Taxation - Aban Book

TAXATION SURVIVAL KIT – Aban BookChapter 1 GENERAL PRINCIPLES Taxation – power by which the sovereign, through its law making body, raises revenue to defray the necessary expenses of government, - it is merely a way of apportioning the costs of government among those who in some measure ar privileged to enjoy its benefits and must bear its burdens Commissioner of Internal Revenue vs Algue : - Symbiotic relationship - Whereby in exchange for the protection that the citizens get from the Government, taxes are paid Rationale of Taxation - taxes are what we pay for civilized society - without taxs, the government would be paralyzed for lack of motive power to activate and operate it - 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 running of government - the government for it is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enchance their moral and material values - THE SYMBIOTIC RELATIONSHIP IS THE RATIONALE of Taxation and SHOULD DISPEL THE ERRONEOUS NOTION THAT IT IS AN ARBITRARY METHOD OF EXACTION BY THOSE IN THE SEAT OF POWER Commissioner of Internal Revenue vs Tokyo Shipping Co - tax payers owe honesty to government just as government owes fairness to taxpayers BPI Family Savings Bank vs CA - If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the 1 Miranda, Clarisse Ann same standards against itself xxxx. No one, not even the State, should enrich itself at expense of another TAXES - enforced proportional contributions from persons and property levied by the law making body of the State by virtue of its sovereignty for the support of government and for public needs Characteristics of taxes : 1. A tax is a forced charge, imposition or contribution and as such it operates in invitum – it is in no way dependent on the will or contractual assent, express or implied, of the person taxed a. Not contracts, either expressed or implied but positive acts of government 2. Pecuniary burden payable in money a. Not necessarily confined to those payable in money, as in the case, for instance, of backpay certificates which under RA 304 could be usd as payment of taxes b. SC : Backpay certificates may be used to pay real estate taxes 3. It is levied by the legislative body of the State because the taxng power is peculiarly and exclusively legislative in character a. Taxes are obligations created by law 4. It is assessed in accordance with some reasonable rule of apportionment, which means that conformably with th constitutional mandate on progressivity of a taxing system a. Taxes must be based on ability to pay Do regressive taxes go against the constitutional mandate in Section 28 (1) Article VI of Constitution ? PAL vs Sec of Finance - Constitution does not really prohibit the imposition of indirect taxes which, like VAT are regressive. 2 - Congress shall evolve a progressive system of taxation Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by such taxes according to the taxpayers ability to pay 5. It is imposed by the State on persons, property, or services 6. A Tax is levied for public purpose as taxation in itself involves a burden to provide revenue for public purposes of a general nature TAXES, PERSONAL TO TAXPAYER - - - - A tax creates a civil liability on the part of the delinquent taxpayer, although NON PAYMENT THEREOF (Whether it be on account of the taxpayer’s failure or refusal to pay it) creates criminal liability, which could be the subject of a criminal prosecution under existing laws In taxation , it is one’s civil liability to pay taxes that gives rise to criminal liability NOT THE other way around as in criminal cases where criminal liability gives rise to a civil liability - - IMPORTANCE OF TAXES - 2 lifeblood of the Government and so should be calculated without unnecessary hindrance PRIMARY PURPOSE : generate funds for the State to finance the needs of the citizenry and to advance the common weal DUE PROCESS of law under the Constitution does not require judicial proceedings in tax cases o Because it is upon taxation that the Government chiefly relies to obtain the means to carry on its operations and it is utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible - A corporation’s tax delinquency cannot, for instance, be enforced against its stockholders because not only would this run counter to the principle that taxes are personal but it would also not be in accord with the rule that a corporation is vested by law with a personality that is separate and distinct from those o the persons composing it, as well as from that of any other legal entity to which it may be related STOCKHOLDERS MAY BE HELD LIABLE FOR UNPAID TAXES OF A DISSOLVED CORPORATION IF IT APPEARS THAT THE CORPORATE ASSETS HAVE PASSED INTO THEIR HANDS OR WHEN STOCKHOLDERS HAVE UNPAID SUBSCRIPTIONS TO THE CAPITAL OF CORPORATION Estate taxes accruing upon transmission of the decedent’s estate to his heirs are not liabilities which can be enforced against his heirs, for estate taxes are supposed to be obligations that must be paid by the executor/administrator out of the net estate, before delivery to any beneficiary of his distributive share HOWEVER, if prior to the payment of the estate tax due on the transfer of decedents estate, the properties of the deceased are distributed to any beneficiary, then such beneficiary shall be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears to the total value of the net estate NATURE OF THE TAXING POWER - power of tax is an attribute of sovereignty - it is inherent in the State - unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be TAXATION SURVIVAL KIT – Aban Book - - found only in the responsibility of the legislature which imposes the tax on constituency who are to pay it Awesome power – However, NO MATTER HOW AWESOME IT MAYBE, IT MUST NOT BE EXRCISED ARBITRARILY Taxation is a power emanating from necessity A necessary burden to preserve the State’s sovereignty Means to give citizenry an army to resist an aggression A nacy to defend its shores from invasion Corps of civil servants to serve Public improvement designed for enjoyment of citizenry and those which come within the State’s territory and facilities Protection which a government is supposed to provide TAXATION IS A HIGH PREROGATIVE OF SOVEEREINGTY THE RELINQUISHMENT OF WHICH IS NEVER PRESUMED, AND ANY REDUCTION OR DIMUTION THEREOF WITH RESPECT TO ITS MODE OR RATE MUST BE STRICTLY CONTRUED AND THE SAME MUST BE COUCHED INC LEAR TERMS GENERAL RULE : ANY CLAIM FOR EXEMPTION FROM TAX STATUES SHOULD BE CONSTRUED STRICTLY AGAINST TAXPAYER PURPOSES AND OBJECTIVES OF TAXATION 1. Revenue – to provide funds or property with which the State promotes the general welfare and protection of its citizens 2. Regulation – imposed on tobacco and alcoholic products, or amusement places like night clubs, cabarets and cockpits Taxation – not merely power that is exercised in order to raise revenue for the support of Government 3 Miranda, Clarisse Ann Taxes may also be imposed for regulatory purpose as in the rehabilitation and stabilization of a threatened industry which is affected with public interest like oil industry 3. Promotion of General Welfare – implement of police power in order to promote general welfare of people Lutz vs Araneta – imposed tax on a milled sugar since the purpose of law was to strengthen an industry that is undeniably vital to economy – the sugar industry Oil Price Stabilization Fund – A device desidnged to protect the public from adverse effects of fluctuations in prices of importe crude oil Osmena vs Orbos - while funds collected under OPSF may be referred to as taxes, they are exacted in the exercise of the police power of State - Amounts are drawn to reimburse oil companies when appropriate situations arise for increases in, as well as under – recovery of, the cost of crude oil importation 4. Reduction of Social inequality a. Made possible through progressive system of taxation b. Objective “ to prevent the undue concentration of wealth in the hands of a few individuals c. Progressivity – bestowed on the principle that those who are able to pay should shoulder the bigger portion o tax burden d. Present rates of income, estate and gift taxes present a good example of progressivity 5. Encourage Economic Growth a. Purpose : to grant incentives and exemptions in order to encourage investment and thereby promote the country’s economic growth b. The power to exempt from tax is inherent in state also c. LOCAL GOVERNMENT CODE : local governments may grant tax exemptions State demands and receives taxes from subjects of taxation within its jurisdiction so that it may be enabled to carry its mandate into effect and perform the functions of government. For those means – it has the right to compel all citizens and property within its limits to contribute c. It cannot continue without the means to pay its expenses b. e. government renders NO SPECIAL or COMMENSURATE benefit to any particular person or property g. the foundation of the obligation to pay taxes IS NOT the privileges enjoyed or the protection given to a citizen by the Government. Benefit Protection Theory a.Which required the affixture of a semi postal stamp on mail matter . or occupation to be taxed a. to constitute public purpose.Sc upheld validity of anti tb stamp law .Enough that he enjoys benefits of living in an organized societ SCOPE OF LEGISLATIVE TAXING POWER Legislative following : taxing power or discretion extends to the 1. b. HOWEVER. Corps of civil servants to serve g. A navy to defend f. and protection which a government is supposed to provide 2. the person. Real property taxes – no such power exists save in the case of condonation of taxes which can be granted only for certain justifiable reasons which are expressly stated in the law 6. organized society c. 4 although the payment of taxes gives a right to protection d. A tax is not imposed on the basis of a special or particular benefit accruing to each citizen in proportion to the tax paid h. taxing authority can selct subject of taxation 2. Necessary burden to preserve State’s sovereignty and a means to give citizenry an army to resist aggression e.Although no special benefit accrues to mail users by such stamp. excises or privileges provided they are within taxing jurisdiction are also included b. property. purposes for which taxes shall be levied provided they are public purposes . it is not necessary. Both are enjoyed as well by those members of a State who do not pay taxes because they are not able to do so.4 d. Special benefits are not required f. amount or rate of tax 3. Public improvement designed for the enjoyment of citizenry and those which within State’s territory and facilities. A PERSON CANNOT OBJECT TO OR RESIST THE PAYMENT OF TAXES SOLELY BECAUSE NO PERSONAL BENEFIT TO HIM AN BE POINTED OUT AS RISING FROM TAX GOMZ VS PALOMAR . Necessity Theory – existence of government is a necessity a. Taxation is a power emanating from necessity d. and the citizen pays from his property the portion demanded in order that he may. that special benefits accrue to a taxpayer . From contribution received. Protectionism – provide protection to local industries like protective tariffs and customs duties Theory and basis of taxation 1. TAXATION SURVIVAL KIT – Aban Book 4. kind of tax to be collected 5. apportionment of tax whether tax shall be general or limited to a particular locality or partly general and partly local 6. situs of taxation 7. method of collection PURPOSE OF LEVY : exclusively within the discretion of legislature, but courts may determine whther the purpose is a public or not state or nation may outrun any human calculation, so the power to meet thos needs by taxation must not be limited even though taxes become burdensome or confiscatory CONSTITUTIONAL RESTRAINTS RE : Taxation is the Power to destroy - Legislature has also full discretion as to the persons, property, occupation or business to be taxed provided these are all within the state’s territorial jurisdiction IS THE POWER TO TAX POWER TO DESTROY ? - - power to impose taxes is one so unlimited in force and so searching in extent so that courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in discretion of authority which exercises it no attribute sovereignty is more pervading no point does the power of government affect more constantly and intimately all relations of life than through the exactions made under it In the light of the foregoing description of the taxing power is taxation therefore power to destroy? Mc Culloch vs Maryland - - power to tax involves power to destroy - pertinent only when there is no power to tax a particular subject and has no relation to a case where such right to tax exists - oft quoted maxim instead maxim instead of being regarded as a blanket authorization of the unrestrained us of taxing power for any and all purposes, irrespective of revenue, is more reasonably construed as an epigrammatic statement of the political and economic axiom that since the financial needs of a 5 Miranda, Clarisse Ann - - Not unlimited When a legislative body having the power to tax a certain subject matter actually imposes such a burdensome tax as effectually to destroy the right to perform the act or to use the property subject to the tax Validity of enactment depends upon the nature and character of the right to destroy If so great an abuse is manifested as to destroy natural and fundamental rights which no free government could consistently violate, it is the duty of the judiciary to hold such an act unconstitutional Power to tax is not the power to destroy – because of constitutional restraints placed on a taxing power that violates fundamental rights Taxpayer owes honesty to the Government Government owes fairness to taxpayers just as To maintain general public’s trust and confidence in the government this power must b used justly and not treacherously It should be exercised with caution to a minimize injury to the proprietary rights of a taxpayer POWER OF JUDICIAL REVIEW IN TAXATION 6 CIR vs Lingayen - courts cannot inquire into the wisdom of a taxing act - courts cannot review the wisdom or advisability or expediency of a tax - judicial tribunals of state have no concern with policy of legislation - judicial power cannot legitimately question or refuse to sanction provisions of any law not inconsistent with fundamental law of state - nor can motives which have influenced the selection of objects for taxation or determined the rate, be inquired into Non – food agricultural product, the sale of which by primary producers are exempt under VAT law As long as legislature, in imposing a tax, does not violate applicable constitutional limitations or restrictions, the courts have no concern with wisdom or policy of exaction, the political or other collateral motives behind it, the amount to be raised or the persons property or other privileges to be taxed Levy – legislative power - includes determination of persons, property or excises to be taxes , the sum or sums to be raised, the due date thereof and the time and manner of levying and collecting taxes Collection (including assessment ) – consists of manner of enforcement of obligation on the part of those who are taxed COURT’S POWER IN TAXATION is LIMITED ONLY TO THE APPLICATION AND INTERPRETATION OF LAW - petitioner’s argument that affixture of documentary stamp on freight receipts is impracticable should not be entertained - because according to court, impracticability and absurd consequences of law should be addressed to the legislature and administrative authorities - It is not within its province to inquire into the wisdom of law for indeed courts are bound by words in mouth of lawmaker - Verbo legis est recedndum Principle of judicial non interference into questions of tax policy could probably extend also into the administrative realm 6 The question as to whether or not BIR’s reclassification is counterproductive could be properly addressed to respondents Sec of Finance and CIR or Congress Aspects of Taxation 1. Levy or imposition of tax on persons, property or excises 2. Collection of taxes already levied Basic principles of sound tax system 1. fiscal adequacy – sources of government must eb sufficient to meet government expenditures and other public needs a. essential in order to avoid budgetary deficits and to minimize foreign and local borrowings 2. Theoretical Justice a. based on taxpayer’s ability to pay b. taxation must be progressive conformably with constitutional mandate that congress shall evolve a progressive system of taxation 3. Administrative Feasibility – taxes should be capable of being effectively enforced a. VAT – example of administrative policy TAXATION SURVIVAL KIT – Aban Book b. VAT – principally aimed to rationalize the system of taxes on goods and services, simplify tax administration and make system more equitable to enable the country to attain economic recovery c. Taxation could be enhance by police power. d. If under Local government can classify lands as residential and commercial, then since conversion of industrial lands is usually assessed on a higher assessment level, tax collection are increased AS TO PERSONS AFFECTED Operate upon community or a class of individuals AS TO AUTHORITY WHICH EXERCISES THE POWER Exercised only by the government or its political subdivisions. AS TO AMOUNT OF EXACTION Generally no limit to the amount of tax that may be imposed Limited to the cost of regulation AS TO THE RELATIONSHI P TO THE CONSTITUTIO N Subject to certain constitutiona l limitations, including the prohibition against impairment of the obligation of contracts Relatively free from constitutiona l limitations and superior to the nonimpairment provisions AS TO TRANSFER OF PROPERTY RIGHTS Taxes paid become part of the public funds No transfer, but only restraint on the exercise, Taxation vs Police Power vs Eminent Domain TAXATION DISTINGUISHED FROM POLICE EMINENT DOMAIN TAXATION POLICE POWER AS TO For the To promote PURPOSE purpose general raising welfare revenue through regulations AS TO Protection The COMPENSATI and benefits maintenance ON received of a healthy from the economic government. standard of society (damnum absque injuria) 7 Miranda, Clarisse Ann POWER AND EMINENT DOMAIN For public use Just compensatio n, not to exceed the market value by the owner or administrator or anyone having legal interest in the property, or as determined by the assessor, Issuance of license or surveillance whichever is lower. Operates on the individual property owner May be exercised by public services corp or public utilities if granted by law There is no imposition; rather, it is the owner of the property taken who is paid just compensatio n. Subject to certain constitutional limitations, NOT including the prohibition against impairment of the obligation of contracts such withholding agent is LIABLE TO PAY TAX that it did not withhold as a penalty for its failure to withhold the tax of foreign corporation 3) compromise penalty – amount collected in lieu of criminal prosecution in cases of tax violations. a. ferry or telecommunication system funded and constructed by them 2) penalty – punishment for the commission of a crime a. waterway. pier or wharf. a. and property and welfare of all This rule subsits of property right exists No direct benefits received. Exceptional both as to time and locality b. A healthy economic standard of society known as DAMNUM ABSQUE INJURIA Not applied here Taxing act cannot impair obligation of contracts TAXES DISTINGUISHED FROM OTHER IMPOSITIONS 1) toll – amount charged for the cost and maintenance of property used. although cannot be legally imposed. neither imposition nor a penalty b. a. bridge. Should be noted that LOCAL GOVERNMENT CODE authorizes the collection of tolls by local government units for the use of any public road. Exemption under Section 28(((3) NOT APPLY TO SPECIAL ASSESSMENTS .if a withholding agent like NDC fails to withhold the requisite withholding tax on the income received from PH sources by a Japanese non resident foreign corporation. Not taxes within the constitutional or statutory provisions on tax exemptions c. if taxpayer refuses to pay the compromise. civil liability b.8 AS TO BENEFITS RECEIVED AS TO NON – IMPAIRMENT OF CONTRACTS No special or direct benefit received by taxpayer other than the fact that Government only SECURES to the citizen that general benefit resulting from protection of his person. criminal action is the remedy d. they may be collected if taxpayer has expressed his willingness to pay the same 4) special assessment – levied only on land based wholly on the benefit accruing thereon as a result of improvements of public works undertaken by government within the vicinity. REASON : Tax is a demand of sovereignty for the purpose of raising public revenue 8 b. A person is only because he fals to satisfy his civil obligation to pay taxes National Development Company vs CIR . cannot be imposed by the Commissioner c. Motor vehicle registration fees are taxes because of the legislative intent is mainly to raise funds for construction and maintenance of highways and to a much lesser degree to pay for the expenses of LTO a regulatory agency of Government e. SECTION 240 OF LGC – NATURE OF SPECIAL ASSESEMENTS 5) license fee – regulatory imposition in the exercise of the police power of the State. and general welfare of its inhabitants THREE LICENSES IN THE LAW : 9 Miranda. peace.TAXATION SURVIVAL KIT – Aban Book d. 2. exemption form tax does not include building permit fee and special assessments as hese are not taxes but regulatory fees in the case of license fee and levy on account of benefits to land for special assessment s d. emanates from police power b. Clarisse Ann 1. Must not contravene Constitution Must not be partial or discriminatory Must not prohibit but may regulate trade Must be general and consistent with public policy 5. 3. NON PROFIT CEMETARIES vii. permit collected from alien job applicants is in excess of the cost of regulation. TAX ASSESSMENTS MAY EVEN EXTEND TO INCOME THAT IS REALIZED FROM SALE OF THESE TAPES BECAUSE INCOME FROM ILLEGAL SOURCES IS ALSO TAXABLE LGC : authorized to impose regulatory fees. not tax but a currency measure designed to stabilize currency such as exaction of certain fee . CONVENTS APPURTENANTS THERETO. v. licenses for regulation of useful occupations 2. Must not be unreasonable 6) margin fee – exaction designed to stabilize the currency a. PARSONAGES iv. 4. AND ALL LANDS BUILDINGS AND IMPROVEMENTS ACTUALLY DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS CHARITABLE OR EDUCATIONAL PRUPOSES e. municipal corporations are authorized to enact ordinances to provide for health and safety and to promote the morality. licenses for regulation or restriction of non-useful occupations or enterprises 3. NON. section 147 excepti in case of professional tax on practice of profession Substantive Requirements for an ordinance to be valid : 1. a. MOSQUES vi. CHURCHES iii. Constitutional exemption GRANTED under aforecited provision of Constitution covers : i.USEFUL OCCUPATIONS – because under general welfare clause. CHARITABLE INSTITUTIONS ii. licenses for revenue only Non – payment of a license fee for a business makes that business ILLEGAL Non – payment of a tax for a business does not necessarily make that business illegal although this might be a ground for criminal prosecution against the person or persons violating the law NOT ONLY BUSINESSSES WHICH ARE LAWFULLY CONDUCTED ARE TAXABLE EVEN THOSE WHICH ARE CARRIED ON ILLEGALLY ARE SUBJECT TO TAX EXAMPLE : VAT MAY BE ASSESED ON THE ILLICIT PRODUCTION AND SALE OF CASETTE TAPES. the exaction is a tax c. Taxes are not debt. demand contract or judgement as is allowable to be set off Interest on taxes can be deducted? . however. under . once a taxpayer opts for either a refund or the automatic tax credit scheme and signified his potion in accordance with the regulation. Two obligations are NOT SUSCEPTIBLE TO SET OFF OR COMPENSATION UNDER art 1279 of CC c. apply to individuals who. trade or business .REASON : Section 29(b)(1) – speaks only on the amount of interest paid or incurred within taxable year on indebtedness incurred in connection with taxpayer’s profession. A pending claim for refund may be set off against an existing tax liability even though the refund has not yet been approved by Commissioner May an excess payment of quarterly corporate income tax for the preceding taxable year be automatically credited or applied against the corporation’s estimated quarterly income tax liabilities for taxable quarters of the succeeding taxable year ? NO. Caltex vs COA – Taxes and debts cannot be the subject of compensation because the Government and taxpayer are not mutually creditors and debtor of each other and a claim for taxes is not a debt. or resident aliens wo are self employed (persons who are engaged in business and those who practice their profession in Philippines) the deductability of interest on indebtedness is limited only to interest paid or incurred within a taxable year on loans contracted from accredited financial institutions which must be proven to have been incurred in connection with conduct of a taxpayer. As regards interest on taxes that are not connected with taxpayer’s profession. this does not IPSO FACTO confer on him the right to avail of same immediately Prior approval by the CIR of tax credit under Section 86 would appear to be the more reasonable interpretation to be given said section An opportunity must be given to Internal Revenue branch of the government to investigate and confirm the veracity of claims of taxpayer Right should be construed as an ABSOLUTE RIGHT which is available to the axpayer at his sole option Automatic credit IS NOT AVAILABLE. Express or implied b. a. deductibility of interest on taxes is NO LONGER AUTHORIZED if those taxes are not in anyway connected with profession rade or business Corporations and taxable partnerships? 10 - Section 34 B 1 NRC – it would seem that deduction of interest on taxes is LEGALLY justified provided that taxes paid or incurred are in connection with taxpayer’s trade or business.s profession trade or business . trade or businesses.SHOULD BE QUALIFIED.Exception : In case of citizens. it seems that deduction is NOT ALLOWED .10 under RA on remittance of profits earned in this country 7) debt – a tax is not a debt but is an obligation imposed by law. BUT THIS DOES NOT MEAN THAT PETITIONER CANNOT GET A REFUND OR CREDIT OF EXCESS QUARTERLY PAYMENT Will the “non automatic crediting” ruling in the San Carls Milling case.Individuals. Available : Individuals qho desire not to await anymore the processing of any tax refund to which they are entitled In case payment credited are not completely utilized or applied in the axable quarters of the immediately succeeding year : THE REMAINING AMOUNT SHALL BE CLAIMED AS REFUND OR CREDIT BY THE TAXPAYER PURSUANT TO sec 205 of Tax Code Section 76 : In case corporation is entitled to a tax credir or refund of the excess estimated quarterly income taxes paid. a. customs duties are taxes. Not a tax although it may be necessary to raise the money to pay the subsidy by means of a tax b. Taxes of a fixed amount upon all persons of a certain class within the jurisdiction of taxing power without regard to the amount of their property or occupations or businesses in which they may be engaged b. the EXCESS AMOUNT SHOWN ON ITS FINAL ADJUSTMENT RETURN MAY BE CARRIED OVER AND CREDITED AGAINST THE ESTIMATED QUARTERLY TAX LIABILITIES FOR THE TAXABLE QUARTERS OF SUCCEEDING TAXABLE YEAR Once the option to carry over and apply the excess quarterly income tax against income teax due dor taxable quarters of the succeeding taxable years has been made --. Personal Tax – capitation or poll taxes a. tribute or duty. Before : Community Tax (LGC) . Provisions of Section 26 of Constitution which requires that every bill must contain only one subject which must be expressed in the title thereof is NOT VIOLATED 9) subsidy – legislative grant of money in aid of a private enterprise deemed to promote the public welfare. Possible 11 Miranda. customs fees are regulatory imposts on goods 11) revenue – broad term that includes not only taxes but income from other sources as well. May an exaction be both a tax as well as a regulatory fee? b. Revenue Regulations 7-93 : Any excess of the total quarterly payments and taxes withheld over the income tax computed in the final income tax return may be applied as a credit against the quarterly income tax liabilities for the taxable quarters of the immediately succeeding year. 12) Tribute – synonymous with tax a. PD 1987 – regulates the cideogram industry may validly impose tax of 30% on fross receipts of videogram operators d. Clarisse Ann c. a. a. Duty on imported goods and merchandise TAXES CLASSIFIED 1. Given sometimes in lieu of tax exemptions 10) custom duties and fees – duties charged upon commodities on their being imported into or exported from a country. Taxation implies tribute from the governed to some form of sovereignty 13) Impost – signifies any tax.SUCH OPTION SHALL BE CONSIDERED IRREVOCABLE FOR THAT TAXABLE PERIOD AND NO APPLIATION FOR CASH REFUND OR ISSUANCE OF A TAX CREDIT CERTIFICATE SHALL BE ALLOWED THEREFOR 8) regulatory fees – exaction designed to regulate industries a. but a tax is a broader term to include not only customs duties but other taxes as well b.TAXATION SURVIVAL KIT – Aban Book Section 67 are required to file quarterly returns of income tax on a cumulative basis ? NO. g. such exemption covers only those taxes for which such consumer or end user is directly liable . As an indirect tax. DESPITE THE RIGHT TO SHIFT. IF IT IS COVERED BY TAX EXEMPTION GRANT ARE INDIRECT TAXES WHICH SELLERS OF GOODS AND SERVICES USUALLY PASS ON TO THEIR CUSTOMERS. When the seller passes on the tax to his customer.12 2.payable to any person who in the course of trade or buseinss. Tax exemptions are personal to the grantee is not violated because the overriding intention of the contracting parties is to exempt the contractor for te benefit of contractee d. How about if the buyer himself is the one exempt. Important to find out if tax exmptin granted to a taxpayer spevicifically includes the indirect tax which is shifted to him as part of the purchase price NOTEWORTHY (Indirect Taxes) 1. like sales tax or VAT goes on to the buyer not as a atax.assessed on all property or all property of a certain class within the jurisdiction of taxing power a. to hold such refunded tax in trust for the buyer v. transferee or lessee of the goods. Estate and donor’s gift taxes 4. EXAMPLE : income tax where person subject to tax cannot shift the burden of the tax to another person i. he is only shifting the tax burden (Not the liability to pay it) to the purchaser as part of the cost of goods sold or services rendered ii. Legislative intent is to grant immunity to NPC from tax that oil companies invariably pass on to their buyers f. When the seller passes on the tax to his buyer. is he going against the principle that taxes are personal liabilities the payment of which cannot be transferred to another person? i. Nature of indirect tax ::::: Sales tax that is passed on to the purchaser is the tax on the purchaser not on the buyer iii. not the buyer thereof. When consumer or end user of a manufactured product is tax exempt. it is the seller’s obligation. The burden of paying the amount of tax may be shifted or passed on to the buyer. If buyer happens to be tax exempt.then it may be said that there is a valid reason for allowing the refund e. it may be assumed that the buyer has no right to obtain any refund ii. but the burden thereof can be shifted or passed on to another person a. he is not going against the rule. --. properties or services c. incase he has obtained a refund of disputed tax. seller is nonetheless liable for pament of tax as same is a tax not on the buyer himself but is actually a tax on seller 12 iv. sells barters echanges or elase goods properties. Example : Real property tax and additional levies on real property except special assessments under LGC 3. Example : VAT . Direct Tax – taxes wherein both the incidence of or liability for the payment of tax as well as the impact or buden of tax falls on same person a. Liability of the indirect tax lies with seller of goofs or services only. NO. Property Tax . but only as a component of the purchase price. Where transaction in itself is a tax exempt and buyer pays the tax part of purchase price. renders services and any person who import goods b. would be then be entitled to claim for refund of tax that seller might have passed on to him i. Indirect Tax – taxes wherein the incidence of or the liability for payment of tax falls on one person. . SELLER MAY ELECT TO ABSORB TAX HIMSELF vi. Alcohol. Excise Tax – laid upon the manufacture. General Tax – taxes levied for the general or ordinary pruposes of Government a. the seller gets the refund. Example : Present income tax – Table on Tax rates for individual citizens 13. sale. Ad Valorem Tax – a tax upon the value of the article or thing subject to taxation a. then the buyer of product or service sold has a right to be reimbursed the amount of taxes tha the sellers passed on to him Why this tax known as indirect tax? One who actually pays the tax (as part of the purchase price of commodity or service) is the purchaser. 8.Regressive Tax – taxes whereby tax rate decreases as amount of income or earning to be taxed increases 14. but must hold it in trust for the buyer 6. Constitution : ALL MONEY COLLECTED ON ANY TAX LEVIED FOR A SPECIAL PURPOSE SHALL BE TREATED 13 Miranda. When transaction itself is the one that is tax exempt. collection of which is utilized for general expenditures of government 7. When the law granting tax exemption specifically includes indirect taxes or when it is clarly manifest therein that the legislative intention to exempt embraces indirect taxes.TAXATION SURVIVAL KIT – Aban Book 2.Proportionate Tax – based on a fixed proportion of the value of the subject being taxed a. Specific Tax – tax which imposes a specific sum by the head or number or by some standard of weight or measurement and which requires no assessment beyond a listing and classification of subject to be taxed a. Local autonomy policy 12. Examples : internal revenue taxes. Manufacturer CANNOT CLAIM EXEMPTION from payment of sales tax 4.duties charged upon commodities on their being imported into or exported from a country 11.Progressive Tax – taxes iposed whereby rate or amount of tax increases as the amount of income or earning to be taxed increases a. Upon licenses to pursue certain occupations and upon corporate privilegs 6. Indirect taxes are not included 3. but through error the seller pays the tax and shifts the same to the buyer. Special Tax – taxes levied for special purposes a. Real estate tax which is a fixed proportion of value of property assessed Taxpayer’s Suit - taxpayer has right to file an action questioning the validity or constitutionality of a statute or law on the theory that the expenditure of public funds by an officer of Government for purpose of administering or implementing in unconstitutional or invalid law constitutes misapplication of such funds Maceda vs Macaraig . Additional 1% real estate tax b. The purchaser is indirectly paying the tax 5. but the evident intention is to exempt the contractor so that such contractor may no longer shift or pass on any tax to the contractee.Custom Duties . the contractor may claim tax exemption on transaction 7. tobacco 9.National Tax – levied by national government a. Real property tax 10. consumption of commodities within the country a. Where the tax exemption from indirect tax is given to the contractee. Clarisse Ann AS SPECIAL FUND AND PAID OUT FOR SUCH PURPOSE ONLY. Neither consumer or buyer of product demand the refund of tax tha manufacturer might have passed on to him 5. AND SUBJECT TO SUCH LIMITATIONS AND RESTRICTIONS AS IT MAY IMPOSE TARIFF RATES . 4. constitutes an illegal expenditure of public funds PUBLIC FUNDS SHOULD BE INVOLVED REQUISITES FOR A TAXPAYERS PETITION 1) That money is being extracted and spent in violation of specific constitutional protections against abuses of legislative power 2) That public money is being deflected to any improper purpose 3) That the petitioner seeks to restrain respondents from wasting public funds through the enforcement of an invalid or unconstitutional law. executive. No power to tax an object which is not wihthin its purposes for which government are established c. Right to tax depends on the ultimate use. Section 28(2) Article VI 1987 Constitution b. PUBLIC PURPOSE IS PRESUMED Non – delegability of Taxing Power - Chapter 2 Limitations on the taxing power 1. namely. Whether proceeds of tax will directly promote the welfare of community I equal measure a. Flexible Tariff Clause a. prohibition and mandamus to question legality of a claimed refund of indirect taxes like tax on oil products since the refund itself. the power of taxation is exclusively legislative Axing power as a GENERAL RULE MAY NOT BE DELEGATED Exceptions to non – delegability 1. 2. as a government to provide 2. Public purpose of taxes Non – delegability of taxing power Territoriality or situs of taxation Tax exemption of Government International Comity A public purpose of taxes : - 14 all powers of government. that of taxation is said to be the strongest as it can be readily employed against one class of individuals in favor of another so as to ruin one class and give unlimited wealth and property to another if no implied limitation on the uses for which such taxing power may be exercised - Distribution of the powers of government into three departments. purpose and object for which the fund is raised b. judicial. if found to be without legal basis. CONGRESS MAY EXPRESSLY AUTHORIZE THE PRESIDENT TO FIX WIHTIN SPECIFIED LIMITS. 3.14 - a duly elected Senator of the Philippines and a taxpayer thereof has the legal capacity to file an action for certiorari. - TEST IN DETERMINING PUBLIC PURPOSE IN A TAX ? 1. Whether the thing to be furthered by the appropriation of public revenue is something which is the duty of State. 5. legislative. Justification of delegation of legislative taxing power to local governments : Necessary implication that power to create political corporations for purposes of local self government carries with it power to confer on such local government agencies the authority to tax h. selection of property to be taxed 2. Tax legislation vs tax administration – why need to know the difference? Because what is delegated is tax tax legislation. power to value property for taxaion in pursuance of fixed rules 2. rules of taxation in general Delegable powers which are not legislative 1. There may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient j. IMPORT AND EXPORT QUOTAS. Local taxing power a. Custom duties which are asssed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue raising and regulatory purposes 2. Authority to levy taxes. the delegation is INVALID. Steps taken for its assessment and collection One is legislation. Section 5 Article 10 1987 Cosntitution b. the state is NOT LIMITED to exact measure of that which is exercised by itself 15 Miranda. equalization of assessments by a central body (admin matters) 3. FEES.TAXATION SURVIVAL KIT – Aban Book c. Includes tariff rates even for revenue purposes only e. EACH LOCAL GOVERNMENT UNIT SHALL HAVE THE POWER TO CREATE ITS OWN SOURCES OF REVENUES AND TO LEVY TAXES c. Elements that enter into imposition of the tax 2. Theory of non delegation of legislative power DOES NOT APPLY in matters of local concern f. one is tax administration Powers that cannot be delegated to administrative agencies : 1. The power of the city to impose a gross sales tax of one hald percent of gross freight and fares of cargo and passengers shipped or transported out from Ozamis city by vessels plying between city and other ports WAS SUSTAINED g. Clarisse Ann i. AND CHARGES SUBJECT TO SUCH GUIDELINES AND LIMIATIONS AS THE CONGRESS MAY PROVIDE. But if what involved is only tax administration : Non delegability is NOT VIOLATED Two parts of system of Taxation 1. collection of taxes (admin matters) Territoriality or Situs of Taxation - place of taxation limitation on taxing power . CONSISTENT WITH BASIC POLICY OF LOCAL AUTONOMY d. TONNAGE AND WHARFAGE DUES AND OTHER DUTIES OR IMPOSTS WITHIN FRAMEWORK OF THE NATIONAL DEVELOPMENT PRORAM OF GOVERNMENT d. Municipalities may be permitted to tax subjects which. SUCH TAXES AND CHARGES SHALL ACCRUE EXCLUSIVELY TO THE LOCAL GOVERNMENTS e. determination of purposes for which taxes shall be levied 3. for reasons of public policy. fixing of the rate of taxation 4. the State has not deemed wise to tax for more general purposes k. In case of fire insurance covering property situated in Philippines.16 - - REASON : principle is well recognized that however broad the power of taxation may be as to its character and no matter how searching it is in its extent. 1887 Tax Code : NON RESIDENT CITIZENS. the power of legislature to fix situs is undoubted Section 98 : the following intangible properties are considered as properties with a situs in Philippines : i. property or businesses within its jurisdiction ALL SUBJECTS OVER WHICH THE SOVEREIGN POWER OF A STATE EXTENDS ARE OBJECTS OF TAXATION BUT THOSE OVER WHICH IT DOES NOT EXTEND ARE. Double Taxation and Situs Limitation – NEVER INVALID where it is imposed by different states a. LIKE FILIPINO IMMIGRANTS ABROAD . are the insurance premiums paid thereon taxable as against the insurer even though the fire insurance contract was executed outside the Philippines and the insurance policy is delivered to be insured therein? i. Maxim Mobilia Sequuntur Personam and Situs of Taxation a. or the state in which the corporation was organized f. Applies to taxation of personal property e. or state in which the corporation was organized g. Not allowed to stand in the way of taxation of personalty in the place where it has its actual situs and the requisite legislative jurisdiction exists d. Shares of stock may have situs for purposes of taxation in a state in which they are permanently kept regardless of domicile of owner. AND NON RESIDENT ALIENS ARE SUBJECT TO TAX ON INCOME DERIVED FROM PHILIPPINE SOURCES 16 3. Domicile of the owner c. Premiums are taxable in the Philippines because Philippine Government must get something in return for protection it gives to the insured property in the Philippines. Citizenship and residence are factors that justify the taxing suits even assuming that the property is situated outside the taxing jurisdiction like the Philippines b. Shares. and by reason of such protection. Shares of stock left behind by non resident alien decedent in an anonymous partnership (forerunner of corporations) in the Philippines are subject to Philippine inheritance tax nothwithstanding the mobilia rule 4. UPON THE SOUNDEST PRINCIPLES EXEMPT FROM TAXATION Some Basic Considerations Affecting Situs of Taxation 1. Shares of stock may have a situs for purposes of taxation in a state in which they are permanently kept regardless of the domicile of the owner. obligations or bonds issued by any foreign corporation eighty five percentum of business of which is located in the Philippines . obligations or bonds ssued by any corporation or sociedad anonma organized or constituted in the Philippines in accordance with its laws iii. Legislative Power to Fix Situs – if no constitutional provisions are violated. Protection – basic consideration that justifies the situs of taxation a. Franchise which must be exercised in Philippines ii. Movables follow the person b. Shares. the insurer is benefited thereby 2. such power is necessarily limited only to persons. a non resident alien decedent leaves behind after his death an account or note payable of s100. Clarisse Ann that under the above enumeration. Shares. an individual who resides in Philippines. be deemed covered by mobilia rule? - in those cases where the situs for certain in intangibles are not categorically spelled out as in the above situation. privilege. IF THE DECEDENT AT THE TIME OF HIS DEATH OR THE DONOR AT THE TIME OF DONATION – was a citizen and resident of a foreign country which at the time of his death or donation DID NOT impose a transfer tax of any character . the basic factor is the situs of property in question a. Where is the situs of the obligation? Is it not accurate to say 17 Miranda. Applies both with respect to real property and personal property . 5. business or industry established in Philiipines NO TAX SHALL BE COLLECTED UNDER TITLE 3 OF CODE IN RESPECT OF INTANGIBLE PERSONAL PROPERTY : 1.TAXATION SURVIVAL KIT – Aban Book iv. Shares or rights in any partnership. ir has a Philippine situs because the abovecited law speaks only of corporate obligations? - Expressio unius est exclusion alterius It may be said that the debt has no Philippine situs May such obligation however. Kind or classification of tax being levied Situs of the thing or property taxed Domicile or residence of the person taxed Citizenship or nationality of person taxed Source of income taxed Situs of excise. 3. obligations or bonds issued by any foreign corporation if such shares. obligation have acquired a business situs in Philippines v.000 pesos collectible from B. 4. business or occupation being taxed Situational Incidents : 1. would it be justified to maintain that it is an asset with a Philippine situs because the mobilia rules does not apply? Or should such asset be considered as being comprehended within mobilia principle? A. in respect of intangible personal property of citizens in Philippines NOT RESIDING in that foreign country 2. 2. 6. Property Tax – in considering the place at which property is taxable and the governmental unit which may rightfully levy and collect the property tax. IF LAWS OF THE OF THE FOREIGN COUNTRY OF WHICH DECEDENT OR DONOR WAS A CITIZEN AND RESIDENT AT THE TIME OF HIS DEATH OR ONATION – allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of Philippines not residing that foreign country Intangible assets are deemed assets of Philippine situs as determined by domestic Suppose there is an intangible asset of a decedent which is not among those enumerated in the law. there is room for applying mobilia rule The SItus or Territoriality Principle as applied in Philippine Setting The following may be the factors that could interplay in a given legal situation where situs or territoriality is the focal question: 1. General Principles of Income Taxation in the Philippines. and - (F) A foreign corporation. - - 18 (B) A nonresident citizen is taxable only on income derived from sources within the Philippines. is taxable only on income derived from sources within the Philippines.SEC. Source of income . echanged and or indrsed to another international airline 3. or what is sometimes known as excise r privilege tax . Provided : 1. Nationality or citizenship of taxpayer b. whether engaged or not in trade or business in the Philippines. excess baggage. That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker. Real estate is taxable in the state where it is located regardless of the owner’s residence d.18 b. the Court observed that the airline would not be subject to any businesss tax inasmuch as the absence of any landing rights would mean that it is not engaged in the exercise of any privilege which could be subject to the business or privilege tax An international carrier doing business in Philippines is taxable at two and one half percent on grosss Philippine billings derived from carriage of persons. cargo and mail originating from Philippines in a conitnous and uninterrupted flight. - (E) A domestic corporation is taxable on all income derived from sources within and without the Philippines. real and personal within its limits is unquestionable c. Said airline is taxable on the income realized from the sale of its tickets in Philippines through a sales office. whether a resident or not of the Philippines. Example : Community tax 3.(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. A state has no power to tax real property located outside its limits 2. but at the same time.Except when otherwise provided in this Code: . (C) An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines: Provided. is taxable only on income derived from sources within the Philippines. Excise or Privilege Taxes – where the tax that is being imposed is a tax upon the performance of an act. . Tax on persons –a state may levy a personal tax upon persons subject to jurisdiction of its sovereignty a. irrespective of place of sale or issue and place of payment of ticket or passage document. enjoyment of a privilege or engaging in an occupation. His residence or domicile c. 23. tickets revalidated 2. (D) An alien individual. Income Tax – crucial factors: a. The authotiry of every state to tax all property. GENERALLY DELIVERY TO THE CARRIER IS DELIVERY TO BUYER. Situs of taxation is the place in which the act is performed or where the occupation is engaged in WHERE THE SALE IS EPRFECTED AND CONSUMMATED – DETERMINES THE SITUS OF TAXATION Legislative power to fiz the situs of taxation includes the power to fix the place of taxation between different places in same state The situs of sale for tax purposes is NOT THE PLACE where the contract of sale is perfected but the place of its consummation Sales tax on the sale of fuels and oils. A local broker is taxable in this country with respect to the commissions received by it for negotiating and consummating the sale in Japan of products BELONGING to Philippine Corporation. harmonius and productive relationships among the various states can be maintained . REASON : Government’s xemption from taxes is INHERENT LIMITATION on the state’s taxing power d. Exemption of Government from Taxes – Matter of public policy a. Constitution does not contain any provision granting tax exemption to Government c. said tax may no be applied to deliveries outside the municipality since the consummation of sale is determined by delivery of the things which are the subject matter of contract The city can tax the sale of matches where shipments or deliveries are made directly to customers outside the city provided the sales are booked and paid for in the city to a carrier for shipment to the buyer. A contractor who undertakes a job contract for the Government is not justified in claiming that is should be exempt from payment of contractor’s tax simply by arguing that if payment thereof were insisted upon.TAXATION SURVIVAL KIT – Aban Book a. Property of the State and of its municipal subdivisions devoted to government uses and purose is generally deemed to be exempt from taxation although no express provision in law is made therefor b. Reciprocity lies at the root of this limitation for it cannot be denied that with reciprocity located at the bottom line. the Government paying tax as part of purchase price of contractual services rendered would be taxing itself 5. What is important is that broker’s tax is NOT BEING LEVIED on sale of goods in Japan but on the taxpayer’s brokerage services in Philippines 19 Miranda. and that as a consequence. NO CONSTITUTIONAL LIMITATION on the power of Congress to Tax Armed Forces of Philippines if it wishes to do so e. Clarisse Ann 4. he would just shift the tax over to the Government. International Comity a. Tax exemption of properties actually. International obligations concominant with out acceptance of the principles of international alw as part of our law demand that certain representatives of foreign states stationed and property of such foreign states found within our territory be exempted from taxation c.Non – impairment of jurisdiction of Supreme Court in tax cases (Section 2 and 5 Article VIII) 13. Non – impairment of contracts (Section 10 Article III) 6.Exemption from taxes of the revenues and assets of educational institutions. Article III) 12. JUSTICE.(3) Article VI) 11. Article II. equitability and progressivity of taxation (Section 28. Article VI) CONSTITUTIONAL LIMITATIONS ON TAXING POWER 1. SECTION 12 . Non – infringement of religious freedom and worship (Section 5. Article VI ) 9. Article III) 7. Equal Protection of the laws (Section 1. Article III) 20 Not actually limitations on taxing power BUT which have bearing on taxation . endowments. Rule requiring that appropriations. revenue and tariff bills shall originate exclusively from House of Representatives (Section 24. etc 10. Article III) 3.Voting requirement in in connection with legislative grant of tax exemption (Section 28(4). donations and contributions 2. Due process clause.20 b. 1987 Consstitution i. charitable and educational purposes (Section 28.EQUALITY. Freedom of speech and of the press (Section 4. FREEDOM. Limitations on the congressional power to delegate to the President the authority to fix tariff rates. including grants. SECTION 159 – DIPLOMATIC AND CONSULAR REPRESENTATIVES ARE EXEMPT FROM COMMUNITY TAX 4. Non – imprisonment for debt or non payment of poll tax (Section 20. Uniformity. Article III) 5. Article VI) 8. import and export quotas. PHILIPPINES ADOPTS GENERALLY ACCEPTED PRINCIPLES ON INTERNATIONAL ALW AS PART OF THE LAW OF THE LAND AND ADHHERES TO POLICY OF PEACE. directly and exclusively used for religious. COOPERATION AND AMITY WITH ALL NATIONS d. whether it be substantive or procedural (Section 1. Article VI) i. Clarisse Ann c. Article VI) ii. liberty. Kapatiran vs Tan : Due process was NOT VIOLATED when the VAT law was promulgated because there was no grave abuse of discretion incident to its promulgation 21 Miranda. When the constitutionality of the legislative taxing act is questioned on the ground that there is denial of due process. Provision regarding allotments to local governments (Section 6. such an imposition could very well be considered as being violative of the due process principle f. sect or system of religion etc (Section 29((2) Article VI) 5. Provision which requires that no money shall be paid out of treasury except in pursuance of an appropriation made by law (Section 29(1) Article VI) 4. a. There have been occasions when Supreme Court ruled on the constitutionality of certain taxing measures where due process of law was the focal questions. Petitioners failed to show that the VAT law was issued capriciously and whimsically or in an arbitrary or despotic manner by passion or personal hostility since it appears that a comprehensive study of VAT was made before VAT law was issued 2. revenue or tariff bil (Section 27(2). Due process clause in constitution may be invoked where a tax statute is so arbitrary that it finds no support in Constitution . Article X) Constitutional Limitations Explained A. an actual case or controversy must first exist before courts can be called upon to rule on said issue 3. Provision against the appropriation of public money or property for benefit of any church. The absence of threat of immediate harm makes the need for judicial intervntions less evident and underscores the essential nature of petitioner’s attack on law on ground of denial of due process as a mere academic discussion of merits of law d.TAXATION SURVIVAL KIT – Aban Book 1. Provision which mandates that money collected on a tax levied for a public purpose shall be paid out for such purpose only (Section 29(3) Article VI) 6. Due Process of Law – Section 1. Constitutional requirement on subject and title of bills (Section 26. When tax turns out to be of a confiscatory nature. b. There have been no notices of assessement issued to petitioners and no determinations at the administrative levels of their claims so as to illuminate the actual operation of the law and enable us to reach sound judgement regarding so fundamental questions as those raised in these suits e. Article 3 of Constitution : No person shall be deprived of life. Power of President to veto any particular item or items in an appropriation. or property without due process of law. IS HEADED BY THE MINISTER OF FINANCE. it also emphatically ordains that NOR SHALL ANY PERSON BE DENIED EQUAL PROTECTION OF LAWS a. . Example : where the same can be shown to amount to confiscation of property. 22 l. Classification for taxation must not be prompted by a spirit of hostility or discrimination that finds no support in reason i. h. The power of the satte to mae reasonable and natural classifications for the purposes of taxation is unquestioned and such classification may relate to the subject taxation. The alert notces contained a higher valuation of imported goods than valuation indicated in Import Entries covering goods in question B. The Equal Protection of Law – does not only speak of NON DEPRIVATION of DUE PROCESS but in Section 1. declared that certain property owned by Roman Catholic Church is Bangued Abra was tax exempt under 1973 Constitution. o. business/other income and passive investment income) is NOT A DENIAL of DUE PROCESS because there is no proof of arbitrariness in imposition of tax rates DUE PROCESS IS NOT VIOLATED IF A GOVERNMENTAL BIDY LIKE FISCAL INCENTIVES REVIEW BOARD WHICH WAS TASKED WITH DUTY OF RECOMMENDING RESOTRIATION OF TAX EXEMPTIONS PREVIOUSLY ABOLISHED UNDER PRESIDENTIAL DECREES . Due process was not observed when trial court.22 g. Article III thereof. The court pointed out that aliens. canot be deprived of life without due process of law and this guarantee includes the means of livelihood m. in an action for declaratory relief. and the methods of assessment. the kind of property the rates to be levied or amounts to be raised. valuation and collection. There is denial of due process on account of passafe of an ordinance in city of manila which imposes a permit fee on aliens as a condition to employment or engaging in any business or occupation. WHO AT THE SAME TIME IS VERY SAME PERSON WHO APPROVES OR DISAPPROVES THE FIRB’S RECOMMENDATION PROVIDED NO TWO OPPOSING OR CONFLICTING INTERESTS ARE INVOLVED LIKE THE CASE OF RESTORED TAX EXEMPTION OF A PARTICULAR TAXPAYER WHERE IT APPEARS THAT THERE IS NO INTEREST THAT IS EXISTING WHICH IS IN CONFLICT WITH INTERESTS OF SUCH TAXPAYER k. where it appears that under said oridnacne. Modified scheduler income tax whereby individual income was classified into three different classes under different tax rates ((compensation. Importer of goods is deprived of procedural due process when so called alert notices (valuation of goods made by Finance Attaches abroad) were not presented in the Customs protest proceedings in the Bureau of Customs as well as in the CTA when the case was on appeal therein. it appearing that not court hearing was conducted thereon n. once admitted in the Philippines. the city of manila could withhold or refuse issuance of such permit at will. j. the remission or condonation of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination 6. Such power to classify in matters of taxation is said to be broader than some other exercises of legislative power. discrimination or arbitrariness c. property or privileges and those not taxed must bear some reasonable relation to the object or purpose of legislation or to some permissible governmental policy or legitimate and of governmental action d. as a rule be interfered with by the judiciary with judiciary in the absence of a clear showing of unreasonableness. Congress can make distinctions and classifications. Thus it can classify taxpayers into calendar year and fiscal year taxpayers for income tax purposes e. f. Under the tax reform act of 1997. NON RESIDENT citizens are taxable only 23 Miranda. the state has the inherent power to select the subjects of taxation and inequalities which result from singling ut of one particular class for taxation or tax exemptions infringed no constitutional limitation 4. as compared to the resident citizens who have to pay the ordinary graduated rates g. the exclusion of said brokers from exemption granted to professionals under Tax Code is justified by the fact that customs brokers differ from tax exempt professionals considering that the activities of customs brokers partake of the nature of a business rather than a profession 3. Clarisse Ann on income Philippines derived from sources within h. Income of non resident citizens from foreign sources are NOT SUBJECT to PHILIPPINE TAX The Following cases held that principle WAS NOT VIOLATED : equal protection 1. the scheduler income tax which imposes graduated rates from 0% to 35% without deductions on compensation income of individuals and a rate scheme of rom 5% to 60% on business and other income with deductions does not vilate the rule on equal protection since there is no infirmity if classsifications are made to rest on substantial disntinctions 5. entitled to presumption of validity and will not. The preferential tax rates are NO LONGER APPLICABLE ON INCOME OF NON RESIDENT CITIZENS ABROAD. vat law does not discriminate unduly against customs brokers who are subject to said tax 2. There is a reasonable basis for imposing lower rates on foreign sourced income of non – resident citizens as evidenced by preferential or lower rates of 1% 2% 3% because these are the people who earn foreign currency aborad which are remitted here.TAXATION SURVIVAL KIT – Aban Book b. is NOT VIOLATED if classifications r distinctions are made as long as the same are based on reasonable and substantial differences. The equality of taxation rule. Classification must be based upon real and substantial differences between persons. each set of taxes is a class by itself and the law would be open to attack as class legislation only if all . THE LEGISLATURE HAS THE INHERENT POWER NOT ONLY TO SELCT THE SUBJECTS OF TAXATION BUT ALSO GRANT TAXX EXEMPTIONS 10. A CLASSIFICATION SHOULD BE BASED ON REAL AND SUBSTANTIAL DIFFERENCES HAVING A REASOABLE RELATION TO THE SUBJECT OF LEGISLATION 5. 4. Where it appears that Seciton 109 tax code.A tax levied on boarding stables for race horses is not discriminatory where it appears that NO SUCH TAX is imposed on boarding stables for other types of horses 24 Cases where VIOLATED : Equal protection rules HAS BEEN 1. a tax ordinance levied an export tax on centrifugal sugarmilled by Ormoc Sugar Co.The fact that the taxpayer is only sugar central or refinery in the municipality where the tax ordinance is enacted does not make said ordinance discriminatory. The ordinance does not satisfy the requisites of reasonable classification. THE CLASSIFICATION OF SUCH AGENTS AND COSIGNEES WHO ARE TAXABLE AND LOCAL DELAERS WHO ARE EXEMPT IS NOT BASED ON SUBSTANTIAL DISTINCTION 3. 2. no singling out of taxpayer to its disadvantage has ever taken place 11. The tax is and will be applicable to any person or firm who exercises such calling or occupation designated as installation manager 8. REASON : since other refineries to be established in the future would also be taxable. which required skimmed milk manufacturers to place a . An employment permit fee imposed on alien job applicants regardless of the nature of employment (whether casual. mentioning only this company by name. A tax on an installation manager is NOT DISCRIMINATORY just because at the time said tax was imposed. part time or full time or lowly paid emlooyee or highlugy paid executive is constitutionally invalid because it FAILS TO CONSIDER VVALID SUBSTANTIAL DIFFERENCES IN SITUATION AMONG THE ALIENS REQUIRED TO PAY IT. Loca oridnance which levies an ad valorem tax on motor vehicles registered in Manila without also taxing thos which are registered outside city but which enter city use its streets occasionally violates on equality of taxation 6. There is discrimination where local tax was imposed on agents or cosignees of outside dealers in softdrinks without said tax being levied also on local dealer. there was no other person in the locality who exercised such occupation. permanent. A law which imposes a preferential franchise tax rate of 2% on a particular franchise grantee while other franchise grantees are subject to 5% is NOT VIOLATIVE of the equal protection or equality of taxation rule in Cosntitution 9.There is no discrimination or class legislation if a statute authorizes the City of Manila to levy occupation taxes whereas that same authority is withheld from other cities and municipalities should be so authorized for that is a matter for legislature to decide 12.24 taxpayers belonging to one class were not treated alike 7. OR OF PRESS. Clarisse Ann D. THE FREE EXERCISE AND ENJOYMENT OF RELIGIOUS PROFESSION AND WORSHIP WITHOUT DISCRIMINATION OR PREFERENCE SHALL FOREVER BE ALLOWED. but was measured by extent of its circulation as well. or a pair of shoes whose sale may be conditioned on ossession of a businesss license C. OF EXPRESSION. the law applied only to the thirteen large newspapers in Louisana. This fee is NOT imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration - Mere admin fee one not imposed on exercise of a privilege.TAXATION SURVIVAL KIT – Aban Book warning sign on their products stating that skimmed milk is NOT SUITABLE FOR FEEDING INFANTS.a municipal license tax on the sale of bibles and religious articles by a non stock non rpoft missionary organization at a . the court pointed out that in Grosjean case. leaving untaxed four newspapers with a circulation of only slightly less than 20k cpies. THE FREEDOM OF WORSHIP? - NO. OR RIGHT OF PEOPLE PEACEABLY ASSEMBLE AND PETITION THE GOVERNMENT FOR REDRESS OF GRIEVANCES” Will this fee NOT CONSTITUTE A RESTRAINT ON PRESS FREEDOM OR FOR THAT MATTER. the law imposed a license equivalent to 2% of gross receipts derived from advertisements only on newspapers with a circulation of more than 20k copies per week - Tax was not based on the volume of advertisement alone. Freedom of Speech and of the Press Section 4. Non – infringement of Religious Freedom Section 5. is enforced only against manufacturers of evaporated filled milk such action is DISCRIMINATORY and is a denial of equal protection of law May a business license be required for the sale or distribution of printed materials like newspapers? NO - Judicial intervention is ALSO unnecessary in the absence of factual setting or an actual controversy which is engendered by the issuance of an assessment against taxpayer to apply an ordinance requiring a business license to be obtained before a person could sell newspapers in streets would be to impose a prior restraint on press freedom because a newspaper is NOT in the same category as a pineapple or a soap powder. much less a constitutional right When is tax said to be violative of press freedom or freedom of thought and expression? - There is curtailement of press freedom and freedom of thought and expression if a tax is elvied in order to suppress this basic right of people under Consitution A newspaper publisher must pay equitable and non discrimantory taxes on his business. NO RELIGIOUS TEST SHALL BE REQUIRED FOR EXERCISE OF CIVIL OR POLITICAL RIGHTS . Article III of Constitution “NO LAW SHALL BE PASSED ABRIDGING THE FREEDOM OF SPEECH. 25 Miranda. Article III Constitution – NO LAW SHALL BE MADE RESPECTING AN ESTABLISHMENT OF RELIGION OR PROHIBTING THE FREE EXERCISE THEREOF. and similar arrangements of religious corporations and other organizations E. It is one thing to impose a tax on income or property of a preacher Statute as now amnede has restricted that tax exemption of religious and other organizations therein specified only to the extent of withdrawing the exemption with respect to the income realized from : 1.26 little profit constitutes a curtailment of religious freedom and worship which is guaranteed by the Constititution. . dividends or interest) 2. Non – impairment of Contracts Section 10. Article III – NO LAW IMPAIRING TH OBLIGATIONS OF CONTRACTS SHALL BE PASSED Where a mining concession was granted under a Royal Decree and where it appears that under said decree no other taxes except those mentioned therein shall be imposed on mining and metallurgical industrie. which properties or businesses are NOT ESSENTIAL to or necessarily connected with their religious charitable or educational purposes 26 In an isolated sale of church lot being used for religious purposes. and inevitably tend to suppress their exercise Philippine Airlines Case - - the application of a license tax to religious groups. the levy of a tax on said mining claim plus ad valorem tax on mineral output under subsequent law constitute an impairment of contract because a mining concession is a contract Non impairment rule DOES NOT APPLY to public utility franchises. real or personal (rents. in connection with the latter’s sale of religious books and pamphlets is unconstitutional. income from transaction was CONSIDERED merely incidental to its religious purposes. from profitable business pursuits. such as the Jehovah’s witnesses. productive use of their proeprties. trust funds. the proceeds or net icome of which was used to buy another lot. A license fee is fixed in amount and unrelated to the recepits of taxpayer the license fee when applied to a religious sect was actually being imposd as a condition for exercise of sect’s right under Constitution License fee restrains in advance those constitutional liberties of press and religion. The property was NOT acquired for speculation or as an investement to be eventually sold primarily for monetary gain BIR has consistently ruled that passive invesement income such as interest income from PH currency bank deposit and yield or any other monetary benefit from deposit substitutes. as new site to build a church. or tariff bills. - Legislature can impair a grantee’s franchise since a franchise is subject to amendment. - Non impairment may not be invoked in case of public utility franchise grantee. Article XII Constitution: No public utility franchise or right shall be granted except under the condition that it shall be subject to amendement.TAXATION SURVIVAL KIT – Aban Book Section 11. Clarisse Ann G. privileges. securities. Different articles may be taxed at different amounts provided that the rate is uniform on same class everywhere with all people at all times of power of state to The control of creditor over the person of his debtor has been abolished on humanitarian considerations Government is NOT a proper party to private disputes 27 Miranda. franchises. or repeal by Congress when public interest so requires - The rule on non impairment is NOT DSREGARDED with the imposition of a igher tax rate on an existing franchise. The Congress shall evolve a progressive system of taxation Uniformity :: all taxable articles or kinds of property of same class shall be taxed at same rate. and Progressivity of Section 28 Article VI of Cosntitution : Provides the rule of a taxation shall be unform and equitable. Origin of Appropriation. alteration. Revenue and Tariff Bills A tax is uniform when it operates with same force and effect in every place where the subject of it is found . income. chattels. occupations. bills. of local application and private bills shall oringiate exclusively in the HR but the Senate may propose or concur with amendements H. Does not mean that lands. bills authorizing the increase of public debt. alteration or repeal by the Congress when the common good so requires. it apperaiing that said franchise was granted with express understanding and upon condition that it shall be subject to amendmene. express or implied The prohibition against imprisonment for debt was brought about by the force of public opinion whch looked with abhorrence on statutes permitting the cruel imprisonment of debtor Consttution seeks to prvent use of coerce the payment of debts Section 24 :Article VI of Constitution provides : all appropriation.t alteration and repeal F. and luxuries. necessities. Non – imprisonment for Debt or Non payment of Poll Tax - No person shall be imprisoned for debt or non payment of a poll tax Debt – any liability to apy money arising out of a contract. Uniformity. revenue. Taxation Equitability. shall be assessed at same rate. buildings and improvements actually. and parsonages or convents appurtenment thereto. and other places of amusement Uniformity in taxation. theatrical shows and boxing exhibitions but does not tax other places of amusements such as a race tracks. Charitable and educational purposes Section 28(3) Article VI : Charitable institutions. and other duties or imposts. carabets. Import and Export Quotas Section 28 (2) Article VI Cosntitution : Congress may. Directly. for tax purposes singeld out business proprietors and rpofessionals differently from corporations and partnerships. SC ruled that the abovementioned constitutional rpov which grants tax exemption applies only to property or realty taxes assessed on such properties used directly. Delegation of Legislative Authority to Fix Tariff Rates. by law. The constitutional mandate has not been disregarded. authorize the President to fix within specified limits. Progressivity of taxation is also mandated in the Constitution. is also underscored in realm of local taxation. Local tax on tenement houses does not violate the rule of uniformity and equality of taxation even if the tax in question is NOT also levied on other classes of buildings in the locality where such tax is imposed. directly. tonnage and wharfage dues.28 A tax of 2pesos per square meter on all electric signboards all throughout the Philippines satisifies the requirement of uniformity The petitioner: uniformity was violated because under SNITS the law. tariff rates. Our income tax system is one good example of such progressivity because it is built on principle of taxpayers ability to pay Taxation is progressive when its rate goes up depending on resources of person affected 28 I. churches. and Exclsuively used for religious. which means geographical uniformity only. Tax Exemption of Properties Actually. charitable or educational purposes shall be exempt from taxation To what kind of tax does this exemption apply? - Wherein petitioner assailed the donor’s and donee’s gift taxes on the cash donation for the church building. theaters. charitable and educational purposes . like the kindred concept of equal protection. merely requires that all subjects or objects of taxation. Uniformity of taxation. mosques. non profit cemeteries and all lands. Uniformity s also not disregarded if a tax is levied on admissions to cinema. actually and exclusively for religious. vaudeville companies. and exclusively used for religious. similarly situated are to be treated alike both in privileges and liabilities. and subject to such limitations and restrictions as it amy impose. cockpits. import and export quotas. within framework of national development program of Government The president may increase tariff rates as authorized by law even for revenue purporses only J. Provided : not more than 30% of said gifts shall be used by such dnee for administration purposes Same tax exemption privilege is also granted to donations made by a nonresident who is not a citizen of Philippines To be entitled to tax exemption under Constitution. is outside scopr of constitutional grant of tax exemption and is subject to real estate tax on a pro rate basis For tax exemption purposes : exclusively used: is not limited to total or absolute use for religious. would nevertheless qualify for donor’s gift tax exemption in light of provisions 1987 constitution also employs the terms “actually. Clarisse Ann It is important to note that for purposes of tax exemption. gifts made in favor of religious. institution. is proof of actual use for the tax exempt purpose necessary? - actual use is necessary. use overrides ownership such that if property although actually owned by a religious. If a property is incidentally used for the aforementioned purposes. Gifts in favor of educational or charitable religious.TAXATION SURVIVAL KIT – Aban Book Under existing law. charitable. Case of gifts made by a resident 2. and exclusively to emphasize the importance of use of property for tax exemption EXEMPTION OF CERTAIN GIFT : the test of exemption from taxation is the use of property for the purposes mentioned in Constitution. 1. directly. the exemption from tax of said property vanishes The ruling that the lease by school of lower portion of its school building to a commercial establishment known as the Northern Marketing Corporation. - Lands. is actually for a non exempt purpose. which is not even incidental to the educational functions of such schools. accredited nongovernment org a. or educational institution. cultural or social welfare . charitable or educational organizations. buildings. and improvements of religious and charitable institutions must not only be exclusively but also actually and directly used for religious and charitable purposes - It was not in accordance with constitution for the lower court to declare in an action for declaratory relied that the properties of Roman Catholic Church in bangued Abra were tax exempt without first conducting a hearing thereon to determine the factual question of actual use and direct use 29 Miranda. it is clear from decided cases that ax exemption may still subsist Where the main building of an educational isnitutiton is used both as classrooms for its highschoool and college students as well as residentce of school director and his family. the tax exempt character of such property remains despite the fact that is is used as such as the same may be justified as being only incidental or complementary to its main or primary purpose of providing education to its students . charitable or educational purposes. as in the case of hospital. All cases involving the elgaltiy of any tax. assessement or toll. Including grants. (4) Subject to conditions prescribed by law.. including restrictions on dividends and provisions for reinvestment. a school for training nurses. Article VIII – Congress shall have the power to define. Tax Exemption of Revenues and Assets. or contributions used actually. home and housing facilities for interns resident doctors. endowments. may likewise be entitled to such exemptions. their assets shall be disposed of in the manner provided by law. donations or contritbutions to educational institutions Exclusively used for educational purposes was to include. Voting Requirement In Connection Legislative Grant of Tax Exemptions with the Article VI Section 28(4) – No law granting any tax exemption shall be passed without the concurrence of a majority of all members of Congress Refunds partake of the nature of exemptions Condonations of taxes already paid or yet unpaid are also in the nature of tax exemptions L. modify or affirm or appeal or certiorari as the law or ROC may provide final judgements and orders courts in Exclusive use considers incidental use also 2. revise. etc K. endowments. including those cooperatively owned.30 Several parallel rulings may be cited on question of tax exemption that it is granted under this constitutional provision. and exclusively for educational purposes shall be exempt from tax. Non – Impairment of SC’s Jurisdiction in Tax cases 30 Section 4(3)) and (4) Article XIV Constitution : (3) All revenues and assets of non-stock. Upon the dissolution or cessation of the corporate existence of such institutions. reverse. non-profit educational institutions used actually. or any penalty imposed in relation thereto Exemption of the convent includes not only the land occupied by the building but also the adjacent garden devoted to the incidental use of parish priest as well as lodging place incidental to religious functions M. impost. directly. donations. all grants. Review. prescribe and apportion the jurisdiction of the various courts but may not deprive SC of its jurisdiction over cases enumerated in Section 5: 1. Tax exemption extends to a vegetable garden in an adjacent lot and another lot formerly used as a cemetery Section 2. subject to the limitations provided by law. and exclusively for educational purposes shall be exempt from taxes and duties. directly. recreational facilities. Proprietary educational institutions. . directly. non profit. Institutions and meaning of actually. 3. NO PROHIBITION against double or multiple taxation Kinds of Double Taxation - duplicate taxation - may be direct or indirect - DIRECT DUPLICATE TAXATION / Double taxation in the objectionable or prohibited sense (also known as obnoxious) . and exclusively used. endowments.school is non stock or non profit THIS PARTICULAR EXEMPTION TO PROPRIETARY EDUCATIONAL INSTITUTIONS WILL APLY ONLY AFTER CONGRES HAS LAID DOWN THE CONDITIONS FOR ITS ENJOYMENT TAX EXEMPTION HERE IS NOT SELF EXECUTORY 31 Miranda. but is nevertheless permissible - NOT forbidden by our fundamental law - Philippines HAS NOT ADOPTED the injunction against double taxation found in Constitution of US and in some states of American Union - Therefore.TAXATION SURVIVAL KIT – Aban Book Secretary of Justice. and exclusively for educational purposes are tax exempt where the done. Tax exemptions. - taxing same person twice by the same jurisdiction over same thing - same person twice by the same jurisdiction for same thing or purpose NO PRHOHIBITION AGAINST DOUBLE TAXATION - no constitutional prohibition against double taxation in Philippines - something not favored. Clarisse Ann Chapter 3 Double Taxation and Tax Exemptions Double Taxation – taxing the same property twice when it should be taxed but once. donations or contributions used actually. non profit educational institutions with respect to their revenues and assets took effect upon the ratification of Cosntitution because the rule that a constitutional provision declaring certain proeprties as exempt from taxation is self executing and proprio vigore exempts the property specified and does not. therefore need legislative enactment to put into effect 2. the exemption from taxes and duties granted to non stock. All grants. legislation is NOT essential in order to prescribe the requrements from exemption such as who would qualify as non stock. directly. the following legal points on the aforequoted constitutional provisions may be considered important : 1. however of proprietary educational institutions require prior legislative implementation since the use of the permissive term may in the provs goves congress discretion to deteremine whether or not assets and revenues of properetayr educational isntitutions should likewise enjoy exemptions from taxes 4. The state may collect an advalorem tax on property used in a calling and at the same time impose a license tax on that calling b.32 o Same property is taxed twice when it should be taxed only once o Both taxes are imposed on same property or subject matter for same purpose. there is NO DOUBLE TAXATION SINCE THE LIQUOR LICENSE CONSTITUTES A REGUALTORY MEASURE WHICH IS IMPOSED IN THE EXERCISE OF STATE’S POLICE POWER . No prohibition against double taxation in this jurisdiction 32 or multiple 2. double impositions levied on a particular subject of taxation may be justified 1. A license tax may be levied upon a business or occupation although land or property used in connection therewith is subject to property tax a. There can be no double taxation where state merely imposes a tax on every separate disntinct business in which a person is engaged. a. The taxpayer’s warehousing business. same stat. NO OBJECTIONABLE DOUBLE (OR MULTIPLE) TAXATION IF TENEMENTS IN A CITY ARE SUBJECT TO REAL ESTATE TAX WHILE BUSINESS OF LEASING SAID PROPERTY ARE ALSO SUBJECT TO REAL ESTATE DEALER’S TAX UNDER THE ANTIONAL INTERNAL REVENUE CODE AS WELL AS TENEMENT TAX LEVIED BY CITY d. is a distinct and separate taxable business. although carried on in relation to the operation of its sugar central. and covering same kind or character of tax o - NO OBJECTIONABLE DOUBLE TAXATION IF A REAL ESTATE TAX AS WELL AS A TENEMENT TAX ARE IMPOSED ON SAME PROEPRTY BECAUSE THE TWO IMPOSITIONS ARE NOT OF SAME KIND OR CHARACTER INDIRECT DUPLICATE TAXATION . government. b. Both a license fee and a tax may be imposed on same business or occupation for selling same article and this is not in violation of rules against double taxation 4.opposite of direct double taxation is NOT LEGALLY OBJECTIONABLE. ILLUSTRATION the point that in the absence of elements of direct duplicate taxation. CALLING OR ACTIVITY BY BOTH STATE AND A POLITICAL SUBDIVISION THEREOF 3. or taxing authority within same jurisdiction or taxing district during same taxing period. The impostition of the latter kind of tax being no sense a double tax c. THERE IS NOTHING INHERENTLY OBNOXIOUS IN EXACTION OF LICENSE FEES OR TAXES WITH RESPECT TO SAME OCCUPATION. Where a local tax is levied on sale or disposal of every bottle or container of liquor or intoxicating beverages and at the same time the businesss of selling such product is also subject to liquor license annually of 600 pesos . our present law contains a number of tax relief schemes also) : for VAT purposes. A tax imposed both on occupation of fishing and on fishpond itself does not constitute double taxation. - Example of (income taxation) : resident citizen or domestic corporation whose income from sources within foreign country is also TAXABLE under Philippine law. tax on inputs or items that go into manufacture of finished products may be credited against or deducted from output tax or tax on finished product. and clearly NO DOUBLE TAXATION IS INVOVLED MEANS EMPLOYED TO AVOID DOUBLE TAXATION - our tax system provides for certain schemes in order to avoid or minimize the harsh or burdensome effects of double taxation - These tax reliefs or schemes are sometimes embodied in tax treaties or agreements with foreign countries 33 Miranda. Double taxation means taxing same property twice when it should be taxed only once. the tax paid to such foreign country may. a. NO DOUBLE TAXATION involved in a case where a tax of 1% is imposed under Section 249 tax code for bank reserve deficiency while a penalty of 1/10 of 1% a day is also imposed as a penalty as consequence of such reserve deficiency under Central bank Act 8. be claimed as a credit against the Philippine tax on same income 6. The tax on its income is different from tax on dividends received by said companies. Subject of taxation are DIFFERENT FROM EACH OTHER while others are imbedded in statutory provisions found under existing laws - The burden of doule taxation on same dividend income earned in Philippines by a non resident foreign corporation )))(one tax in Philippines and another tax in domicillary country_ is REDUCED BY IMPOSITION OF LOWER RATE OF 15% SUBJECT TO CONDITION THAT COUNTRY IN WHICH NON RESIDENT FOREIGN CORPORATION IS DOMICILED SHALL ALLOW A CREDIT AGAINST TAX DUE FROM NON RESIDENT FOREIGN CORPORATION - Taxes deemed have been paid in Philippines equivalent 20% which represents difference between regular tax on corporations and tax on dividends - Examples of tax reliefs : tax deductions and tax credits - Deductions (example) : vanished deduction in order to mitigate the burdensome effects of double taxation on same property that is subject of two or more transfers pertaining to two or more decedents - Example of (tax credit set up. Clarisse Ann How is credit for foreign taxes paid arrived at? . NO DOUBLE TAXATION if a local ordinance imposes a tax on storage of copra where it appears that the finished products manufactured out of copra are subject to sales tax (NOW VAT) under tax code 7.TAXATION SURVIVAL KIT – Aban Book 5. Pool machinery insurer was held to be a taxable entity disntict from the individual corporate entities of ceding companies b. under certain limitation. Statutory Exemptions – emanate from legislation 3.34 - assuming coming only one country - The amount of credit in respect to the tax paid or incurred to any country shall not exceed same proportion of tax against which such credit is taken. Constitutional Constitution Exemptions- originate from 2. Supposing taxable income of X corp a domestic corporation. THE RECIPROCITY REQUIREMENT IN LAW IS SATISFIED 2. as MEANS OF MINIMIZING DOUBLE TAXATION APPLIES TO RESIDENT ALIENS PROVIDED THAT: 1.000 pesos. which the taxpayer’s taxable income for same taxable year and total amount of credit shall not exceed the same proportion of tax against which such credit is taken. A foreign corporation whether engaged or not in trade or business in Philippines. Tax credit scheme in this instance is NOT AVAILABLE 34 - grant of immunity.000 pesos and its Philippines sourced income is 8. express or implied to particular persons or corporations from obligation to pay taxes KINDS OF TAX EXEMPTIONS 1. Foreign tax credit is computed as follows: SEE BOOK. which taxpayer’s taxable income from sources without Philippines taxable under this Title bears to his entire taxable income for same taxable year. since their foreign sourced income is subject tot wo taxes levied under two different jurisdictions. The foreign income tax actually paid is 800 pesos. SHALL BE ALLOWED TO A CITIZEN OF PHILIPPINES AND A DOMESTIC CORPORATION IF TAXPAYER SO SIGNIFIES IN HIS RETURN BUT SUCH BENEFIT SHALL NOT BE ALLOWED TO AN ALIEN INDIVIDUAL AND A FOREIGN CORPORATION Among the examples of tax treaties for relief from or avoidance of double taxation are the RP – US Tax treaty and RP-west Germany Tax treaty which were subject of comparative review TAX EXEMPTIONS The foreign tax credit method. Express exemptions – whenever exemtptions are expressly granted by organiz or statute law . from foreign country M is 2. TAX RELIEF COMES IN FORM OF A DEDUCTION OF FOREIGN NATIONAL INCOME TAX FROM FOREIGN SOURCED INCOME ITSELF. is taxable only on income derived from sources within Philippines The benefit of credit against income tax for taxes of foreign coutnries. HAHA (page 116) Alien individual whether a resident or not of Philippines. SUBJECT TO ALLOCATION RULE AS ESTABLISHED IN TAX CODE Non resident Filipinos. is taxable only on income derived from sources within Philippines. absolute immunity 6. Constitutional provisions declaring certain proeprties as tax exempt does not need legislative enactment to put it into effect 8. and he who claims an exemption must be able to justify his claim by the clearest grant of organize or statute law a. To epitomize the principle.Rule of strict construction of tax exemptions should not for obvious reasons.Deductions for income tax purposes partake of nature of tax exemptions hence if tax exemptions are to be strictly construed 13.THIS RULE ON STRICT INTERPRETATION ALSO DOES NOT APPLY IN CASES OF EXEMPTIONS GRANTED IN 35 Miranda. Total exemption . Exemption form common burden cannot be permitted to exist upon vague implications b.Tax exemptions – PERSONAL 11. He who claims an exemption from his share of common burden in taxation must justify his claim by showing that the legislature intended to exempt him by words too plain to be mistaken. Tax exemptions are not presumed 6. Constitutional grants of tax exemptions are self executing 7. He who claims exeption should prove by convincing proof that he is exempted 15. properties. IF A TAX IS LEVIED ON TENEMENT HOUSES IN A PARTICULAR LOCALITY BUT SUCH LAW IS SILENT AS TO THE TAXABILITY OF OTHER TYPES OF DWELLING WHICH ARE EXISTING IN THAT LOCALITY. it is well settled that TAXATION IS THE RULE. Exemptions from taxation are highly disfavored in law. Otherwise. or excises are deemed exemptas they fall outside the scope of taxing provision itself. TAX EXEMPTION IS THE EXCEPTION 9. it will be within the power of legislature to ignore or practically nullify the directions of fundamental law 10. 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 of parties 5. Constitution are generally self executing PRINCIPLES GOVERNING TAX EXEMPTION 1. charitable and educational functions 3.TAXATION SURVIVAL KIT – Aban Book 4. Clarisse Ann . Implied exemptions – whenever particular persons.Non transferrable 12. be applied to organizations performing strictly religious. 14. Partial exemption – one where collection of a part of tax is dispensed with 4.It follows construed that deduction must also be strictly 2. IT IS IMPLIED THAT THE LATTER ARE EXEMPT FROM SAID TAX 5. charitable institutions.Since a partial refund is in nature of tax exemption—it must be construed STRICTISSIMI JURIS against grantee 18. tax on products manufactured for industry. TAX ON PERSON . BUT THE ACQUISITION by donation of lots. If there is NO CLEAR CUT provision in law condoning such liabilities that taxes already paid are also condoned then no refund of paid taxes is authorized because exemptions must be sustained only when expressed in explicit terms B. the tax on gasoline and oils necessary to move or operate its machinery as well as purchase of original site for its plant a. parsonages. Resolved in favor of taxing authority 20. the taxpayer must have voluntarily disclosed his previously untaxed income and must have paid corresponding tax on such previously untaxed income ILLUSTRATIVE SITUATIONS ON TAX EXEMPTIONS 36 1. the following taxes may be within the cope of the tax exemption.the residence (community tax) which is a personal tax is not imposed on DIPLOMATIC and CONSULAR representatives as well as transient visitors when their stay in Philippines DOES NOT EXCEED THREE MONTHS 2.36 FAVOR OF GOVERNMENT POLITICAL SUBDIVISION OR INSTRUMENTALITY 16.Tax amnesty is a general pardon to taxpayers without having to go through tedious process of a tax case 23. since said acquisition is not directly related to industry . 17. If granted by a statute.Tax amnesty is never favored or presumed in law..A claim of exemption from tax payments must be clearly shown and based on language in law too plain to be mistaken. import or compensating tax on machineries used therein. or convents…. TAX ON PROPERTY – Real property owned by Republic of Philippines or any of its political subdivisions provided the beneficial use thereof is NOT TRANSFERRED to a taxable person.MERE FILING OF TAX AMNESTY RETURN DOES NOT IPSO FACTO SHIELD HIM FROM IMMUNITY AGAINST PROSECUTION.NO TAX EXEMPTION solely on ground of equity 19.To avail of a tax amnestly granted by Government and to be immune from suit on its delinquencies. HE DID NOT MEET TWIN REQUIREMENT 21. Condonation of unpaid tax liabilities is in the nature of a tax exemption a. is NO LONGER exempt. occupation or business tax thereon. TAX IN EXCISES AND PRIVILEGES – sale or importation of agricultural and marine food products in their original state are exempt from value added tax A. 22. churches. Where a corporation engaged in a certain industry obtained exemption from all taxes. 3. after operation has lasted a few years.Finding petitioner’s claim of immunity from prosecution under the shIeld untenable. the terms of amnesty like that of a tax exemption must be construed strictly against taxpayer and liberally in favor of taxing authority a. contiguous to the original lots. Article XVIII of the bases treaty exempt from tax gross receipts of a base concessionaire from business of hauling and transporting of cargoes inside the base belonging to the US ARMY K. wires. the tax exempt industry could be operated H. With or without the taxpayers owning any transportation facility. it was provided that no tax of any kind or description will be levied on any material. Does this exemption include the tax on petroleum products used in project? b. NO. as stated earlier. In the case of a corporation that is engaged in manufacture of plywood. its exemption does not extend to the compensating tax on its imporation of said articles. Profit arising from expropriation sale b. cement.TAXATION SURVIVAL KIT – Aban Book C. the court said that the only items exempt are those amterials or supplies which are incorporated in the construction of the airfield such as mortar. The exemption from income tax on Base connected income of NON RESIDENT AMERICAN BASE PEROSNNEL UNDER US ABSES TREATY does not extend to the income realized from sale by an American civilian base employee of his car inside base to another American national J. tax exempt bonds issued such tax exempt bonds should be included in total purchase price in order to determine the correct taxable profit therefrom a. Where taxpayer receives as part of purchase price of the land expropriated by Government. its tax exemption extends only to machinery and equipment to be used exclusively in the new and necessary industry G. Where an electric light and power franchise holder is exempt under its franchise from property tax on its poles. This does not violate rule that tax exemptions are personal because the manifest intention of the agreement. The slaaries of judicial officers are NOT tax exempt and their taxability is NOT CONTRARY to the provisions a. The exemption of contractee (WHO) from all indirect taxes as provided in the host agreement between REPUBLIC OF PH and WHO should be implemented to mean that the entity or person EXEMPT is the contractor itself who constructed the building owned by contractee a. is to exempt the contractor so that no contractor’s tax may be shifted to the contractee WHO 37 Miranda. Clarisse Ann I. In the contract covering the construction of Mactan Airport. equipment or supplies which may be purchased or otherwise acquired in connection with project under the contract D. . sand bricks BUT NOR petroleum products which are not mateirals or supplies since they do not go into or are consumed in the construction of project but are used in the machineries and equipment a. The clear intent of constitutional commission that framed the constitution is to subject their salaries to tax as in the case of all taxpayers F. A tax exemption in themanufacture and sale of machineries for making cigarette paper does not include the manufacture and sale of products produced by the machine a. transformers and insulators. Tax exemptions are strictly construed E. Tax exemptions are strictly construed L. being highly disfavored in law. Since tax exemptions are strictly cosntured. t - he books of accounts and other pertinent records of tax exempt organizations or grantees of tax incentives - shall be subject to examination by the bureau of internal revenue for purposes of ascertaining compliance - with conditions under which they have been granted tax exemption or tax incentives. Only sale to US quartermaster are exempt it follows that the sale of oxygen and acetylene gases to the VOA is taxable P. a racing club is EXEMPT from payment of any municipal or national tax. Said compensating tax is not a property tax but an excise tax b. maintencance. and not to oild used in operation of sawmills N. The statutory exemption covers only taxes in connection with races like the municipal license fee of 600 pesos per day of racing and 500 pesos fixed tax for each day racing under NIRC TAX EXEMPT PERSONS REQUIRED TO KEEP BOOKS OF ACCOUNTS M. a. the exemption refers only to the operations of forest concessionaires.38 a. RA 1435 allows a partial refund of 25% specific tax paid on fuel oil used in the operations of forest concesssionaires. must be strictly construed a. SUCH exemption does not include exemption form income tax on rentals received from the lease of its race tracks to Philippine charity sweepstakes…. Tax exemptions ARE NEVER PRESUMED O. a. In as much as under the bases treaty only sales of goods for the exclusive use in construction. TAX REFUND Tax avoidance . operation or defense of the base - A taxpayer’s exempt status does not justify the non keeping of books of accounts and other accounting record - TAX CODE : any provision of existing general or special law to the contrary notwithstanding.is the minimization of tax liabilities through legal means 38 . Q. Where it appears that under a certain law. TAX EVASION. and their tax liability if any TAX AVOIDANCE . In the case of two electric power plants. which are operating in same locality. Exemptions. it cannot be presumed that the exemption of one should also be enjoyed by the other. If what the law exempts from compensating under then are passenger and or cargo vessels the tugboats are NOT WIHTIN scope of exemption because tugboats are NOT USED for carrying passengers or cargo but only for twogin other vessels. TAXATION SURVIVAL KIT – Aban Book Tax evasion – when the means used to minimize taxes are illegal accomplishment and promotion of purposes enumerated in article of incporation o Not more than 30% of the gift shall be used by done for administrative purposes - Tax avoidance JURISDICTION. TAX AVOIDANCE ILLUSTRATION : IS NOT FORBIDDEN IN OUR - suppose that A’s income from his property reaches the maximum rate under the law - An attempt to minimize one’s tax does not necessarily constituted fraud - to avoid this, he donates one hald of his assets to an educational institution that qualifies for tax exemption under Article XIV Constitution - Taxpayer may diminish his liability by any means which the law permits - TO AVOID IS LEGAL BUT TO EVADE IS ILLEGAL - the done being a non stock, non profit educational institution whose income and assets are actually, directly, and xclusivly used for educational purposes - Tax evasion may be exemplified by means of tax fraud, or the use of deceit in order toe vade taxes - A therefore succeeds in avoiding payment of tax on income derived therefrom - Fraud however, is a serious charge and to eb sustained it must be supported by clear and convincing evidence - HOW ABOUT DONOR’S TAX? IS A LIABLE? No, a does not need to apy any donor’s tax on donated property, provided the fff requisites: - In whether fraud exists substance and not form should control - When the purpose of a taxpayer, at least in part is to EVADE taxes, the court should examine with particular care the forms used by him for the accomplishment of his purposes and if his ingenuity fails at any point, such court should not lend him its aid by resolving doubts in his favor - Our juridprudence includes cases where tax evasion or graud was found to have been perpetrated - The failure of taxpayer to declare for taxation purposes his true and actual income derived from his furniture business at Clark airbase for two consecutive years is o Donee institution is a school, college or univ o Incorporates as non stock, non profit entity paying no dividends o Governed by compensation o All its income, whether student’s fees or gfts, donations subsidies are devoted to the 39 Miranda, Clarisse Ann trustees who receive no 40 an indication of his government of taxes - - to cheat Affirmative and will attempt may be inferred from any conduct the likely effect of which would be to mislead or to conceal Fraud was also found to have existed in following case : The taxpayer declared for 1946 an income of only 5k when his actual income for that year was 100lk. His act in submitting an income tax return of 1947 only for amount of 12k when he acutally had a net taxable income of 43k, and lastly his act of reporting an income… ALL THESE CIRCUMSTANCES JUSFITFY THE FINDING THAT THERE HAS BEEN FRAUD Where it appears that the taxpayer, although on accrual basis, had willfully underdeclared its 1951 income by trating copra outturn worth almost 100k as stock still outstanding at end of 1951, when in fact such copra had been shipped to a foreign buer… SUCH FRAUD IS AGGRAVATED IF TAXPAYER ICNLUDED SUCH COPRA OUTTURN IN ITS BEGINNING INVENTORY FOR 1952 THUS EVENTUALLY DEDUCTING ITS VALUE AS COST OF GOODS SLD FOR 1952 AND DIMINISHING ITS NET INCOME FOR THAT YEAR NO FRAUD IN THE FOLLOWING CASES : 40 intent The net income undeclared in 1946 is more than 100% of net income declared. In 1947 , undeclared income is 1, 0799% of net income declared. 1948, ndeclared net income was 260% of net income declared. 1950, uncdelcared was more than 1,000% of declared net income. SUCH HUFE UNDERDECLARATION COULD NOT HAVE BEEN THE RESULT OF HONEST MISTAKES. o - fraudulent 1. the fact that the value of decendens shares of stock differes from the book value thereof which appears in books of corporation does not of itself indicate fraud since shares of stock frequently fluctuate in vvalue. MERE DIFFERENCE OF OPINION CANNOT SERVE AS A PROPER BASIS FOR ASSESSING AN INTENTIN TO DEFRAUD THE GOVERNMENT 2. where taxpayer’s valuation of certain rice and sugar lands differs from valuation made by commissioner of internal revenue there is NO BASIS to impute fraud where the difference in valuation is only based on an honest difference of opinion. 3. If taxpayer made a mistake In valuation the same is only an honest misteake. 4. It should be noted that an onest intention on one’s part negates fraud 5. Where a man honestly believed that the method employed by him in comuting his tax liability is correct, he does not incur any fraud, in which case, NO FRAUD PENALTY ATTACHES 6. Where it appears that the underdeclaration of taxable property is only inconsequential and is the result of taxpayer’s inadvertence, no fraud exists 7. A tax return which does not correctly reflect income may only be false BUT NOT NECESSARILY FRAUDULENT where it appears that the return WAS NOT RPEPARED BY THE TAXPAYER HIMSELF BUT BY HIS ACCOUNTACNT AND THAT AFTER THE ORIGINAL DEFICIENCY TAX ASSESSMENT WAS MADE, THE SAME WAS SUBSEQUENTLY REDUCED BY BIR BY SUBSTANTIAL AMOUNT. TAXATION SURVIVAL KIT – Aban Book 8. NOTED : the abovementioned case, the taxpayer’s deficiency income tax was assessd and determined through the use of the so called net worth method ot what is otherwise known as inventory method income tax verification 9. In certain case deicded by tax court, ruling was to effect that where a couple in PH received a dollar remittance check from abroad, said amound being the result of an error of remitting bank as sum that was actually supposed to be remitted was only 1l dollars… 10.NO FRAUD was imputed against them since income tax return , the maount in question was DECLARED WITH NOTATION : TAX PAYER WAS THE RECEPEITN FO SOME MONEY FORM ABROAD WHICH HE PRESUMED TO BE A GIFT BUT TURNED OUT TO BE AN ERROR AND IS NOW THE SUBJECT OF LITIGATION 11.No fraud existed because taxpayer his cards on the table had literally laid Chapter 4 TAX LAWS AND REGULATIONS NATURE OF TAX LAWS - CIVIL IN NATURE - Not political - Even during period of enemy occupation (such as for instance, during Japanese occupation of Philippines in World War II, which lasted from 1942 – 1945 , tax laws are continually enforced as they are deemed to be laws of ooccupied territory and not those of occupying power HILADO vs CIR 41 Miranda, Clarisse Ann - - court did not allow the taxpayer to deduct from his 1951 tax return a casualty loss incurred during the was loss from fire, storms, shipwreck etc including war losses although such loss was incurred during said war it was not possible for him to make the deduction because, according to him, internal revenue laws were at the time unenforceable or in a state of suspension. COURT : overruled this contention and held that during Japanese occupation, internal revenue laws of Philippines continued to be in force NEITHER ARE TAX LAWS PENAL IN NATURE - the rule on retroactive effect of penal alws under article 222 of RPC which reads : penal law shall have retroactive effect insofar as they favor the person guilty of a felony, who is NOT a habitual criminal as defined in rule 5 article 62 of this code. - Although at the time of publication of such laws a final sentence has been pronounced and convict is serving the same - Finds no application in tax cases - Revenue laws which impose taxes collected by means which are ordinarily resorted to for the collection of taxes are NOT CLASSES as penal laws and therefore CANNOT BE GIVEN retroactive effect TAX LAWS NOT BEING PENAL IN CHARACTER, THE RULE IN THE CONSTITUTION AGAINST THE PASSAGE OF EX PSOT FACTO LAWS CANNOT BE INVOKED - the constitutional prohibition against the passage of ex post facto legislation, accdg to SC - applies only to criminal or penal matters and not to laws which conern civil mattes or proceedings generally, or which affect or regulate civil or private rights - constitutional prohibition against ex post facto alws is NOT APPLICABLE to the collection of interest on back taxes, nor to laws which as stated concern civil matters generally or regulate civil or private rights and portions of Local Government Code 3.SC said that propose of Tax Code is to impose taxes. TAX LAWS OPERATE PROSPECTVELY whether they ENACT. An Act Creating the Court of Tax Appeals 4. no constitutional infringement would exist anent the ex post facto prohibition INTERPRETATION OF TAX LAWS .provisions of a taxing act are not to be extended by implication TAX STATUTES ARE COSNTURED STRONGLY AGAINST GOVERNMENT AND LIBERALLY IN FACOR OF CITIZEN SINCE OUR INCOME TAX LAWS ARE OF AMERICAN ORIGIN. Tariff and Custom Code. it is important to consider.Tax Treaties and Conventions with foreign countries Mandatory and Directory Provisions 42 .May be implied from language used 10. Court Decisions because burdens are not to be imposed beyond what the statutes expressly and clearly import 7. INTERPETATION BY AMERICAN COURTS ON OUR PARALLEL TAX LAWS HAVE PERSUASIVE EFFECT SOURCES OF TAX LAWS 1. Revenue regulations promulgates by Department of Finance Although tax burdens are not presumed.a tax cannot be imposed without clear and express words for that purpose . however tat tax laws are NOT PROMULGATED in order to encourage tax evasion or tax avoidance .UNLESS the purpose of legislatre to give retroactive effect is expressly declared OR . not to enhance tax avoidance 8. Constitution 2. Administrative issuances of BIR like Revenuw Memorandum Circulars. Presidential decrees 5. and those of Bureau of Customs like Customs Memroandum Orders LIKE OTHER STATUTES.a statute will not be construed as imposing a tax unless it does so clearly. expressly. Statutes like RA 1125 and RA 8424 – Tax Reform Act . AMEND OR REPEAL . Executive orders 6. BIR Rulings 11.42 - Collection of interest in tax cases is NOT PENAL IN NATURE INCREASE TAX RATES MAY ALSO BE GIVEN RETROACTIVE EFFECT SO AS TO APPLY INCOME EARNED BEFORE THE PASSAGE OF THE LAW AUTHORIZING SUCH INCREASE .Local Tax Ordinances - 9.in case of interest. Tax codes such as NIRC. and unambiguously . and Customs Code and Assessment Law - As a matter of practice and principle.TAXATION SURVIVAL KIT – Aban Book - there are provisions in existing tax laws which lay down mandatory requirements for purposes of validity of certain acts performed by those who are entrusted with enforcement of revenue laws Examples : Tax Code 1977 Section 207 : Distraint property real property of the delinquent taxpayer in sufficient quantity to satisfy the tax charge together with any increment thereto incident to delinquency Another example of a directory provision is Section 12 . SC will not set aside the conclusion reached by CTA which is by the very nature of its function. Clarisse Ann PUBLICATION REQUIREMENT - not all sources of tax laws as enumerated above require publication in Official Faxette as provided in Article 2 of CC. which states that LAWS SHALL TAKE EFFECT AFTER FIFTEEN DAYS FOLLOWING THE COMPLETION OF THEIR PUBLICATION IN OFFICIAL GAZETTE UNLESS IT IS OTHERWISE PROVIDED . as in the case of income tax. - It was created by Congress as a centralized court specializing in tax cases - It is a regular court vested with exclusive appellate jurisdiction over cases arising under the NIRC. dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise in subject. xxx - provides that cases brought before the court shall be decided within thirty days after subsmission thereof for decision - such action will not necessarily result in nullity of collection - The CTA is NOT a mere superiror administrative agency or tribunal rather it is a part of judicial system of Philippines - No need for bureau of Internal Revenue to allow three months from date of receipt of assessment to elapse before summary remedies for collection are resorted to – if tax being collected is self assessed tax. which the taxpayer reflects in his tax return. RA 1125 - the law then required that same should be employed not earlier than three months nor later than six months from receipt of demand. UNLESS THERE HAS BEEN AN ABUSED AND IMPROVIDEDNT EXERCISES OF AUHTORITY ON ITS PARTY - BUT WHICH he failed to pay on the date for payment prescribed by law Three month period applied only when there was a previous demand or assessment from BIR Section 207 1997 NIRC - no longer provides for mandatory period of NOT ERALIER THAN THREE MONTHS before the BIR could use the summary remedy of collection of any delinquent tax by disraint of personal property and/or levy on real property - Commissioner or his duly authorized representative shall seize and distrain personal property and/or levy 43 Miranda. Tariff. presidential decrees and executive orders promulgated by President. then it is the three year period under the Tax Code that should apply . a general law. including those of local application and private laws. and administrative rles and regulations if their purpose is to enforce or implement existing law. must be given weight as the construction comes from the branch of Government called upon to implement the law ARE TAX LAWS SPECIAL LAWS? - Tax laws are special laws - Tax code is an example of a tax law - Tax code is a special law and prevails over a general law such as Civil Code ( REPUBLIC VS GANAYCO) - In case the provisions of a special law are found to be deficient in a particular situation. EXAMPLE : those which regulate only the personnel of administrative agency and not public . BIR RULINGS BIR memorandum Circular – is only for internal administration of BIR and not a regulation within the contemplation of Section 245 of Tax Code - Therefore : needs no publication in Official Gazette - WHEN AND ADMINISTRATIVE RENDERS AN OPINION BY MEANS OF A CIRCULAR OR MEMORANDUM IT EMRELY INTERPRETS A PRE EXISTING LAW AND NO PUBLICATION IS REQUIRED FOR ITS VALIDITY - - 44 publication as a condition for their effectivity. need not be published In BIR instance. feees. pursuant to a valid delegation Customs Memorandum Orders issued by Commissioner of Customs NEED NOT BE PUBLISHED IN OFFICIAL GAZETTE Construction by an executive branch of Government of a particular law. REVENUE MEMORANDUM CIRCULARS. Local Tax Code : on publication of tax ordinances should apply because the local tax code relates to ordinances levying or imposing taxes. although not binding on the courts. which prescriptive period will apply – the six year prescriptive for a quasi contracts under Article 1145 of CC or three year prescriptive period for assessment under Sec 233 of Tax Code which is a special law? - since an action to recover an erroneously refunded tax is in effect an assessment of such tax and considering that a special law like tax code prevails over CC.44 - - - - interpretative regulations and those which are merely internal in nature. irrespective of nature and scope thereof - Section 43 . statutes. the following do not require publication for purposes of effetivity: REVENUE MEMORANDUM ORDERS. REVENUE ADMINISTRATIVE ORDERS. or charges in particular In action instituted by the Government for the recovery of an erroneously refunded tax. the civil code shall apply - RULING : to effect that although the Revised Charter Manila speaks of ordinances in general. FOR BEING CONTRARY TO THE EXPRESS PROVISION OF A STATUTE. upon recommendation of Commissioner. it legislated guidelines contrary to the statute passed by congress - COURT UPHEL THE NULLIFICATION OF RMC – 7-85 AS AN ADMINISTRTIVE INTERPRETATION WHICH IS NOT IN HARMONY WITH SECTION 230 OF 1988 NIRC. subject to review by the Secretary Finance . by administrative fiat.TAXATION SURVIVAL KIT – Aban Book TAX REGULATIONS - promulgates by Secretary of Finance in order the implement the provisions of Tax Code - the Secretary of Finance. the internal revenue commissioner cannot. Clarisse Ann POWER OF COMMISSIONER TO INTERPRET TAX LAWS AND TO DECIDE TAX CASES - Section 4. amend the law by making compliance therewith more burdensome TAX RULINGS - Under guise of regulation. legislation may not be enacted - best guess of moment and incidentally often contain such well considered and sound law - Administrative have the force and effect of law - COURTS : they do not prevent an entire change of front at any time and are merely advisory sort of an information service to taxpayer Administrative regulations provisions of the law - must be in harmony with in case of discrepancy between basic law and implementing rule or regulation the former prevails - Rules and regulations must not override but must remain constant and in harmony with the law they seek to apply - They must neither supplan nor modify the law 45 Miranda. shall promulgate all needful rules and regulations for the effective enforcement of provisions of this Code - Regulations must not be contrary to law for a regulation promulgated on a wrong interpretation of the law or in contravention thereof cannot give rise to a vested right that can be invoked either by taxpayer or government - Gazette or in a newspaper of general circulation - They must be reasonable and must be within the authority conferred since the power to make regulation is NOT THE power to legislate - SC : ruled against the relaxation of certain revenue regulations by Revenue Memorandum Circular No 7-85 as it disregarded the 2 year prescriptive period set by law - BIR did not simply interpret the law. AND CONCLUDED THAT THE SAME COULD NOT BE GIVEN WEIGHT FOR TO DO SO WOULD IN EFFECT AMEND THE STATUTE - MOREOVER. NIRC – specifically provides that the power to interpret the provisions of Tax Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner. there was a BIR ruling issued on January 21. 1980 wherein it was ruled that the 15% branch profit remittance tax under Section 25 (a) (5) of Tax Code should be based on amount of profit actually remitted by a philippine branch to its parent company abroad 2. modification or reversal of any of rules and regulations promulgated in accordance with preceding Sections or any of rulings or circulars promulgated by Commissioner - shall not be given retroactive application if the revocation.46 - - - The power to decide disputed assessments. fees or other charges. EXCEPT IN FOLLOWING CASES: 1. in 1982 under Revenue Memorandum Circular No. thus giving rise to a bigger amount to tax . 8-82. is accorded much weight and even finality where there is NO SHOWING THAT IT IS PATENTLY wrong. a specialized body created for the exclusive purpose of reviewing tax cases and CA RULING WHICH MERELY EMBODIED ADMINISTRATIVE OPINIONS ON QUERIES SUBMITTED DO NOT HAVE THE FORCE AND EFFECT OF LAWS NON RETORACTIVITY OF RULINGS 46 - rulings are not retroactive if they are prejudicial to taxpayer - Section 246 of 1997 NIRC “any revocation. particularly in a case where the findings and conclusions of internal revenue commissioner were subsequently affirmed by the CTA . Where taxpayer acted in badfaith COURT: retroactive effect of VAT RULING 8-92 WILL NOT BE PREJUDICIAL TO THE TAXPAYER under the aforequoted exception to the general rule CASE #1 1. penalties imposed in relation thereto or other matters arising under this Code or other laws or portions theref administered by BIR is vested in Commissioner subject to the exclusive appellate jurisdiction of CTA RULING OF CIR : agency tasked with enforcement of tax laws. BIR revrsed the prior ruling and held that the 15% branch profit remittance tax SHOULD BE BASED NOT ON THE AMOUNT OF PROFITS ACTUALLY REMITTED BUT ON THE AMOUNT APPLIED FOR REMITTANCE THEREBY MAKING THE BASIS OF 15% tax larger than that on which said tax was computed under original 1980 ruling. 3. HOWEVER. where the facts subsequently gathered by BIR are materially different from facts on which the ruling is based 3. modification or reversal will be prejudicial to the taxpayers. BIR in its subsequent ruling in 1982 reasoned that the amount applied for remittance should be the tax base. where taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR 2. refunds of internal revenue taxes. the total real property tax SHOULD NOT EXCEED A MAXIMUM OF THREE PER CENTUM. WILL SAID RULING APPLY TO REMIRRANCES MADE BY IT IN 1979? - payment of branch profit remittance having been made on 1979.TAXATION SURVIVAL KIT – Aban Book SOME EXTENT CONFIRMATORY THAT THE RULING CARRIES OUT THE LEGISLATIVE PURPOSE WILL THE REVERSAL RULING IN 1982 RETROACT TO THE BRANCH PROFIT REMITTANCES MADE BEFORE THAT YEAR OR AS IN THE CASE OF BURROUGHS HEREIN. CAN INCREASE THE EXISTING REGULAR RATE OF ONE AND ONE HALF PERCENT TO TWO PERCENT - SO THAT 2% ADDED TO THE 1% EQUALS 3% OR MAXIMUM RATE ALLOWED UNDER RA 5547 CASE #2 - the administrative rulings of previous commissioners are not conclusive and binding upon their successors - an incumbent commissioner may REVOKE. THE CITY OF MANILA UNDER ITS CHARTER. it follows that BIR memorandum circular no 8-82 issued on March 17. subject to the non retroativity rule should it appear that the ruln reversing a previous ruling of former commissioner is prejudicial to the taxpayer pursuant to sec 246 of Tax Code LEGISLATIVE ADOPTION OF TAX RULINGS Principle of legislative approval interpretation through enactment - of an administrative WHERE A STATUTE IS SUSCEPTIBLE OF THE MEANING PLACED UPON IT BY A RULING OF A GOVERNMENT AGENCY CHARGED WITH ITS ENFORCEMENT AND THE LEGISLATURE THEREAFTER REENACTS THE PROVS WIHTOUT SUBSANTIAL CHANGE. Clarisse Ann TAX TREATIES AND ITNERNATIONAL AGREEMENTS - also constitute an important source of tax law - tax teaties ordinarily comprehend two objectives : o to avoid double taxation (ESPECIALLY IN CASES WHERE THE ICOME IS TAXED TWICE) one by country where the income is earned and another by country where subject of taxation is either a citizen or resident (country of residence) . 1982 CANNOT BE GIVEN RETROACTIVE EFFECT - THE REENACTMENT of a statute substantially unchanged is persuasive indication of the adoption by Congress of prior executive construction DOCTRINE OF IMPLICATIONS - the doctrine of implications means that which is plainly implied in the language of a statue is as much a part of it as that which is expressed - RA 5547 – which imposes a 1% additional tax on Real property. REVERSE. SUCH ACTION IS TO 47 Miranda. OR ABROGATE THE ACTS OR RULING OF HIS PREDECESSORS IN OFFICE IF HE BECOMES CONVICED THAT A STATUTE WARRANTS A DIFFERENT CONSTRUCTION (HILADO VS CIIR) - the principle is. conditions deemed vital in creating robust and dynamic economies - Foreign investments WILL ONL THRIVE in a fairly predictable and reasonable international investment climate and protection against double taxation is crucial in creating such a climate - Constitution requires the concurring vote of at least 2/3 of all members of Senate for validity and effectivity - SC : less formal types of international agreements may eb entered into by the Chief executive and bcome binding without the concurrecnce of legislative body CASE : Host agreement of July 22 1951. city and municipal assessors and treasurers for local and real property taxes . technology and persons between countries. NTOABLE OF WHICH ARE THOSE WITH EUROPEAN COUNTRIES. MAKAYSIA and others CIR vs Johnson and Son - - - 48 the purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions Tax conventions are drafted with a view towards the elimination of international juridical double taxation INTERNATIONAL JURIDICAL DOUBLE TAXATION – imposition of comparable taxes in two or more states on same taxpayer in respect of the same subject matter and for identical periods - RATIONALE : encourage free flow of goods and services and the movement of capital. or Southeast Asian nations like INDONESIA< SINGapore.48 o - to eliminate or minimize tax evasion through adoption of the exchange of information scheme whereby the signatory countries to the treaty undertake to furnish each other on a mutual basis information on taxable income and/or activities of any of their nationals or residents THE PHILIPPINES HAS ENTERED INTO A NUMBER OF TAX TREATIES. the US. COURT : said agreement is VALID and INDING agreement even without the concurrence of senate Chapter 5 TAX ADMINISTRATION AND ENFORCEMENT Agencies Involved in Tax Administration - agencies of Government which are involvd in tax law enforcement or tax administration are the Bureau of Interna Revenue and Bureau of Customs for internal revenue and customs law enforcement - Provincial. between the Philippines and the WHO under which WHO is exempt from indirect taxes relative to the onstruction of its regional headquarters building in the Philippines comes within the latter category. ASEAN. referred to as Commissioner and four assistant chiefs to be known as Deputy Commissioners Each Deputy Commissioners respectively heads of : 13 Assistant Commissioners of different services  policy and planning service  enforcement service  large taxpayers service  information systems operations service  information planning and quality service  information systems development service  taxpayers assistance service  assessment service  collection service  legal service  inspection service o Information Systems Group  human resources development service o Operations Group  o Legal and Inspection Group financial and administrative service— Constitute the first/senior level of administrative authority o Resource management Group while Review and Evaluation Group is placed directly under Office of Commissioner - Second/middle management level of administrative officers is composed of : o Division chiefs heading each of various division falling under major service to wit: Together with :  49 Miranda.TAXATION SURVIVAL KIT – Aban Book - COURTS are not part of administrative process but in the tax mileu they do play an important role since sound tax administration must move along the correct interpretation of tax laws o Bureau of Internal Revenue - - - - occupying forefront tax law enforcement is the BIR. Clarisse Ann Planning . which is tasked with collection of substantial amount of revenue fro country and is under supervision and control of Department of Finance BIR shall have a chief to be known as Commissioner of Internal Revenue. 50  Management  Systems development  Statistics  Systems maintenance and support  Corporate Communications  Taxpayer information and education  Tax Fraud  Taxpayer service program and monitoring  Policy Cases  Assessment program  Large Taxpayers Audit and Investigation  Audir information and tax exemption  Large taxpayers Audit and Investigation  Asset valuation  Large – Taxpayers documentary processing and quality assurance  Withholding tax  Revenue and accounting  Collection enforecement  Appellate   50 Large taxpayers field operations Large taxpayers enforcement collection and  Large taxpayers assistance  Litigation  Large taxpayers programs  Prosecution  Systems operations  International tax affairs  Systems support  Internal security  Security management  Internal audit  Quality assurance  Personnel inquiry  Systems standard management  Personnel training management and technology . penalties and fines connected therewith Powers and Duties of Bureau of Internal Revenue 51 Miranda. the following are constituted as agents of Commissioner : 1.TAXATION SURVIVAL KIT – Aban Book - -  Training delivery  Medical/dental  Financial and administrative  Budget  General services  Accounting  Procurement  Accountable forms  Personnel management services AGENTS AND DEPUTIES FOR COLLECTION OF NATIONAL INTERNAL REVENUE TAXES Section 12 of 1997 NIRC. Execution of judgement in all cases decided in its favor by CTA and ordinary courts . Banks duly accredited by Commisioner with respect to receipt of payments of internal revenue taxes authorized to be made through banks Any officer or employee of an authorized agent bank assigned to receive internal revenue tax payment and transmit tax return or documents to BIR shall be subject to same sanctions and penalties prescribed in Sections 269 – 270 of Tax Code o 19 revenue regions all over country o each revenue region being headed by regional director o 115 revenue district offices revenue district officer each under a 1. The head of appropriate government office and his subordinates with respect to the collection of energy tax BIR is largely decentralized in that great extent of tax enforcement duties are delegated to the Tegional Directors and Revenue Distrcit Officers At PRESENT : 3. Enforcement of all forfeitures. Clarisse Ann The powers and duties of BIR comprehend the following : 3. investigators and agents and of course the numerous clerks and other support personnel 2. more commonly known as examiners. Commissioner of Customs and his subordinates with respect to the collection of national internal revenue taxes on imported goods 2. Assessment and collection of all national internal revenue taxes. fees and charges o FRONT LINERS OF BIR : rank and file revenue enforcement officers. Shall be submitted to and settled or adjudicated by Solicitor General or Sec of Justice as case may be Decision of Secretary of Justice as well as that of Soliciot General. offices . penalties imposed in relation thereto. such assessments shal continue to be considered as a disputed assessment APELLATE JURISDICTION OF COURT OF TAX APPEALS 52 - - CTA shall have exclusive appellate jurisdiction over appeals made by taxpayers adversely affected by the decision or inaction of Commissioner on administrative protests against assessments.70 of RAC of 1987. or from lapse of 180 day period Pending appeal. fees or other charges. the appeals.69. subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. said finding may be dsregarded by a subsequent BIR inspection team If it appears that sch alcohol was improperly denatured and. Decision of president SHALL BE FINAL. when approved by Sec of Justice . pursuant to Secs 666.68.67. may however be taken to the President when amount involved EXCEEDS ONE MILLION PESOS. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases.The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner. bureaus. subject to review by the Secretary of Finance. refunds of internal revenue taxes. . therefore is exempt from specific tax. agencies and instrumentalities of National Government. or other matters arising under tax code or other laws or portions thereof administered by BIR The decisions of Commissioner on protests filed against assessments issued to departments. penalties imposed in relation thereto. The power to decide disputed assessments.52 4. Effecting and administering the supervisory and police powers conferred to it by tax code or other laws - POWER AND DUTY OF COMMISSIONER TO INTERPRET TAX LAWS AND TO DECIDE TAX CASES SEC. 4. Disputed assessment – a tax assessment that is administratively protested within 30 days from date the taxpayer received the assessment - - includes protested assessments wherein the administrative protest is denied in whole or in part or is NOT ACTED upon by BIR within one hundred eighty days from submission of all required documentary evidence taxpayer adversely affected by decision or inaction appealed the same to CTA within 30 days from receipt of decision. shall be final and binding upon parties APPEALS. RULES OF NO ESTOPPEL AGAINST THE GOVERNMENT - - in performance of its governmental functions. fees or other charges. or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner. hence subject to tax Estoppel does not apply to preclude the subsequent findings on taxability . claims for refund or tax credit of internal revenue taxes. including government owned or controlled corporations. the state cannot be estopped by neglect of its agents and officers nowhere is this more true than in field of taxation SC in CIR vs ABAD : where a BIR denaturation committee makes a favorable finding that alcohol has been suitably denatured and. their reommendations are always subject to the review of their superiors who may be countermand or affirm them GOVERNMENT IS NEVER STOPPED TO COLLECT LEGITIMATE TAXES BECAUSE OF ERROR COMMITTED BY ITS AGENTS A FAVORABLE FINIDNG OR POSITION TAKEN BY BIR IN AN INVESTIGATION INVOLVING A PARTICULAR TAXPAYER SHOULD NOT BE A GROUND FOR ACCORDING THE SAME TREATMENT TO A DIFFERENT TAXPAYER IN ANOTHER INVESTIGATION IF IN THAT PREVIOUS INVESTIGATION ERROR WAS COMMITTED. COURT : Government must follow same rules of procedure which bind private parties In case involving a claim fo refund of allegedly overpaid taxes. . COURT : even if said agents were so authorized. - Government is NOT BOUND by errors committed by its agents in previous investigations and assessments PRINCIPLE IN TAX LAW ENFORCEMENT IS : Government is not estopped by msitakes or errors of its agents - SC : BIR should not be allowed to defeat an otherwise valid claim for refund by raising question of withholding agent’s alleged incapacity to file claim for refund for first time on appeal. AS WHERE INJUSTCIE WILL RESULT TO TAXPAYER THIS COURT IS MINDFUL OF THE WELL ENTRENCHED PRINCIPLE THAT THE GOVERNMENT IS NEVER ESTOPPED FROM COLLECTING TAXES BECAUSE OF MSITAKES OR ERRORS ON PART OF ITS AGENTS BUT THIS RULE ADMITS OF EXCEPTIONS IN INTEREST OF JSUTICE AND FAIR PLAY. the Government was bereft of any fatual basis to oppose such claim and present evidence t dispute the same - - erroneous application and enforcement of law by public officers do not block subsequent correct application of statutes ESTOPPEL DOES NOT APPLY TO DEPRIVE GOVERNMENT OF ITS RIGHT TO RAISE DEFENSES - even if those defenses are being raised only for first time on appeal - Procter and Gamble case : involving refund of alleged over withheld final wihtolding tax on dividends paid out to a non resident foreign cororation 53 Miranda.TAXATION SURVIVAL KIT – Aban Book - - - RULE OF ESTOPPEL CANNOT BE INVOKED BY A TAXPAYER IN ORDER TO PRECLUDE COLLECTION OF TAXES THAT ARE RIGHFULLY UNAUTHROIZED PRONOUNCEMENTS ON A TAXPAYER’S TAX LIABILITIES. Clarisse Ann BECAUSE of delay and inaction of a division in BIR to submit the corresponding report on investigation Government is NOT deprved of its right to file motion for reconsideration against a decision of CTA allowing refund in question GOVERNMENT IS NOT ESTOPPED BY THE MISTAKES OR NEGLIGENCE OF ITS OFFICIALS AND EMPLOYEEES COURT : CIR VS CA - the defense of Government against the claim for refund to effect a mere withholding agent is NOT proper party that should claim such refund WAS NOT NTERPOSED by government in lower court but was raised only for first time on appeal Government is NOT ESTOPPED from collecting taxes legally due because of mistakes or errors of its agents THIS ADMITS EXCEPTIONS IN INTEREST OF JUSTICE AND FAIR PLAY . TAXPAYER DID NOT FILE ANY RETURN AT ALL 3. Deficiency Assessment – made by tax assessor whereby correct amount of tax is determined after an examination or investigation is conducted a. Assessment must be absed on actual facts . Amount of tax assessed is reflected in tax return that is filed by him b. Assessments should NOT BE BASE ON PRESUMPTION NO MATER HOW LOGICAL THE PRESUMPTION MIGHT BE a. Failure to present proof of error in assessment will justify judicial affirmation of said assessment e. an assessment will not be disturbed c. Liability : determined and therefore assessed for following reasons : i. Erroneous Assessment – assessment wherein assessor has POWER TO ASSESSS BUT ERRS IN EXERCISE OF THAT POWER PRINCIPLES GOVERNING TAX ASSESSMENTS 1. Tax assessed is paid at time he files return c. This system of simultaneous filing fo return and pament of tax is known as PAY AS YOU FILE SYSTEM 54 2. Assessments are PRIMA FACIE PRESUMED CORRECT AND MADE IN GOOD FAITH a. BUT ALSO WHAT THE PORPER VALUE IS 2. Illegal and Void Assessment – assessment wherein tax assessor has NO POWER to act at all 4. ABSENCE OF ANY PROOOF OF ANY IRREGULARITIES in performance of official duties. THE AMOUNT ASCERTAINED EXCEEDS THAT WHICH IS SHOWN AS TAX BY THE TAXPAYER IN HIS RETURN ii. postponed the collection of its liability TAXPAYER CANNOT LATER ON BE PERMITTED TO RAISE THE DEFENSE OF PRESCRIPTION INASMUCH AS HIS PREVIOUS REQUESTS FOR REINVESTIGATION HAVE THE EFFECT OF PLACING HIM IN ESTOPPEL NATURE AND KINDS OF ASSESSMENTS Assessement - official action of an administrative officer in determining the amount of tax due from a taxpayer. A party challenging an appraiser’s finding of value is REQUIRED to prove not only that the appraised value is erroneous B f. Taxpayer has duty of providing otherwise b. ALL PRESUMPTIONS ARE IN FAVOR OF TAX ASSESSMENTS d. acceding to taxpayer’s request.54 IS THERE ESTOPPEL AGAINST TAXPAYER? - - not necessarily true in case of taxpayer taxpayer made several requests for reinvestigation of its tax liabilities such that the government. or it may be a notice to effect that the amount therein stated is due from taxpayer as a tax with a demand for payment of tax or deficiency stated therein CLASSIFICATION OF ASSESSMENTS : 1. Self assessment – assessed by taxpayer himself a. NO AMOUNT OF TAX IS SHOWN IN RETURN iii. TAXATION SURVIVAL KIT – Aban Book b. after taking into account the sales.an assessment signed by an employee for and in behald of cir is VALID . IT CANNOT BE MADE TO REST ON AOTHER PRESUMPTION THAT THE CIRCUMSTANCES EXISTING IN A SUBSEQUENT INVESTIGATIVE PERIOD ARE PRESUMED TO BE THOSE EXISTING IN A PREVIOUS PERIOD declarations made or to be made in a return required to be filed under provisions of Tax Code: o the commissioner. income. Concluding . SALES . 40 pesos ticket for adults was split into two . OR RECEIPTS FOR ITNERNAL REVENUE TAX PURPOSES FINDINGS must be used as basis for assessing taxes for other months or quarters of same or different taxable years and such assessments shall be deemed prima facie correct PRESUMPTIVE GROSS SALES AND RECEIPTS METHOD - when it is found that a person has failed to issue receipts and invoices in violation of law OR when there is reason to believe that books of accounts or other records do not correctly reflect the 55 Miranda. sales and taxable base and such amount so prescribed o shall be prima facie correct for purposes of determining correct internal revenue tax liabilities of such person Collector of Internal Revenue vs Benipayo - where taxpayer was investigated for amusement tax purposes the BIR examiner found that the ratio of adults patronizing taxpayer’s theater was 3 adults to 1 child ratio was in reverse 3 children to 1 adult. Clarisse Ann 3. or other taxable base of other persons engaged o in similar businesses under similar situations or circumstances or o after considering other relevant information o may prescribe a minimum amount of such gross receipts.The authority vested in Commissioner to assess taxes may be delegated . receipts. Assessment COMMISSIONER - is DISCRETIONARY ON PART OF Manadamus will not lie to compel him to assess a tax if afer investigation he finds no ground to assess MANDAMUS TO COMPEL THE COMMISSIONER TO ASSESS WILL RESULT IN JUDICIAL ENCROACHMENT ON EXECUTIVE FUNCTIONS COURT : CIR may be compelled to assess by mandamus if in the exercise of his discretion there is evidence of arbitrariness and grave abuse of discretion as to go beyond statutory authority 4.20 pesos tax exempt tickers for children examiner assessed the corresponding tax COURT : assessment is faulty since it merely assumes that the ratio of adults theatergoers in 1952 to 1953 is same as that which obtained in 1949 to 1951 Surveillance method : taxpayer’s business operations may be placed under observation or surveillance - if there is a reason to believe that the taxpayer is NOT DECALRING HIS CORRET INCOME . PRESUMPTION OF CORRECTNESS OF AN ASSESSMENT BEING A MERE PRESUMPTION. or in making a return when none has been made. and to give testimony. . and to Summon. the administrator should be the party to whom assessment should be sent and not the heirs of decedent INVESTIGATE POWERS OF COMMISSIONERL FACTUAL BASIS OF ASSESSMENTS - - 56 SEC. records. or any person having possession. and their members. MEANS EMPLOYED IN ASSESSMENT OF TAXES (A) Examination of returns and determination of tax due (B) Failure to submit required returns. management or possession of any object with respect to which a tax is imposed.SETTELED : power to make final assessments cannot be delegated cannot lawfully delegate that duty to another 5. and (E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax. including the Bangko Sentral ng Pilipinas and governmentowned or -controlled corporations. The provisions of the foregoing paragraphs notwithstanding.IF TAXPAYER BEING ASSESSED IN AN ESTATE OF A DECEDENT. or in collecting any such liability. - (C) To summon the person liable for tax or required to file a return.In ascertaining the correctness of any return. mutual fund companies. or in evaluating tax compliance. or other data which may be relevant or material to such inquiry. regional operating headquarters of multinational companies. but not limited to. receipts or sales and gross incomes of taxpayers. any information such as. and financial statements of corporations. Power of the Commissioner to Obtain Information. or from any office or officer of the national and local governments. - . government agencies and instrumentalities. (D) To take such testimony of the person concerned. Examine. or any other person. custody. the Commissioner is authorized: - (A) To examine any book.56 . record. surveillance and . reports and other documents (C) Authority to conduct inventory-taking. paper. as may be relevant or material to such inquiry. nothing in this Section shall be construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F) of this Code. or any officer or employee of such person. costs and volume of production. statements. and Take Testimony of Persons. and all persons owning or having the care. to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books. joint accounts. and the names. Assessment must be directed to the right party associations. insurance companies. joint ventures of consortia and registered partnerships. or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax. addresses. or other data. papers. 5. under oath. (B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. or in determining the liability of any person for any internal revenue tax. GENERAL THEORY : taxpayer’s money and other assets in excess of liabilities after accurate and proper adjustment of non deductible and non taxable items not accounted for in his tax return is demed to be nreported income 2. General Rule. HE REFUSES TO PRODUCE THEM b. NON DEDUCTIBLE EXPENDITURES WERE MADE AND CORRECT. as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer. OR THE TAXPAYER HAS NO BOOKS. A date beginning with a taxable year or prior to it. OR HE HAS BOOKS. That there is evidence of a possible source or sources of income to account for increases in net worth or exependitures c. AND OTHER 4. Taxpayer’s net worth is determined both at the beginning and at end of same taxable year c. The legal source of authority for its use a. Circumstances are such that : METHOD DOES REFLECT THE TAXPAYER’S INCOME 1. Basic concept and theory a.TAXATION SURVIVAL KIT – Aban Book to prescribe presumptive gross and receipts (D) Authority to terminate taxable period (E) Authority of the Commissioner to prescribe real property values (F) Authority of the Commissioner to inquire into bank deposit account (G) Authority to accredit and register tax agent (H) Authority of the Commissioner to prescribe additional procedural or documentary requirements - SEE TABLE MADE NET WORTH METHOD : known as inventory method of income tax verification Very effective method of determining taxable income and deficiency income tax due from a taxpayer 1. INCOMPLETE OR ERRONEOUS 3. but if no such method of accounting has been so employed. 43. or if the method employed does not clearly reflect the 57 Miranda.The taxable income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year. FAIR AND 5. Taxpayer’s books of accoutns DO NOT CLEARLY REFLECT HIS INCOME. OR WHEN THERE IS REASON TO BELIEVE THAT ANY SUCH REPOR IS FALSE. the computation shall be made in accordance with such method as in the opinion of the Commissioner clearly reflects the income b. AND PROPER AND JUST ADDITIONS OF PERSONAL EXPENSES 3. Clarisse Ann income. SECTION 6 PROVIDES FOR A BROAD AND GENERAL INVESTIGATORY POWER TO ASSESS THE PROPER TAX ON THE BEST EVIDENCE OBTAINEABLE WHENEVER A REPORT REQUIRED BY LAW AS BASIS FOR ASSESSMENT OF ANY NATIONAL INTERNAL REVENUE TAX SHALL NOT BE FORTHCOMING WIHTIN THE TIME FIXED BY LAW OR REGULATION. at which time the taxpayer’s financial condition can be affirmatively established with some definitnes ii. . There is a fixed starting point or opening net worth i. Increase or decrease in net worth is adjusted by adding all non deductible items and subtracting therefrom non taxable receipts d. EQUITABLE CREDIT ADJUSTMENTS WERE GIVEN BY WAY OF ELIMINATING NON TAXABLE ITEMS CONDITIONS : . Conditions for the Us of the Net Worth Method a. SEC. Extension of basic accounting principle: ASSETS MINUS LIABILITIES EQUALS NET WORTH b. WITH REASONABLE ACCURACY AND CERTAINTY 2. 3. the whole superstructure usually fails c. INADEQUATE RECORDS AS A PREREQUISITE a. e. To require more could be tantamount to holding that skillful concealment is an inevitable barrier to proof. inheritance and the like need not be adduced in evidence by the Government d. v. The courts have uniformly stressed : validity of result of any investigation under this method will depend entirely upon a correct opening net worth d. Where the CIR used as part of the opening net worth the small bank deposit of taxpayer at the beginning of year 1964. Incumbent upon revenue agents to negate all possible sources of non-taxable receipts in addition to adducing evidences to satisfy all other three conditions j. HELD : lower court was correct in considering said return as self serving statement and in giving no credence to the . when a taxpayer is criminally prosecuted for tax evasion. the assessor need not prove specific source of income f. h. and taxpayer presents in court the income tax return for 1946 of his wife to show that his wife made a gain prior to that period. invested or deposited. Whenever no method of accounting is employed by taxpayer or b. e. gifts. This is an essential condition. as in any criminal case. Conviction in such cases. Government is NOT REQUIRED TO ENGATE all possible non taxable sources of he alleged net worth increases c. BURDEN OF PROOF in criminal case : always with Government i. f. In all leading cases on this matter. SC : in civil cases . This method of income determination may be used when taxpayer has : ii. the Commissioner is authorized to resort to any method which in his opinion does reflect the correct income. i. or where the books are incomplete and inadequate iv. 2. g. GOVERNEMENT may be forced to resort to the net worth method of proof where the few records of taxpayer were destroyed.58 1. IF starting point or opening net worth : PROVEN TO BE WRONG. and that therefore he had opening net worth bigger than that used by the Commissioner. rests on proof beyond reasonable doubt. HOWEVER. considered to eb the cornerstone of a net worth case b. bequest. courts are unanimous in holding that when tax cases in civil in nature. Proofs of loans. or iii. when the method does not clearly reflect true income c. when such books and record are not available for examination. the need for evidence of a likely source of income becomes a prerequisite for a successful prosecution h. Burden of proof is upon the taxpayer to show that his net worth increase was derived from non – taxable sources. BASIC ASSUMPTION : most assets are derived from a taxable source and that when this is not 58 true. A DEFINITE STARTING POINT OR OPENING NET WORTH a. But said return does not contain any detail to indicate how alleged gain was used. the taxpayer is in a position to explain the discrepancy g. no books of accounts. direct proof of sources of income is NOT ESSENTIAL b. NEED FOR EVIDENCE OF THE SOURCE OF INCOME a. Gifts iii. Other non ductible taxs x. vi. PROPERADJUSTMENTS TO CONFORM WITH INCOME TAX LAWS a. important to consider that oral testimony of creditor to prove a debt. Under this category are: i.taxable receipts f. j. as a rule is INSUFFICIENT FOR PURPOSES OF INCOME TAX LAW COURT: a loan was not proven to exist where the books of taxpayer failed to show such loan and where no receipts or other evidence were advanced to prove the loan Increases in net worth are not taxable if they are shown not to be the result of unreported income but to be merely the result of correction of errors in taxpayer’s entries in books relating to its indebtedness to certain creditors. Gifts to others xiii. l. Losses from sales or exchanges of property between members of family v. THE EVIDENCE SUPPORTING IT MUST BOTH BE COMPETENT AND TRUSTWORTHY 4. THERE MUST BE ADDED TO THE INCREASE OR DECREASE IN NET WORTH as case may be d. Gift taxes ix. Clarisse Ann v. k. Inheritance ii. Non deductible contributions xii. viii. Non taxable capital gains 59 Miranda. These items are necessary adjustments to avoid the inclusion of what otherwise are non. erroneously listed although already paid COURT : the very nature of loan transactions between individuals such transactions are easily concoted especially between friends and relatives. WHERE A TAXPAYER CLAIMS A BIG OPENING NET WORTH. And the like c. in the absence of other relevant evidence deserve scant consideration In order : such transactions may be considered. h. their existence must be proved by clear and convincing evidence independent of promissory notes. Estate vii. Proper adjustments for non-deducctible items must be made b. Bequests received iv.TAXATION SURVIVAL KIT – Aban Book alleged existence of a bigger opening net worth corresponding to said supposed gain of the wife i. Living or family expenses iii. Premiums paid on any life insurance policy iv. so that promissory notes vales checks and other similar document. Non taxable items should be deducted therefrom. vales checks or similar documents ENFORCEMENT OF FORFEITURES AND PENALTIES . They are : i. e. g. Election expenses and other expenses against public policy xi. Compensation for injuries or sickness Proceeds of life insurance policies Sweepstakes winnings Interest o government securities and the like CASE : ONE HALF OF THE LONG TERM CAPITAL GAINS FROM THE SALE OF CAPITAL ASSETS AND DEPRECIATION OF RENTAL PROEPRTIES WERE DEDUCTED BY COURT FROM INCREASE IN NET WORTH As to loans. Net capital loss xiv. Inheritance viii. i. Income taxes paid vi. Personal ii. vii. Section 253 : .60 The commissioner’s powers are not only limited to assessment and collection of taxes but they also extend to enforcement of forfeitures.as in cases where products subject to excise taxes like cigarettes and alcoholic products . and minor criminal violations. upon recommendation of the Commissioner: Provided. revoke or modify any existing ruling of the Bureau. 7. upon recommendation of the Commissioner.more penalties and forfeitures will be discussed in a later portion of this chapter ACTUAL PRACTICE : COMMISSIONER RECOMMENDS TO THE STATE. fees and charges Section 221: . 204 (A) and (B) of this Code. may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman. subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance. any tax liability: Provided.The Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher.are removed from place of production . however. or . his deputies. under Sec. regional directors. In case of violations committed against the provisions of Title VI of tax code on excise taxes.COMMISIONER IS AUHTORIZED TO INSTITUTE THE NECESSARY ACTION FOR THE CONFISCATION AND FORFEITURE OF PROCEEDS OF CRIME OR VALUE OF GOODS. discovered by regional and district officials. the . . revenue district officers and other internal revenue officers to make arrests and seizures for the violation of any penal law or regulation administered by BIR AUTHORITY OF COMMISSIONER TO DELEGATE POWER Section 7. 1997 NIRC SEC. (b) The power to issue rulings of first impression or to reverse. AND THE INSTRUMENTS OR TOOLS WITH WHICH THE CRIME WAS COMMITTED NOW As to enforcement of fines and penalties. That the following powers of the Commissioner shall not be delegated: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance.where such articles are imported BUT ARE REMOVED FROM CUSTOMS CUSTODY WITHOUT THE PAMENT OF SUCH TAXES .000) or less. (c) The power to compromise or abate. however.Authority of the Commissioner to Delegate Power. . That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500.without payment of such taxes.authorizes Commissioner to recommend the filing of a criminal action for the collection of internal revenue taxes. as may be determined by rules and regulations to be promulgated by the Secretary of finance. penalties and fines. CITY OR PROVINCIAL PROSECUTOR THE FILING OF CRIMINAL ACTION AGIANST TAXPAYER SUPERVISORY AND POLICE POWERS OF THE BIR - 60 power of supervision to insure effective compliance with statutory requirements Section 152 : IR has authority to supervise establishments where articles subject to excise tax like alcohol and tobacco products are stored - POLICE POWER : Tax Code empowers the Commissioner. Coordinate with regional offices or other departments. Implement laws. and to aid in the prevention. Exercise control and supervision over the officers and employees within the region 8.Subject to the rules and regulations to be prescribed by the Secretary of Finance. charges and fees 3. Administer and enforce internal revenue laws and rules and regulations. . 11. Perform such other functions as may be provided by law and as may be delegated by Commissioner 61 Miranda. as members. . Provide economical.subject complaint for collection of a tax deficiency was duly filed upon authority of Commissioner by the then BIR Commissioner . the heads of the Legal. incompetency. Issue letters of authority for examination of taxpayers within the region 4. a Revenue Officer assigned to perform assessment functions in any district may. detection and punishment of frauds of delinquencies in connection therewith. examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax. which was implemented by RAO 5-83 POWERS AND DUTIES OF THE REGIONAL DIRECTOR 1. in compliance with Section 21. Authority of a Revenue Officer. including the assessment and collection of all internal revenue taxes. Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer. It shall be the duty of every Revenue District Officer to examine the efficiency of all officers and employees of the Bureau of Internal Revenue under his supervision. any neglect of duty. and to report in writing to the Commissioner. pursuant to a Letter of Authority issued by the Revenue Regional Director: 1. delinquency.despite the fact that it was not signed by the then BIR commissioner.It shall be the duty of every Revenue District Officer or other internal revenue officers and employees to ensure that all laws. and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. 2. policies. or malfeasance in office of any internal revenue officer of which he may obtain knowledge. upon recommendation of the Commissioner. . through the Regional Director. plans. Coordinate with local government units in area 7. and rules and regulations affecting national internal revenue are faithfully executed and complied with.TAXATION SURVIVAL KIT – Aban Book Assistant Regional Director. programs. REPUBLIC vs HIZON : . Duties of Revenue District Officers and Other Internal Revenue Officers. 13. with a statement of all the facts and any evidence sustaining each case. rules and regulations of the department in regional area 2. efficient and effective service to the people in the area 5. Clarisse Ann DUTIES OF REVENUE DISTRICT OFFICERS AND OTHER INTERNAL REVENUE OFFICERS SEC. AUTHORITY OF A REVENUE OFFICER SEC. to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself. burearus and agencies in area 6. 2. 3.that a certain revenue officer is authorities to examine the books of accounts and other accounting records of .THE REVALIDATION SHALL BE LIMITED TO ONE ISSUANCE ONLY AND IS ONE BY ISSUING A NEW LA SECTION 14 : Authority of Officers to Administer Oaths and Take Testimony 1. 15. employ. 4.any other employee of the Bureau thereunto 11. or reassign internal revenue officers a. to establishments or places where articles subject to excise tax are produced or kept: b.and taxpayer has all the right to refuse its service SEC. internal revenue officers and 10. 62 Commissioner Deputy Commissioners Service Chiefs Assistant Service Chiefs Revenue Regional Directors Assistant Revenue Regional Directors Chiefs and Assistant Chiefs of Divisions Revenue District Officers Special deputies of the Commissioner 1.refers to the letter informing a taxpayer . . 3.final report is NOT COMPELETED within 120 day period. 5. rule or regulation administered by the Bureau of Internal Revenue. there to be dealt with according to law. the Deputy Commissioners. 6. it becomes NULL AND VOID .otherwise. DURATION OF ASSIGNMENT : That an internal revenue officer assigned to any such . Assignment of Internal Revenue Officer Involved in Excise Tax Functions Section 16 of 1977 NIRC : The Commissioner shall : The : 1. The Commissioner. assign.especially deputized by the Commissioner : . 3. Authority of Internal Revenue Officers to Make Arrests and Seizures. involved in excise tax functions. 4. within 120 days from date of issuance and service of LA. 7. the Revenue District Officers other internal revenue officers s: a. – Revenue officer shall.said taxpayer for purpose of verifying his tax liabilities during taxable year 9. A PROGRESS REPORT MUST BE SUBMITTED TO THE HEAD OF AUDIT OFFICE . as often as the exigencies of the revenue service may require. conduct his audit and submit his report of investigation. Shall have authority to make arrests and seizures for the violation of any penal law. the Revenue Regional Directors.62 Letter of Authority . 8. 5.the LA must be served to the taxpayer within 30 days from its date of issue . 2. Any person so arrested shall be forthwith brought before a court. 2. Service of the Letter of Authority .shall have the power to administer oaths and to take testimony in any official matter or investigation conducted by them regarding matters within the jurisdiction of the Bureau. hide or conceal his property from the Philippines .one who intends to remove. he shall immediately report the facts to the Commissioner through his 1.who is attempting to escape from country or . 17. (d) Other percentage taxes. That the assignment shall NOT EXCEED ONE YEAR Other or special duties – refer not to a special or extraordinary undertaking. Meaning of additions to the tax a.The Commissioner may. That the assignment involves duties connected with enforcement and administration of the revenue law as the exigencies of service may require 3. That in urgent cases. SEC. Assignment of Internal Revenue Officers and Other Employees to Other Duties. giving the name and address of the offender and the names of the witnesses if possible: Provided. fees and charges are deemed to be national internal revenue taxes: (a) Income tax.When an internal revenue officer discovers evidence of a violation of this Code or of any law. upon recommendation of the Commissioner.The following taxes. . a copy of his report shall be sent to the Commissioner. may send the report to the corresponding prosecuting officer in the latter case. (b) Estate and donor's taxes. URGENT CASES : covers a situation where the violator is an alien or a citizen . That the assignment would not change the official rank and salary of personnel assigned 2. Reports of Violation of Laws. like taxpayer’s 63 Miranda. assign or reassign internal revenue officers and employees of the Bureau to other or special duties provided the following requisites are complied with : 1. as well as the rules and regulations to be prescribed by the Secretary of Finance upon the recommendation of the Commissioner. An internal revenue officer assigned to perform assessment or collection functions shall not remain in the same assignment for more than three years Statutory Offenses and Penalties SEC. . the Revenue Regional director or Revenue District Officer. Additions to the tax are increments to the basic tax incident due to the taxpayer’s non – compliance with certain elgal requirements. but to functions or work other than or not related to those regularly discharged by the employee concerned immediate superior. Clarisse Ann Addition to the Tax . as the case may be. subject to the provisions of Section 16 and the laws on civil service. 18. subject to rules and regulations to be prescribed by the Secretary of Finance.for the purpose of defeating taxation SEC. 21.TAXATION SURVIVAL KIT – Aban Book establishment shall in no case stay in his assignment for more than two (2) years. . (c) Value-added tax. Sources of Revenue. and (g) Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue. rule or regulations administered by the Bureau of Internal Revenue of such character as to warrant the institution of criminal proceedings. (e) Excise taxes. (f) Documentary stamp taxes. COURT : a provision in an internal revenue law prohibiting the courts from enjoining the collection of an internal revenue tax is NOT INVALID as opposed to the due process and equal protection clauses of the Constitution .No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax. Other civil penalties or administrative fines such as for failure to file certain information returns and violations committed by withholding agents 2. has been paid RULE ON “NO INJUNCTION TO RESTRAIN TAX COLLECTION SEC.64 refusal or failure to pay taxes on time and /or other violations of taxing provisions in the law b. 218. safeguards against arbitration 2. Interest either for a deficiency tax or delinquency as to payment iii. in order to ensure tax collection. exchange. NO registration of any document transferring real property shall be effected by the Register of Deeds. may adopt or prescribe coercive measure as in a case where the payment of a local tax is made as a condition to the registration and transfer of motor vehicles 64 2. Injunction not Available to Restrain Collection of Tax. UNLESS the Commissioner of Internal Revenue or his duly authorized representative has certified that such transfer has been reported and tat the capital gains or creditable withholding tax. What is the justification for this rule? . The Government. fee or charge imposed by this Code. 56. While taxes are lifeblood of government and should be collected without unncecessary hindrance. General Considerations on Additions to Tax Chapter VI Tax Remedies – Remedies of Government Importance of Tax Remedies 1. or other disposition by individuals of real property which are capital assets 3. Section 56 provides that : a. if any. Additions to the tax consists of the : i. Any arbitrariness will negate the very reason for the Government itself CASE : 1. Payment and Assessment of Income Tax for Individuals and Corporations. With respect to the 6% capital gains tax. Capital gain tax on sale . such collection must nevertheless be made in accordance with law 3.COURT : its upon taxation that the Government chiefly relies to obtain the means to carry on its operations and it is the utmost importance that the means adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible EXCEPTION TO NO INJUNCTION TO RESTRAIN TAX COLLECTION : . .(A) Payment of Tax. Civil penalty (surcharge) 25% or 50% of tax depending upon nature of violation ii. . SEC. b. what is the remedy of the taxpayer? . such as.When the Commissioner or his duly authorized representative finds that proper taxes should be assessed. but not limited to. distraint and/or sale of any of the taxpayer’s property for the satisfication of his tax liability HOWEVER. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made. Clarisse Ann assessment notice shall not be required in the following cases: (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. THE COURT AT ANY STAGE OF PROCEEDINGS MAY SUSPEND OR RESTRAIN THE COLLECTION AND REQUIRE TAXPAYER EITHER TO DEPOSIT THE AMOUNT CLAIMED OR T FILE A SURETY BOND FOR NOT MORE THAN DOUBLE THE AMOUNT WITH COURT Suppose the BIR. or (c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. the assessment shall be void. Such appeal does not suspend the payment. Protesting of Assessment.TAXPAYER MAY FILE A MOTION IN RTC FOR THE DISMISSAL OF CASE ON GROUND THAT THERE IS NO BASIS FOR COLLECTING THE TAX WHERE THE ASSESSMENT THEREOF IS STILL UNDER DISPUTE IN CTA COLLECTIBILITY OF TAX AS A BASIS FOR COLLECTION ENFORCEMENT - where the unpaid tax is a tax due per return as in the case of a self assessed income under the pay – as – you . traded or transferred to non-exempt persons. files a civil action in RTC for the collection of tax liability.file system. Within a period to be prescribed by implementing rules and regulations. That a pre- 65 Miranda. If the taxpayer fails to respond. has been sold. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and . or (d) When the excise tax due on excisable articles has not been paid. levy. In relation to Section 228 of 1997 NIRC 4.TAXATION SURVIVAL KIT – Aban Book 1. otherwise. capital equipment. collection may be instituted without need of any assessment SEC. or (e) When the article locally purchased or imported by an exempt person. during pendency of appeal in Court of Tax Appeals. . machineries and spare parts. the Commissioner or his duly authorized representative shall issue an assessment based on his findings. vehicles. however. or (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. when in the opinion of the CTA the collection of tax may jeopardize the interest of the Government and/or taxpayer. 228. he shall first notify the taxpayer of his findings: Provided. the taxpayer shall be required to respond to said notice. Section 11 RA 1125 ( law creating the CTA) 3. when a decision of the commissioner on a tax protest is APPEALED to CTA pursuant to 2. HOWEVER That this lien shall not be valid against any mortgagee. 3.66 manner as may be prescribed by implementing rules and regulations.COURT : TAX LIEN ATTACHED NOT ONLY FROM SERVICE OF WARRANT OF DISTRATINT OF PERSONAL PROPERTY . and costs that may accrue in addition thereto upon all property and rights to property belonging to taxpayer WHEN DOES THE LIEN OF THE GOVERNMENT FOR UNPAID INTERNAL REVENUE TAXES ARISE? . and demandable. or from the lapse of one hundred eighty (180)-day period.BUT SHALL ALSO ORDER PAYMENT OF TAXES . the assessment shall become final.BUT FROM THE TIME TAX BECAME DUE AND PAYABLE Section 219. purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located. is WHETHER THE BIR HAS LEGAL BASIS TO COLLECT THE TAX LIABILITY EITHER BY DISTRAINT AND LEVY OR BY CIVIL ACTION REMEDIES OF GOVERNMENT 1. Basic consideration : whether the assessment is final and unappealable. penalties. executor. 66 Tax Lien Compromise Distraint and Levy Civil Action Criminal Action Forfeiture Suspension of business operations for violations of VAT Enforcement of administrative fines NOTE : remedies of distraint and levy as well as collection by civil and criminal actions. 7. otherwise. 6. executory and demandable. or decision of the Commissioner is final. 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 said decision. 2.When a taxpayer neglects or refuses to pay his internal revenue tax liability after deman. all relevant supporting documents shall have been submitted.The judgment in criminal case shall not only impose the penalty .In favor of the Government from the time assessment was made by Commissioner UNTIL PAID with interest. Within sixty (60) days from filing of the protest. 4. 8. be pursued . otherwise. may in the discretion of Commissioner. the decision shall become final.SINGLY AND INDEPENDENTLY OF EACH OTHER .SUBJECT TO CRIMINAL CASE .Or all of them simultaneously The remedies and levy SHALL NOT BE AVAILED OF WHERE THE AMOUNT OF TAX INVOLVED IS NOT MORE THAN 100 pesos. . the AMOUNT so demanded SHALL BE A LIEN .AS FINALLY DECIDED BY COMMISSIONER TAX LIENS . or is not acted upon within one hundred eighty (180) days from submission of documents. 5. If the protest is denied in whole or in part. . or transferred to non – exempt persons whereby a similar tax lien on articles exists until tax thereon is paid COMPROMISES SEC.TAXATION SURVIVAL KIT – Aban Book Other types of liens like : LIEN UNDER VAT LAW 107B. SHALL BE CONSIDERED THE IMPORTERS THEREOF WHO SHALL BE LIABLE FOR ANY INTERNAL REVENUE TAX ON SUCH IMPORTATION 3. Clarisse Ann (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. 204. - to The Commissioner may (A) Compromise the payment of any internal revenue tax. case of articles imported into country free from excise tax ( tax on tobacco and alcoholic products. the pruchasers. petroleum) 2. SUPERIOR TO ALL CHARGES OR LIENS ON GOODS. Authority of the Commissioner Compromise. By tax exempt persons and entities and subsequently sold. . or ( Section CASE : 1. THIS IS CONSTRUCTIVE IMPORTATION – TAX EXEMPT CASE : 1. TAX DUE ON SUCH IMPORTATION SHALL CONSITUTE A LIEN ON THE GOODS. exchanged. 1997 NIRC) (1) A reasonable doubt as to the validity of the claim against the taxpayer exists. when: 67 Miranda. entitites or agencies which are EXEMPT from tax but such goods are subsequently sold. transferred or exchanged in Philippines to non – exempt persons or entities. or (2) The administration and collection costs involved do not justify the collection of the amount due. Abate and Refund or Credit Taxes. THE COMPROMISE SETTLEMENT OF ANY TAX LIABILITY BASED ON FINANCIAL INCAPACITY TO PAY SHALL BE SUBJECT TO THE MINIMUM COMPROMISE RATE EQUIVALENT TO 10% OF BASIC ASSESSED TAX - taxpayer’s offer to compromise shall not be considered UNLESS and until he waives in writing his privilege under RA 1405 or under other general or special laws such waiver shall constitute the authority of Commissioner to inquire into his bank deposits A minimum compromise rate equivalent to 40% of basic tax assessed shall be imposed COMPROMISE Reduction of liability taxpayer’s ABATEMENT Entire tax liability of taxpayer is cancelled GROUNDS : (1) The tax or any portion thereof appears to be unjustly or excessively assessed. IRRESPECTIVE OF POSSESSOR THEREOF 4. if goods are imported by eprsons. transferees or recipients 2. as members If taxpayer fails to abide by compromise arrangement.NO CASE: .000) or less.a certain amount of money which the taxpayer pays to compromise a tax violation .BIR MAY ONLY SUGGEST SETTLEMENT OF TAXPAYER’S LIABILITY THROUGH A COMPROMISE Extrajudicial settlement of taxpayer’s criminal liability and amount of suggested compromise penalty shall conform with schedule of compromise penalties provided under relevant BIR regulations or orders DELEGATION OF POWER TO COMPROMISE c) The power to compromise or abate.however. or (b) those involving fraud In general. the 68 Assistant Regional Director. however.MAY NOT BE IMPOSED ON TAXPAYER WITHOUT HIS CONSENT . later on. 204 (A) and (B) of this Code.paid in lieu of a criminal prosecution A compromise implies mutual agreement - a compromise penalties cannot be imposed in absence of a showing that the taxpayer consented thereto. the heads of the Legal. o THE COMMISSIONER OF CUSTOMS IS NOT AUTHORIZED TO ACCEPT ANYTHING o LESS THAN WHAT IT IS ADJUDICATED o IN FAVOR OF GOVERNMENT o BY VIRTUE OF FINAL JUDGEMENT : GOVERNMENT HAD ALREADY ACQUIRED A VESTED RIGHT NATURE OF COMPROMISE PENALTY . with approval of Department of Finance. . and minor criminal violations.68 All criminal violations may be compromised except: (a) those already filed in court..the government won and a fine was imposed based on original appraisement of certain jewelry . discovered by regional and district officials. the taxpayer’s criminal liability arising from his violatiof pertinent provision of code may be settled extrajudicially instead of BIR instituting against taxpayer a criminal action in Court A compromise in extrajudicial settlement of taxpayer’s criminal liability for his violation is CONSENSUAL in character . the Government could either INSIST ON COLLECTION OF COMPROMISED SUM. may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman. under Sec.SC: COMPROMISE WAS IMPROPER o AS A MERE AGENT OF GOVERNMENT. as may be determined by rules and regulations to be promulgated by the Secretary of finance. Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer. Commissioner of Customs. any tax liability: Provided. That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500. ordered a reappraisal of article in question and entered into a compromise . or DISREGARD THE COMPROMISE AND COLLECT THE ORIGINAL TAX DUE POWER TO COMPROMISE NOT ABSOLUTE May a case still be compromised even after final judgement? . upon recommendation of the Commissioner. the taxpayer has expressed his willingness to pay compromise penalties. .levy may be made before simultaneously with or after the distraint of personal property belonging to delinquent taxpayer ACTUAL vs COSNTRUCTIVE DISTRAINT ACTUAL CONSTUCTIVE As a collection remedy is resorted to when delinquency in payment sets in One where no actual delinquency is necessary before the same is resorted to In following isntances (where EXAMPLE : when at a time 69 Miranda.where in an appeal to CTA. they may be collected only if taxpayer is willing to pay them. extrajudicial.TAXATION SURVIVAL KIT – Aban Book - - If commissioner’s offer of compromise is rejected by taxpayer. in point of importance to remedies of collection by civil and criminal actions known as summary. or administrative enforcement remedies DISTRAINT vs LEVY DISTRAINT Remedy whereby collection of taxes is enforced on - goods chattels effects other personal property of whatever character of taxpayer including : o stocks o other securities o debts o credits o bank accounts o and interests in and rights to personal property . the Commissioner CANNOT ENFORCE it but he may file a criminal action against the taxpayer for the tax violation COMMISSIONER HAS NO POWER TO IMPOSE AND COLLECT THE SO CALLED COMPROMISE PENALTIES IN ABSENCE OF A COMPROMISE AGREEMENT VALIDLY ENTERED INTO BETWEEN THE TAXPAYER AND COMMISSIONER Compromise penalties being voluntary in character. Clarisse Ann LEVY The collection enforcement is effected on real property and interst in or rights to real property of delinquent taxpayer . said amounts may be collected as part of judgement Suppose the taxpayer reneges on his conformity to the payment of the suggested compromise. may the Commissioner collect the compromise pnalty thru an action in court by disraint and levy? - A COLLECTION ACTION DOES NOT LIE BECAUSE A COMPROMISE PENALTY IS NEITHER A TAX NOR AN ADMINISTRATIVE PENALTY FOR TAX DELINQUENCY COLLECTION BY DISTRAINT AND LEVY - remedies which run parallel. He removes his property therefrom 4.70 required for payment. He intends to leave Philippines 3. the expenses of distraint and cost of subsequent sale 70 POSSIBLE THAT : constructive distraint may be applied even if an actual tax delinquency on part of taxpayer already exists . When an administrative protest filed by taxpayer against the assessment is DENIED. in whole or in part a. He performs any act tending to obstruct the proceedings for collecting the tax due or which may be due from him Consists of: - Actual seizure and distraint of personal property of taxpayer Goods Chattels Effects Stocks In sufficient quantity to satisfy the tax charge.Constructive distraint is a preventive remedy the aime of which is to forestall a possible dissipation of taxpayer’s assets when delinquency takes place.which is computed by the taxpayer himself and reflected in his return under the pay – as – you – file system . With CTA within 30days from receipts of said decision d. Taxpayer adversely affected by the decision or inaction fails to file an appeal c. Or is not acted upon within 180 days from submission of documents b. together with any increment thereto incident to delinquency. a person fails to pay his tax obligation actual delinquency may not be necessarily present) the remedy of cosntuctive distraint may be availed of: 1. Or from lapse of 180 day period A civil action may also be field in order to collect the so – called self assessed tax . The taxpayer is retiring from any business subject to tax 2. PROCEDURE – Check handwritten notes CIVIL ACTION – resorted to when a tax liability becomes collectible Collectability of a tax arises in following instances : 1. When a tax is assessed and the the assessment becomes final and unappealable because the taxpayer fails to file an administrative protest with BIR within 30 days from receipt of assessment 2. stationed outside Metro Manil .5M 3. .6M 2.may file verified complaints without the approval of Solicitor General subject to following requirements: o Solicitor General should be furnished a copy of complaint o Solicitor general files a notice of appearance in court where action is filed. 220. 1. provided a legal basis for government to collect the taxpayer’s liability by ordinary civil action . Civil actions for collection are filed in regulat courts.SC : the request for recon cannot be considered as a protest against the assessment. 1. penalty or forfeiture under this Code 71 Miranda. BIR elgal officers deputized as Special Attornerys and . Clarisse Ann shall be filed in court without the approval of the Commissioner. Form and Mode of Proceeding in Actions Arising under this Code. and NOT IN CTA Complaints in civil actions for collection of delinquent taxes are required to be approved by Solicitor General before they are filed . . 1. COLLECTION IN CASES WHERE THE ASSESSMENT IS FINAL AND UNAPPEALABLE Case: COLLECTIBILITY OF A TAX DUE TO TAXPAYER’S INABILITY OR FAILURE TO DISPUTE THE ASSESSMENT WITHIN 30 DAY REGLEMENTARY PERIOD 1. COURT : taxpayer’s failure to dispute the assessment effectively by complying with the conditions laid down by BIR.Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine. such as specifying uner oath the grounds of his protest. 1.7M 4. paying one-half of amount assessed and putting up a bond for balance..5M 5. Regional Directors amy also approve the filing of civil action for tax collection if this power is expressly delegated to them by Commissioner under appropriate memorandum orders on the matter 2. o If complaint is FOUND TO BE IMPROPERLY FILED : Motion to dismiss is likewise filed with the court o SEC. were asssed agains the estate of late spouses Teodoro 6.However.TAXATION SURVIVAL KIT – Aban Book NO CIVIL OR CRIMINAL ACTION FOR RECOVERY OF TAXES SHALL BE FILED IN COURT WIHTOUT APPROVAL OF COMMISSIONER NOTES : 1. heirs then filed a request of reconsideration of the assessments and at the same time asked that they be given 30 days within which to submit their position paper in support of their claim - When Government sought to collect the tax liabilities in the settlement proceedings on the estate. o The failure of heirs to substantiate thir claim against the assessment due to the nonsubmission of their position paper justified the Commissioner’s action in collectint tax in settlement proceedings CASE : 1. the heirs interposed the defense that the assessements have not become final and executor . . HOWEVER SINCE TAXPAYER DID NOT APPEA. this is akin to an action to enforce a judgement such that NO INQUIRY CAN BE MADE THREON AS TO MERITS OF THE ORGINAL CASE OR THE JUSTNESS OF JUDGEMENT RELIED UPON Suppose there is a pending protest or a request for reinvestigation in BIR. a. executor and demandable same may be already be collected by summary remedy of distraint or levy COLLECTION CASES WHERE THE BIR’S DECISION IS FINAL.72 2. THIS WAS INDICATIVE OF HIS DECISION AGAINST REINVESTIGATION - SHOULD THE COMMISIONER DECIDE TO COLLECT TAX ASSESSED without first deciding the taxpayer’s protest or request for reinvestigation and/or reconsideration. EXECUTORY. a letter decision demanding paymnt was issued. = THE EFFECT IS THAT THE COMMISSIONER’S ACTION IS A DECISION OF DENIAL IN WHICH EVENT THE TAXPAYER MAY FILE AN APPEAL WITH CTA PRUSUANT TO THE PROVS OF SECTION 11 RA 1125 Filing of cicil action in court to collect a tax which was the subject matter of a pending protest in BIR was a justifiable basis for taxpayer to appeal to CTA . is the Commissioner required to rule 72 first on such pending request before he can go to court for purpose of collecting tax assessed? - NOT NECESSARY SC : nowhere in tax code is the commissioner required to rule first on taxpayer’s rqust for rinvstigation befor he can go to court for the purpose of collecting tax assessed. so that if an action to collect tax assessed id filed by Government in court. taxpayer filed with BIR a request for reinvestigation after he was assessed the sum of 16k as deficiency income tax for 1957 – 1960. A CIVIL ACTION FOR COLLECTION WAS FILED BY GOVERNMENT a. Said deficiency tax assessments having become final. COURT : apart from failing to seasonably file the required estate tax return. thereby allowing said assessment to lapse into finality. Subsequently. VALIDITY OR LEGALITY OF ASSESSMENT – a disputed assessment for internal revenue taxes falls within the exclusive jurisdiction of CTA . petitioner and the other marcos heirs FAILED to question the assessments served on them as heird of late president. AND DEMANDABLE 1.And to move for dismissal in C of Government’s action to collect the tax liability under dispute DEFENSES PRECLUDED BY FINAL AND EECUTORY ASSESSMENTS 1. SC : taxpayer’s failure to appeal the Commissioner’s ecision to CTA deprived him of right to question the Commissioner’s authority to collect the tax within the prescriptive period provided by law 2.THE LEGISLATIV POLICY IS TO GIVE COMMISSIONR MUCH LATITUDE IN THE SPEEDY AND PROMPT COLLECTION OF TAXS BECAUSE IT IS ON TAXATION THAT THE GOVERNMENT DEPENDS TO OBTAIN THE MEANS TO CARRY ITS OPERATIONS WHEN COMMISSIONER DID NOT REPLY TO TAXPAYER’S REQUEST FOR RECONSIDERATION AND ISNTEAD REFFERED THE CASE TO SG FOR JUDICIAL COLLECTION. SC : where taxpayer failed to comply with a condidition laid down by Commissioner for reinvestigation of case and its failure to appeal to CTA made the assessment final and executor. shall. or for its reorganization. upon recommendation of the Commissioner. Where a taxpayer can ventilate the defenses as against the assessment b. PRESCRIPTION OF GOVERNMENT’S RIGHT TO ASSESS a. ONCE A DECISION OF BIR ON A DISPUTED ASSESSMENT BECOMES FINAL. CAN THE COMMISSIONER HOLD THE STOCKHOLDERS OF THE . upon recommendation of the commissioner. render a correct return to the Commissioner. as may be defined by rules and regulations prescribed by the Secretary of Finance.TAXATION SURVIVAL KIT – Aban Book a. HOWEVER. 73 Miranda. within thirty (30) days after the adoption by the corporation of a resolution or plan for its dissolution. or for the liquidation of the whole or any part of its capital stock. . verified under oath. by rules and regulations.Every corporation shall. the government litigated on the issue of prescription and submitted for the resolution of court d. Clarisse Ann - When an action for collection is filed in regular courts. setting forth the terms of such resolution or plan and such other information as the Secretary of Finance. prescribe. The dissolving or reorganizing corporation shall. Not availebl since same should be subject of taxapayer’s appeal to the CTA b. The right of government to object to the defense of prescription of government’s right to assess MAY BE WAIVED c. EXECUTORY AND DEMANDABLE FOR LACK OF AN ADMINISTRATIVE PROTEST AGAINST THE ASSESSMENT OF HIS FAILURE TO APPEAL TO THE CTA WITHIN THE REGLEMENTARY 30 DAY PERIOD. prior to the issuance by the Securities and Exchange Commission of the Certificate of Dissolution or Reorganization. DEFENSE BEARING ON THE LEGALITY OR VALIDITY OF ASSESSMENT WOULD NECESSARILY FALL OTUSIDE THE JURISDICTION OF REGULAR COURTS 2. including a corporation which has been notified of possible involuntary dissolution by the Securities and Exchange Commission. prescription is tolled LIABILITY OF STOCKHOLDERS FOR UNPAID TAXES OF DISSOLVED OR DEFUNCT CORPORATION Section 52 ( C ) : (C) Return of Corporation Contemplating Dissolution or Reorganization. IN THE EVENT THAT THIS REQUIREMENT IS NOT COMPLIED WITH PRIOR TO CORPORATE DISSOLUTION. BY ACTUATION :government waived its right to object to the setting up of such defense COLLECTION THRU FILING OF BIR’S ANSWER IN CTA - - can be collected by government thru filing an answer to taxpayer’s petition for review in cases where the taxpayer appeals to CTA SC: the fact tha no civil action to collct the taxpayer’s tax liability was filed by the Government is NO GROUND for claiming that the right of Government to collect said liability had already prescribed COURT : PRESCRIPTION had not set in asmuch as government’s answer in the CTA was filed well within the prescriptive period prescribed by law Answer filed in tax court was tantamount to the filing of a civil action for collection in regular court. PURPOSE : to insure payment of all tax liabilities of the corporation to Government. secure a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission. IF IN ANCTION to collecti a final and executor assessment. After said sale had taken place. Protesting of Assessment.The obligations of the corporation are not those of stockholders for it is a basic rule that a corporation is vested by law with a personality separate and disntinct from those of persons composing it as well as from that of any other legal entity to which it may be related HOWEVER : possible for stockholders to held personally liable for unpaid tax liabilities of a defunct corporation as when assets of corporation have passed into hands of its stockholders CASE: 1. the same can be - enforced by a set off or by applying it against the refundable tax that may be due the taxpayer. . a. If payment of taxes could be postponed by simply questioning their validity. Corporation known as the central syndicate had realized a net profit of 229k from its sale of surplus goods. 228. ASSUMED : both collection and right to the refund of taxes has not yet prescribed and that refund claim has already been approved CASE : 1. THE SET OFF IS JUSTIFIED BECAUSE TAXES MUST BE COLLECED IN AS MUCH AS THEY ARE LIFEBLOOD OF GOVERNMENT AND THAT IT IS A SETTLED PRINCIPLE THAT THE GOVT IS NOT DUTY BOUND TO RESOLVED A PENDING TAX PROTEST BEFORE IT CAN COLLECT THE UNPAID TAX LIABILITY a. government functions would be paralyzed 2. Even on equitable grounds. 1948 immediately after sale of said surplus goods COURT : Stockholders were the beneficiaries of the defunct corporation and as such should be held liable to pay taxes of corporation in proportion to their shares I distribution of assets of defunct corporation COURT : A stockholder who has unpaid subscriptions is liable for debts of corporation JUSTIFICATION: unpaid debt of stockholder for the purchase price of subscribed shares represents an asset of the corporation in hands of stockholders COLLECTION THRU APPLICATION OF A DISPUTED TAX AGAINST A REFUNDABLE TAX - 74 even if a tax being collected by the commissioner is being contested by the taxpayer. That a pre-assessment notice shall not be required in the following cases: . the corporation immediately liquidated and distributed its assets on august 15. what is the remedy of taxpayer assuming his refund claim is already a settled matter? - - the taxpayer could probably treat the set off as a decision of Commissioner denying his protest in whicih case he could file an appeal with CTA within the reglementary period of 30 days pursuant to Section 228 in relation to sec 11 SEC.74 DEFUNCT CORPORATION LIABLE FOR UPAID TAXES OF DISSOLVED ENTITY? . he shall first notify the taxpayer of his findings: Provided. the Government should not apply a tax that has prescribed against a refundable sum a. however.When the Commissioner or his duly authorized representative finds that proper taxes should be assessed.NO . EQUITABLE RECOUPMENT IS NOT RECOGNIZED In the event of a setoff during the pendency of a tax protest in BIR. . or is not acted upon within one hundred eighty (180) days from submission of documents.TAXATION SURVIVAL KIT – Aban Book - - - - - (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. Who may appeal. Within a period to be prescribed by implementing rules and regulations. If the protest is denied in whole or in part. effect of appeal.Any person association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue. Within sixty (60) days from filing of the protest. executory and demandable. machineries and spare parts. traded or transferred to nonexempt persons. but not limited to. distraint. the taxpayer adversely 75 Miranda. CRIMINAL ACTION 1. the assessment shall be void. GENERAL – criminal action as a collection remedy. the assessment shall become final. levy. the decision shall become final. No appeal taken by the Court of Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs shall suspend the payment. If the taxpayer fails to respond. or from the lapse of one hundred eighty (180)-day period. all relevant supporting documents shall have been submitted. otherwise. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made. Clarisse Ann affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision. - - Section 11 of RA 1125 . or (c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. otherwise. the Commissioner or his duly authorized representative shall issue an assessment based on his findings. however. or (e) When the article locally purchased or imported by an exempt person. has been sold. The judgment in the criminal case shall not only impose the penalty but shall also order payment . the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. such as. and or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law. is authorized under Section 205 a. That when in the opinion of the Court the collection by the Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. the taxpayer shall be required to respond to said notice. vehicles. Provided. capital equipment. or (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. otherwise. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. or (d) When the excise tax due on excisable articles has not been paid. - it is till possible for such tax to be collected by criminal action inasmuch as actions of this kind prescribe only after lapse of 5 years . Crim actions instituted on behalf of Govt under authority of Tax Code or other laws. Upon conviction for each act or omission. nor is to a mere civil liability derived from a crime that would be wiped out by the judicial declaration that the criminal acts charged did not exist When civil action arising out of a tax delinquency is extinguished by prescription (considering that under the law. The remedy for enforcement of statutory penalties of all sorts shall be by criminal or civil action. being required to issue receipts or sales or commercial invoices. a fine of not less than 1k pesos BUT NOT MORE THAN 50k or imprisonment for a term of not ess than 2 years but not more than 4 years. CIVIL LIABILITY is incurred by reason of offender’s criminal act 76 Extinction of one’s criminal liability DOES NOT NECESSARILY result in extinguishment of his civil liability to pay taxes RATIONALE: With regard to tax proper. fails or refuses to issue such receipts or invoices b. No crim action shall be begun without the approval of Commissioner b. subject to the approval of the Commissioner. as the particular situation may require. Article 100 RPC provides that every person criminally liable for a felony is also civilly liable Criminal action is NOT RESORTED TO AS A COLLECTION REMEDY ONLY Taxation – civil liability to pay taxes arises NOT BECAUSE OF ANY FELONY but upon taxpayer’s failure to pay taxes Cases not involving non – payment of taxes where criminal action is utilized . enforces by BIR shall be brought in name of Govt of Philippines and shall be conducted by legal officers of BIR c. Acquittal of taxpayer in crim action does not necessarily result in exoneration of said taxpayers from his civil liability to pay taxes Crim liability in taxation arises a a result of one’s liability to pay his taxes In ordinary crim cases. . the state correctly points our in its brief that the acquittal in crim case could not operate to discharge the petitioner from duty to pay tax - since that duty is imposed by statute prior to and independent of any attempy on the part of taxpayer to evade payment OBLIGATIN TO PAY TAX : not a mere consequence of felonious acts charged in information. or both is imposed 2.Person who.Section 221 of 1977 NIRC a.76 of the taxes subject of the criminal case as finally decided by the Commissioner. IMPORTANT CONSIDERATIONS REGARDING CRIMINAL ACTION a. the Government has only three years form date of assessment of tax within which to collect the tax). proceedings in court may be commenced without an assessment .Protest of petitioner against assessment cannot stop his prosecution for violation of National internal Revenue Code CIR vs pascor Realty SC: reiterated the general rule that an assessment is not nexessary before a criminal charge can be filed. payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of this Code or in any action for the forfeiture of untaxed articles. In crim action instituted against a taxpayer for latter’s failure to pay income taxes. subsidiary imprisonment cannot be imposed in case of insolvency on part of taxpayer as regards the tax which he is sentenced to pay ii.COURT : such protest could not stop or suspend the crim action which was independent of the resolution of protest in CTA . . he files an administrative protest in BIR.there can be no civil action to enforce collection before the assessment procedures in code have been followed—There is no requirement for the precise computation and assessment of tax before there can be a criminal prosecution . . a. e.but a criminal prosecution for violations of National Internal Revenue Code which is within the cognizance of Court of First Instance (RTC) . In cim action that was instituted against taxpayer for having filed a false and fraudulent return and for failure to apy taxes: i. i..Section 222 : in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case. May the Government. file a criminal action against the taxpayer for filing a false ad fraudulent return? b. the satisfaction of civil liability is NOT ONE of the grounds for extinction of criminal action iii. . Is not the filing of crim action premature and precipitate? 77 Miranda.What is involved here in crim action is legally not the collection of taxes where the assessment of CIR may be reviewed by Court of Tax Appeals . during pendency of that protest.Section 205 : civil and crim aspects of case may be pursued simultaneously .TAXATION SURVIVAL KIT – Aban Book d. COURT : whether under tax code or revised penal code. since his protest to CTA had not yet been resolved.REASON : cir had. NOTED : this is also provided in Tax code Se 253 1. Clarisse Ann SC: Crim action is legally proper. SC : subsequent satisfaction of tax liability by payment or prescription will not operate to extinguish the taxpayer’s criminal liability ii. NOTE : Section 280 :: SUBSIDIARY IMPRISONMENT ONLY IN CASES OF FAILURE TO PAY FINE IMPOSED AND IS SILENT ABOUT TAXPAYER’S FAILURE TO PAY THE TAXES ASSESSED Suppose a taxpayer is assessed for taxes and assuming that against that assessment. in such tac evasion cases discretion on whether to issue an assessment or to file a crim case against taxpayer or to do both .the criminal charge need only be proved by a prima facie showing of failure to file a required tax return and such fact need not be proved by an assessment .UNGAB case : petitioner therein sought the dismissal of crim complaints for being a premature. 1997 . TO APPEAL TO THE CTA 3. he filed a tax return which did not correctly and truthfully reflect the correct sales of corporation for taxable period COURT : A corporation can act only through its officers and agents and where the business itself involves a violation of law Correct rule : all who participate in it are liable . which is covered by prescribed assessment. partnerships or corporations. must necessarily answer for its consequences provided that the allegations are proven Chapter 7 Tax Remedies – Remedies of the Government Statue of Limitations PRESCRIPTION OF GOVERNMENT RIGHT TO ASSESS TAXES 78 SEC.WHICHEVER IS THE LATER DATE THUS IF TAXPAYER for example filed his income tax return for 1996 on Mar 5 1997. the penalty shall be imposed on parner. partners or employees of any corporation. association or genral co-partnership liable for any of the acts or ommissions penalized thereunder shall upon conviction. the three (3)-year period shall be counted from the day the return was filed. becomes INEFFCTUAL Madated by law : Governmnt must assess ON TIME . should the govt’s decision on question of prescription be advrse to his position When an assessment is invalid because it was made after lapse of the prescriptive period – then the collection of tax. 1997. defendant as author of illegal act. . CRIM LIABILITY SETTLES UPON CORPORATE OFFICER AND /OR EMPLOYEE RESPONSIBLE FOR VIOLATION CASE : an infor was filed against the defendant alleging that as manager of company. be fined not less than 50k but not more than 100k WHERE A CORPORATION VIOLATES TAX LAW. the taxpayer is given the : 1.not later than three years counted from and after the period fixed by law for filing of the tax return or actual date of filing .as the filing of alse return constitutes a violation of law. general manager. In case of vilations omitted by associations. treasurer .Except as provided in Section 222. For purposes of this Section. The responsible corporate officers. a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. Period of Limitation Upon Assessment and Collection.78 f. a corporation dealing in native products. president. internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return. 203. then three year period is counted from april 16. and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided. branch manager. IMPORTANT BECAUSE : if such tax is assessed beyond the three year prescipritve period as stated above. or one month before the last day fixed by law for filing of income tax returns for 1996 on april 15. officer in charge and employees responsible for violation i. That in a case where a return is filed beyond the period prescribed by law. RIGHT TO PROTEST AGAINST THE ASSESSMENT AND 2. TAXATION SURVIVAL KIT – Aban Book If the return is filed late.BIR must collect such tax . BUT ALSO A DEMAND FOR PAYMENT WIHTIN PRESCRIBED PERIOD 3.BIR’s assessment is usually embodied in a demand letter or in a BIR form known as an assessment notice . It signals time when penalties and interests begin to accrue against the taxpayer 4. 79 Miranda. BUT the date when said demand letter or notice is released . 1997 also.no further assessment by the government is required to create tax liability . should be liberally construed in order to afford such protection EXCEPTIONS : should perforce be strictly construed Negligence or oversight on part of the BIR cannot prejudice taxpayers. our tax law provides a statute of limitations in collection of taxes The law on prescription. BIR’s practice is to SEND OUT to taxpayer both DEMAND LETTER and ASSESSMENT NOTICE . it is not the issue date of demand letter and/or notice of assessment that is the RECKONING POINT IN PRESCRIPTION a.the collection thereof ay proceed without any further assessment . CANNOT BE DEEMED AN ASSESSMENT THAT CAN BE QUESTIONED BEFORE CTA Tupaz vs Ulep . In case of self assessed taxes like income tax that the taxpayer himself assess and reflects on his return: . An assessment contains NOT ONLY COMPUTATION OF TAX LIABILITIES.These communications invariably bear SPECIFIC DATES when they are PREPARED OR ISSUED. Clarisse Ann - “ISSUE” dates are necessesarily anterior to the date of actual release or miling of the demand letter ACTUAL RELEASE IS DONE BY MAILING THESE DOCUMENTS.Soemtimes.such as : o imposition of surcharges and o interest .Either by SUMMARY OR JUDICIAL remedied .internal revenue taxes are self assessing .it is relevant in proper pursuit of judicial and extrajudicial remedies . mailed or sent to taxpayer that constitutes ACTUAL ASSESSMENT 2. then the three year period is COUNTED from date of actual filing or on May 15. To enable the taxpayer to determine the remedies thereon. 1997.REASON : date of assessment in case of self assessed taxes would be the date of actual filing of return as it is on such date when the tax is said to have been assessed SUBJECT ASSSESMSENTS WERE MADE BEYOND THE PRESCRIPTIVE PERIOD UNDER THE TAX CODE - - SC : for the purpose of safeguarding taxpayers from unreasonable examination. due process requires that it must be served and received by taxpayer 5. considering that the prescriptive period was preceisely intended to give them peace of mind WHEN IS A TAX ASSESSMENT DEEMED MADE? . BUT SOMETIMES PERSONAL DELIVERY OR SERVICE IS DONE Case : 1.assessement is NOT ALTOGETHER INCONSEQUENTIAL . or on May 15. An affidavit which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion. investigation or assessment.Within 3 years from date of filign of tax return . being a remedial measure.to enforce taxpayer liabilities and certain matters that relate to it .the prescriptive period of collection applies . it is understood that the Government has until the next succeeding business day or Monday within which to assess the tax law does not require that the demand or notice be received within prescriptive period When an assessment notice is sent by mail (ordinary mail example): .RULE : it is presumed that the taxpayer received mailed notice within the period of time . ASSESSMENTS MADE BEYND THE PRESCRIBED PERIOD WOULD NOT BE BINDING ON TAXPAYER UNLESS REBUTTED : ALL PRESUMPTIONS GENERALLY ARE INDULGED IN FAVOR OF CORRECTNESS OF ASSESSMENT BY THE COMMISSIONER OF INTERNAL REVENUE AGAINST TAXPAYER NOTE : 1. The party favored by presumption of receipt of demand letter is the government Rule 131 Section 3 ROC : - RELEASE OF ASSESSMENT NOTICE OR DEMAND BEFORE THE LAPSE OF PRESCRIPTIVE PERIOD COURT : as long as the release thereof is effected before prescription sets in. the assessment is deemed made on time even though the same is actually received by taxpayer after expiration of prescriptive period - There is disputable presumption that a letter duly directed and mailed was received in regular course of mail The correct address of taxpayer is indicated in demand letter or notice of assessment If the date on which the assessment is due to prescribe falls on a Saturday. the taxpayer’s contention that the Government’s right to assess the tax has already prescribed cannot be given credit IMPORTANT CONSIDERATIONS RE PRESCRIPTION OF GOVERNMENT’S RIGHT TO ASSESS TAXES .when mail of such kind are ordinarily received 80 so that if such presumed receipt is still within the prescriptive period. where the taxpayer-adressee makes a direct denial of receipt of mailed emand letter. 2. sch denial shifts the burden to the government to prove that such letter was indeed received by the taxpayer. the following day being Sunday.80 o o in application of statutes of limitations and establishement of tax liens - ULTIMATE PURPOSE OF ASSESSMENT : TO ASCERTAIN THE AMOUNT THAT EACH TAXPAYER IS TO PAY AN ASSESSMENT IS A NOTICE TO THE EFFECT THAT THE AMOUNT THEREIN STATED IS DUE AS TAX AND A DEMAND FOR PAYMENT THEREOF. not to enchace tax avoidance to prejudice Government Prescriptive period for assessment starts to run from filing of original return if the same is sufficiently complete to enable the Commissioner to intelligently determine the porper amount of tax to be assessed Amenede returns were filed later neither starts a new the running of statute of limitations nor extends the prescriptive period Filing of an amended return and claim for refund of overpayment does not constitute any waiver of defense of prescription C.they cannot be treated as returns because they do not contain information necessary and required to permit the computation and assessment of taxes like specific tax B. Effect of Filing a Wrong Return What happens when the taxpayer files a wrong return? Is the BIR justified in applying the ten year prescriptive period for cases where no return is filed by the taxpayer. this would permit taxpayers to evade taxes by simply reporting in their original return. heavy losses and amending the same after the lapse of prescriptive period when the Commissioner has already lost his authority to assess the tax COURT : objective of Tax Code is to impose taxes. assuming that the information embodied in wrong return could enable the BIR to assess the tax could have been ascertained had the taxpayer filed a correct return ? COURT: since no percentage tax return was actually filed by the taxpayer to reflect the sales of its logs to Japan. it follows that deficiency assessment made by commissioner was VALID c. the ten year prescriptive period for cases where returns are not filed applies . Important for pusrposes of determining whether or not the tax was assessed within the prescriptive period. COURT : it is incumbent on the taxpayer to prove that a return had been filed by him in order that 5 year prescriptive period may apply OTHERWISE . should the prescriptive period be counted from filing of such amended return? - IMPORTANT QUESTION BECAUSE IF POINT OF RECKNONING THREE YEAR PRESCRIPTIVE PERIOD IS ORIGINAL OR EARLIER CONTAINED I AMENED RETURN 81 Miranda. COURT : where it appears that the taxpayer has filed its income tax returns for 1950 on Mar 6 1951.TAXATION SURVIVAL KIT – Aban Book A. there is a basis for BIR to assess the tax within the ten year period on ground that NO RETURN WAS FILED BY TAXPAYER ARE TRANSCRIPT SHEETS OR COMPANY RECORDS SHOWING THE RAW MATERIALS ENTERING THE TAXPAYER’S FACTORY OR DISTILLERY AND THE FINISHED GOODS PRODUCED AND REMOVED THEREFROM EVERYDAY DEEMED TAX RETURNS FOR PURPOSES OF PRESCRIPTVE PERIOD FOR ASSESSMENT? COURT : these transcript sheets are not returns . Clarisse Ann IS LIKELY TO PRESCRIBE OR MIGHT HAVE ALREADY PRESCRIBED COURT: if assessment is counted from filing of original return. while the assessment was made on Nov 27 1954 or three years and eight months after the filing of return for said year. Effect of Filing an Amended Return In case the taxpayer files an amended return. b. Date of Filing of Tax Returns – A Material Factor in Resolving Questions on Prescription a. then an assessment may be made at any time within the ten year prescriptive period E. the tax may be assessed. require the filing of necessary return . (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return.as government is given the right to assess the tax within a period of 10 years counted . Exceptions as to Period of Limitation of Assessment and Collection of Taxes. the Commissioner of Internal Revenue amy.82 - even if an income tax return which happens to be the wrong return had been filed and even considering that the income from said sales were all reflected therein. still. fraud or omission The decisions are unanimous in holding that : where taxpayer failed to file any return. or a proceeding in court for the collection of such tax may be filed without assessment. period Applicable When the Law Does not require the filing of any return What prescriptive period applies in case the law does not require the filig of any return? Section 255 : imposes penalty upon conviction of a fine not less thatn 10k and imprisonment of not less than 1 year but not more than 10 years Taxpayer’s refusal or failure to file requisite return does not only establish a basis for criminal prosecution. at any time within ten (10) years after the discovery of the falsity. this would not take the place of correct return which for purposes of tax in question should actually be the percentage tax return Percentage tax on sales has NOW BEEN replaced by 10% VAT and return that is filed therefor is known as VAT return D. Applicable Prescriptive Period if Taxpayer Failes to File a retrun If no return is filed by taxpayer.from date of discovery of taxpayer’s omission to file such return NOTE : when there is no provision in the law requiring the filing of a return but the tax is such that its amount cannot be ascertained without the data that is pertinent thereto. . does this circumstance constitute a failure to file a return with respect to the omitted items within the meaning of Sec 222 of tax code? - NO . . ten year prescriptive period applies Since prescription of Government’s right to assess taxes is an affirmative defense : it is incumbent on taxpayer to prove that tax return were actually filed so that the benefit of three year prescriptive period may be availed of Suppose a corporate taxpayer files a return but it failed to include certain items in its return and non inclusion of those items is not due to any willful omission or fraud. by appropriate regulations. 222.but it also deprives the taxpayer of benefit of invoking three year prescriptive period. it is to the interest of taxpayer to file said return if he wishes to avail himself of the benefits of three year prescriptive period 82 He does not file a return at all.WITH OR WITHOUT REGULATION. the commissioner may assess the tax anytime within ten years after discovery of omission SEC. NO PERIOD for discovery of fraud is fixed in the law - Circumstances that miht negate fraud and thus preclude the application of ten year prescriptive period I. or a proceeding in court for the collection of such tax may be filed without assessment. V.said filing does not preclude assessment on basis of 10year period limitation - F.TAXATION SURVIVAL KIT – Aban Book - Court : no omission to file a tax return on part of taxpayer shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. be fatal to the assessment as when tax liability is assessed beyond the usual three year prescriptive period Tax COURT : the fact that the commissioner did not include the fraud penalty in his deficiency assessment which was issued after filing of taxpayer’s return is an indication that the Commissioner himself does not believe hat there was fraud Where BIR appeared NOT TOO SURE as to the real amount of taxpayer. qualify as reutrns . Prescriptive period in this instance is counted from discovery of fraud. Clarisse Ann FRAUD MUST BE PROVED AS A FACT So that ten year prescriptive period may apply SC : FRAUD IS A QUESTION OF FACT AND CIRCUMSTANCES COSNTITUTING FRAUD MUST BE ALLEGED AND PROVED IN COURT BELOW Finding of trial court as to its non existence is final and cannot be reviewed unless clearly shown to be erroneous FRAUD IS NEVER LIGHTLY TO BE PRESUMED BECAUSE IT IS A SERIOUS CHARGE IV. NECESSITY of proof of fraud : when there is fraudulent filing of tax returns. III. when commissioner fals to impute fraud in assessment notice or demand for payment. as where the BIR had on three different occasions arrived at three highly different computation . the ten year period applies in lieu of three year prescriptive limit b. Prescriptive period of assessment when there is fraud 1. the fact of fraud 83 Miranda. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.s net income. How about the transcript sheets which a taxpayer submitted to the municipal treasurer for specific tax purposes. Fraud in General a. the tax may be assessed. or failure to allege it in his answer to the taxpayer’s petition for review when case is appealed to CTA non existence of fraud is further underscored by fact the commissioner raised the question of fraud ONLY FOR THE FIRST TIME IN HIS MEMORANDUM which was filed with CTA after he had rested his case commissioner’s failure to rpove fraud can. (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return. SEC.filing thereof do not. fraud or omission: Provided. are they considered returns so as to justify the application of three year prescriptive period? - CTA : these transcript sheets do not qualify as returns as pointe out ealier . not from filing of fraudulent return c. That in a fraud assessment which has become final and executory. II. at any time within ten (10) years after the discovery of the falsity. 222. VII. Jalandoni case : there was an allegation on part of BIR to effect among others. Being conjugal.7k f. gross receipts of petitioner taxpayer as a franchise grantee amounted to 1M pesos Out of said amount.COURT : it is possible that real property may be sold for less than adequate consideration for a bona fide business purpose in such event. XI. Specific Instances Manifesting Fraud 84 . there is reason to believe that their omission from estate and inheritance tax return is due to an honest mistake or inadvertence g. XII. one half thereof should be deducted thus leaving a relatively small balance of 1. Only estate taxes are collected on MORTIS CAUSE transfers under present law as inheritance tax has already been abolished CIR vs Goodrich . COURT L IF WE ADD THREE LOTS were already declared by jalandoni as part of his property and his wife for pruposes of income tax. Will Underdeclaration of property necessarily constitute fraud? a. There was NO FRAUD IF COMMISSIONER MERELY RELIED UPON AN ALLEGED SUBSTANTIAL UNDER DECLARATION OF INCOME TAX RESULTING FROM HIS OWN COMPUTATION OF COST BASIS OF LANDS AND IMPROVEMENTS SOLD BY TAXPAYER TO GOVERNMENT Mere understatement of income in itself does not prove fraud Mere understatement of gross earning does not itself prove fraud Allegations of fraud with intention to evade the franchise tax has not been proved satisfactorily Records showed : from first quarter of 1960. COURT : seven ltos which were allegedly excluded. IX. the sale remains an arms length transaction 3. X. there was an omission of 7 lots of decedent from estate tax return filed d. RIGHT OF GOVERNMENT TO ASSESS THE FRANCHISE TAX HAD ALREADY PRESCRIBED 2.84 VI.SC disregarded petitioner’s claim of falsity in an attempt to take the questioned assessment out of ambit of statute of limitations . Mere underdelcaration in tax returns of property subject to estate tax will not necessarily imply fraud c. only 16k represented the alleged unrecorded and underreported receipts of petitioner COURT:: a big portion of underecorded receipts of 16k was not reflected in books of accounts of taxpayer because it represented the cost of electric current used free of charge by its officers and employees COURT: it cannot charged that petitioner intended to defraud the government of franchise tax GRAUD BEING ABSENT I N THIS CASE. must be the product of a deliberate intent to evasde taxes b. carelessness or ignorance . three were actually included with particularity in that they were the most valuable to with : Lot 493 with market value of 21k… e. FRAUD in order to justify a assessment based on ten year prescriptive period.Case : PR property was sold for a price less than its declared fair market value and found that such fact alone did not constitute a false return which contains wrong information due to mistake. XIII. XIV. VIII. Clarisse Ann the need for proof therefor. is proof of fraud also not necessary ? - proof of fraud cannot be dispensed with. decision shall become final. which were claimed by taxpayer as deductions from gross income - Commissioner’s findings on facts constituting fraud which were proved in and found established by CTA was not rebutted by taxpayer SC : finding of falsity or fraud in taxpayer’s return should not be disturbed 4. for instance with clear intent to defraud the government of revenues. Sbstantial income derived from other sources were not included e. submits a false and fraudulent income tax return INTENTION OF THE LAW : to limit applicability of rule only to cases involving non payment can be clearly seen in the phrase “ THE FACT OF FRAUD SHALL BE JUDICIALLY TAKEN COGNIZANCE OF IN CIVIL OR CRIMINAL ACTION FOR COLLECTION THEREOF” 5. the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. Underdeclaration of income with evidence of fraudulent intent is one instance of fraud c. the cause of action in criminal case is willful attempt “in any manner to evade or defeat any tax” levied under said code.TAXATION SURVIVAL KIT – Aban Book a. executor and demandable Where. CASE: income which was reported by taxpayer in his return was the income from rents d. Effect of Fraud Assessments which are final and executor Section 222 in a fraud assessment which has become final and executory. Tax may be assessed within ten years from discovery of fraud Commissioner’s determination based on circumstances of the case that fraud is present stands if no evidence is presented by taxpayer to show that the return filed by him was not fraudulent SC : commissioner’s findings of raud brought about by the presence of fictitious expenses. COUR: simple statement that the returns were not fraudulent is not sufficient to overthrow the findings of commissioner as to the reason for omission f. If there are circumstances that neate fraud. A possible situation is when a person. EFFECT OF THIS PROVISION : to place within scope of judicial notice under section 1 rule 129 of ROC thus dispense with 85 Miranda. however. or from lapse of 180 days from submission of relevant supporting docs without said protest being acted upon. those fraud assessments which have become final and executor under the law Section 228 : assessments become final if taxpayer does not file an administrative protest against an assessment within 30 days from receipt thereof - when an adverse decision of Commissioner on an administrative protest is NOT appealed to Court of tax appeals within 30 days from receipt thereof. Are the Tax Returns that are False but Not Fraudulent? Aznar case : . situations also exist where the evidence of fraud is manifest b. Hi income tax returns from 1945 – 1951 were examined by BIR Doubting truth of income that he had reported. carelessness sor ignorance) and fraudlent returns (with intent to evade taxes) LC based its conclusion on pet’s alleged fraudulent intent to evade taxes on substantial difference between amounts of net income on face of returns as filed by him for year 1946-1951 LC based its conclusion on a presumption that fraud can be deduced from substantial disparity f income as reported and determined by inventory method and on similarityof consecutive disparities xxxx 6. 1958. - 86 aznar’s retrurns were false because the under declaration of income constituted a deviation from truth ordinary prescriptive period of 5 years now three years would apply under normal circumstnces. but whenever the government is placed at a disadvantage so as to prevent its lawful agent from making a proper assessment of tax liabilities due to false or fraudulent returns intended to evade payment of taxes or failure to file returns the period of ten years provided for in the law from discovery of falsity. fraud or omission even seens to be inadequate and shold be the one enforced no distinction has been made between false returns(due to mistakes .86 - Aznar died on Mary 15. 1955 – Aznar appealed to CTA CTA found that Aznar made substantial under declarations of his income - COURT : NO FRAUD - - ISSUES IN THE CASE : - - W/n right of commissioner to assess aznar’s deficiency income taxes for 1946 – 1947 and 1948 had already been prescribed at time of assessment was made on ov 28 1952 w//n 50 surcharge for fraud can be imposed? COURT : applied 10 year prescriptive period and rules that prescription had not set in. commissioner ordered investigation of case on basis of NET WORTH METHOD Substantial under declarations of income were discovered Nov 28 1952—BIR notified Aznar of tax delinquency of 723k pesos which was later reduced to 380k pesos upon reinvestigation Feb 20 1953 – aznar’s properties were placed under distraint and levy April 1. Are there imprescriptible assessments? - - Where in a given situation (such as the assessment of 25% surtax on improperly accumulated surplus of corporation under Sec 25 of tax code before its elimination in 1986 by eo 37) The law DOES NOT PROVIDE FOR ANY PARTICULAR PRESCRIPTIVE PERIOD OF ASSESSMENT THR RULE IS THAT THE TAX SOUGHT TO BE ASSESSSED BECOMES IMPRESCRIPTIBLE Section 25 Tax Code - imposed 25% surtax or additional tax on corporation was still in force the rule: surtax was not subject to any prescriptive period RULES : no definite prov on prescription of assessment of such tax existed . although originally collected by municipal governmentes like City of Cebu. which period for the presentment of claims will apply. and not those of CC should apply NOTE : franchise tax. before inheritance has passed to the heirs. released or mailed to taxpayer CASE: filed for collection of a tax liability which was covered by a rubber check. SC: the right to collect tax begins after the demand has been sent to taxpayer Actual sending or release tot axpayer of assessment notice or demand letter is necessary in order to determine the actual date when tax being collected was assessed . the applicable prescriptive period is NO LONGER THREE YEARS BUT TEN YEARS UNDER ARITCLE 1141 of CC When government proceeds by court action to forfeit a bond. the unpaid taxes due from the decdent’s estate may be collected even without presentment under ROC When does the 5 year prescriptive period for collection start to run? - from the assessment of tax When is a particular tax considered to have been assessed? - at the time the letter of demand or assessment noetic has been sent. which is entirely of a different character from the claims expressly enumerated in Rules of Court applying rule of statutory construction of expression union est exclusion alterius PINEDA CASE : property of estate already in hands of an heir may be subject to payment of tax due from estate A fortiori . the provisions of Tax Code. the collection of such tax has already been transferred to BIR - Where the Government’s action is on a bond which the tazpayer executes in order to secure the payment of his tax obligation. Clarisse Ann - prescriptive period for filing claims against estate under aforcited provs of ROC does not apply a perusal of the ROC shows that it makes no mention of claims for moentary obligation fo decedent created by law such taxes. the prescriptive period for which is ten years With reference to the claim of commissioner against the decedent’s estate for unpaid taxes of decdent. 222. – – 12 months under Statute of claims or should it be the three year prescriptive period for assesement under 203 tax code SC: Vera vs Fernandez case - c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. the action is for enforcement of a contractual obligation. - SC : in collection of deficiency franchise taxes. Law governing Prescription of Collection SEC. the period of from 6 87 Miranda.TAXATION SURVIVAL KIT – Aban Book PRESCRIPTION OF GOVERNMENT RIGHT TO COLLECT TAXES 1. Suppose taxpayaer files a false or fraudlent return and government. taxpayer files a false or fraudulent return with intent to evade taxes 2. Allowing judicial collection of a tax without any previous assessment should apply d. taxpayer does not file any return a all A. there are TWO POSSIBILITIES that could arise in particular legal situations: 1. That in a fraud assessment which has become final and executory. the tax may be assessed. taxpayer files a false or fraudulent return with intent to evade taxes 1. It appearing that fraud in filing of taxpayers1951 income tax return was discovered by BIR on feb 14 1958 . 222. at any time within ten (10) years after the discovery of the falsity. or a proceeding in court for the collection of such tax may be filed without assessment. Republic vs Patanao c. fraud or omission: Provided. the collection of taz is begum by filing the ocmplaint with proper court If decision of commissioner on a protested assessment is appealed to CTA. YES b. Analyzing the above provision. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. does not assess tax. can it then proceed to collect tax liability by court action? a. THERE WAS : - no valid and effective issuance or release of said assessment notice and other demand letters or notices subsequent threto the dates on which the assessment notice and subsequent demand letters were supposedly sent or released to taxpayer cannot be recknoned with in computing the period of prescription within which a court action to collect the tax liability may be brought When tax is deemed collected for purposes of prescriptive period - collection thru summary remedies is effectuated by summary methods when the Government avails of a distraint and levy procedure prescribed in Tax code if collection is to be effected thru judicial remedies.88 GOVERNMENT FAILED TO PROVE THAT ASSESSMENT NOTEICE COVERING TAX LIABILITY ASSESSED AS WELL AS THE OTHER SUPPOSEDLY WRITTEN DEMAND LETTERS SUBSEQUENT THERETO WERE IN FACT ISSUED OR SENT TO TAXPAYER. after discovering the falsity or fraud. collection of tax is considered begun when government files its answer to taxpayer’s petition for review May there be a judicial action to collect a tax liability even if there is NO PREVIOUS ASSESSMENT? 88 - possible to collect tax liability in court without any previous assessment SEC. the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. - (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return. Issuance of an assessment notice seems to be mandatory under the existing procedure on tax protest Prescription of Government’s right to recover an erroneously refunded tax - three year prescriptive period for making assessments under Section 203 SC: case involved recovery of erroneously refunded franchise tax. Taxpayer does not file any return at all a. Will this procedure not be in conflict with Sec 228. 1997 NIRC . NOT REDUCE the prescriptive periods provided by law Commissioner cannot validly agree to reduce the prescriptive period to less than that granted by law to the detriment of Sate since it diminishes the Government’s opportunities to collect taxes due the Republic .TAXATION SURVIVAL KIT – Aban Book e. Clarisse Ann Waiver of statute of limitations – Extension of prescriptive priod - necessary that waiver be executed by the parties before the lapse of 5 year prescriptive period waiver is ineffective if it is executed beyond the original three year now 5 year period the law does not authorize the extension of prescriptive period one prescription has set in Where taxpayer’s waiver was not just an extension of prescriptive period but a renunciation of her right to invoke defense of prescription which was then available to her. the waiver made beyond such prescriptive period – BINDING ON TAXPAYER - noting unlawful or immoral about this kind of waiver right to avail of defense of prescription is waivable CIR vs CA - SC ruled against validity and binding effect of waivers signed by provate respondent carnation Philippines Which were not signed by BIR commissioner or any of his agents Waiver in questions reveal that they are IN NOW ISE UNEQUIVOCAL NECESSITATE FOR ITS BINDING EFFECT THE CONCURRENCE OF CIR Tax waivers are supposed to extend. the government had right to collect the withholding tax within ten years couted from discovery of omission to file the requisite return c. Allows taxpayer to administratively protest the assessment e. THE ORIDNARY 5 YEAR PERIOD NOW 3 YEAR PERIOD WOULD STILL APPLY 2. Taxpayer’s liability was assessed on Feb 14. which enables the taxpayer to disute a tax assessment before collection remedies are resorted to? d. 1958 or beyond the 5 year prescriptive period fixed by law f. In view of such failure to file a withholding tax return on part of withholding agent. Jai Alai Corporation b. prescriptive period for tax assessments should apply because the demand of government on taxpayer to apy erroneously refunded tax is in effect an assessment for deficiency franchise tax 89 Miranda. TEN YEAR PRESCRIPTIVE PERIOD FOR COLLECTION THROUGH COURT ACTION DOES NOT APLY IF IT APPEARS THAT THERE WAS AN ASSESSMENT g. an the Government invoke principle of equitable recoupment by setting off the prescribed tax against a tax refund to which taxpayer may be entitled? - NOT TO ALLOW THE SET OOD For if that were so. the commissioner is prevented from filing an ordinary action to collect tax in regular courts If this were not so. When the taxpayer is out of the Philippines. 3. 90 When the Commissioner is prohibited from assessing or collecting the tax – in what possible instances may there be a prohibition on Commissioner to assess or collect the tax? SC : filing of a petition for review in CTA from decision of Commissioner on a protested assessment interrupts running of prescriptive period for collection Interruption is from the time the appeal is filed in CTA until its termination in SC should there be subsequently be an appeal to a higher court REASON : when a case is on appeal to CTA. When the from making the assessment or beginning the distraint. EQUITABLE RECOUPMENT AND PRESCRIPTION In the event that collection of tax has already lapsed due to prescription. or proceeding in court and for sixty days thereafter. When the taxpayer cannot be located in the address given by him in the return filed upon which tax is being assessed or collected. levy. or a member of his household with sufficient discretion. and 5. When the warrant of distraint or levy is duly served upon the taxpayer.90 4. in respect of any deficiency. shall be suspended under any of the following circumstances: 1. 203 and 222 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection. 2. his authorized representative. unless the taxpayer has informed the Commissioner of any change in address. When the taxpayer requests for a reinvestigation which is granted by the Commissioner. while appeal in CTA and eventually SC lasted for 5 years which is period of time during . collection in regular courts would run counter to the judicial policy of avoiding multiplicity of suits and therule of lis pendens - judicial collection was brough in court after 9 years from assessment. and no property could be located. this would ONLY ENCOURAGE NEGLIGENCE ON PART OF OUR COLLECTING OFFICERS Who would feel secure despite prescription in though that they could always collect prescribed tax Through the expedient of set off INTERRUPTION OF THE PRESCRIPTIVE PERIOD The running of the Statute of Limitations provided in Sec. distraint and/or sale of any property of taxpayer for the satisfaction of his tax liability as provided by existing law although. Clarisse Ann - - - - after conviction. government filed a complaint for collection of ret’s income taxes but LC dismissed the case on ground that govt’s right to collect by judicial action had prescribed as more than here years had elapsed Govt ::: prescription did not take place because the prescriptive period for collection was suspended when two informations were filed and began to run again from receipt of court’s decision SC : PRESCRIPTIVE PERIOD FOR CIVIL ACTION IS SUSPENDED DURING PENDENCY OF CRIMINA ACTION ONLY WHEN CIVIL LIABILITY ARISES FROM OFFENSE COMMITTED However.RET REFUSED TO PAY assessment notice was issued but sill refused ret was prosecuted in two crim cases for filing false or fraudulent returns he pleaded guilty thereto 91 Miranda. Suspension of collection may be granted by CTA upon this ground but taxpayer must either deposit the amount of taxes assessed or file a bond amounting to not more than twice the value of tax being assessed. Demand : January 3 1951 payment . No appeal taken to the CTA from the decision of CIR shall suspend the payment. collection may be suspended for the reasons already stated above Suppose a criminal case is filed against a taxpayer. tax is still considered validly assessed PROVIDED that the REVISION OF ASSESSMENT WAS INDUCE BY TAXPAYER’S POSITIVE ACTS as where counsel twice asked the commissioner for postponement of a conference on liability in questions as well as his written request that the assessment be cancelled or withdrawn for lack of legal basis THERE ARE CASES WHEREI TAXPAYER MAY BE PREVENTED FROM SETTING UP DEFENSE OF PRESCRIPTION EEVEN IF HE HAS NOT PREVIOUSLY WAIVED I IN WIRTING . The offense charged consists of filing a false or fraudlent return in vilation of section 254 of tax code which is penalized under title X thereof. WILL PENDENCY OF CRIMINAL CASE SUSPEND THE RUNNING OF PRESCRIPTIVE PERIOD FOR COLLECTION OF TAX LIABILITY WHICH HAS BEEN ASSESSED? - - NO CASE : Repblic vs Ret Ret filed two false and fraudulent returns for 1948 and 1949 fo which he was assessed by BIR the sums of 34l and 68k including 50% surcharge for fraud. as already mentioned . levy.TAXATION SURVIVAL KIT – Aban Book which commissioner was prohibited from collecting the tax by judicial action upon proof that its collection during the pendency of appeal may jeopardize the interest of government and or the taxpayer. such rules does not apply here because criminal actions for violation are entirely separate and distinct civil suit COURT: there is nothing in law which would have stoped the plaintiff appellant from filing civil suit simultaneously with or during pendency criminal case When taxpayer requests for reinvestigation which is granted by Commissioner - - when an assessment is revised and sma eis issued beyond the statutory period of three years from date of filing of return or after due date for filing whichever is later. no mention was ever made of review of reconsideration of the assessment . followed up by a third request I which the taxpayer explained the disallowed items and wherein he also asked for reinvestigation thereof . it follows that when the Government sought to collect the tax assessed when it filed its answer to the taxpayer’s petition for review in CTA. for good reasons.The prescriptive period for collection is suspended when the taxpayer requested for information on the titems of dedctions which had been disallowed by BIR .in taxpayer’s request.these period of suspension from five year now three years for collection.there was a request for information. persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by Government mere request for reinvestigation without any corresponding action on part of the commissioner does not interrupt running of prescriptive period SC : taxpayer’s request for reinvestigation did not suspend the running of prescriptive period for judicial collection in as much as there is no evidence that this request was considred or acted upon Commissioner even issued a warrant of distraint and levy for collection of full amount of assessment but there was no follow up of his warrant It is the Appellate Division in BIR that acts on administrative protests filed by taxpayers against tax assessments before the Commissioner’s decision thereon is appealed to CTA Will a request by the taxpayer for a copy of detailed computation by BIR of his tax liability during the pendency of the reinvestigation of his case constitute another request for reinvestigation and thus have the effect of interrupting the prescriptive period for collection? - 92 SC : such request may not be interpreted to authorize or justify the continuance or suspension of period of limitations - His previous request for reinvestigation already had the effect of suspending the period of limitation on Government’s right to collect taxes that were accessed against him . the Govenrment has been. which was reiterated by the taxpayer. same was timely presented Will a request for reconsideration which does not raise facts and/or issues different from those which are comprehended in the original investigation constitute a ground for suspension of a prescriptive period? Section 223 od NIRC mentions that suspension takes place “when the taxpayer requests for reinvestigation which is granted by the Commissioner” - interruption of prescriptive period for collection takes place when the taxpayer requests for the reinvestigation or reconsideration of the assessment .92 - as when by his repeated or positive act. said person will be suspended only if taxpayer informs the Commissioner of said change address When the warrant of distraint and levy is duly served Will an extrajudicial prescription? - - a warrant of distraint and levy which is merely issued does not suspend the running of prescriptive period for collection unless said warrant is duly served on taxpayer or his authorized representative or a member of his household with sufficient discretion demand on interrupt an extrajudicial demand interrupts the running of the prescriptive period IF IT IS WRITTEN (Article 1155 CC))) BUT THIS RULE SIS NOT APPLICABLE TO THE COLLECTION OF TAXES REASON : interruption of period of limitation in taxation is governed by section 223 tax code. the lawyer of estate and heirs of decedent. summons was not served because the defendant could not be located the case was dismissed without prejudice the right of government to collect the tax had not prescribed because the period during which the appellant’s whereabout were unknown suspended the running of the period of limitation taxpayer’s authorized Palanca case - When the taxpayer cannot be located in the address given by him in return - Service of warrant on representataive is sufficient - here was effective service of warrant when same was served upon Atty Snajose. a special law which prevails over general law like CC When the taxpayer is out of Philippines 93 Miranda. there is nothing in law that would prevent the service of said warrant to be made upon the taxpayer’s authorized representative It is admitted – Court said That atty sanjose was duly authorized representative of estate and heirs When a civil case for collection of tax is filed in court.TAXATION SURVIVAL KIT – Aban Book - COURT : o THE PRESCRIPTIVE PERIOD PROVIDED BY LAW TO MAKE A COLLECTION BY DISTRAINT AND LEVY OR BY A PROCEEDING IN COURT IS INTERRUPTED ONCE A TAXPAYER REQUESTS FOR REINVESTIGATION OR RECONSIDERATION OF ASSESSMENT - - in a civil case filed against the taxpayer – defendant. or the lawyer’s secretary in connection with the estate and inheritance taxes due from decedent’s estate because according to court. the running of prescriptive period is likewise interrupted Prescriptive period under Section 33 NIRC was tolled because the taxpayer cannot be located at the address given in the information return fileed and for which reason there was delay in sending the assessment In case of change of address of taxpayer. Clarisse Ann taxpayer . 281. if not raised in lowercorut. . . and if the same be not known at the time. is barred permanently . from the discovery thereof and the institution of judicial proceedings for its investigation and punishment. Prescription shall begin to run from the day of the commission of the violation of the law. The prescription shall be interrupted when proceedings are instituted against the guilty persons and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy. the defense of prescription can be raised or invoked by accused even if case had already been decided by the lower court but pending decision on appeal 94 the recknoning point for purposes of prescription will depend on the nature of tax avoidance a petition for review on certiorari was filed by taxpayers in SC seeing revesal of decision of CA dated September 1. that prescriptive period with respect to failure or refusal to apy income tax commenced to run only ISSUE : HAD THE CRIMINAL CASES ALREADY PRESCRIBED WHEN THEY WERE FILED IN TRIAL COURT? It must be made clear that what we are dealing with here are criminal prosecutions for filing fraudulent income tax returns and for refusing tp pay deficiency taxes .94 - the taxpayer’s absence from Philippines is also one of the instances when the running of prescriptive period of assessment and collection is suspended RULE OF PRESCRIPTION IN CRIMINAL CASES SEC.civil action for collection of taxes where the defense of prescription.it is justified to fall back on the principle that issues or defenses not raised in administrative proceeding and/or lowr court cannot be raised for first time on appeal PRESCRIPTIVE PERIOD IN CRIMINAL CASES – WHN DOES IT START TO RUN? When does the prescriptive period for crim case commence to run? - The term of prescription shall not run when the offender is absent from the Philippines.All violations of any provision of this Code shall prescribe after Five (5) years. Prescription for Violations of any Provision of this Code. in four crim cases instituted to compel defendants to pay deficiencies. Petitioners contended that appellate court erred in holding that OFFENSES CHARGED INC RIM CASE and prescribed in ten years instead of 5 years. NOTE : lapse of just one day after the five year prescriptive period had expired was enough statutory basis for holding that the criminal action had already prescribed - WHEN DEFENSE OF PRESCRIPTION MAY BE RAISED EVEN ON APPEAL - -in crim cases involving tax violation. 1977 which affirmed in toto the judgement of then CFI of Manila. . however. he shall first notify the taxpayer of his findings: Provided. If the taxpayer fails to respond. Within sixty (60) days from filing of the protest. or "(d) When the excise tax due on excisable articles has not been paid. the assessment shall be void. Clarisse Ann "SECTION 228.When the Commissioner or his duly authorized representative finds that proper taxes should be assessed. but not limited to. "Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.TAXATION SURVIVAL KIT – Aban Book Chapter 8 TAXPAYER’S REMEDIES ADMINISTRATIVE PROTESTS - important remedy which can be availed by taxpayer commonly referred to in BIR as a PROTEST AGAINST ASSESSMENT a remedy before payment. "The taxpayers shall be informed in writing of the law and the facts on which the assessment is made. while a tax refund or tax credit is a remedy of taxpayer after he has paid the tax Section 228 of 1997 Tax Code 95 Miranda. otherwise. has been sold. or "(e) When an article locally purchased or imported by an exempt person. vehicles. That a preassessment notice shall not be required in the following cases: "(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. Protesting of Assessment. the Commissioner or his duly authorized representative shall issue an assessment based on his findings. such as. capital equipment. traded or transferred to non-exempt persons. or "(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. . or "(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. machineries and spare parts. the taxpayer shall be required to respond to said notice. "Within a period to be prescribed by implementing rules and regulations. or with Office of the Commissioner. the TAXPAYER MUST BE ABLE TO SHOW THAT HIS REQUEST FOR RECONSIDERATION RAISES NEW ISSUES OR ARGUMENTS OR NEW FACTUAL SITUATIONS OTHER THAN THOSE COVERED BY HIS PREVIOUS PROTEST SEE NOTES When protesting an assessment. and demandable In filing a request for reconsideration of decision rendered by Regional Director to the Office of Commissioner. Revenue Regulation No 12 – 99 September 6 1999 Decisions rendered by Regional Director shall be appealable to Office of Commissioner through the Appellate Division of Bureau’s Legal Service within 30 days from receipt of decision. otherwise. executor.evaluatoion of an assessment on the basis of existing records without need of additional evidence Plea for reinvestigation of an assessment on basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation . a taxpayer adversely affected by the decision to the Commissioner. it will be endorsed for study by legal division of Revenue Regional Offices or by Legal Service in BIR National Office 96 Request for reconsideration Request for reinvestigation A plea for re. The taxpayer protesting an assessment may file a written request for reconsideration or reinvestigation with the revenue regional office having jurisdiction over the case In case of regional office cases.96 all relevant supporting documents shall have been submitted. the decision shall become final. for referral to and appropriate action by division of BIR National Office concerned If protest raises questions of fact. through Appellate Division. or is not acted upon within one hundred eighty (180) days from 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 said decision. within reglementary period and it is the final decision of Commissioner of Internal Revenue on protest that is APPEALABLE TO CTA pursuant to RA 1125 Section 7. "If the protest is denied in whole or in part. the assessment shall become final. otherwise. the taxpayer must see to it that the protest is ATTACHED to or incorporated with the BIR’s docket of the assessment Note : While the regional director may render decisions on protests against assessments. or from the lapse of the one hundred eighty (180)-day period. OTHERWISE said decision shall become final. the case may be assigned for reinvestigation If protest raises pure questions of law. executory and demandable. the tax may be assessed at any time wihin 10 years following the assessment tax Since estate tax had been final and unappealable by petitioner’s own default as regards protesting the validity of said assessment. and the subsequent failure to contest or appeal the assessment made by BIR is fatal to petitioner’s cause. there is now no reason why the BIR cannot continue with collection of said tax . Clarisse Ann an aspect of which has been discussed in a previous chapter the estate of the late Don Toribio Teodor. DID NOT FILE the position paper as promised. filed a motion for reconsideration with a promise to file a position paper or what actually should have been the taxpayer’s protest containing the estate’s argument against the assessment The estate however. Tax Code : If taxpayer fails to file an administrative protest within the reglementary 30 day period from receipt of assessment notice. the settlement court sustained the action taken by BIR SC on appeal that it is NOT incumbent on part of Government that it must first rule on pending protest against an assessment before it could collect the taxes that are due on it MARCOS vs CA - omission to file an estate tax return. as under the abovecited provision In case of failure to file a return. the assessment BECOMES FINAL MEANING : after the lapse of said period. Government filed its corresponding proof of claim against the estate When this claim for tax xollection was contested by estate. he/it may file a petition for review on certiorari with the SC within 15 days from receipt of appellate court’s decision 97 Miranda.TAXATION SURVIVAL KIT – Aban Book May involve question of fact or law or BOTH May involve a question of fact or law or both One case that illustrates the effect of taxpayer’s failure to file a protest is the case of DAYRIT - EFFECTS OF TAXPAYER’S ADMINISTRATIVE PROTEST DECISION TO THE CTA FAILURE TO FILE AN OR TO APPEAL BIR’S Section 228. he /it may file a petition for review with CTA within 15 days from receipt of CTA’s decision If still dissatisfied with CA’s decision. the assessment can no longer be disputed either administratively or judicially through an appeal in CTA EFFECT : making the assessed tax collectible NO APPEAL to CTA can be possibly taken as there is NO BIR decision that may be appealed pursuant to Section 7 in relation to Section 11 of RA 1125 Only final decisions (NOT MERE ASSESSMENTS) Commissioner are appealable to the CTA of If a taxpayer or the Government is NOT SATISFIED with CTA’s decision. after being assessed. Erroneously or illegally assessed or collected internal revenue taxes 2.98 Even if taxpayer files an administrative protest. COURT : took note of taxpayer’s inability to produce the receipts for income tax payments and the various withholding tax certificatesissued to petitioners Neither receipts nor certificates were introduced in evidence during trial CIR vs Li Yao . In his discretion. It goes without saying that the Govenrment is not exempted from application of this doctrine Rules in Tax recovery or refunds )Section 204 and 229 Emmanuel Zenaida Aguilar Case - SEE NOTES Scope of Claims for Refund - Tax recovery or refunds may encompass the following payments : 1. Commissioner may redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction Necessity of Proof for Refund Claims 1. Legal Basis of Tax Refunds – tax refunds are based on legal principle of quasi. Penalties imposed without authority 98 A claim for refund partakes of nature of an exemption which cannot be allowed UNLESS granted in the most explicit and categorical language Being in the nature of an exemption from taxation.contract or solution indebiti a. Any sum alleged to have been excessive or in any manner wrongfully collected Recovery may also be held with respect to the value of internal revenue stamps when they are returned in a good condition by the purchaser. a claim for refund is strictly construed against the claimant and failure to discharge strictly construed against the claimant and failure to discharge said burden is FATAL to the claim - petitioner’s claim for refund of withholding taxes WAS DENIED for failure of claimant to prove the fact of actual withholding of taxes in question. Article 2142 and 2154 Civil Code b. the same must be appealed to CTA within reglementary period of 30 days from receipt of Commissioner’s decision OTHERWISE same becomes final and executor REFUND OR RECOVERY OF ERRONEOUSLY OR ILLEGALY COLLECTED TAXES 3. once an adverse decision thereon is rendered by Commissioner. - Important : Government comes within the scopr of the solution indebiti principle No person shall unjustly enrich himself at the expense of another. Clarisse Ann - There is erroneous payment of taxes when taxpayer pays under mistake of fact Where he is NOT aware of an existing exemption in his favor at the time payment was made Such payment was held to be NOT VOLUNTARY AND CAN BE RECVERED OR REFUNDED When money is paid to another under influence of a mistake of fact : Where it would NOT HAVE BEEN KNOWN THAT THE FACT WAS OTHERWISE.TAXATION SURVIVAL KIT – Aban Book - amounts sought to be recovered or credited should be shown to be taxes which are erroneously or illegaly collected their payment was an independent single act of voluntary payment of tax believed to be dure. IT MAY BE RECOVERED GROUND : money paid thru misapprehencsion of facts belongs in equity and in good conscience to person who paid it TAXES ARE ILLEGALLY COLLECTED WHEN PAYMENTS ARE MADE UNDER DURESS - - if during pendency of an administrative protest which was filed on time under Section 228 of Tax Code. the BIR proceeds to collect the liability by summary remedies and payment by taxpayer is thereafter made. collectible and accepted by Government which had therefore become part of State moneys subject to expenditure and perhaps already spent or appropriated For evidentiary purposes in refund cases. it is justifiable for taxpayer to file his claim for refund Illegality of payment or question as to whether or not there was legal and or factual basis for collecting tax is SOMETHING which BIR or court will have to determine after refund claim is FILED DISTINCTION BETWEEN TAX REFUND AND TAX CREDIT . are income tax returns actionable documents under Section 8 Rule 8 of ROC? - - - where taxpayer contended that Government’s failure to make a denial under oath as required in aforecited provision constituted an admission of allegation in petition for review that there was payment of withholding tax COURT : the income tax return of petitioner are NOT actionable documents because the petition for review is NOT BASED on income tax returns which are merely evidence of petitioner’s cause fo action PROOF IN SUPPORT OF CLAIM FOR REFUND IS NECESSARY SC: it is bound by the findings of CTA which has clearly established the propriety of taxpayer’s claim for tax refund of excess 1983 quarterly payments COURT :: BIR to refund without any unreasonable delay Fair delaing the court is expected by our taxpayers from the BIR and this duty demands that the BIR should refund without any unreasonable delay what it has erroneously collected Nature of Erroneously Pad or illegally assessed or collected Taxes 99 Miranda.