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Under Section 4.114-2 of RR No. 16-05, the government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall, before making payment on account of
each purchase of goods and/or of services taxed at 12% VAT pursuant to Sections 106 and 108
of the Tax Code, deduct and withhold a final VAT due at the rate of five percent (5%) of the
gross payment thereof.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the
seller. The remaining five percent (7%) effectively accounts for the standard input VAT for sales
of goods or services to government or any of its political subdivisions, instrumentalities or
agencies including GOCCs, in lieu of the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT exceed five percent (7%) of gross payments,
the excess may form part of the sellers expense or cost. On the other hand, if actual input VAT
is less than (7%) of gross payment, the difference must be closed to expense or cost (or
recognized as income).
5% is based on the entire amount of the transaction and that includes the 12% shifted.
It is called final vat because the moment it is witheld, it extinguishes the tax liability of
the supplier. Thus, the amount will no longer be reflected as gross sales to be subjected
to vat because once the 5 % final vat was witheld, it already extinguished the tax
liability.
COMPLIANCE REQUIREMENTS
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VAT is paid on monthly and quarterly basis. There is monthly return for VAT and
quarterly return for VAT. Quarterly return reflects gross sales which are reported in a
cumulative basis. Thus, quarterly VAT return for the second quarter reflects those
amount included in the first quarter because it is cumulative.
For monthly VAT returns, they are filed within 20 days from the end of month and for
quarterly VAT returns, within 25 days following the end of the taxable quarter. Thus, if
the VAT return pertains to the month of January, it should be filed in February 20. If
VAT return pertains to the month of February, the it should be filed on March 20. If the
return pertains to the month of March, it should be filed on April 25 because it is
already the end of the taxable quarter.
TAX ADMINISTRATION
General concept: There are 3 stages in the administration of taxes:
1 Levy:
2 Assessment
3 collection
rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
If CIR exercised functions in deciding claim for refund. What is the proper appellate
body? CTA.
If it issued a ruling with respect to the propriety of a refund but not really addresing the
case with respect to a refund? What is the proper appellate body?
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.
The power to interpret the provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary
of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals.
NOTES: Leal disputed the validity of RMC. CIR decided against Leal. When CIR decided
agaisnt Leal, is it still considered as an interpretation of tax laws? No. It falls under number
2 namely other matters. Therefore, CTA has appellate jurisdicton because it no longer
involves interpretation of tax laws but it involves the decision of the CIR with respect to the
case filed by Leal attacking the validity or legality of the RMC. If instead CIR issued RMC
and another wants to attack the validity of the RMC, who has jurisdiciton of the attack? It
is the Secretary of Finance before going to courts as part of the principle of exhaustion of
administrative remedies.
B
An LOA must be served within 30 days from the date of issue (not receipt). If LOA is
served beyond 30 days from date of issue, it is void.
If a taxpayer is listed before the national office audit, then LOA must be issued by
the national office. If not, the taxpayer may refuse to comply. If taxpayer is listed
before the regional office audit then LOA must be issued by the regional office. If
not, the taxpayer may refuse to comply.
NOTE: Prescriptive period (3 years from date of filing return to assess tax)-to be discussed
in tax remedies proper. (If there is something wrong in the LOA, the remedy of BIR is to
issue a new LOA. Thus, if something is wrong again in the new LOA, another LOA must be
issued. The advantage here is that, it may result to prescription and thus taxpayer has a
defense then. Unless BIR issues a jeopardy assessment.)
Jeopardy Assessment: an assessment where BIR would immediately issue assessment
without audit whether partial or in its entirety because of the possibility of prescription.
CIR vs SONY PHILIPPINES
LOA is invalid if it indicates more than 1 taxable period without specifying all the taxable
periods covered. If the LOA indicates that it covers 2011, 2012, and 2013, it is valid
because it specifically indicates the taxable period. Also, the revenue officer cannot go
beyond what is provided for in the LOA.
THIRD PARTY VERIFICATION RULE: cross reference maybe had to other parties
transacting with taxapayer or their books or the government or other entities. Here,
evidence is obtained not from the taxpayer but from persons transacting with the taxpayer
or persons having information about the income of a taxpayer or knowlegde of financial
data of taxpayer.
