Beruflich Dokumente
Kultur Dokumente
TAXATION
VER. 2010.06.12
copyrighted 2010
Nice to know
Should know
WARNING:
TAXATION
GENERAL PRINCIPLES OF TAXATION
TAXATION, IN GENERAL
1.
State briefly and concisely the nature of taxation.
Alternatively, define taxation.
SUGGESTED ANSWER: The inherent power of the sovereign
exercised through the legislature to impose burdens upon subjects and
objects within its jurisdiction for the purpose of raising revenues to carry
out the legitimate objects of government.
3.
briefly.
5.
taxation.
SUGGESTED ANSWER: a.
Reciprocal duties of protection
and support between the state and its citizens and residents. Also
called symbiotic relation between the state and its citizens.
b.
Jurisdiction by the state over persons and property
within its territory.
a.
Purpose: Tax imposed for revenue while license fee for
regulation.
Tax for general public purposes while license fee for
regulatory purposes only.
b.
Basis: Tax imposed under power of taxation while license
fee under police power.
c.
Amount: In taxation, no limit as to amount while license fee
limited to cost of the license and the expenses of police surveillance and
regulation.
d.
Time of payment:
Taxes normally paid after
commencement of business while license fee before.
e.
Effect of payment: Failure to pay a tax does not make the
business illegal while failure to pay license fee makes business illegal.
f.
Surrender: Taxes, being the lifeblood of the state, cannot
be surrendered except for lawful consideration while a license fee may be
surrendered with or without consideration. (Cooley on Taxation, pp. 11371138; Pacific Commercial Company v. Romualdez, et al., 49 Phil. 924)
9.
Explain the sumptuary purpose of taxation.
SUGGESTED ANSWER: The sumptuary purpose of taxation is to
promote the general welfare and to protect the health, safety or morals of
the inhabitants. It is in the joint exercise of the power of taxation and police
power where regulatory taxes are collected.
Taxation may be made the implement of the states police power.
The motivation behind many taxation measures is the implementation of
police power goals.
[Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3,
2005) The reader should note that the August 3, 2005 Southern Cross case
3
is the decision on the motion for reconsideration of the July 8, 2004
Southern Cross decision.
The so-called sin taxes on alcohol and tobacco manufacturers help
dissuade the consumers from excessive intake of these potentially harmful
products. (Southern Cross Cement Corporation v. Cement Manufacturers
10.
Taxation distinguished from police power. Taxation is
distinguishable from police power as to the means employed to implement
these public goals. Those doctrines that are unique to taxation arose from
peculiar considerations such as those especially punitive effects (Southern
Cross Cement Corporation v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540, August 3, 2005) as the power to tax
involves the power to destroy and the belief that taxes are lifeblood of the
state. (Ibid.) taxes being the lifeblood of the government, their prompt and
certain availability is of the essence.
These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. (Ibid.)
c.
tax.
of
an act, the
4
enjoyment of a privilege or the engaging in an occupation. Example
income tax, estate tax.
Contracting party by, or on behalf of, a designated airline of the other Contracting
Party and intended solely for use in the operation of the agreed services shall,
with the exception of charges corresponding to the service performed, be exempt
from the same customs duties, inspection fees and other duties or taxes imposed
in the territories of the first Contracting Party , even when these supplies are to be
used on the parts of the journey performed over the territory of the Contracting
Party in which they are introduced into or taken on board. The materials referred
to above may be required to be kept under customs supervision and control.
5
It may be so that in Maceda vs. Macaraig, Jr., the Court held that an
exemption from all taxes granted to the National Power Corporation
(NPC) under its charter includes both direct and indirect taxes.
An exemption from all taxes excludes indirect taxes, unless the
exempting statute, like NPCs charter, is so couched as to include indirect
tax from the exemption. The amendment under Republic Act No. 6395
enumerated the details covered by NPCs exemption. Subsequently, P.D.
380, made even more specific the details of the exemption of NPC to
cover, among others, both direct and indirect taxes on all petroleum
products used in its operation. Presidential Decree No. 938 [NPCs
amended charter] amended the tax exemption by simplifying the same
law in general terms. It succinctly exempts NPC from all forms of taxes,
duties, fees The use of the phrase all forms of taxes demonstrates
the intention of the law to give NPC all the tax exemptions it has been
enjoying before.
The exemption granted under Section 135 (b) of the NIRC of 1997
and Article 4(2) of the Air Transport Agreement between RP and
Singapore cannot, without a clear showing of legislative intent, be
construed as including indirect taxes. Statutes granting tax exemptions
must be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority, and if an exemption is found to exist, it must
not be enlarged by construction.
(Silkair (Singapore) PTE, Ltd., v.
Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008)
18.
as to purpose ?
SUGGESTED ANSWER:
a.
General, fiscal or revenue imposed for the purpose of
raising public funds for the service of the government.
b.
Special or regulatory imposed primarily for the regulation of
useful or non-useful occupation or enterprises and secondarily only for the
raising of public funds.
INHERENT LIMITATIONS
1.
taxation ?
SUGGESTED ANSWERS:
a.
Public purpose. The revenues collected from taxation should
be devoted to a public purpose.
b.
No improper delegation of legislative authority to tax. Only
the legislature can exercise the power of taxes unless the same is
delegated to some other governmental body by the constitution or through
a law which does not violate any provision of the constitution.
c.
Territoriality. The taxing power should be exercised only
within territorial boundaries of the taxing authority.
d.
Recognition of government exemptions; and
e.
Observance of the principle of comity. Comity is the respect
accorded by nations to each other because they are equals. On the other
hand taxation is an act of sovereign. Thus, the power should be imposed
upon equals out of respect.
Some authorities include no double taxation.
6
f.
Tax revenue must not be used for purely private
purposes or for the exclusive benefit of private persons.
g. Private persons may be benefited but such benefit should
be merely incidental as its main object is the benefit of the community in
general.
h. Determined at the time of enactment of tax law and not at
the time of implementation.
i.
There is a presumption of public purpose even if the tax law
does not specifically provide for its purpose. ( Santos & Co., v. Municipality
of Meycauayan, et al., 94 Phil. 1047)
citizens,
b.
1)
That tax money is being extracted and spent in
violation of specific constitutional protections against abuses of
legislative power. (Flast v. Cohen, 392 U.S. 83)
2)
That public money is being deflected to any
improper purpose (Pascual v. Secretary of Public Works, 110
Phil. 33) or a
claim of illegal disbursement of public funds or
that the tax measure is unconstitutional. (David, supra)
3)
A taxpayer is allowed to sue where there is a claim
that public funds are illegally disbursed, or that public
money
is being
deflected to any improper purpose, or that
there
is
a
wastage of public funds through the enforcement of
an invalid or
unconstitutional law. (Abaya v. Ebdane, G. R.
No.
167919,
February
14, 2007; Garcia v. Enriquez, Jr. G.R. No.
112655
December 9,
1993, Minute Resolution)
A taxpayers suit is properly brought only when there
is
an exercise of the spending or taxing power of
Congress.
(Automotive Industry Workers Alliance (AIWA),etc., et al., v. Romulo,
etc. ,et al., G. R. No.
157509,
January 18, 2005 citing
Gonzales v. Narvasa, G. R. No. 140835, August 14, 2000, 337 SCRA
733, 741)
7
b. Moreover, and if at all, only Congress, can claim any injury
from the alleged executive encroachment of the legislative function to
amend, modify and/or repeal laws. (Automotive Industry Workers Alliance
(AIWA),etc., et al., supra, citing Gonzales v. Narvasa, G. R. No. 140835,
August 14,2000, 337 SCRA 733, 741)
6.
Locus standi being merely a matter of procedure,
have been waived in certain instances where a party who is not
personally injured may be allowed to bring suit. The following are
examples of instances where suits have been brought by parties who have
not have been personally injured by the operation of a law or any other
government act but by concerned citizens, taxpayers or voters who
actually sue in the public interest:
a.
Taxpayers suits to question contracts entered into by the
national government or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where there is a claim that public
funds are illegally disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public funds through the
enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R.
No. 167919, February 14, 2007)
Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1,
2005 and companion cases citing various cases]]
9.
Paradigm shift from exclusive Congressional
power to direct grant of taxing power to local legislative bodies.
The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and
other charges pursuant to Article X, section 5 of the 1987 Constitution.
(Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675, and
companion case, April 28, 2004 citing National Power Corporation v. City of
Cabanatuan, G. R. No. 149110, April 9, 2003)
10.
8
While the power to tax by local governments may be exercised by
local legislative bodies, no longer merely by virtue of a valid delegation
as before, but pursuant to direct authority conferred by Section 5, Article
X of the Constitution, the basic doctrine on local taxation remains
essentially the same, the power to tax is [still] primarily vested in the
Congress. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R.
No. 166408, October 6, 2008 citing City Government of Quezon City, et al. v.
Bayan Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA
169 in turn referring to Mactan Cebu International Airport Authority, v. Marcos,
G.R. No. 120082, September 11, 1996, 261 SCRA 667, 680)
Philippines.
10
being derived from labor or personal services rendered outside of the
Philippines is considered as income from without. Since Larry is an
OCW, then he is to be taxed only on his income derived from within the
Philippines such as the rentals on his Philippine residence, and not on his
income from without.
b.
Supposing that Obama, Inc., sells tickets outside of
the Philippines for passengers it carry from Gold City, South
Africa to the Philippines but returns to South Africa without any
cargo or passengers.
Would it then be subject to any
Philippine tax on such sales ?
SUGGESTED ANSWER: It would not be subject to any tax. It is
not subject to any income tax because the activity which generated the
income (the sale of the tickets) was performed outside of the Philippines.
It is not subject to the carriers tax based on gross Philippine
billings because there were no lifts that originated from the Philippines.
Gross Philippine Billings refers to the amount of gross revenue derived
c.
Would your answer be the same if Obama, Inc. sold
tickets outside of the Philippines for travelers who are going to
picked up by Obama, Inc., planes from the Diosdado
Macapagal Intl. Airport at Clark, Angeles, Pampanga, bound for
Nairobi, Kenya ? Reason out your answer.
SUGGESTED ANSWER: No more. This time Obama, Inc., would
be subject to the carriers tax based on Gross Philippine Billings. (GPB).
Gross Philippine Billings refers to the amount of gross revenue
derived from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the
ticket or passage document. [NIRC of 1997, Sec. 28(A)(3)(a)]
The place of sale is irrelevant; as long as the uplifts of
passengers and cargo occur from the Philippines, income is included in
GPB. (South African Airways v. Commissioner of Internal Revenue, G.R. No.
180356, February 16, 2010)
19.
tax.
CONSTITUTIONAL LIMITATIONS
1.
11
f.
g.
Non-impairment clause;
Law-making process:
1)
Bill should embrace only one subject expressed in
the title thereof;
2)
Three (3) readings on three separate days;
3)
Printed copies in final form distributed three (3) days
before passage.
h.
Presidential power to grant reprieves, commutations and
pardons and remittal of fines and forfeiture after conviction by final
judgment.
3.
a.
No imprisonment for non-payment of a poll tax;
b.
Taxation shall be uniform and equitable;
c.
Congress shall evolve a progressive system of taxation;
d.
All appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives, but the Senate may propose
and concur with amendments;
e. The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object;
f.
Delegated power of the President to impose tariff rates,
import and export quotas, tonnage and wharfage dues:
1)
Delegation by Congress
2)
through a law
3)
subject to Congressional limits and
restrictions
4)
within the framework of national development program.
g.
Tax exemption of charitable institutions, churches,
parsonages and convents appurtenant thereto, mosques, and all lands,
buildings and improvements of all kinds actually, directly and exclusively
used for religious, charitable or educational purposes;
h.
No tax exemption without the concurrence of majority vote of
all members of Congress;
i.
No use of public money or property for religious purposes
except if priest is assigned to the armed forces, penal institutions,
government orphanage or leprosarium;
j.
Money collected on tax levied for a special purpose to be
used only for such purpose, balance if any, to general funds;
k.
The Supreme Court's power to review judgments or orders of
lower courts in all cases involving the legality of any tax, impose,
assessment or toll or the legality of any penalty imposed in relation to the
above;
l.
Authority of local government units to create their own
sources of revenue, to levy taxes, fees and other charges subject to
guidelines and limitations imposed by Congress consistent with the basic
policy of local autonomy;
m.
Automatic release of local government's just share in national
taxes;
n.
Tax exemption of all revenues and assets of non-stock, nonprofit educational institutions used actually, directly and exclusively for
educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by law
including restrictions on dividends and provisions for reinvestment of
profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational
purposes subject to conditions prescribed by law.
5.
Equal protection of the law clause is subject to
reasonable classification.
If the groupings are characterized by
substantial distinctions that make real differences, one class may be
treated and regulated differently from another. The classification must also
be germane to the purpose of the law and must apply to all those
belonging to the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No.
127410, January 20, 1999)
7.
Equal protection does not demand absolute
equality. It merely requires that all persons shall be treated alike, under
like circumstances and conditions, both as to the privileges conferred and
liabilities enforced. (Santos v. People, et al, G. R. No. 173176, August 26,
2008)
12
It is imperative to duly establish that the one invoking equal
protection and the person to which she is being compared were indeed
similarly situated, i.e., that they committed identical acts for which they
were charged with the violation of the same provisions of the NIRC; and
that they presented similar arguments and evidence in their defense yet, they were treated differently. (Santos, supra)
8.
Tests to determine validity of classification.
The
United States Supreme Court has established different tests to determine
the validity of a classification and compliance with the equal protection
clause. The recognized tests are:
a.
The traditional (or rational basis) test.
b.
The strict scrutiny (or compelling interest) test.
c. The intermediate level of scrutiny (or quasi-suspect class) test.
9.
The traditional (or rational basis) test used in order
to determine the validity of classification. The classification is
valid if it is rationally related to a constitutionally permissible state
interest.
The complainant must prove that the classification is invidous,
wholly arbitrary, or capricious, otherwise the classification is presumed
to be valid. (Lindsley v. Natural Carboinic Gas Co., 220 U.S. 61; McGowan v.
Maryland, 366 U.S. 420; United States Railroad Retirement Board v. Fritz, 449
U.S. 166)
suspect, but neither are they judged by the traditional or rational basis
test.
