Taxation law

INCOME TAX

--Atty. Vic C. Mamalateo-income payee, and pays the tax to the :I/. There is no 0ertificate of Tax ithheld issued to income payee. %o 0ertificate of Tax ithheld (:I/ 4orm -;6<) is attached to the income tax return of recipient of income because he does not claim any tax credit in his tax return.

Tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a persons income, emoluments, profits and the like (Fisher v. Trinidad). Income tax is a direct tax on actual or presumed income (gross or net) of a taxpayer received, accrued or realized during the taxable year. IT!!"#$I%& T'( It is not an internal revenue tax but a mode of collecting income tax in advance on income of the recipient of income thru the payor of income. )%"T*+ ,ec. -., %I/0 enumerates various internal revenue taxes.1 There are - types of 2ithholding taxes, namely+ (.) final 2ithholding tax3 and (-) creditable 2ithholding tax. 4I%'# IT!!"#$I%& I%0"5* T'( 4 T 2ithheld by the payor of income (e.g., -67 4 T on interest income on bank deposits) represents 48## payment of income tax due on such income of the recipient. Income payee (or recipient of income) does not report income sub9ected to 4 T in his income tax return, although income is reflected in his audited financial statements for the year. !o2ever, he is not allo2ed to claim any tax credit on income sub9ected to 4 T. ithholding agent files the 2ithholding tax return, 2hich includes the 4 T deducted from the

I%0"5* T'( ,=,T*5, GLOBAL TAX SYSTEM 0ompensation income not sub9ect to 4 T :usiness and>or professional income 0apital gains not sub9ect to 4 T ?assive investment income not sub9ect to 4 T "ther income not sub9ect to 4 T SCHEDULAR TAX SYSTEM 0ompensation income sub9ect to 4 T (salary of ":8 expat) 0apital gains sub9ect to 4 T (real property in the ?hil and shares of domestic corporation) ?assive investment income sub9ect to 4 T (interest on bank deposit) "ther income sub9ect to 4 T (auto 2on on (mas raffle) The ?hilippines adopted the semi@global or semi@schedular tax system. *ither the global or schedular system, or both systems may apply to a taxpayer.

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Taxation law
--Atty. Vic C. Mamalateo-4"/58#' GLOBAL SYSTEM &ross sales>revenue #ess+ 0ost of sales>service &ross income Less: ed!"tions ?'* (for individual) %et taxable income 5ultiplied by applicable rate (graduated or flat) Income tax due #ess+ 0reditable :alance SCHEDULAR SYSTEM &ross selling price or fair market value, 2hichever is higher times applicable tax rate A Tax due (real property) &ross selling price less cost or ad9usted basis A 0apital gain times applicable tax rate A Tax due (shares of dom corp) &ross income times applicable rate A Tax due (passive inv income) %'T8/* "4 ',,*T ORDINARY ASSET CAPITAL ASSET Inventory if on hand at end of taxable year ,tock in trade held primarily for sale or for lease in the course of trade or business 'sset used in trade or business, sub9ect to depreciation T /eal property used in trade or business 'll other assets, 2hether or not used in trade or business, other than the above assets /*'# ?/"?*/T= T/'%,'0TI"%, ,ale of real property ho is sellerB ?erson engaged in real property business (dealer, developer, or lessor) ?erson not engaged in real property business %on@stock, non@ profit association (chamber of commerce, =50') %ature of propertyB "rdinary asset 0apital asset #ocation of propertyB ithin the ?hilippines "utside the ?hilippines ?rincipal residenceB =es C exempt, if conditions for exemption are satisfied by seller@individual %o C taxable 0onsiderationB 4ull consideration or fair market value InadeDuate consideration

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Taxation law
--Atty. Vic C. Mamalateo-EI%$, "4 T'(?'=*/, I%$IFI$8'# 0ITIG*% /esident C Taxable on worldwide in o!e %on@resident C Taxable on income from sources 2ithin the ?hil Immigrant or permanent 2orker C %/0 from date of departure from the ?hil "4 (seamen) C %/0 if his aggregate stay outside the ?hil is more than .H; days '#I*% C Taxable on income from sources 2ithin the ?hil /esident %on@resident *ngaged in trade or business (more than .H6 days in the ?hil) %ot engaged in trade or business (.H6 days or less stay in ?hil) 0"/?"/'TI"% $"5*,TI0 C Taxable on 2orld2ide income 4"/*I&% C Taxable on income from sources 2ithin the ?hil /esident (e.g., ?hil branch of foreign corporation) %on@resident T*,T 4"/ T'( ?8/?",*,+ #a2 of incorporation ?'/T%*/,!I?, T'(':#* ?artnerships, no matter ho2 created or organized, including 9oint ventures or consortiums *(*5?T &eneral professional partnership (&??), but partners are taxed on their share of partnership profits actually or constructively paid during the year Ioint venture or consortium undertaking construction activity or energy@related activities 2ith operating contract 2ith the government 'greement to manage and operate mine denominated as J?o2er of 'ttorneyK is in reality a partnership. ?hilex is a partner because it 2ould receive L67 of net profits as compensation under the agreement3 it does not appear that :aguio &old 2as unconditionally obligated to pay the advances3 it 2as unlikely for a business to lend hundreds of millions

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Taxation law
--Atty. Vic C. Mamalateo-2ithout security or collateral and 2ithout specific date 2hen advance shall be due and payable (Philex Mining Corp v. CI ! "##$). /*,I$*%T 4"/*I&% 0"/?, T'(':#* "rdinary branch of a foreign corporation in the ?hil (;67 of net taxable income from sources 2ithin the ?hil) ?*G'@ M ,:5'@registered branch are exempt from branch profit remittance tax /egional operating headDuarters (/"!N) C .67 of net taxable income from sources 2ithin the ?hil "ffshore banking unit (":8) and foreign currency deposit unit (40$8) )I%& :ank 5anila v. 0I/1 C .67 on gross interest income on foreign currency loans International carriers by air or 2ater C -.L7 of &ross ?hil :illings 4oreign contractor or sub@contractor engaged in petroleum operations in the ?hil C H7 of gross income *(*5?T /epresentative office /egional headDuarters (/!N) ,"8/0*, "4 I%0"5* In"ere#" C Interest from sources 2ithin ?hil and interest on bonds and obligations of residents, corporate or other2ise Di$idend C 4rom domestic corporation and from foreign corporation, unless less than L67 of gross income of foreign corporation for ; years prior to declaration of dividends 2as derived from sources 2ithin the ?hil3 hence, apply only ratio of ?hil@source income to gross income from all sources Ser$i e# C ?lace 2here services are performed, except in case of international air carrier and shipping lines 2hich are taxed at -.L7 on their &ross ?hil :illings. /evenues from trips originating from the ?hil are considered as income from sources 2ithin the ?hilippines, 2hile revenues from inbound trips are treated as income from sources outside the ?hilippines. Ren"al# and ro%al"ie# C #ocation or use of property or property right in ?hil Sale o& real 'ro'er"% C #ocated in the ?hilippines Sale o& 'er#onal 'ro'er"% C #ocated in the ?hilippines Gain &ro! #ale o& #(are# o& #"o )# o& a do!e#"i or'ora"ion is '# '=, treated as income from sources 2ithin the ?hilippines. O"(er in"an*ible 'ro'er"% C Mo%ilia se&''nt'r personam ( it )ollo*s domicile o) o*ner &/",, I%0"5* ,'#* "4 &""$, &ross ,ales #ess+ 0ost of ,ales+ :eg. Inventory # $!%"&ases

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Taxation law
Total a'aila(le )o% sale

--Atty. Vic C. Mamalateo-Endin* in'ento%+ period, 2hether as payment for services, interest or profit from investment. It covers gain derived from capital, from labor, or from both combined, including gain from sale or conversion of capital assets. 4:T is a tax on fringe benefits received by employees, although the tax is assumed by the employer@ payor of income. /eturn of capital is exempt from income tax (e.g., tax@free exchange of property). To be taxable, there must be income, gain or profit3 gain is received, accrued or realized during the year3 and it is not exempt from income tax under the 0onstitution, treaty or la2. 5ere increase in the value of property does not constitute taxable income. It is not yet realized during the year. Transfer of appreciated property to the employee for services rendered is taxable income. T*,T I% $*T*/5I%I%& I%0"5* /ealization test There must be separation from capital of something of exchangeable value (e.g., sale of asset) 0laim of right doctrine 0I/ v. Iavier, .PP ,0/' H-Q *conomic benefit test ,tock option given to the employee

Cost o) ,ales &ross income Times -7 50IT %"T*+ 50IT is no2 computed on Duarterly basis. If Duarterly 50IT O than /0IT, excess 50IT of prior year is not allo2ed. ,'#* "4 ,*/FI0*, &ross /evenue #ess+ 0ost of ,ervice consisting of all direct costs and expenses &ross income Times -7 50IT NOTE: MCIT is i-posed (e*innin* on t&e .t& taxa(le +ea% i--ediatel+ )ollowin* t&e +ea% in w&i"& t&e "o%p "o--en"ed (!s ope%ations (Sec 27(E)(1), NIRC) $a+ MCIT a)te% . +ea%s i--ediatel+ )ollowin* t&e +ea% (an/ "o--en"ed (!s ope%ations (Manila Bank v CIR, GR 168118, Aug 28, 2006) I%0"5* I%0"5* means cash or its eDuivalent coming to a person 2ithin a specified

