Tax 2 Transcript Part 2

VALUE-ADDED TAX (Sections 105 115 of the Tax Code, as amended !
!" #at$%e and Cha%acte%istics of VAT What is VAT? o o o It is an indirect tax, the amount of which may be shifted to or passed on the buyer, transferee, or lessee of the goods, properties or services. It!s not prohibited by the onstitution. When you say that VAT is imposed on the sale of goods, properties or services, does it include real properties? Are real properties sub"ect to VAT? Is VAT imposable on the sale of real properties made in the course of business? #asically, as defined, VAT is a $%& tax imposed on the gross selling price or gross receipts derived from the sale, barter or even exchange of goods, properties, or services. 'roperties ( only recently, real properties come within the coverage of VAT. #efore, VAT is not imposed on real properties. This is a big thing because if you have gone into house hunting or even condo hunting, the first $.)* value of a parcel of land used for residential purposes is totally VAT+exempt. #ut once you reach the border of $.)$* or $.,*, you add+on $%& VAT, which is -uite big. If you go condo+ hunting, you notice that condominium unit owners are offering you a strategy because under the VAT law, first %.)* of a residential house and lot including condominium unit not exceeding %.)*, lot only ( $.)*, house and lot or condo unit ( %.)* ( if it reaches more than %.)*, that!s imposable of VAT. %.) below ( that!s VAT+free or VAT+exempt. .ow what condominium unit owners are offering is that if the $ bedroom condo unit is already %.,*, they will offer to sell it at %.)* and $//0 miscellaneous charges and other charges so long as it is not attached to the house and lot or condo unit so you can get rid of the $%& VAT. What is $%& VAT of %.)*? That is 1//0. 2o, it!s a really big impact on the purchases of consumers. 2upposedly, these real properties should not be imposed of VAT ( supposedly lng because it!s not a consumption. #ut then it!s covered by properties, that is found in 2ecs. $/) 3 $/, of the tax code. We can do nothing about it except buy small portions of parcel of land. 4ou cannot even escape. If you purchase % parcels of land at $* each, will you be sub"ect to VAT? It depends. 4ou can escape the VAT so long as the % parcels of land are not ad"acent to each other. If it!s ad"acent lots ( so a total of %* ( you pay the VAT because that!s more than $.)*. If it!s not ad"acent, then not sub"ect to VAT because for $* each, it!s not more than $.)*. What is the nature of VAT and what are its characteristics? Is it a regressive tax or is it prohibited by the onstitution?
Is it an indirect tax or direct tax? o Indirect. Why is it an indirect tax? 2ince in principle, the VAT is designed to be borne by the consumers, and the sellers are merely acting as tax collectors.
Taxation Transcription. Midterms 2011.by USC Law EH 40 C!ass 2012
Whose liability is VAT? Is it yours or the supermar5et owner if for example you buy wine, which is sub"ect to VAT, in the supermar5et? Who has the statutory liability of the VAT? The supermar5et owner or the seller because VAT is a tax on the sale, barter or exchange of goods, properties or services. Whenever VAT is not paid to the government for a sale of something made in the course of business, the government does not run after the consumer, who is supposed to shoulder the burden. The government will have to have a person or a "uridical entity who is liable for it. It!s easier to trac5 down businessman than the purchase or consumer. That!s why the VAT is still a statutory liability of the businessman+seller as a general rule. Although it is the consumer who will ultimately shoulder the burden because every time a VAT is collected by the government, it is already assumed that that VAT has been collected from the consumers.
VAT is a regressive tax. The 'hils. has no regressive system of taxation because regressive system of taxation, which is the opposite of progressive, tax rates increases as the income decreases. VAT is simply a tax which is regressive in nature because the impact of VAT increases as the income of the consumer decreases. 2o it has a higher impact on low+income earners. Is it violative of the constitutional provision which says that we should develop a progressive system of taxation? o o o o o .6, because there is a need to collect indirect taxes as well because it fully supplements the income tax. It is a business tax that has long been there for more than 1/ /r 7/ years. VAT by its very nature, is regressive. #ut the onstitution does not really prohibit the imposition of indirect taxes 8which is essentially regressive9. What it simply provides is that ongress shall :evolve a progressive system of taxation;. <irect taxes are to be preferred and as much as possible, indirect taxes should be minimi=ed>but not avoided entirely because it is difficult, if not impossible, to avoid them. ?egressivity is not a negative standard for courts to enforce. The provision in the "udicially enforceable rights. onstitution is placed as moral incentives to legislation, not as
What do you mean by VAT is a tax on consumption? o In the case of I? vs. *agsaysay @ines Inc., the 2 said that VAT is ultimately a tax on consumption even though it is assessed on many levels of transactions on the basis of a fixed percentage. It is the end+user of the goods or services who ultimately shoulders the tax as the liability therefrom is passed on to end+users by the providers of such goods or services. 2o the final purchase of the end+consumer represents a final lin5 in the production chain that involves several transactions and several asset consumptions. It simply means that every time there is a passage of the goods, properties or services from one hand to the other in the course of trade or business, generally, a VAT is imposed. #y the word itself, until it rests in the hands of the final consumer who does not intend to sell the product in the course of trade or business. 2o if there are $/ production chains or lin5s in the passage of $ and the same product, there will be $/ VATs that will be imposed. The reason why it!s called VAT is because it is a tax on every value that the seller adds to it.
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AxampleB (Refer to illustration below) A fisherman spent C/ pesos in catching fish. 2old to the mar5et at $// pesos, does it impose of the VAT? .6. / because it is still an agricultural product. 4ou will learn later on that agricultural products in its original stage which has not undergone chemical processes are still exempt from VAT. The mar5et vendor sells it to *ADA sardines for %//, will it be sub"ect to VAT? .6T as yet because it did not undergo the process of production. #ut if *ADA sardines sells it to a wholesaler for 1//, will it be sub"ect to VAT? 4A2. What!s $%& of 1//? That!s 1,. ??????? aren!t this sub"ect to presumptive tax which is 7& of the purchase value???? B8 EEEE9 The wholesaler sells it to a retailer of a supermar5et for 7//, how much will be the VAT? What!s $%& of 7//? 7C. If the retailer sells it to a hotel chain for )//? 2o $%& of )// is ,/. When the hotel sold it to the consumer who dined in the hotel for ),/, it is the consumer who shouldered the VAT from the original C/. In the 'hils., we follow the tax+inclusive sales. 2o whatever you see in the mar5et, assuming it is a vatable good, in the price, there is already a VAT. The selling price is inclusive of the VAT. Why is VAT a tax on the value added? If you reverse it, it!s a tax on the value added for a simple reason that every time in the production chain that it actually paid for the VAT on what it sold, it can deduct the VAT that it paid for the puhunan. What the government will only collect from the wholesaler is $% pesos, not really the 7C because every time that you are able to sell a product, you are allowed to deduct the tax that you have also paid from your purchase. In your purchase of these products from originally 1//, you paid VAT of 1,, you were a consumer in so far as the wholesaler is concerned. 4ou are to deduct the 1, puhunan input tax against the output tax on your sales because VAT is a value added tax on the sales. Ang lugi is the consumer who really paid the ,/ pesos VAT.
"is#erman $ Mar%et &endor $ ME'( sardines $)#o!esa!er$ *etai!er- Hote! c#ain$ Cons+mer ,0 100 / -0200 / -000 / . 01212 'S3 $ . 400 /4, 01212 44, -00 /.0 01212 -.0 .0 $ 4, 4 12 -.0
4, $ . 4 12
Why is this a tax on value added? o #ecause VAT is simply that what you really pay to the government as a statutory taxpayer is simply the VAT on the value that you have added. Fow much value have you added? $// dba. 4ou purchase something at 1// and you sell it at 7//. What is the VAT on the $//? $%. 2o this $% pesos is what you will pay to the government.
#ut bottomline, it is the consumer who will ultimately shoulder the burden of the tax because the consumer who pays directly to the hotel will have nothing against which to deduct it from because it!s not selling. 8TiuB To be further discussed once we reach output+ input tax9
!!" A&&'ica('e La)s The applicable law in VAT is still ?A C7%7 ( the $GGH Tax ode, as amended lengthily by ?A G11H in %//).
!!!" Stat$s in *e'ation to VAT What is the status of every person, whether "uridical or natural, in relation to VAT? o o o o $. A person in relation to VAT may be sub"ect to VAT at $%& or /& or %. Fe may be exempt from VATI it depends on the status of the person or the type of transaction that he is entering into Avery person who, in the course of trade or business, sells, leases goods, properties or services sub"ect to VAT is re-uired to register under the VAT system if the aggregate amount of his actual or expected gross sales exceed $.)* during any $%+month period. 2o are you saying that if you are exempt from VAT, no way will you be allowed to register for VAT? 'ersons or transactions, whether sub"ect to VAT, whether the VAT rate may be /& 8=ero+rated VAT9 or $%&, they!re re-uired mandatorily to register for VAT purposes. .on+registration would mean penalties such as suspension of business operations, etc. If you belong to an exempt+person who is not liable for VAT or your transactions in the course of your trade or business are not vatable, such as fish vendors selling fishes in its original state, then, you!re not actually re-uired to register for VAT purposes but there are instances when you have the option to register, meaning it!s an optional registration depending on the benefits that you will get from VAT registration.
Who are re-uired to register for VAT purposes? Are we, as individuals, re-uired to register for VAT purposes?
!V" +e%sons Lia('e to VAT Who are the persons liable for VAT? o A. 2eller or Transferor 8including non+stoc5, non+profit entities engaged in the course of trade or business9 $. of goods or properties %. of services
'roblemB If you sell a motor vehicle at least thrice every calendar year, can you be considered as sub"ect to VAT? 2ay for example, you but a motor vehicle but 1 months after, you get tired of seeing it, you sell it then you buy, you sell it, you buy, you sell it. Are you covered by the phrase :person sub"ect to VAT;? Aven if the motor vehicles that you!re selling are your personal vehicles but you simply wanted to change it as often as you change your cellphones? What comes within the coverage of a seller or transferor? Who is a seller? Who is a transferor? o o 2eller or transferor engaged in the course of trade or business. What do you mean by :in the course of trade or business; for VAT purposes? It means the regular conduct or pursuit of a commercial or an economic activity, including transactions incident thereto, by any person regardless of whether or not the person engaged therein is a non+stoc5, non+profit organi=ation irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests, or government entity. 4A2.
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<oes it include the conduct of an activity by a non+stoc5, non+profit entity? Fow about a government entity? 2o are you saying that the government can be sub"ect to VAT? Are government entities exempt from VAT? Would the sale by the .ational <evelopment ompany 8.< 9, a government entity, of ) shipping vessels to a shipping line company, a private entity, pursuant to the declared policy of the government for privati=ation of the operation of shipping vessels sub"ect to VAT? Would only transactions in the course of trade or business be sub"ect to VAT or would it include other transactions as well?
56C
- S#ippin7 8esse!s 8(T9
S#ippin7 Company
When you say that VAT is imposed on the gross selling price or gross receipts of every sale, barter or exchange of goods, properties, or services made in the course of trade or business, it means to say that there is a regular conduct or pursuit of economic or commercial activity including transactions incidental thereto or even transactions entered into by a non+stoc5, non+profit entity, irrespective of where the proceeds will be used and transactions by the government. 2o would .< be sub"ect to VAT for the sale of the ) shipping vessels? According to I? vs. *agsaysay, the 2 said that this transaction is not sub"ect to VAT because it was not done in the course of trade or business of .< but it does not mean to say that government entities are not sub"ect to VAT. If the transaction is in the course of trade or business of a government entity or even non+stoc5, non+profit institution, it will be sub"ect to VAT. This is one where
the extent of the tax is far+reaching. Aven government entities or non+stoc5, non+profit so long as you can identify that these activities are in the course of trade or business. The sale in this case is not in the course of trade or business because the reason for selling was pursuant to the policy of the government to relin-uish its right over the shipping vessels due to the privati=ation policy. o #. Importer 2hould you be engaged in the course of trade or business to become sub"ect to VAT as an importer? Decem(e% ,, ,010 'A?26.2 @IA#@A T6 VATB o $. 2eller or transferor of goods, properties or services 4ou can call someone who provides service as a seller of services and it should be made in the course of trade or business WFAT <6 46J *AA. #4 :I. TFA 6J?2A 6K T?A<A 6? #J2I.A22;? They are regular conduct for economic or commercial activity including transactions incidental to the main activity of the seller or transferor. .6. The importer, whether an individual or corporation and whether or not made in the course of his trade or business, shall be liable to pay VAT. What do you mean by sale or exchange or services? What 5ind of services are sub"ect to VAT? 8TiuB to be discussed next meeting9
<6A2 IT I. @J<A A TIVITIA2 6K A .6.+2T6 0 .6.+'?6KIT A.TIT4 6? 6?DA.ILATI6.? 4es. 4ou 5now condominium corporations as we have discussed in Tax $, condominium corporation actually is an association of condo+unit owners, if it collects association dues and common charges, we said it is not sub"ect to income tax. Is it sub"ect to VAT? Will there be an instance that any non+stoc5, non+profit organi=ation or a condominium corporation be sub"ect to VAT? 4A2. As we have said, condominium corporations usually collect association dues and common charges for electricity, water, etc, for the whole condominium building. .ow if and when the condominium corporation or association collects beyond the actual charges of electricity or water, and other utilities, the difference will be sub"ect to income tax as well as VAT. #ecause it is already being conducted economically and regularly. 2o it!s already an income+producing activity of the condominium corporation, but of course the association dues will not be sub"ect to income tax nor vat. There are various non+stoc5 non+profit organi=ations undergoing activities wMc are actually for profit in the guise of raising funds. .ow, the definition of :in the course of trade or business; for VAT, even goes to the extent of saying that regardless or irrespective of how the proceeds will be used by these non+stoc5 non+profit organi=ations so long as the activity falls in the regular course of trade or business, it will be sub"ect to VAT, even government entities.
DIVA *A A 2A@A 6K 2A?VI A TFAT I2 2J#NA T T6 VAT? @ease or rent of an officeMcommercial space ( If you!re a lessee and you pay a monthly rental of %/0, you should pay on top of that rental amount $%& VAT wMc the lessor will have to collect. <ining in the restaurant ( you!re not actually buying goods or properties or foods, what you!re buying is the service of these restaurants. 2 B The definition of :sale or exchange of services; only includes as vatable transaction the leasing of motion pictures, films, tapes and discs. @easing of motion picture films does not include showing them or exhibiting the motion picture films itself. In fact, when it is leased, it is service that you are rendering whereas if it is shown, you are giving them recreation. That!s why liability for those showing motion picture films does not fall under VAT but under amusement tax. 4ou have the burden of paying the amusement tax.
I2 TFA 2A@A 6K 2A?VI A 2J#NA T T6 VAT I. @J<A TFA 2F6WI.DMAOFI#ITI6. 6K *6TI6. 'I TJ?A KI@*2?
o %. I*'6?TA?
Who is an importer for VAT or tax purposes? An importer is a person who brings into 'hilippine ports goods or properties from outside the 'hils. o If you bring into the 'hilippine ports a good or a property from another country, you are actually importing.
*ust you be engaged in trade or business for you to be an importer sub"ect to vat? .6. 'ersonally, if you would wish to import a particular machinery or a vehicle, would you be liable for VAT even if you!re not engaged in selling motor vehicles or e-uipments? 4A2. A. 46J I*'6?T 2A?VI A2? 4es. I2 IT 2J#NA T T6 VAT? Kor tax purposes, can the #6 services? o 5eep trac5 of importation of
Kor VAT and for customs duty purposes, if you tal5 about importation, it refers to importation of goods and properties but not services.
Whenever a particular property or good is imported in the 'hils., it will be sub"ect to VAT as a general rule so long as it is sub"ect to the proper customs duties. It may be exempt from VAT so long as it will also be exempt from customs duties. <o you 5now of an importation that is not sub"ect to vat? D?B Importation, whether made by a person who is in the course of trade or business or whether importing it in his personal capacity, will always be sub"ect to VAT. Is there an exception? o 4A2. .ot all importations are sub"ect to VAT. AOA*'@AB When you bring in the 'hilippines personal household effects not in commercial -uantities wM the intent of using here in the 'hilippines, you!re either coming here as a bali5bayan or as a .? finally deciding to resettle in the
'hils ( all personal household effects that you!re bringing, except vehicle, aircraft machinery, etc, are not sub"ect to VAT or customs duties. AO'6?TATI6.. If you!re an exporter, will you be sub"ect to vat? 4A2, but D?B 2ub"ect to =ero+percent VAT rate.
What is the reason why importers are sub"ect to VAT regardless of whether or not engaged in trade or business? Why do we have to charge huge taxes on importations? ross border doctrineMdestination principle ( Whenever there is a sale of goods or services, it is sub"ect to VAT if made in the course of trade or business in the 'hils. Any sale of goods or services outside the 'hils. is the beyond the reach of VAT. We actually frown upon importations because importations decrease foreign currencies bac5ing our local legal tenders and in order to regulate goods coming in the 'hilippines, we sub"ect them to vat on top of custom duties and also for protection of the localMdomestic industries.
1. .6.+?A2I<A.T 'A?26.2 WF6 'A?K6?* 2A?VI A2 I. TFA 'FI@2. *J2T FA #A A.DADA< I. TFA T?A<A 6? #J2I.A22 I. TFA 'FI@I''I.A2? 2A . $/) .I? . The rule of regularity, to the contrary notwithstanding, services as defined in this by nonresident foreign persons shall be considered as being in the course of trade or business. ode rendered in the 'hilippines
D?B Kor VAT, you always loo5 at the regularity of the conduct of trade or business, except importers. #JT, when it comes to determining the VAT liability of non+resident persons rendering service here in the 'hilippines, we disregard the rule of regularity. 2o any service rendered by a .6.+?A2<IA.T 'A2?6., whether natural or "uridical, even if it is an isolated transaction, case or service, it will be sub"ect to VAT because the law treats it as done in the course of trade and business. AOA*'@AB Any foreign artist for a $ night concert in the 'hils. or modeling service or modeling contract and goes bac5 to his own country, sub"ect to VAT.
WFAT IK TFA .6.+?A2I<A.T 'A?26. 2A@@2 D66<2 6? '?6'A?TIA2 FA?A I. TFA 'FI@I''I.A2, .6T I. TFA 6?<I.A?4 6J?2A 6K T?A<A 6? #J2I.A22, I. A. I26@ATA< A2A, I2 IT 2J#NA T T6 VAT? .6. 2A . $/), it only mentions of non+resident persons performing services in the 'hilippines. .ow if a non+resident person sells goods or properties in the 'hils. not in the course of trade or business, he is not sub"ect to VAT. 6nly when he sells it in the course of trade or business will he be covered by vat.
Vat is actually based on consumptions within the 'hilippines. .ow if you purchase services from a non+resident who comes to the 'hilippines and render services here, even if it!s not in the course of trade or business, then it was consumed in the 'hilippines, it will be sub"ect to vat. #ut if you purchase goods from a non+resident person that is simply brought in the 'hilippines, dba if you purchase raw materials, etc., it will not be necessarily sub"ect to vat unless it passes through importation.
#ut the rule on regularity exception does not include goods, only services.
.ow in vat, there are persons liable for vat, you will have transactions sub"ect to vat. 4ou maybe a person who is not liable for vat but since you have entered into a transaction that is vatable, you may have to give up $%& of that value and shoulder the vat. V" T*A#SACT!-#S SU./ECT -0 VAT1 $. Transactions made in the course of trade or business re-uiring rule of regularity except non+resident aliens performing services in the 'hilippines. %. Transactions made incidental to the principal business. o WF4 I2 IT 2J#NA T T6 VA@JA A<<A< TAO? An incidental transaction is something that is necessary appertaining to or depending upon another business which is named or termed as a principal business of the seller or transferor. 2o in the course of trade or business, you have your main business and you have your transactions incidental to your main business and it is sub"ect to value added tax. AxampleB *anufacturing business, what is an incidental transaction that you can derive from your manufacturing business? o <elivery charges, handling charges are incidental transactions, which are sub"ect to value added tax.
I. I<A.TA@ T?A.2A TI6. V2. I26@ATA< T?A.2A TI6. Is an isolated transaction sub"ect to vat? .6. I26@ATA< T?A.2A TI6.B If a company, that is engaged in leasing of motor vehicle, decides to sell the motor vehicle because it is already non+performing or obsolete. Incidental or isolated? 2ub"ect to vat or not? 2J#NA T T6 VAT because it is an incidental transaction since that property is part of the business itself. Along the way of your business, you meet these 5ind of events ( obsoleteness ( even computer e-uipments used in a manufacturing company that becomes obsolete is considered as an incidental transaction when it!s sold. It is incidental to the business because that property is part of the business itself and you will actually meet those 5ind of transactions more often than isolated.
Incidental transaction is sub"ect to vat because it is included in the definition of :in the course of trade or business;. Isolated transaction is not included in the definition of :in the course of trade or business;. Axample of isolated transaction 8not in the course of trade or business9 in a manufacturing businessB *anufacturing company may enter into an isolated transaction of selling of real property or of a manufacturing plant or etc. perhaps when a division of its company closes. 2ince you are selling a real property, you don!t intentionally sell it in a regular basis and it does not depreciate in value, it will be considered as an isolated transaction not sub"ect to vat. Another example is when it sells a trademar5, goodwill, etc., it is isolated, it is not sub"ect to vat, you don!t sell it in the usual course
of trade or business. 1. Importations, except those conditionally free importation, meaning exempt if you comply wM documentary re-uirements, free from vat. o o Axportation not sub"ect to vat unless it is made in the course of trade or business. Why is a subse-uent sale of an imported product that has entered in the 'hils. tax+free sub"ect to vat? 2ay for example the subse-uent sale is not made in the ordinary course of trade or business, would it still be sub"ect to vat? orporation A imported a product into the 'hilippines free of tax, now corporation A, founding no use of the property sold it to an individual, not in the course of trade or business, lets "ust say in an isolated case. Why is it considered as a vatable transaction? There are % cases of subse-uent sale of tax+free importationsB $. Importation of a tax free product regardless of the status of the importer subse-uently soldI or %. Importation of the product that is taxable but exempt because the status of the importer is tax+exempt and subse-uently sold to a non+exempt person If the original importation refers to the exemption of the product itself, its subse-uent sale would not be sub"ect to vat. The number of passages or transfers from one person to another will not matter if the exemption is on the product itself ( not sub"ect to vat. #ut if the exemption of the original importation was due to the status of the importer being tax+free, its subse-uent sale, whether or not made in the course of trade or business, would be sub"ect to vat. The reason there is to preventMavoid circumvention of the law. If you loo5 into the economic =ones, these corporations are exempt from vat, customs duties on goods, e-uipments, even vehicles coming into the 'hilippines. If you!d want to purchase a vehicle that is outside of the country and purchase it tax+free, have it been no provision of this law, you "ust have to simply re-uest these companies within the economic =ones, who are tax+exempt, to import the vehicle and you will purchase it from them, you avoid the tax. #ut because of this provision, you will be sub"ect to vat because the law treats you as a technical importer. The subse-uent sale of these tax+free importations is considered as another importation sub"ect to vat or customs duties. 7. 2ubse-uent sale of tax+free importation
W6J@< TFA TW6 2J#2APJA.T 2A@A 2J#NA T T6 VAT?
V!" T%ansactions Deemed Sa'e Transactions deemed sale. Why is it sub"ect to vat? Is it really a sale? .6T ?AA@@4. onsumption .ot in the 6rdinary ourse of Trade or #usiness
$. Transfer, Jse or o
$. Transfer, use or consumption, not in the course of business, of goods or properties originally intended for sale or for use in the course of business AxampleB When a vat+registered person withdraws goods from his business for his personal use
There are movements in your business wMc are not necessarily made in the ordinary course of trade or business. 4ou consume a particular product of your business, you use, you transfer, although the consumption, transfer or use is personal and not in the course of trade or business, it maybe considered a transaction sub"ect to vat being a transaction deemed sale if what you are transferring, consuming or using it is a good or property that is originally intended for sale or for use in the course of trade or business. Why? #ecause you are depriving the government of collecting value added tax had that property been sold to a third party or a consumer, so in order to cover up for that deprivation of taxes that could have been collected or due, the government will collect from you vat based on the mar5et value of the product or inventories.
<ecember H, %/$/ %. <istribution or transfer to shareholdersMinvestors and creditors %.$. <istribution or transfer to shareholdersMinvestors o What do you mean by shareholdings? It is the interest in the corporation. 4ou don!t give out your interest in a corporation. 4our interest in the company remains as your capital and whatever is earned by your interest in the company is called profitsMdividends o 2o what is it that are transferred to stoc5holdersMinvestors that are sub"ect to VAT? There is distribution M transfer of QQQ as profits to shareholdersMinvestors o 'roperty dividend. #ut what 5ind of properties? .ot all property dividends are VAT+able.
'roperty dividends which constitute stoc5s in trade or properties primarily held for sale or lease distributed to stoc5holdersMsharholders. Ax. In a furniture manufacturing business what may be given to 2hareholdersMinvestors that can be sub"ect to tax? Their furnitures. o 2hareholders and investors in corporations have invested capital to expect something in return as dividends. We have indentified many types of dividends before( property dividends, cash dividends, li-uidating dividends, etc and these types of dividends if not categori=ed as stoc5 dividends will be sub"ect to income tax. #ut there is one type of dividend that is not only sub"ect to income tax but maybe exposed to the liability for payment of VAT. This is property dividend distribution. When properties are distributed as dividends would fall under the category of goods which are intended for sale as part of its inventory or used in business. o The reason here is thatB
Fad this properties not been distributed as dividends and sold to consumers, the government would have collected VAT from the sale, or Fad the corporation first sold this properties in order to have it converted into cash and later on convert it to cash dividends, the government could have collected VAT. 2o in every business, whenever there are inventoriesMgoods primarily held for sale, the government has already earmar5ed or put attention into those inventories and expects to collect the entire $%& VAT on these items. Anything that has been missing, whether it!s been disposed of in an outright sale or personally consumed by the owner or distributed as profitsMproperty dividends by the corporation to its stoc5holders, this does not deviate from the payment of VAT, which the government already expects to collect. o 2o if there are $// furnitures in the business, )/ items of which are distributed to the owners. The government treats it as a deemed sale transaction sub"ect to VAT. If it!s a property dividend you not only pay the withholding tax of $/& for resident citi=ens, %/& for .?A+AT#, %)& for .?A+.AT#. 6. top of these income taxes withheld by the corporation, the corporation may also be paying $%& VAT. 2o the best way to distribute dividends, is not really thru property dividends but cash. #ut if you really have no cash, your option may only have to sell your inventories first then pay cash dividends. #ut still did not avoid $%& VAT. %.% <istribution or transfer to creditors o <istribution or transfer of goods that are originally intended for sale or used in business distributed to the creditors for the purpose of paying debts. o In some instances you might be paying your creditors not in cash, if you are not li-uid, but offer to pay in goods. And if the goods that you are transferring to your creditors in settlement of your obligation is eitherB o o o is a good that is intended originally for sale or part of your inventory or is a good that is used in business
which could have gathered VAT had it been sold first to consumers and the proceeds pay the creditors this will be sub"ect to the VAT, if you use the shortcut of paying these goods to the creditors. o What value should we base for the VAT? AxB If your indebtedness is 1* and you!re engaged in a realty business. 4ou used up one subdivision lot to pay off your debt of 1* and the selling price of the property is 1.) *. The creditor gladly accepted it. o o What is the basis of your VAT? The indebtedness of 1* or the K*V of 1.)*? VAT is (ased on the 2a'$e of 3oods o% &%o&e%t4 that 4o$ a%e se''in35(a%te%in35exchan3in3 and the value of that property is 1.)*. 4ou do not loo5 at the value of indebtedness because had you sold the property for 1.)*, you could have been liable to the government
for $%&. Fow about if the value of the property is %.)* and the creditor accepted it. o The base is still the value of the property. Any difference is considered a condonation of indebtednesss sub"ect either to income tax or donor!s tax. o o o K*V at the time of payment since it is the time that it has been sold Fow about if it!s services you use to pay off the debt? If you are .6T primarily engaged in rendering that service It!s not VAT but income tax AxB Kree ?ent 1. onsignment of goods Ax. *r. ?D is into the business of selling clothes and he consigned the ?TWs to *s. *6 o When is the rec5oning point for the imposition of VAT ?egardless of W6. you were able sell the goods, so long as it is not withdrawn by *r. ?D within ,/days from consigning it, VAT has to be collected o o Who is deemed the statutory taxpayer? *r. ?D because he is the seller. *s. *6 is only the purchaser. Fow to avoid payment of VAT in this situation? 8a9 ?eturn the goods, or 8b9 The consignor withdraws the items before the ,/+day would lapse and reconsign it again. 6nly if it!s VAT+able in the first placeI if it is not covered by the exemption li5e the first $/,/// for residential unit. 4ou base it on the valued at the time the exchange too5 place. Kor it to be covered by VAT, it has to be something that the government would have expected to collect VAT
- These supermar5etsMdepartment stores are actually holding most items under consignment basis and in order to avoid VAT being collected by the government from the consignor it would have to be returned before the lapse of the ,/+day o AxB if you consign $// items and on the first day you sold $ item, that item is considered sold. And if ,/days would lapse and the remaining items has not been returned, everything is considered sold, the remaining items are considered sold. .ote that consignment does not involve physical change of the goods consigned 8e.g. flour to bread9
o Ways o o o -
If you convert that, it!s actual usage and it!s considered sold.
7. ?etirement from or cessation of business $. Antirely stop business %. hange business form 8e.g. from sole proprietorship to partnershipMcorporation9 1. *ergeMconsolidate
If you cease operations or retire your business, why would you be paying VAT when no sale of good actually too5 place? o Nust li5e any other transactions deemed sale, whenever it concerns of a property that is originally intended for sale to consumers, the government is already eyeing the collection of VAT for all these items of inventories. o What is peculiar in retirement or cessation of business is that you are not actually ma5ing any transfer nor distribution, you simply stop business operation or continue with another type of business operation.
- 6ne of the reason why it!s also imposed with VAT is that these inventories actually form part of your earlier purchases from which you claim tax credit thru the input taxes which if you do not declare any output tax or VAT as if deemed sold it would have deprived the government, not only the VAT of the those items left at the time of cessation but also depriving the government of the input taxes that you have claimed when you purchased the items. 2o it!s a double whamming for the government. There are many types of retirement from or cessation of business that will be considered transactions deemed sale, includingB o o o o hange of ownership of business 8single proprietorship to corporation9I <issolution and reation of a new partnership ta5ing over the new business. hange in business activity from VAT+status to VAT+exempt. .ow this is "ust li5e you cease VAT operations but not really your business. .ow if you move from being vatable to exempt eitherB 8$9 because you have optionally registered from VAT even if you are not vatable in the first place or 8%9 you reali=ed that you are not going to meet the $.)* mar5 for any $%+month period, you want to be exempt na after the irrevocable etc etc. 8we will reach that once we are in the second page9. o #ut the point is once you become free from VAT registration, you move to the next phase of being exempt. It will be treated at that point a retirement or cessation of your VAT operations. Any inventory at that point will be sub"ect to VAT in order to cover for the input taxes that
Another type of cessation of business but not really stopping the business is $ and %B
you have claimed when you purchase these items for sale. V!!" VAT *ates What are the different VAT %ates involve in VAT? o $%& and /& When did we increase our VAT rates from $/& to $%&? o The amendments to the provisions of VAT in C7%7 came about in ?A G11H which too5 effect Nuly of %//). In that law, G11H, ongress stipulated that VAT may be increased from $/ to $%& if the D.' factors will be met and the increase shall be promulgated by the 'resident. It will be easy to meet the factors re-uired so less than a year after in Kebruary of %//,, 'resident Arroyo increase the tax rate from $/& to $%&. - Is this not unconstitutional? Is she not venturing into lawma5ing or promulgation of statutes which is not covered by the executive branch of the government? Is this not violative of the non+delegation of the authority to promulgate laws that remains exclusively to ongress? o .oE o It is only ministerial on the part of the 'resident to increase the rates as provided by the standards and parameters set by ongress in the first place. Without those standards and parameters, it would have been illegal for 'resident Arroyo to increase the rate from $/ to $%& because the provision of the law cannot be changed without an act of congress. - What is covered by /& vat? Why do we even consider this 6e%o-%ated or sub"ect to =ero? Why not "ust say exempt from tax? I2 there a difference between the two? o There is a big difference. It may be similar in a sense that whenever a seller of transaction will not collect VAT from the consumers, it will not pass on VAT to the consumers and in turn will not remit VAT to the government. #ut they are different in the sense that in =ero+rates, whatever purchases you have and you have paid VAT in your purchases, you recogni=e it as a credit against the =ero. o 2o later on, you file for a refund. 2o whatever VAT you paid to your supplier, you will recogni=e it as a VAT. I. exempt sellers, whatever you paid input VAT to your suppliers, you do not recogni=e it as a VAT. 4ou simply recogni=e it as part of your cost of purchase. What is the dominant transaction sub"ect to /&? o Axport sales ( in order to encourage inflow of foreign currency. Why is sale of gold to #2' =ero rated? Why not exempt? o If you loo5 into the transactions sub"ect to =ero percent you will 5now that there is an underlying reason why they extend favor to these type of transactions, either we encourage exportation of certain products in the 'hilippines in order to have inflow of foreign currency, in order to strengthen the reserves we have with the legal tender we are issuing. *ore of these transactions are intended for the economy. ross #order <octrine or <estination 'rinciple What is cross+border doctrine?
o .o VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial borders of the 'hilippines. IK it is intended for consumption abroad, no VAT shall be imposed on that item that you are selling for abroad. o An actual export of item will be considered free from VAT. #ecause if it physically exported outside, it is deemed that consumption is also outside. #ut if you loo5 into the enumeration of these transactions, you will notice that there are sale delivered in the 'hilippine territory but sub"ect to =ero+rate. #ut there are re-uisites to follow. Is cross+border doctrine same as destination principle? o The essence of both are the same. 6ne underlying principle. Where it is destined for consumption will the VAT be collected. If the consumption is destined for abroad, no VAT will be imposed but if destined for consumption here in the 'hilippines, then it will be sub"ect to VAT. That is why services rendered by non+residents even in an isolated case will be sub"ect to VAT because the consumption of the one who hired the non+resident, consumption will be in the 'hilippines. o 2light difference is that in cross+border doctrine it mentions of territorial borders, beyond the territorial borders of the taxing "urisdiction of the 'hilippines. In destination principle, so long as goods and services are destined for consumption in another country, then it not be sub"ect to VAT. o As a general rule, our "urisdiction uses the destination principle or cross+border doctrine as a basis for the "urisdictional reach of the tax. We can only tax wherein it is consumed in the 'hilippines. onsumption sub"ect to VATB It is can be categori=ed to threeB 2ale of goods, property or service. ?AA@ '?6'A?T4 2ale of real property not primarily held for sale, is it sub"ect to VAT? o It will depend on who is selling it. If the seller of the real property is in a realty business 8sellerMlessor9, whenever you sell real property it will be automatically sub"ect to $%& VAT. o #ut a real property may be sold by an individual person not into business or a corporation that is into business but not real property business. If seller is a person not engaged in trade or business, forget about VAT.
- If the seller is a corportation that is not engaged in realty business, it may be sub"ect to VAT or may not be sub"ect to VAT depending on the use of property and how was it sold. o Was it sold incidentally or isolated? If isolated, no VAT. o If incidental, not held for investmentMspeculative purposes but part of that which is used as an office space etc, it may be sub"ect to VAT. It will be on a case+to+case basis. .ow, when you say sale of goodsMproperty in the course of trade or business, property here usually we mean property sold by a realty business. o We have learned last meeting that if the property sold by one engaged in realty business is a residential unit $.)* exempt if residential lot, %.)* or below still exempt for residential house and lot. Anything beyond this amount is sub"ect to tax.
What if the property sold is a commercial lot sold at $*? Is it sub"ect to VAT if seller is in realtyMleasing business? o 4es. If it is a commercial lot or any type of lot aside from residential, there is no threshold or limit or ceiling for exemption. Averything is taxable. If the one selling is in a realty business.
2A?VI A2 Kor services, is a domestic common carrier by air or sea sub"ect to VAT? 4es. o o o o o o #y land? If it is with regards to persons, 1& percentage tax. #ut if cargoMgoods, it will be sub"ect to $%&VAT. It is sub"ect to VAT. #ut there are exemptionsMdiscount for senior citi=ens9. .on+life ( sub"ect to VAT @ife ( not sub"ect to VAT Automatic ( the best example is export sale. Denerally the actual exports of goodsMsupplied services abroad
2ale of electricity?
.on+life Insurance companies? Kire insurance? Kidelity insurance?
What is the difference between effective and automatic =ero+rated transactions? o Affectively =ero rating ( it is as if it is =ero+rated. 4ou associate it with sale of goods or supply of services to those entities which are I. the 'hilippines but are granted indirect tax exemptions by special laws or international agreement. @i5e 'ALA companies.
DECE7.E* 8, ,010 - There are certain transactions entered into by VAT registered persons that are considered as =ero+rated. 2o you have to ta5e note in order for a transaction to be =ero+rated, the seller has to be VAT registered. o What did we say earlier as to VAT registration? Who are re-uired to register under the VAT 2ystem? It is both persons who are 8$9 sub"ect to the $%& vat or 8%9 sub"ect to the /& vat.
If no VAT registration is made and it is an export sale, we cannot that consider that as =ero+rated, it is simply an exempt sale.
#ut still the effect as we have said, in so far as the passing on of the tax to the consumer is the same. .o value added tax will be passed on or shifted to the consumer in both =ero+rated transactions and exempt transactions. 2o it will differ in so far as claiming input taxes 8which at this point you are still not very well verse9. !X" T*A#SACT!-#S SU./ECT T- 9E*--*ATE 2o let!s proceed discussing the different =ero+rated transactions. 9E*--*ATED -0 :--DS A#D +*-+E*T!ES1 What are the =ero+rated sale of goods under the law 8without reading9? o o $. Axport 2ales %. Koreign urrency <enominated 2ales
o 1. 2ales to persons or entities whose exemption under special laws or international agreements to which the 'hilippines is a signatory effectively sub"ects such sales to =ero+rate. Axport 2ales o 8$9 If it!s an export sale o What do you mean an export sale? The sale and actual shipment of goods from the 'hilippines to a foreign country. 2o if we sell goods to a consumer who is outside the 'hilippines, we can categori=e that as an export sale and we get the benefits under the =ero+rated tax system? .o. o What are the export sales under the law which can result to =ero+rating of the sales? KI?2T. Jnder the law, the sale and actual shipment of goods from the 'hilippines to a foreign country irrespective of the shipping arrangement that may be agreed upon, can be considered as an actual export sale. #ut there are other % re-uirementsB 8a9 'aid for in acceptable foreign currency or its e-uivalent in goods or services 8b9 And accounted for in accordance with the rules and regulations of the #ang5o 2entral ng 'ilipinas. o What does :accounted for in accordance>; mean? <oes payment have to be made or coursed through #2'? It means it must be in accordance with the rules and regulations of the #2'. .ot necessarily coursed through #2'.
What is the basic difference or what are the differences between an actual export sale and an export sale that is not directly made? 8.ot answered9 2A 6.<. Another 5ind of sale that may -ualify as a =ero+rated export sale which is not really an actual export or an actual
shipment abroad is the shipment or the sale of raw materials or pac5aging materials to an export oriented enterprise whose export sales exceed H/& of total annual production. o The sale of raw materials or pac5aging materials to an export+oriented enterprise is considered as a constructive export because the raw materials or pac5aging materials that you are selling to these 5inds of export oriented enterprises will form part of the products that will be manufactured and eventually sold abroad by these export+oriented enterprises.
Again, what is an export+oriented enterprise? What do you mean export+oriented enterprise as the recipient of the goods that you are selling? o REx&o%t-o%iented ente%&%iseR is one primarily devoted to the production of goods and services for export that demonstrably contributes foreign exchange to the economy. 8?emains unanswered. Thus, made a research9
*ust the sale be made in acceptable foreign currency for it to be considered as =ero+rated transaction? *ust it be accounted for under the rules of #2'? Dive me an example of an export+oriented enterprise. Is it possible that a certain company outside any economic =ones may be considered as export+oriented enterprise and the sales to it will be =ero+rated? o o Axport+oriented enterprises are not limited to corporations that are located within the economic =one. It can be any corporation located anywhere in the 'hilippines. And for these to be met, the =ero+rated transactions, there is no %e;$i%ement that it must be paid in acceptable foreign currency or accounted for by the #2'. Why? #ecause eventually when it will be sold by the export+oriented enterprise to an outside or foreign buyer, then it will be covered by no. $ actual export sale.
TFI?<. We!ll move on to the other type of export sales. 2ales of raw materials or pac5aging materials to a non+resident buyer. 2o 8*s. Tiu ma5es a summary first9B 8a9 The first that we have identified as an actual export sale is the sale of goods. It is not raw materials. 8b9 The second export sale that we have identified is the sale of raw materials or pac5aging materials to an export+oriented enterprise in the 'hilippines and eventually will form part of the product that will be sold abroad. 8c9 .ow the third type of export sale is the sale of raw materials still or pac5aging materials sold to non+resident buyer.
In the third, is this an actual export sale? 2o are you saying that the delivery of these raw materials or pac5aging materials are made directly abroad? Who is that non+resident? 2ubcontractors? o In the third scenario, what we are selling is raw materials or pac5aging materials intended for a buyer abroad but its delivery is not for shipment abroad but rather delivered to a resident buyer who will convert or use the products as intended by the non+resident buyer. The other % re-uirements for it to considered =ero+rated areB
8a9 'aid for in acceptable foreign currency or its e-uivalent in goods or services 8b9 And accounted for in accordance with the rules and regulations of the #ang5o 2entral ng 'ilipinas.
K6J?TF. 2ale of gold to the #ang5o 2entral ng 'ilipinas. 2o if we sell gold to other ban5s other than #2' or other buyers to #2' considered as =ero+rated transaction? .6. 2ale of silver or other mineral products to #2' =ero+rated? .o. White gold or yellow gold? 8hehehehe9
KIKTF. 2ales of goods, supplies, e-uipment and fuel to persons engaged in international shipping or international air transport operations. Again, what is sold? Doods, supplies, e-uipment and fuel. To whom? To persons engaged in international shipping or international air transport operations. 2o if we sell goods, supplies, e-uipment and fuel to 'A@ or athay 'acific in ebu *actan airport, is that =ero+rated? 4es.
Is there a special re-uirement for it to be considered as =ero+rated? o o 4es. In order to avail of such =ero+rated sale of goods, supplies, e-uipment and fuel, it must be, the sale must be limited 8when you say international shipping or international air transport9 to transport of goods and passengers from the port in the 'hilippines directly to a foreign port without any stop over or without doc5ing even if it!s a simple stopover. 6therwise, that portion between 'hilippine ports will not be considered as =ero+rated. AxampleB 4ou sell fuel to 'A@. Klight is ebu+*anila+@A and bac5. Is that =ero+rated? .o.
2IOTF. Is there other =ero+rated sales as identified by the regulations? 4es. 2ale under the 6mnibus Investments ode. If you loo5 into the regulations, there are 1 categories of =ero+rated of goods or propertiesB o o o Kirst, export sales. 2econd, foreign currency denominated sales. Third, sales to persons who are granted indirect tax exemptions by international laws or our own special laws.
We are still in export sales and in export sales we can have actual export sales, constructive indirect export sales or other export sales. At this point, we have identified alreadyB o Actual export sales
o o o o o
Indirect export sales which is sale of pac5aging materials and raw materials to a non+resident buyer but delivered to a resident buyer. onstructive exports or indirect sale to an export+oriented enterprise. Another indirect export is when you sell goods, fuels, supplies and e-uipment to an entity that is engaged exclusively in international shipping or air transport operations. And sale of gold to #2'. 6ne more is left which is sale under the 6mnibus Investments ode which is considered as constructive export. Although sale to export processing =ones can still be covered by those granted indirect tax exemption by a special law which is ?A HG$,. #onded manufacturing warehouses Axport traders operating bonded trading warehouses 2ales to diplomatic missions and other agencies including sales probably to embassies and consulate officers.
2o what we will consider under the 6mnibus Investments ode strictly are sales toB o o o
Koreign o A sale
urrency <enominated 2ales
What is a foreign currency denominated sale?
- If you ma5e a sale of a "ewelry and the buyer is a non+resident but it was delivered to a resident in the 'hilippines paid for and acceptable in foreign currency accounted for in the rules of #2'. an this be considered as a foreign currency denominated sale that can be considered as =ero+rated transaction? o o .6. What is excluded in the coverage of K < 2ales or Koreign urrency <enominated 2ales are sale ofB o o o A. Newelry #. 'recious *etals or semi+precious metals . And automobiles.
If these are sold, whether its to a non+resident buyer delivered to a resident person paid in foreign currency, it will not be considered as foreign currency. Why? #ecause it is specifically excluded in the coverage.
What is an automobile? Truc5s have 7 wheels.
2ale of motor vehicle to a non+resident buyer, delivered to a resident, paid in foreign currency and underwent inward remittance in accordance with the #2'. Lero+rated? .o. It is pertaining only to 7+wheel motor vehicles. When you say automobiles, it is strictly pertaining to 7+wheel motor vehicles. That excludes %+wheels nor truc5s, buses, vans, etc. 2ales to persons or entities whose exemption under special laws or international agreements to which the 'hilippines is a signatory. - And the last =ero+rated sale of goods or properties would beB 2ales to persons or entities whose exemption under special laws or international agreements to which the 'hilippines is a signatory effectively sub"ects such sales to =ero+rate. - If you remember in general principles, we have said that whenever a company is granted exemption whether total partial exemption, it does not include exemption from indirect taxes. Jnless, there is a law which specifically provides for exemption for indirect taxes. o And these special laws or international agreement for example with the 'hilippines Aconomic Lone locators or companies inside, they have been granted indirect tax exemption, granted VAT exemption, under a special law which is ?A HG$,. The general principle would not apply to them. o Kor this reason, they cannot be passed on with VAT. If the seller is VAT registered, the seller would simply treat the transaction or sale to these 'ALA companies as =ero+rated. If the seller is .6.+VAT registered, simply treat the sale as exempt. 9E*--*ATED SE*V!CES1 - Lero+rated services would it differ from =ero+rated sale of goods? We don!t actually have an actual export of service unless. I mean, how do we actually export service? an it happen? Fow? Axample? Jnder the law or regulations, what is covered by the =ero+rated sale of services? Is the service limited to the processing, manufacturing, or repac5ing goods? o @et!s ma5e this easier class. What you find in export sale of goods and in export sale of services are "ust the same. 6ne is categori=ed as sale of goods, the other is categori=ed as sale of service. .o. $, export sale of goods is a sale on actual shipment of goods. .o. $ sale of service is the manufacturing, processing, or repac5ing of goods for persons doing business outside the 'hils. .o. % in sale of goods is not the actual shipment of goods but the sale of raw materials. The second sale of service is simply other services not covered by .o. $. 2o it!s "ust the same. When you loo5 at .o. 1 of export sale of goods, you sell raw materials and pac5aging materials to export+oriented enterprise, is it the same as any of the export sale of services? an you sell services to an export+oriented enterprise and still be considered =ero+rated? o o 4A2, in .o. ) sale of service, services performed by subcontractors and contractors in processing, converting, or manufacturing goods for an enterprise, whose export sales exceed H/& of its total annual production.
2o basically, you can "ust compare both sale of service and sale of goods 2ale of power fuels, is that a sale of service? 6r is that a sale of goods? 2A@A 6K 2A?VI A. Why is it classified as a sale of service?
The sale of power and fuel is considered as "ust simply a sale of electricity by VA 6. 2ale of power or fuel, why is it considered as exempt? <oes the sale have to be made to a company that is an export+oriented company or directed to a buyer abroad? o What it simply says is that if you sell power or fuel that is generated through renewable sources of energy, that would be =ero+rated regardless of who will avail of your service or electricity. #ut this shall not extend to the sale of service in the maintenance and operation of the e-uipments or plants generating such power. 2o it!s only limited to the electricity or fuel that is generated. Any maintenance services, repairs on the e-uipments, etc,. will not be considered as =ero+rated.
Fow about international shipping and air+transport operations, can they avail of =ero+rated services in the 'hils.? That!s basically the same as what you have learned earlier in sale of goods, fuels, supplies and e-uipments to those engaged in international shipping and aircrafts. 2ervices rendered to persons or entities whose exemption under special laws or international agreements AxampleB Antities that are located in the economic =one. Fow about those entities which have been granted exemption under international agreements? I??I 8International ?ice ?esearch Institute9 and Asian <evelopment #an5. 2o if you can sell goods or properties to companies that have been granted indirect tax exemption under international laws or special laws, you can also sell services which are =ero+rated to the same institutions. 4A2 as to the sale of goods, supplies, e-uipments. #ut in the transport of passengers and cargo by 'A@, carriers from the 'hils. to a foreign country, it is =ero+rated. 4ou don!t pay any VAT. ebu pacific or even sea
What other sale of services are =ero+rated?
If you purchase a tic5et for the J.2., airline tic5et, is that sub"ect to VAT?
Try purchasing a tic5et to 2an Krancisco or @.A., you won!t be imposed of any VAT. The only tax that you will be paying is airport tax.
X" T*A#SACT!-#S EXE7+T 0*-7 VAT AOA*'T 2A@A
o )#at is t#e di::erence between an exempt sa!e and a ;ero-rated sa!e9

