TAX Lecture

MIDTERMS Coverage:
 Chapter 1-9
 Title 1 and 8 of 1997 Tax Code

POINTERS for MIDTERMS:

 Definition of taxation
 Power of Judicial Review
 Incidents of Taxation
 ___of the taxing power

Taxpayer’s Suit:
 Instead of direct injury test, use the Transcendental importance test

CHAPTER 2: LIMITATIONS ON THE TAXING POWER

 Commissioner vs Algue
 Tolentino vs Secretary of Finance*
 taxpayer’s suit
 power to destroy
 power to issue TROs despite section 218 of the Tax Code

LIMITATIONS:
 Public Purpose Tests now includes the Social Justice Test (any purpose that implements social justice program of
the government)
 Planters Products Phils vs Fertiphil?? Corporation
 Non impairment of contracts
 distinction between a contract and a franchise
 Lingayen Gulf? Electric Companies and Electrical Services vs
 PLDT
 4:00 Regarding the direct and indirect
 Philippine ____ Corporation*
 Maceda vs Macaraig*
 American Rubber company*
 Ocampo case*
 Actually directly exclusively used for religious purposes:
 Lung Center of the Philippines*
 Article 14 tax exemption of non-profit, non-stock educational institution
 Ateneo-income from the operation of canteen
 La Salle-income from the operation of canteen
 (read the different tax implications of non-profit, non-stock educational institutions)
 (also as distinguished from proprietary educational institutions)-Sec 27 D of Tax Code
 Section 27 (d) includes also hospitals
 St. Luke’s Medical Center vs Commissioner of Internal Revenue*

CHAPTER 3: DOUBLE TAXATION and TAX EXEMPTIONS

 Know the kinds of double taxation
 Diff between tax evasion and tax avoidance
 cases involving tax fraud
 tax evasion
 Gusi vs Ungab? (Yusi vs Pungab?)*
 Fortune Tobacco Corporation*
 PASCOR Development Corporation*
 CIR vs TODA*

CHAPTER 4: TAX LAWS, RULES, and REGULATIONS

 power of the Commissioner to interpret
 what are rulings of first impression? (Tax Code of 1997-Section 2-7)
READ SPECIAL LAWS:
 RA 9282
 RA 1125
 Jurisdiction of CTA
 Mode of Review to the CTA
 Innovations in RA 1125 by RA 9282

CHAPTER 5 & 6: TAX ADMINISTRATION and REMEDIES

 The applicable provision is Title 1 of Tax Code of 1997
 Which body of the government enforces collection of “national internal revenue taxes”?
 What is the objective of the Government?
 to collect tax
 What is the obligation of the taxpayer?
 to pay tax
 What does the taxpayer want?
 to not pay tax
 REASON: masakit daw sa bulsa magbayad ng tax > tax avoidance!
 Can you avoid tax? YES!
 Why can you avoid tax? because the law is ambiguous
 If the law is ambiguous? maraming butas, maraming lusot.
 SECTION 204 of the Tax Code
 power of the Commissioner to compromise
 purpose of compromise
 taxpayer need not go to court
 BIR was able to collect the tax
 WHY compromise?
 because issue is of DOUBTFUL VALIDITY
 DOUBTFUL VALIDITY- Law is correct, taxpayer is also correct. Because the law is
vague/doubtful, not precise. Both liberal and strict interpretation is allowed.
 SC settles the doubt, because under the Constitution the final arbiter of ALL CASES is the SC.
 Halfway mark in order to avoid ______ is the possibility that the taxpayer can invoke Section 204
of the Tax Code which is the power to compromise
 HOWEVER, if you invoke the power to compromise in a civil case, the issue MUST be of
DOUBTFUL VALIDITY
 Commissioner vs Algue
 Lifeblood Theory/ Theory of Necessity
 Despite the natural reluctance of the taxpayer to part with his hard earned money to pay
the tax, the government will be all out? immobilized...
 “Taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one’s hard-earned income to the taxing authorities,
every person who is able must contribute his share in the burden of running the
government. The government for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their
material and moral values.”
 Basis of taxation
 Symbiotic relationship between the services rendered by the government, it is incumbent
for you to pay tax
 Mode of Tax Compliance: SELF ASSESSING MODE (pay as you file system)
 determine your own liability
 RETURN
 it is a sworn declaration where the taxpayer inputs all the data that is necessary for him to compute the
tax (disclose the data/open book)
 REASON why the need to file a return?
 SECTION 5: Third Party Verification
 where the datas are gathered, datas that are considered as the best evidence obtainable
 In the event that BIR assess, BIR enjoys the presumption of correctness
 MEANING: taxpayer has the burden of proof to disprove the presumption
 Read Revenue Regulation 1299* renovated by RR 182013*
  RR 182013- Bill of Rights of Taxpayers
 In cases of self assessment there are tendencies that you will not declare the true informations
required
 In relation to Section 2 and Section 6: BIR has the power to examine the return (specifically
performed by the examiner)
 What will the examiner do? assess the tax return (examine the return of the taxpayer)
 first notify taxpayer
 found delinquency, send pre-assessment notice (stating the wrong computation)
 taxpayer reply within 15 days
 exercise onus probandi
 failure to reply, presumption of correctness attaches
 BIR enjoys the benefit of the period
 you should not sleep on your rights
 examiner is correct: final assessment notice to taxpayer (Section 228 Protest)
 Protest is a formal manifestation a written letter controverting the findings in the
assessment which must be filed within 30 days from the receipt of the final
assessment - JURISDICTIONAL (mandatory provision of the Tax Code)
 Within 60 days may or allowed to submit additional docs (directory provision of
Tax Code)
 Assessment disputed are called Disputed Assessment
 Assessment vs Disputed Assessment
 Final Decision on the disputed assessment (Section 228)
 In case the disputed assessment is denied, can avail of further remedy to the
CTA meaning that the administrative remedies have already been exhausted
 Under 9282 CTA has jurisdiction over disputed assessments
 BIR>CTA>CTA en banc>SC
 In case of self-assessment, where do you get the datas?
 Books of accounts registered with the BIR (double books are not allowed)
 Receipts
 Secrecy of bank deposits waived by operation of law

