer. Substantial issues must be raised. c. $hen the taxpayer cannot be located in the address given by him in the return.

<ote! If the taxpayer informs the ommissioner of any change in address the statute will not be suspended. d. $hen the warrant of distraint or levy is duly served upon any of the following person! 1. taxpayer ,. his authori#ed representative >. =ember of his household with sufficient discretion and no property could be located. e. >. $hen the taxpayer is out of the 5hilippines.

IH. Interruption of the 5rescriptive 5eriod 1. $here before the expiration of the time prescribed for the assessment of the tax, both the commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed prior to the expiration of the period agreed upon. The running of statute of limitations on making an assessment and the beginning of distraintKlevy or a proceeding in court for collection shall be suspended for the period. a. Iuring which the ommissioner is prohibited from making the assessment or beginning distraintKlevy or a proceeding in court and for /B days thereafterC e.g. 0iling a petition for review in the T* from the decision of the ommissioner. The commissioner is prevented from filing an ordinary action to collect the tax. $hen T* suspends the collection of tax liability of the taxpayer pursuant to Section 11 of )* 11,? upon proof that

In criminal cases for violation of tax code @ the period shall not run when the offender is absent from the 5hilippines.

,.

<ote! * petition for reconsideration of a tax assessment does not suspend the criminal action. )eason! <o reAuirement for assessment of the tax before the criminal action may be instituted.

<ota Jene! 1. The law on prescription remedial measure should be interpreted liberally in order to protect the taxpayer. ,. The defense of prescription must be raised by the taxpayer on time, otherwise it is deemed waived. >. The Auestion of prescription is not jurisdictional, and as defense it must be raised reasonably otherwise it is deemed waived. 8. The prescriptive provided in the tax code over ride the statute of non-claims in the settlement of the deceased&s estate. ?. In the event that the collection of the tax has already prescribed, the government cannot invoke the principle of 6Auitable recumbent by setting- off the prescribed tax against a tax refused to which the taxpayer is entitled. 27

TAXATION: San Beda College of LAW ALABANG Mnder Sec. ,,- of the 1..2 <I) a 5re-*ssessment <otice shall not be reAuired in the following cases! T*O5*S6)&S )6=6II6S Ad$inistrati(e (13 Jefore 5ayment a. b. 0iling of a petition or reAuest for reconsideration or reinvestigation (*dministrative 5rotest3C 6ntering into compromise a. b. c. $hen the finding for the deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the returnC or $hen a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agentC or $hen 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 Auarter or Auarters of the succeeding taxable yearC or $hen the excise tax due on excisable articles has not been paidC or $hen an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital eAuipment, machineries, and spare parts, has been sold, traded or transferred to non-exempt persons.

(,3 *fter 5ayment a. 0iling of claim for tax refundC and b. 0iling of claim for tax credit 7udicia! (13 ivil action a. b. c. (,3 *ppeal to the ourt of Tax *ppeals *ction to contest forfeiture of chattelC and *ction for Iamages

d. e.

riminal *ction a. 0iling of complaint against erring Jureau of Internal )evenue officials and employees.

If the taxpayer fails to respond within fifteen (1?3 days from the date of receipt of the 5*<, he shall be considered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued, calling for payment of the taxpayer&s tax liability, inclusive of the applicable penalties (".!.(. evenue e3ulations >o. !(4** ,ate, #ept. -, !***&. Issuance of a 0ormal +etter of Iemand and *ssessment <otice issued by the ommissioner or his duly authori#ed representative. Shall state the facts, the laws, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of ,eman, an, assessment notice shall be voi,. 0ormal +etter of Iemand and *ssessment <otice shall be sent to the taxpayer only by registered mail or personal delivery. If sent by personal delivery, the taxpayer or his duly authori#ed representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand showing the following! (a3 his nameC (b3 signatureC (c3 designation and authority to act for and in behalf of the taxpayerC if acknowledged or received by a person other than the taxpayer himselfC and (d3 date of receipt thereof. (".!... evenue e3ulations >o. !(4** ,ate, #ept. -, !***&. Disputed Assess$ent Taxpayer or his duly authori#ed representative may administratively protest against a 0ormal +etter of Iemand and *ssessment notice within thirty (>B3 days from date of receipt thereof. 28

AD:INISTRATI;E PR&TEST Re,uest for reconsideration- a plea for the re-evaluation of an assessment on the basis of existin3 recor,s without nee, of a,,itional evi,ence. It may involve a Auestion of fact or law or both. Re,uest for rein(esti+ation- a plea for reinvestigation of an assessment on the basis of newly4,iscovere, or a,,itional evi,ence that a taxpayer intends to present in the reinvestigation. It may also involve Auestion of fact or law or both. Issuance of Assessment 5rocedure Issuance of written a 5reliminary *ssessment <otice (5*<3 after review and evaluation by the *ssessment Iivision or by the ommissioner or his duly authori#ed representative, as the case may be. * valid 5*< shall be in writing stating the law and facts on which the assessment is made. (#ec. (() of the !**$ >I C&

TAXATION: San Beda College of LAW ALABANG * reAuest for reconsideration or reinvestigation of an assessment shall be accompanied by a waiver of the Statute of +imitations in favor of the ;overnment. =ffect of taxpayers failure to file an a,ministrative protest or to appeal 8I s ,ecision to the C2A *s provided in Sec. ,,- of the Tax ode, if the taxpayer fails to file an administrative protest within the reglementary >B-day from receipt of the assessment notice, assessment becomes final. *fter the lapse of the >B-day period, the assessment can no longer be disputed either administratively or judicially through an appeal in the T*. *ssessed already tax collectible.

If the protest is denied in whole or part, or is not acted upon within one hundred eighty (1-B3 days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the T* within >B days from receipt of the said decision, or from lapse of the one hundred (1-B3-day period! otherwise, the decision shall become final and executory #everal issues in the assessment notice but taxpayer only ,isputesMprotests vali,ity of some of the issues Taxpayer reAuired to pay the deficiency tax or taxes attributable to the undisputed issues. ollection letter to be issued calling for the payment of deficiency tax, including applicable surcharge andKor interest. <o action shall be taken on the disputed issues until payment of deficiency taxes on undisputed issues 5rescriptive period for assessment or collection of taxes on disputed issues shall be suspended.

+e3al 8asis +egal 5rinciple of Auasi-contracts or solutio in,ebiti (see *rt. ,18, Q ,1?8 of the ivil ode3. The ;overnment is within the scope of the principle of solutio in,ebiti ( I) vs. 0ireman&s 0und Insurance o3 #cope of Claims

0ailure of taxpayer to state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based shall render his protest void and without force and effect. ContentsF a. b. <ame of the taxpayer and address for the immediate past three taxable yearsC <ature of reAuest whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it it is a reAuest for reinvestigationC Taxable periods covered by the assessmentC *mounts and kindKs of tax involved, and *ssessment <otice <umberC Iate of receipt of assessment notice or letter of demandC Itemi#ed statement of the findings to which the taxpayer agrees, if any, as a basis for computing the tax due, which amount should be paid immediately upon the filing of the protest. 0or this purpose, the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid firstC Itemi#ed schedule of the adjustments with which the taxpayer does not agreeC Statement of facts andKor law in support of the protestC and Iocumentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (/B3 days from the filing of the protest. If the taxpayer fails to comply with this reAuirement, the assessment shall become final ( evenue e3ulation >o. !(4)%, ,ate, >ov. ($, !*)%.&

Mnder Sec. ,B8 and ,B. of the 1..2 <I) the ommissioner may credit or refund taxes! (a3 6rroneously or illegally assessed or collected internal revenue taxes Taxpayer pays under the mistake of fact, as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were made * tax is illegally collected if payments are made under duress. (b3 5enalties imposed without authority (c3 *ny sum alleged to have been excessive or in any manner wrongfully collected The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed. >ecessity of Proof for efun, Claims )efund claim partakes of the nature of an exemption which cannot be allowed unless granted in the most explicit and categorical language. (CI vs. 6ohnson an, #ons 29

c. d. e. f.

g. h. i.

TAXATION: San Beda College of LAW ALABANG


0ailure to discharge burden of giving proof is fatal to claim It must be shown that payment was an independent single act of voluntary payment of a tax believed to be due, collectible and accepted by the government, and which therefore, become part of the state moneys subject to expenditure and perhaps already spent or appropriated (CI vs. +i Cao, +4!!)$%, 9ec. (), !*-"&.

6ven if the ,-year period has lapsed the same is not jurisdictional and may be suspended for reasons of eAuity and other special circumstances. (CI vs. Phil. American +ife Ins. Co., G. . >o. !5%(5), /ay (*, !**%&. ,-year prescriptive period for filing of tax refund or credit claim computed from date of payment of tax of penalty except in the following! TAG RE8>ND TAG CREDIT The government issues a tax credit memo covering the amount determined to be reimbursable which can be applied after proper verification, against any sum that may be due and collectible form the taxpayer

#tatutory eAuirements for efun, Claims a. *ritten c!ai$ for refund or tax credit fi!ed %# the taxpa#er ith the Co$$issioner

There is actually a reimbursement of the tax

This reAuirement is $andator#. )easons: (a3 to afford the commissioner an opportunity to correct the action of subordinate officer and (b3 to notify the government that the taxes sought to be refunded are under Auestion and that, therefore, such notice should then be borne in mind in estimating the revenue available for expenditure (8ermeBo vs. CI )$ Phil *-&. 6xcept! Tax credit or tax refund where on the face of the return upon which payment is made, such payment appears clearly to have been erroneous. (#ec. ((*, !**$ >I C&.