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Taxation law
--Atty. Vic C. Mamalateo-?ayment of real property that has appreciated in value by employer to its employee Income from 2hatever source 'll income not expressly exempted from income, irrespective of voluntary or involuntary action of taxpayer in producing income %'T8/* "4 I%0"5* 0"5?*%,'TI"% I%0"5* *xistence of employer@employee relationship :8,I%*,, '%$>"/ ?/"4*,,I"%'# I%0"5* %" employer@employee relationship 0'?IT'# &'I% /eal property in the ?hil and shares of stock of domestic corporation "ther sources of capital gain ?',,IF* I%F*,T5*%T I%0"5* Interest, dividend, and royalty income :I/ cannot compute compounded interest on delay in payment of promissory notes in the absence of stipulation in contract (CI v. Isa%ela C'lt'ral Corp! + ,-"".,! Fe% ,"! "##-). "T!*/ I%0"5* ?rizes and 2innings 'll other income, gain or profit not covered by the above classes 0",T "/ '$I8,T*$ :',I, 4"/58#' 'mount realized>,elling price .66 #ess+ 0ost or ad9usted basis H6 &ain>(loss) from sale -6 J'mount realizedK shall be the sum of money received plus the fair market value of the property (other than money) received (,ec Q6', %I/0). :asis of property+ If acDuired by purchase, cost3 If acDuired by inheritance, 45F at date of acDuisition3 If acDuired by donation, basis in the hands of donor3 If acDuired for insufficient consideration, amount paid by transferee for the property (,ec Q6(:), %I/0). &/",, ?!I# :I##I%&, '. &?: applies on revenue from transport of passengers, cargoes or mail originating from the ?hilippines I%T*/%'TI"%'# 'I/ 0'//I*/ 4rom ?hil to foreign destination 0ontinuous and uninterrupted flight Transhipment of passenger in another country on another foreign

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Taxation law
--Atty. Vic C. Mamalateo-airline+ &?: tax applies only on aliDuot portion of revenue on ?hilippine leg (?hil to foreign country) 4rom foreign country to the ?hil This is treated as income from foreign sources3 hence, exempt from ?hil income tax I%T*/%'TI"%'# ,!I??I%& #I%* 4rom ?hil to final foreign destination is taxable 4rom foreign country to ?hil is exempt :. "/$I%'/= I%0"5* $emurrage fees (for late return of containers) are akin to rental income sub9ect to ordinary corporate income tax rate based on net taxable income from sources 2ithin the ?hilippines I%T*/*,T I%0"5* T=?*, "4 I%T*/*,T I%0"5* ,ub9ect to 4 T+ (a) Interest income of depositor on bank deposits, deposit substitutes, trust and other similar arrangements -67 4 T C peso deposit <.L7 4 T C foreign currency deposit 2ith ":8>40$8 (if depositor is resident) and exempt from tax, if depositor is a non@ resident (b) Interest income of ":8>40$8 on foreign currency loans to (.) residents C .67 of gross interest income3 or (-) non@ residents, ":8s, local commercial banks, including branches of foreign banks C exempt from all taxes. %"T sub9ect to 4 T but sub9ect to regular tax rates (L7@;-7, if individual3 ;67, if corporation)+ 'll other interest income or financing income *xempt income+ #ong@term deposit or investment by individuals Taxable income+ ?referential tax rate C ?re@ termination of long@term deposit by individual (-67+ .@ less than ; yrs3 .-7+ ; yrs@less than Q yrs3 L7+ Q yrs@less than L yrs)3 and interest on foreign loan /egular tax rate (;67) C 'll other cases $IFI$*%$ I%0"5*

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Taxation law
--Atty. Vic C. Mamalateo-/*N8I,IT*, 4"/ $IFI$*%$ $*0#'/'TI"% ?resence of retained earnings %o prohibition to declare dividend in loan agreement $eclaration of dividend by :oard of $irectors T=?*, "4 $IFI$*%$, Taxable 0ash dividend ?roperty dividend *xempt ,tock dividend (except 2hen there is change in proportionate interest among stockholders and there is subseDuent cancellation or redemption of shares declared as stock dividend) #iDuidating dividend C distribution of assets to stockholders Taxable on the part of stockholder under the global tax system $IFI$*%$ I%0"5* Inter@corporate dividend+ *xempt from tax 0orporation paying dividend+ $omestic corporation /ecipient of dividend+ 'nother domestic corporation or resident foreign corporation $ividend paid to non@resident foreign corporation 0orporation paying dividend+ $omestic corporation /ecipient of dividend 4oreign head office makes direct investment in ?hil company+ .L7 4 T ?hil branch of foreign corporation makes investment in ?hil company+ *xempt from income tax Tax@sparing provision If foreign country does not impose income tax on dividend paid by foreign corporation "T!*/ I%0"5* In o!e &ro! an% #o+r e w(a"e$er The 2ords Jincome from any source 2hateverK discloses a legislative policy to include all income not expressly exempted from the class of taxable income under our la2s (Madrigal vs. a))erty! s'pra/ Commissioner vs. 01AC). The 2ords Jincome from any source 2hateverK is broad enough to cover gains contemplated here. These 2ords disclose a legislative policy to include all income not expressly exempted 2ithin the class of taxable income under our la2s, irrespective of the voluntary or involuntary action of the taxpayer in producing the gains (+'tierre2 vs. Collector! CTA Case 34! A'g. .,! ,544). 'ny economic benefit to the employee 2hatever may have been the mode by 2hich

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Taxation law
--Atty. Vic C. Mamalateo-it is effected is taxable. Thus, in stock options, the difference bet2een the fair market value of the shares at the time the option is exercised and the option price constitutes additional compensation income to the employee (Commissioner vs. 6mith! ."7 8.6. ,--). *(0#8,I"%, #ife insurance proceeds 'mount received by insured as return of premium &ifts, beDuests and devises 0ompensation for in9uries or sickness Income exempt under treaty /etirement benefits, pensions, gratuities /.'. <RQ. (L yrs M R6 yrs) and /.'. QP.< (.6 yrs M L6 yrs) Interest income of employee trust fund or accredited retirement plan is exempt from 4 T (CI v. +C9 etirement Plan! "#- 6C A 7$-) 'mount received as a conseDuence of separation because of death, sickness (that *ill endanger li)e o) employee) or other physical disability or for any cause beyond the control of employee 5iscellaneous items Income of foreign government Income of government or its political subdivisions from any public utility or exercise of governmental function *(*5?T ',,"0I'TI"%, The phrase any of their activities conducted for profit does not qualify the word properties.@@ The phrase Jany of their activities conducted for profitK does not Dualify the 2ord Jproperties.K This makes income from the property of the organization taxable, regardless of ho2 that income is used C 2hether for profit or for lofty non@profit purposes. Thus, the income derived from rentals of real property o2ned by the =oung 5ens 0hristian 'ssociation of the ?hilippines, Inc. ,YMCA-, established as a 2elfare, education and charitable non@profit corporation, is sub9ect to income tax. The rental income cannot be exempted on the solitary but unconvincing ground that said income is not collected for profit but is merely incidental to its operation. The la2 does not make a distinction. here the la2 does not distinguish, neither should 2e distinguish. :ecause taxes are the lifeblood of the nation, the 0ourt has al2ays applied the doctrine of strict interpretation in construing tax exemptions. =50' is exempt from the payment of property taxes only but not income taxes because it is not an educational institution devoting its income solely for educational purposes. The term Jeducational institutionK has acDuired a 2ell@kno2n technical meaning. 8nder the *ducation 'ct of .PH-, such term refers to schools. The school system is synonymous 2ith formal education 2hich Jrefers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for 2hich certification is reDuired in order for the learner to progress through the grades or move to higher levels (Commissioner vs. Co'rt o) Appeals and :MCA o) the Phils.! +. . ;o. ,"7#7.! 1ct. ,7! ,55$).

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Taxation law
--Atty. Vic C. Mamalateo-$*$80TI"%, EI%$, "4 $*$80TI"%, Itemized $eductions "ptional ,tandard $eductions ,pecial $eductions IT*5IG*$ $*$80TI"%, :usiness expenses, incl. research and development Interests Taxes #osses :ad debts $epreciation $epletion 0haritable contributions 0ontributions to pension trust !ealth or hospitalization premium $*$80TI"%, :8,I%*,, *(?*%,*, .. The expense must be ordinary and necessary3 -. ?aid or incurred during the taxable year3 ;. In carrying on or 2hich are directly attributable to the develop@ ment, management, operation and>or conduct of the trade, business or exercise of profession3 '$F*/TI,I%& *(?*%,* 'n expense is JordinaryK 2hen it connotes a payment, 2hich is normal in relation to the business of the taxpayer and the surrounding circumstances. 'n expense is JnecessaryK 2here the expenditure is appropriate or helpful in the development of taxpayers business or that the same is proper for the purpose of realizing a profit or minimizing a loss. ?P.Q 5 paid in .PHL for advertising a product 2as staggering incurred to stim'late )'t're sales to Jcreate or maintain some form of good2ill for the taxpayers trade or business or for the industry or Q. ,upported by adeDuate invoices or receipts3 L. %ot contrary to la2, public policy or morals. "perating expenses of an illegal or Duestionable business are deductible, but expenses of an inherently illegal nature, such as bribery and protection payments, are not. R. The tax reDuired to be 2ithheld on the amount paid or payable is sho2n to have been paid to the :I/. 0"%F*%I*%0* "4 T!* *5?#"=*/ /8#*+ #iving Duarters or meals furnished to employee shall be added to compensation income sub9ect to tax. !o2ever, if such living Duarters or meals are furnished to an employee for the convenience of the employer, the value thereof need not be included as compensation (// -@HR M ;@PH)