CHAPTER 7: STATUTE OF LIMITATIONS

 upon filing of return, there is a prescriptive period (Section 203)
 (WHICHEVER is LATER) 3 years from:
 due date (April 15) OR
 actual date of filing
 EXCEPTION (Section 222) MEMO
 Section 223 Suspension of prescriptive period
 Section 223 will only apply if the return is not defective
 Husay(Jusay) vs Gonzales*
 Aznar case*
 false vs fraudulent return
 when the return is defective by reason of fraud (fraudulent return) prescriptive pd is 10 years
 when return is defective by reason of falsity (honest mistake) -error in interpretation (no bad faith),
prescriptive pd is 3 years
 Bagongbuhay Trading vs Parolan*
 Prescription is the best defense in taxation
 REASON: must be examined within 3 years, otherwise, if not examined, FREE (with or without
error/fraud)
 Relevance of prescription in taxation
 In order that the examiner will be vigilant in examining the return of the taxpayer so that the taxpayer will
not forever be burdened by the threat of assessment by the BIR
 Prescription is the mode of acquiring or losing right by just passage of time
 RATIONALE: Every person must not sleep on his rights. If you have a right to assert, assert it on time.
 Memo exception to prescription (section 223?)
 Aznar case*
 All fraudulent return are false BUT not all false return are fraudulent because some return may be
false by reason of honest mistake (wrong interpretation)
NOTE:
*How different is the CTA under RA 9282(2004) and RA 1125 (1954) - know the changes
*memo Sec. 228 (5 instances where pre-assessment is not required)
*read RCBC case* on mutually exclusive
*182013 -is the exercise of due process of law (BIR is giving you all the reason/manner to contest because this is involves
the deprivation of a person’s hard earned money)
*BIR is tasked to enforce the decision of the SC on case the taxpayer loses in the disputed assessment case
*In case the taxpayer still refuses to pay (apply Section 205-208)
*personal property-distraint
*real property-levy
*money-garnishment

TAX EVASION
 Tax Evasion is a crime-proof beyond reasonable doubt
 In case of Tax Evasion: BIR>DOJ (lawyer for the Gov’t) >fiscal>lower court (1M below)>CTA (1M above)
 Tax evasion case can be filed simultaneously with a civil action in the regular courts for collection of money
(RATE- Run After Tax Evader)

RULING OF FIRST IMPRESSION

 ruling rendered for the first time
 Commissioner only will sign

RULING of ESTABLISHED PRECEDENT

 ruling rendered for the second time or when there is already a previous ruling
 Can be delegated to a subordinate officer who is likewise high ranking

STATUTE OF LIMITATIONS:
 Section 203, 222, 220

CHAPTER 8: TAXPAYER’S REMEDIES

 How may a taxpayer be aggrieved by the decision of the Commissioner?
 Wrong payment
 REMEDY: tax credit or tax refund
 If taxpayer is assessed?
 REMEDY? 182013 Bill of Rights of taxpayer
 In BOTH instances (natalo)
 Exhaustion of administrative remedies (Chapter 9)

READ Section 203-230 of Tax Code of 1997

RECAP of CASES:
 Tolentino vs Secretary of FInance-Due Process of Law
 Taxpayer’s suit
 Judicial review
 Arguments
 In the case of Tolentino vs sec of finance, how did the SC answer the argument that in cases of sale of
properties in installment and it was consummated about 15 years ago and thereafter VAT was passed. It
is not considered as an impairment of contracts? Because at the time the parties enter into the contract
(Deed of sale-1980) 20 years to pay, until year 2000. Sale of property. VAT took effect on 1996 where in
payment of amortization there is VAT. Tolentino contended that it was impairment of contracts. What did
the court say? How did the court answered the VATability of the sale of the bible? Tolentino invoked
American Bible Society case.
 CIR vs Algue
 Theory of taxation
 Basis of taxation
 Lingayen Electric, RCPI, Escudero Electric Services, Maceda vs Macaraig
 Impairment of Contracts
 Philippine Assettle...case, American Rubber Company, Yangco case ,Maceda vs Macaraig
 Shifting
 Direct and indirect tax
 Lung center of the PH
 Actually directly exclusively used
 Ateneo and La Salle case (earning of canteen), St. Luke’s Medical Center vs CIR
 Educational Institutions