?egistration 'ass+onMshift Input VAT on purchases 0< O Exem&t O O O
Jsually, when you say automatic =ero+rated sales, it pertains to sales that are actually exported. Indirect or constructive sales are simply
considered as effective =ero+rating such that if you sell to an export+oriented enterprise, you need to see5 for approval from the #I? that you!re sales of raw materials is considered as =ero+rated. The difference between exempt sales and =ero+rated salesB $. If you are =ero+rated, do you need to register with the #I? as a vat+taxpayer? 4A2. 4ou need to because you are selling vatable transaction. The difference lng is that it!s not $%& vat but =ero+rated. Axempt transactions, do you need to register with #I?? .6. 4ou don!t need to register under the vat system. %. an you pass+onMshift $%& tax on your sales if you!re =ero+rated? .6. If you sell an international tic5et, do you pass+on vat to your client or customer? .6, =ero. 4ou pass vat at / ( anything multiplied by =ero is /. In exempt sales, if you sell roasted chic5en, ta5eout, do you pass+on vat? .6. 4ou!re not re-uired to pay vat to the #I?. 1. Any one of us will become purchasers of goods or services, even a =ero+rated seller of goods will purchase something and convert it and sell it as well. Aven exempt sellers of goods will have to purchase a raw material, convert it and sell it again. o If you!re a =ero+rated seller of goods and you purchased your raw materials from someone, will you be passed on with vat? It can be a yes or a no. If you!re passed+on with vat, will you recogni=e it as an input vat on purchases? 4ou!re registered under the vat system, therefore, any vat that has been passed+on to a vat+registered person will always be considered as vat in the boo5s. If you!re exempt, such as J2 , exempt from vat, if J2 pays vat on a certain table, when it purchased such table, vat was passed on. Why was it passed on? #ecause the seller of the table is actually selling a vatable goods. Will J2 recogni=e the vat on such table as input vat? .6. This is the basic differenceB If you!re =ero+rated, you have to register and when you register and pay vat on your purchases, recogni=e it as vat. If the table purchased is $$% by a =ero+rated, vat would be $%. If the table purchased by J2 is $$%, vat is / because you are not because you!re not registered for vat. If you!re not registered for vat, you have no right to record any vat in your boo5s. It is a stray account. 2o what you will do with the $$% that you have simply paid in full will be considered as cost of the table. #ut the cost of the table for the =ero+rated is only $//, not $%. The $% will be a tax credit ( it!s offsettable against your output tax. #ut you have ( / output tax. That!s why we have later on claims for refund. 4ou as5 for refund on the $% later on. The $% peso will never reduce your taxable income because you!re only allowed to deduct $// pesos. In exempt sales, you cannot as5 for refund. Fow will you use the $%? 6nly in income tax computation because your expense will be bigger. The $% peso will reduce your taxable income before you compute income tax. Aven if you!re exempt, say for example, your sales does not reach $.)*, but ambsyoso 5a, you want to register for vat. If you register for vat, all your sales will be vatable on your purchases. 4ou will have also tax credit. Averything will depend on your registration. If you register, there!s always vat. If you don!t register, it!s a case for audit by the #I? once they find vat in your boo5s because you!re not supposed to put in vat.
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o o
Lero+rated is more beneficial because you recogni=ed the $% peso at $//& offsettable against tax. In exempt, the $% is not $//& recogni=ed because it will only reduce to the extent of 1/& of the $%. 6nly 1/& of the $% is usable because this will undergo the process of being an expense account before it can benefit the company. 2ome companies would opt to be vatable. 2ome not if they have the option.
o AOA*'T T?A.2A TI6.2 o
$. 2ale or importation of agricultural and marine food products in their original state 2o if you import .orwegian salmon. That!s vacuum+pac5ed. It!s already cut. H//M5ilo ( salmon belly nah. It!s pin5, pin5, orange, orange. Is it vatable? <o you have to pay vat to the #I?? Is it still in its original state even if it was already sliced? 4A2, it!s still in its original state. Therefore, it!s still exempt. Any agricultural or marine food products that remains in its original state will be considered as exempt from vat. Itlog, when you buy from the grocery, exempt? o o AOA*'T. Fow about if it!s the red+egg or salted egg? Axempt or not? AOA*'T. Is salting a process that deviates the food product away from its original form? .6.
2o what does the law provide in so far as original state is concerned? o 'roducts classified shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the mar5et, such as free=ing, drying, salting, broiling, roasting, smo5ing or stripping. Kree=ing <rying #roiling ?oasting 2mo5ing 2tripping
What are the simple processes allowed by the authorities? o o o o o o
<ried mangoes, vatable or not?

o -
VATA#@A.
The dried fish in the grocery or rice, etc. is not sub"ect to vat. Is cotton or cotton seeds sub"ect to vat? 4A2, even in the raw state of cotton or cotton seeds, it!s already sub"ect to vat. Fow about copra? 2ub"ect to vat or not? .6. 2o it remains as exempt. Fow about petroleum products and its raw materials? Axempt from vat or sub"ect to vat? 2J#NA T T6 VAT. This is one of the items which have been stric5ed off its exemption.
Alectricity? .6T AOA*'T. It!s vatable. This is again a service that has been removed from exempt services. Alectricity is already sub"ect to vat. Fow about legal services? Are lawyers sub"ect to vat? 2o if a lawyer is connected with a multinational corporation as its in+house legal counsel, will the lawyer be liable for vat? o o o @egal services are sub"ect to vat, general rule. There are exceptions, such as when there is employer+employee relationship. If you!re a lawyer as an in+house legal counsel for a company, your income or compensation or salary from that company is not sub"ect to vat. D?B If you are a professional with '? license or the I#', etc., you will be sub"ect to vat exceptB
$. If your income is derived from an A?+AA relationship, there!s no vat. %. If your income as a lawyer does not exceed $.)* in any $%+month period, you!re not sub"ect to vat
Fospital services, is it the same as medical services and professional services of doctors sub"ect to vat? 2ame rules as the lawyers. If a doctor, "ust li5e any other professional, derives income from independent professional services, not from A?+AA relationship, it will be sub"ect to vat unless the income during any $%+month period does not exceed $.)*. If it exceeds $.)*, you have to register under the vat system. Would your payments, say for example, a friend of yours gets hospitali=ed. In the bill, there!s hospital service including operating room, doctor!s professional fees and bills from the pharmacy inside the hospital ( the drugs were used for the operation. Which of those items are sub"ect to vat and which are exempt? o Fospital service fees are not sub"ect to vat including the charges for the drugs and medicines. It depends. In the case of I? vs '?6KA22I6.A@ 2A?VI A2 I. ., TA en banc case, sale of medicines and drugs by a pharmacy inside the hospital may or may not be sub"ect to vat. If the medicines or drugs are sold to an in+patient and included in the hospital bill, it!s exempt because it will be absorbed by hospital services and bills. #ut if it!s sold to outsiders or out+patients, it will be sub"ect to vat. If the hospital operates a pharmacy within, would the sales of medicines be sub"ect to vat? o o
December 15, 2010