Intentional discriminations against members of a quasi-suspect
class violate equal protection unless they are substantially related to
important government objectives. (Craig v. Boren, 429 U.S. 190)
Thus, a state law granting a property tax exemption to widows, but
not widowers, has been held valid for it furthers the state policy of
cushioning the financial impact of spousal loss upon the sex for whom
that loss usually imposes a heavier burden. (Kahn v. Shevin, 416 U.S.
351)
13
the subjects and objects of taxation, including granting a 50% discount in
the payment of unpaid real estate taxes, and the condonation of all
penalties on fines resulting from late payment.
14
impairment presupposes the maintenance of a government which retains
adequate authority to secure the peace and good order of society. (Smart
Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008)
NOTES AND COMMENTS: Philippine Long Distance Telephone
Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001
made the observation that since Smarts franchise was granted after the effectivity
of the Local Government Code that its tax exemption privilege was reinstated.
However, Smart Communications, Inc. v. The City of Davao, etc., et al., G. R. No.
155491, September 16, 2008 is explicit in its holding that Smart is not entitled to
a tax exemption.
18.
The primary reason for the withdrawal of tax
exemption privileges granted to government owned and
controlled corporations and all other units of government was that
such privilege resulted to serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence resulting in the need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due them. (Philippine Ports
Authority v. City of Iloilo, G. R. No. 109791, July 14, 2003)
to impose and collect a local franchise tax because the Local Government
Code has withdrawn all tax exemptions previously enjoyed by all persons
and authorized local government units to impose a tax on business
enjoying a franchise tax notwithstanding the grant of tax exemption to
them.
15
subject to audit by the Bureau of Internal Revenue." Nothing is
mentioned in Section 9 about local taxes. The clear intent is for the "in
lieu of all taxes" clause to apply only to taxes under the National Internal
Revenue Code and not to local taxes. Even with respect to national
internal revenue taxes, the "in lieu of all taxes" clause does not apply to
income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's
franchise to also apply to local taxes, Congress would have expressly
mentioned the exemption from municipal and provincial taxes. Congress
could have used the language in Section 9(b) of Clavecilla's old
franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever, municipal,
provincial or national, from which the grantee is hereby expressly
exempted, x x x. (Emphasis supplied).
However, Congress did not expressly exempt Smart from local
taxes. Congress used the "in lieu of all taxes" clause only in reference to
national internal revenue taxes. The only interpretation, under the rule on
strict construction of tax exemptions, is that the "in lieu of all taxes"
clause in Smart's franchise refers only to national and not to local taxes.
[Smart Communications, Inc. v. The City of Davao, etc., et al., G. R. No. 155491,
September 16, 2008 citing Philippine Long Distance Telephone Company, Inc. v.
City of Davao, 447 Phil. 571, 594 (2003)]
NOTES AND COMMENTS: The author opines that the above finds
application to all telecommunications companies.
23.
Double taxation in its generic sense, this
means taxing the same subject or object twice during the same
taxable period. In its particular sense, it may mean direct duplicate
taxation, which is prohibited under the constitution because it violates the
concept of equal protection, uniformity and equitableness of taxation.
Indirect duplicate taxation is not anathematized by the above constitutional
limitations.
24.
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b. Taxing all of the subjects or objects for the first time without
taxing all of them for the second time.
If any of the elements are absent then there is indirect duplicate
taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
a.
Presence of the 2nd element violates the equal protection
clause. If only the 1 st element is present, taxing the same subject or object twice,
by the same taxing authority, etc., there is no violation of the equal protection
clause because all subjects and objects that are similarly situated are subject to
the same burdens and granted the same privileges without any discrimination
whatsoever,
The presence of the 2 nd element, taxing all of the subjects and objects for
the first time, without taxing all for the second time, results to discrimination
among subjects and objects that are similarly situated, hence violative of the equal
protection clause.
16
a.
Tax treaties which exempts foreign nationals from local
taxation and local nationals from foreign taxation under the principle of
reciprocity.
b.
Tax credits where foreign taxes are allowed as deductions
from local taxes that are due to be paid.
c.
Allowing foreign taxes as a deduction from gross income.
28.
directly from ones total tax liability, an allowance against the tax itself, or a
deduction from what is owned.
A tax credit reduces the tax due, including whenever applicable
the income tax that is determined after applying the corresponding tax
rates to taxable income. (Commissioner of Internal Revenue v. Central Luzon
Drug Corporation, G. R. No. 159647, April 15, 2005)
30.
31.
The VAT while regressive is NOT violative of the
mandate to evolve a progressive system of taxation. Do you
agree ? The mandate to Congress is not to prescribe but to evolve a
progressive system of taxation. Otherwise, sales taxes which perhaps are
the oldest form of indirect taxes, would have been prohibited with the
proclamation of the constitutional provision.
Sales taxes are also
regressive. . [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No.
168056, September 1, 2005 and companion cases citing Tolentino v. Secretary of
Finance, et al., G. R. No. 115455, August 25, 1994, 235 SCRA 630]
OTHER CONCEPTS
1. Distinguish tax from debt.
TAX
DEBT
Basis
based on law
based on contract or
judgment
Failure to Pay
may result in
imprisonment
no imprisonment
Mode of
generally payable in
payable in money,
17
Payment
money
property or service
Assignability
not
assignable
Payment
unless it becomes a
debt is not subject to
compensation or setoff
may be a subject
Interest
draws interest if
stipulated or delayed
Authority
imposed by public
authority
can be imposed by
private individuals
Prescription
Prescriptive periods
for tax under NIRC
assignable
2.
Compensation takes place by operation
local government and the taxpayer are in their own
debtors and creditors of each other, and that the debts
demandable, in consequence of Articles 1278 and 1279
c.
Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Thus, it is correct to say that the offsetting of a taxpayers tax
refund with its alleged tax deficiency is unavailing under Art. 1279 of the
Civil Code. (South African Airways v. Commissioner of Internal Revenue, G.R.
Revenue
d.
In case of a tax overpayment, the BIRs obligation to refund
or off-set arises from the moment the tax was paid. REASON: Solutio
indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern, Inc 172
SCRA 364)
e.
While judgment should be rendered in favor of Republic
for unpaid taxes, judgment ought at the same time to issue for
Sampaguita Pictures commanding payment to the latter by the Republic
of the value of the backpay certificates which the Republic received.
(Republic v. Ericta, 172 SCRA 623)
18
SCRA 443, a case decided by the Supreme Court whose factual
antecedents are similar to the problem.
6.
In case of doubt, tax laws must be construed
strictly against the State and liberally in favor of the taxpayer
because taxes, as burdens which must be endured by the taxpayer, should
not be presumed to go beyond what the law expressly and clearly declares.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al.,
293 SCRA 92, 99)
7.
Interpretation in the imposition of taxes, is not the
similar doctrine as that applied to tax exemptions. The rule in
the interpretation of tax laws is that a statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously. A
tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In
answering the question of who is subject to tax statutes, it is basic that in
case of doubt, such statutes are to be construed most strongly against
the government and in favor of the subjects or citizens because burdens
are not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. [Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008 citing CIR v. Court
of Appeals, 338 Phil. 322, 330-331 (1997)] As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the tax laws.
(Ibid., citing CIR v. Philippine American Accident Insurance Company, Inc., G.R.
No. 141658, March 18, 2005, 453 SCRA 668)
8.
Strict interpretation of tax exemption laws. Taxes are
what civilized people pay for civilized society. They are the lifeblood of
the nation. Thus, statutes granting tax exemptions are construed
stricissimi juris against the taxpayer and liberally in favor of the taxing
authority. A claim of tax exemption must be clearly shown and based on
language in law too plain to be mistaken. Otherwise stated, taxation is
the rule, exemption is the exception. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008 citing Mactan
Cebu International Airport Authority v. Marcos, G.R. No. 120082, September 11,
1996, 261 SCRA 667, 680) The burden of proof rests upon the party
9.
Rationale for strict interpretation of tax exemption
laws. The basis for the rule on strict construction to statutory provisions
granting tax exemptions or deductions is to minimize differential
treatment and foster impartiality, fairness and equality of treatment
among taxpayers. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation,
G. R. No. 166408, October 6, 2008) He who claims an exemption from his
share of common burden must justify his claim that the legislature
intended to exempt him by unmistakable terms. For exemptions from
taxation are not favored in law, nor are they presumed. They must be
expressed in the clearest and most unambiguous language and not left to
mere implications. It has been held that exemptions are never
presumed the burden is on the claimant to establish clearly his right to
exemption and cannot be made out of inference or implications but must
be laid beyond reasonable doubt. In other words, since taxation is the
rule and exemption the exception, the intention to make an exemption
ought to be expressed in clear and unambiguous terms. (Quezon City,
supra citing Agpalo, R.E., Statutory Construction, 2003 ed., p. 302)
19
statute or a tax refund statute. (Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
Tax refunds (or tax credits), on the other hand, are not founded
principally on legislative grace but on the legal principle which underlies
all quasi-contracts abhorring a persons unjust enrichment at the expense
of another. [Commissioner, supra citing Ramie Textiles, Inc. v. Hon. Mathay, Sr.,
178 Phil. 482 (1979); Puyat & Sons v. City of Manila, et al., 117 Phil. 985 (1963)]
The rule is that tax exemptions must be strictly construed such that
the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.
[Commissioner, supra citing Phil. Acetylene Co. v. Commission of Internal
Revenue, et al., 127 Phil. 461, 472 (1967); Manila Electric Company v. Vera,
G.R. No. L-29987, 22 October 1975, 67 SCRA 351, 357-358; Surigao
Consolidated Mining Co. Inc. v. Commissioner of Internal Revenue, supra]
15.
Effect of a BIR reversal of a previous ruling
interpreting a law as exempting a taxpayer. A reversal of a BIR
ruling favorable to a taxpayer would not necessarily create a perpetual
exemption in his favor, for after all the government is never estopped from
collecting taxes because of mistakes or errors on the part of its agents.
(Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al.,
293 SCRA 92, 99)
17.
18.
a.
Tax amnesty is an immunity from all criminal, civil and
administrative liabilities arising from nonpayment of taxes (People v.
20
Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax
exemption is an immunity from civil liability only. It is an immunity or
privilege, a freedom from a charge or burden to which others are
subjected. (Florer v. Sheridan, 137 Ind. 28, 36 NE 365)
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda, supra) WHILE tax exemption has
prospective application.
21.
a.
Tax avoidance is legal while tax evasion is illegal.
b.
The objective of tax avoidance in most instances is merely to
reduce the tax that is due while is tax evasion the object is to entirely
escape the payment of taxes.
c.
Tax evasion warrants the imposition of civil, administrative
and criminal penalties while tax avoidance does not.
in effect, the tax benefits are cancelled out. (Ibid.) Thus, the need for the
tax sparing provision.
21
joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies. [Sec. 24 now Sec. 24 (B) of the
NIRC of 1997]
2.
Purpose of the NIRC of 1997. Revenue generation
has undoubtedly been a major consideration in the passage of
the Tax Code. (Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, G. R. Nos. 167274-75, July 21, 2008)
3.
Purpose of shift from ad valorem system to
specific tax system in taxation of cigarettes. The shift from the
ad valorem system to the specific tax system is likewise meant to
promote fair competition among
the players in the industries
concerned, to ensure an equitable distribution of the tax burden and to
simplify tax administration by classifying cigarettes, among others, into
high, medium and low-priced based on their net retail price and
accordingly graduating tax rates. (Commissioner of Internal Revenue v.
Fortune Tobacco Corporation, G. R. Nos. 167274-75, July 21, 2008)
TAX ON INCOME
1.
The Tax Code has included under the term
corporation partnerships, no matter how created or organized,
2.
In Evangelista v. Collector, 102 Phil. 140, the Supreme Court
held citing Mertens that the term partnership includes a syndicate,
group, pool, joint venture or other unincorporated organization, through or
by means of which any business, financial operation, or venture is carried
on.
4.
Co-heirs who own inherited properties which
produce income should not automatically be considered as
partners of an unregistered corporation subject to income tax
for the following reasons:
a. The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived. There must be an unmistakable intention to form a partnership or
joint venture. (Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 436)
b. There is no contribution or investment of additional capital to
increase or expand the inherited properties, merely continuing the
dedication of the property to the use to which it had been put by their
forebears. (Ibid.)
c. Persons who contribute property or funds to a common
enterprise and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no
common stock capital, and no community of interest as principal
proprietors in the business itself from which the proceeds were derived.
(Elements of the Law of Partnership by Floyd R. Mechem, 2 nd Ed., Sec. 83, p. 74
cited in Pascual v. Commissioner of Internal Revenue, 166 SCRA 560)
22
6.
The income from the rental of the house, bought
from the earnings of co-owned properties, shall be treated as
the income of an unregistered partnership to be taxable as a
corporation because of the clear intention of the brothers to join together in
a venture for making money out of rentals.
7.
Income is gain derived and severed from capital, from labor
or from both combined. For example, to tax a stock dividend would be to
tax a capital increase rather than the income. (Commissioner of Internal
Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999)
8.
The term taxable income means the pertinent items of
gross income specified in the Tax Code, less the deductions and/or
personal and additional exemptions, if any, authorized for such types of
income by the Tax Code or other special laws. (Sec. 31, NIRC of 1997)
9.
or to a (c) capital
23
22.
24.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to the
taxpayer which are not treated as part of gross income for purposes of
computing the taxpayers taxable income, due to the following reasons: (1)
It is exempted by the fundamental law; (2) It is exempted by statute; and
(3) It does not come within the definition of income (Sec. 61, Rev. Regs.
No. 2) WHILE deductions are the amounts which the law allows to be
subtracted from gross income in order to arrive at net income.
b.
Exclusions pertain to the computation of gross income
WHILE deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the taxpayer
which do not form part of gross income WHILE deductions are something
spent or paid in earning gross income.
An example of an exclusion from gross income are life insurance
proceeds, and an example of a deduction are losses.
24
25.
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
b.
Amounts received by the insured as a return of premiums
paid by him under life insurance, endowment or annuity contracts either
during the term, or at maturity of the term mentioned in the contract, or
upon surrender of the contract.
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal injuries or
sickness, plus the amounts of any damages received on whether by suit or
agreement on account of such injuries or sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No. 7641.