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Taxation law
--Atty. Vic C. Mamalateo-profession of 2hich the taxpayer is a member.K J&ood2illK generally denotes the benefit arising from connection and reputation, and efforts to establish reputation are akin to acDuisition of capital assets. Therefore, expenses related thereto are not business expenses but capital expenditures (CI vs. +eneral Foods Phi.! + ;o. ,7.3-"! Apr. "7! "##.). ?/"4*,,I"%'# 4**, #egal and accountants fees for prior years 2ere not billed in corresponding years (.PHQ@.PHL). It 2as paid by taxpayer in succeeding year (.PHR) 2hen it 2as billed by the la2yer and accountant. Taxpayers uses accrual method of accounting. 'ccrual of income and expense is permitted 2hen the Jall e$en"# "e#"K has been met. This test reDuires (.) fixing a right to income or liability to pay, and (-) the availability of reasonably accurate determination of such income or liability. It does not, ho2ever, demand that the amount of income or liability be kno2n absolutely3 it only reDuires that a taxpayer has at its disposal the information necessary to compute the amount 2ith reasonable accuracy, 2hich implies something less than an exact or completely accurate amount. 5oreover, deduction takes the nature of tax exemption3 it must be construed strictly against the taxpayer (Commissioner vs. Isa%ela C'lt'ral Corporation! +. . ;o. ,-"".,! Fe%. ,"! "##-). #egal fees paid for defending title to property is a capital expenditure that should form part of the cost of the asset, but is recovered by 2ay of depreciation over the life of the asset. $*$80TI"%, INTEREST EXPENSE .. There must be a valid and existing indebtedness3 -. The indebtedness must be that of the taxpayer3 ;. The interest must be legally due and stipulated in 2riting3 Q. The interest expense must be paid or incurred during the taxable year3 L. The indebtedness must be connected 2ith the taxpayerSs trade, business or exercise of profession3 R. The interest payment arrangement must not be bet2een related taxpayers as mandated in ,ection ;Q(:)(-)(b), in relation to ,ection ;R(:), of the Tax 0ode3 <. The interest is not expressly disallo2ed by la2 to be deducted from the taxpayers gross income (e.g., interest on indebtedness to finance petroleum operations)3 and H. The amount of interest deducted from gross income does not exceed the limit set forth in the la2. In other 2ords, the taxpayers other2ise allo2able deduction for interest expense shall be reduced by forty@t2o percent (Q-7) of the interest income sub9ected to final tax beginning %ovember ., -66L under /.'. P;;<, and

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Taxation law
--Atty. Vic C. Mamalateo-that effective Ianuary ., -66P, the percentage shall be thirty@three percent (;;7) <6ec. .7(0)(,)! ;I C=. $*$80TI"%, TAXES .. ?ayments must be for taxes, national or local3 -. Taxes are imposed by la2 upon the taxpayer3 ;. Taxes must be paid or accrued during the taxable year in connection 2ith the taxpayers trade, business or profession3 and Q. Taxes are not specifically excluded by la2 from being deducted from the taxpayers gross income. ays to avoid double taxation+ tax credit or tax deduction 4oreign tax credit is deducted from ?hil income tax, but amount of tax credit is sub9ect to a maximum amount based on formula. Tax deduction is deducted from gross income, 2ithout any limitation. $*$80TI"%, LOSSES ( ev. egs. ;o. ,"--- and ev. egs. ;o. ,#--5) .. The loss must be that of the taxpayer3 -. The loss is actually sustained and charged off 2ithin the taxable year3 ;. The loss is evidenced by a closed and completed transaction3 Q. The loss is not claimed as a deduction for estate tax purposes3 L. The loss is not compensated for by insurance or other2ise3 R. In the case of an individual, the loss must be connected 2ith his trade, business or profession, or incurred in any transaction entered into for profit though not connected 2ith his trade, business or profession3 and <. In the case of casualty loss, it has been reported to the :I/ 2ithin forty@five days from date of occurrence of the loss. 0apital losses are deductible only to the extent of capital gains. ,ale of real property classified as capital asset located in the ?hil ,ale of shares of stocks of a domestic corporation ,ale of 9e2elry held for more than .- months $*$80TI"%, :'$ $*:T, .. There must be an existing indebtedness due to the taxpayer

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Taxation law
--Atty. Vic C. Mamalateo-2hich must be valid and legally demandable3 -. The same must be connected 2ith the taxpayerSs trade, business or practice of profession3 ;. The same must not be sustained in a transaction entered into bet2een related parties enumerated under ,ec. ;R(:) of the Tax 0ode of .PP<3 Q. The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year3 and L. The same must be actually ascertained to be 2orthless and uncollectible as of the end of the taxable year. $*$80TI"%, T'( :*%*4IT /8#* The taxpayer is obliged to declare as taxable income any subseDuent recovery of bad debts in the year they 2ere collected to the extent of the tax benefit en9oyed by the taxpayer 2hen the bad debts 2ere 2ritten off and claimed as deduction from gross income. It also applies to taxes previously deducted from gross income but 2hich 2ere subseDuently refunded or credited by the :I/. !e has to report income to the extent of the tax benefit derived in the year of deduction. $*$80TI"%, DEPRECIATION .. The allo2ance for depreciation must be reasonable; -. It must be for property arising out of its use in the trade or (!siness0 o% o!t o) its not (ein* !sed te-po%a%il+ d!%in* t&e +ea%; ;. It must be charged off during the taxable year from the taxpayers (oo/s o) a""o!nts1 Q. $epreciation shall be computed on the basis of historical cost or adjusted basis. While financial accounting allows computation based on appraised value, recovery of investment for tax purposes shall be limited to historical cost. $*$80TI"%, 0!'/IT':#* 0"%T/I:8TI"%, .. The charitable contribution must actually be paid or made to the ?hilippine government or any political subdivision thereof exclusively for public purposes, or any of the accredited domestic corporation or association specified in the Tax 0ode3 -. It must be made 2ithin the taxable year3 ;. It must not exceed .67 (individual) or L7 (corporation) of the taxpayers taxable income before charitable contributions

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Taxation law
--Atty. Vic C. Mamalateo-(2hether deductible in full or sub9ect to limitation)3 Q. It must be evidenced by adeDuate receipts or records3 and L. The amount of charitable contribution of property other than money shall be based on the acDuisition cost of said property (6ec. .7(>)! ;I C). The limitation is imposed to prevent abuse of donating paintings and other valuable properties and claiming excessive deductions therefrom. $*$80TI"%, D. O'"ional S"andard Ded+ "ion ?rivilege is available only to citizens or resident aliens as 2ell corporations sub9ect to the regular corporate income tax3 thus, non@resident aliens and non@resident foreign corporations are not entitled to claim the optional standard deduction. ,tandard deduction is optional3 i.e., unless taxpayer signifies in his>its return his>its intention to elect this deduction, he>it is considered as having availed of the itemized deductions3 ,uch election 2hen made by the Dualified taxpayer is irrevocable for the year in 2hich made3 ho2ever, he can change to itemized deductions in succeeding year(s)3 $*$80TI"%, 'mount of standard deduction is limited to Q67 of taxpayers gross sales or receipts (in the case of an individual) or gross income (in the case of a corporation). If the individual is on the accrual basis of accounting for his income and deductions, ",$ shall be based on the gross sales during the year. If he employs the cash basis of accounting, ",$ shall be based on his gross receipts during the year. It should be noted that cost of sales or cost of services shall not be allo2ed to be deducted from gross sales or receipts. ' general professional partnership (&??) may claim either the itemized deductions or in lieu thereof, the ",$ allo2ed to corporations in claiming the deductions in an amount not exceeding Q67 of its gross income. The net income determined by either the itemized deduction or ",$ from the &??s gross income is the distributable net income from 2hich the share of each share is to be ascertained. ?roof of actual expenses is not reDuired3 hence, he is not also reDuired to keep books of accounts and records 2ith respect to his deductions during the year.

?*/,"%'# *(*5?TI"%, /' HQ-Q+ Ian ., .PPH ,ingle and estate or trust C ?-6,666 !ead of family C ?-L,666 5arried C ?;-,666 4or each child, not to exceed Q C ?H,666 /' PL6Q+ Iuly R, -66P Individual, 2hether single, !"4, or married C ?L6,666 4or each child, not to exceed Q C ?-L,666 #a2 exempts income of minimum 2age earners and increases ",$ from .67 to Q67 of gross sales or receipts, for individuals, and of gross income, for corporations. ?*/,"%'# *(*5?TI"%, Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-S"a"+#/a"/"(e/end/o&/"(e/%ear r+le J,tatus@at@the@end@of@the@year ruleK 2hich means that 2hatever is the status of the taxpayer at the end of the calendar year shall be used for purposes of determining his personal and additional exemptions generally applies. ' change of status of the taxpayer during the taxable year generally benefits, but does not pre9udice, him. Thus, if he marries at the end of the year, he shall be entitled to personal exemption of ?;-,666>?L6,666. If a child is born at any time during the calendar year, even on the last day of the year, the taxpayer is entitled to claim his child as a dependent entitling him to deduct additional exemption of ?H,666>?-L,666 for that year. "n the other hand, if one of his Dualified dependent children dies during the year, the la2 considers that the child died on the last day of the year3 hence, he is entitled to claim the full amount of additional exemption of ?H,666>?-L,666 for the deceased child for the year. *$80'TI"%'# I%,TIT8TI"% ?roprietary educational institutions (including those administered by individuals or groups 2ith an issued permit to operate from $*0,, 0!*$, or T*,$') and hospitals 2hich are non@profit shall pay .67 tax on net taxable income, except those covered by ,ec $ hereof (i.e., income sub9ect to 4 T), provided that gross income from school@related activities exceeds L67 of total gross income. !o2ever, if gross income from unrelated (not substantially related to the exercise of educational institution or hospital) trade, business or other activity exceeds L67 of total gross income from all sources, net income shall be sub9ect to /0IT (;67). I5?/"?*/#= '00858#'T*$ *'/%I%&, T'( /'TI"%'#*+ If profits 2ere distributed, shareholders 2ould be liable to pay income tax thereon3 if not so distributed, no tax. Thus, I'*T is a penalty tax for improper accumulated of earnings and a form of deterrent to the avoidance of tax on shareholders. I'*T A .67 x accumulated taxable income of corporation I'*T does not apply to banks, insurance companies, publicly@held corporations, taxable partnerships, enterprises registered 2ith ?*G', ,:5', and :"I. "nce profit has been sub9ected to I'*T, the same shall no longer be sub9ected to I'*T in later years, even if not declared as dividends. I'*T The follo2ing are considered Jreasonable needs of businessK+ /etained earnings is eDual to or less than .667 of paid@up capital of corporation3 *arnings reserved for+ $efinite corporate expansion pro9ect or program reDuiring considerable capital expenditure3 :uilding, plants or eDuipment acDuisition3 0ompliance 2ith any loan covenant or pre@existing obligation under a