X" T%ansactions Exem&t f%om VAT A" Section 108 of the Tax Code @et!s discuss formally 2ection $/G VAT exemption transactions. What are the transactions exempt from VAT under this provision? o o .oteB 8?ead codals for this portion to see full provision for each exempt transaction 82ection $/G of .I? 9 2ale or importation of agricultural, marine food products in their original state. 2JDA?B Is sugar exempt from VAT? @et!s ta5e the general rule first, is sugar exempt from VAT? As a rule? What sugar is in the original stage? lass answersB sugar cane. 8*a!amB that!s not yet sugar. That!s sugar cane9. Deneral ?uleB The white sugar that we 5now, the refined sugar is sub"ect to VAT. #ut if its raw cane sugar, the brown sugar, it is exempt. The raw cane sugar is exempt from value added tax. There is an entire revenue regulations devoted to the payment of VAT on sugar. It is actually called the :Advance Value Added Tax; that you pay on every sugar that the sugar miller produces. 2o it is not totally exempt unless it falls under the raw cane sugar or molasses. o ?I AB Fow about ?ice? It is exempt in whatever form. Aither it is palay, rice or cultured rice. 2ale or importation of fertili=ers, seeds, seedlings and fingerlings.The next item exempted from VAT isB Would all sale or importation of fertili=ers and seeds be exempt from VAT? .o. 2o its vatable if it!s not for livestoc5 or poultry. We call this specialty feeds if it!s devoted for those that we do not actually consume. 6?<I.A?4. o Importation of personal and household effects belonging to the residents of the 'hilippines returning from abroad. As to exemption for VAT of importation of personal and household effects who should be the importer of these items in order for them to be VAT exempt? 2o were tal5ing only of iti=ens? #oth resident citi=ens coming bac5 to the 'hilippines from let!s say a vacation or non+resident citi=ens coming into the 'hilippines coming in for whatever purpose? Fow about non+resident citi=ens coming in bringing these personal effects but without the intention of settling here for good, exempt from VAT? What condition must be met for the exemption of these items personal and household effects? These personal household effects for them to be exempt from VAT must be primarily exempt from custom duties. They go hand in hand. o Importation of professional instruments and implements, wearing apparels, domestic animals, and personal household effects. What about the next item still on items coming from abroad, what is covered by the next provision? And who should be bringing these items in order to be covered by this provision?
*ust they be brought in by citi=ens of the 'hilippines? .6.
2o it includes even aliens so long as they intend to settle in the 'hilippines? When should these items be brought in in order to be covered by the exemption? Jpon arrival, or if it is brought by the person himself? 4ou say if it!s bought in the 'hilippines within G/ days before or G/ days after arrival, if the goods or items arrive together with these persons coming to settle in the 'hilippines, is it still exempt? A.2WA?B When professional instruments, implements, wearing apparels even household effects of .6.+ ITILA.2 are brought in the 'hilippines but for the purpose of 2ATT@I.D I. TFA 'FI@I''I.A2. 2o it!s a relocation or resettlement in the 'hilippines, diba you have to bring in your personal items, these are exempt from VAT with the exemptionB o Vehicle, Aircraft, *achinery, and other goods for commercial purposes 2o long as it is brought together with that person or within G/ days prior to arrival or after arrival within G/ days.
o If you want to be exempt from VAT on vehicles, aircrafts, machineries, do not rely on the exemption provided under 2ection $/G. 4our exemption must be relied upon in another provision which is 2ection $/G still letter, on exemptions granted under International agreements or special laws. <iba consuls, ambassadors or officers of these international organi=ations that have been granted from intdirect taxes under international agreements, they can still bring in vehicles, machineries that are exempt from VAT. #ut not under 2ection $/G. #ecause what is provided under 2ection $/G or what is covered under this provision is that which is related personally or for personal use not for commercial use such as machineries for commercial use. o 2ervices sub"ect to percentage tax under Title V. If the person is sub"ect to percentage tax, would he be liable for VAT? .6. Dive me an example of a percentage tax? 8TiuB *s. .une= or 'elinio? lass answers .une=. *s. Tiu says, still the same..hahaha9 Tax on transportation which is specifically called common carrier!s tax.
If you loo5 into the provision right after VAT, the provisions in the tax code, you will see a lot of different percentage taxes, common carrier!s tax, gross receipts tax, amusement taxes, etc. If a certain business or individual is already covered by percentage tax in whatever form it is imposed, he can no longer be covered by VAT because the nature of percentage tax and VAT is the same. VAT is simply separated from percentage tax because this is the most dominant from gross sales taxes. 2o it can never happen that a certain transaction, individual or corporation can simultaneously be sub"ected to VAT. If you remember a lawyer for his professional services is sub"ect to VAT as a rule #ut once his income does not reach 'hp $.)* in total gross receipts for any $%+month period, within that $%+month period, he is exempt from VAT. #ut is he exempt from other taxes? .o. o Fe will be liable for percentage taxes. The percentage tax is generally for professionals is 1&, even for business. o If you see a supermar5et or a grocery store, that does not register for VAT purposes because its proceeds or receipts does not reach 'hp$.)*, it may be sub"ect to another 5ind of tax but not necessarily VAT.
That is why, is a ban5 or financial institution sub"ect to VAT? .o. To what is it sub"ected to? 2pecifically, 2ection $%$, ban5s are sub"ect to gross receipts tax ranging from )& down to /&. That is generally )&. o .ow, it is only in %//7 ( %//), if I am not mista5en that ban5s are sub"ect to VAT on a trial basis at $/&. #ut since it did not wor5 out, because it is onerous for us or burdensome for us to pay the loan from the ban5, pay interest and be passed on with additional $%& that we!re paying. 2o ban5s have been ta5en out from the coverage of VAT and they remain to be sub"ect again bac5 to gross receipts tax on the interest, commissions or other earning that ban5s derive.
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A. 2ales by agricultural cooperatives duly registeredI #. 2ales by non+agricultural, non+electric and non+credit cooperatives duly registered. 6ther exempt itemsB
Are cooperatives exempt from VAT? Why how many cooperatives that you 5now? Fow many cooperatives can you identify? When you say its non+credit and non+electrical it could be any cooperative so long as it!s not credit and not electrical? 6r using the process of exclusion? In so far as your growing up years is concerned how many cooperatives have you 5nown? In the newspaper? o Is it only agricultural cooperatives are exempt from VAT? Is it because agricultural items are also exempt from VAT? .o. o 2o we have agricultural cooperatives, credit cooperatives, multi+purpose cooperatives. What else? @et!s not use non. #ecause when you say non it "ust simply says that there is..let!s be specificB agricultural cooperatives, credit cooperatives, multi-purpose cooperatives, and one big cooperative that is missing is electrical cooperative (VECO, ER!"CO)# Amployees cooperative, that is multi+purpose. o These are non+electrical cooperatives, you have electrical cooperatives. .on+electrical cooperatives is all others. It may be credit, agricultural or multi+purpose. Fow about credit cooperatives. ebu KI ooperatives, it is one of the biggest cooperatives, it started with 'hp %// or less than 'hp $/// investment from ) members in $GH/8s9, now it has more than a billion in assets. 2o, you can start a cooperative with a few, extend loans and credits, that is how credit cooperatives start. .ow analy=ing the % successive provisions in 2ection $/G, what cooperatives are sub"ect to VAT and what are exempt from VAT? *ultiple choice which is sub"ect to VAT? Agricultural, credit, electrical? Alectrical. o Why is it sub"ect to VAT? Fow is it mentioned by the law? 2o because it!s non+credit, and it is mentioned together with non+electrical, is it sub"ect to VAT as well? .o. Why not? This is how it should goB o Kirst item, agricultural cooperatives are exempt from VAT on their sales or produce either to members or not whether original state or not. Including VAT exemption or importation of machineries and e-uipment whether directly and exclusively used in the production or processing of the items that they produce.
o 2econd, lively8?9 activities made by credit cooperatives and multi+purpose cooperatives are also exempt from VAT. In both instances, rather, agricultural, credit and multi+purpose cooperatives, exemption from VAT would be heavily be dependent on its registration with the ooperatives <evelopment Authority. o 6n the third item which is the sales by non+agricultural, non+credit, and non+electric credit cooperatives, it simply means that it excludes all others that have been previously mentioned except electrical cooperatives not yet mentioned. 2o if it belongs to other cooperatives which are not agricultural, non+electric, non+credit, even non+multi+purpose, it will still be exempt from VAT so long asB $. It is duly registered with the ooperatives <evelopment Authority %. 2hare capital of each member does not exceed 'hp$),///. 1. And regardless of the aggregate capital. If it has $* members, doesn!t matter. 66'A?ATIVA2 are exempt from VAT following the re-uisites, if the re-uisites are complied with. Axcept electrical
o 2o bottomline, A@@ cooperatives.
Alectrical cooperatives were actually exempt from VAT before but with the imposition of VAT on electricity and power, also electrical cooperatives were already sub"ect to VAT. And as per *s. Tiu, she doesn!t see any reason why electrical cooperatives should not be sub"ect to VAT. It is income generating. o Aducational services rendered by private educational institutions. .ext item exemptB Are schools sub"ect to VAT? <oes this exclude online schools established by 0oreans? Fow about vocational schools are they exempt from VAT? If you!ve noticed the difference between ?epublic Act C7%7 and ?epublic Act G11H, educational services rendered by institutions which were accredited by TA2<A before were not exempt from VAT. #ut under the new law, even TA2<A accredited institutions are already exempt from VAT. 2o it does .6T need to be formal schooling for it to be exempt from VAT. #ut the basic ingredient for exemption for educational services, tuition fees, and related fees 8not all incomes of schools can be exempt from VAT9, these institutions, if it!s private educational institution, must be accredited by FA<, <A'A< or TA2<A. #ecause government educational institutions will automatically be sub"ect to VAT. #ut if the educational institution ventures into other services, which is not educational in nature, it will be sub"ect to VAT. It!s proceeds will be covered by a VAT liability which it has to pay to the #I?. o PB <oes it have to be non+stoc5 or non+profit? .ot necessarily. 8*a!am says I2 is non+stoc5, non+profit daw9. 2ervices rendered by regional or area head-uarters established in the 'hilippines. ?egional Fead Puarters, are they sub"ect to VAT or are they exempt from VAT? What do you mean by supervisory, communications and coordinating centers?
Why how many head -uarters have been identified before? ?egional and area head-uarters, ?egional operating head-uarters. .ow with these two head-uarters be exempt from VAT on its proceeds if there is? 2o which is exempt from VAT? o 6nly regional A?AA head-uarters which only access supervisory, communications, and coordinating centers without earning any income from its operations. 2o if it!s a regional area head-uarter, it is not sub"ect to VAT. o o If it!s regional operating head-uarters, rendering services to its affiliates to the Asia 'acific region, its proceeds will be sub"ect to VAT. If you remember regional area head-uarters, they are exempt from income tax, it is exempt from VAT. Why? #ecause there is supposedly no income+generating activity.
o .ow for regional operating head-uarters, it is sub"ect to $/& income tax, it is sub"ect to $%& VAT. While its employees occupying managerial, technical services or positions will be sub"ect to only $)& compensation tax. 2o it!s one of the technicalities8?9 of a regional operating head-uarter. o Transactions which are exempt under international agreements to which the 'hilippines is a signatory or under special laws. And I thought that those have been granted by international agreements or special laws are covered by =ero+rated vat transactions. <oes this involve this provision? Is this not included in the provisions on =ero+rated? What!s the difference between =ero+rated and exempt transactions in so far as VAT is concerned? We said before that those who have been granted exemption under International agreements or under special laws are =ero+rated or granted =ero+rated. Why is it provided here of those exempt are those exempt under international or special laws? If you!ve noticed on =ero+rating, it says there SALES made (4 VAT-%e3iste%ed ente%&%ises whom sales by QQQ of these entities granted indirect tax exemption. It simply says 2A@A2. o <oes it grant =ero+rating on its importation? <oes it grant =ero+rating on its purchases? If the one importing or the one purchasing is an entity granted exemption under special laws, because =ero+rating as what we have discussed before only covers the sales. .ow if we go to the other transactions of these entities granted exemption under special law, it will be covered by the exemption. @i5e if they import products, it will be exempt from VAT. 6r if they import materials, e-uipment, exempt from VAT. It is not covered by =ero+rating. If they import the product, you don!t call importations =ero+rating because =ero+rating is, as what we have discussed, is for the outgoing of the product. If it purchases, it can be treated as exempt. Anyway, the fall bac5 if you cannot get =ero+rating because you have not registered under the =ero+rating is that your export sales 8remember as discussed before, if you fail to register under the VAT system and your transaction is =ero+rated supposedly either because it is export or outbound, your fall bac5 would have to be exemption. 4ou!re exempt, no VAT liability but your VAT on purchases would not be recogni=ed as input VAT. Which brings us to letter on exportation, @etter 6. Axport sales by persons who are not VAT registered, they!re considered as exempt.
Dive me an entity that is exempt as provided by international law? Dive me an example of an entity which is exempt as provided by special law. @et!s ta5e out I??I, another entity? It does not say in its original state it simply says transactions. 2hould it be selling products in its original state? .6. .ow give me ) real estate transactions? ?ecap. As a general rule, sale of real properties is only sub"ect to VAT if the one selling is engaged in real estate business which is really into person+8?9 business. .ow if you are selling real property not in the course of business would you be liable for VAT? .o. o Why? #ecause it is sub"ect to apital Dains Tax. o Would it ever happen that both VAT and DT would be simultaneously imposed on $ real property transaction? 2imply put can VAT and DT be simultaneously imposed on $ real property transaction? .o.
Ordinary AssetCapital AssetIncome Tax Based On30% / 5% - 32% Profit % !ross Profit"AT#2% "AT$%oc&mentary#'5#'5
()y* +ot in t)e ordinary co&rse of ,&siness
?eal property tax classified as capital asset is imposable with DT. 6nly when real property is classified as an ordinary asset, either primarily held for sale or primarily used in business would it be sub"ect to VAT. .ow, the taxability of an ordinary asset and a capital asset is different. In so far as the tax on income is concerned, you have here the 1/& income tax or the )+1%& if you are an individual but only based on the profits that you are ma5ing. If you are selling a capital asset, it will be sub"ect to ,& based on gross. And so far as the sales of real estate business is concerned, since you are selling it in the ordinary course of business, you will be sub"ect to VAT. o Are you ma5ing this sale in the course of trade or business? .o. In so far as the documentation is concerned, you have to pay $.)& documentary stamp tax. If it!s an ordinary, so far as you can avoid selling a property, classified as ordinary asset, you should avoid because it will involve several taxes. o #ut that!s the general rule. .ow let!s go to the AO A'TI6.2B Are there sale made in the course of business involving real property that are not covered by VAT? 4es. If the property is primarily held for lease and it is subse-uently sold, are you not selling an ordinary asset? 6rdinary asset daw. $. Those utili=ed for low+cost housing as defined by ?epublic Act H%HG or Jrban <evelopment and Fousing Act of $GG%. What is low+cost housing? When can you say that it is low+cost? an there be low+cost condominiums? o @ow+cost housing refers to housing pro"ects intended for homeless low+income family beneficiaries, or underta5en by the Dovernment or private developers, which may either be a subdivision or a condominium, registered and licensed by the
F@J?# or any similar law, wherein the unit selling price ceiling per unit of 'hpH)/,///. ( J' ?eviewer %//G. %. Another exemption is 2ale of residential lot not exceeding 'hp$.)*. 1. .umber 1, sale of residential house and lot and other residential dwellings valued at not more than 'hp%.)*. 7. Those utili=ed for sociali=ed housing. Which is more expensive? 2ociali=ed housing or sociali=ed houses or low+cost houses? 82ociali=ed because it!s social?9 o o o @ow+cost. What is covered by sociali=ed housing? What amount? 'hp %%),///. #ecause this regulation and law was made in %//), the amount would not have increased that much. When you say sociali=ed housing, its value does not exceed 'hp %%),///. 'robably it is "ust a %/s- meter area. @ow+cost housing is much more expensive.
2o these are the first 7 transactions of real property sales made in the course of trade or business #JT is .6T sub"ect to VAT. ). @et!s go the fifth. ?eal property transaction not necessarily a sale but is .6T sub"ect to VATB @etter P.
A P)p #0-000 per &nit #3 .esidential /nits 0xempt B P)p 20-000 per &nit 5 .esidential /nits 0xempt 20-000 x 5 1 #00-000 / mo #00-000 x #2 mos' 1 P#-200-000 C P)p #0-000 per &nit #3 Commercial /nits "ata,le #0-000 x #3 1 #30-000 / mo #30-000 x #2 mos' 1 P#-5 0-000 D P)p 20-000 per &nit 5 Commercial /nits "ata,le 20-000 x 5 1 #00-000 / mo #00-000 x #2 mos' 1 P #-200-000
#0-000 x #3 1 #30-000/ mo #30-000 x #2mos' 1 P#-5 0-000
2o if we have *r. A, #, and < leasing out the following units residential for A and # and commercial for and <, who will be sub"ect to VAT, who will be exempt from VAT? Krom A+<, who is sub"ect to VAT? <o you loo5 at the aggregate amount of the proceeds which is ) units for #M< e-uals $% months? o o 2o long as not any of the units exceed '$//0 regardless of what the aggregate amount is during the $% month period, it remains to be exempt from VAT. :E#E*AL *ULE1 And if the monthly rent per unit is more than 'hp $/,///, as a ?J@A, it will be sub"ect to VAT because it is already beyond the threshold limit of 'hp$/,///, U#LESS the aggregate amount does not exceed 'hp$.)*. Will he be sub"ect to another 5ind of tax?
If you are not sub"ect to VAT here, not because you are totally exempt "ust li5e *r. A, but your exemption would fall under not reaching the threshold limit, you will be sub"ect to the 1& percentage tax which is the catch+all for other items in exempt transactions from VAT. ondominiums? Fotels?
What is a residential unit? When do we say it is a residential unit? <oes it include buildings? o
?esidential units shall refer to apartments and houses and lots used for residential purposes, and buildings or parts or units thereof used solely as dwelling places 8e.g. dormitories, rooms and bed spaces9 except motels, motel rooms, hotels and hotel rooms ( J' ?eviewer %//G. The exemption covers only residential dwellings or units, it does not cover any other li5e business offices, etc. 2o *r. sub"ect to VAT. #ut how about *r. <? Vatable.
C P)p #0-000 per &nit #3 Commercial /nits "ata,le #0-000 x #3 1 #30-000 / mo #30-000 x #2 mos'1 P)p #-5 0-000 Mrs. B P)p 20-000 per &nit 5 Commercial /nits "ata,le 20-000 x 5 1 #00-000 / mo #00-000 x #2 mos'1 P)p #-200-000
o
A P)p #0-000 per &nit #3 .esidential /nits 0xempt #0-000 x #3 1 #30-000 / mo #30-000 x #2 mos'1 P)p #-5 0-000
If change the facts, this is *r. # and this is *rs. #, would you have the same answer?
Mr. B P)p 20-000 per &nit
5 .esidential /nits 0xempt 20-000 x 5 1 #00-000 / mo #00-000 x #2 mos'1 P)p #-200-000
2o you don!t need to combine the sales made by the husband and the wife? The $.)* threshold is separate for the husband and wife 8*aven says9. When you go into business, are you restricted to go under $particular line of business? .o. Whether you re-uire to declare it under the same tax payer whether individual or corporation? o Jnder the law, husbands and wives are re-uired to report gross receipts from your business separately for VAT purposes. #ut if it is, if the services or the receipts belong to one and the same person, it re-uires, that it be combined for purposes of determining the aggregate value of the gross receipts. Therefore, if this is what is owned and leased out by *r. #, the proceeds will have to be aggregated and since it exceeds 'hp $.)*, it will already be sub"ect to VAT.
#ut you were saying a while ago that is must be on the same line of business, leasing. Would it be any different if *r. # is engaged in leasing out residential units minus this one and engaged in manufacturing business but under $ corporation? Would it be combined for purposes of determining $.)* aggregate amount or not anymore because it is not in the same line of business? an we say in all cases when what is being rented out or leased out is not a residential unit regardless of how much per unit it is being leased out and regardless of the aggregate amount it will always be sub"ect to VAT because it is not residential? .o.
A 'hp $/,/// per unit $1 ?esidential Jnits Axempt $/,/// x $1 S $1/,/// M month $1/,/// x $% mos.S 'hp $,),/,///
7%" . (1st 'hp %/,/// per unit ) ?esidential Jnits Axempt
C 'hp $/,/// per unit $1 ommercial Jnits Vatable
7%" . (,nd 'hp %/,/// per unit ) ommercial Jnits Vatable
%/,/// x ) S $//,/// M $/,/// x $1 S %/,/// x ) S $//,/// M month $1/,/// M month month $//,/// x $% mos.S $1/,/// x $% mos.S $//,/// x $% mos.S 'hp $,%//,/// 'hp $,),/,/// 'hp $,%//,/// A.2WA?B It really does not matter class, in so far as ta5ing up the aggregate amount, it really does not matter whether it!s the same 5ind of business or not. 2o long asB o o 8$9 It is the same taxpayer and 8%9 #oth are taxable transactions which are sub"ect to VAT as a rule.
In the example, %nd item is already taxable to VAT as a rule because it already exceeds the limit of 'hp $/,///. And if it engages in another vatable transaction, once you combine the amounts, you already have the 'hp $.)* limit. 2o we actually re-uire combining the amounts of vatable transactions in one and the same taxpayer.
.ow if you are the owner of $1 residential units at 'hp$/,/// each and the owner of ) residential units at 'hp %/,/// each, will you be liable for VAT? If you are the owner of these % types of residential units with different monthly rents, you will still not be liable to VAT. Why? o #ecause these are of different naturesB A. one is tota''4 exem&t from VAT regardless of the aggregate amount and #. one is 2ata('e de&endin3 on ho) m$ch the 3%oss %ecei&ts a%e. And if you combine the values, it does not gel diba? 6ne is vatable, one is exempt. 4ou only concentrate on transactions which are sub"ect to VAT whether it reaches $.)* or not. o 2o I thin5 that!s already clear to you. Any type of services, any type of businesses when it re-uires $.)*, you still follow the same principle that you have learned.
o 2ale, importation, printing or publication of boo5s and any newspaper, maga=ine review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements There are % remaining items which are exempt from VAT. @et!s go to boo5s first. 2ale, printing and importation of boo5s.
What type of boo5s? <oes it include bibles? Farry 'otter boo5s? 2o the last time you bought a boo5 it did not reflect any VAT? Krom ?AO boo5store? The sale, importation, publication and printing of boo5s <6A2 .6T refer entirely to A@@ boo5s that there is in the mar5et. It refers to boo5s such as text boo5s, "ournals, bibles, religious boo5s, etc which is not sub"ect to VAT. ?eligious items are vatable but religious bibles are not. 2o it does not include exemption from VAT even if Farry 'otter is series of boo5s li5e Twilight, it is sub"ect to VAT. If you purchase a boo5 or an e+boo5, sub"ect to VAT? o Importation only refers to where the seller is only coming from outside going through the customs. Fere, for e+boo5s, you don!t have to necessarily buy abroad if its online. It can be online within the 'hilippines. o .ow if you purchase a boo5 .6T published .6? printed. A textboo5 online, is it sub"ect o VAT or not? o ?egardless of its form it is still exempt from VAT so long as it comes in the form of textboo5s those used for educational purposes, religious etc. #ut it must be of those types. As for maga=ines, as a DA.A?A@ ?J@A, they are sub"ect to VAT. Why? osmopolitan maga=ine? *anila #ulletin given that it!s mainly for news purposes? The re-uirements thatB $. It must be of regular intervals %. With fixed prices for subscription and sale 1. It is not devoted principally to the publication of paid advertisements
These applies only to newspaper, maga=ines and reviews or bulletins of those which appear of regular intervals. It does not appear to boo5s for you don!t see any advertisements in boo5s. o Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations. Isn!t this covered in =ero+rated transactions? Why this is in here? Kor the =ero+rated it is for services rendered and for exempt transactions, it is the importation. In =ero+rating sale of services we exempted sale of goods which includes fuels, supplies and e-uipments to persons engaged in international shipping or air transport operations operating from the 'hilippine port without any stoppage to a foreign port. #ut if we import the same type of materials by the same persons who are engaged in international shipping and international air transport operations, it will not be passed on with VAT, it will be exempt from VAT. 2o as between selling outbound, it is =ero+ratedI as to inbound, but destined for consumption abroad, importation but destined for
consumption abroad, it will be covered with the exemption for VAT. o 2ale, importation or lease of passenger or cargo vessels and aircraft, including engine, e-uipment and spare parts thereof for domestic or international transport operations. Would all sale, importation, or lease of passenger vessels be exempt from VAT? 2o there was no use of discussing the case before when .ational <evelopment orporation sold ) vessels? 2o with all sale of vessels be exempt from VAT? Those exempt are only those passenger vessels .6T exceeding 'hp $)/ tons and above, including engine and spare parts of vessel. Those below $)/tons will be sub"ect to VAT. #ut ta5e note of the limitationsB o 8$9 Kor passenger andMor cargo vessels, the age limit is $) years old. o 8%9 Kor tan5ers, the age limit is $/ years old o 819 Kor high+speed passenger crafts, the age limit is ) years old. #an5s, ban5ing institutions and financial institutions are exempt from VAT because they are covered by 2ection $%$ on percentage taxes particularly gross receipts tax.
C" T%ansactions !ncidenta' to VAT-Exem&t T%ansactions - .ow, we!re done with 2ection $/G on exempt transactions. There are transactions which are as well exempt from value added tax. Transactions incidental to a VAT exempt transaction no -uestion to that diba? - If a transaction is sub"ect to VAT, its incidental transactions are also sub"ect to VAT. If a transaction is exempt from VAT, incidental transactions are also exempt from VAT. D" !so'ated T%ansactions C" -the% T%ansactions And other transactions such asB hange in corporate control *erger or consolidation which is actually covered by 2ection 7/ +% of our tax code diba. Any change, any merger, consolidation which is made solely in 5ind without cash involvement or change in control with $ person not together with persons not exceeding for and after the occasion thereof shares or properties 8di masabtan and gi ingon##$(9, it is exempt not only from income tax but exempt as well also from VAT because that!s what we call as tax free exchange. If we identify who these persons are who are exempt from VAT. Those persons engaged in exempt transactions. Those persons entering to transactions incidental to VAT exempt transactions. 2imply those persons who are engaged in isolated transactions, they are exempt from VAT. Who are allowed to optionally register for VAT purposes? o When you say a person, an individual or natural individual or natural person or "uridical person is allowed to optionally register for VAT that
simple means to say that he is not mandatorily re-uired to register for the VAT system because he is not vatable. o #ut there are instances when a person sees the benefits of VAT registration because of the VAT on its purchases. purchases against the VAT on sales. an we offset the VAT
That is the reason why people whose gross receipts do not exceed $.)* opts to register under the VAT system and ma5e their sales vatable and their purchases sub"ect to vat as well. It also includes persons engaged in mixed transactions, both vatable and non vatable, and chooses to or opt to ma5e everything sub"ect to VAT. o 6nce this choice is made, is it irrevocable? Aven if you wish to revert bac5 to your exempt status? .ow once the choice is made by a franchise grantee to register under the VAT system, is it irrevocable? After 1 years, it can revert bac5 to its exempt status. The reason why it!s exempt because franchise grantees with gross receipts of not more than $/* is sub"ect to franchise tax. #ut it can leave out franchise tax and be covered by the VAT tax because in VAT, there!s offsetting, there is output, there is input. #ut is it irrevocable for 1 years only? Irrevocable for life or irrevocable for 1 years? 6nce the option is made by franchise grantees to be covered under the VAT system, it becomes irrevocable all throughout the existence of that term not period 8di gyud 5laro if sa5to ba ni ang underlined..9. o @et!s move on to the 1rd optional registration made by franchise grantees. Who are these franchise grantees who can optionally register under the VAT system even if they are exempt from VAT? 6n the radio broadcasting option, what about those whose gross receipts exceed $/*, do they have to or can they optionally register for VAT? *andatory? Are they exempt? If it exceeds $/* pesos, they are non+vat? A.2WA?B Those who are granted the option to register under the VAT system because they are exempt from VAT are franchise grantees of TV and radio broadcasting whose gross receipts do not exceed 'hp$/*. #ut if its! gross receipts are more than $/*, it is not an option anymore, it is sub"ect to VAT.??????? Jan. 4, 2011 Tuesday ?A A'B Would all persons exempt from vat have the option to register under the vat system? 2ay for example, *r. O is a farmer and his exclusive or sole income+generating activity is to sell the mango produce of your farm, no other business. 2uch sale is purely exempt from vat because it is an agricultural product sold in its original state. an you opt to register under the vat system if you thin5 that it!s more beneficial to you? o o o .6T A@@ 'A?26.2 exempt from vat would have the option to register under the vat system. In this example, where does the exemption lie? 6n the transaction itself or on the threshold of the proceeds? 6. TFA T?A.2A TI6. IT2A@K. 2o whether or not its sales exceed $.)m, it is exempt from vat. an it optionally register under the vat system? *andatory registration ( if the transaction is vatable, if the person is sub"ect to vat, he has to mandatorily register under the vat system. #ut optional registration is for those who are not as yet covered by the vat but may be covered by
the vat. <oes it include a person who is exclusively engaged in selling purely exempt transactions or products? .6. A person, who is engaged in purely selling agricultural products in its original state without deriving any other income that is sub"ect to vat, meaning not a mixed transaction, not a mixed business, is not covered by optional registration because who are covered by optional registration areB 8$9 those who might be liable for vat but because it did not reach the threshold limit of $.)m is not yet covered by the vatI 8%9 those who are engaged in both vatable, =ero+rated or exempt transactions, they may opt to register for vat purposes under one registrationI and 819 franchise grantees of radio and tv broadcasting so long as the gross receipts of the preceding year do not reach $/m ( it simply means that if it reaches more than $/m, the franchise grantees do not have the option. They are mandatorily covered by the franchise tax as percentage tax. ???? 6nly those who did not reach $/m may shift from franchise tax to vat, but the option is irrevocable perpetually, not "ust irrevocable for 1 years, unli5e the other %.
=!T>>-LD!#: VAT What is a withholding vat? o o A withholding vat is a vat withheld before ma5ing payment on account of each purchase of goods and services which are sub"ect to vat. The 'A46?. Who withholds the vat, the payor or the payee? Jnli5e in income taxation, when we studied withholding taxes, dba we learned that withholding taxes are simply withheld by the withholding agent and remitted to the government. In this case naman, we!re not tal5ing of an income of the payee or income+recipient because vat is not an income. It is not declared as part of the gross sales for purposes of computing income tax. #ut then we have this mechanism as well in vat that some payors, to some extent, are allowed to withhold the vat and remit it to the #I?. There are % casesB o $. Kinal withholding vat on payments by the government 2o what does the government do? The government, before ma5ing payment on account of each purchase of goods andMor of services taxed at $%&, deduct and withhold a final vat. .6, only up to a final withholding vat of )& of the gross payments.
Would the government withhold the entire vat on the transaction?
I@@J2T?ATI6. or 2 A.A?I6B @ets say, the supplies for government offices cost $m. Vat at $%&, which is $%/5. Total invoice amount is $,$%/,///. Vat is at $%/5. Are you saying that the government will only pay the purchase price of $m plus the remaining portion of the vat? Fow much will the government pay to the supplier? The government will only pay the purchase price of $m plus H& of $m. 2o the supplier will only receive $m plus the difference between $%/5 and )/5 8)/5 being the )& vat withheld by the government9, and such )/5 will have to be remitted directly to the #I? by the government as a withholding agent.
!o2t ' 3&pplies 4 "AT #-000-000 #20-000 #-#20-000
3&pplier
#-000-000 50-000 #-050-000
50-000 BI. remitted 65% "AT7
6nly transactions entered into with the government may give rise to final withholding vat. 2o you will see that in this case, it is the government who is the payor ( the one contracting service or the one purchasing goods or properties from a supplier. Whether the supplier is government or private, it doesn!t matter. Nust loo5 at the status of who the payor is. If the payor is the government, the government is re-uired to withhold )& of the vat. The history of )& came from the $/& vat because under the old law, dba, the vat is $/& and the sharing is )+) or half+half. This is one avenue wherein the government is trying to exert all its effort in maintaining the lifeblood doctrine to the extent that it can withhold and remit at the earliest possible time, even vat. When it was increased to $%& vat, there was no subse-uent law which increases the withholding vat to ,&. It!s still at )&. Transactions that are covered by final withholding vat are only those vatable transactions entered into by the government with its suppliers. If it!s not the government, there can be no final withholding vat. Why is it called final withholding vat? What!s the difference between final withholding vat and creditable withholding vat? Kinal withholding vat withheld by the government is not creditable against the output vat of the seller since it!s final, so it ends there, unli5e creditable withholding vat.
%.
reditable withholding vat on payments to non+residents In so far as creditable withholding vat is concerned, what type of transaction is covered? 6n payments to non+residents
We!re tal5ing of vat, so it simply means that both final withholding vat and creditable withholding vat pertains to vatable transactions. And if you remember 2ec. $/) of the tax code, it says there that the rule on regularity notwithstanding, any transactions of service rendered in the 'hils. by a non+resident person is sub"ect to vat. 2o this is that which is sub"ect to creditable withholding vat. If a non+resident person renders service in the 'hils. ( service may be rental, royalty that is allowed for use in the 'hils., labor ( if any service is rendered, isolated or regular, by a non+resident person in the 'hils., it will be sub"ect to creditable withholding vat. It!s because the 'hil. government does not have "urisdiction over non+residents. onsidering that non+resident persons are not registered under the #I? of the 'hils. or under our tax authorities, we do not have "urisdiction over them. We cannot compel them to remit the output tax on the service that they have rendered in the 'hils. <ba supposedly, if a non+resident person earns income from selling service in the 'hils., such non+resident person is sub"ect to output vat. Fad that non+resident person, if he is covered by our "urisdiction, no problem. We don!t need to withhold. #ut since a non+resident is not registered to a business in the 'hils., we don!t have "urisdiction. It!s difficult to collect the vat ( the output vat from the sale of service in the 'hils. What the government re-uires is that whoever is contracting with such non+resident persons, meaning the payor in the 'hils. 8domestic9, he is constituted as the withholding agent and obligated to withhold the vat. $%&, not )&. The entire vat that a non+resident person could have been liable for rendering service in the 'hils. shall be withheld by the resident domestic payor and shall be remitted to the government.
Why is it sub"ect to this 5ind of mechanism, the creditable withholding?
What percentage of vat is re-uired to be withheld from the non+resident person?
2ince it is considered as creditable, what can the payor, who is a domestic corporation or person, do with the vat that it has remitted to the #I?? ?A<IT 2J F VAT ?A*ITTA< T6 FI2 6JT'JT VAT. What would happen is that it simply =eroes+out for the domestic corporation or resident payor because actually, whenever a non+ resident person is contracted to the service in the 'hils., those non+resident persons do not expect to pay vat. It is incumbent upon the domestic corporation or resident payor to compute the $%& vat on the payments abroad and remit it to the government. It is not the non+resident who is actually paying it, instead, it is the domestic corporation or resident payor. .6, because it is considered as creditable withholding vat. Whatever is paid, within $/ days from payments abroad and remitted to the government as vat, the vat that is entirely paid is
#ut is it a loss to the domestic corporation or resident payor?
considered as creditable withholding vat offsettable directly against the output vat of the domestic corporation who actually paid it. AOA*'@AB If we pay $/m abroad, the vat on the $/m is $.%m 8$%&9. We pay $/m. We pay $.%m to the government as creditable withholding vat. That payment is considered as creditable input vat. #y the time we declare our output vat on our own regular sales in the 'hils., the $.%m creditable withholding vat paid to the government is credited or deducted against output vat. 2o nothing is actually lost to the domestic corporation. The only problem there is if the domestic corporation is into =ero+rated transactions, so =ero output vat dba, always excess input vat T4ou will learn later on that you have only % optionsB carry+over and claim for refundI claim for refund is not favorable since it!s doomed to be denied by the #I?U.
VAT .ASE What are different bases on which we compute the vat? o $. Kor the sale of goods ( the Dross 2elling 'rice 8D2'9 What is the definition of the D2' under the law? It means the total amount of money or its e-uivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the vat. The excise tax, if any, on such goods or properties shall form part of the D2'.
2o whenever you tal5 about selling goods or properties, you always tal5 about D2' as the vat base. It is the total amount or its e-uivalent which a purchaser pays or is obligated to pay to the seller for the sale, barter or exchange of goods or properties, exclusive of vat. AOA*'@AB If the selling price is $m. Vat is $.%m. The D2' is the $m. The $.%m is not a component of the D2' because the definition of D2' is exclusive of vat. 4ou will not compute vat on vat. The basis of vat is D2'. A.6TFA? AOA*'@AB The goods that are sold are excisable articles ( meaning sub"ect to excise tax. If the value of the goods is $m. Axcise tax is %//5. What is the D2'? o o $.%m 2o are you saying that vat can be imposed against an excise tax? 4A2. According to the definition, the excise tax shall form part of the D2', naturally boiling down to vat being imposed on excise tax.
%. Kor the sale of services ( Dross ?eceipts 8D?9 What is the definition of D??
It means the total amount of money or its e-uivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable -uarter for the services performed or to be performed for another person, excluding vat, except those amounts earmar5ed for payment to unrelated 1rd party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. 4A2. Why is constructive receipt already part of D? sub"ect to vat? o It!s because the money consideration or its e-uivalent is already placed at the control of the person who rendered the service without restrictions by the payor. It!s already within the free disposal or at the control of the seller of the services.
2o does D? include constructive receipt?
Advance rentals or advance payments, is it part of D?? 4A2. When you tal5 about D?, it!s the sale of service. It!s the value or the contract price of the service.
Fow about security deposits? Is it part of D? at the time it is paid? .6, because it!s not within the free disposal of the seller of the services. I@@J2T?ATI6.B Imagine yourself renting+out an apartment at %/5 per month. 4ou are re-uired to pay % months advance rentals, 1 months security deposit. In the contract, it is stipulated that the security deposit will be applied against damages found at the end of the contract and any excess will be returned. 6r it may be stipulated also that any excess will be applied to the last few days or months rental of your choice ( whether refunded or not. 2o at the time that you made the 1 months deposit and the % months advance rental, will vat be paid on the total ) months? Will you have to shell+out $%& on the )+month rental? o .6, because the 1 months security deposit is not within the free disposal of the seller of the services. A.6TFA? I@@J2T?ATI6.B <ba imagine yourself out drin5ing in the streets. 4ou purchased redhorse but the sarisari store lady would have to re-uire you to put+in deposit and it will be returned when you give bac5 the bottle. 2o at that "uncture, you 5now for a fact that it!s not hers, that!s yours. The deposit is not as yet an income of the sarisari store, "ust li5e in lease contracts, unli5e in advance rentals, because advance rentals will actually be applied to a monthly rents.
A.6TFA? I@@J2T?ATI6.B When you go to a gasoline station and you have your car serviced and you purchased some parts assembled in your car, the entire amount will be considered as part of D? because the principal transaction there is the service of your car. Any parts or inventories that are purchased in order to execute the service will be part of D?. #ut how about reimbursements? Are reimbursements part of D? sub"ect to vat? .6, because reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor is excluded from the definition of D? in the revenue regulations.
The revenue regulations extended the definition of D?. It excludes reimbursements so long as it is substantiated. o IllustrationB 2o imagine yourself hiring the service of a bro5er and if the bro5er needs to hire a third person for the execution of some parts of the service and if the bro5er has advanced payment to such third person and the bro5er will see5 reimbursement from you, so long as it is properly substantiated for vat purposes, your payment to the bro5er will be partly sub"ect to vat and partly not sub"ect to vat. 6nly the bro5er!s services will be sub"ect to vat. If reimbursement are properly substantiated ( not sub"ect to vat, it will not form part of the D? of the bro5er. ost 8@ 9
1. Importation of goods ( @anded
What is @ ? When is that use as basis for computing vat? It is used as basis for computing vat in the importation of goods. Whenever the #ureau of ustoms 8#6 9 would value an importation using the -uantity or volume of an imported product, its basis for computing vat would be the @ as appearing in the import entry declaration. @ consists of the invoice amount V customs duties V freight V insurance V other charges V excise tax 8if any9 2o if you will see the basis of vat on an importation, being the @ , we pay the vat on customs duties because part of the @ customs duties and the $%& is computed on the entire invoice paid, insurance, pac5aging, etc. is
What consists of the @ ?
-UT+UT TAX 6utput tax is simply theB o o $%& vat on the sale of goodsMservices less sales returns, allowances, discounts $%& of total value plus customs duties, excise taxes, other charges 8if imported9
There is what you call as a contra+account. It!s a direct opposite against the output tax and it!s called the input tax. If there!s out, there!s in, dba.
!#+UT TAX What is input tax? o It means the vat due on or paid by a vat+registered person on importation of goods or local purchases of goods, properties, or services, including lease or use of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax. 2o it is the vat that is due or paid by a vat+registered person on importation of goods or local domestic purchases of goods, properties or
services from another vat+registered person, in the course of his trade or business. o I@@J2T?ATI6.B an you, for personal use, claim input tax on a purchase that you made, say for example, you purchased a laptop. The laptop cost )/5 ( purchase price. $%& vat ( ,5. an you claim input tax of ,5? an you recogni=e input tax of ,5? .6, becauseB o o o $. 4our purchase was not made in the course of trade or business and %. 4ou are not a vat+registered person
T?JA 6? KA@2A. All of us 8referring to the class, including am %iu9 have encountered paying vat on our purchases. #ut we have the right to recogni=e an input tax and offset it against our output tax ( all the input taxes that we have actually paid on our purchases. KA@2A, becauseB $. We are not vat+registered persons. 6nly vat+registered persons have the right to claim input tax. %. We are not into the course of trade or business. o The only right we have is to claim it as part of our cost or purchases.
Krom where can you derive input tax? 2ources of input taxB o $. $%& actual input tax from o o o a. @ocal purchase b. Importation
%. Transitional input tax 1. 'resumptive input tax 7. reditable withholding vat
Jan. 5, 2011 Wednesday 6utput tax is the tax on the sale of goods, properties or services. 2o it is what a seller recogni=es on his sales. 6n the other hand, that seller has purchases or will ma5e purchases and any input tax or vat that he has paid to his supplier, he will recogni=e it as an input tax. What the government will receive actually is not the output tax on the sales but the difference between the output tax from the sales of that vat+registered person reduced by the input tax recogni=ed on the purchase of services or goods by that same vat+registered person. If you remember our introduction on vat, what the government can actually collect is the vat or the tax on whatever the seller has added or mar5ed up as a profit on the products or services that he!s selling. #ut what we actually encounter every time is the vat that is actually paid on the purchase. 2o the bul5 of input taxes by these sellers or vat+
registered persons is the input tax actually paid on the purchase. #ut there are other sources of input taxes. What are they? o $. $%& actual input tax from a. @ocal purchase b. Importation o When you import goods, you actually have to pay the vat before the goods will be released to you. 2o it!s actually paid input taxes.
%. Transitional input tax What is that? This is a transitional input tax credits on beginning inventories. Any person liable for vat or who elects to be a vat+registered person shall be allowed input tax in his beginning inventory of goods, materials and supplies on hand, e-uivalent to %& of the value of such inventory or the actual vat paid on such goods, materials and supplies on hand, whichever is higher, which shall be creditable against the output tax. 4A2.
When a person or entity is allowed to recogni=e a transitional input tax, is he a vatable person or is he a vat+registered person?
2o how many times will a person or entity be allowed to recogni=e transitional input tax? It depends. Jnli5e the actual input taxes on local purchases of goods, properties or services and importation of products, which are actually recogni=ed every time a purchase is made, transitional input tax is only recogni=ed when a person or entity transitions from being a vat+exempt person to being a vat+registered person. 2o this may probably happen not only once if he chooses or elects under the optional registration so long as it is made irrevocable within 1 years. #ut then again, as a term implies, it!s a vat that is recogni=ed when a person or entity transitions from being exempt to a vatable person.
2o since this is not really an actual input tax that has been recogni=ed at the time the inventory has been purchased, how is transitional input tax computed? %& of the value of such inventory or the actual vat paid on such goods, materials and supplies on hand, whichever is higher. 2o you have % options 8whichever is higher9, the transitional input tax may be based onB o $. %& of the value of the inventoryI or Inventory at what period or at what time?
#eginning inventory on hand as of the effectivity of their vat registration AOA*'@AB 2o if the business has been operational for $/ years after vat registration, do you really have to go bac5 to that record $/ years ago and determine what!s the inventory at that point in time? o 4A2.
These inventories, materials and supplies have been purchased prior to vat+registration, so what!s the principle behind the allowance or recognition of transitional input tax? Is it not pre"udicial to the government? Why do we have to go bac5? Why do we have to recogni=e input taxes on goods that were purchased prior to vat registration? Why do you thin5 the law allows the recognition of transitional input taxes? The reason why transitional input tax is allowed is that whenever a person transitions from being a vat+ exempt person to a vatable or vat+registered person, at that point of effectivity, all his inventories on hand become sub"ect to vat if sold. And if it!s sold, it will generate $%& output tax liability to the government. And at the time that these inventories that will be sold in the future, at the time these were purchased, no actual input taxes have been recogni=ed because of his exempt+status. 2o in order to compensate for the effect of vat output tax on a product that no input tax have been actually recogni=ed, the government allows the transitional input tax. These inventories on hand at the time of effectivity are actually be consumed in the near future. Any additional purchases during the effectivity of vat+registration will actually already generate input taxes. 2o it!s "ust at the time of transition.
%. The actual input taxes that have been actually paid during the status of being a vat+exempt person What is the difference between the % options? When the law says whichever is higher, would you go for the actual input vat paid or the %& of the gross value of the beginning inventory? <oes it mean that one is always higher than the other being $%& actual input tax paid? Is there a chance that the %& be higher than $%&? #oth has the same basis ( the %& is based on the value of the inventory on hand at the time of the effectivity of the vat registration while the actual input tax is still based on the inventory on hand at the time of the vat registration. 4ou can never recogni=e input taxes on those inventories, supplies and materials that are no longer there at the time of the transition. 2o would you always go for $%&? This is one area where the government is more lenient. 4ou are allowed to choose whichever is higher. 0now for a fact that input tax is a way of diminishing our tax liability in favor of the government. The reason why there is an option between the actual input vat paid on the inventories on hand at the time of the effectivity of vat registration and %& of the gross value of the inventory is that when you choose the %& gross value of the inventory, supplies and materials on hand, it is indiscriminate. %& is totally based on the value of the inventory on hand. #ut if you go for recogni=ing the actual input taxes that have been paid, you have to identify which among the inventories, materials or supplies on hand have been actually
paid of input taxes and properly supported with vat official receipts and invoices ( so it re-uires substantiation. o 1. 'resumptive input tax What is presumptive input tax? 'ersons or firms engaged in the processing of sardines, mac5erel, and mil5, and in manufacturing refined sugar, coo5ing oil and pac5ed noodle+based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, e-uivalent to 7& of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. Those persons or firms engaged in the processing or manufacturing ofB o o o o o o 2ardines *ac5erel *il5 ?efined sugar oo5ing oil 'ac5ed noodle+based instant meals In some cases, the %& is higher because it!s based on whether or not the inventories have been paid of vat. The actual input tax is much more stricter because it!s higher at $%&.
Who is allowed to claim or recogni=e presumptive input tax?
<oes it include a business or an entity which converts sardines, fresh from the sea, into a dried fish? Is that processing? .6, it!s not processing. The term processing shall mean pasteuri=ation, canning and activities, which through physical or chemical process, alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition.
This presumptive input tax is only available to specific manufacturing entities, which are involved in the processing of particular agricultural products as mentioned but not all agricultural products. Why do you thin5 the government allows presumptive input tax on these types of businesses? When a fish or sardines is converted or its physical form altered and repac5ed and sold in such a manner that it will entail output tax when sold, the seller or manufacturer of such product will be liable for $%& vat on all sales of such product. #ut then, the vat liability due to the government is only after we can deduct the input taxes on the raw materials that we have used in producing
our products sold ( only the net of the output tax and the input taxes on our purchases. The problem with these types of manufacturers is that their primary sources of raw materials are agricultural products in its original state for which it was purchased or obtained 8e.g. fishing9. 2o when it is sold, it will generate full $%& without the benefit of the input tax because it was purchased or obtained vat+free. 2o in order to soften the tax liability of manufacturers of such initial stage of production, all manufacturers of the enumerated agricultural products are allowed to recogni=e a presumptive input tax but not fully at $%& + only 7& of the value of the purchases of these agricultural products, which are the actual process inputs.
7.
reditable Withholding vat reditable withholding vat is a vat that a domestic payor withholds from the non+resident person rendering service in the 'hils. and such creditable withholding vat is remitted to the government. .o actual loss is suffered by the domestic payors since the creditable withholding vat withheld and remitted to the government is totally allowed as an offset amount against the output taxes of these domestic payors. 4ou will notice that final withholding vat is not among the sources of input taxes because as the term implies, final withholding vat stops where it is withheld ( no future accountability.
VAT L!A.!L!T? -0 T>E SELLE* Is the input tax credit method available to all businesses? o o .6. The persons who can avail areB o $. 'urchaser of domestic goodsMproperties %. 'urchase of services 1. Importer $. The seller must be a vat+registered person %. A vat+registered person can avail of the input tax credit method if he can substantiate with vat official receipts or vat invoices Who can avail and what are the re-uisites?
The re-uisites areB
At what point can the input taxes of a vat+registered person be recogni=ed? o K.4.I., vat returns are filed on a monthly basis, thus, output vat is paid every month. 2o every time that you ma5e a purchase, whether or not it
is paid, there remains a -uestion of whether you can, at that point of receiving the official receipt or invoice, you can recogni=e the input tax. 6r is there a special timing for that? 2o what!s the proper time to recogni=e or claim input tax? When should you recogni=e and claim input taxes against your output taxes? IT <A'A.<2B To the importer ( upon payment of vat prior to the release of goods from customs custody To the purchase of domestic goods or properties ( upon consummation of the sale To the purchase of services or the lessee or licensee ( upon payment of the compensation, rental, royalty or fee
4ou pay your output vat every month. At the end of every month, when you are re-uired to consolidate your transactions during the period, can you recogni=e the input taxes, both on those purchases that you have not as yet paid and the purchases that you have actually paid? 6.@4 TF62A 'J? FA2A2 TFAT 46J FAVA A TJA@@4 'AI<. 2o you will recogni=e those that have not been paid the next period when it is actually paid. #ut does this rule apply to all types ( the purchaser of domestic goods, the purchaser of services and the importers? o o A''@IA2 6.@4 T6 'J? FA2A? 6K 2A?VI A2 ?ecogni=ing input taxes that you will use to offset your output tax follows some rulesB If you purchase goods and properties, you can recogni=e the input tax immediately upon the consummation of sale so long as you have the vat invoice or vat official receipt. o <ba, vat invoice or any sales invoices are given, not necessarily with payment. 'ayment may come later. #ut when you purchase a service, input vat can only be recogni=ed upon the payment of the compensation, rental, royalty or other services fees. o *eaning, a purchaser of service has to have a vat official receipt on hand if he wishes to claim the input tax on such purchase.
While the importer of goods ( you cannot get your products without paying the #6 . 4ou cannot obtain any release otherwise, you defied the rules of the #6 . 4ou!ll be charged with smuggling or whatever. 2o if you wish to claim the input taxes on the importation of products, you can only do so once you get clearance from the #6 that the taxes have been paid. It means to say that your support is neither a vat official nor a vat invoice but it is the import entry declaration issued by the #6 .
If you have purchase a service and you have not yet paid such service, no input taxes as yet because service re-uires payment for input tax to be recogni=able while purchase of goods re-uires only invoice, not necessarily with payment.
If you enter into a lease contract and you made advance payments for the entire year, immediately, on the first month that you made the payment for the entire year, you can already recogni=e the input tax against your output taxes for the month.
T*EAT7E#T -0 EXCESS !#+UT TAX 2o the input tax credit method have this formulaB 6utput tax on outgoing of products 8sales9 less Input taxes on the incoming of your products through transactions such as purchases. .ormally, output tax is higher than the input tax on your purchases because we don!t go into business wherein our cost is higher than our sales. #ut sometimes, input taxes is higher, which ma5es or creates excess input taxes, in cases where you have exceeded purchases for the month than your sales or in cases where the output tax is a =ero+rated transaction ( your sales is for export but it does not mean that you cannot recogni=e input taxes. Lero+rated sellers can recogni=e input tax being vat+registered persons. .ow, what will you do with an excess input tax? o o o The excess shall be carried over to the succeeding -uarter or -uarters, provided however that any input tax attributable to =ero+rated sales by a vat+registered person may at his option be refunded or credited against other internal revenue taxes. The excess input tax shall be carried+over to the succeeding -uarters. Is the carry+over option time+bound, meaning is it restricted by carrying it over only to the next -uarter, not monthly, but it!s -uarterly? 6r only until within the year? 4our option to carry+over your excess input taxes to succeeding -uarters is perpetual so long as you don!t go for the other option of claiming vat refund or vat credit. an you both carry+over your excess input taxes and file a claim for vat refund at the same time? .6, you can only choose either of the two. Whenever your income taxes exceed your output taxes, there are % options to ta5e. It cannot co+exist in one and the same excess input tax. 4ou will eitherB o o $. arry+over the excess input tax to succeeding -uarters until it is consumed by the output taxesI or aveat> limited application only to =ero rated transactions or %. 4ou can either claim it for vat refund or vat credit 8EEEEE exports transactions>9
#ut are both options available to all types of vat+registered persons? o .6, since the option of claiming vat refund or vat credit is only available to input taxes attributable to =ero+rated sales by
a vat+registered person. 2o if a vat+registered person experiencing an excess input tax is not into export or not into =ero+rated transactions, it cannot file for a vat refund despite its huge input taxes? o 4A2. AOA*'@AB When Ali=abeth *all was constructed a few years ago, at the time of hiring the contractor, purchasing labor and materials, it recogni=ed input taxes on the construction. #ut at that point during the construction phase, no output taxes was due from e+mall because it derived no income. @ets say for example, it accumulated millions of input taxes during the construction phase and immediately the year of operation, it only generated output taxes of a few hundred thousand from the lease of commercial spaces. .aturally, the input taxes would overpower the output taxes. There will be excess input taxes for many months and -uarters. <oes Ali=abeth *all have the option to file for a vat refund or claim for tax credit on the contention that it will ta5e years before it can fully benefit and utili=e the input taxes incurred during the construction phase? an it file for a refund? o .6, because Ali=abeth *all is not into =ero+rated transactions. It can only avail the option of carrying+over the excess input tax to the next succeeding -uarter or -uarters.
'rior to the amendment of the law in %//), there were % grounds for filing a refundB 8$9 whenever your excess input taxes is derived from those =ero+rated sales or input taxes on purchases attributable to your =ero+rated transactions and 8%9 when you have accumulated excess input taxes from capital goods ( these are items which has a life of more than a year 8e.g. building9. #ut then in ?A G11H in %//), the % nd ground wherein you can file a claim for refund has already been ta5en out or repealed. What is left only for the filing of refund is when your purchases is related to your =ero+rated sales. It!s not the purchase that is =ero+rated. It!s when the purchase is attributable to your =ero+rated transactions, meaning, if you!re into =ero+rated sale of products and goods, your purchases, having input taxes must pertain to the raw materials that is involved in the manufacturing of the products that you!re actually exporting or that is =ero+rated. 4ou don!t have =ero+rated purchases. The concept is that only if you are into =ero+rated transactions will you be able to file a claim for refund but not all input taxes can be refunded even if you!re into =ero+rated transactions. 6nly the input taxes on purchases of materials that became a component of the products sold abroad or that is =ero+rated. 65EEEE .oted>
When we said that the option to carry+over is actually perpetual until it is consumed by the output taxes of the seller, how about the claim for vat refund? 2ay for example, A+mall again, millions of input taxes but on the ) th year, it failed to consume half of its input taxes even against its massive output tax on lease of properties. 6nly, lets say, %/& have been consumed. an it file for a refund on the C/& remaining input taxes? .6.
2o when are you re-uired to file for a refund or what are the re-uirements for filing a claim for vat refund or vat credit? I@@J2T?ATI6.B Assuming on a calendar basis, the following facts are,
+U*C>ASE -0 :--DS +A?7E#T
Nanuary $, %/$$ April $, %/$$
8*arch 1$9 ( close of the first -uarter 8Nune 1/9 ( close of the %nd -uarter
Assuming that your officer mista5enly recogni=ed the input tax on the purchase of goods in April %/$$, instead of Nanuary %/$$. <ba as a rule, if it!s purchase of goods, when is input tax recogni=ed? Jpon the consummation of the sale, on hand with the vat invoice. 2o it could have been recogni=ed already in the -uarterly return of *arch 1$. #ut mista5enly, it was recogni=ed on April %/$$, so it was covered on the %nd -uarter. If you would want to file a claim for refund of im input tax on your purchase of goods, what is the prescriptive period? % years from Nune 1/ or % years from *arch 1$? o o % 4AA?2 K?6* *A? F 1$, which is *arch 1$, %/$1. Kiling a claim for refund re-uiresB $. That you are a vat+registered person %. The input taxes that you are filing for a refund or tax credit must be supported with vat official receipts or vat invoices, depending on whether it!s a service or goods. Doods ( only a vat invoice is re-uired. 2ervice ( a vat official receipt is re-uired. 1. Kiling the refund claim or the credit claim must be made within % years from the close of the taxable -uarter when the sales were made. Nan. $, %/$$. *arch 1$, %/$$.
o o o
2o when was the sale of goods made? 2o when is the close of the -uarter of the first -uarter? 2o if it!s mista5enly placed in subse-uent -uarters, it will always go bac5 to when the sales were made.
Where should you file your claim for refund? laims for refunds or tax credit shall be filed with the appropriate #I? office 8@arge Taxpayers 2ervice 8@T29 or ?evenue <istrict 6ffice 8?<699 having "urisdiction over the principal place of business of the taxpayerI provided, however, that direct exporters may also file their claim for tax credit with the 6ne 2top 2hop enter of the <epartment of KinanceI provided, finally, that the filing of the claim with one office shall preclude the filing of the same claim with another office. It simply says that filing a claim for refund would have to go through the administrative remedy of getting a refund from the Kinance <epartment or the agency concerned. 2o you would have to go through the #I? but since the ma"ority of the file for refund, actually, the #I? is expected to act on your refund within $%/ days but not in all cases is it followed. *a"ority of the cases
for refund and credit is denied by the #I?. 4our burden is to present it before the courts. .ow what is your remedy if the #I? will deny your claim for refund? o A2AB Appeal to the TA within 1/ days from the receipt of denial I? V2 *I?A.T Kiling a claim for vat refund should be made within % years when the sales were made????? 8or upon consummation of the sale?9, not when the input tax has been paid. AOA*'@AB If you have made a purchase in $GGH <ec. 1$. 'aid it in <ec. 1$, $GGC. Jntil when are you allowed to file a refund or how many years are left for you to file a claim for refund? EEEEEEEEE??????? o o o $ 4AA? @AKT or <ec. 1$, $GGG. 2o you do not rec5on it from filing the vat return or ma5ing the actual vat payments. If actual sales too5 place on <ec. 1$, $GGH, you can have only a year left for filing a claim for refund. That is so unli5e in all other cases in the tax code ( that is % years from the time of payment, which is a longer period.
SU.STA#T!AT!-# *E@U!*E7E#TS In substantiation re-uirementsB o o o o o If it!s an importation of products, to substantiate an input tax, you have to have an import entry declaration. If it!s a purchase of goods or properties, you have to have a vat invoice. If it!s a purchase of service, a vat official receipt. If it!s a purchase of real property, not only are you re-uired to have a vat invoice, but you have to support it with a public instrument, li5e the deed of sale. If it!s a payment to a non+resident for services rendered, 8this is actually related to creditable withholding vat9, to support your creditable withholding vat as an input tax credit, you have to have a monthly remittance return of your vat withheld so that!s the vat return that you have filed with the #I?. If it!s a transitional input tax that you!re claiming, you cannot support it with official receipts. All you can do is support it with the inventory of goods that is shown in a detailed statement to be submitted to the #I? during transition. If it!s a transaction deemed sale, input tax can be claim by the support of a vat invoice.
o o
AD7!#!ST*AT!VE 7ATTE*S Kiling of vat return