Retirement received from reasonable private benefit plan after compliance
with certain conditions. Amounts received for beyond control separation.
Foreign social security, retirement gratuities, pensions, etc. USVA benefits,
SSS benefits and GSIS benefits.
26.
What are the conditions for excluding
retirement benefits from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Retirement benefits received under Republic Act No. 7641
and those received by officials and employees of private firms, whether
individual or corporate, in accordance with the employers reasonable
private benefit plan approved by the BIR.
b.
Retiring official or employee
1)
In the service of the same employer for at least ten
(10) years;
2)
Not less than fifty (50) years of age at time of
retirement;
3)
Availed of the benefit of exclusion only once. [Sec. 32
(B) (6) (a), NIRC of 1997] The retiring official or employee should
not have previously availed of the privilege under the retirement
plan of the same or another employer. [1 st par., Sec. 2.78 (B) (1),
Rev. Regs. No. 2-98]
27.
25
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
e.
Bad debts due to the taxpayer, actually ascertained to
be worthless and charged off within the taxable year, connected with
profession, trade or business, not sustained between related parties.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
f.
Depreciation or a reasonable allowance for the exhaustion,
wear and tear (including reasonable allowance for obsolescence) of
property used in trade or business.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
g. Depletion or deduction arising from the exhaustion of a nonreplaceable asset, usually a natural resource.
Resident citizens, resident alien individuals and nonresident alien
individuals who are engaged in trade and business, on their gross incomes
other from compensation income are allowed to deduct these expenses.
Domestic corporations, estates and trusts may also deduct this expense.
Nonresident citizens and foreign corporations on their gross incomes from
within may also deduct this expense.
Nonresident alien individuals not engaged in trade or business in
the Philippines are not allowed to deduct this expense.
h. Charitable and other contributions. Resident citizens,
resident alien individuals and nonresident alien individuals who are
engaged in trade and business, on their gross incomes other from
compensation income are allowed to deduct these expenses. Domestic
corporations, estates and trusts may also deduct this expense.
26
29.
expenditures.
SUGGESTED ANSWER: Ordinary expenses are those which are
common to incur in the trade or business of the taxpayer WHILE capital
expenditures are those incurred to improve assets and benefits for more
than one taxable year. Ordinary expenses are usually incurred during a
taxable year and benefits such taxable year. Necessary expenses are
those which are appropriate or helpful to the business.
30.
What are the requisites for the deductibility of
business expenses ?
SUGGESTED ANSWER: The following are the requisites for
deductibility of business expenses:
a.
Compliance with the business test:
1)
Must be ordinary and necessary;
2)
Must be paid or incurred within the taxable
year;
3)
Must be paid or incurred in carrying on a
trade or
business.
4)
Must not be bribes, kickbacks or other illegal
expenditures
b. Compliance with the substantiation test. Proof by evidence or
records of the deductions allowed by law including compliance with the
business test.
31.
What are the requisites for the deductibility of
ordinary and necessary trade, business, or professional
expenses, like expenses paid for legal and auditing services ?
SUGGESTED ANSWER:
a.
the expense must be ordinary and necessary;
b.
it must have been paid or incurred during the taxable year
dependent upon the method of accounting upon the basis of which the net
income is computed.
c.
it must be supported by receipts, records or other pertinent
papers. (Commissioner of Internal Revenue v, Isabela cultural Corporation,
G. R. No. 172231, February 12, 2007)
32.
TMG Corporation is issuing the accrual
method of accounting. In 2005 XYZ Law Firm and ABC Auditing
Firm rendered various services which were billed by these
firms only during the following year 2006. Since the bills for
legal and auditing services were received only in 2006 and paid
in the same year, TMG deducted the same from its 2006 gross
income. The BIR disallowed the deduction ?
Who is correct, TMG or BIR ? Explain.
SUGGESTED ANSWER: The BIR is correct. TMG should have
deducted the professional and legal fees in the year they were incurred in
2005 and not in 2006 because at the time the services were rendered in
2005, there was already an obligation to pay them. (Commissioner of
Internal Revenue v, Isabela Cultural Corporation, G. R. No. 172231,
February 12, 2007)
NOTES AND COMMENTS:
a.
Accounting methods for tax purposes comprise a set of
rules for determining when and how to report income and deductions.
(Commissioner of Internal Revenue v, Isabela cultural Corporation, G. R.
No. 172231, February 12, 2007)
The two (2) principal accounting methods for recognition of income
are the (a) accrual method; and the (b) cash method.
b.
Recognition of income and expenses under the accrual
method of accounting. Amounts of income accrue where the right to
receive them becomes fixed, where there is created an enforceable
liability. Liabilities, are incurred when fixed and determinable in nature
without regard to indeterminacy merely of time of payment..
(Commissioner of Internal Revenue v, Isabela cultural Corporation, G. R.
No. 172231, February 12, 2007)
The accrual of income and expense is permitted when the all-events
test has been met. (Ibid.)
c.
All-events test. This test requires:
1)
fixing of a right to income or liability to pay; and
2)
the availability of the reasonable accurate
determination of such income or liability.
The test does not demand that the amount of such income or
liability be known absolutely, only that a taxpayer has at his disposal the
information necessary to compute the amount with reasonable accuracy.
The all-events test is satisfied where computation remains
uncertain; if its basis is unchangeable, the test is satisfied where a
computation may be unknown, but is not as much as unknowable, within
the taxable year. The amount of liability does not have to be determined
exactly,; it must be determined with reasonable accuracy implies
something less than an exact or completely accurate amount.
The propriety of an accrual must be judged by the fact that a
taxpayer knew, or could reasonably be expected to have known, at the
closing of its books for the taxable year. Accrual method of accounting
presents largely a question of fact; such that the taxpayer bears the burden
of proof of establishing the accrual of an item of income or deduction.
27
(Commissioner of Internal Revenue v, Isabela cultural Corporation, G. R.
No. 172231, February 12, 2007)
d. Under the cash method income is to be construed as income
for tax purposes only upon actual receipt of the cash payment. It is also
referred to as the cash receipts and disbursements method because both
the receipt and disbursements are considered. Thus, income is recognized
only upon actual receipt of the cash payment but no deductions are
allowed from the cash income unless actually disbursed through an actual
payment in cash.
b.
When the fringe benefit is for the convenience or advantage
of the employer. [Sec. 32(A), NIRC of 1997; 1 st par., Sec. 2.33 (A), Rev.
Regs. No. 3-98]
c.
Fringe benefits which are authorized and exempted from
income tax under the Tax Code or under any special law;
d.
Contributions of the employer for the benefit of the employee
to retirement, insurance and hospitalization benefit plans;
e.
Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not; and
f.
De minimis benefits as defined in the rules and regulations to
be promulgated by the Secretary of Finance upon recommendation of the
Commissioner of Internal Revenue. [1st par., Sec. 32 (C), NIRC of 1997; Sec.
2.33 (C), Rev. Regs. No. 3-98]
38. Bad debts are those which result from the worthlessness
or uncollectibility, in whole or in part, of amounts due the taxpayer by
others, arising from money lent or from uncollectible amounts of income
from goods sold or services rendered. (Sec. 2.a, Rev. Regs. 5-99)
39.
28
c.
Two corporations more than fifty percent (50%) in value of the
outstanding stock of which is owned, directly or indirectly, by or for the
same individual;
d.
A grantor and a fiduciary of any trust; or
e.
The fiduciary of a trust and the fiduciary of another trust if the
same person is a grantor with respect to each trust; or
f.
A fiduciary of a trust and a beneficiary of such. [Sec. 36 (B),
NIRC of 1997]
b.
If the said taxpayer did not benefit from the deduction of the
said bad debt written-off because it did not result to any reduction of his
income tax in the year of such deduction (i.e. where the result of his
business operation was a net loss even without deduction of the bad debts
written-off), then his subsequent recovery thereof shall be treated as a
mere recovery or a return of capital, hence, not treated as receipt of
realized taxable income. (Sec. 4, Rev. Regs. 5-99)
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of Finance
upon the recommendation of the Commissioner of Internal Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
44.
45.
exemption ?
SUGGESTED ANSWER: There shall be allowed a basic personal
exemption amounting to Fifty thousand pesos (P50,000) for each
individual taxpayer.
29
In the case of married individuals where only one of the spouse is
deriving gross income, only such spouse shall be allowed the personal
exemption. [Sec. 35 (A), NIRC of 1997 as amended by Rep. Act No. 9504;
Sec. 2.79 (I) (1) (a), Rev. Regs. No. 2-98 as amended by Rev. Regs. No. 102008]
NOTES AND COMMENTS: It is clear from Rep. Act No. 9504 that
each of the spouses may claim the P50,000.00. Thus, the total familial
basic personal exemption for spouses is P100,000.00.
Furthermore, the distinctions between the concepts of single,
married and head of the family for purpose of availing of the basic
personal exemption has already been eliminated by Rep. Act No. 9504.
c.
It is to be noted that under the NIRC of 1997, as amended
by Rep. Act No. 9504, only qualified dependent children are considered
48.
30
g. Real property used by an exempt corporation in its exempt
operations, such as a corporation included in the enumeration of Section
30 of the Code, shall not be considered used for business purposes, and
therefore considered as capital asset. (last sentence, 3 rd par., Sec. 3.b,
Rev. Regs. No. 7-2003)
h. Real property, whether single detached, townhouse, or
condominium unit, not used in trade or business as evidenced by a
certification from the Barangay Chairman or from the head of
administration, in case of condominium unit, townhouse or apartment, and
as validated from the existing available records of the Bureau of Internal
Revenue, owned by an individual engaged in business, shall be treated as
capital asset. (last par., Sec. 3.b., Rev. Regs. No. 7-2003)
considerable; and the heir was not a stranger to the real estate business.
(Tuazon, Jr. v. Lingad, 58 SCRA 170)
f. Inherited agricultural property improved by introduction of good
roads, concrete gutters, drainage and lighting systems converts the
property to an ordinary asset. The property forms part of the stock in trade
of the owner, hence an ordinary asset. This is so, as the owner is now
engaged in the business of subdividing real estate. (Calasanz v.
Commissioner of Internal Revenue, 144 SCRA at p. 672)
31
a.
sale,
b.
exchange,
c.
or other disposition, including pacto de retro sales and other
forms of conditional sales. [Sec. 24 (D) (1), NIRC of 1997, numbering
and arrangement supplied]
d. Sale, exchange, or other disposition includes taking by the
government through condemnation proceedings. (Gutierrez v. Court of Tax
Appeals, et al., 101 Phil. 713; Gonzales v. Court of Tax Appeals, et al., 121 Phil.
861)
56. The basis for the final presumed capital gains tax
of six per cent (6%) is whichever is the higher of the
a. gross selling price, or
b. the current fair market value as determined below:
1) the fair market value or real properties located in each
zone or area as determined by the Commissioner of Internal
Revenue after consultation with competent appraisers both from
the private and public sectors; or
2) the fair market value as shown in the schedule of
values of the Provincial and City Assessors. [Sec. 24 (D) (1) in
relation to Sec. 6 (E), both of the NIRC of 1997]
32
ESTATE TAXES
1. In determining the gross estate of a decedent,
are his properties abroad to be included, and more
particularly, what constitutes gross estate ?
SUGGESTED ANSWER: Yes, if the decedent is a Filipino citizen
or a resident alien.
The gross estate of a Filipino citizen or a resident alien comprises
all his real property, wherever situated; all his personal property, tangible,
intangible or mixed, wherever situated, to the extent of his interest
existing therein at the time of his death.
The gross estate of a non-resident alien comprises all his real
property, situated in the Philippines; all his personal property, tangible,
intangible or mixed, situated in the Philippines, to the extent of his
interest existing therein at the time of his death.
33
2.
William Smith, an American citizen, was a
permanent resident of the Philippines. He died in San
Francisco, California. He left 10,000 shares of San Miguel
Corporation, a condominium unit at the Twin Towers
Building at Pasig, Metro Manila and a house and lot in
Miami, Florida.
What assets shall be included in the Estate Tax Return to
be filed with the BIR ?
SUGGESTED ANSWER: All of the assets should be included in the
Estate Tax Return to be filed with the BIR.
Smith, an American citizen and a permanent resident of the
Philippines is considered, for Philippine estate tax purposes, a resident
alien. Consequently, the assets to be included in the Estate Tax Return to
be filed with the BIR should be all property, real or personal, tangible,
intangible or mixed, wherever situated, to the extent of the interest that
Smith has at the time of his death. Thus, all of the properties
enumerated in the problem irrespective of where they are situated are
includible in the gross estate of Smith.
b.
One, other than the decedent takes the insurance policy on
the life of the decedent
1)
The amounts are receivable by
a)
the decedents estate,
b)
his executor, or
c)
administrator
2)
irrespective of whether or not the insured retained the
power of revocation.
The decedent takes the insurance policy on his own life, and
b.
the proceeds are receivable by a beneficiary designated as
irrevocable. [Sec. 85 (E), NIRC of 1997)
NOTES AND COMMENTS: The beneficiary must not be the decedents
estate, executor or administrator, because the proceeds are includible as part of
gross estate whether or not the decedent retained the power of revocation. (Ibid.)
c.
Where the insurance was NOT taken by the decedent upon
his own life and the beneficiary is not the decedents estate, his executor
or administrator.
4.
Items deductible from the gross estate of a resident
or nonresident Filipino decedent or resident alien decedent:
a.
Expenses, losses, claims, indebtedness and taxes;
b.
Property previously taxed;
c.
Transfers for public use;
d.
The Family Home up to a value not exceeding P1 million;
e.
Standard deduction of P1 million;
f.
Medical expenses not exceeding P500,000.00;
g.
Amount of exempt retirement received by the heirs under
Rep. Act Mo. 4917;
h.
Net share of the surviving spouse in the conjugal partnership.
5.
There is no transfer in contemplation of death if
there is no showing that the transferor retained for his life or for any
period which does not in fact end before his death: (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the right,
either alone or in conjunction with any person, to designate the person who
shall possess or enjoy the property or the income therefrom. [Sec. 85 (B),
NIRC of 1997]
34
b.
Any property forming a part of the gross estate situated in
the Philippines
c
Of any person who died within five years prior to the
death of the decedent, or transferred to the decedent by gift within five
years prior to his death,
d.