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-legitimate business agreement3 In case of subsidiaries of foreign corporations, earnings intended or reserved for investments 2ithin the ?hil as proven by corporate records. T'(@4/** *(0!'%&* &*%*/'# /8#*+ The entire amount of gain or loss shall be recognized upon the sale or exchange of property. *(0*?TI"%,+ %o gain or loss at the time of exchange is recognized+ .. 5*/&*/ "/ 0"%,"#I$'TI"%, 2here a corporation, shareholder, or security holder exchanges property, shares or securities solely for shares of stocks of a corporation, 2hich is a party to the merger. -. T/'%,4*/ "4 ?/"?*/T= 4"/ ,!'/*, "4 ,T"0E,, as a result of 2hich, he, alone or together 2ith others not exceeding four, gains control of said corporation. '00"8%TI%& 5*T!"$, 0ash method 'ccrual method 'll events test3 amounts received in advance are not treated as revenue of the period in 2hich received but as revenue of future periods in 2hich earned (Manila Mandarin >otels vs. CI ! CTA Case ;o. 4#73! Mar "7! ,55-). Installment sales ,ale on the installment plan Initial payments do not exceed -L7 of &,? $eferred payment sale, not on the installment plan Initial payments exceed -L7 of &,? ?ercentage of completion 0rop year method 4I#I%& "4 T'( /*T8/% ,8:,TIT8T*$ 4I#I%& "4 IT/+ %o individual income tax return for the year 2ill be filed by the employee concerned, and the employer is the one that files the return for him 'pplies only to individuals ith only one (.) employer ho correctly 2ithholds the income tax on compensation income paid to the employee and remits the same to the :I/ ,ubstituted filing of return does not apply 2hen the conditions above are not met, such as 2hen the individual has (a) t2o or more employers, (b) mixed incomes, T correct T 2as not deducted from compensation income, etc. 4I#I%& "4 T'( /*T8/% Individual deriving mixed income, or purely business> professional income, or other income must file his Duarterly income tax returns (:I/ 4orm .<66 N) and annual income tax return (:I/ 4orm .<66 ) as follo2s+ ?eriod 4iling /eturn $ue $ate for

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-N. /eturn same year N- /eturn same year N; /eturn of same year 'nnual /eturn follo2ing year 'pril .L of 'ugust .L of %ovember .L 'pril .L of the the preceding Duarter(s) are credited against the consolidated income tax due.

/*48%$ "/ T'( 0/*$IT Taxpayer has ; options+ refund, tax credit, or carry over excess 2ithholding tax or payment. !o2ever, once taxpayer exercises option to carry over, such option is irrevocable for that taxable period and no application for refund or tax credit shall be allo2ed (Paseo ealty v CA! + ,,5"$3! 1ct ,.! "##7). hile a taxpayer is given the choice to claim refund or tax credit, such election is not final. ?rior verification and approval by 0I/ is reDuired. ,uch remedy is not absolute and mandatory (i%id). 0onditions for grant of refund or tax credit+ (.) claim 2as filed 2ithin - years from date of payment3 (-) income payment 2as declared in tax return3 and (;) fact of 2ithholding is established by copy of :I/ 4orm -;6< (0F 0an? v. CA! + ,443$"! Mar "-! "##-). In case of dissolution of corporation, the -@ year period for claim for refund is counted ;6 days after ,*0 approval of plan for dissolution, 2hich is considered the date of payment of taxes 2ithheld on earned income (0PI v. CI ! + ,7734.! A'g "$! "##,). ithholding agent in the ?hilippines is a proper party to file a claim for refund or tax credit for tax erroneously or illegally paid to a foreign corporation. ' person liable to tax is also a person sub9ect to tax (Procter @ +am%le v. CI ). IT!!"#$I%& T'(

4I#I%& "4 T'( /*T8/% ' domestic corporation and resident foreign corporation shall file Duarterly corporate income tax return (:I/ 4orm .<6- N) and annual corporate income tax return (:I/ 4orm .<6- as follo2s+ N. /eturn of same year N- /eturn ;. of same year N; /eturn %ovember ;6 of same year 'nnual /eturn 'pril .L of the follo2ing year (if on calendar year), or .Lth day of the fourth month follo2ing the close of the fiscal year (if on fiscal year). 0omputation of the Duarterly and annual tax returns of individuals (except those receiving purely compensation income) and corporations shall be made on the cumulative basis3 i.e., gross income and deductions are consolidated and the income tax liability is computed on the consolidated net income, and the income taxes paid for 5ay ;. 'ugust

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-'n income payment is sub9ect to the expanded 2ithholding tax, if the follo2ing conditions concur+ a. 'n expense is paid or payable by the taxpayer, 2hich is income to the recipient thereof sub9ect to income tax3 b. The income is fixed or determinable at the time of payment3 c. The income is one of the income payments listed in the regulations that is sub9ect to 2ithholding tax, except 2hen payor is a Top -6,666 0orporation3 d. The income recipient is a resident of the ?hilippines liable to income tax3 and e. The payor@2ithholding agent is also a resident of the ?hilippines. IT!!"#$I%& T'( EXEMPT 0ROM E1T .. %ational government and its instrumentalities, including provincial, city or municipal governments and %arangays, except government@o2ned or controlled corporations3 -. ?ersons en9oying exemption from payment of income taxes pursuant to the provisions of any la2, general or special, such as but not limited to the follo2ing+ a. ,ales of real property by a corporation 2hich is registered 2ith and certified by !#8/: or !8$00 as engaged in socialized housing pro9ect 2here the selling price of the house and lot or only the lot does not exceed ?.H6,666 in 5etro 5anila and other highly urbanized areas and ?.L6,666 in other areas3 b. 0orporations registered 2ith the :"I, ?*G', and ,:5', en9oying exemption from income tax under *.". --R, /.'. <P.R, and /.'. <--<3 c. 0orporations 2hich are exempt from income tax under ,ection ;6 of the Tax 0ode, such as &,I,, ,,,, ?!I0, ?0,", and ?'&0"/3 d. &eneral professional partnerships3 and e. Ioint ventures or consortium formed for the purpose of undertaking construction pro9ects or engaging in petroleum, coal, geothermal and other energy operations f. International carriers (by air or 2ater) sub9ect to -.L7 &ross ?hil :illings TRANS0ER TAXES *,T'T* T'( $eath is the generating source of the po2er to tax (9oren2o v. Posadas). %o manual or physical transfer of the property is reDuired for the estate tax to accrue. The la2 in force at the time of death of the decedent governs. J/esidenceK refers to the permanent home, the place to 2hich 2henever absent, for business or pleasure, one intends to return, and depends on facts and circumstances, in the sense that disclose intent (Corre v. Tan Corre). It is not necessarily the actual place of residence at the time of death. 'll properties (real or persona, tangible or intangible) and interests in properties of the decedent at the time of his death shall be included in his gross estate. !o2ever, properties transferred or interests relinDuished by the decedent before his death are excluded from his gross estate. The estate shall be appraised at its fair market value at the time of death (even if Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-period to file return and pay tax is extended by 0I/). /eal property+ fair market value as determined by the 0I/ ,hares of stocks+ fair market value as sho2n in the audited financial statements closest to the date of death of the decedent *,T'T* T'( Gro## e#"a"e2 Con3+*al Ex l+#i$e To"al !" I, T!* $*0*$*%T '%$ !'T ?/"?*/TI*, 4"/5 ?'/T "4 !I, &/",, *,T'T*B /esident decedent+ 0itizen or resident alien Include in his gross estate all properties, real or personal, tangible or intangible, regardless of location (2ithin or 2ithout the ?hilippines) %on@resident decedent+ %on@ resident alien Include in his gross estate all properties located in the ?hilippines 4or intangible properties, use the principle of mo%ilia se&''nt'r personam C Taxation of intangibles follo2s the residence or domicile of the o2ner. *,T'T* T'( T!*,* I%T'%&I:#* ?/"?*/TI*, !'F* ,IT8, I% T!* ?!I#I??I%*, (6ec. ,#7! ;I C)+ 4ranchise 2hich is exercised in the ?hil ,hares, obligations or bonds issued by any corporation organized in the ?hil ,hares, obligations or bonds issued by any foreign corporation, HL7 of the business of 2hich is located in the ?hil or if such properties have acDuired business situs in the ?hil ( ells 4argo case)

/eal property ?ersonal property Le##2 Ded+ "ion#2 4uneral expenses 0laims against the estate 8npaid taxes and mortgages 5edical expenses 4amily home ,tandard deduction ?roperties previously taxed S(are o& "(e #+r$i$in* #'o+#e Ne" Taxable E#"a"e *state tax due (4irst ?-66,666 is exempt3 L7 from ?-66,66.3 and -67 on over ?.6 5) *,T'T* T'(

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-,hares or rights in partnership, business or industry established in the ?hilippines *,T'T* T'( $*0*$*%T, &/",, *,T'T* (6ec. $4! ;I C) $ecedents interest (in property o2ned or possessed) Transfers in contemplation of death /evocable transfers ?roperty passing under a general po2er of appointment ?roceeds of life insurance Transfers for insufficient consideration 0apital of the surviving spouse (depending on date of marriage and applicable property regime bet2een the spouses) *,T'T* T'( JTransfers in contemplation of deathK refers to the thought of death, as a controlling motive, 2hich induces the disposition of the property for the purpose of avoiding the tax. J/evocable transfersK covers transfers, by trust or other2ise, 2here the en9oyment 2as sub9ect at the date of his death to any change or 2here such po2er is relinDuished in contemplation of death. $eceased declared her conveyance 2as a donation mortis ca'sa and forbade the registration of the deed until after her death (P'ig v. Pena)lorida). It does not cover %ona-)ide sale of property for an adeDuate and full consideration in money or moneys 2orth. *,T'T* T'( Transfer of property under a general po2er of appointment :y 2ill, or by deed executed in contemplation of death, or by deed 2here he retains for his life or any period not ascertainable 2ithout reference to his death, 2hich in fact does not end before his death ?ossession or en9oyment of, or the right to the income from, the property, or the right to designate the persons 2ho shall possess or en9oy the property or the income thereof *xcept in case of %ona-)ide sale for an adeDuate and full consideration in money or moneys 2orth. ?o2er of appointment is JgeneralK 2hen it gives to the donee the po2er to appoint any person he pleases, thus having as full dominion over the property as though he o2ned it. It is JspecialK 2hen the donee can appoint only among a restricted or designated class of persons other than himself. *,T'T* T'( ?roceeds of life insurance Taxable+ :eneficiary is the estate of the deceased, his executor or administrator, irrespective of