o o
That!s made monthly and consolidated -uarterly 4ou pay the vat at the time that you file the return
'ayment of vat 'enalties for non+compliance 2uspension of business operations o What vat law violations can result to the suspension of a business operation for a period of not less than ) days or at least ) days? $. Kailure to issue vat official receipts and invoices %. Kailure to file vat return 1. Jnderstatement of taxable sales or receipts by 1/& or more of his correct taxable sales or receipt for the taxable -uarter The first 1 violations pertain to vat+registered businesses.
7. Kailure of any person to register The 7th violation pertain to unregistered businesses, which are mandatorily sub"ect to vat. It does not mean that only those who are vat+registered will be violated under this provision of the vat law. It also means that whenever a business is covered by vat taxation law, meaning mandatorily re-uired, your business is vatable, it exceeded $.)m, you have to register. It!s not an option ( register under the vat system. .on+registration can mean suspension of business operations.
What happens if you are a non+vat person, meaning you are an exempt person, and you issued a vat official receipt or vat invoice, what is your penalty? 2ay for example, your sales or gross sales or receipts would not really exceed $.)m, therefore, you did not register under the vat system but still you gave out to your customers a vat official receipt and invoice. What is your penalty for that? Would it be liable for $%& vat on sales? 4A2. 2ince it!s liable for vat, would it be allowed to recogni=e input taxes on its purchases? .6.
Whenever a non+vat person issues a vat official receipt or vat invoice erroneously, the following things will happenB $. Fe will continue to pay the current taxes that is due from him. 8e.g. percentage tax9 %. In addition to that, he will pay the vat on the assumption that he!s vatable because he issued vat official receipt and invoice. o This is also to cover the vat input that will be or may be claimed by his customers. <ba, the mere fact that his customer received the vat invoice and vat official receipt in his hands, the customer already has the right to recogni=e an input tax. In order to offset the possible loss of the government by someone who!s going to claim an input tax, the person who
erroneously issued a vat official receipt or invoice has also to pay the output tax in order to =ero+out the effect of the erroneous deed of the non+vat person. 1. #ut as a penalty, the non+vat person will not be allowed to recogni=e an input tax on his purchases. o ?easonB Fe is not a vat+registered person. <ba, one rule for an input tax to be claimed, he must be a vat+registered person.
7. Fe is to pay a surcharge of )/&.
If there is an issuance of a vat invoice or official receipt on an exempt transaction, the transaction will be vatable and the seller will have to pay the vat. 2o this is the opposite scenario. If a vat+registered person is engaged in both mixed transactions, both vatable and not, and in both instances of selling, that vat+registered person issued a vat official receipt and invoice for both types of transactions, a vatable transaction ( no problem ( but the exempt transaction for which it issued a vat official receipt and invoice, the effects areB $. The transaction becomes vatable because the purchaser will be allowed to claim input tax, therefore, the seller will have to pay vat output tax even if the transaction is exempt. 8$B7,9
#!*C *E7ED!ES A:E#C!ES !#V-LVED !# TAX AD7!#!ST*AT!-# There are 1 agencies involved in tax administrationB o o o $. #I?, which collects the largest or the bul5 of the taxes that the government can collect %. #6 1. @ocal government units, represented by the assessors for real property taxes and the treasurers for the local business taxes <ba, local business tax, by the time of the 1rd of Nanuary, local business taxes will have to be paid by all businesses.
-00!C!ALS -0 T>E .!* 2ince we are still in the tax code, it means that we have to discuss the #I? only. Who are the officials of the #I?? o $. I? The single most powerful person in the #I?. If he does not want to assess this specific person on the belief that there!s actually nothing wrong with the boo5s of accounts of that entity, nobody can force him to issue an assessment. There!s only one I?. The term of the I? is co+terminous with the 'resident. 2o the 'resident has to have trust and confidence in his the funds in the budget for his term. I?, who will deliver
o o o o
2o by the time the 'resident will leave office, new 'resident, if he does not have trust and confidence with the current change the I?.
I?, can actually
%. 7 deputy commissioners 1. ?egional directors There are as many as there can be #I? regions. ebu is revenue region $1. 2o we only have $ regional director for region $1. 7. ?<6 There are as many revenue district offices in $ region. They are the ones we can meet on regular basis. They are those who ma5e assessments and audits ( the front+liners. ). ?evenue enforcement officers or examiners
+-=E*S A#D DUT!ES -0 T>E .!* What are the powers and duties of the #I?? o o o $. Assessment and collection of .I? taxes, fees and charges %. Anforcement of all forefeitures, penalties and fines 1. Axecution of "udgments in all cases decided in its favour by the TA 3 regular courts
2o since the #I? is involved in tax administration, tax collection for that matter, the first and foremost power of the #I? office is to issue assessment of tax deficiencies, collect taxes fees and charges and on top of that, if there are violations, the #I? can enforce the forfeiture of products, inventories or any other supplies of the taxpayers, impose penalties, surcharges and fines. And thereafter, as a last recourse, execute the "udgment in all cases decided in its favor by the TA, regular courts and even the 2 .
:E#E*AL +-=E*S -0 T>E C!* Those aforementioned are the powers of the #I? as a whole. #ut specifically, what are the powers of the I? himself? o $. Interpret the tax code and other tax laws 8exclusive and original "urisdiction9 When a I? has the power to interpret the tax code, how does he deliver this power? Where does he exercise such power? What is the role of the I? in the issuance of a revenue regulation? <oes he issue a revenue regulation? Is he the approval officer or the recommending officer?
If you recall in general principles, the I?, even if he!s the head of the tax department of the #I?, he!s not actually the person who!s going to issue, approve and sign the revenue regulations. Fe only has the recommending power and such recommendation will be directed to the 2ecretary of Kinance, who actually issues the rules and regulations. The last stage of rules and regulations will bear % signatures ( approval and recommendation. ?ecommendation is done by the I?. Fow else will he interpret tax laws apart from ma5ing+up or drafting rules and regulations or recommendations? o o When he issues rulings and opinions When does the I? issue rulings and opinions? ?ules and regulations are the general interpretations of the tax laws, which see5s to explain those provisions of the law. #ut an opinion or ruling is more specific in nature. It addresses the particular needs of the taxpayer, which is not hypothetical in nature. 2o whenever a taxpayer would in-uire as to the applicability of a certain tax law, an opinion would have to be issued by the I? or his subordinate.
It is a power that is exclusive and original on the part of the commissioner. #ut is his power sub"ect to review by someone else? 2ub"ect to review by the secretary of finance
%. 'ower to decide disputed assessments, refunds, penalties and other matters 2ince the function of the #I? and the I? is to collect taxes, one ma"or power is to decide assessments 8that has not been agreed upon by the taxpayer9, claims for refund and to impose penalties and other fines and forfeitures. It simply means that any issues regarding taxes would have to go through the administrative stage of being resolved by an agency involved. 2ince remedies of the taxpayer, in so far as taxes are concerned, cannot directly go through the "udicial process. It has to go through administratively first, then if not, resolve "udicially. That!s why we have TA.
Jan. 6, 2011 Thursday o 1. 6btain information and to summon, examine and ta5e testimony of persons What do you mean by that? Information from whom? @ets ta5e the case, if you have a business and you maintain % sets of boo5s ( one for the government and one for yourself. In cases of assessments, would you show them the % sets of boo5s that you!re 5eeping? Fow can this be an effective power of the I? ( obtaining information from whom? What is the ob"ective of the #I? again? To collect proper taxes and to in determining the taxes that have been paid are correct, exact and proper, on the belief that it needs to obtain information, to issue summons, examine and ta5e testimony of persons in order to gather sufficient information in ma5ing the correct assessment of taxes. #ut from whom can the #I? gather information and such information would be a valid assessment against the taxpayer?
6ther agencies involved ( the #I? can wor5 hand+in+hand with the local government units in the sense that @DJs receive annually whenever a business renews its business permit, it is able to obtain the gross receipts for the entire year. 2o the #I? can actually ma5e a comparison whether the gross receipts declared for #I? purposes and for the @DJ purposes are the same. If not, then, it may be sub"ect to further investigation. #ut is the government only allowed to ta5e information or obtain information from other government agencies and is that the only information that remains to be valid information? Also from the taxpayer himself ( but the person who is already under investigation or the government is -uestioning such person already, that person would only issue statements that are self+serving and issue documents that would only support whatever he has filed as tax returns and pay the taxes. It will never actually give out any information that is pre"udicial to himself. What type and from whom would this information come from that would become a valid basis for assessing or ma5ing an assessment of taxes? an it be any person? 4A2. The primary source of assessment is the taxpayer himself. #ut if the #I? is not agreeable with the declaration of taxes and the pament of taxes made by the taxpayer himself, its other sources is to obtain information and as the law provides, information from any person. It can be any person and we call that information as a 1rd party information. #ut of course, it has to be reliable 1rd party information. AOA*'@A 8reliable 1rd party information9B Those actors and actresses who have been charged with tax evasion? <o you thin5 the I? made the assessment of tax evasion purely based on what was declared by these artists? I 8*am Tiu9 don!t thin5 those artists will be giving out the documents that would pre"udice themselves. The #I? can gather information from any person so long as that information is reliable in so far as ma5ing the assessment of taxes is concerned. In the example of the actors and actresses or any other professionals who have been charged with tax assessments and tax evasion, more often than not, the sources made by the #I? is not purely the documents provided by these professionals or artists. It came from another sources with whom that person has contracted any business with. 2o if you!re a professional model and you earn $//m for appearing in a particular advertisement, so if you get $//m, the obligation of the payor+company, lets say 2an *iguel, would have to, as a withholding agent, under the law, withhold $)& of the professional fee. What will be given is only C)m. $)m will be remitted to the #I?. Fow much will that professional or model declare as an income at the end of the year? $//m because the tax withheld is a creditable withholding tax 8not a final withholding taxI not a passive incomeI it!s an income that you earned in the regular course of your profession9. 2o, lets say, *anny 'ac-uiao has to declare $//m, compute his taxes according to the table of )+1%& and whatever tax is left, deduct whatever has been withheld. 2o if he does not declare fully the $//m, lets say )/m lang, but he deducts the $)m withheld because the $)m is supported by a certificate that it has been withheld, it!s good if there!s no comparison with the records of 2an *iguel. 6n the face of the professional, it!s perfect ( )/m less $)m, there!s no really individuali=ation. #ut when there!s matching of records already, 2an *iguel will be reflecting how much in expenses? $//m. <o you thin5 2an *iguel will only reflect lower than what it has actually paid? .o. It will reflect the true expenses because it is for its own benefit in the business. It will reflect $//m in expenses. And what will the #I? do with the $//m? It will chec5 whether it has
withheld the taxes and chec5 8because there!s submission of who among the persons have been withheld by 2an *iguel9, it will have to be traced bac5. With the advent of computeri=ation in the #I?, it!s very easy to match the records and it will automatically, )/m x 1%&, will be your tax assessment as the professional has not declared the true income plus the surcharges. 2o any information. It!s not "ust about the taxpayer so long as his transaction can be traced with another taxpayer, either it be sale of service or goods or expenses, it is possible to match the records. Nust li5e the :'remyo sa ?esibo; in #I? wherein you get to win $m if you 5ey+in or if your cell phone number is pic5ed out. What you need to do is simply get a receipt from the establishment from where you bough your item, 5ey+in the TI. of that business and the amount of purchase. If your number gets pic5ed, you may win as much as $m. It will be traced bac5 to the establishment. The government will chec5 the official receipt or invoice issued by that establishment. If the duplicate reflects only half or little of what was declared by the customer, who text+in the details of the invoice or official receipt, that is another area of deficiency or discrepancy of amount, sub"ect to immediate assessment of taxes. 2o any person can be the source of information.
o 7. *a5e assessments
As an overview, before we dig+in deeper on how to go about the assessment, what do you understand about assessments made by the #I?? Assessments may be made by the #I? throughB $. Axamination of returns and determination of tax due o 2ay for example, the assessment is initially made upon the examination of the returns that have been filed vis+W+vis the taxes that have been paid. If a taxpayer does not file a tax return for a particular tax liability, what will be the basis of the assessment or will there be any assessment at all? 4A2, there will still be assessment and the basis would be on the best+evidence obtainable. Assessment is not purely dependent on the availability of tax returns that have been filed. 2o whether or not the tax return has been filed by a particular taxpayer, assessments may be made. If a return has been filed, you have a starting point. 4ou loo5 at the return. ompare it with the boo5s of the taxpayer. Any deficiency or discrepancy would have to be paid or issued an assessment for payment. If no return is filed, you simply have to rely on the best evidence obtainable by the #I?.
%. Assess the proper tax on the best+evidence obtainable o What do you mean by best evidence obtainable? an you "ust illustrate or give an example? 2ay this is what has been reflected by the taxpayerB sales of $b, but its income tax due at 1/& is only $m. 2o its taxable income is around 1m. If you!re from the #I?, would you rely on such records? Fow will you 5now the proper tax due? What is the best evidence
that you can get in order to determine the proper tax due? If no boo5s of accounts is made available? 8It!s possible because some taxpayers do not really give out boo5s of accounts or details9 What are the methods which the #I? can use in order to determine the proper taxes if it appears that the taxes declared are not believable or unconscionably low? What about the net worth method? .et worth method can be another method wherein the #I? can determine the proper taxes for a taxpayer who has not fully declared its income or paid properly its taxes for a number of years. 2ay for example, in a span of 1 years, only $m every year is paid by a company. The net worth for %//H is $/b. The net worth in %/$/ is %/b. What is the formula for net worth? Assets minus liabilities. <ba, in every business or in every individual taxpayer, you simply determine what your assets are, how much your liabilities are, then, you will arrive at what is really your true value. If the net worth has increased $/b in 1 years and it is determined that everything, the increase in income, is not paper income, it!s reali=ed income, the taxes may be directly computed against the $/b ( the increase in net worth. <ba, it!s impossible for a business to grow $/b net worth with only 1m income every year for 1 years. 2o this is one method wherein the #I? can determine the proper taxes.
1.
onduct inventory+ta5ing, surveillance and to prescribe presumptive gross sales and receipts o o In some cases, the #I? will conduct inventory+ta5ing, surveillance of the business itself and its operations, and to prescribe presumptive gross sales and receipts. 'rescribing presumptive gross sales and receipts is another type of method to determine the true income of the taxpayer and thereafter its assessments. If a taxpayer, say for example, a particular manufacturing company has been declaring sales at $/m a year. ost of sales at G.Gm with a taxable income of $//5. If it!s unbelievably low, the #I? will presume gross receipts and sales, how will it ma5e presumptive gross sales and receipts? #y loo5ing at similar businesses within the same industry. If it!s a shipbuilding company, it will determine what are the gross sales and receipts on the average of other shipbuilding companies in that same industry. If it!s at $b and the other company is reflecting $/b, it may use the data from all other companies on the average so long as they are in the same business. It!s li5e comparing green apples to green apples or red apples to red apples but not to red apples to green apples. It must be the same business.
7. Issue "eopardy assessments and terminate the taxable period o What is the difference between assessment as a general rule from "eopardy assessment? What is "eopardy assessment? It!s a tax assessment made by an authori=ed ?evenue 6fficer without the benefit of a complete or partial audit in light of the ?evenue 6fficer!s belief that the assessment and collection of the deficiency tax will be "eopardi=ed by delay caused by the taxpayer!s failure toB
$. omply with audit and investigation re-uirements to present his boo5s of accounts andMor pertinent records %. 2ubstantiate all or any of the deductions, exemptions or credit claimed in his return
When the #I? ma5es assessment, the general rule is that it can only be made valid against the taxpayer if a complete and full audit has been made in so far as the documents obtainable are concerned. #ut sometimes, the law allows incomplete and partial and even in the absence of any formal audit made, an assessment may be considered valid and it!s called "eopardy assessment. What is the reason why a "eopardy assessment can be made by the I?? If it!s not the taxpayer!s fault and prescription is about to lapse, will "eopardy assessment be allowed? .6. The law is not so unreasonable as to pre"udice the taxpayer in allowing #I? to at any time issue assessments without any formal audit and investigation. The general rule is that a full audit and investigation has to be made detailing all the violations under the tax law, detailing all the discrepancies and figures and the demand for payment, that is the formal way of issuing an assessment. 6ther than that, it will be an invalid assessment. The taxpayer can simply consider it as non+existent and not pay the taxes that has been assessed. In some special cases, "eopardy assessment can be made and the term "eopardy assessment, it implies that the #I? did not exert the same effort as he would have exerted if he made the formal assessment. In short, dinalian ( the assessment is made hapha=ardly without the benefit of a full nor partial audit or investigation of the boo5s of the taxpayer. #ut it has to be supported by a valid cause on why "eopardy assessment has been made, such as when the prescription is about to lapse without the fault of the government due to reasons within the control of the taxpayer. #ut more importantly, "eopardy assessment is issued whenever the government!s right to collect is "eopardi=ed or will be "eopardi=ed because the prescription period is about to lapse with the taxpayer not having complied with the re-uirements for full investigation. AxampleB #I? issues a notice that it will be investigated. #ut the taxpayer does not provide proper information and there!s only a remaining month to ma5e the audit investigation. If the #I? sees that the collection will be "eopardi=ed, if no assessment is issued, then "eopardy assessment is allowed. #ut there are only certain glaring instances when "eopardy assessment is allowed or wherein the government!s right to collect will be "eopardi=ed. What are these instances that will give rise to the issuance of "eopardy assessments? When the taxpayer isB o o $. ?etiring from business sub"ect to taxI or because he!s trying to avoid the payment of taxes by stopping everything and leave the assessment hanging %. Intending to leave the 'hils. or to remove his property therefrom or to hide or conceal his propertyI
1. 'erforming any act tending to obstruct the proceedings for the collection of the tax for the past or current -uarter or year or to render the same totally or partially ineffective unless such proceedings are begun immediately
). 'rescribe real property values The I? has the power to prescribe real property values or the K*V of real properties. <ba, there are two K*Vs under the law in so far as real properties are concerned ( those K*V identified or issued by the I? himself or the =onal valuation by the local assessors. #ut the I? himself has the power to determine =oning or the K*V of every =ones in the area. Jnder the #an5 2ecrecy @aw, our deposits are confidential, as a general rule. .obody can get the records of our ban5 deposits, as a rule. #ut there are many exceptions in various laws. #ut ?A $7/) under ?egular 'eso <eposits and under the Koreign urrency <eposits Acts, every deposit is held secret or sworn to secrecy by the financial institutions. .obody can simply get the records in order to protect the confidentiality of the records. #ut the tax code is one of those laws, which provides for an exception. What are the exceptions of the #an5 2ecrecy @aw? $. When the I? is given the power to in-uire into the ban5 deposits of a decedent for purposes of determining his gross estate and in the end, determining the correct estate tax due to the government o In this case, no need of written waiver. %. If the taxpayer has waived in writing his privilege under ?A $7/) 8#an5 2ecrecy @aw9 or under other general or special laws and such taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability o 2ay for example, you do not believe on the veracity and truthfulness of that assessment issued by the I?. 4ou have grounds to believe that your computation is correct. 2o it ma5es the assessment doubtful. 4ou offered a compromise to pay only a percentage, say half of what has been assessed. <oes that give the I? the right to in-uire into your ban5 deposits? .6, because the I? only has the right to in-uire into the ban5 deposits if the taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability and not by reason of the existence of reasonable doubt as to the validity of the claim against the taxpayer. 2ince there are % grounds for as5ing a compromise of tax liability ( one is when you!re financially incapable of settling the tax assessment and number two is when there is reasonable doubt as to the validity of the assessment made by the #I? ( only one of these % grounds in as5ing for a compromise will give the I? the right to in-uire into ban5 deposits and that would only be the as5ing for compromise under the ground of financial incapacity.
,. In-uire into ban5 deposits
1. The exchange of information by the #I? of tax matters pursuant to internationally+agreed tax standards 8?A $//%$9
2ection 1. Authority of the ommissioner of Internal ?evenue to In-uire into #an5 <eposit Accounts and ?elated Information Feld by Kinancial Institutions. + 2ection ,8K9 of ?epublic Act .o. C7%7, as amended, otherwise 5nown as the .ational ?evenue ode of $GGH, as amended, is hereby further amended to read as followsB R2A . ,. 'ower of the ommissioner to *a5e Assessments and 'rescribe Additional ?e-uirements for Tax Administration and Anforcement. + Rxxx R8K9 Authority of the ommissioner to In-uire into #an5 <eposit Accounts and 6ther ?elated Information Feld by Kinancial Institutions. + .otwithstanding any contrary provision of ?epublic Act .o. $7/), ?epublic Act .o. ,7%,, otherwise 5nown as the Koreign urrency <eposit Act of the 'hilippines, and other general and special laws, the ommissioner is hereby authori=ed to in-uire into the ban5 deposits and other related information held by financial institutions ofB R8$9 A decedent to determine his gross estate. R8%9 Any taxpayer who has filed an application for compromise of his tax liability under 2ec. %/7 8A98%9 reason of financial incapacity to pay his tax liability. RIn 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 Act .o. $7/), ?epublic Act .o. ,7%,, otherwise 5nown as the Koreign urrency <eposit Act of the 'hilippines, or under other general or special laws, and such waiver shall constitute the authority of the ommissioner to in-uire into the ban5 deposits of the taxpayer. R819 A specific taxpayer or taxpayers sub"ect of a re-uest for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the 'hilippines is a signatory or a party ofB 'rovided, That the information obtained from the ban5s and other financial institutions may be used by the #ureau of Internal ?evenue for tax assessment, verification, audit and enforcement purposes.
RIn case of re-uest from a foreign tax authority for tax information held by ban5s and financial institutions, the exchange of information shall be done in a secure manner to ensure confidentiality thereof under such rules and regulations as may be promulgated by the 2ecretary of Kinance, upon recommendation of the ommissioner. RThe ommissioner shall provide the tax information obtained from ban5s and financial institutions pursuant to a convention or agreement upon re-uest of the foreign tax authority when such re-uesting foreign tax authority has provided the following information to demonstrate the foreseeable relevance of the information to the re-uestB R8a9 The identity of the person under examination or investigationI R8b9 A statement of the information being sought including its nature and the form in which the said foreign tax authority prefers to receive the information from the ommissionerI R8c9 The tax purpose for which the information is being soughtI R8d9 Drounds for believing that the information re-uested is held in the 'hilippines or is in the possession or control of a person within the "urisdiction of the 'hilippinesI R8e9 To the extent 5nown, the name and address of any person believed to be in possession of the re-uested informationI R8f9 A 2tatement that the re-uest is in conformity with the law and administrative practices of the said foreign tax authority, such that if the re-uested information was within the "urisdiction of the said foreign tax authority then it would be able to obtain the information under its law or in the normal course of administrative practice and that it is conformity with a convention or international agreementI and R8g9 A statement that the re-uesting foreign tax authority has exhausted all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties. RThe ommissioner shall forward the information as promptly as possible to the re-uesting foreign tax authority. To ensure a prompt response, the ommissioner shall confirm receipt of a re-uest in writing to the re-uesting tax authority and shall notify the latter of deficiencies in the re-uest, if any, within
sixty 8,/9 days from the receipt of the re-uest. RIf the ommissioner is unable to obtain and provide the information within ninety 8G/9 days from the receipt of the re-uest, due to obstacles encountered in furnishing the information or when the ban5 or financial institution refuses to furnish the information, he shall immediately inform the re-uesting tax authority of the same, explaining the nature of the obstacles encountered or the reasons of refusal.R RThe term Xforeign tax authorityX, as used herein, shall refer to the tax authority or tax administration of the re-uesting 2tate under the tax treaty or convention to which the 'hilippines is a signatory or a party of.R o o o o AOA*'@AB The 'hils. and Australia. Jnder the ?'+Australia tax treaty, towards the end provisions of such treaty, there is a stipulation that both government have the right to exchange information of its constituents. Who is conducting an investigation? Is it the 'hil. government or the foreign authorities? It!s a re-uest from foreign authorities. .6. Without such re-uest, can the I?, by himself, loo5 into the ban5 deposits of the taxpayers? What could be the one reason why a foreign tax authority would be interested in determining the ban5 deposits of a 'hil. taxpayer or 'hil. individual?
2ection %. <eclaration of 'olicy. + It is the declared policy of the 2tate to promote and pursue a tax environment that contributes in sustaining a favorable international investment climate and instills confidence in the ade-uacy and capacity of the countryXs tax administration to comply with its commitments under existing international conventions or agreements on tax matters. 'ursuant to this declared policy, the government shall comply with or commit to the internationally+agreed tax standards re-uired for the exchange of tax information with its tax treaty partners to help combat international tax evasion and avoidance and to help address tax concerns that affect international trade and investment. The government shall li5ewise adopt measures and procedures to enhance cooperation with other countries in the efficient collection of taxes, consistent with the international understanding to ensure the payment of taxes due the respective taxing "urisdictions of the treaty partners. o #ut even under this law, the law re-uires utmost confidentiality of records. Aven if the #I? is allowed to re-uest the financial institutions to provide these data to be transmitted to the foreign tax authorities, such should be made in a secure manner. It would not be made available to all #I? officers and any violation of its confidentiality and getting it in a secure manner would give rise to a fine or imprisonment or both. And if a financial institution also refuses to give out the information to the #I? for the #I? to transmit to the foreign tax authorities, it will give rise to the same fine or imprisonment or both under the same law.
#ut what is the condition, under this law, that the foreign tax authority must be able to prove in re-uesting our own tax authority to get such confidential information? The foreign tax authority must be able to demonstrate the foreseeable relevance of the information to the re-uest and it must be able to prove that it has exhausted all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties. 'As who can audit financial statements.
o o
H. Accredit and register tax agents This simply means that the I? has the sole power to accredit practitioners or This is a catch+all provision. Are these general powers of the of the I? himself delegable? I? allowed to be delegated to his subordinates? All of these general powers? Are the general powers C. 'rescribe additional procedural or documentary re-uirements
4A2, but not all of the general powers.
AUT>-*!T? -0 T>E C-77!SS!-#E* T- DELE:ATE +-=E* D?B The I? may delegate powers vested in him to subordinate officials 8with a ran5 e-uivalent to a division chief or higher9. Axception ( non+delegable powers areB o o $. 'ower to recommend the promulgation of rules and regulations by the 2ec. of Kinance %. 'ower to issue rulings of first impression or to reverse, revo5e, modify any existing ruling What are rulings of first impression? These are rulings that are novel as to the issues. If there are issues raised by a taxpayer as5ing for an opinion or ruling from the I? or the subordinates, which issue has never been addressed similarly in the past, meaning there are no precedent #I? rulings available, it has to be the I? who will sign such rulings, otherwise, if it!s not a ruling of first impression, general rule is that the deputy commissioner or the assistant commissioner will be allowed to sign a ruling that already has many precedents. If there are existing rulings, which the I? believes that should have been interpreted the other way around, only the issue and sign the reversal, modification and revocation of such existing ruling. <ba, in general principles, a I? can
Another type of ruling, which can only be issued and signed by the I??
ommissioner or an 6fficer of the #ureau is not bound by the interpretations made by his
predecessors.
Jan. 11, 2011 Tuesday o 1. 'ower to compromise or abate any tax liability 8except assessments issued by the regional offices involving basic deficiency taxes of )//5 or less, and minor criminal violations9 What is the difference between the power to compromise and the power to abate tax liability? 82ec. %/79 #oth have different grounds. The power to compromise is the power to lessen the tax liability of the taxpayer while the power to abate is the power to cancel the tax liability of the taxpayer. The I? can enter into compromise reducing the tax liability to the extent of only $/& or 7/& depending on what ground you are entering into such compromise or the I? can abate the tax liability by foregoing totally the collection of taxes, sometimes only the penalties will have to be foregone or the collection of surcharges or interests. In most cases, what is foregone is the collection of the surcharges, penalties and interests, such as if it happens that you have filed in a wrong venue due to miscommunication of the #I? after you have actually transferred to a different ?evenue <istrict 6ffice but due to the fault of the #I?, you filed in the wrong venue. 2upposedly, you will be liable for the surcharge of %)& for filing in the wrong venue but due to reasons not entirely within your control or due to e-ual fault between the government and the taxpayer, you may as5 for abatement of the surcharge of %)&.
#ut would compromise and abatement exclusively belong to the I?? Would the power to enter into a compromise or abatement exclusively belong to the I?, such as if you!re see5ing for an abatement of $// peso tax liability, would you have to go to *anila and as5 for the approval of the I?? an he delegate such power? The power to compromise or abate any tax liability is non+delegable except assessments issued by the regional offices involving basic deficiency taxes of )//5 or less, and minor criminal violations. $. A reasonable doubt as to the validity of the claim against the taxpayer existsI or o The taxpayer contends as to the reasonable doubt.
What are the grounds for entering into compromise?
%. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax
Fow about abatement? Why is it that it!s only the I? who has the power to abate tax liabilities? The grounds for abatement areB $. The tax or any portion thereof appears to be un"ustly or excessively assessedI or
%. The administration and collection costs involved do not "ustify the collection of the amount due
7. 'ower to assign or reassign internal revenue officers to establishments where articles sub"ect to excise tax are produced or 5ept Why does it have to be the I?? What is the purpose of this provision? #ecause the articles 5ept or produced are sub"ect to excise tax. 2o what ma5es excisable articles special? o o Axcisable articles, the liability of excise tax would fall at the time or would be due at the time that these are withdrawn from its place of production or from its place where it!s 5ept. 4ou will notice that the word :sold; is not provided therein. 2o excisable articles in 2* and Daisano *etro, such as cigars, cigarettes, wines, and li-uors, there!s no more need of assignment and reassignment of internal revenue officers but for warehouses and production places of excisable articles, it has to be assigned a revenue officer because the payment of taxes would be upon withdrawal of these items. <ba, you will see the seal of tax payment in every cigarette pac5 or bottle of li-uor ( the rectangular or "ust li5e a stamp. 2o in order to avoid building good relations and familiarity between the owner of the establishment and the internal revenue officer, there has to be continuous assignment and reassignment or reshuffling of officers, otherwise, it would be easy to escape excise taxes with simply an agreement between the officer such as withdrawal without payment of excise of taxes upon withdrawal. 2o being a special case, it has to be the I? who will not be privy to the different places nationwide where establishments are 5eeping or producing excisable articles.
2o if the articles 5ept or produced are not excisable, say soap, toothpaste, will it be the I? who will ma5e the assignment or reassignment of officers? .6.
*ULE -# EST-++EL Would estoppel run against the taxpayer? o o o 4A2, because of lifeblood doctrine. .6, because of lifeblood doctrine still. 2o estoppel would not run against the government as provided in the case of '.6 '.6 V2 A %he &overnment cannot be estopped from collecting ta'es by the mista(e, negligence, or omission of its agents#
Would estoppel run against the government? vs. A.
KactsB The new #I? ommissioner, ommissioner 6ng, had acted well within his powers when he set aside the compromise agreement, dated %% Nune $GCH, after finding that the said compromise agreement was without legal basis. When he too5 over from his predecessor, there was still a pending motion for reconsideration of the said compromise agreement, filed by private respondent 2avellano on %7 *arch $GCC. To resolve the said motion, he reviewed the compromise agreement and, thereafter, came upon the conclusion that it did not comply with A.6. .o. 77 and its implementing rules and regulations. It had been declared by this ourt in )ilado v# Collector of *nternal Revenue, et al#, that an administrative officer, such as the #I? ommissioner, may revo5e, repeal or abrogate the acts or previous rulings of his predecessor in office. The construction of a statute by those administering it is not binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given. It is evident in this case that the new #I? ommissioner, ommissioner 6ng, construed A.6. .o. 77 and its implementing rules and regulations differently from that of his predecessor, former ommissioner Tan, which led to ommissioner 6ng!s revocation of the #I? approval of the compromise agreement, dated %% Nune $GCH. 2uch a revocation was only proper considering that the former #I? ommissioner!s decision to approve the said compromise agreement was based on the erroneous construction of the law 8i#e#, A.6. .o. 77 and its implementing rules and regulations9 and should not give rise to any vested right on '.6 . Kurthermore, approval of the compromise agreement and acceptance of the compromise payment by his predecessor cannot estop #I? ommissioner 6ng from setting aside the compromise agreement, dated %% Nune $GCH, for lac5 of legal basisI and from demanding payment of the deficiency withholding tax from '.#. As a general rule, the Dovernment cannot be estopped from collecting taxes by the mista5e, negligence, or omission of its agents becauseB o . . . Jpon taxation depends the Dovernment ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they ta5e good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the governmentXs exception, as a general rule, from the operation of the principle of estoppel.
TIJB The approval by the previous or predecessor I? of the compromise agreement and subse-uent acceptance of the compromise settlement would not estop the government from collecting the correct taxes if it so determines that the previous compromise is without legal basis. As a general rule, estoppel cannot run against the government and would allow the collection of taxes despite the mista5e, negligence or omissions of its officers or agents.
*E7ED!ES -0 T>E TAX+A?E* A!#DS -0 *E7ED!ES Tax laws are not and even lifeblood doctrine is not so unreasonable as to deprive taxpayers remedies against the government. There is a balance between the government and the taxpayer. There is a remedy by the government against the taxpayer and a remedy by the taxpayer against the government.
6ridinarily, when you go into business, what you really encounter from the #I? is the assessment ( the collection of deficiency taxes, those that they have identified as you having not actually reported the correct sales, etc.. #ut would you be automatically re-uired to settle these obligations? .6T .A A22A?I@4. 4ou are afforded certain remedies, which are both extra"udicial and "udicial remedies. A. Administrative ?emedies 8extra"udicial remedies9 o $. #efore payment a. 'etition or re-uest for reinvestigation o a. b. Fere, you protest your assessment that has already been issued against you. *otion for reconsideration is the same as motion for reevaluation. They reevaluate the existing documents. #ut motion for reinvestigation is something else. 4ou re-uire a reinvestigation with an introduction of new evidence.
b. Antering into a compromise Fere, if you are partially agreeable to the assessment, you may enter into a compromise lowering the payment of taxes to the extent of 7/& only or even $/&. ompromise is a mutual covenant between % parties. It can be offered by the government. It can be offered by the taxpayer.
%. After payment laim for tax refund laim for tax credit We lodged these administrative remedies before the #I? ( the I? or his delegates. Would these 7 remedies stop at the administrative level? Would the 7 remedies end at the administrative level only? o o .6. The remedies available to you administratively is simply a stop+over. 4ou are re-uired to exhaust all your administrative remedies in order to give chance to those actually involved in the assessment or collection of taxes to reevaluate their actions. .ow, if and when your motion for reinvestigation or reconsideration or your protest or your offer of compromise or claims for refund or claims for tax credit is denied by the administrative agency involved, which is the #I?, your next step is to go for "udicial remedies. #ut can you directly avail of any of these 7 remedies to the "udicial level without going through the administrative level? .6.
With the principle of exhaustion of administrative remedies, all these 7 remedies must undergo the extra"udicial stage. It has to be presented with the #I? because the "udicial courts, the TA, will not have "urisdiction over a simple assessment, over a claim for refund, unless there has been a decision rendered by the #I? or the I?. That!s the general rule. Nurisdiction would only be the decision of the agency concerned. Without any decision, no "urisdiction of the TA, no "urisdiction of the 2 . #ut that!s the general rule. We will learn later on that there are exceptions such as inaction by the #I? of $C/ days, no decision, you can elevate the case to the 2 , even in cases of demand, when the period is about to lapse, you can elevate it to the TA but it re-uires compliance with certain re-uirements.
#. Nudicial ?emedies o $. ivil action a. Appeal to the TA, 2 b. Action to contest forfeiture of chattel o %. This is an action to contest the administrative remedy of the government in forfeiting your goods or properties.
c. Action for damages Kor any whimsical or capricious act resulting to actual damages to the taxpayer, the taxpayer is allowed to file a civil case for damages against the government.
riminal action a. Kiling of criminal complaint against erring #I? officials
TAX ASSESS7E#TS .? T>E .!* <AKI.ITI6. 6K TA?*2 The tax assessment of the #I?, the power of the #I? through the I?, will commence with the issuance of what? o o o The @etter of Authority 8@6A9 An official document that empowers a ?evenue 6fficer to examine and scrutini=e a taxpayer!s boo5s of accounts and other accounting records, in order to determine the taxpayer!s correct internal revenue tax liabilities. A @6A is a love letter coming from the #I?, signed by an officer, empowering a revenue examiner or officer to examine, investigate and audit the boo5s of accounts of a certain taxpayer whose principal place of business is within its "urisdiction for the purpose of collection of additional taxes or for the purpose of issuing an assessment of deficiency taxes.
What is a @6A?
Who will sign the @6A? o o o o ommissioner 8 I?9 ( for those units reporting directly to him ?egional directors 8?<9 ( for taxpayers covered by his particular region. If the ommissioner has already issued an @6A to investigate a particular taxpayer, the ?egional director shall desist from issuing another @6A for the same taxpayer. I@@J2T?ATI6.B Fere is a @6A that is signed by the ?egional <irector of the #I?. Is it valid? Assuming all other items are valid. @ets concentrate on the signature. 6nly the ?< has signed the @6A? Is it valid? o 4A2, if the taxpayer sought to be investigated or audited in the @6A is covered by such ?<!s particular region. The power to ma5e assessments by the I? is a delegable power, therefore, it!s not necessary that the I? himself has to sign. It can be his subordinates. 2o it may be the I? or it may be the ?< or the <eputy ommissioner, etc. $. The taxpayer has to be properly identified. %. The @6A must be given to the proper address. 1. Taxes to be audited must be identified but it!s enough to say all national internal revenue taxes 7. It has to specify the year to be audited ). 2igned by the proper officer .6. They are % independent letters that you will receive. It!s a notice issued by the I? or his alter egos to the taxpayer saying that it has been found out that you have discrepancies, either under+ declaration of your sales or over+declaration of your expenses, through a no+contact audit approach, meaning to say that audit has been conducted without you having 5nown that an audit has already been made. Fow? <ba, 1rd party information or information from any person may be obtained through the process of matching, either computeri=ed or manual matching, of sales and purchases from different persons, taxpayers against his suppliers, taxpayers against his purchasers. Any discrepancies found out to have sales under+declared or purchases over+declared will be reason for a @. to be issued and it will already state there the discrepancy. If you agree with the findings, pay the deficiency.
What are the re-uirements for a @6A to be valid apart from the signature of the proper officer? o o o o o
Is a @6A the same as the @etter .otice 8@.9? o o
What is a @.? What is the purpose of the @.? o
January 12, 2011