Where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior
decedent by gift, bequest, devise, or inheritance, or
e.
Which can be identified as having been acquired in
exchange for property so received:
100% of the value if the prior decedent died within one year prior
to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
80% of the value if the prior decedent died more than one year but
not more than two years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death;
60% of the value if the prior decedent died more than two years
but not more than three years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death;
40% of the value if the prior decedent died more than three years
but not more than four years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death; and
20% of the value if the prior decedent died more than four years
but not more than five years prior to the death of the decedent, or if the
property was transferred to him by gift within the same period prior to his
death. [Sec. 86 (A) (2) and (B) (2), NIRC of 1997, numbering, arrangement and
DONORS TAXES
3.
4.
For purposes of the donors tax, what is meant by
net gifts ?
SUGGESTED ANSWER: The net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property
is transferred as a gift, but imposing upon the donee the obligation to pay
the mortgage liability, then the net gift is measured by deducting from the
fair market value of the property the amount of the mortgage assumed.
underlining supplied]
5.
How are gifts of personal property to be valued for
donors tax purposes ?
probate court is determining issues which are not against the property of
the decedent, or a claim against the estate as such, but is against the
interest or property right which the heir, legatee, devisee, etc. has in the
property formerly held by the decedent.
The notices of levy were regularly issued within the prescriptive
period.
The tax assessment having become final, executory and
enforceable, the same can no longer be contested by means of a disguised
protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47)
6.
What is the valuation of donated real property for
donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised at its
fair market value as of the time of the gift.
However, the appraised value of the real property at the time of the
gift shall be whichever is the higher of:
35
a.
the fair market value as determined by the Commissioner of
Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values fixed
by the Provincial and City Assessors. [Sec. 102, in relation to Sec. 88 (B) both
of the NIRC of 1997]
b.
Supposing that instead of a general renunciation, B
renounced her hereditary share in As estate to X who is a
special child, would your answer be the same ? Explain.
SUGGESTED ANSWER: My answer would be different. The
renunciation in favor of X would be subject to donors tax.
This is so because the renunciation was specifically and
categorically done in favor of X and identified heir to the exclusion or
disadvantage of Y and Z, the other co-heirs in the hereditary estate. (4th
par., Sec. 11, Rev. Regs. No. 2-2003)
10.
A, who is engaged in the car buy and sell
business sold to B P7 million Jaguar for only P4 million. The
proper VAT on the sale was paid. If you are the BIR examiner
36
4.
Illustration of effects of exemptions from VAT which
is an indirect tax.
A VAT exempt seller sells to a non-VAT exempt
5.
The VAT is a tax on consumption.
Meaning of
consumption as used under the VAT system. Consumption is
2.
Nature of VAT. VAT is an indirect tax that may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. As such, it should be understood not in the
context of the person or entity that is primarily, directly liable for its
payment, but in terms of its nature as a tax on consumption .
[Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R.
No. 153866, February 11, 2005 citing various authorities}
6.
Illustration of the meaning of consumption as used
under the VAT system. For example the services rendered by a local
firm to its foreign client are performed or successfully completed upon its
sending to a foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the
Philippines, are therefore also consumed in the Philippines. Such
facilitation service has no physical existence, yet takes place upon
rendition, and therefore upon consumption, in the Philippines.
[Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.),
Inc. G. R. No. 164365, June 8, 2007]
37
7.
a.
8.
a.
Cost deduction method. This is a single-stage tax which
is payable only by the original sellers. (Abakada Guro Party List (etc.) v.
Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases)
9.
How the VAT is imposed on the increase in worth,
merit or improvement of the goods or services. The VAT utilizes
the concept of the output and input taxes.
Output VAT less Input VAT = VAT due on the increase in worth,
merit or improvement f the goods or services.
11.
Output tax is the value-added tax due on the sale or
lease or taxable goods, properties or services by any VAT-registered
person.
12.
Input tax is the value-added tax due on or paid by a
VAT-registered person on importation of good or local purchases of goods
or services, including lease or use of properties, in the course of his trade
or business. (Rev. Regs. No. 4.110-1, 1st par.)
13.
a.
the transitional input tax and
b.
the presumptive input tax xxx.
It includes
c.
input taxes which can be directly attributed to transactions
subject to the VAT plus a ratable portion of any input tax which cannot be
directly attributed to either the taxable or exempt activity. (Rev. Regs.
No. 4.110-1, 1st par., 2nd sentence,. And 2nd par., paraphrasing,
arrangement and numbering supplied )
38
c.
goods which have been manufactured by the taxpayer;
d.
goods in process for sale; or
e.
goods and supplies for use in the course of the taxpayers
trade or business as a VAT-registered person. [Rev. Regs. No. 16-2005,
Sec.4.111-1, (a), 1st par., arrangement and numbering supplied]
18.
one lot its NMC shares and five (5) of its ships, which are
3,700 DWT Tween-Decker, "Kloeckner" type vessels. The
vessels were constructed for the NDC between 1981 and 1984,
then initially leased to Luzon Stevedoring Company, also its
wholly-owned subsidiary. Subsequently, the vessels were
transferred and leased, on a bareboat basis, to the NMC.
The NMC shares and the vessels were offered for public
bidding. Among the stipulated terms and conditions for the
public auction was that the winning bidder was to pay "a value
added tax of 10% on the value of the vessels." Magsaysay
Lines, Inc., offered to buy the shares and the vessels for
P168,000,000.00. The bid was made by Magsaysay Lines,
purportedly for a new company still to be formed composed of
itself, Baliwag Navigation, Inc., and FIM Limited of the Marden
Group based in Hongkong . The bid was approved by the
Committee on Privatization, and a Notice of Award was issued
to Magsaysay Lines. Is the sale subject to VAT ?
SUGGESTED ANSWER: No. The term "carrying on business"
does not mean the performance of a single disconnected act, but means
conducting, prosecuting and continuing business by performing
progressively all the acts normally incident thereof; while "doing
business" conveys the idea of business being done, not from time to
time, but all the time. "Course of business" is what is usually done in
the management of trade or business. "Course of business" or "doing
business" connotes regularity of activity. In the instant case, the sale was
an isolated transaction.
The sale which was involuntary and made pursuant to the declared
policy of Government for privatization could no longer be repeated or
carried on with regularity. It should be emphasized that the normal VATregistered activity of NDC is leasing personal property.
This
finding is confirmed by the Revised Charter of the NDC which bears no
indication that the NDC was created for the primary purpose of selling
real property. (Commissioner of Internal Revenue v. Magsaysay Lines, Inc., et
al., G. R. No. 146984, July 28, 2006)
19.
Under the Value Added Tax (VAT), the tax is
imposed on sales, barter, or exchange or goods and services.
The VAT is also imposed on certain transactions deemed
sales which include:
a.
Transfer,
use
or
consumption
39
business or properties originally intended for sale or for use in the course
of business. xxx
b.
21.
Sale of real properties primarily for sale to customers or held for lease in
the ordinary course of trade or business of the seller shall be subject to
VAT. (Rev. Regs. No. 16-2005, Sec. 4.106-3, 1st par.)
Thus, capital transactions of individuals are not subject to VAT.
Only real estate dealers are subject to VAT.
22.
On September 4, 2009, XYZ, Inc., a domestic
corporation engaged in the real estate business, sold a
building for P10,000,000.00. Is the sale subject to the valueadded tax (VAT)? If so, how much? Explain.
23.
The following sales of real properties are
exempt from VAT, namely:
a.
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business;
b.
Sale of real properties utilized for low-cost housing as
defined by RA No. 7279, otherwise known as the Urban and
Development Housing Act of 1992 and other related laws, such as RA
No. 7835 and RA No. 8763.
xxx
xxx
xxx
c.
Sale of real properties utilized for socialized housing as
defined under RA No. 7279, and other related laws wherein the price
ceiling per unit is P225,000.00 or as may from time to time be
determined by the HUDCC and the NEDA and other related laws.
xxx
xxx
xxx
d.
Sale of residential lot valued at One Million Five Hundred
Thousand Pesos (P1,500,000.00) and below, or house & lot and other
residential dwellings valued at Two Million Give Hundred Thousand
Pesos (P2,500,000.00) and below where the instrument of
sale/transfer/disposition was executed on or after November 1, 2005,
provided, That not later than January 31, 2009 and every three (3) years
thereafter, the amounts stated herein shall be adjusted to its present
value using the Consumer Price Index, as published by the National
Statistics Office (NSO); provided, further, that such adjustment shall be
published through revenue regulations to be issued not later than March
31 of each year.
If two or more adjacent residential lots are sold or disposed in
favor of one buyer, for the purpose of utilizing the lots as one residential
lot, the sale shall be exempt from VAT only if the aggregate value of the
lots do not exceed P1,500,000.00. Adjacent residential lots, although
covered by separate titles and/or separate tax declarations, when sold or
disposed of to one and the same buyer, whether covered by one or
separate Deed of Conveyance, shall be presumed as a sale of one
residential lot. [Rev. Regs. No. 4.109-1 (B), (p), paraphrasing and
numbering supplied]
24.
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to twelve percent (12%) of
gross receipts
40
c.
[NIRC of
1997, Sec. 108 (A), as amended by R.A. No. 9337, arrangement and
numbering supplied]
25.
The term
sale or exchange of services means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or
consideration, whether in kind or in cash, including those performed or
rendered by the following:
a.
construction and service contractors;
b.
stock, real estate, commercial, customs and immigration
brokers;
c.
lessors of property, whether personal or real;
d.
persons engaged in warehousing services
e.
lessors or distributors of cinematographic films;
f.
persons engaged in milling, processing, manufacturing or
repacking goods for others;
g.
proprietors, operators or keepers of hotels, motels, rest-houses,
pension houses, inns, resorts; theaters, and movie houses;
h. proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers;
i. dealers in securities;
j. lending investors;
k. transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land relative to their transport of goods or
cargoes;
l.
common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines;
m.
sales of electricity by generation companies, transmission,
and/or distribution companies;
n.
franchise grantees of electric utilities, telephone and telegraph, radio
and television broadcasting and all other franchise grantees except
franchise grantees of radio and/or television broadcasting whose annual
gross receipts of the preceding year do not exceed Ten Million Pesos
(P10,000,000.00), and franchise grantees of gas and water utilities;
o.
non-life
insurance companies (except their crop insurances), including surety,
fidelity, indemnity and bonding companies; and
p.
similar
services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties. [NIRC of 1997, Sec.
108 (A), as amended by R.A. No. 9337; Rev. Regs. No. 16-2005, Sec. 4,108-2,
1st par., arrangement and numbering supplied]
27.
Zero-rated Sales of Goods or Properties. A
zero-rated sale of goods or properties by a sale by a VAT-registered
person is a taxable transaction for VAT purposes but the sale does not
result in any output tax.
However, the input tax on the purchases of goods, properties or
services related to such zero-rated sale shall be available as tax credit or
refund in accordance with Rev. Regulations No. 16-2005. (Rev. Regs. No.
16-2005, 1st par.)
28.
Concept of VAT zero-rating. The tax rate is set
at zero. When applied to the tax base, such rate obviously results in no
tax chargeable against the purchaser. The seller of such transactions
41
charges no output tax, but can claim a refund or a tax credit certificate for
the VAT previously charged by suppliers. [Commissioner of Internal
Revenue v. Seagate Technology (Philippines), G. R. No. 153866,
February 11, 2005]
Under a zero-rating scheme, the sale or exchange of a particular
service is completely freed from the VAT, because the seller is entitled to
recover, by way of a refund or as an input tax credit, the tax that is
included in the cost of purchases attributable to the sale or exchange.
The tax paid or withheld is not deducted from the tax base.
(Commissioner, of Internal Revenue v. American Express International, Inc.
(Philippine Branch), G. R. No. 152609, June 29, 2005 citing various cases)
30.
31.
The
law clearly provides for an exception to the destination principle; that is,
for a zero percent VAT rate for services that are performed in the
Philippines, "paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the [BSP]."
32.
The
Philippine VAT system adheres to the Cross Border Doctrine, according
33.
transactions:
a.
A zero-rated sale is a taxable transaction but does not result
in an output tax WHILE an exempt transaction is not subject to the output
tax.
b.
The input tax on the purchases of a VAT registered person
who has zero-rated sales may be allowed as tax credits or refunded
WHILE the seller in an exempt transaction is not entitled to any input tax
on his purchases despite the issuance of a VAT invoice or receipt.
c.
Persons engaged in transactions which are zero rated being
subject to VAT are required to register WHILE registration is optional for
VAT-exempt persons.
34.
42
Philippines, it is deemed a separate customs territory and is regarded in
law as foreign soil. Sales by suppliers from outside the borders of the
ecozone to this separate customs territory are deemed as exports and
treated as export sales. These sales are zero-rated or subject to a tax
rate of zero percent. (Commissioner of Internal Revenue v. Sekisui Jushi
Philippines, Inc., G. R. No. 149671, July 21, 2006 citing various authorities)
38.
Zero-rated sale of service, defined. A zerorated sale of service (by a VAT-registered person) is a taxable transaction
for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services related to such
zero-rated sale shall be available as tax credit or refund in accordance
with Rev. Regs. No. 16-2005. [Rev. Regs. No. 16-2005, Sec. Sec. 4.108-5
(a), words in italics supplied)
39.
Service performed by American Express in
facilitating the collection of receivables from credit card
members situated in the Philippines and payment to service
establishments in the Philippines in behalf of its Hong-Kong
based client is subject to VAT but zero-rated. This is so because
it meets all the requirements for VAT imposition, as follows:
a.
It regularly renders in the Philippines the service of
facilitating the collection and payment of receivables belonging to a
foreign company that is a clearly separate and distinct entity.
b.
Such service is commercial in nature; carried on over a
sustained period of time; on a significant scale with a reasonable degree
of frequency; and not at random, fortuitous, or attenuated.
c.
For this service, it definitely receives consideration in
foreign currency that is accounted for in conformity with law.
d.
It is not an entity exempt under any of our laws or
international agreements. (Commissioner, of Internal Revenue v. American
Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29, 2005)
41.