Inquiry into Bank Deposits: Geneeral rule: BIR cannot look into the bank deposits or
accounts of a taxpayer.
Sec 6(F) Authority of the Commissioner to inquire into Bank Deposit Accounts. Notwithstanding any contrary provision of Republic Act No. 1405 and other general or
special laws, the Commissioner is hereby authorized to inquire into the bank deposits of:
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any taxpayer who has filed an application for compromise of his tax liability by
reason of financial incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the payment of his tax
liabilities on his claim that his financial position demonstrates a clear inability to
pay the tax assessed, his application shall not be considered unless and until he
waives in writing his privilege under Republic Act No. 1405 or under other general
or special laws, and such waiver shall constitute the authority of the Commissioner
to inquire into the bank deposits of the taxpayer.
A foreign tax authority can obtain information of bank records or deposits if there is
an international treaty to such effect (RA 10021)
C.1. Power to Examination of Returns (Sec 6(A)): Made after the filing of return. But,
the non filing of return will not preclude the CIR to make an examination.
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On the argument of the taxpayer that the document contains trade secret is untenable because
the same does not contain trade secrets. However, assuming that the document or the original
case docket contains trade secrets, still Sec. 71 and 270 do not apply because this document is
not in the nature of tax return; thus, the ombudsman is not precluded from inspecting and
requiring the production of the same.
Principles to remember:
1. Sec. 71 and 270 do not apply in cases of original case dockets; and
2. Original case docket does not contain trade secrets, and even if it does, the ombudsman
is not prohibited to inspect and require the production of such document.
SALIENT FEATURES OF REPUBLIC ACT NO. 10021
"Exchange of Information on Tax Matters Act of 2009".
GENERAL RULE: Bank deposits can only be inquired by the depositor and its duely authorized
representative.
EXCEPT: as provided in Sec 6 of NIRC as amended by RA 10021
The Commissioner is hereby authorized to inquire into the bank deposits and other related
information held by financial institutions of:
(1) A decedent to determine his gross estate.
(2) Any taxpayer who has filed an application for compromise of his tax liability for the
reason of financial incapacity to pay his tax liability provided that he waives in writing
his privilege under the Foreign Currency Deposit Act of the Philippines or under other
general or special laws
(3) Upon the request of a foreign tax authority.
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Conditions:
1. There is an international convention or agreement on tax matters to which
the Philippines is a signatory or a party of.
2. The information obtained from the banks and other financial institutions may
be used by the Bureau of Internal Revenue for tax assessment, verification,
audit and enforcement purposes.
3. Notice must be given to the taxpayer.
4. If the foreign tax authority provides for the following information:
4.1. The identity of the person under examination or investigation;
4.2. 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 Commissioner;
4.3. The tax purpose for which the information is being sought;
4.4. Grounds for believing that the information requested is held in the
Philippines or is in the possession or control of a person within the
jurisdiction of the Philippines;
4.5. To the extent known, the name and address of any person believed to be
in possession of the requested information;
4.6. A Statement that the request is in conformity with the law and
administrative practices of the said foreign tax authority, such that if
the requested information was within the jurisdiction 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 agreement; and
4.7. A statement that the requesting 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.
The Commissioner shall confirm receipt of a request in writing to the requesting tax authority
and shall notify the latter of deficiencies in the request, if any, within sixty (60) days from the
receipt of the request.
If the Commissioner is unable to obtain and provide the information within ninety (90) days
from the receipt of the request, due to obstacles encountered in furnishing the information or
when the bank or financial institution refuses to furnish the information, he shall immediately
inform the requesting tax authority of the same, explaining the nature of the obstacles
encountered or the reasons of refusal."
Willful Refusal to Supply Information. - Any officer, owner, agent, manager, director or
officer-in -charge of any bank or financial institution who, being required in writing by the
Commissioner, willfully, refuses to supply the required information shall be punished by a fine
of not less than Fifty thousand pesos (50,000) but not more than One hundred thousand pesos
(P100,000) , or suffer imprisonment of not less than two (2) years but not more than five (5)
years, or both.
Obligation to Maintain Confidentiality of Information Received. - Any information received
by a foreign tax authority from the Bureau of Internal Revenue pursuant to an International
convention or agreement on tax matters shall be treated by the authority as absolutely
confidential in nature in the same manner as information obtained by the latter under its laws
and shall be disclosed only to persons or authorities, including courts and administrative
bodies, involves in the assessment or collection of, the enforcement or prosecution in respect
of, or the determination of appeals in relation to, the taxes covered by such conventions of
agreements.
is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence
obtainable.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the
return from his own knowledge and from such information as he can obtain through testimony or otherwise,
which shall be prima facie correct and sufficient for all legal purposes.
When:
1. No tax return has been filed by the taxpayer.
2. There is reason to believe that any such report is false, incomplete or erroneous
Any return prepared by the Commissioner is prima facie correct and the amount
assessed is based on Best Evidence Obtainable Rule and NOT merely on
speculations.
Thus, if the BIR prepared a return for a jeepney operator, who failed to file his return
for the taxable year, on the presumption that it earns P2,000 daily times 5 days a week
times 4 weeks in a month times 12 months in a year with a total of P480,000, this is
not proper because this is base merely on speculation or presumption. BUT, if the BIR
prepared a return based on the documents submitted by the jeepney operator, then
this will fall under best evidence obtainable rule; thus, the assessment is valid and
presumed to be correct.
CIR vs. Hantex
Best Evidence Obtainable Rule: Manner or method on how the BIR will obtain
best evidence to support its tax assessment liability through its functions under
NIRC.
BEOR may be obtained by:
1. The examination of any book, paper, record or other data which may be
relevant or material to such inquiry;
2. Third Party Verification Rule
3. Issuing summons to the person liable for tax or required to file a return, or
any officer or employee of such person, or any person having possession,
custody, or care of the books of accounts and other accounting records
containing entries relating to the business of the person liable for tax, or any
considered as hearsay.
With regards to the information obtained prior to her employment (taxable
year before 2012) it MAY be used, provided that it is supported by other
evidence or documents. Otherwise, the information cannot be used by the
BIR in assessing the tax liabilities of the taxpayer. Hearsay evidence cannot
by itself be sufficient to support an assessment by the BIR. This is because
assessment cannot be based merely on speculations and presumptions;
rather, it must be based on actual facts.
Naked Assessments assessments not based on actual facts and not supported by
competent evidence or documents (i.e. invoices, other financial documents); thus, shall
be considered as a doubtful assessment and must be invalidated.
Informer/ Informant persons who divulge information to the BIR
Benefit: if the BIR successfully collected the tax due against an individual, the
informer will be rewarded 10% of what was actually collected.
Informers reward is subject to tax because there is a gain (flow of wealth), it
was realized, and it is not excluded by the law. Thus, it is taxable.
C.3. Power to Conduct Inventory Taking, Surveillance, and to Issue Presumptive
Gross Sales/ Receipts (Sec 6(C))
Issue Presumptive Gross Sales/ receipts: the CIR would presume a certain
amount of gross sales or receipts in behalf of the taxpayer if:
1. The taxpayer failed to issue receipts or invoices;
2. The books of account do not reflect the correct amount of gross sales or
receipt of the taxpayer.
C.4. Termination of Tax Period (Sec 6(D))
GROUNDS TO TERMINATE A TAX PERIOD
1.
2.
3.
4.
5.
If
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The BIR can immediately compute for the tax liability of such payer even if the
taxable year has not actually ended.
Example: Pepa is engage in retail business. On June 2015, she plans to terminate her
business and fly to Canada to migrate there. Upon learning of the same, BIR
computed for her tax liabilities for the taxable year of 2015. Is the assessment proper,
considering that taxable year 2015 has not actually been terminated?
Yes. This is because the BIR can terminate a taxable period if any of the
abovementioned grounds is present in the case. The termination of taxable year
will enable the BIR to compute for the tax liability of the payer even if the
taxable year has not actually ended.
What is the importance of computing the tax liability of an individual after the
taxable period? It is important in order for the taxpayer to deduct correctly his
expenses and compute properly his tax liability.
C.5. Fixing of Real Property Values (Sec 6(E))
Market value shall be defined as:
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The fixing of the value of the properties shall be made in consultation with competent
appraisers, both from the public and private sector.
CIR vs. Aquafresh Seafoods, Inc.
Predominant Use of Property: all real properties regardless of actual use,
revenue
officers
designated
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