TAX ASSESS7E#TS .? T>E .!*

STAGES OF MAKING ASSESSMENT 8OA +IC 6#5 days7 PA+ 6#5 days7 9A+ 630 days7
<AKI.ITI6. 6K TA?*2 an you distinguish what a @6A and a @. is? o A @6A is intended to notify the taxpayer that he will be sub"ect to an audit or investigation and such @6A, the word authority there, is giving authority to the #I? ?evenue 6fficers who are empowered to conduct such scrutiny of the boo5s or investigation of the taxpayer!s records. 2o no investigation yet, no audit yet, when you receive the @6A, only thereafter. The @6A is a letter informing, aside from empowering the #I? officers to conduct the audit, it!s to inform the taxpayer that he will thereafter be sub"ected to audit and investigation in accordance with the specific taxes as identified in a particular calendar year at issue. Fow did the @. come about? If you are the ?evenue 6fficer, which will you issue first? 6r what!s your basis for issuing a @.? A @. is longer than a @6A considering that the @. would include therein a notification that per examination of available records with the #I? in comparison with 1rd party information or by the process of matching through computeri=ed or manual method of matching your sales and your purchases with your suppliersMcustomers, it is found out that you have a discrepancy which would result to tax deficiency plus surcharges and interests. If at all, you are agreeable with this assessment, you need to settle the obligation within how many days. If you!re not agreeable, ma5e your position paper or reply, go to the #I? examiner concerned and ma5e your arguments. 2o it!s a limited form of audit and investigation as already been conducted through available records with the #I?. There!s no visit as yet to the taxpayer. AOA*'@AB If the #I? has with it already income tax returns that has been filed and through matching of records with the suppliersMcustomers of the taxpayer, it!s found out to be inconsistent, there is discrepancy. .aturally, the difference would be sub"ected to income tax and automatically, a @. would be issued that there is a possible deficiency tax. Although it!s called a no+ contact audit approach because it!s an audit whose approach is that you don!t visit the taxpayer as yet.
o o
.otice of Informal onference 8.I 9, technically spea5ing, would follow the @6A. When there is a @6A, dba, that is the commencement of a formal audit and investigation. 4ou receive a @6A. After how many days, your boo5s of accounts will be audited and investigated. Any result of the audit and
investigation will be detailed in a .I that you are invited by the #I? to discuss the preliminary findings. If agreeable, you pay. If not, position paper or arguments. #ut it has the same effect with the @. that it states therein possible deficiency taxes but not final assessments as yet. I@@J2T?ATI6.B If you receive the @. saying that there has been a discrepancy between your sales that you have declared against your customer!s report of its purchases, dba you ma5e the sales and somebody else ma5es the purchase, you reported $/m in sales but your sole customer reported %/m in purchases from you evidenced by an official receipt. 2o you have under+declared )/& of your sales. )/& x 1/& income tax rate, you are to pay 1m in deficiency taxes plus surcharges, interests and other compromise penalties. That pertains to income tax for %//C. an the #I? issue a @6A authori=ing ?evenue 6fficers to conduct an audit and investigation for your income tax of %//C, same year? an the government or the #I? issue a @. and the @6A for the same tax covering the same taxable period? 2o if income tax of %//C has already been sub"ected to a @., discrepancy found out, deficiency assessment already identified, can the #I? thereafter issue another notice, this time a @6A, that the same period of %//C, the same tax of income tax, will still be sub"ected to audit and investigation via a @6A, no longer a @. since you!ve already received a @.? Is it valid for the #I? to issue both letters covering the same tax type, same taxable period? 6r is it double "eopardy? o IT!2 VA@I<. The issuance by the #I? of the @. and the subse-uent receipt by the taxpayer of such @. will not prevent the I? himself or his authorities from issuing a @6A covering the same period, the same tax, considering that the @6A is for the purpose of a comprehensive audit of the taxpayer!s tax liability. 4ou will notice that the @. is very particular, specific, as to its target. It only reflected therein the discrepancy as found out in the available records with the #I? ( the discrepancy between the sales reported and the purchase of the customer as reflected in the customer!s income tax return or other records. There are various areas for audit in income taxation. There are operating expenses, costs, administrative expenses. Fow will this be identified if a @. is the only assessment made for the entire income tax of %//C, dba. If you have a subse-uent -uestion on what if the taxpayer has already settled the assessment in the @.? Will he still be liable under the @6A? 4A2, so long as it does not pertain exactly to the same violation. If the violation as found out in the @6A is for over+declaration or over+ claiming of expenses, that!s another story. Fe will still have to settle his assessment for deficiency taxes as found in the comprehensive audit.
o o
o -
2o issuance of a @. is not a waiver of the I?!s right to loo5 into comprehensively the records of the taxpayer or boo5s of accounts.
Will a @. bar the taxpayer from amending, modifying, or withdrawing his tax return? Is the taxpayer, at all, allowed to modify, amend or withdraw the tax return that he has already filed? o o 4A2, if the error made in the original return filed is substantial such as a change in tax liability 8not a change of name or address9. 2o if you found out that your expenses would have been $/ times higher than what you have reflected, is it not a substantial amendment if you decide to amend it and is it allowed to increase your expenses as already declared? What happens to the tax that you!ve already paid? What is the legal basis that may be invo5ed by the taxpayer who wishes to amend, modify or withdraw the tax return that he has already filed? Is it supported by a provision in the tax code? D?B A@@6WA< T6 A*A.<.
@ADA@ #A2I2 ( 2ec. ,8a9B Any return, statement or declaration filed in any office authori=ed to receive the same shall not be withdrawnB +rovided, that within 1 years from the date of such filing, the same may be modified, changed or amendedB +rovided, further, that no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer. As between the two ( the @. or @6A ( which would act as notice for audit or investigation? #6TF
I@@J2T?ATI6.B @ets say that you have received the @6A for income tax of %//C to be audited. an you amend the income tax of %//C after receipt of the @6A but the actual audit 8the opening of the boo5s of accounts9 has not yet commenced? 2o the day after receiving the @6A, you decided to amend the return of %//C income tax return. Allowed to amend or not? Assuming that you received today the @6A saying that you will be audited next month of your income tax liability for %//C, can you tomorrow withdraw the return and file a substitute income tax return amending some of the items? .6, since the law provides that :provided, further, no notice for audit or investigation of such return, statement, declaration has, in the meantime, been actually served upon the taxpayer;. In this case, a @6A was received and was therefore, actually served upon the taxpayer, thus, no amendment, modification, or withdrawal is allowed.
A.6TFA? I@@J2T?ATI6.B 4ou received a @6A that your income tax liability for %//C will be audited. .ow, you reali=ed that your %//G income tax return should be amended. an you amend your %//G income tax return after the receipt of such @6A? 4A2, because the @6A pertains to the income tax liability for %//C and not for %//G. Fow about if the return that you will amend is a prior year, meaning a year prior to the year sub"ect of audit, such as %//H? you still amend that? o o 4A2. If you receive a @6A for audit of a particular year, it!s a notice for audit or investigation for that particular year only. 2o long as %//G and %//H, which are still open years for the #I? to ma5e assessments, so long as there!s no notice for audit or investigation for the year prior and year after, you can still amend, modify, or withdraw the returns that you!ve filed. an
The re-uirements for amendment, modification or withdrawal of tax returns filedB Within 1 years and .o notice for audit and investigation. .6TAB Kor every @6A, only $ year at issue. 4ou cannot indiscriminately say that you will audit or investigate for a number of years. A.6TFA? I@@J2T?ATI6.B 2ec. , of the law says that you may be able to amend, modify or withdraw and substituted it with another return within 1 years from the date of filing so long as no notice for audit or investigation has been issued to you. @ets go to @.. <oes a @. come within the phrase :no notice for audit or investigation;? If you have received a @. saying that there has been a discrepancy or an under+declaration of your sales reported for $/m, taxable year %//C, can you still amend your tax return for %//C and thereafter reflect your true sales? What is the law referring to? Is it referring to only a @6A or to all letters coming from the #I?? Would you still be allowed to amend if you only received a @., not the @6A?
.6, because with more reason that when you receive a @. wherein the #I? has already identified the discrepancy in the figures and the disallowance or probably the deficiency assessment, with more reason you are no longer allowed to amend the return for that particular purpose or for additional items in the income tax return or other returns that you!ve filed. Although technically, if you have a @6A, you!re notified for audit or investigation. If you have a @., you!re notified that you have discrepancy, simple audit has already been conducted. It!s not really a notice that you will be audited because there has been a partial audit. #ut for purposes of disallowing you from amending, modifying and withdrawing a return that has already been filed and is sub"ect to a @., the effect of a @. would have the same effect as the @6A. It would have the effect as if there!s a notice for audit or investigation so as to be included in 2ec. ,, probably because when ?A C7%7 was drafted or enacted, the formality of the word @. has not been identified. 6nly in ?*6 7%+/1, the #I? clarified that the nature of a @., for purposes of amending the return, will be the same as a notice for audit or investigation in relation to 2ec. ,.
What is a 're+Assessment .otice 8'A.9? o o A communication issued by the regional assessment division or any other concerned #I? office, informing a taxpayer who has been audited of the findings of the revenue officer, following the review of these findings. The assessment shall beB o o o In writing, and 2hould inform the taxpayer of the law and the facts on which the assessment is madeI 6therwise, the assessment shall be void
If the taxpayer disagrees with the findings in the 'A., he has $) days from his receipt of the 'A. to file a written reply contesting the proposed assessment. A formal audit or investigation would start+off with the issuance of the @6A. ?ight after your boo5s are opened to the #I? for examination, the #I? will gather initial findings and either place it in the post+reporting notice or a .I . Jsually the standard date is within $) days, you are to have an informal conference with the revenue examiner or the #I? examiner. <uring this informal conference, what will happen is that there will be discussion of what the findings are and if you!re agreeable, you pay the assessed tax. If not, you are re-uested either to file a position paper. If you don!t want to file, it doesn!t matter. 4ou can actually ignore this one. #ut that will not favorable to you. After a .I , usually, if you don!t pay the tax, the #I? will not drop this informal conference. This is probably the assessment or audit. It will proceed on to issue the preliminary findings in a more formal but not yet the formal demand of payment. This is what we call the 'A.. .6, since there are instances where 'A. is not necessary. A 'A. is simply a written notice informing semi+formally the taxpayer of the findings related to the deficiency over which has not been settled during the informal conference or in the absence of an informal conference.
o -
Is a 'A. necessary at all times? o o
o o -
This is not yet the formal demand to pay. #ut if you!re not agreeable with the 'A., within $) days, you can file a position paper stating therein your arguments, your legal basis, and why you should not be liable to pay. <ue to lifeblood doctrine, usually, any position paper that you file will be denied or will be decided against your favor.
Are you re-uired at all times to respond with a position paper within $) days a 'A.? Is it necessary that you have to answer a 'A. within the $)+day re-uirement, otherwise, if you don!t, the assessment will become final, unappealable and the tax assessment demandable? o o o .6. It is not mandatory that you reply to a 'A.. Nust li5e an informal conference, you can simply avoid responding to a 'A.. If you don!t reply with a position paper a 'A., what happens to your assessment? The tax assessment made in the 'A. will be carried over or reflected in the Kinal or Kormal Assessment .otice 8KA.9. To the extent possible, that!s why there are various steps, that you can settle your issues with the #I?. <ba, negotiation stage, agreeing on the amount that will be paid. 2o you!re given the informal conference, post+reporting notice, 'A., so that it will not become a KA. because a KA., once decided on after protested, will be sub"ect to the "urisdiction of the "udicial courts. If you!re a taxpayer, you!re a businessman, you don!t want your assessment to go to court, otherwise, it will ta5e so long to be resolved and if it!s resolved finally against you, you will have to pay the interest for the number of years that it has lapsed. If the 2 decided after $/ years, %/& interest for every year in $/ years, that!s a lot. 2o we have to settle it in the administrative level. #ut not mandatory that you have to reply the 'A.. #ut 'A., as a rule, is re-uired every time an assessment is made or every time an audit conducted before a KA. is issued. This is for purposes of due process giving the taxpayer every chance to contest the assessments or findings. 2o in the absence of a 'A., sometimes, a KA. becomes invalid. #ut there are instances when a 'A. is not necessary. What are these instances for 'A. not necessary? $. The finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the returnI or The right to be informed is not available to you via 'A. if the deficiency arose simply from a mathematical error that is patent on the face of the return itself. 2o if your tax liability is supposed to be $/m but when you type+in the $/m, you lost one /, $m ra imo gbayaran, so you!re liable for Gm to the #I?. The #I? can proceed from the @6A, the post+reporting notice after the informal conference, s5ip the 'A., go direct to the issuance of a KA.. 4ou don!t need to explain nah because it!s very clear that you have a deficiency tax. Who is the withholding agent here? o The taxpayer under audit.
%. A discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agentI or
Why is 'A. not necessary prior to KA. for a taxpayer under audit in cases where the deficiency is found out to be arising from under+remittance of a tax that he has withheld? Why should he not be given additional chance to explain? o Whenever you withhold the tax, your obligation is to remit it in full to the government because it!s not your money. It!s an
obvious obligation that you have. o 2o whenever you poc5et the money of someone else, the tax of someone else, dba a withholding tax that you withhold is not your tax liability, it!s someone else. 4ou!re only a withholding agent. 2o if you under+remit the amount that you!ve withheld, it!s an obvious obligation on your party. It!s a deficiency. .o need to explain. 4ou are liable. 2o the #I? examiner can proceed with the issuance of a KA.. <ba, how will you explain it otherwise.
1. 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 -uarter or -uarters of the succeeding taxable yearI or Is this wrong? Why is 'A. not necessary? Why would someone who applied for a tax credit of his excess taxes be assessed if he carried over the same? Is that not mathematically correct? Why would he not be given a chance to explain with a position paper in response to a 'A.? Why is the government allowed to s5ip issuing the 'A. when it!s a re-uirement of due process? o Whenever you have excess taxes that you!ve paid, whenever you!ve overpaid taxes, illegally or wrongfully or erroneously, your right is either to file a claim for refund or to carry it over and be offsetted against your future tax liabilities. It!s an option. 4ou don!t ta5e both. 2o in this case, a 'A. is not necessary when you have filed a claim for refund or tax credit for an overpaid tax and at the same time, that same amount has been carried over and offsetted against your tax liability because it!s a double "eopardy against the government. 4ou!re getting a refund and you!re offsetting it against your tax liability, which diminish your tax payment to the government. 4ou!re getting both options. 2o you don!t need to explain. It!s a total no+no. 4ou don!t carry+ over what you have filed a claim for refund.
AOA*'@AB A corporation is re-uired or any business is re-uired to file an income tax return -uarterly and it!s annuali=ed after the end of the year. Assuming that for the first 1 -uarters, you made $m -uarterly payments 8so 1m all in all9 but towards the 7th -uarter, your business slowed down and you experienced losses. 4ou found out that your actual tax liability for the entire year is only $m. 2o you actually overpaid %m. 4our option either is to carry it over or apply for refund. If you carry it over, you simply deduct %m from your year % tax liability. If you file for refund, no carry+over. If you have ta5en both options, it!s a sub"ect for assessment. .o need of 'A.. Axcisable articles is given special place in taxation that whenever excisable articles have not been paid of excise tax, no need to explain, directly KA..
7. The excise tax due on excisable articles has not been paidI or
). An article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital e-uipment, machineries and spare parts, has been sold, traded or transferred to a non+exempt person In short, in technical importation, we expect that every transfer of a property purchased by an exempt person, usually in vat, dba remember when you import or locally purchased a product, that!s sub"ect to vat, but if it!s purchased or imported by an exempt person, it!s free of vat, but once it is transferred to a non+exempt person, it will be considered as sub"ect to tax being a technical
importation. If that!s the case, no need of 'A.. o Fowever, in the case of I? V2 <6*I.A<6? *A.DJIT6, what did the government say? *t should be emphasi,ed that the stringent re-uirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the ta'payer, applies only to formal assessments prescribed under .ection //0 of the 1ational *nternal Revenue Code, but not to post-reporting notices or pre-assessment notices# %he issuance of a valid formal assessment is a substantive prere-uisite to ta' collection, for it contains not only a computation of ta' liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the ta'payer and enabling the latter to determine his remedies therefor# 2ue process re-uires that it must be served on and received by the ta'payer# ! post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice# %he post-reporting notice and pre-assessment notice merely hint at the initial findings of the 3*R against a ta'payer and invites the latter to an 4informal5 conference or clarificatory meeting# 1either notice contains a declaration of the ta' liability of the ta'payer or a demand for payment thereof# )ence, the lac( of such notices inflicts no pre6udice on the ta'payer for as long as the latter is properly served a formal assessment notice# *n the case of respondent, a formal assessment notice was received by him as ac(nowledged in his +etition for Review and 7oint .tipulation8 and, on the basis thereof, he filed a protest with the 3*R, 3aguio City and eventually a petition with the C%!# TiuB In this case, the #I?, although it presented photocopies of letters previous to the issuance of the KA., these were mere photocopies, no original presented, no registry receipt presented that the taxpayer indeed received the 'A.. 2o was this not a denial of due process? .6. This case is not among the ) instances wherein 'A. is not necessary but the 2 decided still again saying that 'A. in this case, where fraud has been found out, is not necessary so long as the KA. sufficiently informing the taxpayer that he has deficiency tax has been complied with. #ut if you will notice, even before the 2ept. %, $GGH issuance of the KA. demanding the payment of deficiency taxes, there were various letters that were given to the taxpayer although it was not really in the form of a 'A.. #ut it!s sufficient to say that the taxpayer here has been sufficiently informed through various correspondence and that the taxpayer was able to intelligently answer the KA.. If you intelligently protest a KA., it!s as if you understood what the #I? is as5ing for. 4ou cannot say that :I have not been sufficiently warned or informed through 'A.; therefore, the KA. should not be valid. This is not the case. 2o in this case, the 2 ruled again that 'A. is not necessary. #ut outside this case, would an otherwise void KA. be validated by an intelligent answer or protest to such KA.? Towards our discussion on assessment, there are items that you will learn as basic re-uirements to ma5e a KA. valid ( the facts, the law or legal basis, rules and regulations, "urisprudence, statement of the liability and the demand for payment. These are the re-uirements that must be set forth in order for an assessment to be valid. Therefore, absent any of the facts, or the legal basis supporting the #I?!s contention that your liable or no demand for payment, the assessment is void. 2o would it be validated, assuming as assessment is complete except that it did not state a clear legal basis anchored by the #I?!s assessment? Would that void assessment be validated if the taxpayer ma5es an intelligent protest
supplying therein legal basis? o o .6. If the assessment is at first instance already void, it cannot be validated by the taxpayer!s intelligent protest. 2o in this present case, would it have been decided otherwise? .6, because the KA. issued by the #I? against the *enguito spouses were actually valid in the first place. The taxpayers were sufficiently informed. 2o any minor re-uirements which do not pertain to the KA. itself would not invalidate a valid assessment. be necessary at all times?
'?A I2I6. A@A T?6.I 2 ?AA@T4 6?'. V2 I? Would the post+reporting notice or .I
An intelligent protest to a valid assessment notice ( in the absence of .I or post+reporting notice, it was not given much weight so long as there is a valid assessment notice, there was an intelligent protest, the taxpayer was sufficiently informed, 5new the legal basis and the facts.
What is a formal letter of demand or KA.? o o A declaration of deficiency taxes issued to a taxpayer who fails to respond to a 'A. within the prescribed period of time, or whose reply to the 'A. was found to be without merit. It!s a final assessment issued by the #I?.
When you say that the #I? is only given 1 years within which to audit and assess the taxpayer, the 1+year period must include all stages until the KA. or in some cases, exception of 'A.. It simply means that for the #I? to say that it was able to validly audit the taxpayer within 1 years, the 1+years must have included nah the KA. stage. If you!re audited with an @6A within 1 years but the KA. is issued 1 years and $ day, outside the prescriptive period, the #I? has not made a valid assessment, because the KA. must be issued within the 1+year prescriptive period. #ut what is really the effect of a KA.? What does it tell the taxpayer? <ba, a 'A. would tell the taxpayer that after the initial examination, it has been found out that you are liable for deficiency taxes in such and such amount. 4ou are expected to respond to that but not mandatorily. #ut the effect of KA. is different from a 'A.. If you receive a KA., what would the KA. tell you? o The KA. is a formal demand of payment, otherwise, if you don!t pay, you would!ve to mandatorily file a protest. Ignoring a KA. would mean, dba when you ignore a 'A., nothing untoward the taxpayer will happen except that the tax authorities would proceed from 'A. to issuing the KA.. If you ignore a KA., what will happen? Kailure to protest the KA. would ma5e the assessment final and unappealable. 4ou can no longer raise it to "udicial courts. 4ou can no longer -uestion the #I? after the period within which to protest it and the tax that has been stated is fully demandable and additional interest will run after the date of KA..
?elevant 2upporting <ocuments 8?2<9 o I? V2 KI?2T AO'?A22 'AW.2F6' 6*'A.4