A foreign Consortium composed of BWSCDenmark, Mitsui Engineering and Shipbuilding Ltd., and Mitsui
and Co., Ltd., which entered into a contract with NAPOCOR
for the operation and maintenance of two power barges
appointed BWSC-Denmark as its coordination manager.
BWSCMI was established as the subcontractor to perform the
actual work in the Philippines. The Consortium paid BWSCMI
in acceptable foreign exchange and accounted for in
accordance with the rules and regulations of the BSP.
Through a February 14, 1995 ruling the BIR declared that
BWSCMI may choose to register as a VAT persons subject to
VAT at zero rate. For 1996, it filed the proper VAT returns
showing zero rating. On December 29, 1997, believing that it
43
c.
the seller is not allowed any tax credit on VAT (input tax)
purchases.
The person making the exempt sale of goods, properties or
services shall not bill any output tax to his customers because the said
transaction is not subject to VAT. [Rev. Regs. No. 16-2005, Sec. 4.109-1 (A),
b.
Could it obtain a refund of the VAT it paid through
the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund of
the 10% output VAT it paid the based on the non-retroactivity of the
prejudicial revocation of the BIR Rulings which held that its services are
subject to 0% VAT and which BWSCMI invoked in applying for refund of
the output VAT. (Commissioner of Internal Revenue v. Burmeister and
Wain Scandinavian Contractor Mindanao, Inc., supra)
b.
An exempt transaction shall not be the subject of any billing
for output VAT but it shall not also be allowed any input tax credits
WHILE an exempt party being zero-rated is allowed to claim input tax
credits.
44
advanced technological means of packaging, such as shrink wrapping in
plastics, vacuum packing, tetra-pack, and other similar packaging
methods. Polished and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt, and copra shall be considered in their original
state.
Sugar whose content of sucrose by weight, in the dry state, has a
polarimeter reading of 99.5o and above are presumed to be refined
sugar.
Cane sugar produced from the following shall be presumed, for
internal revenue purposes, to be refined sugar:
(1)
product of a refining process,
(2)
products of a sugar refinery, or
(3)
product of a production line of a sugar mill accredited by
the BIR to be producing sugar with polarimeter reading of 99.5o and
above, and for which the quedanissued therefor, and verified by the
Sugar Regulatory Administration, identifies the same to be of a
polarimeter reading of 99.5o and above.
Bagasse is not included in the exemption provided for under this
section.
(B)
Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered as
pets);
Specialty feeds refers to non-agricultural feeds or food for race
horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets.
(C) Importation of personal and household effects belonging to
the residents of the Philippines returning from abroad and nonresident
citizens coming to resettle in the Philippines: Provided, That such goods
are exempt from customs duties under the Tariff and Customs Code of
the Philippines;
(D) Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household effects
(except any vehicle, vessel, aircraft, machinery, other goods for use in
the manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own use
and not for sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner of Internal
Revenue, that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;
45
(G) Medical, dental, hospital and veterinary services except
those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic
operates a pharmacy or drug store, the sale of drugs and medicine is
subject to VAT.
(H) Educational services rendered by private educational
institutions, duly accredited by the Department of Education (DEPED),
the Commission on Higher Education (CHED), the Technical Education
And Skills Development Authority (TESDA) and those rendered by
government educational institutions;
Educational services shall refer to academic, technical or
vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA and those rendered by
government educational institutions and it does not include seminars, inservice training, review classes and other similar services rendered by
persons who are not accredited by the DepED, the CHED and/or the
TESDA.
(I)
Services rendered by individuals pursuant to an employeremployee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special laws,
except those under Presidential Decree No. 529 Petroleum Exploration
Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority (CDA) to their members as well as
sale of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce;
(M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development
Authority: Provided, That the share capital contribution of each member
does not exceed Fifteen thousand pesos (P15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the
members;
46
the transport of goods and/or passenger from a port in the Philippines
directly to a foreign port without stopping at any other port in the
Philippines; provided, further, that if any portion of such fuel, goods or
supplies is used for purposes other than that mentioned in this paragraph,
such portion of fuel, goods and supplies shall be subject to 10% VAT
(now 12%);
(U) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries; and
(V)
Sale or lease of goods or properties or the
performance of services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts do not
exceed the amount of One million five hundred thousand pesos
(P1,500,000): Provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amount herein stated shall be adjusted to
its present value using the Consumer Price Index as published by the
National Statistics Office (NSO).
For purposes of the threshold of P1,500,000.00, the husband and
wife shall be cnsidered separate taxpayers. However, the aggregation
rule for each taxpayer shall apply. For instance, if a profesional, aside
from the practice ofhis profession, also derives revenue from other lines
of business which are otherwise subject to VAT, the same shall be
combined for purposes of determining whether the threshold has been
exceeded. Thus, the VAT-exempt sales shall to be icluded in determining
the threshold. [NIRC of 1997, Sec. 109 (1), as amended by R. A. No. 9337;
words in italics from Rev. Regs. No. 16-2005, Sec. 4.109-1 (B), words in
parentheses supplied]
45.
a.
Any person, whose sales or receipts are exempt under Sec.
109 (1) (V) of the Tax Code,
(V) Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of One million five hundred thousand
pesos (P1,500,000): Provided, That not later than January 31,
2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer
Price Index as published by the National Statistics Office (NSO),
from the payment of VAT and
b.
who is not a VAT-registered person
c.
shall pay a tax equivalent to three percent (3%) of his gross
monthly sales or receipts;
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents , until
controverted by competent evidence, are competent evidence, are prima
facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et
al., 296 SCRA 309, 317)
2.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on his
income from sources within the Philippines;
c.
Every alien residing in the Philippines on income derived
from sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or in
the exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC of 1997]
3.
Married individuals who are earning
compensation income allowed to file separate returns.
purely
4.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a consolidated return for the taxable
year to include the income of both spouses, but where it is
impracticable for the spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall be consolidated by
the Bureau for purposes of verification. [Section 51 (D) of the NIRC of
1997]
5.
Computation of income tax for married individuals
whether citizens, resident or non-resident aliens, who do not
derive income purely from compensation required file a
consolidated return for the taxable year but could not do so.
For married individuals, the husband and wife, subject to no. 2, supra,,
shall compute separately their individual income tax based on their
respective total taxable income: Provided, that if any income cannot be
definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their respective
47
taxable income.
6.
Individuals who are not required to file an income
tax return.
a.
An individual whose gross income does not exceed his total
personal and additional exemptions for dependents, Provided, That a
citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippines shall file an income tax return
regardless of the amount of gross income [Sec. 51 (A) (2), NIRC of 1997]
b.
An individual with respect to pure compensation income,
derived from such sources within the Philippines, the income tax on
which has been correctly withheld: Provided, That an individual deriving
compensation concurrently from two or more employers at any time
during the taxable year shall file an income tax return [Sec. 51 (A) (2),
NIRC of 1997, as amended by Rep. Act No. 9504, paraphrasing supplied]
c.
An individual whose sole income has been subject to final
withholding tax;
d.
A minimum wage earner (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned), an individual
who is exempt from income tax pursuant to the provisions of the Tax
Code and other laws, general or special. [Sec. 51 (A) (2), NIRC of 1997 in
relation to Sec. 22 (HH), both as amended by Rep. Act. 9504]
7.
Minimum wage earners are exempt from income
taxation. That minimum wage earners (is a worker in the private sector
paid the statutory minimum wage, or is an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned) shall be exempt
from the payment of income tax on their taxable income: Provided,
further, That the holiday pay, overtime pay, night shift differential pay and
hazard pay received by such minimum wage earners shall likewise be
exempt from income tax. [Sec. 51 (A) (2), NIRC of 1997 in relation to Sec. 22
(HH), both as amended by Rep. Act. 9504]
8.
An individual who is not required to file an income
tax return may nevertheless be required to file an information
return. [Sec. 51 (A) (3), NIRC of 1997]
9.
A corporation files its income tax return and pays its
income tax four (4) times during a single taxable year. Quarterly
returns are required to be filed for the first three quarters, then a final
adjustment return is filed covering the total taxable income for the whole
taxable year, be it calendar or fiscal.
48
18.
(Commissioner of
Internal Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999,
the Anscor case)
SUGGESTED ANSWER:
a.
the 25% surcharge for late filing or late payment [Sec. 248
(A), NIRC of 1997] (also known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud surcharge. [Sec. 248 (B),
Ibid.]
3.
4.
Deficiency interest, defined. The interest assessed and
collected on any unpaid amount of tax at the rate of 20% per annum or
such higher rate as may be prescribed by regulations, from the date
prescribed for payment until the amount is fully paid. [Sec. 249 (A) (B),
NIRC of 1997]
5.
Delinquency interest, defined. The interest assessed
and collected on the unpaid amount until fully paid where there is failure on
the part of the taxpayer to pay the amount die on any return required to be
filed; or the amount of the tax due for which no return is required; or a
deficiency tax, or any surcharge or interest thereon, on the date appearing
49
in the notice and demand by the Commissioner of Internal Revenue.
[Sec.249 (c), NIRC of 1997]
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to
discourage delay in the payment of taxes due to the State and in this sense
the surcharge and interest charged are not penal but compensatory in
nature they are compensation to the State for the delay in payment, or
for the concomitant tuse of the funds by the taxpayer beyond the date he is
supposed to have paid them to the State. (Bank of the Philippine Islands v.
Commissioner of Internal Revenue, G. R. No. 137002, July 27, 2006)
7.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes
on time. Imposed surcharges and interests for such delay, the
taxpayer not invokes good faith with the BIR countering by
saying that good faith is not a valid defense for violation of a
special law. Furthermore, the BIR further raises the defense
that the government is not bound by the errors of its agents.
Who is correct ?
SUGGESTED ANSWER: The taxpayer is correct. The settled rule
is that good faith and honest belief that one is not subject to tax on the
basis of previous interpretation of government agencies tasked to
implement the tax, are sufficient justification to delete the imposition of
surcharges. (Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal
Revenue, G. R. No. 166786, September 11, 2006)
3.
50
their original or appellate jurisdiction; (If original DIVISION; if appellate EN
BANC)
4.
Decisions of the Commissioner of Customs in cases involving
liability for customs duties, fees or other money charges, seizure, detention
or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other
laws administered by the Bureau of Customs; (DIVISION)
5.
Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the assessment
and taxation of real property originally decided by the provincial or city
board of assessment appeals; (EN BANC)
6.
Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the
Commissioner of Customs which are adverse to the Government under
Section 2315 of the Tariff and Customs Code; (This has reference to
forfeiture cases where the decision is to release the seized articles
DIVISION)
7.
Decisions of the Secretary of Trade and Industry, in case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision
to impose or not to impose said duties. (DIVISION)
b.
Jurisdiction over cases involving criminal offenses as
herein provided:
1.
Exclusive original jurisdiction over all criminal cases
arising from violations of the National Internal Revenue Code or Tariff and
Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or
felonies mentioned in this paragraph where the principal amount of taxes
and fees, exclusive of charges and penalties claimed, is less than One
million pesos (P1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the Rules of Court to the
contrary notwithstanding, the criminal action and the corresponding civil
action for the recovery of civil liability for taxes and penalties shall at all
times be simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the civil action will be
recognized.
2.
Exclusive appellate jurisdiction in criminal offenses:
a)
Over appeals from the judgments, resolutions or orders
of the Regional Trial Courts in tax cases originally decided by them,
in
their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their
appellate
jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in
their respective jurisdiction.
c.
Jurisdiction over tax collection cases:
1.
Exclusive original jurisdiction in tax collection cases involving
final and executory assessments for taxes, fees, charges and penalties:
Provided, however, That collection cases where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is less than
One million pesos (P1,000,000) shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and Regional Trial Court.
2.
Exclusive appellate jurisdiction in tax collection cases:
a)
Over appeals from judgments, resolutions, or orders of
the Regional Trial Courts in tax collection cases originally decided by
them, in their respective territorial jurisdiction.
b)
Over petitions for review of the judgments, resolutions
or orders of the Regional Trial Courts in the exercise of their
appellate
jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit
Trial Courts, in their respective jurisdiction. (Sec. 7, R. A. No.
1125, as amended by R. A. No. 9282, emphasis and words in parentheses
supplied)
51
the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within
the jurisdiction of the regular courts.
Indeed, the Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts. This is within the scope of
judicial power, which includes the authority of the courts to determine in
an appropriate action the validity of the acts of the political departments.
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part
of any branch or instrumentality of the Government. (British American
Tobacco v. Camacho et al., G. R. No. 163583, August 20, 2008 with an
intervenor)
6.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision of the
Commissioner of Customs:
a.
Decisions of the Secretary of Trade and Industry or the
Secretary of Agriculture in anti-dumping and countervailing duty cases are
appealable to the Court of Tax Appeals within thirty (30) days from receipt
of such decisions.
b. In case of automatic review by the Secretary of Finance in
seizure or forfeiture cases where the value of the importation exceeds P5
million or where the decision of the Collector of Customs which fully or
partially releases the shipment seized is affirmed by the Commissioner of
Customs.
52
above prescriptive periods may however be suspended under certain
instances.
The notice of assessment must be issued within the prescriptive
period and must contain the facts, law and jurisprudence relied upon by the
Commissioner. Otherwise it would not be valid.
f.
The taxpayer should then file an administrative protest by
filing a request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment notice.
The taxpayer could not immediately interpose an appeal to the
Court of Tax Appeals because there is no decision yet of the Commissioner
that could be the subject of a review.
To be valid the administrative protest must be filed within the
prescriptive period, must show the error of the Bureau of Internal Revenue
and the correct computations supported by a statement of facts, and the
law and jurisprudence relied upon by the taxpayer. There is no need to pay
under protest. If the protest was not seasonably filed the assessment
becomes final and collectible and the Bureau of Internal Revenue could
use its administrative and judicial remedies in collecting the tax.
g. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall be submitted, otherwise the assessment shall
become final and collectible and the BIR could use its administrative and
judicial remedies to collect the tax.
Once an assessment has become final and collectible, not even
the BIR Commissioner could change the same. Thus, the taxpayer could
not pay the tax, then apply for a refund, and if denied appeal the same to
the Court of Tax Appeals.
h. If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from the submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal to
the Court of Tax Appeals within thirty (30) days from receipt of the adverse
decision, or from the lapse of the one hundred eighty (180-) day period,
with an application for the issuance of a writ of preliminary injunction to
enjoin the BIR from collecting the tax subject of the appeal.