orporations ,-year prescriptive period for overpaid Auarterly income tax is counted not from the date the corporation files its Auarterly income tax return, but from the date the final adjusted return is filed after the taxable year (Commissioner of Internal evenue vs. 2/? #ales, Inc., G. . >o. )"$"-, 6an. !%, !**(&. Taxes payable in installment ,-year period is counted form the payment of the last installment (CI vs Palanca, 6r., supra& $ithholding Taxes 5rescriptive period counted not from the date the tax is withheld and remitted to the JI), but from the end of the taxable year (Gibbs vs. Commissioner of Internal evenue, supra& H*T )egistered 5erson whose sales are #ero-rated or effectively #ero-rated ,-year period computed from the end of the taxable Auarter when the sales transactions were made (#ec. !!( (A& !**$ >I C&. Interest on 2ax efun, The ;overnment cannot be reAuired to pay interest on taxes refunded to the taxpayer unless! /. The Co$$issioner acted ith patent ar%itrariness 30

%. Cate+orica! de$and for rei$%urse$ent c. C!ai$ for refund or tax credit $ust %e fi!ed or the suit proceedin+ thereof $ust %e co$$enced in court ithin t o ?0@ #ears fro$ date of pa#$ent of tax or pena!t# re+ard!ess of an# super(enin+ e(ent. (#ec. (5. (c& I ((* !**$ >I C& )eAuirement a condition precedent and non-compliance therewith bars recovery (Phil. Acetylene Co. Inc, vs. Commissioner, C2A Case >o. !"(!, >ov. $, !*-(&. )efers not only to the "administrative' claim that the taxpayer should file within , years from date of payments with the JI), but also the judicial claim or the action for refund the taxpayer should commence with the T* (see Gibbs vs.. Collector of Internal evenue, !5$ Phil ("(&. Taxpayer may file an action for refund in the T* even before the ommissioner decides his pending claim in the JI) (Commissioner of Internal evenue vs. Palanca 6r., +4 !--(-, Oct. (*, !*--&. Suspension of the ,-yaer prescriptive period may be had when! (13 there is a pending litigation between the two parties (government and taxpayer3 as to the proper tax to be paid and of the proper interpretation of the taxpayer&s charter in relation to the disputed taxC and (,3 the commissioner in that litigated case agreed to abide by the decision of the Supreme ourt as to the collection of taxes relative thereto (Panay =lectric Co., Inc. vs. Collector of Internal evenue !5" Phil. )!*&

TAXATION: San Beda College of LAW ALABANG *rbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CI vs. @ictorias /illin3 Corp., Inc. +4 !*-5$, >ov. (*, !*--&. 0. In case of Inco$e Tax ithhe!d on the a+es of e$p!o#ees. *ny excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within > months from the fifteenth (1?th3 day of *pril. )efund or credit after such time earn interest at the rate of /N per annum, starting after the lapse of the >month period to the date the reund or credit is made ( #ec $* (c& ((& !**$ >I C& APPEAL to the CTA *dverse decision or ruling rendered by the ommissioner of Internal )evenue in disputed assessment or claim for tax refund or credit, taxpayer may appeal the same within thirty (>B3 days after receipt. (Sec. 11, ).*. <o. 11,?3 *ppeal eAuivalent to a judicial action In the absence of appeal, the decision becomes final and executory. Jut where the taxpayer adversely affected has not received the decision or ruling, he could not appeal the same to the T* within >B days from notice. %ence, it could not become final and executory. ()epublic vs. Ie la )ama, 1- S )* -/13 =otion for reconsideration suspends the running of the >B @day period of perfecting an appeal. =ust advance new grounds not previously alleged to toll the reglementary periodC otherwise, it would be merely pro forma. ()oman atholic *rchbishop vs. oll., +-1//->, Ean. >1, 1./,3. a. b. c. Tax has been paidC Taxpayer has filed with the I) a written claim for refund or tax credit within , years from payment of the tax or penaltyC and Suit or proceeding is instituted in the T* also within the same prescriptive period of two years from the date of payment regardless of any supervening cause. (see Secs. ,B8, ,,. 1..2 <I) 3.

ACTI&N C&NTESTING 8&R8EIT>RE &8 CJATTEL In case of sei#ure of personal property under claim for forfeiture, the owner desiring to contest the validity of the forfeiture may bring an action! Jefore sale or destruction of the property to recover the property from the person sei#ing the property or in possession thereof upon filing of the proper bond to enjoin the sale. b. *fter the sale and within / months to recover the net proceeds reali#ed at the sale (see. Sec. ,>1, 1..2 <I) 3 *ction is partakes of the nature of an ordinary civil action for recovery of personal property or the net proceeds of its sale which must be brought in the ordinary courts and not the T*. ACTI&N 8&R DA:AGES AGAINST RE;EN>E &88ICIALS Taxpayer may file an action for damages against any internal revenue officer by reason of any act done in the performance of official duty or neglect of duty. In case of willful neglect of duty, taxpayer&s recourse is under *rt ,2 of the ivil ode. )evenue officer acting negligently or in bad faith or with willful oppression would be personally liable. %e ceases to be an officer of the law and becomes a private wrongdoer. 8ILING &8 CRI:INAL C&:PLAINT AGAINST RE;EN>E &88ICERS * taxpayer may file a criminal complaint against any official, agent or employee of the JI) or any other agency charged with the enforcement of the provisions of the Tax ode who commits any of the following offenses! 13 ,3 >3 83 6xtortion or willful oppression through the use of his officeC $illful oppression and harassment of a taxpayer who refused, declined, turned down or rejected any of his offers mentioned in no. ?C Dnowingly demanding or receiving sums or compensation not authori#ed or prescribed by lawC $illfully neglecting to give receipts as by law reAuired or to perform any other duties enjoined by lawC 31 a.

)eAuirements for *ppeal in Iisputed *ssessment a. b. c. d. Tax assessed has not been paidC Taxpayer has filed with the ommissioner of Internal )evenue a petition for the reconsideration or cancellation of the assessmentC 0inal decision or ruling has been rendered on such petitionC Suit or proceeding in the T* is made within >B days from receipt of the decision

6ffect of 0ailure to *ppeal *ssessment a. b. Taxpayer barred, in an action for collection of the tax by the government, from using defense of excessive or illegal assessment. *ssessment is considered correct.

)eAuirements for *ppeal in )efund and Tax redit

TAXATION: San Beda College of LAW ALABANG ?3 9ffering or undertaking to accomplish, file or submit a report or assessment on a txpayer without the appropriate examination of the books of account or tax liability, or offering or undertaking to submit a report or assessment less than the amount due the government for any consideration or compensationC or conspiring or colluding with another or others to defraud the revenues or otherwise violate the provisions of the tax codeC /3 <eglecting or by design permitting the violation of the law or any false certificate or returnC 23 =aking or signing any false entry or entries in any book, or nay false certificate or returnC -3 allowing or conspiring or colluding with another to allow the unauthori#ed withdrawal or recall of any return or statement after the same has been officially received by the JI)C .3 %aving knowledge or information of any violation of the Tax ode, failure to report such knowledge or information to their superior officer, or as otherwise reAuired by lawC <I 1B3 $ithout the authority of law, demanding or accepting money or other things of value fore the compromise or settlement of any charge or complaint for any violation of the Tax ode. (see. Sec. ,/., 1..2 <I) 3 Re$edies under the Tariff and Custo$s Code A. Go(ern$ent Re$edies: a. Extra'udicia! /. Enforce$ent or tax !ien * tax lien attaches on the goods, regardless of the ownership while still in the custody or control of the government 5roceeds of sale are applied to the tax due. *ny deficiency or excess is for the account or credit, respectively of the taxpayer This is availed of when the importation is neither nor improperly made 0. Sei=ures ;enerally applied when the penalty is fine or forfeiture which is imposed when the importation is unlawful and it may be exercised even where the articles are not or no longer in ustoms ustody, unless the importation is merely attempted. In the case of attempted importation, administrative fine or forfeiture may be affected onlyC a. while the goods are still within the customs jurisdiction, or Claim for refun,Na written claim for refund may be submitted by the importer! 1. In abatement uses such as! a. b. on missing packagesC deficiencies in the contents of packages or shortage before arrival of the goods in the 5hilippinesC articles lost or destroyed after such arrival, 32 %. b. 2. in the hands or under the control of the importer or person who is aware thereof.

Sa!e of Propert# 5roperty in the customs custody shall be subject to sale under the following conditionsC a. b. abandoned articlesC articles entered under warehousing entry not withdrawn nor the duties and taxes paid thereon within the period provided under Section 1.B-, T C sei#ed property, other than contraband, after liability to sale shall have been established by proper administrative or judicial proceedings in conformity with the provision of this code! and *ny articles subject to a valid lien for customs duties, taxes or other charges collectible by the Jureau of ustoms, after the expiration of the period allowed for the satisfaction of the same.

c.

d.

<ote! ;oods in the collector&s possession or of ustoms authorities pending payment of customs duties are beyond the reach of attachment. 7udicia! Action The tax liability of the importer constitutes a personal debt to the government, enforceable by action (Sec. 1,B8, T 3 This is availed of when the tax lien is lost by the release of the goods. .. Taxpa#erCs Re$edies Ad$inistrati(e Recourse

c.

TAXATION: San Beda College of LAW ALABANG d. e. f. ,. articles lost or destroyed ?. dead or injured animalsC and /. for manifest classical errorsC (see section 12B112B-, T 3 6u,icial 2. -. ivil *ction riminal *ction 9ther *dministrative )emedies 0orfeiture

Eudicial relief In drawback cases where the goods are re-exported a. 5rotest see the earlier discussions on " ustoms 5rotest ases' b. In sei#ure cases

Distraint of Persona! Propert# Distraint- Sei#ure by the government of personal property, tangible or intangible, to enforce the payment of faces, to be followed by its public sale, if the taxes are not voluntarily paid. c. *ctual @ There is taking of possession of personal property out of the taxpayer into that of the government. In case of intangible property. Taxpayer is also diverted of the power of control over the propertyC onstructive @ The owner is merely prohibited from disposing of his personal property. *ctual Iistraint. =ade on the property only of a delinAuent taxpayer. There is actual taking or possession of the property. 6ffected by having a list of the distraint property or by service or warrant of distraint or garnishment. *n immediate step for collection of taxes where amount due is definite. onstructive Iistraint =ay be made on the property of any taxpayer whether delinAuent or not Taxpayer is merely prohibited from disposing of his property. 6ffected by reAuiring the taxpayer to sign a receipt of the property or by leaving a list of same Such immediate step is not necessaryC tax due may not be definite or it is being Auestioned.

see earlier discussion on the subject c. Settlement of case by the payment of fine or redemption of forfeited property d. see earlier discussions on the subject <ote! The owner or importer may abandon either expressly or Jy importation in favor of the ;overnment thus relieving himself of the tax liability but not from the possible criminal liability. The taxpayer may appeal to the ourt of *ppeals which has exclusive jurisdiction to review decisions of the ommissioner of ustom in cases involving! a3 b3 c3 d3 liability for customs duties, fees or other money chargesC sei#ures, detention or release of property affectedC fines forfeitures or other penalties imposed in relation theretoC and other matters arising under the customs +aw or other laws administered by the )evenue of ustoms.