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-2hether or not the insured retained the po2er of revocation :eneficiary is other than the decedents estate, executor or administrator, 2hen the designation of beneficiary is not expressly made irrevocable. 8nder the Insurance 0ode, insurance policies are presumed revocable. %ot Taxable+ 'ccident insurance proceeds (not life insurance) ?roceeds of group insurance policies :eneficiary (%"T decedents estate, executor or administrator) is designated irrevocably &,I,, ,,,, and '4? /,:, *,T'T* T'( /*N8I,IT*, "4 ?/"?*/T= ?/*FI"8,#= T'(*$ (F'%I,!I%& $*$80TI"%) $eath Identity of the property Inclusion of the property (in gross estate or gross gift) ?revious taxation of the property (estate tax or gift tax) %o previous vanishing deduction on the property (to preclude application of vanishing deduction on same property more than once). ?ercentage of deduction decreases over a period of L years or -67 reduction every year *,T'T* T'( 4"/58#' "4 F'%I,!I%& $*$80TI"% Falue taken of property previously taxed (as declared in prior decedents gross estate) #ess+ 5ortgage debt paid (.st deduction) Initial basis $ivided by the value of gross estate of present decedent A UU7 5ultiplied by expenses, indebtedness, etc and transfers for public purposes *Duals -nd deduction Initial basis less -nd deduction A 4inal basis multiplied by applicable rate of vanishing deduction A 'mount of vanishing deduction deductible from the estate of second decedent $"%"/, T'( $onors Tax is a tax on the privilege to transfer property from a living person to another living person. It is an excise tax, and not a property tax. It is imposed on the donor of property. $onees tax 2as already abolished and incorporated into donors tax. ?urposes of donors tax To supplement estate tax To prevent avoidance of income tax thru the device of splitting income

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-$onation of property must be accepted by the donee. ,ale or exchange of property for less than adeDuate and full consideration is sub9ect to donors tax, except 2here the property is capital gains tax, such as real property located in the ?hil and shares of stock of a domestic corporation. $onated property must be valued at fair market value at the time of the donation. $"%"/, T'( Transfer of property may be in trust or other2ise, direct or indirect. Transfer becomes complete and taxable only 2hen the donor has divested himself of all beneficial interest in himself or his estate. $onors tax rates $onee is member of the family 4irst ?.66,666 of net gift is exempt -7 on ?.66,66. to ?-66,666 .L7 on amount over ?.6 5 $onee is a stranger C ;67 of net gift J,trangerK is a person 2ho is not a (a) brother, sister (2hether by 2hole or half@ blood), spouse, ancestor, and lineal descendant3 or (b) relative by consanguinity in the collateral line 2ithin the fourth degree of relationship. $"%"/, T'( $onor Individual 0itizen and resident alien @@ Taxable %on@resident alien C Taxable on property located in the ?hil 0orporation $omestic corporation and resident foreign corporation @@ Taxable %on@resident foreign corporation C Taxable on property located in the ?hil $onation of con9ugal 5ade by both spouses C T " donations 5ade only by one spouse (Tang !o v. :oard of Tax 'ppeals )no2 0T'1) C "%* donation $"%"/, T'( 0umulative computation of donors tax is reDuired for all donations by the same donor during the calendar year, but no cumulative computation is reDuired for donations to strangers. *xempt donations To ?hil govt for scientific, engineering, etc purposes To social 2elfare, cultural, and charitable organizations, not more than ;67 shall be used for administration purposes To I//I and /amon 5agsaysay '2ards 4oundation To %ational 5useum and %ational #ibrary Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-To Intramuros 'dministration 4ALUE ADDED TAX :8,I%*,, T'(*, F'T Taxable transactions ,ale or lease of goods or properties ,ale of services Importation of goods 4ormula for computing F'T "utput Tax #ess+ Input Tax F'T ?ayable>(*xcess Input Tax) %"%@F'T>*(*5?T 4/"5 F'T T/'%,'0TI"%, Transaction is sub9ect to "ther ?ercentage Tax (Title F, %I/0) and exempt from F'T F'T is imposed on transaction in addition to *xcise Tax, if any Tax is imposed on &ross /eceipts or &ross Income Transaction is exempt from F'T, "?T, and *xcise Tax (e.g., sale of agricultural food products in their original state) F'#8* '$$*$ T'( 0!'/'0T*/I,TI0, "4 F'T Tax on val'e added of taxpayer Transparent form of sales tax :road@based tax on cons'mption of goods, properties and services in the ?hil Indirect taxA tax is imposed on seller but burden of tax is shifted to the buyer Tax is collected thru the tax credit method "utput tax on sales3 input tax on purchases ;o cascading o) tax in F'T system JTax-incl'sive methodK is adopted by the ?hil F'#8* '$$*$ T'( T'(':#* ?*/,"%, ,eller of goods or properties &oods or properties are consumed or for consumption in the ?hil In the course of trade or business ,ales of goods or properties are not exempt from F'T ,eller of services #isted services are performed or to be performed in the ?hil In the course of trade or business 4or a valuable consideration ,ervices are not exempt from F'T Importer of goods Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-hether done in the course of his trade or business or for personal consumption F'#8* '$$*$ T'( ,eller of real properties is sub9ect to F'T ,eller executes a document of sale ($', or 0T,) /eal property is located in the ?hil ,eller is engaged in real estate business either as dealer, developer or lessor /eal property is held primarily for sale or for lease in the ordinary course of trade or business ,ale is not exempt from F'T !o2ever, /ev. /egs. %o. Q@-66< (4eb -66<) provides that Jif the real property sold is used in his trade or business, said transaction is sub9ect to F'T, being incidental to the main businessK of the taxpayer, 2ho is a F'T@registered taxpayer engaged in other types of business. F'#8* '$$*$ T'( ,ale, barter or exchange ,ale, barter or exchange has the same tax conseDuence There must be valuable consideration3 hence, donation is exempt from F'T $eemed sale is sub9ect to F'T (output tax) in order to recoup previous F'T (input tax) allo2ed *xcise tax, if any, interest, and delivery charges form part of gross selling price In the course of trade or business The regular conduct or pursuit of a commercial or an economic activity, including transactions deemed incidental thereto, regardless of 2hether or not the person engaged therein is a non@stock, non@profit private organization (irrespective of the disposition of its net income and 2hether or not it sells exclusively to members or their guests), or government entity. Isolated transactions are not sub9ect to F'T. Incidental income follo2s taxation of the principal activity. F'#8* '$$*$ T'( The absence of profit in the performance of taxable services does not make such activity for a fee exempt from F'T (CI v. C1MA6B C1! + ,"4.44! Mar .#! "###). &oods or properties must be located in the ?hilippines and consumed or destined for consumption in the ?hil. ,pecial economic zones under /' <P.R (?*G' #a2) and freeport zones under /' <--< (:0$' #a2) are treated as foreign territories by fiction of la2. !ence, importation of goods by a special economic or freeport zone enterprise shall be exempt from F'T and customs duties and 2ill be sub9ect to F'T and duties only upon their 2ithdra2al from the customs custody. $estination ?rinciple+ Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-*xport sales of goods are zero@rated (67 F'T) Import of goods into the ?hil is taxable at .-7 F'T F'#8* '$$*$ T'( Tax base is J&ross ,elling ?riceK (&,?) @ the total amount of money or its eDuivalent, 2hich the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the F'T. 's a rule, output tax accrues on sale of goods or properties (other than a real property) at the time of sale, 2hen the F'T sales invoice is issued, although none or only a part of the gross selling price is paid by the buyer at the time of sale. *xcise tax, if any, shall form part of &,?. ,ales discounts determined and granted at the time of sale, 2hich are expressly indicated in the sales invoice do not form part of the tax base. &rant of discount must not depend upon the happening of a future event or the fulfillment of certain condition. They must be recorded in the books of accounts of the seller. -67 sales discounts to senior citizens under /' P-L< ('mended ,enior 0itizens #a2) shall be deducted from gross sales before applying the F'T rate. F'#8* '$$*$ T'( To determine &ross ,elling ?rice (.667), divide Total Invoice 'mount (..-7) by ...-. If Total Invoice 'mount includes * T, determine first the &ross ,elling ?rice. Tax base for installment sales of real property If initial payments (consisting of do2n payment and all monthly amortizations in the year of sale) exceeds -L7 of the gross selling price, the tax base is the entire gross selling price as sho2n in the document of sale, even though only a part of it has been received during the period If initial payments during the year of sale do not exceed -L7 of gross selling price, the tax base is only the amount received Tax rates .-7 beginning 4eb ., -66R (/' P;;<) 67 F'T on zero@rated sales F'#8* '$$*$ T'( ,ales of goods sub9ect to 67 F'T 'ctual export sales $eemed export sales Internal or constructive export sales under :"I la2 (*" --R) and special la2s (/' <P.R and /' <--<). *cozones and freeport zones are deemed foreign territories by fiction of la2 (CI v. 6eagate Technology ("##4)/ CI v. Toshi%a In)ormation B&'ipment ("##4) Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-4or as long as the goods remain 2ithin the zone, consumed or destroyed there, they 2ill be duty@ free and tax@free (Cocon't 1il e)iners Asso v. Torres ("##4) *ffectively zero@rated sales (sales to '$:, embassies, etc) ,ales of gold to :,? 4oreign currency denominated sales ,ales of goods, supplies, eDuipment and fuel to persons engaged in international shipping or international air transport operations F'#8* '$$*$ T'( G*/"@/'T*$ ,'#* Transaction is completely free of F'T3 rate charged by seller is zero F'T@registered seller can reclaim input taxes passed on to it by sellers of goods or services from :I/ in form of refund or tax credit Gero@rated sales are taxable sales for purposes of registration as F'T taxpayer to determine threshold *(*5?T ,'#* *xemption removes the F'T at the exempt stage *xempt taxpayer cannot reclaim F'T passed on to it by F'T@registered sellers *xempt sales are not taxable sales for F'T purposes F'#8* '$$*$ T'( ?*/,"%, ,*##I%& T'(':#* ,*/FI0*, 0onstruction and service contractors :rokers #essors of property, real or personal arehousing services #essors or distributors of cinematographic films ?ersons engaged in milling, processing, manufacturing or repacking goods for others ?roprietors or operators or keepers of hotels, motels, resthouses, pension houses, inns and resorts ?roprietors or operators of restaurants and other similar establishments F'#8* '$$*$ T'( ?*/,"%, ,*##I%& T'(':#* ,*/FI0*, $ealers in securities #ending investors Transportation contractors on their transport of goods or cargoes $omestic common carriers by air and sea bet2een points in the ?hilippines ,ales of electricity (by generation, transmission, and distribution companies) Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-,ervices of franchise grantees, except 2ater and gas %on@life insurance companies, except crop insurance ,imilar services, regardless of 2hether or not the performance thereof calls for the exercise or use of the physical or mental faculties F'#8* '$$*$ T'( J&ross receiptsK means the total amount of money or its eDuivalent, representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied 2ith the services and deposits and advance payments actually or constructively received during the taxable Duarter for the services performed or to be performed for another person, excluding the F'T, except those amounts earmarked for payment to unrelated third party or received as reimbursement for advance payment on behalf of another, 2hich do not redound to the benefit of the payor. 4or sale of services, the test is not 2hether services have been performed or not, but 2hether amount of compensation or fee is received, actually or constructively. The rule is+ %" /*0*I?T "4 ?'=5*%T, %" F'T #I':I#IT=. F'#8* '$$*$ T'( G*/"@/'T*$ ,'#*, "4 ,*/FI0*, ?rocessing, manufacturing or repacking goods for other persons doing business outside the ?hil, 2hich goods are subseDuently exported, 2here the services are paid for in acceptable foreign currency and accounted for in accordance 2ith :,? rules and regulations ,ervices other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the ?hil or to a non@resident person not engaged in business 2ho is outside the ?hil 2hen the services are performed, the consideration for 2hich are paid for in acceptable foreign currency and accounted for in accordance 2ith :,? rules and regulations (CI v. 0C6C Mindanao! + ,4."#4! Dan ""! "##-) ,ervices rendered to persons or entities 2hose exemption under special la2s or international agreements to 2hich the ?hil is a signatory effectively sub9ects the sale of services to 67 rate F'#8* '$$*$ T'( G*/"@/'T*$ ,'#*, "4 ,*/FI0*, ,ervices rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof ,ervices performed by subcontractors and>or contractors in processing, converting or manufacturing goods for an enterprise 2hose export sales exceeds <67 of total annual production Transport of passengers and cargo by domestic air or sea carriers from the ?hil to a foreign country

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-,ale of po2er or fuel generated thru rene2able sources of energy (biomass, solar, 2ind, hydropo2er, geothermal and other emerging sources) F'#8* '$$*$ T'( Tax 0ode not only reDuires that the services other than Jprocessing, manufacturing or repacking of goodsK and that payment for such services be in acceptable foreign currency accounted for in accordance 2ith :,? rules. 'nother essential condition for Dualification to zero@rating under ,ec .6-(b) (-) is that the recipient of such services is doing business outside the ?hil. hile this reDuirement is not expressly stated in the -nd paragraph of ,ec. .6-(b), this is clearly provided in the .st paragraph of ,ec .6-(b) 2here the listed services must be Jfor other persons doing business outside the ?hil.K The above phrase not only refers to services enumerated in the first paragraph, but also pertains to the general term JservicesK appearing in the second paragraph. "ther2ise, those sub9ect to the regular F'T under ,ec .6-(a) can avoid paying the F'T by simply stipulating payment in foreign currency in2ardly remitted by the recipient of services. To interpret ,ec. .6-(b)(-) to apply apply to a payer@recipient of services doing business in the ?hil is to make the payment of regular F'T dependent on the generosity of the taxpayer. ' tax is a mandatory exaction, not a voluntary contribution. F'#8* '$$*$ T'( ,ignificantly, the amended ,ection .6H(b) )previously ,ec .6-(b)1 of the present Tax 0ode clarifies this legislative intent. 4or zero@rating of services, it must be rendered to a person engaged in business conducted outside the ?hil. The payer@recipient of respondents services is the 0onsortium 2hich is a 9oint venture doing business in the ?hil. hile the 0onsortiums principal members are non@ resident foreign corps, the 0onsortium itself is doing business in the ?hil. This is sho2n in :I/ /uling -;@PL, 2hich states that the contract bet2een 0onsortium and %?0 is for a .L@year term. 0onsidering the length of time, the 0onsortiums operation and maintenance of %?0s po2er barges cannot be classified as a single or isolated transaction. This case is different from CI v. American Bxpress International! Inc. (Phil 0ranch), because in the latter case, the recipient of services is '*II (!E :ranch) doing outside the ?hil (CI v. 0C6C Mindanao! Inc.! + ,4."#4! Dan ""! "##-). 0I/s filing of its 'ns2er before the 0T' challenging claim for refund effectively serves as a revocation of F'T /uling 6;@PP and :I/ /uling -;@PL. !o2ever, such revocation cannot be given retroactive effect since it 2ill pre9udice respondent. F'#8* '$$*$ T'( F'T@*(*5?T T/'%,'0TI"%, '. ,ale or importation of agricultural and marine food products in their original state3 livestock and poultry generally producing food for human consumption3 and breeding stock :. ,ale or importation of fertilizers3 seeds, seedlings and fingerlings3

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-fish, pra2n, livestock and poultry feeds (except specialty feeds for race horses, fighting cocks and other pets) 0. Importation of personal and household effects belonging to residents of the ?hil returning from abroad and non@resident citizens coming to resettle in the ?hil $. Importation of professional instruments and implements, and personal effects (except vehicle, vessel, aircraft, machinery for use in manufacture) belonging to persons coming to settle in the ?hil *. ,ervices sub9ect to percentage tax under Title F F'#8* '$$*$ T'( F'T@*(*5?T T/'%,'0TI"%, &. 5edical, dental, hospital and veterinary services, except those rendered by professionals !. *ducational services rendered by private educ institutions accredited by $ep*d, 0!*$, T*,$', and those rendered by government educational institutions I. ,ervices rendered by individuals pursuant to an employer@employee relationship ". *xport sales by persons 2ho are not F'T@registered ?. ,ale of real property not primarily held for sale to customers or for lease in the ordinary course of trade or business, or real property for lo2@cost and socialized housing, residential lot valued at ?..L 5 or belo2, house and lot and other residential d2ellings valued at ?-.L 5 or belo2 F'#8* '$$*$ T'( F'T@*(*5?T T/'%,'0TI"%, N. #ease of a residential unit 2ith a monthly rental not exceeding ?.6,666 /. ,ale, importation, printing or publication of books and any ne2spaper or magazine 2hich appear at regular intervals 2ith fixed prices and is not devoted principally to publication of paid advertisements F. ,ale or lease of goods or property or the performance of services other than transactions mentioned above, the gross sales or receipts do not exceed ?..L 5 F'#8* '$$*$ T'( ,ale of medicines by the hospital pharmacy to in@patients is exempt from F'T, but sale to out@patients is sub9ect to .-7 F'T (6t. 9'?eEs Medical Center v. CTA and CI ! ,55$). Tolling fees received by a hotel for ?#$T is not part of its gross receipts ?ayment of F'T by the hotel on fees for providing limousine service to its client is correct. It is not sub9ect to the ;7 common carriers tax. 0laim for tax credit is denied (Manila Mandarin >otel v. CI ) &ross receipts of theatre o2ner or operator from sales of tickets to moviegoers are exempt from F'T. Theatres and movie

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-houses are not included in the enumeration of taxable services in the F'T la2. "ur tax la2s, past and present, did not adopt more specific terms for Jsale or exchange of servicesK to include sho2ing of films in public (6M Prime >oldings v. CI ! CTA Case -#-5! "##3). ?'&0"/ is exempt from F'T pursuant to its charter, ?$ .HRP. :eing a special la2, ?$ .HRP prevails over /' <<.R, a subseDuent general la2. To be valid, repeal of special la2 should be express (CI v. Acesite >otel Corp! + ,7-"54! Fe% ,3! "##-). F'#8* '$$*$ T'( 0'T*&"/I*, "4 I%?8T T'(*, Input tax credit on importations of goods and current local purchases of goods, properties and services Input tax on capital goods must be amortized over certain period Transitional input tax credit ?resumptive input tax credit ithholding input tax credit *xcess input tax credit "nly F'T@registered persons are entitled to credit input taxes against their output tax. %on@registration as a F'T taxpayer does not exempt him from F'T output tax liability on his taxable sales of goods, properties or services. F'#8* '$$*$ T'( 4or sale of services, the rule is+ %" ?'=5*%T "4 4** := :8=*/ '%$ I,,8'%0* "4 F'T /*0*I?T := ,*##*/, %" I%?8T T'( 4"/ :8=*/V Transitional Input Tax -7 of value of inventory or actual F'T paid on such goods, materials and supplies, 2hichever is higher ?resumptive Input Tax ?ersons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil, and packed noodle@based instant meals are entitled to presumptive input tax eDuivalent to Q7 of gross value in money of their purchases of primary agricultural products 2hich are used as inputs to their production (6ec. ,,,! ;I C) F'#8* '$$*$ T'( Tax reliefs of F'T taxpayers on their excess input taxes (*IT) attributable to zero@rated and effectively zero@rated sales 0arry over the excess input tax to the next Duarter, until excess is utilized 4ile a claim for refund 4ile a claim for tax credit, 2ithin t2o years after the close of taxable Duarter 2here the sales 2ere made 4or non@zero@rated sales, remedy available is only to carry over *IT to the next Duarter(s) F'#8* '$$*$ T'( ?rescriptive period commences from the close of the taxable Duarter 2hen the sales 2ere made and not from the time the input F'T 2as paid nor from the time the official

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-receipt 2as issued. Thus, 2hen a zero@rated F'T taxpayer pays its input F'T a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input F'T. The reckoning frame 2ould al2ays be the end of the Duarter 2hen the pertinent sales or transaction 2as made, regardless 2hen the input F'T 2as paid (CI v. Mirant Pag%ilao Corp! "##$). TAX REMEDIES UNDER THE TAX CODE ',,*,,5*%T 0=0#* 4iling of tax return Tax audit by :I/ Informal 0onference ?reliminary 'ssessment %otice (?'%) /eply to ?'% 4inal 'ssessment %otice (4'%) ?rotest to 4'% ,upplemental ?rotest #a2 prescribes due date .-6 days W .-6 days .L days from receipt ; years or .6 years ;6 days from receipt R6 days from filing of protest ',,*,,5*%T 0=0#* :I/ '0TI"% 0ancell assessment $eny protest /evise assessment :I/ I%'0TI"% 'ppeal to 0T' 'ppeal to 0T' en banc .H6 days from filing of protest, if any, or supplemental protest ;6 days from date of receipt of denial of protest or lapse of .H6 days .L days from date of receipt3 addl .L days may be granted by 0T' after payment of docket fee. /*5*$I*, "4 T'(?'=*/, ADMINISTRATI4E REMEDY :*4"/* ?'=5*%T "4 T'( ?/"T*,T "4 ',,*,,5*%T '4T*/ ?'=5*%T "4 T'( T'( 0/*$IT, "/ /*48%$ 5UDICIAL REMEDY '??*'# T" 0"8/T "4 T'( '??*'#, %" ?/*@',,*,,5*%T %"TI0* /*N8I/*$ $eficiency tax is the result of mathematical error $iscrepancy is bet2een amount of tax 2ithheld and amount remitted to :I/

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-Taxpayer 2ho opted to claim refund>tax credit also carried over and applied the same against tax of next taxable Duarter *xcise tax due has not been paid 0onstructive importation (6ec. ""$! ;I C) ',,*,,5*%T !'T I, '% ',,*,,5*%TB %otice that taxpayer o2es government a sum of money 0ontains computation of tax liability and a demand for payment of tax 2ithin a certain period (CI v. Pascor ealty @ Fev Corp) ?8/?",* "4 ',,*,,5*%T To establish tax liability 2here an assessment is reDuired ',,*,,5*%T 4"/5, "4 ',,*,,5*%T 4ormal assessment notice (4'%) 0ollection letter Lette% de-andin* pa+-ent o) e%%oneo!sl+ %e)!nded a-o!nt (Guagua Elect ic C! v" CIR)0 o% a-o!nt paid (+ (o!n"in* "&e"/ (Re#u$lic v" %i&ac! ' (e Gu)&an) LETTE6 AN A,,2 NOTICE8 (Re#u$lic v" Niel*!n ' C!)

NOTE: Lette% )%o- %e'en!e o))i"e% *%antin* oppo%t!nit+ to disp%o'e )indin*s 4,9O:-CAU,E LETTE68 is NOT an assess-ent ',,*,,5*%T !*% 58,T ',,*,,5*%T :* 5'$*B (,ec. -6; M ---, %I/0) /*T8/% ', 4I#*$

%ot false or fraudulent C ; years from filing of return 4alse or fraudulent C .6 years from date of discovery of false or fraudulent return %" /*T8/% ', 4I#*$

.6 years from date of discovery of omission If assessment due falls on ,aturday, government has next business day 2ithin 2hich to assess (0I/ v. estern ?acific 0orp) 0"8%TI%& "4 ?*/I"$ T'(':#* =*'/ %ormal year (;RL days) #eap year (;RR days)

(2 3ollow-!p o% "olle"tion lette% d!l+ %e"ei'ed (+ taxpa+e% wit&in t&e p%es"%ipti'e pe%iod 4TAX$A5E6 ENIE 6ECEI$T O3 O6I7INAL EMAN

If there is a leap year 2ithin the prescriptive period (; years from filing of return), a year shall be deemed to have ;RL days only (;AMA C1 v. Tecson! "5 6C A -#). Thus, assessment issued on 'pril .L of the third year from filing of return shall be treated as invalid due to prescription.

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-*" -P- ('dministrative 0ode of .PH<), being the more recent la2 than 0ivil 0ode, governs the computation of legal period. 'ccor@dingly, a year shall be understood to be .- calendar months3 a month of ;6 days, unless it refers to a specific calendar month (CI vs. Primeto*n Property +ro'p! + ;o. ,3",44! A'g ""! "##-). ',,*,,5*%T !*% I, ',,*,,5*%T $**5*$ 5'$*B Issue date of assessment notice is not reckoning point for prescription $ate the assessment notice and demand letter is released, mailed or sent to taxpayer constitutes actual assessment ( ep'%lic v. 9imaco @ de +'2man) ?resumption of receipt in the regular course of mail applies, if it 2as properly addressed, postage 2as prepaid, and 2as mailed. If one element is absent, presumption does not lie (Bnri&'e2 v. 6'nli)e o) Canada) 0"5?#I'%0* IT! ,*0. --H assessing a taxpayer. Iust because 0I/ issued an advice, preliminary letter and final notice does not necessarily mean taxpayer 2as informed of la2 and facts. #a2 reDuires that they be stated in $# and 4'%. "ther2ise, the express provisions of 'rt. --H of %I/0 and // .-@PP 2ould be rendered nugatory. The alleged Jfactual basesK in the advice, preliminary letter and audit 2orking papers did not suffice. 5oreover, due to the absence of a fair opportunity to be informed of legal and factual bases of assessment, the assessment is void. "ld la2 merely reDuired taxpayer to be notified of assessment. This 2as changed in .PPH (CI vs. Bnron 6'%ic Po*er Corp! + ;o. ,33.$-! Dan. ,5! "##5). ',,*,,5*%T %"TI0* ?reliminary collection letter presupposes the existence of valid assessment notice. ?reliminary collection letter shall serve as assessment notice, if it 2as initial notice received by taxpayer, taxpayer did not receive any assessment notice, and no follo2@up letter 2as sent or preliminary conference 2as arranged. ;6@day period to protest shall commence from date of receipt of preliminary collection letter (8nited International Pict'res vs. CI ! CTA Case ;o. 4$$7! Dan. 4! "##") ?/"T*,T Falid protest of an assessment is one assailing the formal assessment notice (4'%) and the letter of demand, not the preliminary assessment notice (?'%). ?'% is reDuired merely to inform the taxpayer of the proposed assessment.

:I/ disallo2ed certain itemized deductions and considered some cost items as sub9ect to L7 tax, 2ithout indicating factual and legal bases. $uring the preliminary stage, :I/ informed taxpayer thru preliminary L@day letter and furnished copy of audit 2orking paper. 0T' considered assessment as void. 0' affirmed 0T' decision. ,0 ruled above documents 2ere not valid substitutes for mandatory notice in 2riting of legal and factual bases of assessment. These steps 2ere mere perfunctory discharge of 0I/s duties in correctly

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-4ailure to protest 2ithin ;6 days 2ill make the formal assessment notice final and executory. 4ailure to respond to ?'% 2ithin .L days 2ill render taxpayer in default and a 4'% 2ould subseDuently be issued (Ce%' osver Pa*nshop vs. CI ! CTA Case ;o. 37"4! Mar. ,-! "##.). ?/"T*,T 0I/ vs. :?I "ct -H, .PHH C 0I/ assessed petitioner for def. percentage tax and $,T for .PHR $ec .6, .PHH @@ :?I replied stating J=our def assessments are no assessments at allX 's soon as this is explained and clarified in a proper letter of assessment, 2e shall inform you of the taxpayers decision on 2hether to pay or protest the assessment.K Iune -<, .PP. @@ :?I received letter from :I/, stating J.. =our letter failed to Dualify as a protest under // .-@HLX still 2e obliged to explain the basis of the assessments.K Iuly R, .PP. @@ :?I reDuested a reconsideration of assessments. $ec .-, .PP. @@ :I/ denied protest, 2hich 2as received on Ian -., .PP-. 4eb .H, .PP- @@ :?I filed petition for revie2 in 0T'. ?/"T*,T %ov .R, .PPL @@ 0T' dismissed petition for lack of 9urisdiction3 assessments had become final and unappealable. 5ay -<, .PPR, 0T' denied reconsideration. "n appeal, 0' reversed 0T's decision. It ruled "ct -H, .PHH notices 2ere not valid assessments because they did not inform the taxpayer of the legal and factual bases therefor. It declared the proper assessments 2ere those in 5ay H, .PP. letter 2hich provided the reasons for claimed deficiencies. 0I/ elevated case to ,0. 0I/ did not inform :?I in 2riting of the la2 and facts on 2hich assessments 2ere made. !e merely notified :?I of his findings, consisting of the computation of the tax liabilities and a demand for payment 2ithin ;6 days from receipt. !e relied on former ,ec. -<6, %I/0, prior to its amendment by /' HQ-Q. In CIR $#.Re%e#6 GR 789:9;6 5an <=6 <>>:, the only reDuirement 2as for the 0I/ to JnotifyK or inform the taxpayer of his Jfindings.K %othing in the old la2 reDuired a 2ritten statement to the taxpayer of the la2 and the facts. The 0ourt cannot read into the la2 2hat obviously 2as not intended by 0ongress. That 2ould be 9udicial legislation. ?/"T*,T Iurisprudence simply reDuired that assessments contain a computation of tax liabilities, the amount to be paid plus a demand for payment 2ithin a prescribed period. The sentence Jthe taxpayer shall be informed in 2riting of the la2 and the facts on 2hich the assessment is made3 other2ise, the assessment shall be void.K 2as not in old ,ec. -<6, but 2as only inserted in ,ec. --H in .PP< (/.'. HQ-Q). The inserted sentence 2as not an affirmation of 2hat the la2 reDuired3 the amendment by /' HQ-Q 2as an innovation and could not be reasonably inferred from the old la2. Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-The "ct -H, .PPH notices 2ere valid assessments, 2hich :?I should have protested 2ithin ;6 days from receipt. The $ec .6, .PHH reply it sent to :I/ did not Dualify as a protest, since the letter itself stated JX 2e shall inform you of the taxpayers decision on 2hether to pay or protest the assessment.K :?Is failure to protest the assessment made it final and executory. The assessment is presumed to be correct (CI vs 0PI! + ,.7#3"! Apr ,-! "##-). $*%I'# "4 ?/"T*,T $I/*0T $*%I'# #etter of 0I/ states in clear terms his denial of protest. I%$I/*0T $*%I'# 4inal %otice :efore ,eizure constitutes as a decision on a protested assessment3 hence, appealable to the 0T' (0I/ vs. Isabela 0ultural 0orp, ;R. ,0/' <. (-66Q) Issuance by :I/ of arrant of $istraint and #evy constitutes a denial of the protest. I%'0TI"% "4 0"55I,,I"%*/ The taxpayer has t2o options+ ait for the decision of the 0ommissioner on the protest and file the appeal to the 0T' 2ithin ;6 days from date of receipt of the denial of protest3 or 4ile appeal to the 0T' 2ithin ;6 days from lapse of the .H6@day period (#ascona #and 0o vs 0I/, 0T' 0ase %o. L<<<, Ian Q, -666) :I/ appealed 0T' decision to 0'. In the meantime, /' P-H- 2as signed by ?&5' on 'pr -, -66Q, 2hich provides that inaction of 0I/ during the .H6@day period is construed as a denial of protest. $ecision of the 0T' on #ascona case 2as reversed by the 0'. If there is no appeal filed 2ithin ;6 days after the lapse of .H6 day period, the matter>decision under protest becomes final. The 2ord JdecisionK in ,ec. --H cannot be strictly ck strictly construed as referring only to decision per se of 0I/ but should be considered synonymous 2ith disputed assessment (CI vs. 9ascona 9and Co! CA + 6P ;o. 4$#3,! 1ct "4! "##4). 0' decision 2as appealed to ,0, 2here it is still pending. 0"8%TI%& "4 .H6@$'= ?*/I"$ ,ince the petitioner did not submit any document in support of his protest 2ithin sixty days from the filing of its protest, the counting of the .H6@day period 2as from the filing of the protest. 'ccordingly, 2hen respondent failed to render his decision 2ithin .H6 days from the filing of his protest, petitioner has ;6 days therefrom to file an appeal to 0T' (1ceanic Cireless ;et*or? vs. CI ! CTA Case ;o. 3,,,! ;ov. .! "##7) '??*'#, '$5I%I,T/'TIF* '??*'# DECISION O0 REGIONAL DIRECTOR MAY BE APPEALED TO COMMISSIONER PRIOR EXHAUSTION O0 ADM REMEDIES GI4ES ADM AUTHORITIES PRIOR

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-OPPORTUNITY TO DECIDE CONTRO4ERSIES 1ITHIN THEIR COMPETENCE (Ag'inaldo Ind'stries Corp. v. CI ) I8$I0I'# '??*'# 0INAL DECISION O0 COMMISSIONER MAY BE APPEALED TO COURT O0 TAX APPEALS 1(ere a "ax'a%er &iled a $alid 'ro"e#" wi"(in ?> da%# &ro! da"e o& re ei'" o& a##e##!en" and on #a!e da% al#o &iled wi"( CTA a 'e"i"ion &or re$iew6 "(ere i# %e" no &inal de i#ion o& CIR on "(e 'ro"e#" "(a" i# a''ealable "o CTA (Moog Controls Corp vs. CI ! CTA Case ;o. 3-##! 1ct ,$! "##7) CTA DI4ISION DECISION IS APPEALED TO CTA EN B N! COURT O0 APPEALS EN B N! DECISION APPEALED TO SUPREME COURT ?*TITI"% 4"/ /*FI* ?etitioner maintains that its counsels neglect in not filing petition for revie2 2ithin reglementary period (due to counsels secretary) 2as excusable. The ;6@day period to appeal is 9urisdictional and failure to comply 2ould bar the appeal and deprive the 0T' of its 9urisdiction. ,uch period is mandatory, and it is beyond the po2er of the courts to extend the same (Chan Gian vs CTA! ,#4 Phil 5#3 (,545). The options granted to the taxpayer in case of inaction by the 0I/ is mutually exclusive and resort to one bars the application of the other. ?etition for revie2 2as filed out of time (more than ;6 days after lapse of .H6 days), and petitioner did not file 5/ or appeal3 hence, disputed assessment became final and executory. ?*TITI"% 4"/ /*FI* 'fter availing of the first option (filing petition for revie2 2ith 0T'), petitioner cannot successfully resort to the second option (a2aiting final decision of 0I/) on the pretext that there is yet no final decision on the disputed assessment because of 0I/s inaction. 'ssessments are presumed to be correct unless other2ise proven ( C0C vs CI ! + ;o. ,3$75$! Apr "7! "##-). ?/*,0/I?TI"% The ;@year period 2ithin 2hich to assess any deficiency tax commences after the last day prescribed by la2 for the filing of the income tax return. 4or F'T, each taxable Duarter shall have its o2n prescriptive period. F'T return is filed Duarterly and a final return is not reDuired at the end of the year. In case of creditable 2ithholding taxes, the ;@year period shall be counted shall be counted from the last day reDuired by la2 for filing monthly remittance return. *ach monthly return is already a complete return. The annual information return submitted to :I/ is 9ust an annual report of income payments and taxes 2ithheld and is not in the nature of a final ad9ustment return (>PC1 Agridev Corp. vs. CI ! CTA Case ;o. 3.44! D'ly ,$! "##")

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-?/*,0/I?TI"% /eDuest for reconsideration or clarification on the assessment made by the taxpayer does not suspend the running of the statute of limitations. !o2ever, reDuest for reinvestigation may suspend the running of prescriptive period 2hen it has been granted by 0I/ (0PI vs. CI ! + ;o. ,.5-.3! 1ct ,-! "##4) 5ere filing of the protest letter 2ithout reDuesting for a reinvestigation does not suspend the running of the prescriptive period to collect (Phil +lo%al Comm'nications vs. CI ! CTA B0 Case ;o. .-! Fe%. "##4) /*N8I,IT*, "4 'IF*/ taxpayer should be indicated in the original copy (P)i2er! Inc. vs. CI ! CTA Case ;o. 3,.4! Apr. ",! "##./ FMF Fev. Corp. vs. CI ! CTA Case ;o. 3,4.! Mar. "#! "##.) /*N8I,IT*, "4 'IF*/

aiver must indicate definite expiration date agreed upon by 0I/ and taxpayer aiver should state date of acceptance by :I/. ithout the date, it cannot be determined 2hether 2aiver 2as accepted before expiration of ;@year period. Taxpayer must be furnished copy of accepted 2aiver. 8nder /5" -6@P6, second copy of 2aiver is for taxpayer. 4act of receipt by taxpayer of his copy should be indicated in the original copy (Phil. Do'rnalists vs. CI ! s'pra). /5" -6@P6 must be strictly construed against the government3 they are mandatory in character. 5ore@over, the 2aiver of the statute of limitations is not a 2aiver of the right to invoke the defense of prescription (CI vs. FMF Fev Corp! + ;o. ,3--34! D'ne .#! "##$). 4/'8$ T'( 'F"I$'%0* is the tax saving device 2ithin the means sanctioned by la2, used in good faith and at arms length. T'( *F',I"% is a scheme used outside of those la2ful means and 2hen availed of, it usually sub9ects the taxpayer to further or additional civil or criminal liabilities. It connotes ; factors+ end to be achieved3 an accompanying state of mind that is described as evil, 2illful or deliberate3 and course of action 2hich is unla2ful. 'ltonagas sole purpose of acDuiring and transferring title of properties on same day

aiver must be in the form identified in /5" -6@P63 *xpiry date of period agreed upon is indicated in the 2aiver3 aiver form reDuires statement of the kind of tax and amount of tax due3 if not indicated in the 2aiver, there is no agreement3 aiver is signed by taxpayer or his authorized representative. In case of corporation, 2aiver is signed by any responsible official. 0I/ or his authorized representative shall sign 2aiver indicating that :I/ has accepted and agreed to the 2aiver3 $ate of acceptance by :I/ is indicated3 $ate of execution and acceptance by :I/ should be before expiration of prescriptive period3 aiver is executed in ; copies3 second copy is for taxpayer. 4act of receipt by the

Updated/09-09-2010

Taxation law
--Atty. Vic C. Mamalateo-2as to create tax shelter. ,ale to him by 0I0 2as a sham and 2ithout business purpose. ,ale by 'ltonaga to /5I 2as tainted 2ith fraud. *ven before the purported sale of property by 0I0 to 'ltonaga, it received ?Q6 5 from /5I. That 2as reflected by /5I in its financial statement (CI vs. Bstate o) 0enigno Toda! + ;o. ,7-,$$! 6ept. ,7! "##7)

Updated/09-09-2010