If the taxpayer fails to so appeal, the denial of the Commissioner
or the inaction of the Commissioner would result to the notice of
assessment becoming final and collectible and the BIR could then utilize
its administrative and judicial remedies to collect the tax.
i.
A decision of a division of the Court of Tax Appeals adverse
to the taxpayer or the government may be the subject of a motion for
reconsideration or new trial, a denial of which is appealable to the Court of
Tax Appeals en banc by means of a petition for review.
The Court of Tax Appeals, has a period of twelve (12) months from
submission of the case for decision within which to decide.
j.
If the decision of the Court of Tax Appeals en banc affirms the
denial of the protest by the Commissioner or the assessment in case of
failure by the Commissioner to decide the taxpayer must file a petition for
review on certiorari with the Supreme Court within fifteen (15) days from
notice of the judgment on questions of law. An extension of thirty (30)
days may for justifiable reasons be granted. If the taxpayer does not so
appeal, the decision of the Court of Tax Appeals would become final and
this has the effect of making the assessment also final and collectible. The
BIR could then use its administrative and judicial remedies to collect the
tax.
2.
The word assessment when used in connection with
taxation, may have more than one meaning. More commonly the
word assessment means the official valuation of a taxpayers property for
purpose of taxation. The above definition of assessment finds application
under tariff and customs taxation as well as local government taxation.
For real property taxation, there may be a special meaning to
the burdens that are imposed upon real properties that have been
benefited by a public works expenditure of a local government. It is
sometimes called a special assessment or a special levy. (Commissioner of
Internal Revenue v. Pascor Realty and Development Corporation, et al., G.R. No.
128315, June 29, 1999)
3.
An assessment is a notice duly sent to the taxpayer
which is deemed made only when the BIR releases, mails or
sends such notice to the taxpayer . (Commissioner of Internal Revenue
v. Pascor Realty and Development Corporation, et al., G.R. No. 128315, June 29,
1999)
4.
Self-assessed tax, defined. A tax that the taxpayer
himself assesses or computes and pays to the taxing authority. It is a tax
that self-assessed by the taxpayer without the intervention of an
assessment by the tax authority to create the tax liability.
The Tax Code follows the pay-as-you-file system of taxation under
which the taxpayer computes his own tax liability, prepares the return, and
pays the tax as he files the return. The pay-as-you-file system is a selfassessing tax return.
Internal revenue taxes are self-assessing. (Dissent of J. Carpio in
Philippine National Oil Company v. Court of Appeals, et al., G. R. No. 109976, April
26, 2005 and companion case)
53
A clear example of a self-assessed tax is the annual income tax,
which the taxpayer himself computes and pays without the intervention of
any assessment by the BIR. The annual income tax becomes due and
payable without need of any prior assessment by the BIR. The BIR may or
may not investigate or audit the annual income tax return filed by the
taxpayer. The taxpayers liability for the income tax does not depend on
whether or not the BIR conducts such subsequent investigation or audit.
However, if the taxing authority is first required to investigate, and
after such investigation to issue the tax assessment that creates the tax
liability, then the tax is no longer self-assessed. (Ibid.)
6.
General rule: When the Commissioner of Internal
Revenue may rely on estimates. The rule is that in the absence of
accounting records of a taxpayer, his tax liability may be determined by
estimation. The petitioner (Commissioner of Internal Revenue) is not
required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of taxes due is justified. To hold otherwise
would be tantamount to holding that skillful concealment is an invincible
barrier to proof. (Commissioner of Internal Revenue v. Hantex Trading Co., Inc.
G. R. No. 136975, March 31, 2005)
However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously. (Ibid.)
7.
Meaning of "best evidence obtainable" under Sec. 6
(B), NIRC of 1997. This means that the original documents must be
produced. If it could not be produced, secondary evidence must be
adduced. (Hantex Trading Co., Inc. v. Commissioner of Internal Revenue, CA G.R. SP No. 47172, September 30, 1998)
54
a. When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on the face
of the return; or
b. When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding agent; or
c. When a taxpayer opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have
carried over and automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or quarters of the
succeeding table year; or
d. When the excess tax due on excisable articles has not been
paid; or
e. When an article locally purchased or imported by an exempt
person, such as, but not limited to vehicles, capital equipment, machineries
and spare parts, has been sold, trade or transferred to non-exempt
persons. (Sec. 228, NIRC of 1997)
b. ten years from discovery of the failure to file the tax return or
discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of 1997[ ; or
c. within the period agreed upon between the government and
the taxpayer where there is a waiver of the prescriptive period for
assessment (Sec. 222 (b), NIRC of 1997).
the
the
the
the
14.
Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because
this deprives the taxpayer of the assurance that it will not longer be
subjected to further investigation for taxes after the expiration of a
reasonable period of time. (Philippine Journalists, Inc. v. Commissioner of
Internal Revenue, G. R. No. 162852, December 16, 2004 with note to see Republic
v. Ablaza, 108 Phil. 1105. 1108)
55
The prescriptive period was precisely intended to give the
taxpayers peace of mind. (Commissioner of Internal Revenue v. B.F. Goodrich
Phils., Inc., et al., G.R. No. 104171, February 24, 1999)
16.
Requisites for Formal Letter of Demand and
Assessment Notice. The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized
representative.
The letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be
void. The same shall be sent to the taxpayer only by registered mail or
by personal delivery.
for
presumption
of
b.
Presumption of regularity (Commissioner of Internal Revenue v.
Hantex Trading Co., Inc., G, R. No. 136975, March 31, 2005)
in the
performance of public functions. (Commissioner of Internal Revenue v.
Tuazon, Inc., 173 SCRA 397)
c.
The likelihood that the taxpayer will have access to the
relevant information [Commissioner of Internal Revenue, supra citing United
States v. Rexach, 482 F.2d 10 (1973). The certiorari was denied by the United
States Supreme Court on November 19, 1973]
d.
The desirability of bolstering the record-keeping requirements
of the NIRC. (Ibid.)
determination by the CTA must rest on all the evidence introduced and its
ultimate determination must find support in credible evidence.
[Commissioner of Internal Revenue, supra]
20.
What are the instances that suspends the
running of the prescriptive periods (Statute of Limitations)
within which to make an assessment and the beginning of
distraint or levy or of a proceeding in court for the collection, in
respect of any tax deficiencies?
SUGGESTED ANSWER:
a.
When the Commissioner is prohibited from making the
assessment, or beginning distraint, or levy or proceeding in court and for
sixty (60) days thereafter;
b.
When the taxpayer requests for and is granted a
reinvestigation by the commissioner;
c.
When the taxpayer could not be located in the address given
by him in the return filed upon which the tax is being assessed or collected;
56
d.
When the warrant of distraint and levy is duly served upon
the taxpayer, his authorized representative, or a member of his household
with sufficient discretion, and no property could be located; and
e.
When the taxpayer is out of the Philippines.
NOTES AND COMMENTS:
The holding in Commissioner of Internal Revenue v. Court of
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case) that
the waiver of the period for assessment must be in writing and have the
written consent of the BIR Commissioner is still doctrinal because of the
provisions of Sec. 223, NIRC of 1997 which provides for the suspension of
the prescriptive period:
21.
Under RMO No. 20-90, which implements
Sections 203 and 222 (b), the following procedures should be
followed for a valid waiver of the prescriptive period for an
assessment:
a.
for the taxpayer and the third copy for the Office accepting the waiver.
The fact of receipt by the taxpayer of his/her file copy shall be
indicated in the original copy.
d.
The foregoing procedures shall be strictly followed.
Any revenue official found not to have complied with this Order resulting
in prescription of the right to assess/collect shall be administratively dealt
with. (Renumbering and emphasis supplied.)
If the above are not followed there is no valid waiver and
prescription would run.
(Commissioner of Internal Revenue v. FMF
Development Corporation, G. R. No. 167765, June 30, 2008 citing Philippine
Journalists, Inc. v. Commissioner of Internal Revenue G.R. No. 162852,
December 16, 2004, 447 SCRA 214, 228-229)
23. BIR cannot rely on its invocation of the rule that the
government cannot be estopped by the mistakes of its revenue
officers in the enforcement of RMO No. 20-90 because the law on
prescription should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommended the approval of the
law. To the Government, its tax officers are obliged to act promptly in the
57
making of assessment so that taxpayers, after the lapse of the period of
prescription, would have a feeling of security against unscrupulous tax
agents who will always try to find an excuse to inspect the books of
taxpayers, not to determine the latters real liability, but to take advantage of
a possible opportunity to harass even law-abiding businessmen. Without
such legal defense, taxpayers would be open season to harassment by
unscrupulous tax agents. [Commissioner of Internal Revenue v. FMF
Development Corporation, G. R. No. 167765, June 30, 2008 citing Republic of
the Phils. v. Ablaza, 108 Phil. 1105, 1108 (1960)]
24.
The signatures of both the Commissioner and
the taxpayer, are required for a waiver of the prescriptive
period, thus a unilateral waiver on the part of the taxpayer does not
suspend the prescriptive period. [Commissioner of Internal Revenue v. Court of
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case)]
58
b.
The taxpayer must not only show the errors of the Bureau of
Internal Revenue but also the correct computation through
1)
A statement of the facts, the applicable law, rules and
regulations, or jurisprudence on which the taxpayers protest is
based,
2)
If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the applicable
law, rules and regulations, or jurisprudence in support of his protest
against some of the several issues on which the assessment is
based, the same shall be considered undisputed issue or issues, in
which case, the taxpayer shall be required to pay the corresponding
deficiency tax or taxes attributable thereto. (Sec. 3.1.5, Rev. Regs.
12-99)
c.
Within sixty (60) days from filing of the protest, the taxpayer
shall submit all relevant supporting documents. [4th par., Sec. 228 (e), NIRC
of 1997]
JUDICIAL
REMEDIES
ASSESSMENTS
INVOLVING
PROTESTED
b.
An indication to the taxpayer by the Commissioner in clear
and unequivocal language of his final denial not the issuance of the
warrant of distraint and levy. What is the subject of the appeal is the final
decision not the warrant of distraint. (Ibid.)
c.
A BIR demand letter sent to the taxpayer after his protest of
the assessment notice is considered as the final decision of the
d.
A letter of the BIR Commissioner reiterating to a taxpayer his
previous demand to pay an assessment is considered a denial of the
request for reconsideration or protest and is appealable to the Court of Tax
Appeals. (Commissioner v. Ayala Securities Corporation, 70 SCRA 204)
e.
Final notice before seizure considered as commissioners
decision of taxpayers request for reconsideration who received no other
response.
Commissioner of Internal Revenue v. Isabela Cultural
Corporation, G.R. No. 135210, July 11, 2001 held that not only is the
Notice the only response received: its content and tenor supports the
theory that it was the CIRs final act regarding the request for
reconsideration. The very title expressly indicated that it was a final notice
prior to seizure of property. The letter itself clearly stated that the taxpayer
was being given this LAST OPPORTUNITY to pay; otherwise, its
properties would be subjected to distraint and levy.
59
3.
As a general rule, there must always be a decision
of the Commissioner of Internal Revenue or Commissioner of
Customs before the Court of Tax Appeals, would have
jurisdiction. If there is no such decision, the petition would be dismissed
for lack of jurisdiction unless the case falls under any of the following
exceptions.
4.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision yet by the
Commissioner of Internal Revenue:
a. Where the Commissioner has not acted on the disputed
assessment after a period of 180 days from submission of complete
supporting documents, the taxpayer has a period of 30 days from the
expiration of the 180 day period within which to appeal to the Court of Tax
Appeals. (last par., Sec. 228 (e), NIRC of 1997; Commissioner of Internal
Revenue v. Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)
1.
While this may be so, statutes may provide for periods of prescription,
2.
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be
liberally construed, and exemptions are not given retroactive application,
considering that taxes are the lifeblood of the government and in Holmes
memorable metaphor, the price we pay for civilization, tax laws must be
faithfully and strictly implemented. (Commissioner of Internal Revenue v.
Acosta, etc.,G. R. No. 154068, August 3, 2007)
However, statutes may provide
for prescriptive periods for the collection of particular kinds of taxes.
b.
Tax laws, unlike remedial laws, are not to be applied
retroactively. Revenue laws are substantive laws and their application
must not be equated with remedial laws. (Acosta, supra)
3.
What is the prescriptive period for collecting internal
revenue taxes ?
SUGGESTED ANSWER: There are four (4) prescriptive periods for
the collection of an internal revenue tax:
a.
Collection upon a false or fraudulent return or no return
without assessment. In case of a false or fraudulent return with the intent
to evade tax or of failure to file a return, a proceeding in court for the
collection of such tax may be filed without assessment, at any time within
ten (10) years after the discovery of the falsity, fraud or omission. [Sec.
222 (a), NIRC of 1997]
b.
Collection upon a false or fraudulent return or no return with
assessment. Any internal revenue tax which has been assessed (because
the return is false or fraudulent with intent to evade tax or of failure to fail a
return), within a period of ten (10) years from discovery of the falsity, fraud
or omission may be collected by distraint or levy or by a proceeding
in court within five (5) years following the assessment of the tax.
[Sec. 222 (c), in relation to Sec. 222 (a) NIRC of 1997, emphasis supplied]
c.
Collection upon an extended assessment. Where a tax has
been assessed with the period agreed upon between the Commissioner
and the taxpayer in writing (which should initially be within three (3) years
from the time the return was filed or should have been filed), or any
extensions before the expiration of the period agreed upon, the tax may
be collected by distraint or levy or by a proceeding in court within
the period agreed upon in writing before the expiration of the five (5)
year period. The period so agreed upon may be extended by subsequent
written agreements made before the expiration of the period previously
60
agreed upon. [Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997,
emphasis supplied]
d.
Collection upon a return that is not false or fraudulent, or
where the assessment is not an extended assessment. Except as
provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such
period; Provided, That in case where a return is filed beyond the period
prescribed by law, the three (3) year period shall be computed from the day
the return was filed. For purposes of this Section, a return filed before the
last day prescribed by law for the filing thereof shall be considered filed on
such last day. (Sec. 203, NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three (3)year period, it has another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The assessment of the tax is
deemed made and the three (3)-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released,
mailed or sent to the taxpayer. [Bank of Philippine Islands (Formerly Far East
Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing BPI v. Commissioner of Internal Revenue, G.R.