9e re6ect petitioner:s view that the assessment has become final and unappealable# *t cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest, respondent attached the &*. and 3alance .heet# ;urther, petitioner cannot insist on the submission of proof of 2.% payment because such document does not e'ist as respondent claims that it is not liable to pay, and has not paid, the 2.% on the deposit on subscription# %he term 4relevant supporting documents5 should be understood as those documents necessary to support the legal basis in disputing a ta' assessment as determined by the ta'payer# %he 3*R can only inform the ta'payer to submit additional documents# %he 3*R cannot demand what type of supporting documents should be submitted# Otherwise, a ta'payer will be at the mercy of the 3*R, which may re-uire the production of documents that a ta'payer cannot submit# TiuB Who determines whether the document is relevant to the assessment or not? TFA TAO'A4A?, not the #I?. The ?2< are those documents necessary to support the arguments of the taxpayer in his protest. Who determines whether a document is relevant or not? It is the taxpayer, otherwise, the taxpayer will be at the mercy of the #I? with the #I? unreasonably as5ing for additional documents "ust so the taxpayer cannot comply with the re-uirements. When should the ?2< be filed? #efore, during or after the protest? o o It should be filed within ,/ days from filing of the protest. It can be filed together with the protest.
Kor ?2< issue, in this case, the ?2< were submitted together with the protest, not after the protest. The respondent attached the Deneral Information 2heet 8DI29 and the #alance 2heet together with the protest showing that the deposit for future stoc5 subscription is not part of the capital stoc5 of the corporation. The #I? was loo5ing for the proof that <ocumentary 2tamp Taxes 8<2T9 have been paid. The taxpayer merely supported it with the DI2, the #alance 2heet, showing that it!s still a deposit. It!s not an ownership. The proof of payment of <2T could not be submitted clearly because it believed that it was not liable. 2o who determines whether such is relevant or not? It!s the taxpayer. The taxpayer did not consider it relevant because it was not liable for <2T. 2o the #I? cannot forever say or anchor on saying that since no proof of <2T payment has been submitted, no ?2< submitted, your protest is not valid and the assessment becomes final. That!s not the case. I?
J.IPJA <4AW6?02 I. . V2
?2< can be submitted before, during or after the protest. 4ou will notice dba, when is your protest submitted to the #I?? When is protest submitted to the #I?? 'rotest against the KA. is due within 1/ days after receiving the KA.. 2o you!re given 1/ days upon receipt of the KA. to protest the KA..
2o when you receive a KA., you!re given 1/ days within which to respond through a protest, either a motion for reinvestigation or
reconsideration, whatever pleases you. <ba, before you happen to submit a protest, you will undergo several processes. 4ou are invited to .I . 4ou will be given a 'A., wherein you can actually file a position paper stating your arguments. 2o if and when, you have submitted ?2< already during any of the stages prior to the KA., or even "ust prior to the protest that you have filed, it can be considered a ?2< so long as it still refers to the same issue that has been discussed prior and the issue that you!re arguing in your protest. 2o if there are no changes in the assessment made by the #I?, you don!t have to repeat your documents. Any documents that you!ve submitted beforehand will be recogni=ed as ?2<. .o repetition of submission of ?2< is necessary. <# # # !s stated earlier, the determination of the relevant supporting documents< initially rests upon the one who filed the protest, the petitioner# )owever, in cases where the 3*R finds that additional documents must be submitted, it should have informed the ta'payerprotester to submit whatever documents are lac(ing in order that a complete determination of the propriety of the assessment may be had# %hus, Respondent has been remiss in informing the petitioner of any other additional supporting documents to be submitted which fact should not unduly pre6udice petitioner=s protest#<
Neopardy Assessments o o Without the benefit of full or partial audit and investigation. 2o what are the other instances when "eopardy assessment may be issued? $. When it shall come to the 5nowledge of the I? that the taxpayer is retiring from business sub"ect to tax, a "eopardy assessment may be issued %. When the taxpayer is performing any act tending to obstruct the proceeding for tax collection or when the taxpayer performs an act to render a proceeding for tax collection as totally or partly ineffective 1. When the taxpayer is intending to leave the 'hils. or remove his property or to hide or conceal his property
0inds of Assessments o $. 2elf+assessment ( one which is assessed by the taxpayer himself. The amount of tax assessed is reflected in the tax return that is filed by him and the tax assessed is paid at the time he files the return. o 2elf+assessment is not li5e the usual assessment that we have discussed ( the process of audit or investigation. Avery taxpayer, when he is re-uired to file an income tax return or any other tax returns, will ma5e>. That!s an initial assessment process>. I mean to say, he himself assesses whether he is liable for tax or not. The earlier discussion that we have is already the assessment made by the #I? in determining whether the self+assessment made by the taxpayer himself is correct or not.
%. Illegal and void assessment ( this is an assessment wherein the tax assessor has no power to act at all
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1. Arroneous assessment ( this is an assessment wherein the assessor has the power to assess but errs in the exercise of that power 7. <eficiency assessment ( this is an assessment made by the tax assessor whereby the correct amount of the tax is determined after an examination or investigation is conducted. Is there a difference between a deficiency tax and a delin-uency tax? 4A2. In deficiency tax, the taxpayer already paid the amount of tax due but the #I? found out later on that such amount was incorrect. Fowever, in delin-uency tax, the taxpayer failed to pay the amount of tax due.
). <isputed assessment ( this is an assessment wherein a KA. is protested by the taxpayer. Whenever a KA. is protested by the taxpayer, it becomes already a disputed assessment.
D6VA?.I.D '?I. I'@A2 6. TAO A22A22*A.T2 $. Assessments are prima facie presumed correct and made in good faith. o When we say that assessments are deemed to be prima facie correct and made in good faith, we are anchoring actually on the principle that every officer of the government is performing his duties regularly. We presumed that it is made in good faith unless proven otherwise. That is one re-uirement for a KA.. In order for it to be valid, it must state very clearly the facts of the case.
%. Assessments should not be based on presumptions no matter how logical the presumption might be. It must be based on actual facts. o 1. Assessment is discretionary on the part of the I?. *andamus will not lie to compel him to assess a tax if after investigation he finds no ground to assess. o The I? cannot be compelled by any of his subordinates to issue assessments unless he believes there is reason to issue an assessment. 2o if the I? has already made an assessment, no subordinate can actually ma5e another assessment for the same tax and for the same year. 2o if it!s a sole proprietorship, to whom will you address the assessment? o To the sole proprietor In the case of I? V2 <6*I.A<6? *A.DJIT6, actually the respondent taxpayer argued that there were % separate taxpayers ( sole proprietorship business and the corporation. <ba, the assessment was directed to the spouses but the deficiency that they were tal5ing about was an income of the corporation. <ba, a corporation has a separate and distinct personality from the taxpayer even if such person is a stoc5holder of the corporation. Why did the 2 still decided against the stoc5holder spouses? Why did it consider the assessment as valid?
7. The authority vested in the I? to assess taxes may be delegated. Fowever, the power to ma5e KA. cannot be delegated. o o ). Assessments must be directed to the right party or to the correct taxpayer as identified.
Applying the principle of piercing the veil of corporate fiction in case of fraud, which is also applicable in taxation. The 2 disregarded the separate personality of the stoc5holders and the corporation. It was a liability of the corporation but the stoc5holders, in their personal capacity, was made as well liable because there was actually fraud that was found out and the corporation pierced the veil of corporate fiction. <ba, for tax purposes, under the lifeblood doctrine, to the extent possible that you can determine that there is really deficiency taxes, no proper payment of taxes, you can pierce the veil of corporation fiction.
?APJI2ITA2 6K A VA@I< A22A22*A.T What are the re-uisites of a valid assessment? o o o o o o o $. There must be a .I . %. The issuance of a 'A. unless it is excused or under the exceptional cases. 1. It must be in writing. 7. It must state the law, legal basis, and "urisprudence and the facts upon which the assessment is made. ). It must contain a demand for payment. ,. It must be made within the prescriptive period. .6T VA@I<, because it must follow the procedures or stages of ma5ing assessments ( such as the .I and the issuance of a 'A..
If a taxpayer is issued a KA. right after the issuance of a @6A, valid or not?
Jan. 13, 2011 Thursday ?APJI2ITA2 6K A VA@I< A22A22*A.T What are the re-uirements to ma5e an assessment by the #I? valid? o o o o o $. There must be a .I . %. The issuance of a 'A. unless it is excused or under the exceptional cases. 1. It must be in writing. 7. It must state the law, legal basis, and "urisprudence and the facts upon which the assessment is made. ). It must contain a demand for payment.
o -
,. It must be made within the prescriptive period.
2hould all of the above re-uirements be present in order for an assessment made by the #I? to be considered valid? Assessment can be used in the sense that it!s the process of examining the boo5s of accounts of the taxpayer in order to determine its true tax liability. @ater on, assessment will be considered as the document that is the demand to pay already but what ma5es the assessment by the #I? valid in the process itself? 2o would absence of any of the stages ma5e the assessment invalid? o The assessment process would start first with the issuance of a @6A followed by an invitation to informal conference. Any findings will be reflected in the post+reporting notice. Thereafter, a 'A. before the KA. is released. #ut for purposes of determining whether the taxpayer has received the assessment, it!s the KA. nah. And the re-uisites of the KA. is that it must beB $. It must be in writing. %. It must state the tax, the law, "urisprudence, facts, legal basis and the computation of the liability on how it was arrived 1. A demand to pay 7. The process of assessment, everything until the point of issuing the KA. must be made within the prescriptive period.
A2AB o
I? V2 A.?6. *n >this? case, >the C*R? merely issued a formal assessment and indicated therein the supposed ta', surcharge, interest and compromise penalty due thereon# %he Revenue Officers of the >the C*R? in the issuance of the ;inal !ssessment 1otice did not provide Enron with the written bases of the law and facts on which the sub6ect assessment is based# >%he C*R? did not bother to e'plain how it arrived at such an assessment# oreso, he failed to mention the specific provision of the %a' Code or rules and regulations which were not complied with by Enron# %he C*R insists that an e'amination of the facts shows that Enron was properly apprised of its ta' deficiency# 2uring the pre-assessment stage, the C*R advised Enron:s representative of the ta' deficiency, informed it of the proposed ta' deficiency assessment through a preliminary fiveday letter and furnished Enron a copy of the audit wor(ing paper allegedly showing in detail the legal and factual bases of the assessment# %he C*R argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency ta' assessment was based# 9e disagree# %he advice of ta' deficiency, given by the C*R to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment# %hese steps were mere perfunctory discharges of the C*R:s duties in correctly assessing a ta'payer# %he re-uirement for issuing a preliminary or final notice, as the case may be, informing a ta'payer of the e'istence of a deficiency ta' assessment is mar(edly different from the re-uirement of what such notice must contain# 7ust because the C*R issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order re-uired by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency ta' assessment was made# TiuB The formal letter of demand, which is the culmination of the assessment process, is re-uired to be in writing, although it doesn!t re-uire any form. There is no form that you can get from the #I? so long as the KA. would state therein the facts, the legal basis, "urisprudence, the computation, and the demand to pay, sufficient in form that the taxpayer would be enlightened as to its violation and in this case, the 2 said that notwithstanding, assuming that there was really a statement of facts and legal basis in the previous notice given prior the KA., even the fact that the #I? said that a sufficient information verbally was given to the representative of the taxpayer, it does not e-uate to a substitute of
having the facts and the legal basis stated in the KA. itself. o o 2o prior facts, prior legal basis, has to be restated again in the KA. because it is that notice which has to be mandatorily protested. 9e rule that the recommendation letter of the Commissioner cannot be considered a formal assessment# Even a cursory perusal of the said letter would reveal three (ey points$ o @# *t was not addressed to the ta'payers# /# %here was no demand made on the ta'payers to pay the ta' liability, nor a period for payment set therein# A# %he letter was never mailed or sent to the ta'payers by the Commissioner# @J A2 A<A*26. V2 A
TiuB In various cases, the 2 has decided that an assessment notice is not necessary before the tax authorities can criminally charged you for tax fraud or evasion. The document that was submitted, either a complaint or an affidavit in form, stating therein that you committed a tax fraud amounting to non+payment of the following taxes does not amount to the KA. because the KA.B $. Is directed to the taxpayer. The taxpayer, who must be properly named and with the correct address as appearing in the records of the #I?. 2o that alone, would tell the taxpayer that it is not an assessment as yet. It is a criminal charge because it was not given to him. It was filed or submitted by the tax authorities to the <6N. %. We have the re-uirements that must be strictly complied with in the assessment such as facts, law, etc. Thus, it was wrong for Adamson to protest, through a re-uest for reinvestigation, the affidavit or complaint filed by the #I? to the <6N for such documents were not considered as KA..
2o an affidavit, a complaint for criminal charge is not a KA.. The #I?, as of that point, does not issue a KA., which probably would amount to prescription if and when the 1+year period would set in and no assessment has been issued. 2o that document, the affidavit, the "oint complaint, would never be considered as an assessment notice. TiuB The last re-uirement for an assessment process to be valid is that KA. must be issued, mailed and sent within the 1+year prescriptive period. .ow the issue in this case is W6. the assessment was issued within the prescriptive period but it has an extensive discussion on waiver on the prescriptive period. Bnder .ection /CA of the 1*RC, internal revenue ta'es must be assessed within three years counted from the period fi'ed by law for the filing of the ta' return or the actual date of filing, whichever is later# %his mandate governs the -uestion of prescription of the government=s right to assess internal revenue ta'es primarily to safeguard the interests of ta'payers from unreasonable investigation# !ccordingly, the government must assess internal revenue ta'es on time so as not to e'tend indefinitely the period of assessment and deprive
I? V2 K*K o o o
the ta'payer of the assurance that it will no longer be sub6ected to further investigation for ta'es after the e'piration of reasonable period of time# !n e'ception to the three-year prescriptive period on the assessment of ta'es is .ection /// (b) of the 1*RC, which provides$ '''' (b) *f before the e'piration of the time prescribed in .ection /CA for the assessment of the ta', both the Commissioner and the ta'payer have agreed in writing to its assessment after such time, the ta' may be assessed within the period agreed upon# %he period so agreed upon may be e'tended by subse-uent written agreement made before the e'piration of the period previously agreed upon# '''' %he above provision authori,es the e'tension of the original three-year period by the e'ecution of a valid waiver, where the ta'payer and the 3*R agreed in writing that the period to issue an assessment and collect the ta'es due is e'tended to an agreed upon date# Bnder R O 1o# /C-DC, which implements .ections /CA and /// (b), the following procedures should be followed$ %he waiver must be in the form identified as !nne' <!< hereof#### @%he waiver shall be signed by the ta'payer himself or his duly authori,ed representative# *n the case of a corporation, the waiver must be signed by any of its responsible officials# .oon after the waiver is signed by the ta'payer, the/ Commissioner of *nternal Revenue or the revenue official authori,ed by him, as hereinafter provided, shall sign the waiver indicating that the 3ureau has accepted and agreed to the waiver# A%he date of such acceptance by the 3ureau should be indicated# 3oth the date of e'ecution by the ta'payer and date of acceptance by the 3ureau should be before the e'piration of the period of prescription or before the lapse of the period agreed upon in case a subse-uent agreement is e'ecuted# *n the Regional Offices %he Revenue 2istrict Officer with respect to ta' cases still pending investigation and the period to assess is about to prescribe regardless of amount# '''' %he Ewaiver must be e'ecuted in three (A) copies, the original copy to be attached to the doc(et of the case, the second copy for the ta'payer and the third copy for the Office accepting the waiver# %he fact of receipt by the ta'payer of hisFher file copy shall be indicated in the original copy# %he foregoing procedures shall be strictly followed# !ny revenue official found not to have complied with this Order resulting in prescription of the right to assessFcollect shall be administratively dealt with# (Emphasis supplied#) !pplying R O 1o# /C-DC, the waiver in -uestion here was defective and did not validly e'tend the original three-year prescriptive period# AJ2T?A@A2IA o 4@I.<A? 6?'. V2 I?
%he second issue raised herein is whether or not the assessment notice is void for failure to inform the petitioner of the law and the facts on which the assessment is made# G'' Respondent posits that although .ection //0 of the %a' Code, as amended, specifically re-uires that the ta'payer be informed in writing of the
law and the facts on which the assessment is made, the same article does not specifically re-uire that the law and the facts on which the assessment was made be embodied in the assessment notice itself# 9e agree# *n whatever manner and form the assessment notice is written, as long as the ta'payer is informed on how the assessment was arrived at, then the re-uirement of said law is sufficiently met# Respondent thus asserts that the demand letter (E'hibit 3) attached to the assessment notice (E'hibit !) contains the necessary information on how the assessment came about# 9e beg to differ# %he demand letter was devoid of factual as well as legal bases that would enlighten anyone, this court included, on how and why the assessment was reached# %he computation made by the respondent lac(ed any support and did not state the basis either in fact or in law for the disallowances made# %o e'plicitly illustrate, said demand letter is hereby reproduced$ o %he demand letter did not e'pound on how the respondent arrived at the ta'able income per investigation of +A,@/@,HHI#ED# 1or did it provide for the details of the difference between petitioner=s net income of +0HA,D/E#A@ as reported in the @DDH income ta' return (E'hibits ;8 @) and the said net income per investigation or what were added up by the e'aminers to the audited net income to come up with the net income per returnFinvestigation# *n fact, it was clearly indicated in the demand letter that there were no audit findingsFor discrepancies per review# TiuB There are various issues here. @ets "ust answer the issue on W6. the assessment given was valid because according to the case, the facts and the legal basis were not placed in the assessment notice itself but the argument of the #I? was that, although it was not in the assessment notice itself, there was an attachment, another document, which contained the facts and the legal basis. <id the TA sustain that argument? 4A2. In some instances, a tax authority or the #I? will submit % documents ( the KA. and the formal letter of demand. As we expect, the facts and the legal basis should be stated in the KA.. The argument of the #I? was that the facts and the legal basis was contained in the formal letter of demand. 2uch letter was submitted together with the KA.. The KA. did not contain the facts and the legal basis. The TA said that in whatever manner and form the assessment notice is written, as long as the taxpayer is informed on how the assessment was arrived at, then the re-uirement of said law is sufficiently met.
WFA. A22A22*A.T I2 <AA*A< *A<A I@@J2T?ATI6.B When is assessment considered to have been made by the #I?? <ba, the process of assessment starts from the @6A and for an assessment process to be considered valid, there must be, as a D?, a @6A, .I , 'A., although in some cases even a 'A. is s5ipped so long as it!s one of the instances as supported by the law or "urisprudence, and followed by the KA.. And the re-uirement for it to be valid re-uires that everything must be made within 1 years. @ets ta5e an example of an income tax return for %//,, when should the %//, income tax return be filed? Assuming calendar year, %//H, 1 years from the filing of a return for the %//, return would end April $), %/$/. 2o the #I? would only have until April $), %/$/ to do everything. When is the assessment considered to have been made? If the KA. is dated April $), %/$/ but mailed April $,, %/$/, can you consider the assessment to have been made within the prescriptive period of 1 years?
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.6. An assessment is deemed to have been made when the KA., the culmination point, the product of the assessment is finally released, mailed and sent to the taxpayer. If it!s not released, it!s not considered to have been completely made. 4ou lac5 $ final process. In this case, if the KA. is dated April $), %/$/ ( the last day for ma5ing the assessment but it was only mailed the following day, April $,, %/$/ ( can you consider it still as a valid assessment or can you, as a taxpayer, simply ignore it to be out of the prescriptive period? ID.6?A, prescription lies in this case. It is very easy for the #I? if the #I? is running out of time, lets say it exceeded ) days in issuing the KA., if we allow the #I? to have made the assessment upon the issuance of the date, then, it!s very easy to antedate lang dba? 2o what is really re-uired is that the #I? be able to prove that it was indeed issued, released, mailed and sent before the period prescribes. Fow should it ma5e the delivery of the assessment notice? Jnder the law what is recogni=ed? Through registered mail or personal delivery
Who has the burden of proof in case the taxpayer, dba if you!re the taxpayer, denies receiving the KA.? Who has the burden of proof that the assessment has been validly made? o o o The #I?. Fow will it rebut? #ecause the presumption is assessments are prima facie correct and made in good faith and the tax authorities or the #I? officers are presumed to have regularly performed its duties. A2AB #A? A@6. V2 I? !n assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the C*R to the ta'payer within said period# Receipt thereof by the ta'payer within the prescriptive period is not necessary# !t this point, it should be clarified that the rule does not dispense with the re-uirement that the ta'payer should actually receive, even beyond the prescriptive period, the assessment notice which was timely released, mailed and sent# 9hen a mail matter is sent by registered mail, there e'ists a presumption, set forth under .ection A(v), Rule @A@ of the Rules of Court, it was received in the regular course of mail# %he facts to be proved in order to raise this presumption are$ (a) that the letter was properly addressed with postage prepaid8 and (b) that it was mailed# 9hile a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption sub6ect to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee# *n the present case, petitioner denies receiving the assessment notice, and the respondent was unable to present substantial evidence that such notice was, indeed, mailed or sent by the respondent before the 3*R:s right to assess had prescribed and that said notice was received by the petitioner# %he respondent presented the 3*R record boo( where the name of the ta'payer, the (ind of ta' assessed, the registry receipt number and the date of mailing were noted# %he 3*R records custodian, *ngrid Versola, also testified that she made the entries therein# Respondent offered the entry in the 3*R record boo( and the testimony of its record custodian as entries in official records #
*n this case, the entries made by *ngrid Versola were not based on her personal (nowledge as she did not attest to the fact that she personally prepared and mailed the assessment notice# 1or was it stated in the transcript of stenographic notes how and from whom she obtained the pertinent information# oreover, she did not attest to the fact that she ac-uired the reports from persons under a legal duty to submit the same# ;urthermore, independent evidence, such as the registry receipt of the assessment notice, or a certification from the 3ureau of +osts, could have easily been obtained# Jet respondent failed to present such evidence# 9hile we have held that an assessment is made when sent within the prescribed period, even if received by the ta'payer after its e'piration, this ruling ma(es it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved# ere notations made without the ta'payer:s intervention, notice, or control, without ade-uate supporting evidence, cannot suffice8 otherwise, the ta'payer would be at the mercy of the revenue offices, without ade-uate protection or defense# *n the present case, the evidence offered by the respondent fails to convince this Court that ;ormal !ssessment 1otice 1o# ;!1-@-0KD@-CCCIED was released, mailed, or sent before @H !pril @DD@, or before the lapse of the period of limitation upon assessment and collection prescribed by .ection /CA of the 1*RC# .uch evidence, therefore, is insufficient to give rise to the presumption that the assessment notice was received in the regular course of mail# Conse-uently, the right of the government to assess and collect the alleged deficiency ta' is barred by prescription# TiuB Although there is a presumption that whenever the #I? says that the assessment has been made within the prescriptive period, it!s prima facie correct. #ut then the burden of proof still belongs to the #I? once the taxpayer denies receipt of such KA.. And it!s very easy for the #I? to actually prove that it actually issued and mailed the KA. via the registry receipt or any document evidencing the personal delivery and the receipt by the taxpayer because in so far as the taxpayer is concerned, what is very important is that it has received the notice. Aven if there is an argument by the #I? that it made a KA., it must in fact be proven that there was actual receipt. 2o in this case, even the log boo5 of the #I? containing the details of the delivery of the KA., it was not considered as sufficient evidence to rebut the argument of the taxpayer that no KA. has in fact been received. an the #I? instead, if it was not able to prove that the assessment notice was made within the 1+year period, can the #I? use the warrant of distraint or levy as a substitute for the assessment? .6. It!s not the same as the KA. and usually a warrant of distraint or levy is used already as a collection mode or method employed by the #I?. Aven if it was considered as an assessment, it was already mailed or sent, in this case, beyond the prescriptive period.
A2AB
I? V J.ITA< 4!lthough an assessment is deemed made when notice to this effect is released, mailed or sent by the Commissioner and it is not re-uired that the notice be received by the ta'payer within the prescriptive period, due process re-uires at the very least that such notice must be served on and received by the ta'payer to enable him to determine his remedies thereon# Conse-uently, an assessment that has not been received by the person liable for the payment of the ta', cannot become final and e'ecutory#5 *n the absence of evidence showing that the final assessment notices and demand letters dated 7anuary @D, @DD0 were indeed sent to
the respondent, what then can be considered as the assessment for purposes of rec(oning the prescriptive periodsL %he )ighest Court elucidated the importance of an assessment in this manner$ <%he issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it# # # 1ecessarily, the ta'payer must be certain that a specific document constitutes an assessment# Otherwise, confusion would arise regarding the period within which to ma(e an assessment or to protest the same, or whether interest and penalty may accrue thereon#<
January 18, 2011 Tuesday +E*!-D -0 L!7!TAT!-# U+-# ASSESS7E#T Within how many years or what is the prescriptive period for the government to ma5e an assessment and during that period, what must be complied with or covered by such process? o D?B Within 1 years after the last day prescribed by law for filing of the return or from the day the return was filed in case the return was filed beyond the period prescribed by law
2o in case of an Income Tax ?eturn 8IT?9, say for example, calendar year %/$/, until when can the tax authorities ma5e a valid assessment for income tax liability covering calendar year %/$/? o o A'?I@ $), %/$7 When is the last day for filing of the %/$/ IT?? A'?I@ $), %/$$ 2ince the law says that the prescriptive period will run from such date and end 1 years after such date, so if it was indeed filed April $), %/$$, the 1+year period will start from there ( %/$%, %/$1, %/$7. 2o the right of the government to ma5e assessment shall end until April $), %/$7.
If you remember, income tax liabilities are paid on a -uarterly basis for the first 1 -uarters. They!re actually estimates of your income tax
liability. #ut it is finali=ed on a year+to+year basis. 2o if you follow the calendar year, you have first 1 -uarters ending 2eptember, then by <ecember, you end your entire calendar year, you have until April $). Why April $)? #ecause the law says :April $) or on or before the $) th day of the 7th month following the close of the taxable year;. If your taxable year is simply the calendar year, don!t compute the on or before the $)th day of the 7th month because the 7th month is April. 6n or before the $) th is the $)th day of April. #ut that phrase 8:on or before the $) th day of the 7th month following the close of the taxable year;9 is important when you deal with taxpayers who operate not on the calendar year basis, say for example, they operate on a fiscal year basis ending on any day except <ec. 1$. o 6ther corporations, the most number of corporations who end other than <ec. 1$, they usually end at *arch 1$. ?eason ( to avoid the rush filing on April $). And most auditors are actually busy for April $) so they choose *arch 1$. If it!s *arch 1$ fiscal year ending, when is the 7 th month following *arch 1$? It!s Nuly. 2o the filing day is actually Nuly $). If it!s Nuly $), then you start the 1 years from there. That!s the 1+year prescriptive period.
AOA*'@AB The corporation, operating the calendar year, filed the return not on April $), %/$$ but on April $/, %/$$. Jntil when is the government allowed to ma5e an assessment? o o A'?I@ $), %/$7, because the law provides that a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. @et!s say the return was actually filed % days later, April $H, %/$$. Jntil when is the government allowed to ma5e an assessment? o o o A'?I@ $H, %/$7, because the return was filed beyond the period prescribed by law, thus, the 1+year prescriptive period will run from the actual date of filing, which is April $H, %/$$.
If the return is filed later than the due date, the government would still be given the full 1 years within which to ma5e an assessment, so rec5oning point will start at the time the return is actually filed later than the due date and will end 1 years later. 2o it!s all for the benefit of the government. Kiled earlier ( the 1 years will still end 1 years after the due date. If it!s filed later ( 1 years after the actual filing later than the due date. The April $) or the $)th day of the 7th month would apply only to income tax liability.
I@@J2T?ATI6.B @ets say that you!re being audited for 1rd -uarter vat liability %/$/. Jntil when is the government allowed to ma5e an assessment? Vat liability covered by the 1rd period of %/$/. I!ll give you a clue ( 1 rd -uarter vat liability is supposed to be filed, the return and the tax paid, on or before the %)th day of the month following, so what!s the month following of 2eptember? 6ctober. 2o on or before 6ctober %), %/$/. If the return was actually filed 6ctober %), %/$/, until what year, assuming that the vat liability is being audited together with the liability for income tax of %/$/? Jntil when is the government allowed to ma5e an assessment? o o 6 T6#A? %), %/$1, so it will not coincide with the income tax prescriptive period even if it pertains to the same calendar year. FA.DA 6K KA T2B If you remember, the vat liability will be paid monthly and -uarterly. Kor every -uarter, there will be % months vat return and the 1rd month will be the -uarterly vat return. 2o Nanuary, Kebruary, monthly vat returns. #y *arch, you consolidate and it becomes a -uarterly vat return. 2ay that it is the August vat return, which has a particular gross sales, that is sub"ect to vat liability, August %/$/ monthly vat return ( that return which contains the income sub"ect of the assessment. When will the prescriptive period end, assuming a monthly vat return is due on the %/th day of the following month, so it was filed 2ept. %/? 2o until when can the government ma5e the assessment? What
was audited was the monthly vat return of August %/$/, which was filed 2ept. %/, %/$/. When will the prescriptive period end? 6 T6#A? %), %/$1 The general rule states :within 1 years from the last day prescribed by law for filing or the actual date if it!s later;. It simply re-uires that the rec5oning point of the 1+year period would be the date of filing of the final return whatever type of tax it is. ?emember in income tax, how many IT?s do you file in a year? 7 ( 1 -uarters and $ year. #ut the basis of audit, whether it is an income or expense found in any of the first 1 -uarters, would be the filing of the last return, which sums up or summari=es the entire year operation. Kor vat, when do we have the final vat return? Is it on a monthly basis or on a -uarterly basis? Puarterly. ?emember, it!s usually from the end of the -uarter, etc. And, the first % months of every -uarter will be added up and finali=ed in the 1 rd month, which is the -uarterly return. Therefore, if it!s an audit of the 1rd -uarter vat return of %/$/, which is to be filed 6ct. %), %/$/, the 1+year prescriptive period will end 6ct. %), %/$1. It will not coincide with the IT? of %/$7 prescriptive period, even if it pertains to the same %/$/. Why? VAT is ta5en on a -uarterly basis. @ets go to the August vat return ( if it was audited, still it will be considered as 1 rd -uarter audit of the vat. 'rescriptive period will run from the last day of filing for the -uarterly vat return, which is 6ct. %), %/$/ and 6ct. %), %/$/ until 6ct. %), %/$1 ( you don!t consider the monthly basis. I? V2 *I?A.T TiuB There is another type of tax that has been mentioned ( the withholding tax. Although it!s an expanded withholding tax in this case, you have other taxes ( withholding tax on your wages or salaries, final withholding taxes, and the expanded withholding taxes. These taxes are to be filed, the returns are to be filed on a monthly basis ( on or before the $/ th of the following month. 2o if it!s Nanuary withholding tax, it has to be filed Kebruary $/. And there!s no -uarterly or annual for that. *eaning to say, every month withholding tax is a final return in itself. And if you sub"ect Nanuary %/$/ withholding tax return, the right of the #I? will prescribe Keb. $/, %/$1, which is 1 years after the last day of filing prescribed by law of the Nanuary withholding tax return. 2o you will notice, if you analy=e this case, actually, the withholding tax and the vat were no longer sub"ect of the waivers because the execution of the waivers were actually made beyond the prescriptive period of withholding tax and the vat. #ut for income tax, although the waiver was executed within the prescriptive period of the income tax, but since there were errors or invalidities in the waiver itself, it became a void waiver, period was not extended, the right to assess has already prescribed.
When a return is amended, until when is the government allowed to ma5e an assessment? o o It is counted from the filing of the amended return. In all cases of amendment will the prescriptive period be moved? .6. 6nly when the amended return is substantially different from the original return. AOA*'@AB Assuming you filed a return on April $), %/$$ for your %/$/ calendar year. 4ou reali=ed that you failed to put+in one additional expense, which could!ve lowered your tax liability, therefore, you filed an amended return % months after on Nune $), %/$$. When is the rec5oning point of the 1+year prescriptive period and until when will it end? Will it be April $), the filing of the original return, or Nune $), the filing of the amended return?
The rec5oning point is Nune $), %/$$, thus, the prescriptive period will end on Nune $), %/$7.
If you change the comma of your name, will it move the prescriptive period for the government to ma5e assessment? .6, because such amendment is not substantial.
2o the law says actually that if you file an amended tax return, the prescriptive period may be moved based on the date of filing the amended return but only if the amendment that you!ve made is substantial. When is an amendment substantial? If it changes the tax liability of the taxpayer, it becomes a substantial amendment and the prescriptive period is actually moved. AOA*'@AB If you file an IT?, wherein you reflected losses of $/m. .o tax payment because it!s a loss. 4ou reali=ed that there was a loss, casualty loss incurred, and you were not compensated for by the insurance and you have to file an amended return and claim the loss, otherwise, the loss cannot be claimed the subse-uent year. Why? @osses have to be claimed in the year when it is incurred, sustained or charged+off. 2o you cannot use that for the following year. 4ou have to amend the return. 2o when you amended the return, instead of $/m losses, it became $)m in losses. 2till, no tax liability because there was net operating loss instead of net taxable income. Will it be considered as substantial amendment and move the prescriptive period for the government to assess? o o 4A2. Although it appears that it does not affect the tax liability of the current year, remember that operating losses for the current year can be carried forward to the 1 succeeding years as net operating loss carry+over and can affect the tax liability for the future years. Therefore, it does not only concern the current year. Faving a net operating loss higher than what you!ve filed in the original return means that you have a higher net operating loss carry+over, which will decrease your future tax liability. 2o changing losses ( from a loss to another loss ( without affecting current tax liability is still a substantial amendment and will move the prescriptive period from the original date of filing to the date of filing the amended return. 2o you have a different rec5oning point and ending point for the prescriptive period.
When you say that the assessment has to be made within the prescriptive period of 1 years, up to what point is the obligation of the #I? or the tax authorities in order for us to say that they have validly made the assessment within the 1+year period? What must they be able to come up with? What must be complied with by the #I? so that we can say that they have beaten the deadline of the 1+year prescriptive period? o o They must reach the stage of sending, releasing, or mailing the KA. on or before the prescriptive period, regardless of when the taxpayer is able to receive it. 2o long as the KA. is released, mailed, or sent within the prescriptive period, it doesn!t matter when the taxpayer is able to receive the KA. even if it!s way beyond the prescriptive period of 1 years. $. Within $/ years after the discovery of the falsity, fraud or omission Kraud or falsity would result to filing a false return or filing a fraudulent return. Is there any difference between a false return and a
What are the exceptions to the 1+year period and the period for filing an amended return? o
fraudulent return? 4A2. When you say false return, there is purely mista5e. #ut fraudulent return, there is intent to defraud or there is intent to evade the tax 8tax evasion9. If a fraudulent return has been discovered, the tax authorities are given $/ years from the time of discovery of the fraudulent return. Kalsity or false return is not necessarily the same as the fraudulent return. When you say filing a false return, it is a return not somehow reflecting the true data but without the intent of evading the payment of taxes. It can be the result of gross mista5e, gross neglect, or gross carelessness of the taxpayer. $/ years from the discovery of the omission.
If no return is filed, even if a return is necessary, until when is the government allowed to ma5e an assessment?
There are 1 instances which falls under the $/+year prescriptive periodB $. Kiling a false return %. Kiling a fraudulent return 1. .on+filing of any return at all when it is necessary
%. Where there is a waiver of the statute of limitations Waiver in a sense that the taxpayer is actually relin-uishing or waiving his right to the 1+year period. It means further that government is given by the taxpayer more time than 1 years within which to comply with the assessment process and issuing the KA.. It!s an extension by mutual agreement. Although it!s in favor with the government, some taxpayers in some cases would readily enter into waiver in order to avoid grudge with the government. <ba, if you!re able to escape one taxable year from audit because the government was not able to comply with the 1+ year period, remember that there are future years or past years, wherein the government can readily ma5e an assessment. 2o 5ung magpadili+dili 5a ug sign ug waiver, probably, the government will readily issue @6As for the succeeding years that are available. What are the re-uirements to ma5e a waiver valid? $. The waiver must be in the proper form prescribed by ?*6 %/+G/. The phrase :but not after QQQQQQ $G QQQ;, which indicates the expiry date of the period agreed upon to assessMcollect the tax after the regular three+year period of prescription, should be filled up. %. The waiver must be signed by the taxpayer himself or his duly authori=ed representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notari=ed.
1. The waiver should be duly notari=ed. 7. The I? or the revenue official authori=ed by him must sign the waiver indicating that the #I? has accepted and agreed to the waiver. The date of such acceptance by the #I? should be indicated. Fowever, before signing the waiver, the I? or the revenue official authori=ed by him must ma5e sure that the waiver is in the prescribed form, duly notari=ed, and executed by the taxpayer or his duly authori=ed representative. ). #oth the date of execution by the taxpayer and date of acceptance by the #ureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subse-uent agreement is executed. ,. The waiver must be executed in three copies, the original copy to be attached to the doc5et of the case, the second copy for the taxpayer and the third copy for the 6ffice accepting the waiver. The fact of receipt by the taxpayer of hisMher file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the #I? and the perfection of the agreement. I? in the acceptance and
In the case of I? V2 *I?A.T, there was a discussion, which distinguished between a signature of the signature in the attestation.
)owever, in the assailed decision, the C%! held that the waiver of the statute of limitations e'ecuted by respondent on .eptember /A, @DD0 was defective and invalid since the latter did not comply with the re-uirement of .ection /// (b) of the 1ational *nternal Revenue Code (1*RC), which provides that the waiver must be agreed upon and signed by both the Commissioner and the ta'payer# *n the present case, the C%! observed that the waiver, while signed by the respondent, was merely attested to by the petitioner through Revenue 2istrict Officer !nselmo &# !driano# *t further argued that an agreement is different from an attestation# %o agree means to give assent while to attest means to bear witness# .ection // (b) of the 1*RC re-uires that the waiver be agreed upon and not attested to only# ! waiver of the statute of limitations under the 1*RC, to a certain e'tent, is a derogation of the ta'payer=s right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed# !s correctly found by the C%!, the waiver e'ecuted by the respondent on .eptember /A, @DD0 was defective and invalid because it does not conform with the provisions of R O 1o# /C-DC# %he waiver was defective on the government side because it was not accepted and agreed to by the Revenue 2istrict Officer, as mandated by the 1*RC and R O 1o# /C-DC# %he signature of the Revenue 2istrict Officer merely attested to the e'istence of the waiver# )is signature could not in any way indicate that the 3ureau has accepted and agreed to the waiver# %he waiver is not a unilateral act by the ta'payer or the 3*R, but is a bilateral agreement between two parties to e'tend the period to a date certain# Bnder R O 1o# /C-DC, there is perfection of the agreement only upon acceptance of the waiver by the 3*R# )ence, we rule that the waiver in this case is invalid and defective and the three (A)-year prescriptive period was not tolled or e'tended#
The execution of the waiver, both the signing by the taxpayer and the I?, his date of acceptance, must all be made within the 1+year prescriptive period, otherwise, if the waiver is executed and signed after the prescriptive period, then there is really nothing to waive,
nothing to extend. I? V2 0J<62 .ection /CA of the 1ational *nternal Revenue Code of @DDK (1*RC) mandates the government to assess internal revenue ta'es within three years from the last day prescribed by law for the filing of the ta' return or the actual date of filing of such return, whichever comes later# )ence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective# E'ceptions however are provided under .ection /// of the 1*RC# %he waivers e'ecuted by respondent:s accountant did not e'tend the period within which the assessment can be made# +etitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period, but claims that the period was e'tended by the two waivers e'ecuted by respondent:s accountant# 9e do not agree# ! perusal of the waivers e'ecuted by respondent:s accountant reveals the following infirmities$ o o o @# %he waivers were e'ecuted without the notari,ed written authority of +asco to sign the waiver in behalf of respondent# /# %he waivers failed to indicate the date of acceptance# A# %he fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers#
2ue to the defects in the waivers, the period to assess or collect ta'es was not e'tended# Conse-uently, the assessments were issued by the 3*R beyond the three-year period and are void# TiuB Authori=ation cannot be done by a mere board resolution. There must be a notari=ed 2'A designating the representative of the taxpayer as the one authori=ed to enter into waivers. It!s really a relin-uishing of the right. It is not sufficient that the taxpayer is able to receive a copy of the waiver. It must be stated in the file itself and in the original copy that the taxpayer was able to receive it. As to the issue of whether the Assistant ommissioner has the right to execute the waiver or to sign in behalf of the ommissioner, was it properly addressed in the case? o o 4A2. What did the 2 say? <oes the Assistant ommissioner have the right to execute a waiver?
4A2. Jnder the Tax Kraud <ivision, the Assistant ommissioner has the right because the @6A was issued by the Tax Kraud <ivision, the .ational Tax Kraud <ivision. On appeal, the C%! En 3anc affirmed the cancellation of the assessment notices# !lthough it ruled that the !ssistant Commissioner was authori,ed to sign the waiver pursuant to Revenue 2elegation !uthority Order (R2!O) 1o# CH-C@, it found that the first waiver was still invalid based on the second and third grounds stated by
the C%! .econd 2ivision# +ertinent portions of the 2ecision read as follows$ 9hile the Court En 3anc agrees with the second and third grounds for invalidating the first waiver, it finds that the !ssistant Commissioner of the Enforcement .ervice is authori,ed to sign the waiver pursuant to R2!O 1o# CHC@, which provides in part as follows$ !# ;or 1ational Office cases 2esignated Revenue Official o o o o @# !ssistant Commissioner (!C*R), ;or ta' fraud and policy Enforcement .ervice cases /# !C*R, "arge %a'payers .ervice ;or large ta'payers cases other than those cases falling under .ubsection 3 hereof A# !C*R, "egal .ervice ;or cases pending verification and awaiting resolution of certain legal issues prior to prescription and for issuanceFcompliance of .ubpoena 2uces %ecum E# !C*R, !ssessment .ervice (!.) ;or cases which are pending in or sub6ect to review or approval by the !C*R, !.
3ased on the foregoing, the !ssistant Commissioner, Enforcement .ervice is authori,ed to sign waivers in ta' fraud cases# ! perusal of the records reveals that the investigation of the sub6ect deficiency ta'es in this case was conducted by the 1ational *nvestigation 2ivision of the 3*R, which was formerly named the %a' ;raud 2ivision# %hus, the sub6ect assessment is a ta' fraud case#
January 19, 2011 Wednesday +E*!-D -0 L!7!TAT!-# U+-# ASSESS7E#T ?APJI?A*A.T2 6K A VA@I< WAIVA? I? V2 K*K o !pplying R O 1o# /C-DC, the waiver in -uestion here was defective and did not validly e'tend the original three-year prescriptive period# ;irstly, it was not proven that respondent was furnished a copy of the 3*R-accepted waiver# .econdly, the waiver was signed only by a revenue district officer, when it should have been signed by the Commissioner as mandated by the 1*RC and R O 1o# /C-DC, considering that the case involves an amount of more than +@ million, and the period to assess is not yet about to prescribe# "astly, it did not contain the date of acceptance by the Commissioner of *nternal Revenue, a re-uisite necessary to determine whether the waiver was validly accepted before the e'piration of the original three-year period# 3ear in mind that the waiver in -uestion is a bilateral agreement, thus necessitating the very signatures of both the Commissioner and the ta'payer to give birth to a valid agreement# +etitioner contends that the procedures in R O 1o# /C-DC are merely directory and that the e'ecution of a waiver was a renunciation of respondent:s right to invo(e prescription# 9e do not agree# R O 1o# /C-DC must be strictly followed#
%o the &overnment, its ta' officers are obliged to act promptly in the ma(ing of assessment so that ta'payers, after the lapse of the period of prescription, would have a feeling of security against unscrupulous ta' agents who will always try to find an e'cuse to inspect the boo(s of ta'payers, not to determine the latter:s real liability, but to ta(e advantage of a possible opportunity to harass even law-abiding businessmen# 9ithout such legal defense, ta'payers would be open season to harassment by unscrupulous ta' agents# TiuB Although you will notice in this case that the 2 did not actually decide on when should we start to rec5on the counting of the 1+year prescriptive period, whether it!s filing from the original return or the amended return. Jnderstandably, the 2 is not a trier of facts, so what is =eroed+in was on another issue of the case.
2J2'A.2I6. 6K TFA ?J..I.D 6K TFA 2TATJTA 6K @I*ITATI6.2 K6? *A0I.D A22A22*A.T2 What are the instances when the 1+year prescriptive period for ma5ing an assessment is suspended? o o $. When the ommissioner is prohibited from ma5ing the assessment %. When the taxpayer re-uests for the reinvestigation which is granted by the ommissioner When you say a taxpayer ma5es a re-uest for reinvestigation and is granted by the Fow do you ma5e a re-uest for reinvestigation? What is that? I?, it suspends the running of the 1+year period.
A re-uest for reinvestigation refers to a plea for reinvestigation of an assessment on the basis of newly+discovered or additional evidence that a taxpayer intends to present in the reinvestigation. .6.
If a re-uest for reinvestigation is made but it!s not granted by the I?, would it suspend the running of the prescriptive period?
Kor how long will the prescriptive period be suspended? It is suspended during the time that the been made. I? is actually ma5ing the reinvestigation and will resume again once a decision has
1. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collectedI provided, that if the taxpayer informs the ommissioner of any change in address, the running of the 2tatute of @imitations will not be suspended If a taxpayer transfers its principal place of business from one building to the other within I.T par5 and the KA. cannot be served, will it at all times suspend the running of the prescriptive period? .6, because the prescriptive period will only be suspended if the taxpayer failed to inform the I? of his change of address, so in case that he informed the I? of his change of address, then the running of the prescriptive period will not be suspended.
Fow would a taxpayer inform the I? of the change of address? an he simply change his address in the return and ma5e it official for purposes of ma5ing as assessment? @ets say you!re registered within the ebu ity <istrict. 4ou change your business to *andaue,
therefore, you belong to another revenue district office. 4ou physically change your business operations but you did not go through the process of informing formally the #I?. What you did was simply that in the subse-uent returns that you filed, you simply place there *andaue ity. Is that proper information to the #I? of the change in address? .6. There is a legal procedure for changing your address in so far as the tax authorities are concerned. Whenever you start+up a business, you register your business and it has a definite principal place of business. If you change an address, you have to file a return specifically for the purpose of changing your address with the current district office and it has to be transmitted to the other district office of the #I?. That!s the proper legal procedure. If that has been legally made by you and the tax authorities still sent the KA. to your old address despite the proper procedure ta5en for change of address, then KA. would probably have prescribed or it will prescribe if it!s not actually received by you because you properly informed the government.
o o
7. When the taxpayer is out of the 'hilippines In the normal course of things, when you receive the KA. and you protest such notice or filed a re-uest for reinvestigation or reconsideration, the #I? will normally issue a decision of denial. In this case, the lin5 between the first KA. and the second KA. is that the KA., the % nd one, is simply a revision of the first one, so it has a lin5 to the first KA.. And during the period when you as5 for a re-uest for reinvestigation on the first KA. up to the time that the %nd KA. was issued, the prescriptive period has been suspended. Therefore, actually the 1+year period has not terminated as yet. There is still enough time to ma5e an assessment ( the % nd KA. cannot be treated independently and separately from the the first KA., therefore, even the %nd KA. was issued within the prescriptive period and on time. Although technically, you would say it!s beyond the prescriptive period but because there was suspension in between, it!s still within the 1+year prescriptive period.
*A.6T60 ?AA@T4 V2 I?
AD7!#!ST*AT!VE +*-TEST T- T>E ASSESS7E#T Fow do you ma5e a protest to a KA.? What are the 5inds of protest to an assessment notice? o $. Kiling a ?e-uest for ?econsideration refers to a plea for re+evaluation of an assessment on the basis of exiting records without need of additional evidence. When you say reconsideration, you simply as5 for reconsideration from the I? to re+assess the assessment that he has issued based on the same documents, records, evidence. #ut if you introduce additional evidences to support your argument against the assessment, you!re actually as5ing already for a reinvestigation. refers to a plea for reinvestigation of an assessment on the basis of newly+discovered or additional evidence that a taxpayer intends to present in the reinvestigation.
%. Kiling a ?e-uest for ?einvestigation
Would the % 5inds of administrative protests suspend the running of the prescriptive period?
o o
.6, only the re-uest for reinvestigation suspends the running of the prescriptive period, not the re-uest for reconsideration. Why is that? Why is there a difference of treatment? I? V2 'FI@I''I.A D@6#A@ 6**J.I ATI6. !mong the e'ceptions provided by the aforecited section, and invo(ed by the C*R as a ground for this petition, is the instance when the ta'payer re-uests for a reinvestigation which is granted by the Commissioner# )owever, this e'ception does not apply to this case since the respondent never re-uested for a reinvestigation# ore importantly, the C*R could not have conducted a reinvestigation where, as admitted by the C*R in its +etition, the respondent refused to submit any new evidence# Revenue Regulations 1o# @/-0H, the +rocedure &overning !dministrative +rotests of !ssessment of the 3ureau of *nternal Revenue, issued on /K 1ovember @D0H, defines the two types of protest, the re-uest for reconsideration and the re-uest for reinvestigation, and distinguishes one from the other in this manner$ .ection I# +rotest# - %he ta'payer may protest administratively an assessment by filing a written re-uest for reconsideration or reinvestigation specifying the following particulars$ ' ' ' ' ;or the purpose of protest hereinM o o (a) Re-uest for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of e'isting records without need of additional evidence# *t may involve both a -uestion of fact or of law or both# (b) Re-uest for reinvestigationMrefers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a ta'payer intends to present in the investigation# *t may also involve a -uestion of fact or law or both#
%he main difference between these two types of protests lies in the records or evidence to be e'amined by internal revenue officers, whether these are e'isting records or newly discovered or additional evidence# ! re-evaluation of e'isting records which results from a re-uest for reconsideration does not toll the running of the prescription period for the collection of an assessed ta'# .ection /K@ distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is re-uested by a ta'payer and is granted by the C*R# %he Court provided a clear-cut rationale in the case of 3an( of the +hilippine *slands v# Commissioner of *nternal Revenue e'plaining why a re-uest for reinvestigation, and not a re-uest for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed ta'$ o Bndoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will ta(e more time than a reconsideration of a ta' assessment, which will be limited to the evidence already at hand8 this 6ustifies why the former can suspend the running of the statute of limitations on collection of the assessed ta', while the latter cannot#
*n the present case, the separate letters of protest dated I ay @DDE and /A ay @DDE are re-uests for reconsideration# %he C*R:s allegation that there was a re-uest for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. TiuB There are various differences between reconsideration and reinvestigation. The taxpayer here consistently did not submit
any additional document, so what he simply as5s for in his re-uest was to reconsider the assessment issued by the tax authority. Without submitting new evidences, there!s no need to suspend the running of the prescriptive period. There was nothing to reinvestigate, but simply reconsider the law applied to the facts. Therefore, the right to collect has already prescribed. Fow do you ma5e a protest? Aside from distinguishing that the protest may be a re-uest for reconsideration or a re-uest for reinvestigation, how does the protest loo5 li5e and what must it include in order for it to be a valid protest? o o o o o o $. It is made in writing, and addressed to the I? %. It contains the information re-uired by the rule 1. It states the facts, applicable law, rules and regulations or "urisprudence on which his protest is based, otherwise the protest shall be considered void and without force and effect 7. It is filed within the period prescribed by law Within 1/ days from receipt of the KA. An assessment is deemed made when the KA. is mailed, released and sent to the taxpayer, regardless of when the taxpayer receives actually the KA.. The receipt may be beyond the prescriptive period so long as it!s actually received. If it!s not received due to the fault of the taxpayer and no protest is made, the KA. becomes final, executory and demandable, such as when the taxpayer failed to inform the change in address, therefore, the prescriptive period of 1/ days within which to file protest is not suspended. It becomes final, executory and demandable. The same is true with ma5ing an invalid protest. If your protest is in a letter form without stating therein the legal basis of your argument, it becomes an invalid protest. It!s void. It!s considered a scrap of paper and it will not dispute the KA.. Whatever is stated in the KA. becomes final, executory and demandable. 2o once you come up with a valid protest, complete in form, you have to file it within 1o days from the date of receipt of the KA.. In so far as the taxpayer is concerned, in filing the protest, you wouldn!t mind when the KA. was released, mailed or sent, because it is from the date which he actually received the KA.. When is the KA. released, mailed or sent important? 6nly for determining whether the entire assessment process was covered by the 1+year prescriptive period. Whenever assessment is made, the remedy of the taxpayer is to file a protest, whether it be in a form of reinvestigation or reconsideration. Within ,/ days from filing of the protest, all ?2< must be submitted, otherwise the assessment shall become final. Would all cases of protest, after it is filed, re-uire the submission of ?2< 8those documents which the taxpayer consider as necessary to support its protest? Would all cases of filing a protest re-uire the submission within ,/ days the ?2<? .6. The ?2< may be submitted during the time that the protest is filed or even before when you filed position papers against the post+
When should you ma5e the protest?
o o o
After filing the protest, what are your other obligations?
reporting notice and 'A.. These documents, which have been submitted earlier, can be considered as ?2<. This is not mandatory if you have submitted ?2< before. This will only apply where no ?2< are submitted. This is "ust additional time for you to gather all the documents.
Krom the time that all the documents are with the #I?, say for example that you have consumed all the dates allowed you by the law. 4ou consumed the 1/ days so you filed on the 1/ th. 4ou consumed the ,/ days so you filed the ?2< on the ,/ th day. What is the next step? If you!re the taxpayer, what will you do? If you!re the #I?, what will you do? o o The #I? may decide or not decide the protest. Within how many days must the tax authorities decide on your protest? Are the tax authorities re-uired to mandatorily decide within $C/ days? .6. The $C/ days is simply applied to the taxpayer. It!s not a mandatory re-uirement for the I? or his subordinates to decide within $C/ days. In fact, in one of the cases, decisions came out even after the $C/ days and the case is already elevated to the A. 2o it!s not mandatory for the #I? to issue a decision or release a decision of denial or approval within $C/ days. The $C/ days is simply a guide to the taxpayer that once there is $C/ days already and the #I? has not acted on your protest, you may elevate the case to the TA, within 1/ days after the expiration of the $C/+day period.
When do you start counting the $C/ days? Krom the receipt of the protest or from the receipt of the ?2<? If you!re the I?, you will receive the protest first followed by ?2<. If you want to exercise your right to file a petition for review before the TA within 1/ days after the expiration of $C/ days, when would the $C/ days start? 'rotest or ?2<? If ?2< are not filed because you previously filed ?2< during the initial assessment process, when do you start counting the $C/ days? If you!re the taxpayer, you would 5now whether you have submitted ?2< or not so you would also 5now when to count the $C/ days. When would the $C/ days start? an you utili=e the additional ,/ days even though you have not submitted ?2<? 2o when should the $C/ days rec5on? If you have not filed any ?2<, you start counting the $C/ days from the time you submitted the protest. If you submitted the protest the day after the KA., then start counting from such day if you have no ?2<. If you have ?2< submitted on the ,/th day, the day after such day, you start the $C/ days. If you!ve submitted on the 1/ th day, then you start the $C/ days from such day. <o not utili=e the time that you have not actually consumed. .o ?2< or partial lng of the ,/ days, then you start counting from the day that the #I? actually received the protest or the last ?2<, respectively. Appeal to the TA within 1/ days from the receipt of the decision denying the protest. If a decision is given within the $C/ days, the remedy is to appeal your case to the denial. TA in division within 1/ days from receipt of the
If a decision of denial is handed out on the $HGth day, what!s your remedy?
If a decision is not handed out during the $C/ days and you did not file an appeal before the TA within 1/ days after the lapse of the $C/ days, would you lose your right to appeal to the TA? .6, because you can still await the final decision of the I? on the disputed assessments and appeal such final decision to the within 1/ days after receipt of a copy of such decision, regardless of when the decision will come out. TA
<ba, % things can happen. Krom the submission of the ?2<, the #I? will actually decide but we don!t 5now when. Kor the taxpayer!s guide, if the decision does not come out within $C/ days, it has the right to appeal before the TA within 1/ days after the expiration of the $C/ days, which we call the inaction period. If the decision comes out a day after filing the ?2<, you have the same remedy of filing an appeal before the TA within 1/ days after the decision comes out. .ow, lets say that there was no decision which came out during the $C/ days. 4ou failed to appeal. 4ou counted it wrong. 4ou failed to appeal within 1/ days. Would you lose your right to appeal to the TA? .6, because you still have the remedy of awaiting the final decision of the I? on the disputed assessment and appeal such final decision to the TA within 1/ days after receipt of a copy of such decision, regardless of when the decision will come out. According to a case and according to the may eitherB TA ?ules of 'rocedure, if the I? did not act upon the protest within $C/ days, the taxpayer
$. Appeal to the TA within 1/ days from the lapse of the $C/ daysI or %. Wait until the I? decides before he elevates the case to the TA o o 2o it is optional. The #I? is not re-uired to issue a decision, probably because of complexity reasons and lifeblood doctrine, to hapha=ardly issue a decision within $C/ days. #ut for security to the taxpayer not to indefinitely or forever await the decision or to stop the running of interest, so for the benefit of the taxpayer, who wants to have an early settlement of the assessment notice, he may actually, once the $C/ days has lapsed and no decision comes out, elevate the case or the matter to the TA and have it decided by the "udicial courts. #ut since it!s an option lang, you may decide to forever await the decision because it may come out. The problem is when the decision comes very late, it may affect the prescriptive period of the government!s right to collect. The government!s right to collect is only within ) years from issuance of the assessment and if it!s decided , years from assessment, then no right to collect nah.
If you protest a KA., are you re-uired to pay under protest, meaning pay under protest ( you can only protest it if you pay the assessed tax and held it in trust for you if later on it!s decided in your favor? Is payment under protest necessary? .6. It!s only necessary for real property taxes and tariff and customs duties. .ational internal revenue taxes do not re-uire the taxpayer to settle the obligation first prior to exercising his right to -uestion or dispute the KA.. I?
A@@IA< #A.0I.D V2 o
%he case is an e'ception to the rule on e'haustion of administrative remedies

o o o
)owever, a careful reading of the ;ormal "etter of 2emand with !ssessment 1otices leads us to agree with petitioner that the instant case is an e'ception to the rule on e'haustion of administrative remedies, i#e#, estoppel on the part of the administrative agency concerned# 9e find the C*R estopped from claiming that the filing of the +etition for Review was premature because petitioner failed to e'haust all administrative remedies# %he ;ormal "etter of 2emand with !ssessment 1otices reads$ 3ased on your letter-protest dated ay /I, /CCE, you alleged the following$
@# %hat the said assessment has already prescribed in accordance with the provisions of .ection /CA of the %a' Code# /# %hat since the e'emption of ;C2Bs from all ta'es found in the Old %a' Code has been deleted, the wording of .ection /0(!)(K)(b) discloses that there are no other ta'es imposable upon ;C2Bs aside from the @CN ;inal *ncome %a'# Contrary to your allegation, the assessments covering &R% and 2.% for ta'able year /CC@ has not prescribed for >sic? simply because no returns were filed, thus, the three year prescriptive period has not lapsed# 9ith the implementation of the C%R+, the phrase 4e'empt from all ta'es5 was deleted# +lease refer to .ection /K(2)(A) and /0(!)(K) of the new %a' Code# !ccordingly, you were assessed for deficiency gross receipts ta' on onshore income from foreign currency transactions in accordance with the rates provided under .ection @/@ of the said %a' Code# "i(ewise, deficiency documentary stamp ta'es was >sic? also assessed on "oan !greements, 3ills +urchased, Certificate of 2eposits and related transactions pursuant to .ections @0C and @0@ of 1*RC, as amended# %he /HN surcharge and /CN interest have been imposed pursuant to the provision of .ection /E0(!) and /ED(b), respectively, of the 1ational *nternal Revenue Code, as amended# *t is re-uested that the above deficiency ta' be paid immediately upon receipt hereof, inclusive of penalties incident to delin-uency# %his is our final decision based on investigation# *f you disagree, you may appeal this final decision within thirty (AC) days from receipt hereof, otherwise said deficiency ta' assessment shall become final, e'ecutory and demandable# (Emphasis supplied)
o o o
*t appears from the foregoing demand letter that the C*R has already made a final decision on the matter and that the remedy of petitioner is to appeal the final decision within AC days# *n Oceanic 9ireless 1etwor(, *nc# v# Commissioner of *nternal Revenue, we considered the language used and the tenor of the letter sent to the ta'payer as the final decision of the C*R# *n this case, records show that petitioner disputed the +!1 but not the ;ormal "etter of 2emand with !ssessment 1otices# 1evertheless, we cannot blame petitioner for not filing a protest against the ;ormal "etter of 2emand with !ssessment 1otices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter# 9e have time and again reminded the C*R to indicate, in a clear and une-uivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the ta'payer concerned to determine when his or her right to appeal to the ta' court accrues# Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the ;ormal "etter of 2emand with !ssessment 1otices to be a final decision#
oreover, we cannot ignore the fact that in the ;ormal "etter of 2emand with !ssessment 1otices, respondent used the word 4appeal5 instead of 4protest5, 4reinvestigation5, or 4reconsideration5# !lthough there was no direct reference for petitioner to bring the matter directly to the C%!, it cannot be denied that the word 4appeal5 under prevailing ta' laws refers to the filing of a +etition for Review with the C%!# !s aptly pointed out by petitioner, under .ection //0 of the 1*RC, the terms 4protest5, 4reinvestigation5 and 4reconsideration5 refer to the administrative remedies a ta'payer may ta(e before the C*R, while the term 4appeal5 refers to the remedy available to the ta'payer before the C%!# .ection D of R! D/0/, amending .ection @@ of R! @@/H, li(ewise uses the term 4appeal5 when referring to the action a ta'payer must ta(e when adversely affected by a decision, ruling, or inaction of the C*R# !s we see it then, petitioner in appealing the ;ormal "etter of 2emand with !ssessment 1otices to the C%! merely too( the cue from respondent# 3esides, any doubt in the interpretation or use of the word 4appeal5 in the ;ormal "etter of 2emand with !ssessment 1otices should be resolved in favor of petitioner, and not the respondent who caused the confusion# %o be clear, we are not disregarding the rules of procedure under .ection //0 of the 1*RC, as implemented by .ection A of 3*R Revenue Regulations 1o# @/-DD# *t is the ;ormal "etter of 2emand and !ssessment 1otice that must be administratively protested or disputed within AC days, and not the +!1# 1either are we deviating from our pronouncement in .t# .tephen:s Chinese &irl:s .chool v# Collector of *nternal Revenue, that the counting of the AC days within which to institute an appeal in the C%! commences from the date of receipt of the decision of the C*R on the disputed assessment, not from the date the assessment was issued# 9hat we are saying in this particular case is that, the ;ormal "etter of 2emand with !ssessment 1otices which was not administratively protested by the petitioner can be considered a final decision of the C*R appealable to the C%! because the words used, specifically the words 4final decision5 and 4appeal5, ta(en together led petitioner to believe that the ;ormal "etter of 2emand with !ssessment 1otices was in fact the final decision of the C*R on the letter-protest it filed and that the available remedy was to appeal the same to the C%!# TiuB 6rdinarily, we have to follow the steps in the assessment process with regard to the taxpayer!s remedies to give opportunity as well the administrative agency who is in charge of the matter, the #I?, so that all KA.s must be protested first before the I? or his subordinates. <ue to the tenor of the letter, which re-uired the taxpayer to ma5e an appeal rather than to protest or re-uest for reconsideration or reinvestigation against the assessment, it was natural for the taxpayer to elevate the case because when you say appeal, it e-uates to petitions for review before the "udicial courts. 4ou don!t appeal before the I?.
o o
If a decision is handed out, lets say the KA. was issued by the #I? of ebu. 4ou would!ve to reply in a form of protest addressed to the ?egional <irector 8?<9 of ebu, though you can say I?, AttentionB ?<. If the ?< issues a decision denying your protest within the $C/+day period, what is your remedy? o o *otion for ?econsideration before the ?< If denied, what!s next? an you not directly appeal the decision of denial issued by the ?< to the TA? Is the right to decide disputed assessments a non+delegable power of the I?? <oes it come within the "urisdiction already of the TA? 6r what is within the "urisdiction of the TA ( decision alone of the I? or does it include decision of the ?<s as well? .6, it!s not a non+delegable power. It!s a delegable power of the I? so that the taxpayer can directly appeal the decision of denial issued by the ?< to the TA within 1/ days from receipt of such decision. If you loo5 at the law expanding "urisdiction of the TA, you would see there that what is within the "urisdiction of the TA are disputed assessments decided by the I?. #ut since this is not a non+delegable power, wherein protested assessments can be decided by the
I?!s subordinates, but not lower than the ?<, a decision of the ?<, which is final in nature, can be sub"ect to appeal before the TA. #uy you have to be very careful. <ecisions of the ?<, which you, as a taxpayer, have elevated to the I? for the I?!s final decision, meaning to say, you have exhausted all the remedies within the administrative agency. The point is if you yourself -uestion still the decision of the ?< before the I?, it!s not considered final, you cannot elevate the case to the TA, because it!s pending review by the I?. #ut if you consider the decision of the ?< after as5ing for a motion for reconsideration, still was denied, final, you may opt to bring the matter directly to the TA. It!s already provided in the ?evenue ?egulations. #ut you use all your efforts during the administrative stage. If you can avoid the #I? issuing the KA., then do so, with all negotiations during the earlier stages of informal conference, post+reporting notice or 'A., because once it comes to the point of KA., you!re strictly guided by dates and if you missed out on a date, you lose your right. The KA., whatever figure it has, the tax becomes demandable. If you file an invalid protest. 4ou file a protest out of time, etc.. 2o avoid KA.. #ut if you can!t help avoiding KA., avoid the "udicial courts because it would ta5e a very long process and it would be very costly since TA is in *anila alone. 2o as5 for motion for reconsideration before the I? or the ?<. It!s allowed. I?
'FI@A* '@A.2 V2 o
The taxpayer here availed of the benefit of elevating the case before the TA within 1/ days after the $C/+day inaction. 2o after the ?2< were submitted on .ov. 1, the taxpayer has until *ay $ to consider W6. a decision is coming out. That!s the $C/ days from submission of ?2< until *ay $. 6n *ay $, it!s considered the end of the inaction period, the taxpayer is given 1/ days, if he decides to ta5e the option, to appeal the case before the TA. 2o on *ay %), he filed, %7 days after the inaction period, an appeal before the TA. A month later, a decision of denial came out. 2o what will happen to the decision of denial and the "urisdiction of the TA? Considering that the +etition for Review filed by petitioner that -uestioned the assessment made by the respondent was filed on ay /H, /CCE and the Revised Rules of the Court of %a' !ppeals too( effect only on 2ecember @H, /CCH, applicable here is the correct interpretation of the last paragraph of .ection //0 of the @DDK 1ational *nternal Revenue Code (<1*RC<) or Republic !ct 1o# 0E/E, as amended, which too( effect on 7anuary @, @DD0, -uoted hereunder for easy reference$ <.EC# //0# +rotesting of !ssessment# M ''' ''' ''' *f the protest is denied in whole or in part, or is not acted upon within one hundred eighty (@0C) days from submission of documents, the ta'payer adversely affected by the decision or inaction may appeal to the Court of %a' !ppeals within thirty (AC) days from receipt of the said decision, or from the lapse of the one hundred eighty (@0C)-day period8 otherwise, the decision shall become final, e'ecutory and demandable#< %he last paragraph of .ection //0 of the @DDK 1*RC depicts two options that a ta'payer may do in order to protect its rights by virtue of the way the word <or< was used# %he word <or< is defined as a dis6unctive particle that mar(s an alternative generally corresponding to <either,< as <either this or that#< *n the case of +hilippine 3an(ing Corporation vs# Commissioner of *nternal Revenue, this Court has already ruled that under .ection //0 of the @DDK 1*RC, a ta'payer has two options$ first, if the protest remained not acted upon by the Commissioner within one hundred eighty (@0C) days from submission of documents in support of the protest, he may appeal to this Court within thirty (AC) days from the lapse thereof8 or second, he may wait until the Commissioner decides on his protest before elevating his case before this Court#
*t is li(ewise important to note that even before the implementation of the Revised Rules of the Court of %a' !ppeals, that too( effect on 2ecember @H, /CCH, the tenet about the ta'payer=s two options were already e'isting by virtue of the afore-uoted last paragraph of .ection //0 of the @DDK 1*RC# *n the case at bar, petitioner, by filing its +etition for Review on ay /H, /CCE, evidently chose the first option# %he petitioner cannot argue that respondent cannot anymore issue his ;22! after petitioner has already filed its +etition for Review before this Court because it is clear under .ection //0 of the @DDK 1*RC that respondent still has the authority to do so# 9hat if the belatedly issued ;22! was favorable to the petitionerL 9ould petitioner still file the present < otion to Resolve *ssue of 7urisdiction<L *n view of this, 9e are constrained to reiterate the Court=s ruling in the case of "ascona "and Co#, *nc# vs# Commissioner of *nternal Revenue, @0 upon which the ruling in the above-mentioned case of +hilippine 3an(ing Corporation vs# Commissioner of *nternal Revenue was based, to -uote$ <Verily, in cases of inaction, .ection //0 of the %a' Code merely gave the ta'payer an option$ first, he may appeal to the Court of %a' !ppeals within thirty (AC) days from the lapse of the one hundred eighty (@0C) day period provided for under the said section, or second, he may wait until the Commissioner decides on his protest before he elevates his case# %his Court believes that the ta'payer was given this option so that in case his protest is not acted upon within the @0C-day period, he may be able to see( immediate relief and need not wait for a positive action on the part of the Commissioner, then the same could not result in the assessment becoming final, e'ecutory and demandable#<
Clearly, by virtue of the last paragraph of .ection //0 of the @DDK 1*RC, respondent still has the authority to issue the ;22! despite petitioner=s filing of its +etition for Review before this Court# *t should be emphasi,ed that this does not necessarily mean that the ;22! issued by the respondent after an appeal for his inaction has already been filed will prevail over the findings of this Court, because if it is offered or presented by respondent, the ;22! is still sub6ect to this Court=s final evaluation of the facts and the laws applicable to the case# TiuB It does not mean that once, dba you!re given % optionsB appeal within 1/ days after the inaction period of $C/ or wait for the decision lng, whether it comes out sooner or later. If you ta5e the $st option in order to shorten the period, wherein your liability is to be determined pa, it does not mean that you shut out the #I? from issuing a decision to your protest. The #I? can still issue the decision to your protest, whether it!s denial or in agreement to your arguments, and it will simply be consolidated nalng with the appeal that you!ve made before the TA. 2till, the final determination of W6. the decision of the I? is proper belongs to the TA. 4ou don!t have to remove the TA of its "urisdiction or remove the #I? from any "urisdiction. #oth will have to be consolidated. When you elevate your case to the result to a "urisdiction of the TA. I? TA, it!s not necessary that there was a final decision of the I? because an inaction would also
? # o V2
;rom the date of petitioner:s filing of protest (7uly /C, /CC@) it had until .eptember @0, /CC@ to submit relevant documents and from .eptember @0, /CC@, the Commissioner had until arch @K, /CC/ to issue his decision# !s admitted by petitioner, the protest remained unacted by the Commissioner of *nternal Revenue# %herefore, it had until !pril @I, /CC/ within which to elevate the case to this court# %hus, when petitioner filed its +etition for Review on !pril AC, /CC/, the same is outside the thirty (AC) period#
;rom the foregoing, it is clear that the 6urisdiction of the Court of %a' !ppeals has been e'panded to include not only decisions or rulings but inaction as well of the Commissioner of *nternal Revenue# %he decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of %a' !ppeals with 6urisdiction to entertain the appeal, provided it is filed within AC days after the receipt of such decision or ruling, or within AC days after the e'piration of the @0C-day period fi'ed by law for the Commissioner to act on the disputed assessments# %his AC-day period within which to file an appeal is 6urisdictional and failure to comply therewith would bar the appeal and deprive the Court of %a' !ppeals of its 6urisdiction to entertain and determine the correctness of the assessments# .uch period is not merely directory but mandatory and it is beyond the power of the courts to e'tend the same# *n case the Commissioner failed to act on the disputed assessment within the @0C-day period from date of submission of documents, a ta'payer can either$ @) file a petition for review with the Court of %a' !ppeals within AC days after the e'piration of the @0C-day period8 or /) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of %a' !ppeals within AC days after receipt of a copy of such decision# )owever, these options are mutually e'clusive, and resort to one bars the application of the other# *n the instant case, the Commissioner failed to act on the disputed assessment within @0C days from date of submission of documents# %hus, petitioner opted to file a petition for review before the Court of %a' !ppeals# Bnfortunately, the petition for review was filed out of time, i#e#, it was filed more than AC days after the lapse of the @0C-day period# Conse-uently, it was dismissed by the Court of %a' !ppeals for late filing# +etitioner did not file a motion for reconsideration or ma(e an appeal8 hence, the disputed assessment became final, demandable and e'ecutory# 3ased on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner8 that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of %a' !ppeals# %his legal maneuver cannot be countenanced# !fter availing the first option, i#e#, filing a petition for review which was however filed out of time, petitioner can not successfully resort to the second option, i#e#, awaiting the final decision of the Commissioner and appealing the same to the Court of %a' !ppeals, on the prete't that there is yet no final decision on the disputed assessment because of the Commissioner:s inaction# TiuB In this case, the KA. had become final, executory and demandable for having appealed beyond the 1/+day period after the $C/+day inaction. an you cure the defect saying :I disregard my $st option. I will go for the %nd option, which is 1/ days after the denial;? .6, because both options are alternative remedies. 6nce you!ve ta5en the option of filing an appeal after the $C/+day inaction, you can no longer opt for the other one.
Assessment is different from collecting taxes. After the assessment process, you move on to collect, either in cash or property of the taxpayer. 6nce it reaches the level of TA, there is no inaction period for the TA. 4ou have to wait for the decision. o o o When you elevate a case to the the TA en banc. TA, this time, the denial of your protest or the inaction, you have to file it before the TA in division, not yet
If the TA in division in your favor, fine. If it decides against you or in denial of your petition, you have $) days to file a motion for reconsideration before the same TA in division. If it!s denied, elevate the case to the TA en banc, always. 4ou cannot directly file it before another court. After in division, then, en banc. And if
the TA en banc decides the case in your favor, case closed. If it!s not decided in your favor, elevate the case, no longer to the directly to the 2 because the TA is given already the e-uivalent ran5 of the A. +E*!-D -0 L!7!TAT!-# U+-# C-LLECT!-# Within how many years can the #I? proceed to collect the taxes? o o D?B Within ) years from the time assessment has been made When is assessment deemed made?
A, but rather
Krom the time the KA. is released, mailed or sent. 2o from that point forward, counting ) years, the #I? should be able to proceed with the process of collecting the tax, either, through summary remedies, "udicial remedies, unless of course, the period to collect is suspended. $. Within $/ years after the discovery of the falsity, fraud or omission .6TAB If no return is filed, it is imprescriptible. It becomes imprescriptible. 2o what is your solution to ma5e it prescriptible? Kile a return, otherwise, the government!s right to assess becomes perpetual.
What are the exceptions to the )+year rule?
%. Where there is a waiver of the statute of limitations 1. ?evised assessment of the government 8prescriptive period for the collection is counted from the last or revised assessment9 2imilarly, when the revised KA. is issued, then you start counting the second or the latest KA. when it was deemed made, meaning to say, the date when latest KA. has been mailed, released or sent. If the right to collect is anchored on the compromise agreement entered into by the taxpayer and the government, so what are the instances when the government and the taxpayer can enter into a compromise? o o $. A reasonable doubt as to the validity of the claim against the taxpayer exists ?easonable doubt as to the validity, you can lower it down to 7/& of the basic assessed tax Kinancial incapacity, to the extent of $/& of the basic assessed tax %. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax
7. Within $/ years from the time the right of action accrues if the action is brought to enforce a compromise
Whenever a bilateral agreement or compromise is entered into, it!s removed out from the rules of prescriptive period under the tax code. It becomes a normal written agreement and under the . , it would have a prescriptive period of $/ years. If the government fails to collect on a compromise agreement because the taxpayer breached its obligation under the
compromise agreement, the government is given actually $/ years within which to ma5e the collection or to enforce the compromise. o The right of the $/+year prescriptive period will run from the time that there is a breach of the compromise agreement. I@@J2T?ATI6.B If the tax authorities would directly proceed to collect taxes, without going through the process of assessment, within how many years should the collection be made? 2ay for example, directly file a case before the ?T for collection of taxes ( a civil case ( within how many years should the collection be made in the absence of an assessment? Denerally, the #I? is only given 1 years, whether to collect or to assess, because the taxpayer is only re-uired to 5eep its boo5s of accounts within 1 years from the date of the last entry but if it goes through the process of ma5ing an assessment within 1 years, the collection is moved not from the date of filing the return but rather, the collection of the assessed tax is rec5oned from the date the assessment is deemed made and until ) years thereafter. #ut if no assessment is made, it!s as if the 1+year period for assessment is substituted as the collection period because the #I? actually 5nows what to collect nah because it did not undergo the process of determining deficiency taxes.
Dovernment!s right to recover erroneously refunded tax o If it refunds taxes to the taxpayer, even if the taxpayer has not legal right to such refund, the government can collect within 1 years from the time it ma5es an assessment.
=>E# !S A TAX DEE7ED C-LLECTED When is a tax deemed collected? o $. Through summary remedies When you say summary remedies, how would the government enforce collection? o i. <istraint procedure o o <istraint of personal property
ii. @evy procedure levy of real property
%. Through "udicial remedies When can you consider that the tax authorities have begun action to collect the taxes? ollection of tax is begun by filing the complaint with the proper court. Fowever, this only applies if the tax authorities institute an action before the court. If it files an action for collection for a sum of money or a tax civil liability, then it!s already an action for collection.
What if it!s the taxpayer who institutes an action? When is the tax authorities deemed to have made its collection? When is the I? or his subordinates considered to have instituted collection in cases where it does not ma5e the first step before the "udicial courts? o o ollection of tax is considered begun when the government files it answer to the taxpayer!s petition for review. When the government answers for petition for review filed by the taxpayer, it is considered already as instituting the collection process, then, still between the )+year prescriptive period, the right to collect has not prescribed.
an the taxpayer en"oin the collection of taxes? o o D?B .6, because otherwise, it will hamper the operations of the government to meet the basic needs of its constituents 8lifeblood doctrine9 AxceptionB 2uspension is allowed when the following conditions concur ( o o $. Issued only by the TA %. Issued only by the TA in its appellate "urisdiction 1. If the TA determine that it will "eopardi=e the interest of the taxpayer or the government with the re-uirement of filing a bond issue an in"unction in the collection of taxes? .6. It!s only the TA. .6. It can only issue in"unction if it!s in the exercise of its appellate "urisdiction. Taxes can be en"oined only by the en"oin. TA when it is exercising its appellate "urisdiction. At first instance, original "urisdiction, it cannot TA of a tax collection case that is with the ?T . It must be within the "urisdiction
an the ?T
an the TA, at first instance, issue an in"unction?
4ou cannot directly file an in"unction case before the of the TA.
If it determines that it will "eopardi=e the interest of either the government or the taxpayer, with the re-uirement of filing of a bond.
SUS+E#S!-# -0 T>E *U##!#: -0 T>E STATUTE -0 L!7!TAT!-#S 0-* 7AA!#: TAX C-LLECT!-#S The same with assessment, except that you might want to add that in collection, the period is suspended whenB o o $. The I? is prohibited from beginning or commencing the distraint or levy procedure in court and for ,/ days thereafterI %. When a warrant of distraint or levy has already been served but no properties can be located.
AD7!#!ST*AT!VE *E7ED!ES A0TE* +A?7E#T What is the difference between claiming for a tax refund and claiming for a tax credit? o Tax refund ta5es place when there is actual reimbursement while tax credit ta5es place upon the issuance of a tax certificate or tax credit memo, which can be applied against any sum that may be due and collected from the taxpayer. The restitution of the money or the tax that you!ve actually paid to the government It!s merely a tax certificate. And what do you do with the tax certificate? 4ou apply it against your other existing tax liabilities, such as? 2ay for example, you!re granted a tax credit for overpayment of income taxes. an it be applied against real property taxes? Would you apply a tax credit certificate granted by the #I? to offset or pay+off liabilities with another agency, the #6 or the @DJs? .6. 2o, it can be applied to any existing tax liabilities before the #I? only because it!s the #I? which granted you the tax credit certificate. .6, because there are % separate taxpayers in this case. Withholding taxes are not the liability of the withholding agent. It!s the tax of the persons against whom you withheld the taxes, such as employees. Income tax Vat 6ther national internal revenue taxes
If you!re granted a refund, what do you expect from the government? o o o And if it!s a tax credit that is granted, what can you receive from the government?
an you apply a tax credit against a withholding tax on the salaries of your employees or on your payments for rents, etc?
Axample of tax a credit certificate can be offsetted againstB
January 20, 2011 Thursday AD7!#!ST*AT!VE *E7ED? A0TE* +A?7E#T What is the difference between a claim for refund and a claim for tax credit?
o o
Tax refund ta5es place when there is actual reimbursement while tax credit ta5es place upon the issuance of a tax certificate or tax credit memo, which can be applied against any sum that may be due and collected from the taxpayer. A claim for refund is when you apply for a claim that your tax payments will be given bac5 to you or restituted. 6n the other hand, if you file a claim for tax credit, although it has the same basis, what will be given you is not the actual cash or money that you!ve paid as tax payments but you!ll be given a certificate evidencing that you!ve made overpayments and such overpayments in the credit certificate can be used to pay+off other existing tax liabilities with the same agency that issued the tax credit certificate. Fow different is being given a tax credit certificate from carry+over? When you carry+over, dba you can offset it against your future tax liabilities. #ut the basic difference there is that when you carry+over, dba, you have % optionsB whenever you have excess tax payments ( either you file a claim for refund or carry it over. And the options are alternative in nature. 4ou can!t apply for both. If you go for refund or tax credit, you cannot carry+over. If you carry+over, you cannot file a refund or tax credit. If you!re given a tax credit, because in most cases, the government will not refund you with actual money or cash. All it can give you is a certificate evidencing overpayment and that certificate will be converted to a tax debit memo and the tax debit memo will be used to pay+off existing tax liabilities. What!s the difference between carry+over? Ang carry+over, you don!t need to go through the process of applying for a claim for tax credit certificate. And it!s offsetting against future tax liabilities would be concentrated on the same tax liability. arry+over to the same tax liability ( income tax against income tax. #ut if you overpay and you apply for a tax credit certificate and you!re given a tax credit certificate, you can use to pay+off percentages taxes, documentary stamp taxes, other taxes found under the .I? , so long as it!s not a tax of somebody else, li5e withholding taxes, dba. 4ou cannot pay tax credit certificate against a withholding tax because withholding tax liability is a liability of another person. Jnli5e if you!re given cash as refund nah, you can use that to pay+off all 5inds of tax payments even if it!s a tax payment to other agencies.
What is your basis for filing a claim for refund? an anybody "ust file a claim for refund? o .6. 4ou can only file a claim for refund or for tax credit if you have made actual payments of taxes. That is the first thing that you!ve to be establish. And the payments were made under mista5e of facts, such as that you thought that you were not exempt but under a certain law, you could have been exempted. It!s an erroneous payment, an excessive payment of taxes, illegal payment, wrongful collection by the tax authorities and others so long as it can be established that actual cash went to the government. 2o when can claim for refund or tax credit be filed? $. When the tax has been erroneously or illegally assessed or collected %. When any penalty is claimed to have been collected without authority 1. When any sum is alleged to have been excessively or in any manner wrongfully collected
o o
7. When internal revenue stamps are returned in good condition by the purchaser 8value is refunded9 ). In the ommissioner!s discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction Avery claim for refund will be ta5en into consideration, strictly construed. 4ou should be able to establish your claim for filing a refund that you!ve made overpayments, excess payments, erroneous payments, or wrongful payments. In this case, there was a claim for refund that was filed. The problem was that the amount that has been claimed for refund belongs to a certain taxable year that is sub"ect as well of an assessment. 2o since there is still a -uestion as to whether the income taxes that you have paid for a particular year is valid or not, it cannot be ripe for determination that you would be granted for a refund even if it!s really there was overpayment because there is still a -uestion as to the validity of the return that you!ve filed. The 2 said that so long as you have filed a claim for refund within the prescriptive period, there!s no worry, automatic grant. In this case, cannot be made because it!s sub"ect to a deficiency income tax assessment. The 2 said that if a refund is granted and the assessment has not yet been fully determined or finali=ed, it may happen that the government may have wrongfully granted the government and it would be a tedious process to see5 the collection of the tax that has been refunded and also to avoid multiplicity of suits. The granting of the refund has to wait for the settlement of the assessment. #ut if you!re considering a refund of an amount that is sub"ect to assessment, you can do so, comply lng with the prescriptive period so as not to bar you from ma5ing a refund later on made out of time.
I? V2 A@@TA@ I.TA?.ATI6.A@
Denerally, who can file a claim for refund is the person who actually made the payment of tax that is his tax burden. #ut these % cases do not come within the normal process of a taxpayer filing a claim for refund, li5e for exampleB o I? V2 '?6 TA? A.< DA*#@A TiuB It has long been a standing case with the 2 saying that '3D, as the 'hilippine domestic corporation, paying to its parent company abroad, acts only as a withholding agent and if the payment is found out to have been overpayments, '3D 'hilippines cannot file a claim for refund because the liability is not that of the '3D 'hils. as withholding agent but the tax burden actually falls on '3D parent company in the J.2. 2o in the first initial cases, '3D has not been considered as the proper party to file a claim for refund in behalf of its parent company. #ut throughout motions for reconsideration, the 2 reali=ed in a later case and it granted the withholding agent the right to file a claim for refund for overpayments of taxes in behalf of its parent company abroad. #ut what is peculiar here is it!s not the withholding agent between % domestic corporations, 'hil. corporations and a certain Kilipino individual as employee. What is covered here in this case, it!s a withholding agent as a domestic corporation and the real income earner is a .?K . 2o subse-uently, even '3D has been granted a right to file a claim for refund. Why did the 2 allow '3D, only as a withholding agent, not the real income earner, why was it allowed to claim for refund in behalf of its parent company? %he -uestion of the capacity of +O&-+hil# to bring the claim for refund has substantive dimensions as well which, as will be seen below, also ultimately relate to fairness#
Bnder .ection ACI of the 1*RC, a claim for refund or ta' credit filed with the Commissioner of *nternal Revenue is essential for maintenance of a suit for recovery of ta'es allegedly erroneously or illegally assessed or collected$ o .ec# ACI# Recovery of ta' erroneously or illegally collected# M 1o suit or proceeding shall be maintained in any court for the recovery of any national internal revenue ta' hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been e'cessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner of *nternal Revenue8 but such suit or proceeding may be maintained, whether or not such ta', penalty, or sum has been paid under protest or duress# *n any case, no such suit or proceeding shall be begun after the e'piration of two years from the date of payment of the ta' or penalty regardless of any supervening cause that may arise after payment$ # # # (Emphasis supplied) .ec# ACD# !uthority of Commissioner to %a(e Compromises and to Refund %a'es#M%he Commissioner may$ ''' ''' ''' (A) credit or refund ta'es erroneously or illegally received, # # # 1o credit or refund of ta'es or penalties shall be allowed unless the ta'payer files in writing with the Commissioner a claim for credit or refund within two (/) years after the payment of the ta' or penalty# (!s amended by +#2# 1o# ID) (Emphasis supplied)
.ection ACD (A) of the 1*RC, in turn, provides$ o
.ince the claim for refund was filed by +O&-+hil#, the -uestion which arises is$ is +O&-+hil# a <ta'payer< under .ection ACD (A) of the 1*RCL %he term <ta'payer< is defined in our 1*RC as referring to <any person sub6ect to ta' imposed by the %itle >on %a' on *ncome?#< *t thus becomes important to note that under .ection HA (c) of the 1*RC, the withholding agent who is <re-uired to deduct and withhold any ta'< is made < personally liable for such ta'< and indeed is indemnified against any claims and demands which the stoc(holder might wish to ma(e in -uestioning the amount of payments effected by the withholding agent in accordance with the provisions of the 1*RC# %he withholding agent, +O&-+hil#, is directly and independently liable for the correct amount of the ta' that should be withheld from the dividend remittances# %he withholding agent is, moreover, sub6ect to and liable for deficiency assessments, surcharges and penalties should the amount of the ta' withheld be finally found to be less than the amount that should have been withheld under law# ! <person liable for ta'< has been held to be a <person sub6ect to ta'< and properly considered a <ta'payer#< %he terms liable for ta'< and <sub6ect to ta'< both connote legal obligation or duty to pay a ta'# *t is very difficult, indeed conceptually impossible, to consider a person who is statutorily made <liable for ta'< as not <sub6ect to ta'#< 3y any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of ta'es he believes were illegally collected from him# *n +hilippine &uaranty Company, *nc# v# Commissioner of *nternal Revenue, this Court pointed out that a withholding agent is in fact the agent both of the government and of the ta'payer, and that the withholding agent is not an ordinary government agent$ o %he law sets no condition for the personal liability of the withholding agent to attach# %he reason is to compel the withholding agent to withhold the ta' under all circumstances# *n effect, the responsibility for the collection of the ta' as well as the payment thereof is concentrated upon the person over whom the &overnment has 6urisdiction# %hus, the
withholding agent is constituted the agent of both the &overnment and the ta'payer# 9ith respect to the collection andFor withholding of the ta', he is the &overnment=s agent# *n regard to the filing of the necessary income ta' return and the payment of the ta' to the &overnment, he is the agent of the ta'payer# %he withholding agent, therefore, is no ordinary government agent especially because under .ection HA (c) he is held personally liable for the ta' he is duty bound to withhold8 whereas the Commissioner and his deputies are not made liable by law# (Emphasis supplied) *f, as pointed out in +hilippine &uaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income ta' return and with respect to actual payment of the ta' to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim# %his implied authority is especially warranted where, is in the instant case, the withholding agent is the wholly owned subsidiary of the parent-stoc(holder and therefore, at all times, under the effective control of such parent-stoc(holder# *n the circumstances of this case, it seems particularly unreal to deny the implied authority of +O&-+hil# to claim a refund and to commence an action for such refund# 9e believe that, even now, there is nothing to preclude the 3*R from re-uiring +O&-+hil# to show some written or tele'ed confirmation by +O&-B.! of the subsidiary=s authority to claim the refund or ta' credit and to remit the proceeds of the refund#, or to apply the ta' credit to some +hilippine ta' obligation of, +O&-B.!, before actual payment of the refund or issuance of a ta' credit certificate# 9hat appears to be vitiated by basic unfairness is petitioner=s position that, although +O&-+hil# is directly and personally liable to the &overnment for the ta'es and any deficiency assessments to be collected, the &overnment is not legally liable for a refund simply because it did not demand a written confirmation of +O&-+hil#=s implied authority from the very beginning# ! sovereign government should act honorably and fairly at all times, even vis-a-vis ta'payers# 9e believe and so hold that, under the circumstances of this case, +O&-+hil# is properly regarded as a <ta'payer< within the meaning of .ection ACD, 1*RC, and as impliedly authori,ed to file the claim for refund and the suit to recover such claim#
TiuB The 2 said that withholding agent, being the one personally liable or it!s a personal liability of the withholding agent in case of non+ withholding, it!s "ust but proper to allow it to file a claim for refund. And another thing, the .?K , who has excessively paid the tax, through the withholding agent, does not have a legal standing to file a claim for refund in the 'hils. It is not established to do business in the 'hils. And the .?K should be able to establish that you!re operational in the 'hils. to file a claim that is favorable to you.
2I@0AI? V2 I? In this case, it!s about the excise tax payments of 2il5air, although 2il5air is not a domestic corporation. It!s a foreign corporation but it operates ebu+2ingapore and <avao+2ingapore flights. Along the way, it purchased fuel from 'etron and accordingly it was granted =ero+rating ( sales of fuel to those engaged in international air transportations, etc> may be granted =ero+rating. And in fact, its exemption is pursuant to a treaty agreement. #ut then, 'etron, notwithstanding the =ero+rating, passed on excise taxes to 2il5air, to which 2il5air actually paid on top of the cost of the fuel.
When it reali=es overpayments, it filed a claim for refund. Puestion as to whether it was able to establish that it indeed operated during those years covered by its claim for refund, it was not able to establish such fact. And number %, the payments made by 2il5air were not really taxes. When excise tax was paid by 2il5air, it was not in the form of tax. It form part of the purchase price of the fuel so in the hands of 2il5air, it!s no longer a tax but rather a purchase price or the cost of the fuel and 'etron is still considered and recogni=ed by law as the one who is liable for the taxes. 2o if ever, as between the % parties, if ever there!s one who is a proper party to file a claim for refund, it!s not 2il5air but it should be 'etron.
What are the re-uisites to ma5e a valid claim for refund? o $. A written claim for refund or credit must be filed with the I? 2hould all claims for refund be preceded by a written claim? D?B 4A2. AxceptionsB o o o o $. Where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously made %. Within 1/ days after receipt of the adverse decision or inaction of the TA I?, and the taxpayer filed an appeal before the
%. The claim for refund must be a categorical demand for reimbursement of money or granting of tax credit certificate 1. It must be filed within % years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. an the %+year prescriptive period be suspended? ?emember that the %+year prescriptive period is in favor of the taxpayer. D?B .6, because the law provides :regardless of any supervening cause; Axception ( if the following conditions concur 8arose from a case9B o o $. There is a pending litigation between the government and the taxpayer as to the proper tax to be paid and of the proper interpretation of the taxpayer!s charter in relation to the disputed taxI and %. The I? in that disputed case agreed to abide by the decision of the 2 even if it!s beyond the %+year prescriptive period. as to the collection of the tax relative thereto,
If claim for refund is denied by the I?, you can appeal to the TA within 1/ days from receipt of such decision. o I@@J2T?ATI6.B Kiled IT? for %//H year on April $), %//C and paid the tax. 4ou have until April $), %/$/ to file a claim for refund. If you file the claim for refund on April $, %/$/ and the decision comes out denying your claim for refund on April %G, %/$/, what is your remedy?
The taxpayer must file a claim before the TA before the %+year period lapses, in this case, before April $), %/$/, otherwise he may no longer file a claim before the TA in case the I? render an adverse decision beyond the %+year period. .6TAB #6TF the written claim and the appeal to the TA must be filed within the %+year prescriptive period. This means that both administrative and "udicial claim for refund must be filed within the %+year prescriptive period. 2o, what should the taxpayer do if his claim for refund is denied or is not acted upon by the I?? 2ituation $B The I? denies the claim for refund ( the taxpayer may appeal to the I?!s decision and within % years from the date of payment TA within 1/ days from the receipt of the
2ituation %B The I? does not act on the claim, and the %+year period is about to lapse ( the taxpayer must file a claim before the TA before the %+year period lapses, otherwise he may no longer file a claim before the TA in case the I? render an adverse decision beyond the %+year period.
an you directly file a claim for refund to the TA? o o .6. 4ou must be able to prove that you have actually exhausted administrative remedies to allow the tax authorities to determine at first instance whether indeed you should be allowed the refund or the tax credit certificate. TA would not be receiving your petition for review without proof that you!ve file an administrative claim for refund. 2o if you!re ma5ing it on the same day, ma5e sure you go first before the #I? to file the claim, then file a claim before the TA.
.6TAB The %+year prescriptive period cannot be applied in case of advance payments, which are not erroneous payment, not an excessive payment, not a wrongful collection or illegal collection. o onsidering that the advance payment is not an erroneous payment, not an excessive payment, not a wrongful collection, not illegal collection, it does not come within the ambit of filing a claim for refund that is covered by the %+year prescriptive period. It!s simply an agreement between % parties and if ever it!s a written agreement, the taxpayer can get bac5 the money either in a form of refund or tax credit certificate under the ivil ode prescriptive period. 2o if written ( $/ years or if oral ( % years. 2pecial re-uirements for filing a claim of refund or credit for creditable withholding taxesB $. That the claim for refund was filed within the two 8%9 year period as prescribed under 2ection %1/ of the .ational Internal ?evenue odeI %. That the income upon which the taxes were withheld were included in the return of the recipientI 1. That the fact of withholding is established by a copy of a statement 8#I? Korm $H71.$9 duly issued by the payor 8withholding agent9 to the payee, showing the amount paid and the amount of tax withheld therefrom. onse-uently, not entitled to a refund or credit of creditable
I? V2 'A?KB o
I? V2 KA?AA2T #A.0B o .ot entitled to refund because no sales from lease, therefore, no tax withheld.
withholding taxes. I? V2 '?I*AT6W. o <on!t consider the additional day during leap year in counting the %+year prescriptive period

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VALUE-ADDED TAX (Sections 105 115 of the Tax Code, as amended !

Taxation Transcription. Midterms 2011.by USC Law EH 40 C!ass 2012

- S#ippin7 8esse!s 8(T9

W6J@< TFA TW6 2J#2APJA.T 2A@A 2J#NA T T6 VAT?

.on+life Insurance companies? Kire insurance? Kidelity insurance?

urrency <enominated 2ales

What is a foreign currency denominated sale?

What is an automobile? Truc5s have 7 wheels.

What other sale of services are =ero+rated?

X" T*A#SACT!-#S EXE7+T 0*-7 VAT AOA*'T 2A@A

o )#at is t#e di::erence between an exempt sa!e and a ;ero-rated sa!e9

o AOA*'T T?A.2A TI6.2 o

What are the simple processes allowed by the authorities? o o o o o o

<ried mangoes, vatable or not?

December 15, 2010

*ust they be brought in by citi=ens of the 'hilippines? .6.

o 2o bottomline, A@@ cooperatives.

()y* +ot in t)e ordinary co&rse of ,&siness

#0-000 x #3 1 #30-000/ mo #30-000 x #2mos' 1 P#-5 0-000

5 .esidential /nits 0xempt 20-000 x 5 1 #00-000 / mo #00-000 x #2 mos'1 P)p #-200-000

7%" . (1st 'hp %/,/// per unit ) ?esidential Jnits Axempt

C 'hp $/,/// per unit $1 ommercial Jnits Vatable

7%" . (,nd 'hp %/,/// per unit ) ommercial Jnits Vatable

Would the government withhold the entire vat on the transaction?

!o2t ' 3&pplies 4 "AT #-000-000 #20-000 #-#20-000

50-000 BI. remitted 65% "AT7

Why is it sub"ect to this 5ind of mechanism, the creditable withholding?

What percentage of vat is re-uired to be withheld from the non+resident person?

#ut is it a loss to the domestic corporation or resident payor?

2o does D? include constructive receipt?

1. Importation of goods ( @anded

What consists of the @ ?

%. Transitional input tax 1. 'resumptive input tax 7. reditable withholding vat

Who is allowed to claim or recogni=e presumptive input tax?

The re-uisites areB

+U*C>ASE -0 :--DS +A?7E#T

Nanuary $, %/$$ April $, %/$$

AD7!#!ST*AT!VE 7ATTE*S Kiling of vat return

7. Fe is to pay a surcharge of )/&.

Taxation Transcription. Midterms 2011.by USC Law EH 40 C!ass 2012

I?, can actually

,. In-uire into ban5 deposits

4A2, but not all of the general powers.

What are the grounds for entering into compromise?

Would estoppel run against the government? vs. A.

riminal action a. Kiling of criminal complaint against erring #I? officials

Is a @6A the same as the @etter .otice 8@.9? o o

What is a @.? What is the purpose of the @.? o

January 12, 2011

TAX ASSESS7E#TS .? T>E .!*

Is a 'A. necessary at all times? o o

?elevant 2upporting <ocuments 8?2<9 o I? V2 KI?2T AO'?A22 'AW.2F6' 6*'A.4

,. It must be made within the prescriptive period.

%. Kiling a ?e-uest for ?einvestigation

When should you ma5e the protest?

After filing the protest, what are your other obligations?

Taxation Transcription. Midterms 2011.by USC Law EH 40 C!ass 2012

%he case is an e'ception to the rule on e'haustion of administrative remedies

What are the exceptions to the )+year rule?

ii. @evy procedure levy of real property

an the TA, at first instance, issue an in"unction?

Taxation Transcription. Midterms 2011.by USC Law EH 40 C!ass 2012

Axample of tax a credit certificate can be offsetted againstB

.ection ACD (A) of the 1*RC, in turn, provides$ o

X" TA#SACT!-#S EXE7+T 0-7 VAT AOA*'T 2A@A

()y* +ot in t)e ordinary co&rse of ,&siness

5 .esidential /nits 0xempt 20-000 x 5 1 #00-000 / mo #00-000 x #2 mos'1 P)p #-200-000

!o2t ' 3&pplies 4 "AT #-000-000 #20-000 #-#20-000

50-000 BI. remitted 65% "AT7

AD7!#!STAT!VE 7ATTES Kiling of vat return