Re,uisites: ?. /. 2. -. Taxpayer is delinAuent in the payment of tax. SubseAuent demand for its payment. Taxpayer must fail to pay delinAuent tax at time reAuired. 5eriod with in to assess or collect has not yet prescribed. In case of constructive distraint, reAuisite no. 1 is not essential (see Sec. ,B/ T 3

Re$edies of the Go(ern$ent 6numeration of the )emedies A,ministrative 1. ,. >. 8. Iistraint of 5ersonal 5roperty +evy of )eal 5roperty Tax +ien ompromise

*hen re$ed# not a(ai!a%!e: $here amount involved does not exceed 51BB (Sec. ,B? T 3. In keeping with the provision on the abatement of the collection of tax as the cost of same might even be more than 51BB. 33

TAXATION: San Beda College of LAW ALABANG Procedure: ?. /. Service of warrant of distraint upon taxpayer or upon person in possession of taxpayer&s personal property. 8. 5osting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained. Sale at public auction to highest bidder Iisposition of proceeds of the sale. >. Serve warrant upon taxpayer and president, manager, treasurer or responsible officer of the bank. Jank shall turn over to I) so much of the bank accounts as may be sufficient.

Jo constructi(e Distraint Effected >. )eAuire taxpayer or person in possession to a. b. c. Sign a receipt covering property distrained 9bligate him to preserve the same properties. 5rohibit him from disposing the property from disposing the property in any manner, with out the authority of the I).

2. -.

>. 8.

$ho may effect distraint commissioner or his due authori#ed representative )I9

*mount Involved In excess of 51,BBB,BBB.BB 51,BBB,BBB.BB or less

8.

$here Taxpayer or person in possession refuses to sign! a. b. 9fficer shall prepare list of the property distrained. In the presence of two witnesses of sufficient age and discretion, leave a copy in the premises where property is located.

Jo Actua! Distraint Effected >. In case of Tangible 5roperty! a. opy of an account of the property distrained, signed by the officer, left either with the owner or person from whom property was taken, at the dwelling or place of business and with someone of suitable age and discretion Statement of the sum demanded. Time and place of sale.

Grounds of Constructi(e Distraint /. 2. -. .. Taxpayer is retiring from any business subject to tax. Taxpayer is intending to leave the 5hilippinesC or To remove his property there from. Taxpayer hides or conceals his property.

b. c. 8.

1B. Taxpayer acts tending to obstruct collection proceedings. <ote! 8. Jank accounts may be distrained with out violating the confidential nature of bank accounts for no inAuiry is made. JI) simply sei#es so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from. If at any time prior to the consummation of the sale, all proper charges are paid to the officer conducting the same, the goods distrained shall be restored to the owner. $hen the amount of the bid for the property under distraint is not eAual to the amount of the tax or is very much less than the actual market value of articles, the I) or his deputy may purchase the distrained property on behalf of the national government.

In case of intangible property! a. Stocks and other securities Serving a copy of the warrant upon taxpayer and upon president, manager, treasurer or other responsible officer of the issuing corporation, company or association. b. Iebts and credits >. +eaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent. $arrant shall be sufficient authority for such person to pay I) his credits or debts.

?.

/.

8. c.

Jank *ccounts @ garnishment

Le(# of Rea! Propert# 34

TAXATION: San Beda College of LAW ALABANG +evy @ *ct of sei#ure of real property in order to enforce the payment of taxes. The property may be sold at public sale, if after sei#ureC the taxes are not voluntarily paid. The reAuisites are the same as that of distraint. Procedure: +evy @ real property 2. International )evenue officer shall prepare a duly authenticated certificate showing a. b. c. -. .. <ame of taxpayer *mount of tax and 5enalty due. .. Iistraint @ forfeiture by government, not provided +evy @ forfeiture by government authori#ed where there is no bidder or the highest bid is not sufficient to pay the taxes, penalties and costs. 1B. Iistraint @ Taxpayer no given the right of redemption +evy @ Taxpayer can redeem properties levied upon and soldKforfeited to the government. <ote! ?. Service of written notice to! c. d. The taxpayer, and /. )I where property is located. 1B. *dvertisement of the time and place of sale. Enforce$ent of Tax Lien 11. Sale at public auction to highest bidder. 1,. Iisposition of proceeds of sale. The excess shall be turned over to owner. 0. Rede$ption of propert# so!d or forfeited e. f. 5erson entitled! Taxpayer or anyone for him Time to redeem! one year from date of sale or forfeiture 2. g. h. Jegins from registration of the deed of sale or declaration of forfeiture. annot be extended by the courts. D. 5ossession pending redemption @ owner not deprived of possession 5rice! *mount of taxes, penalties and interest thereon from date of delinAuency to the date of sale together with interest on said purchase price at 1?N per annum from date of purchase to date of redemption. E. Extent: Mpon all property and rights to property belonging to the taxpayer. Effecti(it# a+ainst third persons: 9nly when notice of such lien is filed by the I) in the )egister of Ieeds concerned. Extin+uish$ent of Tax Lien ?. 5ayment or remission of the tax 35 Duration: 6xists from time assessment is made by the I) until paid, with interests, penalties and costs. * lien in favor of the government of the 5hilippines when a person liable to pay a tax neglects or fails to do so upon demand.T Nature: Tax LienLa legal claim or charge on property, either real or personal, established by law as a security in default of the payment of taxes. It is the duty of the )egister of Ieeds concerned upon registration of the declaration of forfeiture, to transfer the title to the property with out of an order from a competent court The remedy of distraint or levy may be repeated if necessary until the full amount, including all expenses, is collected. 2. -. Joth cannot be availed of where amount involved is not more than 51BB. Iistraint @ personal property

enforceable through out the 5hilippines

9fficer shall write upon the certificate a description of the property upon which levy is made.

Distraint and Le(# co$pared /. Joth are summary remedies for collection of taxes.

TAXATION: San Beda College of LAW ALABANG >. /. 2. -. 5rescription of the right of the government to assess or collect. 0ailure to file notice of such lien in the office of register of Ieeds, purchases or judgment creditor. Iestruction of the property subject to the lien. 8. In case <os. 1 and ,, there is no more tax liability. Mnder nos. > and 8, the taxpayer is still liable. Enforce$ent of Tax Lien (s. Distraint d. * tax lien is distinguished from disttraint in that, in distraint the property sei#ed must be that of the taxpayer, although it need not be the property in respect to the tax is assessed. Tax lien is directed to the property subject to the tax, regardless of its owner. <ote! >. 8. This is superior to judgment claim of private individuals or parties *ttaches not only from time the warrant was served but from the time the tax was due and demandable. $here settlement offered is less than the prescribed minimum rates. Subject to approval of 6valuation Joard c. $hen basic tax involved exceeds 51,BBB,BBB.BB or =inimum compromise rate! a. b. 1BN of the basic tax assessed @ in case of financial incapacity. 8BN of basic tax assessed @ other cases.

De!e+ation of Po er to Co$pro$ise General ule! The power to compromise or abate shall not be delegated by the commissioner. =xception! The )egional 6valuation Joard may compromise the assessment issued by the regional offices involving basic taxes of 5 ?BB D or less. Re$ed# in case of fai!ure to co$p!#: The I) may either! >. 8. enforce the compromise, or )egard it as rescinded and insists upon the original demand.

Co$pro$ise ompromiseUa contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced. Re,uisites:

Co$pro$ise Pena!t# 8. ?. /. Taxpayer must have a tax liability. 8. There must be an offer by taxpayer or I), of an amount to be paid by taxpayer. ?. There must be acceptance of the offer in settlement of the original claim. /. It is a certain amount of money which the taxpayer pays to compromise a tax violation. It is pain in lieu of a criminal prosecution. Since it is voluntary in character, the same may be collected only if the taxpayer is willing to pay them.

*hen taxes $a# %e co$pro$ised: Enforce$ent of forfeiture 8. ?. /. * reasonable doubt as to the validity if the claim against the taxpayer existsC The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. riminal violations, except! a. b. Li$itations: Those already filed in court .. Those involving fraud. $hen available! a. <o bidder for the real property exposed for sale. b. If highest bid is for an amount insufficient to pay the taxes, penalties and costs. 36 0orfeitureUimplies a divestiture of property with out compensation, in conseAuence of a default or offense. It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer. -. 6ffect! Transfer the title to the specific thing from the owner to the government.

TAXATION: San Beda College of LAW ALABANG $ith in two days thereafter, a return of the proceeding is duly made. 1>. )ight of )edemption! f. g. h. d. In case of real property @ by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may reAuire. i. j. 11. $hen forfeited property to be destroyed or sold! c. To be destroyed @ by order of the I) when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law! (at least ,B days after sei#ure3 1. ,. >. 8. ?. /. distilled spirits 8. liAuors a. cigars b. cigarettes, and other manufactured products of tobacco playing cards *ll apparatus used in or about the illicit production of such articles. ?. c. d. 6xcise taxes 6xporter&s bond =anufacturer&s and importer&s bond 6state and donor&s tax )eAuiring filing of bonds @ in the following instances! 5ersonal entitled @ taxpayer or anyone for him Time to redeem @ with in one (13 year from forfeiture *mount to be paid @ full amount of the taxes and penalties, plus interest and cost of the sale To whom paid @ ommissioner or the )evenue ollection 9fficer 6ffect of failure to redeem @ forfeiture shall become absolute.

1B. %ow enforced! c. In case of personal property @ by sei#ure and sale or destruction of the specific forfeited property.

<ote! The )egister of Ieeds is duty bound to transfer the title of property forfeited to the government with our necessity of an order from a competent court. &ther Ad$inistrati(e Re$edies

)eAuiring proof of filing income tax returns Jefore a license to engage in trade, business or occupation or to practice a profession can be issued.

d.

To be sold or destroyed @ depends upon the discretion of I) >. *ll other articles subject to exercise tax, (wine, automobile, mineral products, manufactured oils, miscellaneous products, non-essential items a petroleum products3 manufactured or removed in violation of the Tax ode. Iies for printing or making I) stamps, labels and tags, in imitation of or purport to be lawful stamps, labels or tags.

/.

;iving reward to informers @ Sum eAuivalent to 1BN of revenues, surcharges or fees recovered andKor fine or penalty imposed and collected or 51, BBB,BBB.BB per case, whichever is lower. Imposition of surcharge and interest. =aking arrest, search and sei#ure +imited to violations of any penal law or regulation administered by the JI), committed with in the view of the Internal )evenue 9fficer or 66.

2. -.

8.

1,. $here to be sold! c. d. 5ublic sale! provided, there is notice of not less than ,B days. 5rivate sale! provided, it is with the approval of the Secretary of 0inance.

..

Ieportation in case of aliens @ on the following grounds c. Dnowingly and fraudulently evades payment of I) taxes.

37

TAXATION: San Beda College of LAW ALABANG d. $illfully refuses to pay such tax and its accessory penalties, after decision on his tax liability shall have become final and executory. c. d. 1B. Inspection of books D. Cri$ina! Action Jooks of accounts and other accounting records of taxpayer must be preserved, generally within three years after date the tax return was due or was filed whichever is later. 11. Mse of <ational Tax )egister 1,. 9btaining information on tax liability of any person 1>. Inventory @ Taking of stock-in-trade and making surveillance. 18. 5rescribing presumptive gross sales or receipt! c. d. 5erson failed to issue receipts and invoices )eason to believe that records do not correctly reflect declaration in return.T * direct mode of collection of taxes, the judgment of which shall not only impose the penalty but also order payment of taxes. *n assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion, provided there is a prima facie showing of willful attempt to evade. Effect of Ac,uitta! on Tax Lia%i!it#: Ioes not exonerate taxpayer his civil liability to pay the tax due. Thus, the government may still collect the tax in the same action. )eason! Tax is an obligation, does not arise from a criminal act. Effect of Satisfaction of Tax Lia%i!it# on Cri$ina! Lia%i!it# $ill not operate to extinguish taxpayer&s criminal liability since the duty to pay the tax is imposed by statute, independent of any attempt on past of taxpayers to evade payment. This is true in case the criminal action is based on the act to taxpayer of filing a false and fraudulent tax return and failure to pay the tax. <ote! The satisfaction of civil liability is not one of the grounds for the extinction of criminal action. Iispute same by filing protest with I) *ppeal adverse decision of I) to T*

1?. 5rescribing real property values 1/. InAuiring into bank deposit accounts of c. d. * deceased person to determine gross estate *ny taxpayer who filed application for compromise by reasons of financial incapacity his tax liability.

12. )egistration of Taxpayers. 7udicia! Re$edies Civil an, Criminal ActionsF 1. ,. >. Jrought in the name of the ;overnment of the 5hilippines. onducted by +egal 9fficer of JI) =ust be with the approval of the I), in case of action, for recovery of taxes, or enforcement of a fine, penalty or forfeiture. Purpose: 0or purposes of Taxation, statue of limitation is primarily designed to protect the rights of the taxpayer&s against unreasonable investigation of the taxing authority with respect to assessment and collection of Internal )evenue Taxes. Prescription of Go(ern$entCs Ri+ht to Assess Taxes: C. Ci(i! Action *ctions instituted by the government to collect internal revenue taxes in regular courts ()T or =T s, depending on the amount involved3 $hen assessment made has become final and executory for failure or taxpayer to! General uleF Internal )evenue Taxes shall be assessed within three (>3 years after the last day prescribed by law for the filing of the return or from the day the return was filed, in case it is filed beyond the period prescribed thereof. (Section ,B> of the Tax ode3 <ote! Prescripti(e Periods 9 Statute &f Li$itation

38

TAXATION: San Beda College of LAW ALABANG 1. ,. * return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. In case a return is substantially amended, the government right to assess the tax shall commence from the filing of the amended return ( I) vs. 5hoenix, =ay ,B, 1./?C Dei Q o. vs. ollector, 8 S )* -2,3 In computing the prescriptive period for assessment, the latter is deemed made when notice to this effect is released, mailed or sent by the ommissioner to the correct address of the taxpayer. %owever, the law does not reAuire that the demandKnotice be received within the prescriptive period. (Jasilan 6states, Inc. vs. ommissioner ,1, S )* 12C )epublic vs. * *pril >B, 1.-23 *n affidavit executed by a revenue office indicating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment. ( I) vs. 5ascoi )ealty orp. Eune ,., 1...3 * transcript sheets are not returns, because they do not contain information necessary and reAuired to permit the computation and assessment of taxes (Sinforo *lca vs. ommissioner, Iec. ,., 1./83 d. e. f. >. Intentional and substantial understatement of tax liability of the taxpayer. Intentional and substantial deductions of exemption overstatement of

)ecurrence of the foregoing circumstances.

Instances9Circu$stances ne+atin+ fraud: a. b. $hen the ommissioner fails impute fraud in the assessment noticeKdemand for payment. $hen the ommissioner failed to allege in his answer to the taxpayer&s petition for review when the case is appealed to the T*. $hen the ommissioner raised the Auestion of fraud only for the first time in his memorandum which was filed the T* after he had rested his case. $here the JI) itself appeared, "not sure' as to the real amount of the taxpayer&s net income. * mere understatement of income does not prove fraud, unless there is a sufficient evidence shaving fraudulent intent.

8.

c.

?.

d. e.

Exceptions: ?Sec. 000 ic@ ?. /. $here no return was filed - within ten (1B3 years after the date of discovery of the omission. $here a return was filed but the same was false or fraudulent @ within ten (1B3 years from the discovery of falsity or fraud. Nature of 8raud:

2.

$here the commissioner and the taxpayer, before the expiration of the three (>3 year period of limitation have agreed in writing to the extension of said period. Note: Li$itations: c. The agreement extending the period of prescription should be in writing and duly signed by the taxpayer and the commissioner. The agreement to extend the same should be mode before the expiration of the period previously agreed upon.

d. a. 0raud is never presumed and the circumstances consisting it must be alleged and proved to exist by clear Q convincing evidence ()epublic vs. Deir, Sept. >B, 1.//3 The fraud contemplated by law is actual and not constructive. It must amount to intentional wrongdoing with the sole object of avoiding the tax. * mere mistake is not a fraudulent intent. (*#nar case, *ug. ,>, 1.283 * fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cogni#ance of in the civil or criminal action for the collection thereof. (Sec. ,,, paragraph (a33

-.

$here there is a written waiver or renunciation of the original >-year limitation signed by the taxpayer. Note: Li$itations: d. e. f. The waiver to be valid must be executed by the parties before the lapse of the prescriptive period. * waiver is inefficient I it is executed beyond the original three year. The commissioner can not valid agree to reduce the prescriptive period to less than that granted by law.

b.

c.

8raud $a# %e esta%!ished %# the fo!!o in+ : ?.ad+es of 8raud@

I$prescripti%!e Assess$ents: 39

TAXATION: San Beda College of LAW ALABANG 1. $here the law does not provide for any particular period of assessment, the tax sought to be assessed becomes imprescriptible. $here no return is reAuired by law, the tax is imprescriptible. *ssessment of unpaid taxes, where the bases of which is not reAuired by law to be reported in a return such as excise taxes. ( armen vs. *yala Securities orp., <ov. ,1, 1.-B3 *ssessment of compensating and documentary stamp tax. a proceeding in court within the period agreed upon in writing before the expiration of ?-year period. 11. $here the government makes another assessment on the basis of reinvestigation reAuested by the taxpayer @ the prescriptive period for collection should be counted from the last assessment. ()ep. vs. +ope#, =arch >B, 1./>3 1,. $here the assessment is revised because of an amended return @ the period for collection is counted from the last revised assessment. 1>. $here a tax obligation is secured by a surety bond @ the government may proceed thru a court action to forfeit a bond and enforce such contractual obligation within a period of ten years. 18. $here the action is brought to enforce a compromise entered into between the commission and the taxpayer @ the prescriptive period is ten years. 0. $hen tax is deemed collected for purposes of the prescriptive period. 8. ollection by summary remedies @ It is effected by summary methods when the government avail of distraint and levy procedure. ollection by judicial action @ The collection begins by filing the complaint with the proper court. ()T 3 $here assessment of the commissioner is protected Q appealed to the T* @ the collection begin when the government file its answer to taxpayer&s petition for review.

,.

>.

8.

Prescription of Go(ern$entCs Ri+ht to Co!!ect Taxes I. ;eneral )ule! 1. $here an assessment was made @ *ny internal revenue tax which has been assessed within the period of limitation may be collected by distraint or levy or by proceeding in court within ? years following the date of assessment. $here no assessment was made and a return was filed and the same is not fraudulent or false- the tax should be collected within > years after the return was due or was filed, whichever is later.

?. /.

,.

6.

6xceptions! -. $here a fraudulentKfalse return with intent to evade taxes was filed a proceeding in court for the collection of the tax may be filed without assessment, at anytime within ten years after the discovery of the falsity or fraud. <ote! The 1B-year prescriptive period for collector thru action does not apply if it appears that there was an assessment. In such case, the ordinary ?-year period (now > years3 would apply ()ep. vs. )et., =arch >1, 1./,3 .. $hen the taxpayer omits to file a return @ a court proceeding for the collection of such tax may be filed without assessment, at anytime within 1B years after the discovery of the omission. Ru!es of Prescription in Cri$ina! Cases )ule! *ll violations of any provision of the tax code shall prescribe after five (?3 years. <ote! *hen it shou!d co$$ence6 The five (?3 year prescriptive period shall begin to run from the! c. d. Iay of the commission of the violation, if know. If not known, from the time of discovery and the institution of judicial proceeding for its investigation and punishment. *hen it is interrupted: c. $hen a proceeding is instituted against the guilty person 40

1B. $aiver of statute of limitations @ any internal revenue tax, which has been assessed within the period agreed upon, may be collected be distinct or levy of by

TAXATION: San Beda College of LAW ALABANG d. $hen the offender is absent from the 5hilippines. *hen it shou!d run a+ain: $hen the proceeding is dismissed for reason not onstituting jeopardy. *hen does the defense of prescription $a# %e raised: c. In civil case @ If not raised in the lower court, it is bailed permanentlyC if can not be raised for the first time on appeal. In criminal case @ It can be raised even if the case has been decided by the lower court but pending decision on appeal. f. g. e. <ote! If the taxpayer informs the ommissioner of any change in address the statute will not be suspended. $hen the warrant of distraint or levy is duly served upon any of the following person! 8. ?. /. taxpayer his authori#ed representative =ember of his household with sufficient discretion and no property could be located.

d.

$hen the taxpayer is out of the 5hilippines. In criminal cases for violation of tax code @ the period shall not run when the offender is absent from the 5hilippines.

Interruption of the Prescripti(e Period 8. $here before the expiration of the time prescribed for the assessment of the tax, both the commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed prior to the expiration of the period agreed upon. The running of statute of limitations on making an assessment and the beginning of distraintKlevy or a proceeding in court for collection shall be suspended for the period. Iuring which the ommissioner is prohibited from making the assessment or beginning distraintKlevy or a proceeding in court and for /B days thereafterC e.g. a. 0iling a petition for review in the T* from the decision of the ommissioner. The commissioner is prevented from filing an ordinary action to collect the tax. $hen T* suspends the collection of tax liability of the taxpayer pursuant to Section 11 of )* 11,? upon proof that its collection may jeopardi#es the government and Kor the taxpayer. c. $hen the taxpayer reAuests for reinvestigation which is granted by commissioner. <ote! * mere reAuest for reinvestigation without any action or the part of the ommissioner does not interrupt the running of the prescriptive period. The reAuest must not be a mere proformer. Substantial issues must be raised. d. $hen the taxpayer cannot be located in the address given by him in the return. /. 2. -. <ote! * petition for reconsideration of a tax assessment does not suspend the criminal action. )eason! <o reAuirement for assessment of the tax before the criminal action may be instituted. <ota Jene! The law on prescription remedial measure should be interpreted liberally in order to protect the taxpayer. The defense of prescription must be raised by the taxpayer on time, otherwise it is deemed waived. The Auestion of prescription is not jurisdictional, and as defense it must be raised reasonably otherwise it is deemed waived. The prescriptive provided in the tax code over ride the statute of non-claims in the settlement of the deceased&s estate.

?.

..

b.

1B. In the event that the collection of the tax has already prescribed, the government cannot invoke the principle of 6Auitable recumbent by setting- off the prescribed tax against a tax refused to which the taxpayer is entitled. VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV S9=6 I=59)T*<T 5)9HISI9<S 9< T%6 T*O )609)= * T 90 1..2 SEC. 0. Powers and 2uties of the -ureau of Internal Revenue. - The Jureau of Internal )evenue shall be under the supervision and control of the Iepartment of 0inance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the ourt of Tax *ppeals and the ordinary 41

TAXATION: San Beda College of LAW ALABANG courts. The Jureau shall give effect to and administer the supervisory and police powers conferred to it by this ode or other laws. SEC. 2. Chief 0ffi'ials of the -ureau of Internal Revenue. - The Jureau of Internal )evenue shall have a chief to be known as ommissioner of Internal )evenue, hereinafter referred to as the ommissioner and four (83 assistant chiefs to be known as Ieputy ommissioners. SEC. 3. Power of the Commissioner to Interpret $ax 3aws and to 2e'ide $ax Cases . - The power to interpret the provisions of this ode and other tax laws shall be under the exclusive and original jurisdiction of the ommissioner, subject to review by the Secretary of 0inance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this ode or other laws or portions thereof administered by the Jureau of Internal )evenue is vested in the ommissioner, subject to the exclusive appellate jurisdiction of the ourt of Tax *ppeals. SEC. 4. Power of the Commissioner to 0btain Information) and to Summon) Examine) and $a%e $estimony of Persons. - In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the ommissioner is authori#ed! (*3 To examine any book, paper, record, or other data which may be relevant or material to such inAuiryC (J3 To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Jangko Sentral ng 5ilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headAuarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships, and their membersC ( 3 To summon the person liable for tax or reAuired to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the ommissioner or his duly authori#ed representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimonyC (I3 To take such testimony of the person concerned, under oath, as may be relevant or material to such inAuiryC and (63 To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inAuire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed.

The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed as granting the ommissioner the authority to inAuire into bank deposits other than as provided for in Section /(03 of this ode. SEC. 5. Power of the Commissioner to Ma%e assessments and Pres'ribe additional Requirements for $ax dministration and Enfor'ement. 4 (*3 =xamination of eturns an, 9etermination of 2ax 9ue. - *fter a return has been filed as reAuired under the provisions of this ode, the ommissioner or his duly authori#ed representative may authori#e the examination of any taxpayer and the assessment of the correct amount of tax! Provi,e,, however; That failure to file a return shall not prevent the ommissioner from authori#ing the examination of any taxpayer. *ny return, statement of declaration filed in any office authori#ed to receive the same shall not be withdrawn! Provi,e,, 2hat within three (>3 years from the date of such filing, the same may be modified, changed, or amended! Provi,e,, further, That no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. (J3 7ailure to #ubmit eAuire, eturns, #tatements, eports an, other 9ocuments. $hen a report reAuired by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the ommissioner shall assess the proper tax on the best evidence obtainable. 42

TAXATION: San Beda College of LAW ALABANG In case a person fails to file a reAuired return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the ommissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. ( 3 Authority to Con,uct Inventory4taHin3, surveillance an, to Prescribe Presumptive Gross #ales an, eceipts. - The ommissioner may, at any time during the taxable year, order inventorytaking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any person, natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for assessing the taxes for the other months or Auarters of the same or different taxable years and such assessment shall be deemed prima facie correct. $hen it is found that a person has failed to issue receipts and invoices in violation of the reAuirements of Sections 11> and ,>2 of this ode, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return reAuired to be filed under the provisions of this ode, the ommissioner, after taking into account the sales, receipts, income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person. (I3 Authority to 2erminate 2axable Perio,. - $hen it shall come to the knowledge of the ommissioner that a taxpayer is retiring from business subject to tax, or is intending to leave the 5hilippines or to remove his property therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current Auarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately, the ommissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together with a reAuest for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or Auarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the ommissioner. (63 Authority of the Commissioner to Prescribe eal Property @alues. - The ommissioner is hereby authori#ed to divide the 5hilippines into different #ones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each #one or area. 0or purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of! (13 the fair market value as determined by the ommissioner, or (,3 the fair market value as shown in the schedule of values of the 5rovincial and ity *ssessors. (03 Authority of the Commissioner to inAuire into 8anH 9eposit Accounts. - <otwithstanding any contrary provision of )epublic *ct <o. 18B? and other general or special laws, the ommissioner is hereby authori#ed to inAuire into the bank deposits of! (13 a decedent to determine his gross estateC and (,3 any taxpayer who has filed an application for compromise of his tax liability under Sec. ,B8 (*3 (,3 of this ode by reason of financial incapacity to pay his tax liability. In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and until he waives in writing his privilege under )epublic *ct <o. 18B? or under other general or special laws, and such waiver shall constitute the authority of the ommissioner to inAuire into the bank deposits of the taxpayer. (;3 Authority to Accre,it an, e3ister 2ax A3ents. - The ommissioner shall accredit and register, based on their professional competence, integrity and moral fitness, individuals and general professional partnerships and their representatives who prepare and file tax returns, statements, reports, protests, and other papers with or who appear before, the Jureau for taxpayers. $ithin one hundred twenty (1,B3 days from Eanuary 1, 1..-, the ommissioner shall create national and regional accreditation boards, the members of which shall serve for three (>3 years, and shall designate from among the senior officials of the Jureau, one (13 chairman and two 43

TAXATION: San Beda College of LAW ALABANG (,3 members for each board, subject to such rules and regulations as the Secretary of 0inance shall promulgate upon the recommendation of the ommissioner. Individuals and general professional partnerships and their representatives who are denied accreditation by the ommissioner andKor the national and regional accreditation boards may appeal such denial to the Secretary of 0inance, who shall rule on the appeal within sixty (/B3 days from receipt of such appeal. 0ailure of the Secretary of 0inance to rule on the *ppeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant. (%3 Authority of the Commissioner to Prescribe A,,itional Proce,ural or 9ocumentary eAuirements. - The ommissioner may prescribe the manner of compliance with any documentary or procedural reAuirement in connection with the submission or preparation of financial statements accompanying the tax returns. SEC. D. uthority of the Commissioner to 2ele!ate Power. - The ommissioner may delegate the powers vested in him under the pertinent provisions of this ode to any or such subordinate officials with the rank eAuivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the ommissioner! Provi,e,, however, That the following powers of the ommissioner shall not be delegated! (a3 The power to recommend the promulgation of rules and regulations by the Secretary of 0inanceC (b3 The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the JureauC (c3 The power to compromise or abate, under Sec. ,B8 (*3 and (J3 of this ode, any tax liability! Provi,e,, however, That assessments issued by the regional offices involving basic deficiency taxes of 0ive hundred thousand pesos (5?BB,BBB3 or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the ommissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the )egional Iirector as hairman, the *ssistant )egional Iirector, the heads of the +egal, *ssessment and ollection Iivisions and the )evenue Iistrict 9fficer having jurisdiction over the taxpayer, as membersC and (d3 The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. SEC. 0H2. Period of 3imitation 4pon ssessment and Colle'tion* " 6xcept as provided in Section ,,,, internal revenue taxes shall be assessed within three (>3 years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period! Provi,e,, That in a case where a return is filed beyond the period prescribed by law, the three (>3-year period shall be counted from the day the return was filed. 0or purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. SEC. 0H3. uthority of the Commissioner to Compromise) bate and Refund or Credit $axes* 1 The ommissioner may ?A@ Co$pro$ise the Pa#$ent of an# Interna! Re(enue Tax, hen: (13 * reasonable doubt as to the validity of the claim against the taxpayer existsC or (,3 The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts! 0or cases of financial incapacity, a minimum compromise rate eAuivalent to ten percent (1BN3 of the basic assessed taxC and 0or other cases, a minimum compromise rate eAuivalent to forty percent (8BN3 of the basic assessed tax. $here the basic tax involved exceeds 9ne million pesos (51,BBB.BBB3 or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the 6valuation Joard which shall be composed of the ommissioner and the four (83 Ieputy ommissioners. ?.@ A%ate or Cance! a Tax Lia%i!it#, hen: (13 The tax or any portion thereof appears to be unjustly or excessively assessedC or (,3 The administration and collection costs involved do not justify the collection of the amount due. *ll criminal violations may be compromised except! (a3 those already filed in court, or (b3 those involving fraud. ?C@ redit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. <o credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the ommissioner a claim for credit or refund within two (,3 years after the payment of the 44

TAXATION: San Beda College of LAW ALABANG tax or penalty! Provi,e,, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. * Tax redit ertificate validly issued under the provisions of this ode may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. *ny reAuest for conversion into refund of unutili#ed tax credits may be allowed, subject to the provisions of Section ,>B of this ode! Provi,e,, That the original copy of the Tax redit ertificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation! Provi,e,, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made. The ommissioner shall submit to the hairmen of the ommittee on $ays and =eans of both the Senate and %ouse of )epresentatives, every six (/3 months, a report on the exercise of his powers under this Section, stating therein the following facts and information, among others! names and addresses of taxpayers whose cases have been the subject of abatement or compromiseC amount involvedC amount compromised or abatedC and reasons for the exercise of power! Provi,e,, That the said report shall be presented to the 9versight ommittee in ongress that shall be constituted to determine that said powers are reasonably exercised and that the government is not unduly deprived of revenues. CJAPTER II CI;IL RE:EDIES 8&R C&LLECTI&N &8 TAGES civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon. SEC. 0H5. Constru'tive 2istraint of the Property of a $axpayer* 1 To safeguard the interest of the ;overnment, the ommissioner may place under constructive distraint the property of a delinAuent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the 5hilippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him. The constructive distraint of personal property shall be affected by reAuiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same Cin any manner whatever, without the express authority of the ommissioner. In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (,3 witnessed, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint. SEC. 0HD. Summary Remedies* 1 SEC. 0H4. Remedies for the Colle'tion of 2elinquent $axes* 1 The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinAuency shall be! (a3 Jy distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy upon real property and interest in rights to real propertyC and (b3 Jy civil or criminal action. 6ither of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes! Provi,e,, however, That the remedies of distraint and levy shall not be availed of where the amount of tax involve is not more than 9ne hundred pesos (51BB3. The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the ommissioner. The Jureau of Internal )evenue shall advance the amounts needed to defray costs of collection by means of ?A@ 2istraint of Personal Property* - Mpon the failure of the person owing any delinAuent tax or delinAuent revenue to pay the same at the time reAuired, the ommissioner or his duly authori#ed representative, if the amount involved is in excess of 9ne million pesos (51,BBB,BBB3, or the )evenue Iistrict 9fficer, if the amount involved is 9ne million pesos (51,BBB,BBB3 or less, shall sei#e and distraint any goods, chattels or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property of such persons Cin sufficient Auantity to satisfy the tax, or charge, together with any increment thereto incident to delinAuency, and the expenses of the distraint and the cost of the subseAuent sale. * report on the distraint shall, within ten (1B3 days from receipt of the warrant, be submitted by the distraining officer to the )evenue Iistrict 9fficer, and to the )evenue )egional Iirector! Provi,e,, That the ommissioner or his duly authori#ed representative shall, subject to rules and regulations promulgated by the Secretary of 0inance, upon recommendation of the ommissioner, have the power to lift such order of distraint! Provi,e,, further, That a consolidated report by the )evenue )egional Iirector may be reAuired by the ommissioner as often as necessary. ?.@ 3evy on Real Property* - *fter the expiration of the time reAuired to pay the delinAuent tax or delinAuent revenue as prescribed in this Section, real property may be levied upon, before 45

TAXATION: San Beda College of LAW ALABANG simultaneously or after the distraint of personal property belonging to the delinAuent. To this end, any internal revenue officer designated by the ommissioner or his duly authori#ed representative shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the 5hilippines. +evy shall be affected by writing upon said certificate a description of the property upon which levy is made. *t the same time, written notice of the levy shall be mailed to or served upon the )egister of Ieeds for the province or city where the property is located and upon the delinAuent taxpayer, or if he be absent from the 5hilippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in Auestion. In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinAuency, the ommissioner or his duly authori#ed representative shall, within thirty (>B3 days after execution of the distraint, proceed with the levy on the taxpayerWs real property. $ithin ten (1B3 days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to the ommissioner or his duly authori#ed representative! Provi,e,, however, That a consolidated report by the )evenue )egional Iirector may be reAuired by the ommissioner as often as necessary! 5rovided, further, That the ommissioner or his duly authori#ed representative, subject to rules and regulations promulgated by the Secretary of 0inance, upon recommendation of the ommissioner, shall have the authority to lift warrants of levy issued in accordance with the provisions hereof. SEC. 0HE. Pro'edure for 2istraint and "arnishment* 1 The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale. Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities. Iebts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be sufficient authority to the person owning the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the ommissioner the amount of such debts or credits. Jank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Mpon receipt of the warrant of garnishment, the bank shall tun over to the ommissioner so much of the bank accounts as may be sufficient to satisfy the claim of the ;overnment. SEC. 0HF. Sale of Property 2istrained and 2isposition of Pro'eeds* 1 The )evenue Iistrict 9fficer or his duly authori#ed representative, other than the officer referred to in Section ,B- of this ode shall, according to rules and regulations prescribed by the Secretary of 0inance, upon recommendation of the ommissioner, forthwith cause a notification to be exhibited in not less than two (,3 public places in the municipality or city where the distraint is made, specifyingC the time and place of sale and the articles distrained. The time of sale shall not be less than twenty (,B3 days after notice. 9ne place for the posting of such notice shall be at the 9ffice of the =ayor of the city or municipality in which the property is distrained. *t the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the ommissioner, through duly licensed commodity or stock exchanges. In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. Mpon receipt of the copy of the bill of sale, the corporation, company or association shall make the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and issue, if reAuired to do so, the corresponding certificates of stock or other securities. *ny residue over and above what is reAuired to pay the entire claim, including expenses, shall be returned to the owner of the property sold. The expenses chargeable upon each sei#ure and sale shall embrace only the actual expenses of sei#ure and preservation of the property pending Cthe sale, and no charge shall be imposed for the services of the local internal revenue officer or his deputy. SEC. 0/H. Release of 2istrained Property 4pon Payment Prior to Sale* 1 If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner. SEC. 0//. Report of Sale to -ureau of Internal Revenue* 1 $ithin two (,3 days after the sale, the officer making the same shall make a report of his proceedings in writing to the ommissioner and shall himself preserve a copy of such report as an official record. SEC. 0/0. Pur'hase by "overnment at Sale 4pon 2istraint* 1 $hen the amount bid for the property under distraint is not eAual to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the ommissioner or his deputy may purchase the same in behalf of the national ;overnment for the amount of taxes, penalties and costs due thereon. 46

TAXATION: San Beda College of LAW ALABANG 5roperty so purchased may be resold by the ommissioner or his deputy, subject to the rules and regulations prescribed by the Secretary of 0inance, the net proceeds therefrom shall be remitted to the <ational Treasury and accounted for as internal revenue. SEC. 0/2. dvertisement and Sale* 1 $ithin twenty (,B3 days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of saleC and such advertisement shall cover a period of a least thirty (>B3 days. It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in the barrio or district in which the real estate lies and Cby publication once a week for three (>3 weeks in a newspaper of general circulation in the municipality or city where the property is located. The advertisement shall contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the taxpayer against whom taxes are levied, and a short description of the property to be sold. *t any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall determine and as the notice of sale shall specify. $ithin five (?3 days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the )evenue ollection 9fficer, the )evenue Iistrict officer and the )evenue )egional Iirector. The )evenue ollection 9fficer, in consultation with the )evenue district 9fficer, shall then make out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest! Provi,e,, however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner of the property. The )evenue ollection 9fficer, upon approval by the )evenue Iistrict 9fficer may, out of his collection, advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this ode, including Cthe preservation or transportation in case of personal property, and the advertisement and subseAuent sale, both in cases of personal and real property including improvements found on the latter. In his monthly collection reports, such advances shall be reflected and supported by receipts. SEC. 0/3. Redemption of Property Sold* 1 $ithin one (13 year from the date of sale, the delinAuent taxpayer, or any one for him, shall have the right of paying to the )evenue Iistrict 9fficer the amount of the public taxes, penalties, and interest thereon from the date of delinAuency to the date of sale, together with interest on said purchase price at the rate of fifteen percent (1?N3 per annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said )evenue Iistrict 9fficer that he has thus redeemed the property, and the )evenue Iistrict 9fficer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties. The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. SEC. 0/4. 5orfeiture to "overnment for 6ant of -idder* 1 In case there is no bidder for real property exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal )evenue 9fficer conducting the sale shall declare the property forfeited to the ;overnment in satisfaction of the claim in Auestion and within two (,3 days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of the )egister of Ieeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property forfeited to the ;overnment without the necessity of an order from a competent court. $ithin one (13 year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by paying to the ommissioner or the latterWs )evenue ollection 9fficer the full amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall become absolute. SEC. 0/5. Resale of Real Estate $a%en for $axes* 1 The ommissioner shall have charge of any real estate obtained by the ;overnment of the 5hilippines in payment or satisfaction of taxes, penalties or costs arising under this ode or in compromise or adjustment of any claim therefore, and said ommissioner may, upon the giving of not less than twenty (,B3 days notice, sell and dispose of the same of public auction or with prior approval of the Secretary of 0inance, dispose of the same at private sale. In either case, the proceeds of the sale shall be deposited with the <ational Treasury, and an accounting of the same shall rendered to the hairman of the ommission on *udit. SEC. 0/D. 5urther 2istraint or 3evy* 1 The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected. SEC. 0/E. In(un'tion not vailable to Restrain Colle'tion of $ax* 1 <o court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this ode. SEC. 0/F. Nature and Extent of $ax 3ien* 1 If any person, corporation, partnership, joint-account ( cuentas en participacion3, association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the ;overnment of the 5hilippines from the time when the assessment was made by the ommissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer! Provi,e,, That this lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the ommissioner in the office of the )egister of 47

TAXATION: San Beda College of LAW ALABANG Ieeds of the province or city where the property of the taxpayer is situated or located. SEC. 00H. 5orm and Mode of Pro'eedin! in 'tions risin! under this Code* 1 ivil and criminal actions and proceedings instituted in behalf of the ;overnment under the authority of this ode or other law enforced by the Jureau of Internal )evenue shall be brought in the name of the ;overnment of the 5hilippines and shall be conducted by legal officers of the Jureau of Internal )evenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this ode shall be filed in court without the approval of the ommissioner. SEC. 00/. Remedy for Enfor'ement of Statutory Penal Provisions* 1 The remedy for enforcement of statutory penalties of all sorts shall be by criminal or civil action, as the particular situation may reAuire, subject to the approval of the ommissioner. SEC. 000. Ex'eptions as to Period of 3imitation of ssessment and Colle'tion of $axes* 1 (a3 In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (1B3 years after the discovery of the falsity, fraud or omission! 5rovided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cogni#ance of in the civil or criminal action for the collection thereof. (b3 If before the expiration of the time prescribed in Section ,B> for the assessment of the tax, both the ommissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subseAuent written agreement made before the expiration of the period previously agreed upon. (c3 *ny internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a3 hereof may be collected by distraint or levy or by a proceeding in court within five (?3 years following the assessment of the tax. (d3 *ny internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b3 hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (?3 -year period. The period so agreed upon may be extended by subseAuent written agreements made before the expiration of the period previously agreed upon. (e3 Provi,e,, however, That nothing in the immediately preceding and paragraph (a3 hereof shall be construed to authori#e the examination and investigation or inAuiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree. SEC. 002. Suspension of Runnin! of Statute of 3imitations* 1 The running of the Statute of +imitations provided in Sections ,B> and ,,, on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the ommissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (/B3 days thereafterC when the taxpayer reAuests for a reinvestigation which is granted by the ommissionerC when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected! Provi,e,, that, if the taxpayer informs the ommissioner of any change in address, the running of the Statute of +imitations will not be suspendedC when the warrant of distraint or levy is duly served upon the taxpayer, his authori#ed representative, or a member of his household with sufficient discretion, and no property could be locatedC and when the taxpayer is out of the 5hilippines. SEC. 003. Remedy for Enfor'ement of 5orfeitures* " The forfeiture of chattels and removable fixtures of any sort shall be enforced by the sei#ure and sale, or destruction, of the specific forfeited property. The forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may reAuire. SEC. 004. 6hen Property to be Sold or 2estroyed* 1 Sales of forfeited chattels and removable fixtures shall be effected, so far as practicable, in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes. Iistilled spirits, liAuors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used I or about the illicit production of such articles may, upon forfeiture, be destroyed by order of the ommissioner, when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law. *ll other articles subject to excise tax, which have been manufactured or removed in violation of this ode, as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the ommissioner. 0orfeited property shall not be destroyed until at least twenty (,B3 days after sei#ure. SEC. 005. 2isposition of funds Re'overed in 3e!al Pro'eedin!s or 0btained from 5orfeitures* 1 all judgments and monies recovered and received for taxes, costs, forfeitures, fines and penalties shall be paid to the ommissioner or his authori#ed deputies as the taxes themselves are reAuired to be paid, and except as specially provided, shall be accounted for and dealt with the same way. SEC. 00D. Satisfa'tion of 7ud!ment Re'overed !ainst any Internal Revenue 0ffi'er* 1 $hen an action is brought against any Internal )evenue officer to recover damages by reason of any act done in the performance of official duty, and the ommissioner is notified of such action in time to make defense against the same, through the Solicitor ;eneral, any judgment, damages or costs recovered in such action shall be satisfied by the ommissioner, 48

TAXATION: San Beda College of LAW ALABANG upon approval of the Secretary of 0inance, or if the same be paid by the person used shall be repaid or reimbursed to him. <o such judgment, damages, or costs shall be paid or reimbursed in behalf of a person who has acted negligently or in bad faith, or with willful oppression. TITLE G STAT>T&RM &88ENSES AND PENALTIES CJAPTER I ADDITI&NS T& TAG made on the basis of such return before the discovery of the falsity or fraud! Provi,e,, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the ommissioner pursuant to the rules and regulations to be promulgated by the Secretary of 0inance, shall constitute prima facie evidence of a false or fraudulent return! Provi,e,, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (>BN3 of that declared per return, and a claim of deductions in an amount exceeding (>BN3 of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein. SEC. 03F. Interest* 1 ?A@ In "eneral* 1 There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (,BN3 per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. ?.@ 2efi'ien'y Interest* 1 *ny deficiency in the tax due, as the term is defined in this ode, shall be subject to the interest prescribed in Subsection (*3 hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. ?C@ 2elinquen'y Interest* 1 In case of failure to pay! (13 The amount of the tax due on any return to be filed, or (,3 The amount of the tax due for which no return is reAuired, or (>3 * deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the ommissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (*3 hereof until the amount is fully paid, which interest shall form part of the tax. ?D@ Interest on Extended Payment* 1 If any person reAuired to pay the tax is Aualified and elects to pay the tax on installment under the provisions of this ode, but fails to pay the tax or any installment hereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the ommissioner has authori#ed an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid. SEC. 04H. 5ailure to 5ile Certain Information Returns* 1 In the case of each failure to file an information return, statement or list, or keep any record, or supply any information reAuired by this ode or by the ommissioner on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the ommissioner, be paid by the person failing to file, keep or supply the same, 9ne thousand pesos (1,BBB3 for each failure! Provi,e,, however, That the 49

SEC. 03D. "eneral Provisions* 1 (a3 The additions to the tax or deficiency tax prescribed in this hapter shall apply to all taxes, fees and charges imposed in this ode. The *mount so added to the tax shall be collected at the same time, in the same manner and as part of the tax. (b3 If the withholding agent is the ;overnment or any of its agencies, political subdivisions or instrumentalities, or a government-owned or controlled corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed herein. (c3 the term OpersonO, as used in this hapter, includes an officer or employee of a corporation who as such officer, employee or member is under a duty to perform the act in respect of which the violation occurs. SEC. 03E. Civil Penalties* 1 (*3 There shall be imposed, in addition to the tax reAuired to be paid, a penalty eAuivalent to twenty-five percent (,?N3 of the amount due, in the following cases! (13 0ailure to file any return and pay the tax due thereon as reAuired under the provisions of this ode or rules and regulations on the date prescribedC or (,3 Mnless otherwise authori#ed by the ommissioner, filing a return with an internal revenue officer other than those with whom the return is reAuired to be filedC or (>3 0ailure to pay the deficiency tax within the time prescribed for its payment in the notice of assessmentC or (83 0ailure to pay the full or part of the amount of tax shown on any return reAuired to be filed under the provisions of this ode or rules and regulations, or the full amount of tax due for which no return is reAuired to be filed, on or before the date prescribed for its payment. (J3 In case of willful neglect to file the return within the period prescribed by this ode or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (?BN3 of the tax or of the deficiency tax, in case, any payment has been

TAXATION: San Beda College of LAW ALABANG aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty-five thousand pesos (5,?,BBB3. SEC. 04/. 5ailure of a 6ithholdin! !ent to Colle't and Remit $ax* 1 *ny person reAuired to withhold, account for, and remit any tax imposed by this ode or who willfully fails to withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this hapter, be liable upon conviction to a penalty eAual to the total amount of the tax not withheld, or not accounted for and remitted. SEC. 040. 5ailure of a 6ithholdin! !ent to refund Ex'ess 6ithholdin! $ax* 1 *ny employerKwithholding agent who fails or refuses to refund excess withholding tax shall, in addition to the penalties provided in this Title, be liable to a penalty to the total amount of refunds which was not refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return CASES and D&CTRINES ,3ut8 vs raneta 9: Phil ;<:. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. 2axation may be ma,e the implement of the statePs police power. It is inherent in the power to tax that a State be free to select the subjects of taxation and it has been repeatedly held that "irregularities which result from a singling out of one particular class for taxation or exemption infringe no onstitutional limitation.' The sugar industry&s promotion, protection and advancement therefore redound greatly to the general welfare. Thus, the contention of plaintiff that the *ct was promulgated not for public purpose cannot be upheld. ,CIR vs l!ue ;=: SCR 9. It is sai, that taxes are what we pay for civili'e, society. Eithout taxes, the 3overnment woul, be paraly'e, for lacH of the motive power to activate an, operate it . %ence, despite the natural reluctance to surrender part of oneWs hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. 2his symbiotic relationship is the rationale of taxation an, shoul, ,ispel the erroneous notion that it is an arbitrary metho, of exaction by those in the seat of power . , meri'an -ible So'iety vs* City of Manila ;>; P/I3 ?:@. It was contended that said ordinances imposing license fee on the distribution and sale of bibles and other religious literature, impair the free exercise of religion, specifically the right to disseminate religious information. As between taxation an, reli3ion, the latter prevails. ,3lado' vs* Commissioner of Internal Revenue ;< SCR A9A. The exemption under Sec. ,,(>3 *rt. HI of the onstitution only covers taxes assessed on cemeteries, churches, and parsonages or convents, appurtenant thereto and all lands, buildings and improvements used exclusively for religious purposes. These taxes are property taxes as contra-distinguished from excise taxes. In the case at bar, what&s being assessed was a donee&s gift tax not on the properties themselves. 2he 3ift tax was an excise tax upon the use ma,e of the properties, upon the exercise of the privile3e of receivin3 the properties. 2his Hin, of tax is not within the exemptin3 provision of the constitution. Therefore, the petitioner as substituted by the %ead of the Iiocese, is liable to pay the said gift tax. The exemption under Sec. ,,(>3 *rt. HI of the onstitution only covers property taxes assessed on cemeteries, churches, and parsonages or convents, appurtenant thereto and all lands, buildings and improvements used exclusively for religious purposes. , bra Balley Colle!e vs* quino ;@A SCR ;>@. 2he phrase 0use, exclusively for e,ucational purposes1 is not limite, to property actually in,ispensable therefor but exten,s to facilities, which are inci,ental to an, reasonably necessary to the accomplishment of sai, purposes

,-ishop of Nueva Se!ovia vs* Provin'e of Ilo'os Norte =; P/I3 ?=A 6xemption from payment of land tax, which refers to lots used as home of the priest who preside over the church must include not only the lot actually occupied by the church but also the adjacent ground destined to meet the ordinary incidental uses of man. ,San Mi!uel -rewery) In'* vs* City of CebuCCebu Portland Cement Co* vs* Na!a) Cebu 5ebruary A>) ;9D?. This is because ,ouble taxation is not prohibite, by the Constitution. 0urthermore, there is double taxation only when the same person is taxed by the same jurisdiction for the same purpose. In the first case, the annual business tax is a license tax to engage in the business of wholesale liAuor in ebu ity. Such license tax constitutes a regulatory measure in the exercise of police power, whereas that which is imposed by the ordinance is a typical tax or revenue measure.

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TAXATION: San Beda College of LAW ALABANG Su%'ect :atter: riminal *ctionC Tax *ssessment CIR ; PASC&R REALTM N DE;CT C&RP et. a!. ?GR No. /0E2/4, 7une 0F, /FFF@ 8acts: The I) authori#ed certain JI) officers to examine the books of accounts and other accounting records of 5ascor )ealty and Ievelopment orp. (5)I 3 for 1.-/, 1.-2 and 1.--. The examination resulted in recommendation for the issuance of an assessment of 52,8.-,8>8./? and 5>,B1?,,>/.>? for 1.-/ and 1.-2, respectively. 9n =arch 1, 1..?, ommissioner filed a criminal complaint for tax evasion against 5)I , its president and treasurer before the I9E. 5rivate respondents filed immediately an urgent reAuest for reconsideration on reinvestigation disputing the tax assessment and tax liability. 9n =arch ,>, 1..?, private respondents received a subpoena from the I9E in connection with the criminal complaint. In a letter dated, =ay 12, 1..?, the ommissioner denied private respondent&s reAuest for reconsideration (reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the T* on a petition for review. The ommissioner&s motion to dismiss on the ground of the T*&s lack of jurisdiction inasmuch as no formal assessment was issued against private respondent was denied by T* and ordered the ommissioner to file an answer but did not instead filed a petition with the * alleging grave abuse of discretion and lack of jurisdiction on the part of T* for considering the affidavitKreport of the revenue officers and the endorsement of said report as assessment which may be appealed to he T*. The * sustained the T* decision and dismissed the petition. Issues: 1. ,. Je!d: 2he filin3 of the criminal complaint with the 9O6 cannot be construe, as a formal assessment. <either the Tax ode nor the revenue regulations governing the protest assessments provide a specific definition or form of an assessment. An assessment must be sent to an, receive, by the taxpayer, an, must ,eman, payment of the taxes ,escribe, therein within a specific perio,. The revenue officer&s affidavit merely contained a computation of respondent&s tax liability. It did not state a demand or period for payment. It was addressed to the Secretary of Eustice not to the taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasionC it was not meant to be a notice of tax due and a demand to private respondents for the payment thereof. The fact that the complaint was sent to the I9E, and not to private respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue an assessment. $hether or not the criminal complaint for tax evasion can be construed as an assessment. $hether or not an assessment is necessary before criminal charges for tax evasion may be instituted. An assessment is not necessary before criminal char3es can be file,. * criminal charge need not only be supported by a prima facie showing of failure to file a reAuired return. 2he CI ha,, in such tax evasion cases, ,iscretion on whether to issue an assessment, or to file a criminal case a3ainst the taxpayer, or to ,o both. Su%'ect :atter: riminal *ction CIR ; CA G.R. No. //F200, 7une 3, /FF5 8acts: * task force was created on Eune 1, 1..> to investigate tax liabilities of manufacturers engaged in tax evasion schemes. 9n Euly 1, 1..>, the I) issued )ev. =emo irc. <o. >2-.> which reclassified certain cigarette brands manufactured by private respondent 0ortune Tobacco orp. (0ortune3 as foreign brands subject to a higher tax rate. 9n *ugust >, 1..>, 0ortune Auestioned the validity of said reclassification as being violative of the right to due process and eAual protection of laws. The T*, on September -, 1..> resolved that said reclassification was of doubtful legality and enjoined its enforcement. In the meantime, on *ugust >, 1..>, 0ortune was assessed deficiency income, ad valorem and H*T for 1.., with payment due within >B days from receipt. 9n September 1,, 1..>, private respondent moved for reconsideration of said assessment. =eanwhile on September 2, 1..>, the ommissioner filed a complaint with the I9E against private respondent 0ortune, its corporate officers and . other corporations and their respective corporate officers for alleged fraudulent tax evasion for non-payment of the correct income, ad valorem and H*T for 1..,. The complaint was referred to the I9E Task 0orce on revenue cases which found sufficient basis to further investigate the charges against 0ortune. * subpoena was issued on September -, 1..> directing private respondent to submit their counter-affidavits. Jut it filed a verified motion to dismiss or alternatively, a motion to suspend but was denied and thus treated as their counter-affidavit. *ll motions filed thereafter were denied. Eanuary 8, 1..8, private respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction praying the I)&s complaint and prosecutor&s orders be dismissedKset aside or alternatively, that the preliminary investigation be suspended pending determination by I) of 0ortune&s motion for reconsiderationKreinvestigation of the *ugust 1>, 1..> assessment of taxes due. The trial court granted the petition for a writ of preliminary injunction to enjoin the preliminary investigation on the complaint for tax evasion pending before the I9E, ruling that the tax liability of private respondents first be settled before any complaint for fraudulent tax evasion can be initiated. Issue: $hether the basis of private respondent&s tax liability first be settled before any complaint for fraudulent tax evasion can be initiated. Je!d: 51

TAXATION: San Beda College of LAW ALABANG 7rau, cannot be presume,. If there was fraud on willful attempt to evade payment of ad valorem taxes by private respondent through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance of cooperation of certain JI) officials and employees who supervised and monitored 0ortune&s production activities to see to it that the correct taxes were paid. Jut there is no allegation, much less evidence, of JI) personnel&s malfeasance at the very least, there is the presumption that JI) personnel performed their duties in the regular course in ensuring that the correct taxes were paid by 0ortune. Jefore the tax liabilities of 0ortune are finally determined, it cannot be correctly asserted that private respondents have willfully attempted to evade or defeat any tax under Secs. ,?8 and ,?/, 1..2 <I) , the fact that a tax is due must first be proved.

AONAR CASE ?Au+ust 02, /FD3@ 8acts: =atias *#nar died on =ay 1?, 1.?-. %is income tax returns from 1.8? to 1.?1 were examined by the JI). Ioubting the truth of the income that he had reported, the ommissioner ordered the investigation of the case on the basis of the net worth method. Substantial under-declarations of income were discovered. 9n <ovember ,-, 1.?,, the JI) notified *X<*) of a tax delinAuency of 52,>,B>,.// which was later reduced to 5>-1,B./.B2 upon reinvestigation. 9n 0ebruary ,B, 1.?>, *X<*)&s properties were placed under distraint and levy. 9n *pril 1, 1.??, *X<*) appealed to the T*. The T* found that *X<*) made substantial underdeclarations of his income as follows! he under-declared his income for 1.8/ by ,,2NC ?/8N for 1.82C .?N for 1.8-C 8-/N for 1.8.C .8/N 1.?BC 8.BN 1.?1. Issues: $hether or not the right of the ommissioner to assess *X<*)&s deficiency income taxes for 1.8/, 1.82 and 1.8- had prescribed at the time the assessment was made. Je!d: 9n the issue of prescription the count applied the 1B-year prescriptive period and ruled that prescription had not set in. the court opined that *X<*)&s returns were false because the underdeclaration of income constituted a deviation from the truth. The court stated that the ordinary prescriptive period of ? years (now > years3 would apply under normal circumstances but whenever the 3overnment is place, at a ,isa,vanta3e as to prevent its lawful a3ent from maHin3 a proper assessment of tax liabilities ,ue to false or frau,ulent returns inten,e, to eva,e payment of taxes or failure to the returns, the perio, of !5 years provi,e, for in the law from the ,iscovery of the falsity, frau, or omission even seems to be ina,eAuate an, shoul, be the one enforce,.

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