No. 139736, 17 October 2005, 473 SCRA 205, 222-223]
4. What is a compromise ?
SUGGESTED ANSWER: A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end
to one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the
taxpayer did not agree. A compromise being, by its nature, mutual in
essence requires agreement. The payment made under protest could only
signify that there was no agreement that had effectively been reached
between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal
Revenue, G. R. No. 138485, September 10, 2001)
61
c. Criminal violations already filed in court;
d. Delinquent accounts with duly approved schedule of
installment payments;
e. Cases where final reports of reinvestigation or reconsideration
have been issued resulting to reduction in the original assessment and the
taxpayer is agreeable to such decision by signing the required agreement
form for the purpose. On the other hand, other protested cases shall be
handled by the Regional Evaluation Board (REB) or the National
Evaluation Board (NEB) on a case to case basis;
f.
Cases which become final and executory after final judgment
of a court where compromise is requested on the ground of doubtful
validity of the assessment; and
g. Estate tax cases where compromise is requested on the
ground of financial incapacity of the taxpayer. (Sec. 2, Rev. Regs. No. 302002)
9.
The collection of a tax may not be suspended. Only
the Court of Tax Appeals may issue an order suspending the collection of a
tax.
The Supreme Court may enjoin the collection of taxes under its
general judicial power but it should be apparent that the source of the
power is not statutory but constitutional.
62
SUGGESTED ANSWER: The grounds for refund or credit or
internal revenue taxes are the following:
a.
The tax was illegally collected. There is no law that
authorizes the collection of the tax.
b.
The tax was excessively collected. There is a law that
authorizes the collection of a tax but the tax collected was more than what
the law allows.
c.
The tax was paid through a mistaken belief that the taxpayer
should pay the tax (solution indebeti)
5. The two (2) year period and the thirty (30) day period
should be applied on a whichever comes first basis . Thus, if the
30 days is within the 2 years, the 30 days applies, if the 2 year period is
about to lapse but there is no decision yet by the Commissioner which
would trigger the 30-day period, the taxpayer should file an appeal, despite
the absence of a decision. (Commissioners, etc. v. Court of Tax Appeals, et al.,
G. R. No. 82618, March 16, 1989, unrep.)
Mortgage Bank v. Court of Appeals, et al., G. R. No. 155682, March 27, 2007)
3.
What should be established by a taxpayer for the
grant of a tax refund ? Why ?
Islands v. Commissioner of Internal Revenue, G.R. No. 144653, August 28, 2001)
It is only when the return, covering the whole year, is filed that the
taxpayer will be able to ascertain whether a tax is still due or refund can be
claimed based on the adjusted and audited figures. (Bank of the Philippine
63
SUGGESTED ANSWER: Under the principle of solutio indebiti
provided in Art. 2154, Civil Code, If something is received when there is
no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises. The BIR received something when there
[was] no right to demand it, and thus, it has the obligation to return it.
[State Land Investment Corporation v. Commissioner of Internal
Revenue, G. R. No. 171956, January 18, 2008citing Citibank, N. A. v.
Court of Appeals and Commissioner of Internal Revenue, G.R. No.
107434, October 10, 1997, 280 SCRA 459, in turn citing Ramie Textiles,
Inc. v. Mathay, Sr., 89 SCRA 586 (1979)]. It is an ancient principle that no
one, not even the state, shall enrich oneself at the expense of another.
Indeed, simple justice requires the speedy refund of the wrongly held
taxes. (Ibid.)
a.
a.
To afford the Commissioner an opportunity to correct his errors or that of
subordinate officers. (Gonzales v. Court of Tax Appeals, et al., 14 SCRA79)
9.
As a general rule the filing of an application for
refund or credit with the Bureau of Internal Revenue is an
administrative precondition before a suit may be filed with the
Court of Tax Appeals ?
ANSWER:
b. To notify the Government that such taxes have been
questioned and the notice should be borne in mind in estimating the
revenue available for expenditures.
64
A withholding tax agent may also apply for a refund. In a sense,
he is also a taxpayer because the tax may be collected from him if he does
not withhold.
SUGGESTED ANSWER: Yes. The failure to first file a written claim for
refund or credit is not fatal to a petition for review involving a disputed
assessment where an assessment was disputed but the protest was
denied
by the Bureau of Internal Revenue. To hold that the taxpayer has now lost
the right to appeal from the ruling on the disputed assessment and require
him to file a claim for a refund of the taxes paid as a condition precedent to
his right to appeal, would in effect require of him to go through a useless
and needless ceremony that would only delay the disposition of the case,
for the Commissioner would certainly disallow the claim for refund in the
same way as he disallowed the protest against the assessment. The law,
should not be interpreted as to result in absurdities. (vda. de San Agustin.,
etc., v. Commissioner of Internal Revenue, G.R. No. 138485, September 10, 2001
citing Roman Catholic Archbishop of Cebu v. Collector of Internal Revenue, 4
SCRA 279) NOTE: Reconciliation between above two numbers (8 and
9). An application for refund or credit under Sec. 229 of the NIRC of 1997
is required where the case filed before the CTA is a refund case, which is
not premised upon a disputed assessment. There is no need for a prior
application for refund or credit, if the refund is merely a consequence of
the resolution of the BIRs denial of a protested assessment.
65
and the choice of one precludes the other. [Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R. No. 176290, September 21, 2007 citing
Philippine Bank of Communications v. Commissioner of Internal Revenue, 361
Phil. 916 (1999)]
carry over, it may then be allowed to claim the refund of the remaining
tax credits. In such a case, the remaining tax credits can no longer be
carried over and the irrevocability rule ceases to apply. Cessante ratione
legis, cessat ipse lex. (Footnote no. 23, Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R. No. 176290, September 21,
2007)
NOTES AND COMMENTS: The holding in State Land Investment
Corporation v. Commissioner of Internal Revenue, G. R. No. 171956,
January 18, 2008 that the taxpayer is entitled to a refund because during
the succeeding year there was no tax due against which the excess tax
credits may be applied is not doctrinal. This is so because it interpreted
the provisions of then Sec. 69 of the NIRC, which did not provide for the
irrevocability rule now contained in Sec. 76 of the NIRC of 1997.
66
However, in BPI-Family Savings Bank v. Court of Appeals, 386 Phil.
719; 326 SCRA 641 (2000), refund was granted, despite the failure to
present the tax return, because other evidence was presented to prove that
the overpaid taxes were not applied. (Ibid.)
67
total tax due on the entire taxable income of that year as shown in its
final adjustment return, the corporation has the option to either: (a) pay
the excess tax still due, or (b) be refunded the excess amount paid. The
returns submitted are merely pre-audited which consist mainly of
checking mathematical accuracy of the figures in the return. After such
checking, the purpose of which being to insure prompt action on
corporate annual income tax returns showing refundable amounts arising
from overpaid quarterly income taxes, (Revenue Memorandum Order
No. 32-76 dated June 11, 1976) the refund or tax credit is granted.
(Commissioner of Internal Revenue v. Manila Electric Company, G. R. No.
121666, October 10, 2007)
2.
When is importation deemed terminated and
why is it important to know whether importation has already
ended?
SUGGESTED ANSWER: Importation is deemed terminated upon
payment of the duties, taxes and other charges due upon the agencies, or
secured to be paid, at the port of entry and the legal permit for withdrawal
shall have been granted.
In case the articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs. (Sec. 1202, TCCP)
The Bureau of Customs loses jurisdiction to enforce the TCCP and to
make seizures and forfeitures after importation is deemed terminated.
68
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from, or exported to, a foreign
country. (Nestle Phils. v. Court of Appeals, et al., G.R. No. 134114, July 6,
2001)
5. Special customs duties are additional import duties
imposed on specific kinds of imported articles under certain
conditions. The special customs duties under the Tariff and Customs
Code (TCCP) are the anti-dumping duty, the countervailing duty, the
discriminatory duty, and the marking duty, and under the Safeguard
Measures Act (SMA) additional tariffs as safeguard measures.
7.
Dumping duty is an additional special duty
amounting to the difference between the export price and the
normal value of such product, commodity or article (Sec. 301 (s)
(1), TCC, as amended by
9.
Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product,
commodity, or article in the ordinary course of trade when destined for
consumption in the country of export. [Sec. 301 (s) (3 ), TCC, as amended
by Rep. Act No. 8752, Anti-Dumping Act of 1999]
12. In the determination of whether to impose the antidumping duty, the Tariff Commission, may consider among
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and other
related local industries. (Sec. 301 (a), TCC, as amended by Rep. Act No.
8752, Anti-Dumping Act of 1999)
69
24.
Safeguards
measures
that
may
be
imposed.
70
28.
Law ?
71
due after apprehension shall not constitute a valid defense in any
prosecution under this section. (last par., Sec. 3601, TCC)
31.
72
There is fraud;
The importation is absolutely prohibited, or
The release of the property would be contrary to law.
(Transglobe International, Inc. v. Court of Appeals, et al., G.R. No. 126634, January
25, 1999)
39.
In Aznar v. Court of Tax Appeals, 58 SCRA 519, reiterated in
Farolan, Jr. v. Court of Tax appeals, et al., 217 SCRA 298, the Supreme
Court clarified that the fraud contemplated by law must be actual
and not constructive. It must be intentional, consisting of deception,
willfully and deliberately done or resorted to in order to induce another to
give up some right.
40.
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or
delivery by the same person of any invoice, letter or paper all touching
on the importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or
paper; and
c.
an intention on the part of the importer/consignee to evade
the payment of the duties due. (Republic, etc., v. The Court of Appeals, et
al., G.R. No. 139050, October 2, 2001)
73
possession over it. Neither was accomplished by the RTC as the vessel
was already in the possession of the Bureau of Customs. (Commissioner
of Customs v. Court of Appeals, et al., G. R. Nos. 111202-05, January 31,
2006)
NOTES AND COMMENTS:
a.
Forfeiture of seized goods in the Bureau of Customs is in
the nature of a proceeding in rem, i.e. directed against the res or
imported goods and entails a determination of the legality of their
importation. In this proceeding, it is in legal contemplation the property
itself which commits the violation and is treated as the offender, without
reference whatsoever to the character or conduct of the owner.
The issue is limited to whether the imported goods should be
forfeited and disposed of in accordance with law for violation of the Tariff
and Customs Code. .(Transglobe International, Inc. v. Court of Appeals, et
al., G.R. No. 126634, January 25, 1999)
Forfeiture of seized goods in the Bureau of Customs is a proceeding
against the goods and not against the owner. (Asian Terminals, Inc. v.
Bautista-Ricafort, G .R. No. 166901, October 27, 2006 citing Transglobe)
be
considered as a liquidation or an assessment of Shells import
tax liabilities that can be the subject of an administrative tax
protest proceeding before the Commissioner of Customs
whose decision is appealable to the Court of Tax Appeals:
a.
the One Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center (the Center) November 3 letter, signed by the Secretary
of Finance, informing it of the cancellation of the Tax Credit Certificates
(TCCs);
b.
the Commissioner of Customs November 19 letter requiring
Shell to replace the amount equivalent to the amount of the cancelled
TCCs used by Shell; and
74
c.
the Commissioner of Customs collection letters, issued
through Deputy Commissioner Atty. Valera, formally demanding the
amount covered by the cancelled TCCs.
None of these letters, however, can be considered as a liquidation
or an assessment of Shells import tax liabilities that can be the subject of
an administrative tax protest proceeding before the respondent whose
decision is appealable to the CTA. Shells import tax liabilities had long
been computed and ascertained in the original assessments, and Shell
paid these liabilities using the TCCs transferred to it as payment.
It is even an error to consider the letters as a reassessment
because they refer to the same tax liabilities on the same importations
covered by the original assessments. The letters merely reissued the
original assessments that were previously settled by Shell with the use of
the TCCs. However, on account of the cancellation of the TCCs, the tax
liabilities of Shell under the original assessments were considered
unpaid; hence, the letters and the actions for collection.
When Shell went to the CTA, the issues it raised in its petition were
all related to the fact and efficacy of the payments made, specifically the
genuineness of the TCCs; the absence of due process in the enforcement
of the decision to cancel the TCCs; the facts surrounding the fraud in
originally securing the TCCs; and the application of estoppel. These are
payment and collection issues, not tax protest issues within the CTAs
jurisdiction to rule upon.
Shell never protested the original assessments of its tax liabilities
and in fact settled them using the TCCs. These original assessments,
therefore, have become final, incontestable, and beyond any subsequent
protest proceeding, administrative or judicial, to rule upon.
To be very precise, Shells petition before the CTA principally
questioned the validity of the cancellation of the TCCs a decision that
was made not by the Commissioner of Customs, but by the Center. As
the CTA has no jurisdiction over decisions of the Center, Shells remedy
against the cancellation should have been a certiorari petition before the
regular courts, not a tax protest case before the CTA. Records do not
show that Shell ever availed of this remedy.
Alternatively, as held in Shell v. Republic of the Philippines, G.R.
No. 161953, March 6, 2008, 547 SCRA 701, the appropriate forum for
Shell under the circumstances of this case should be at the collection
cases before the RTC where Shell can put up the fact of its payment as a
defense. (Pilipinas Shell Petroleum Corporation v. Commissioner of
Customs, G. R. No. 176380, June 18, 2009)
The assessment has long been final, and this recognition of finality
removes all perceived hindrances, based on this case, to the continuation
of the collection suits.
A suit for the collection of internal revenue taxes, where the
assessment has already become final and executory, the action to collect
is akin to an action to enforce the judgment. No inquiry can be made
therein as to the merits of the
In light of the conclusion that the present case does not involve a
decision of the Commissioner of Customs on a matter brought to him as
a tax protest, Atty. Valeras lack of authority to issue the collection letters
and to institute the collection suits is irrelevant. For this same reason,
the injunction against Atty. Valera cannot be invoked to enjoin the
collection of unpaid taxes due from Shell. (Pilipinas Shell Petroleum
Corporation v. Commissioner of Customs, supra)
75
directly granting them general and broad tax powers. (City Government of
San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25,
1999)
4.
The Local Government Code explicitly authorizes
provinces and cities, notwithstanding any exemption granted
by any law or other special law to impose a tax on businesses
enjoying a franchise. Indicative of the legislative intent to carry out the
constitutional mandate of vesting broad tax powers to local government
units, the Local Government Code has withdrawn tax exemptions or
incentives theretofore enjoyed by certain entities. (City Government of San
Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)
5.
Philippine Long Distance Telephone Company, Inc.,
v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001,
upheld the authority of the City of Davao, a local government unit, to
impose and collect a local franchise tax because the Local Government
has withdrawn all tax exemptions previously enjoyed by all persons and
authorized local government units to impose a tax on business enjoying a
franchise tax notwithstanding the grant of tax exemption to them.
6.
Explain the concept of the paradigm shift in
local government taxation.
SUGGESTED ANSWER:
Paradigm shift from exclusive
Congressional power to direct grant of taxing power to local legislative
bodies. The power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy taxes, fees
and other charges pursuant to Article X, section 5 of the 1987 Constitution.
(Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675,
and companion case, April 28, 2004 citing National Power Corporation v.
City of Cabanatuan, G. R. No. 149110, April 9, 2003)
c.
the resources of the national government will be unduly
disturbed; and
d.
local taxation will be fair, uniform and just. (Manila Electric
Company v. Province of Laguna, et al., G.R. No. 131359, May 5, 1999)
8.
9.
Further amplification by Bernas of the local
governments power to tax. What is the effect of Section 5 on the
fiscal position of municipal corporations? Section 5 does not change the
doctrine that municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a general
power to levy taxes and otherwise create sources of revenue. They no
longer have to wait for a statutory grant of these powers. The power of
the legislative authority relative to the fiscal powers of local governments
has been reduced to the authority to impose limitations on municipal
powers. Moreover, these limitations must be consistent with the basic
policy of local autonomy. The important legal effect of Section 5 is thus
to reverse the principle that doubts are resolved against municipal
corporations.
Henceforth, in interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor of municipal
corporations. It is understood, however, that taxes imposed by local
government must be for a public purpose, uniform within a locality, must
not be confiscatory, and must be within the jurisdiction of the local unit to
pass. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No.
166408, October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169)
76
13.
77
SUGGESTED ANSWER:
ABC is correct.
Condominium
corporations are generally exempt from local business taxation under the
Local Government Code, irrespective of any local ordinance that seeks to
declare otherwise.
X City, is authorized under the Local Government Code, to impose a
tax on business, which is defined under the Code as trade or commercial
activity regularly engaged in as a means of livelihood or with a view to
profit. By its very nature a condominium corporation is not engaged in
business, and any profit that it derives is merely incidental, hence it may
not be subject to business taxes. (Yamane , etc. v. BA Lepanto
Condominium Corporation, G. R. No. 154993, October 25, 2005)
are:
a.
Appraisal at current and fair market value;
b.
Classification for assessment on the basis of actual use;
c.
Assessment on the basis of uniform classification;
d.
Appraisal, assessment, levy and collection shall not be let to
a private person;
e.
Appraisal and assessment shall be equitable.
NOTES AND COMMENTS: Real properties shall be appraised at
the current and fair market value prevailing in the locality where the
property is situated and classified for assessment purposes on the basis of
its actual use. (Allied Banking Corporation, etc., v. Quezon City Government, et
al., G. R. No. 154126, October 11, 2005)
2.
The reasonable market value is determined by the
assessor in the form of a schedule of fair market values.
The schedule is then enacted by the local sanggunian.
3.
Fair market value is the price at which a property
may be sold by a seller who is not compelled to sell and bought
by a buyer who is not compelled to buy, taking into consideration all
uses to which the property is adopted and might in reason be applied.
The criterion established by the statute contemplates a hypothetical
sale. Hence, the buyers need not be actual and existing purchasers.
(Allied Banking Corporation, etc., v. Quezon City Government, et al., G. R.
No. 154126, October 11, 2005 )
NOTES AND COMMENTS: In fixing the value of real property,
assessors have to consider all the circumstances and elements of value
and must exercise prudent discretion in reaching conclusions. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005)
Preparation of fair market values:
a.
The city or municipal assessor shall prepare a schedule of fair
market values for the different classes of real property situated in their
respective Local Government Units for the enactment of an ordinance by
the sanggunian concerned; and
b. The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality
concerned or the posting in the provincial capitol or other places as
required by law. (Lopez v. City of Manila, et al., G.R. No. 127139, February
19, 1999)
Proposed fair market values of real property in a local
government unit as well as the ordinance containing the schedule
must be published in full for three (3) consecutive days in a newspaper
of local circulation, where available, within ten (10) days of its approval,
and posted in at lease two (2) prominent places in the provincial capitol,
city, municipal or barangay hall for a minimum of three (3) consecutive
weeks. (Figuerres v. Court of Appeals, et al,. G.R. No. 119172, March 25,
1999)
78
4.
Approaches in estimating the fair market value of
real property for real property tax purposes ?
a.
Sales Analysis Approach. The sales price paid in actual
market transactions is considered by taking into account valid sales data
accumulated from among the Registrar of Deeds, notaries public,
appraisers, brokers, dealers, bank officials, and various sources stated
under the Local Government Code.
b.
Income Capitalization Approach. The value of an incomeproducing property is no more than the return derived from it. An analysis
of the income produced is necessary in order to estimate the sum which
might be invested in the purchase of the property.
c.
Reproduction cost approach is a formal approach used
exclusively n appraising man-made improvements such as buildings and
other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.
The assessor uses any or all of these approaches in analyzing the
data gathered to arrive at the estimated fair market value to be included in
the ordinance containing the schedule of fair market values. (Allied
Banking Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, October 11, 2005 citing Local Assessment Regulations No. 1-92)
b.
Light Rail Transit (LRT) improvements such as buildings,
carriageways, passenger terminals stations, and similar structures do not
79
form part of the public roads since the former are constructed over the
latter in such a way that the flow of vehicular traffic would not be impaired.
The carriageways and terminals serve a function different from the public
roads. Furthermore, they are not open to use by the general public hence
not exempt from real property taxes. Even granting that the national
government owns the carriageways and terminal stations, the property is
not exempt because their beneficial use has been granted to LRTA a
taxable entity. (Light Rail Transit Authority v. Central Board of Assessment
Appeals, et al., G. R. No. 127316, October 12, 2000)
c.
Barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied
fuel oil to the power plant barges, and the accessory equipment mounted
on the barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that [d]ocks and
structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast are considered immovable
property by destination being intended by the owner for an industry or
work which may be carried on in a building or on a piece of land and which
tend directly to meet the needs of said industry or work. (FELS Energy, Inc.,
v. Province of Batangas, G. R. No. 168557, February 16, 2007 and companion
case)
7.
Unpaid realty taxes attach to the property and is
chargeable against the person who had actual or beneficial use
and possession of it regardless of whether or not he is the
owner. To impose the real property tax on the subsequent owner which
was neither the owner not the beneficial user of the property during the
designated periods would not only be contrary to law but also unjust.
Consequently, MERALCO the former owner/user of the property
was required to pay the tax instead of the new owner NAPOCOR. (Manila
Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
9.
Public hearings are mandatory prior to approval of
tax ordinance, but this still requires the taxpayer to adduce evidence to
show that no public hearings ever took place. (Reyes, et al., v. Court of
Appeals, et al., G.R. No. 118233, December 10, 1999) Public hearings are
required to be conducted prior to the enactment of an ordinance imposing
real property taxes. (Figuerres v. Court of Appeals, et al., G.R. No. 119172,
March 25, 1999)
failure to comply therewith can invalidate the sale. The prescribed notices
must be sent to comply with the requirements of due process. (De Knecht,
314)
80
contract also stated that NPC shall be responsible for all real
estate taxes and assessments.
FELS then received an
assessment of real property taxes on its power barges from the
Provincial Assessor of Batangas.
If filed a motion for
reconsideration with the Provincial Assessor.
a.
Upon denial, FELS elevated the matter to the Local
Board of Assessment Appeals (LBAA), where it raised the
following issues:
1)
Since NPC is tax-exempt then FELs should
also be tax-exempt because of its contract with NPC.
2)
The power barges are not real property
subject to real property taxes.
b.
Upon the other hand the Local Treasurer insists that
the assessment has attained a state of finality hence the appeal
to the LBAA should be dismissed.
Rule on the conflicting contentions.
SUGGESTED ANSWER:
a.
All the contentions of FELS are without merit:
1)
NPC is not the owner of the power barges nor the
operator of the power barges. The tax exemption privilege granted
to NPC cannot be extended to FELS. the covenant is between
NPC and FELs and does not bind a third person not privy to the
contract such as the Province of Batangas.
2)
The Supreme Court of New York in Consolidated
Edison Company of New York, Inc., et al., v. The City of New York,
et al., 80 Misc. 2d 1065 (1975) cited in FELS Energy, Inc., v.
Province of Batangas, G. R. No. 168557, February 16, 2007 and
companion case, held that barges on which were mounted gas
turbine power plants designated to generate electrical power, the
fuel oil barges which supplied fuel oil to the power plant barges, and
the accessory equipment mounted on the barges were subject to
real property taxes.
Moreover, Article 415(9) of the Civil Code provides that
[d]ocks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake or coast
are considered immovable property by destination being intended by
the owner for an industry or work which may be carried on in a
building or on a piece of land and which tend directly to meet the
needs of said industry or work.
b.
The Treasurer is correct. The procedure do not allow a
motion for reconsideration to be filed with the Provincial Assessor.
14.
A special levy or special assessment is an
imposition by a province, a city, a municipality within the
Metropolitan Manila Area, a municipality or a barangay upon real
property specially benefited by a public works expenditure of the LGU to
recover not more than 60% of such expenditure.
81
e.
The adverse decision of the Local Board of Assessment
Appeals should be appealed within thirty (30) days from receipt to the
Central Board of Assessment Appeals.
f.
The adverse decision of the Central Board of Assessment
Appeals shall be appealed to the Court of Tax Appeals (En Banc) by
means of a petition for review within thirty (30) days from receipt of the
adverse decision.
g.
The decision of the CTA may be the subject of a motion for
reconsideration or new trial after which an appeal may be interposed by
means of a petition for review on certiorari directed to the Supreme Court
on pure questions of law within a period of fifteen (15) days from receipt
extendible for a period of thirty (30) days.
c.
The decision of the Regional Trial Court should be appealed
by means of a petition for review directed to the Court of Tax Appeals
(Division).
d.
The decision of the Court of Tax Appeals (Division) may be
the subject of a review by the Court of Tax Appeals (en banc).
e.
The decision of the Court of Tax Appeals (en banc) may be
the subject of a petition for review on certiorari on pure questions of law
directed to the Supreme Court.
20.
Charitable
institutions,
churches
and
parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries, and all lands, buildings and improvements
that are actually, directly and exclusively used for religious,
charitable or educational purposes are exempt from taxation.
[Sec.28 (3) Article VI, 1987 Constitution]
21.
real property that are actually, directly and exclusively used for religious,
charitable or educational purposes, and that the only constitutionally
recognized exemption from taxation of revenues are those earned by nonprofit, non-stock educational institutions which are actually, directly and
exclusively used for educational purposes. (Commissioner of Internal
Revenue v. Court of Appeals, et al., 298 SCRA 83)
The constitutional tax exemption covers property taxes only. What is
exempted is not the institution itself, those exempted from real estate taxes
are lands, buildings and improvements actually, directly and exclusively
used for religious, charitable or educational purposes. (Lung Center of the
Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
82
which the charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property is used
for tax-exempt purposes.
If real property is used for one or more commercial purposes, it is
not exclusively used for the exempted purpose but is subject to taxation,.
The words dominant use or principal use cannot be substituted for the
words used exclusively without doing violence to the Constitution and the
law. Solely is synonymous with exclusively. (Lung Center of the Philippines v.
Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)
25.
As a general principle, a charitable institution does
not lose its character as such and its exemption from taxes
simply because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies
from the government. So long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or
operating the institution. (Lung Center of the Philippines v. Quezon City, et al.,
etc., G. R. No. 144104, June 29, 2004)
26.
Property that are exempt from the payment of
real property tax under the Local Government Code.
a.
Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has been
granted to a taxable person for a consideration or otherwise;
b.
Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries, and all
lands, buildings and improvements actually, directly and exclusively used
for religious, charitable and educational purposes;
c.
Machineries and equipment, actually, directly and exclusively
used by local water districts; and government owned and controlled
corporations engaged in the supply and distribution of water and generation
and transmission of electric power;
d.
Real property owned by duly registered cooperatives;
e.
Machinery and equipment used for pollution control and
environmental protection.
83
covered are those owned by the company from which the City
is now collecting P43 million. The properties of the company
were then scheduled by the City for sale at public auction.
The company then filed a petition for the issuance of a
writ of prohibition claiming exemption under its legislative
franchise.
The City defended its position raising the
following:
a.
There was no exhaustion of administrative
remedies because the matter should have first been filed
before the Local Board of Assessment Appeals;
b.
The companys properties are exempt from tax
under its franchise.
Resolve the issues raised.
SUGGESTED ANSWERS:
a.
There is no need to exhaust administrative remedies as the
appeal to the LBAA is not a speedy and adequate remedy within the law.
This is so because the properties are already scheduled for auction sale.
Furthermore one of the recognized exceptions to the rule on
exhaustion is that if the issue is purely legal in character which is so in
this case.
b.
The properties are exempt from taxation. The grant of
taxing powers to local governments under the Constitution and the Local
Government Code does not affect the power of Congress to grant tax
exemptions.
The term exclusive of this franchise is interpreted to mean
properties actually, directly and exclusively used in the radio or
telecommunications business. The subsequent piece of legislation which
reiterated the phrase exclusive of this franchise found in the previous
tax exemption grant to the company is an express and real intention on
the part of Congress to once against remove from the LGCs delegated
taxing power, all of the companys properties that are actually, directly
and exclusively used in the pursuit of its franchise.
(The City
Government of Quezon City, et al., v. Bayan Telecommunications, Inc.,
G. R. No. 162015, March 6, 2006)
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT