Tax 2 Tagufa

Far Eastern University
Institute of Law
TRANSFER TAXES Transfer taxes are those taxes imposed upon the privilege granted by the state to the taxpayer so that he may transfer his property, either gratuitously or for a consideration, to another. Transfers for a valuable consideration may be subject to income tax, value-added tax and other business taxes, while those made gratuitously may be subject to estate tax and donors tax. Q. Distinguish a donation mortis causa from a donation inter vivos. S. A. While both are transfers without any onerous consideration, a donation mortis causa is a transfer that takes effect on the death of the transferor thru the execution of a last will and testament or by legal succession, whereas a donation inter vivos is a transfer that takes effect during the lifetime of the transferor thru the execution of a deed of donation. A donation mortis causa will be subject to estate tax, whereas a donation inter vivos will be subject to donors tax. ESTATE TAX: Q. Define estate tax. S. A. Estate tax is a graduated tax imposed on the privilege of the decedent to transmit property at death and is based on the entire net estate, regardless of the number of heirs and relations to the decedent. It is a transfer tax, not a property tax. THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX: The statute in force at the time of death of the decedent shall govern estate taxation I. Nature of Estate Tax: III. Estate Tax Formula
1. Benefit-Received Theory -considers

the service rendered by the government in the distribution of the estate of the decedent, either by law or in accordance with his wishes. For the performance of these services and other benefits that accrue to the estate and the heirs, the State collects the tax.
2. Privilege Theory/State Partnership

Theory inheritance is not a right but a privilege granted by the state, and large estate have been acquired only with the protection of the State. Consequently, the State as a passive and silent partner in the accumulation of property has the right to collect the share which is properly due to it.
3. Ability to Pay Theory receipt of

inheritance which is in the nature of an unearned wealth or windfall, place assets into the hands of the heirs and beneficiaries hereby creating an ability to pay the tax and thus contributes to government income.
4. Redistribution of Wealth Theory - the

receipt of inheritance is a contributing factor to the inequalities in wealth and incomes. The imposition of death tax reduces the property received by the successor, thus helping bring about a more equitable distribution of wealth in society. The tax base is the value of the property and the progressive scheme of taxation is precisely motivated by the desire to mitigate the evils of inheritance in the present form.
1. tax on the right to transfer property at death and on certain transfers which are made by law equivalent to testamentary dispositions and is measured by the value of the property; 2. it is imposed on the basis of the net estate considered as a unit. The first Php200,000 of the net estate is exempt 3. estate tax is not a property tax but rather an excise tax. 4. it is an excise tax and its object is to the shifting of economic benefits and enjoyment of property from the dead to the living. II. Reasons justifying imposition of estate tax the
Gross Estate (Sec. 85) Less: Deductions (Sec. 86) Net share of the surviving spouse Net taxable Estate X Tax rate (Sec.84) Estate Tax Due Less: Tax credit, if any (Sec.86 [E] or 110 [B] Estate Tax Due Rate: first 200,000 pesos exempt Over 200,000 graduated rate of 5% 20% A. GROSS ESTATE (GE): 1
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Centralized Bar Operations 2007

Institute of Law
1. Resident alien and Filipino decedent: All properties, real or personal, tangible or intangible, wherever situated. 2. Non-resident alien shall: Only properties situated in the Philippines With respect to intangible personal property, its inclusion is subject to the rule of reciprocity No tax shall be collected in respect of intangible personal property: a. if the decedent at the time of his death was a citizen and resident of a foreign country which at the time of his death did not impose a transfer tax in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, OR b. if the laws of the foreign country of which the decedent was a citizen and resident at the time of is death allows a similar exemption from transfer taxes in respect of intangible personal property owned by Filipino citizens not residing in that foreign country. Intangible personal property having situs in the Philippines: a. Franchise which must be exercised in the Philippines; b. Shares, obligations, or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; c. Shares, obligations, or bonds issued by any foreign corporation, 85% of the business is located in the Philippines; d. Shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired business situs (i.e., they are used in furtherance of its business in the Philippines. 2
by any foreign corporation) in the Philippines. e. Shares or rights in any partnership, business or industry established within the Philippines. B. INCLUSIONS IN THE GROSS ESTATE Bar 03 On June 2000, X took out a life insurance policy on his own life in the amount of P2,000,000.00. He designated his wife, Y, as irrevocable beneficiary to P1,000,000.00 but, in the latter designation, reserving his right to substantiate him for another. On 01 September 2003, X died and his wife and son went to the insurer to collect the proceeds of Xs life insurance policy. Are the proceeds of the insurance to form part of the gross estate of X? Explain. S. A. Only the proceeds of P1,000,000 given to the son, Z shall form part of the Gross Estate of X. Under the Tax Cod, proceeds of life insurance shall form part of the gross estate of the decedent to the extent of the amount receivable by the beneficiary designated in the policy of the insurance except when it is expressly stipulated that the designation of the beneficiary is irrevocable. As stated in the problem, only the designation of Y is irrevocable. As stated in the problem, only the designation of Y is irrevocable while the insured/decedent reserved the right to substitute Z as beneficiary for another person. Accordingly, the proceeds received by Y shall be excluded while the proceeds received by Z shall be included in the gross estate of X. (Sec. 85 (E), R.A 8424) Bar 05 - Ralph Donald, an American citizen, was a top executive of a U.S. company in the Philippines until he retired in 1999. He came to like the Philippines so much that following his retirement, he decided to spend the rest of his life in the country. He applied for and was granted a permanent resident status the following year. In the spring of 2004, while vacationing in Orlando, Florida, USA, he suffered a heart attack and died. At the time of his death, he left the following properties: (a) bank deposits with Citibank Makati and Citibank Orlando, Florida; (a) a resthouse in Orlando, Florida; (b) a condominium unit in Makati; (c) shares of stock in the Philippine subsidiary of the U.S. Company where he worked;
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(d) shares of stock in San Miguel Corp. and PLDT; (e) shares of stock in Disney World in Florida; (f) U.S. treasury bonds; and (g) proceeds from a life insurance policy issued by a U.S. corporation. Which of the foregoing assets shall be included in the taxable gross estate in the Philippines? Explain. S. A. All of Ralph Donalds assets shall be included in his taxable gross estate because he was a permanent Philippine resident at the time of his death. (Sec. 104, RA 8424) Q. - Which of the foregoing assets shall be included in the taxable gross estate in the Philippines? Explain. 1. Decedents Interests 2. Transfer in Contemplation of Death 3. Revocable Transfer 4. Transfer under General Power of Appointment 5. Proceeds of life insurance 6. Transfer for Insufficient Consideration 7. Prior Interests Decedents Interests To the extent of the interest in property of the decedent at the time of his death.
enjoy the property or the income there from. Exception: in case of bona fide sale for an adequate and full consideration in money or money's worth Amount included in the GE: interest therein Circumstances taken into account a. Age and state of health of the decedent at the time of gift, especially where he was aware of a serious illness; b. Length of time between the gift and the date of death; c. Concurrent making of a will or making a will within a short time after the transfer.
Bar 01 A, aged 90 years and suffering from incurable cancer, on August 1, 2001 wrote a will and, on the same day, made several inter-vivos gifts to his children. Ten days later, he died. In your opinion, are the intervivos gifts considered transfers in contemplation of death for purposes of determining properties to be included in his gross estate? Explain your answer. S. A. Yes. When the donor makes his will within a short time of , or simultaneously with, the making of gifts, the gifts are considered as having been made in contemplation of death. (Roces v. Posadas, 58 Phil. 108) Obviously, the intention of the donor in making the inter-vivos gifts is to avoid the imposition of the estate tax and since the donees are likewise his forced heirs who are called upon to inherit, it will create a presumption juris tantum that said donations were made mortis causa, hence, the properties donated shall be included as part of As gross estate. Revocable Transfer
Transfer in Contemplation of Death it is the thought of death as the controlling motive which induces the disposition of the property for the purpose of avoiding the tax. Includes: a. transfer by trust or otherwise, in contemplation of, or intended to take effect in possession or enjoyment at or after his death; or b. transfer by trust or otherwise, with retention or reservation of i. the possession or enjoyment of or the right to the income from the property, or ii. the right, either alone or in conjunction with any person, to designate the person who shall possess or 3
a.
with reserved power to alter, amend, revoke or terminate - transfer, by trust or otherwise, where the enjoyment thereof was subject to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke or terminate;
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or where any such power is relinquished in contemplation of the decedent's death. Except: in case of bona fide sale for an adequate and full consideration in money or moneys worth Amount included in the GE: interest therein Transfer under General Power of Appointment A power of appointment is the right to designate the person or persons who will succeed to the property of the prior decedent. It may be exercised by the decedent: a. by will; or b. by deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his death; c. by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death: i. the possession or enjoyment of, or the right to the income from, the property; or ii. the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income there from; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Exception: in case of bona fide sale for an adequate and full consideration in money and moneys worth Amount included in the GE: interest therein Kinds: a. General power of appointment when it authorizes the donee to appoint any person he pleases, including himself, his spouse, his estate, his executor or administrator, and his creditor thus having full dominion over 4
b.
b.
the property as though he owned it. Special power of appointment when the donee can appoint only among a restricted or designated class or persons other than himself.
Proceeds of Life Insurance Beneficiary is the estate of the deceased, his executor or administrator, irrespective of whether or not the insured retained the power of revocation; or Beneficiary is other than the decedents estate, executor or administration, when designation of beneficiary is revocable, that is, when the designation of the beneficiary is not expressly made irrevocable. The proceeds of life insurance are NOT taxable in the following cases: a. Proceeds of a group insurance policy taken out by the company for its employees; b. Accident insurance proceeds; c. Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insured; d. Proceeds of insurance policies issued by the GSIS to the government official and employees; e. Benefits accruing under the SSS law; f. Proceeds of life insurance payable to heirs of deceased members of military personnel Transfer for Consideration Insufficient
When the decedents property is transferred a. in contemplation of death, b. revocable transfers, or c. passed under a general power of appointment for a consideration in money or money's worth Exception: bona fide sale
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Amount to be included in the GE: the excess of the fair market value (FMV), at the time of death, of the property otherwise to be included on account of such transaction, over the value of the consideration received therefore by the decedent. death) less value
FMV(time of received Prior Interests
All transfers, trusts, estates, interests, rights, powers and relinquishment of powers made, created, arising, existing, exercised or relinquished before or after the effectivity of the Tax Code. EXEMPT Acquisition and transmission: (Sec. 87) a. the merger of usufruct of the owner of the naked title; b. the transmission or delivery of the inheritance or legacy of the fiduciary heir or legatee to the fideicommissary; c. the transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the will of the predecessor; d. all bequests, devises, legacies, or transfers to social welfare, cultural and charitable institutions no part of the net income of which inures to the benefit of any individual; provided that not more that 30% of said bequests, legacies or transfers shall be used by such institutions for administration purposes.
C. DEDUCTIONS: Bar 00 Discuss the rule on situs of taxation with respect to the imposition of the estate tax on property left behind by a non-resident decedent. For resident aliens and citizens:
Actual funeral expenses or 5% of the gross estate; or P200, 000, WHICHEVER IS LOWEST Must be duly supported by receipts or other evidence to show that they were actually incurred. Not confined to its ordinary or usual meaning. They include: a. mourning apparel of the surviving spouse and unmarried minor children of the deceases bought and used on the occasion of the burial; b. expenses for the deceaseds wake, including food and drinks; c. publication charges for death notices; d. telecommunicati on expenses incurred in informing relatives of the deceased; e. cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased own a family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible; f. interment and/or cremation fees and charges; and g. all other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. Judicial Expenses:
1.
expenses, losses, indebtedness, taxes, etc. (E-L-I-T) i. Funeral Expenses:
ii.
Those incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof,
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for the filing of the estate tax return (6 months after death) Those incurred in the: a. inventory taking of assets comprising the GROSS ESTATE, b. their administration, c. the payment of debts of the estate d. the distribution of the estate among the heirs. Any unpaid amount should be supported by a sworn statement of account issued and signed by the creditor. It may include the following a. Fees of executor or administrator b. Attorneys fees c. Court Fees d. Appraisers fee e. Clerk hire f. Costs of preserving and distributing the estate g. Costs of storing or maintaining property of the estate; and h. Brokerage fees for selling property of the estate. Claims against the
collect must not have been prescribed. e. the debt instrument must be notarized; f. if the loan was contracted within three (3) years before the death of the decedent, the administrator or executor shall submit a statement under oath showing the disposition of the proceeds of the loan. iv. Claims insolvent persons: against
The amount of said claims has been initially included as part of the GE; The incapacity of the debtors to pay their obligations is proven, not merely alleged. Unpaid mortgages: a. The value of the property mortgaged to the extent of the decedents interest therein, undiminished by such mortgage or indebtedness, is included in the GE; b. The indebtedness must have been contracted bona fide and for an adequate and full consideration in money or moneys worth; c. Verification must be made as to who was the beneficiary of the loan proceeds. d. If found to be merely an accommodation loan, the value of the unpaid loan must be included as a receivable of the estate. e. If there is a legal impediment to recognize the same as receivable, said unpaid mortgage shall not be allowed as a deduction.
v.
iii.
estate:
Debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. Requisites for deductibility: a. the liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations incurred incident to his death; b. it was contracted in good faith and for adequate and full consideration in money or moneys worth; c. the claim must be valid in law and enforceable in court; d. the indebtedness must not have been condoned by the creditor or the action to 6
vi.
Taxes: a. Accrued as of the death of the decedent b. Unpaid as of the time of death The following not deductible: are
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1. income tax on income received after the death of the decedent; 2. property taxes not accrued after death; 3. estate tax. vii. Losses:
Requisites for deductibility: 1. arising from fire, storm, shipwreck or other casualty, robbery, theft or embezzlement; 2. not compensated by insurance or otherwise; 3. not claimed as deduction in an income tax return of the taxable estate; 4. incurred during the settlement of the estate 5. incurred before the last day for the payment of the estate tax (6 months after the decedents death)
from transfer of the property from a prior decedent; 2. Inclusion of the property - the property formed part of the GE located in the Philippines of the prior decedent, or of the taxable gift of the donor within 5 years prior to the present decedents death; 3. Previous taxation of the property - the estate tax or donors tax on the gift must have been finally determined and paid; 4. Identity of the property - the property must be identified as the one received from the prior decedent, or something acquired in exchange therefore; and 5. No previous vanishing deduction on the property was allowed to the estate of the prior decedent. Limitations as to amount of deduction allowable: a. Value of property limited by the value of the property previously taxed as finally determined for the purpose of the prior transfer tax or the value of the property in the present decedents GE, WHICHEVER IS LOWER. b. Deduction for mortgage or other lien the initial value in #1 above shall be reduced by the total amount paid, if any, by the present decedent on any mortgage or other lien on the property c. Deduction for E-L-I-T and T.P.U the value as reduced in #2 above shall be further reduced by an amount which bears the ratio to the amounts allowed as deductions for E-L-I-T and T.P.U as the amount otherwise deductible for property previously taxed bears to the value of the decedents GE. d. Percentage of deductions the vanishing deduction shall be the value in #3 multiplied by the following percentage of deduction:
2. Use (TPU):
Transfer for Public
Requisites 1. the disposition is in a last will and testament; 2. to take effect after death; 3. in favor of the government of the Philippines or any political subdivision thereof; and 4. for exclusive public purpose. This should also include bequests, devices, or transfers to social welfare, cultural and charitable institutions. 3. Vanishing deductions/Property Previously taxed: (VD/PPT) Operates to ease the harshness of successive taxation of the same property within a relatively short period of time (up to 5 years) occasioned by the untimely death of the transferee
Requisites (D-I-P-I-N) Death - the present decedent died within five years
1.
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100% - if the 1st transfer is within 1 year prior to the death of the present decedent; 80% - more than 1 year but not more than 2 years; 60% - more than 2 years but not more than 3 years; 40% - more than 3 years but not more than 4 years; 20% - more than 4 years but not more than 5 years. In outline form, the computation of vanishing deduction is: a. Value taken (value of property at the time of the first transfer or at the time of the present decedents death, whichever is lower) Less: Mortgage debt paid, if any Equals: Initial Basis
captain of the locality where it is located; c. the total value of the family home must be included as part of the GE of the decedent; and d. the amount deductible is the current FMV but not to exceed 1 million pesos. 5. Deduction: Standard
1 million pesos Without need substantiation
of
6.
Medical Expenses: Requisites 1. incurred within one year prior to his death; 2. substantiated with receipts; and 3. maximum of Php500,000
b.
Initial basis (ELIT+TPU) = 2nd deduction Gross Estate c. Initial Basis Less: 2nd deduction Final Basis X Percentage Vanishing deduction
4.
Family Home: The dwelling house including the land on which it is situated, where the husband and wife, or head of the family, and members of their family reside, as certified to by the Barangay Captain of the locality. Characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return (Domicile). One person may constitute only one family home Requisites a. said family home must be the actual residential home of the decedent and his family at the time of his death; b. said fact must be certified to by the barangay 8
Approval of the court where a probate/intestate proceeding is pending is not a mandatory requirement in the collection of estate taxes. On the contrary, the probate/intestate court is prohibited from delivering any distributive share to any party unless there is certification from the Commissioner that the estate taxes are already paid. 7. Amount Received by Heirs Under R. A. No. 4917
Any amount received by the heirs from the decedents employer as a consequence of the death of the decedent employee in accordance with R.A. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent. 8. Net Share of the Surviving Spouse in the Conjugal Partnership or Community Property After deducting the allowable deductions appertaining to the conjugal or community
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properties included in the gross estate, the share of the surviving spouse must be removed to ensure that only the decedents interest in the estate is taxed. For non-resident alien-decedent: 1. expenses, losses, indebtedness, taxes, etc. (E-L-I-T) 2. transfers for public use (T.P.U); 3. vanishing deduction; 4. Share of surviving spouse in conjugal or community property. SETTLEMENT OF THE ESTATE TAX NOTICE OF DEATH f iled in all cases where the gross value of the estate exceeds twenty thousand pesos (P20,000), t he executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner. ESTATE TAX RETURN f iled within six (6) months from the decedent's death. E xtension of time to file: The Commissioner or any Revenue Officer shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return. A n estate tax return is required to be filed: 1. When the estate is subject to estate tax; 2. When the estate is not subject to estate tax but the gross estate exceeds P200,000; or 3. regardless of the amount of the gross estate, where the gross estate consists of registered or registrable property such as motor vehicle or 9
shares of stock or other similar property for which clearance from the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the transferee. W hen the gross estate exceeds P2, 000, 000 the estate tax return shall be accompanied by a statement which is CERTIFIED by an INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT stating: 1. The itemized assets of the decedent with its corresponding gross value at the time of his death, or in the case of a non-resident, not citizen of the Philippines, that part of his gross estate situated in the Philippines; 2. The itemized deductions from the gross estate; 3. the amount of tax due, whether paid or still due and outstanding. W here to file: 1. resident decedent:
accredited agent bank, or Revenue District Officer, Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death or if there be no legal residence in the Philippines, with the Office of the Commissioner. 2. non-resident decedent: the Revenue District Office (RDO) where the executor or administrator is registered if not registered, with the RDO having jurisdiction over the executor or administrators legal residence if there is no executor or administrator, with the Office of the Commissioner PAYMENT OF THE ESTATE TAX GEN RULE: at the time the return is filed.
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EXCEPT: When the Commissioner finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially.
Tax credit for estate taxes paid to a foreign country: General: the estate tax shall be credited with the amounts of any estate tax imposed by the foreign country Limitations a. For estate taxes paid to one foreign country The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the decedents net estate situated within such country taxable under the NIRC bears his entire net estate. Net estate, Foreign country x Philippine credit Entire net estate state tax limit = Tax
Note: The CIR shall deny the application for extension where the request for extension is by reason of: negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, Liability for payment 1. Primarily liable: executor or administrator before distributing the net estate to the heirs 2. Subsidiary liable: the heir or beneficiary to the extent of his share in the inheritance 3. The liability of 2 or more executors of administrators shall be severally. Bar 04 VCC is the administrator of the estate of his father NGC, in the estate proceedings pending before the MM Regional Trial Court. Last year, he received from the Commissioner of Internal Revenue a deficiency tax assessment for the estate in the amount of P1,000,000. But he ignored the notice. Last month, the BIR effected a levy on the real properties of the estate to pay the delinquency tax. VCC filed a motion with the probate court to stop the enforcement and collection of the tax on the ground that the BIR should have secured first the approval of the probate court, which had jurisdiction over the estate, before levying on its real properties. Is VCCs contention correct? S. A. No, VCCs contention is not correct. The approval of the court, sitting in probate or as a settlement tribunal over the property of the deceased is not a mandatory requirement in the collection of taxes. The Tax Code or any other pertinent law does not require the probate or estate settlement courts approval of the States claim for the estate taxes before the same can be enforced and collected. (Marcos v. CA, June 5, 1997)
b. For estate taxes paid to two or more foreign countries The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the decedents net estate situated outside the Philippines taxable under the NIRC bears to his entire net estate. Net estate outside the Philippines x Phil. =Tax credit Entire net estate estate tax limit DONORS TAX Donation is an act of liberality whereby a person disposed gratuitously of a thing or right in favor of another who accepts it. Requisites (C-I-D-A) 1. capacity of the donor to make donation; 2. donative intent or intent to make a gift on the part of the donor; 3. delivery, whether actual or constructive; and 4. acceptance of the gift by the donee Donors Tax is a gift tax imposed upon a person to give his properties while he is still alive to whomever he wishes to extend his benevolent act of kindness or otherwise.
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Aspects of Donors Tax Not a property tax, but is a tax imposed on the transfer of property by way of gift inter vivos Does not apply unless and until there is a completed gift The transfer is perfected from the moment the donor knows of the acceptance of the donee It is completed by the delivery of the donated property, either actual or constructive Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage is subject to donors tax General renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate is not subject to tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other coheirs in the hereditary estate. Tax Rate: General: 2-15%; Php100,000 is exempt Special rate: 30% - in case of donation to a stranger Stranger Bar 00 - When the donee or beneficiary is a stranger, the tax payable by the donor shall be 30% of the net gifts. For purposes of this tax, who is a stranger?
Intangible Personal Properties with Situs in the Phil. Same in estate tax subject to the reciprocity rule.
Transfers subject to donors tax: 1. Upon the transfer by any person, resident or nonresident, of the property by gift. Whether the transfer is in trust or otherwise, Whether the gift is direct or indirect, Whether the property is real or personal, tangible or intangible. Bar 03 X is a friend of Y, the chairman of Political Party Z, who wants to run for President in the 2004 elections. Knowing that Y needs funds for posters and streamers, X is thinking of donating to Y P150,000.00 for his campaign. He asks you whether his intended donation to Y will be subject to the donors tax. a. What would your answer be? b. Will your answer be the same if he were to donate to Political party Z instead of to Y directly? S. A. a) Ys campaign donation is subject to Donors Tax because the giver did not intend his contribution to be a return of value. He also has no intent to repay another what is his due. The main reason for the donation is personal affection or regard or philanthropy or charity. b) The answer will be the same because the purpose for giving is to bolster the morale, the winning chance of the candidate and/or his party, and not to employ or buy. (CIR v. Abello, CA-GR SP No. 27134, CTA Case No. 4296, April 20, 1994) 2. Transfer for insufficient consideration Where property is transferred for less than an adequate and full consideration Exception: transfer of real property classified as capital assets subjected to the capital gains tax Amount included in the net gifts: the excess of the FMV of the property over the consideration received shall be deemed a gift. Bar 97 An insolent company had an outstanding obligation of P100,000.00 from a creditor. Since it could not pay the debt, the creditor agreed to accept payment through dacion en pago a property which had a 11
A person who is not a: 1. brother, sister (whether by whole or half blood), spouse, ancestor, and lineal descendant; or 2. a relative by consanguinity in the collateral within the 4th civil degree A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him shall not be considered as donation made to stranger. Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger.
Valuation of Gifts of Property The fair market value of the property given at the time of the gift shall be the value of the gift.
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market value of P30,000.00. In the dacion en pago document, the balance of the debt was condoned. a. What is the tax effect on the discharge of the unpaid balance of the obligation on the debtor corporation? b. Insofar as the creditor is concerned, how is he effected taxwise as a consequence of the transaction? S. A. a) The Insolvent Debtor Corporation will be liable for the following taxes: (1) Documentary Stamp Tax based on the consideration or value received or paid for the property, which is the amount of obligation extinguished, or on its fair market value, whichever is higher. This tax is payable by either party to the said sale. (2) Normal Corporate Tax for the gain on sale of a non-capital Asset representing the difference between the outstanding obligation settled thru Dacion en Pago minus the Net Book Value of the asset given up. b) The creditor can recognize a tax deductible Bad Debts write-off equal to the difference between the outstanding obligation settled thru Dacion en Pago minus the market value of the asset received. Exemptions: 1. Gifts made by a resident: a. dowries gifts on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate, illegitimate or adopted children to the extent of the first Php10,000 b. gifts made for the use of the national government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of said government; c. gifts in favor of educational, charitable, religious, cultural or social welfare corporation, institution, foundations, trust or philanthropic organization, research institutions or organizations, accredited NGO, provided that not more than 30% of said gift shall be used by such donee for administrative purposes.
Bar 02 On December 06, 2001, LVN Corporation donated a piece of Vacant Lot situated in Mandaluyong City to an accredited and duly registered non-stock, non-profit educational institution to be used by the latter in building a sports complex for students. a. May the donor claim in full as deduction from its gross income for the taxable year 2001 the amount of the donated lot equivalent to its fair market value/zonal value at the time of the donation? Explain your answer. b. In order that donations to non-stock, non-profit educational institution may be exempt from the donors gift tax, what conditions must be met by the donee? S. A. a) Yes, the donor may claim full deduction for having donated the lot to a nonstock, non-profit educational institution where no part of the net income will inure to the benefit of any private individual. (Sec. 34 (H), Chap. VII, RA 8424) b) For the Donor to be exempt from Donors tax, the Donee shall be: (1) An educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution or organization; (2) Use not more than thirty percent (30%) of said gifts for administration purposes; (3) A school, college or university and/or charitable corporation, accredited non-government organization, trust or philanthropic organization and/or research institution or organization; (4) Incorporated as a non-stock entity; (5) Paying no dividends; (6) Governed by trustee who receive no compensation, and (7) Devoting all its income, whether students fees or gifts, donations, subsidies or other accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. (Sec. 101 (A)(3), Title III, Chap. II, RA 8424) 2. Gifts made by a nonresident alien only gifts mentioned in letters (b) and (c) are exempt Tax Credit: 12
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General: the donors tax imposed by the Tax Code upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donors taxes imposed by the foreign country Limitations a. For donors tax paid to one foreign country The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the net gifts situated within such country taxable under the NIRC bears his entire net gift. Net gifts in a foreign country x Phil. =Tax credit Entire net gifts Donors tax limit
authorized treasurer of the city or municipality where the donor is domiciled at the time the transfer, or if there can be no legal residence in the Philippines, with the Commissioner. b. Non-resident donor Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or Directly with the Office of the Commissioner. oOo VALUE ADDED TAX (VAT) Value-Added Tax (VAT) is a percentage tax imposed at every stage of the distribution process on the sale, barter, exchange (including transactions deemed by law as a sale), or lease of goods, properties, or services in the course of trade or business, or on the importation of goods. Nature of VAT 1. An indirect tax; hence, amount of the tax may be shifted or passed on to the buyer 2. A privilege tax; hence, the tax is imposed not on the goods, properties or services as such but on the sale, barter, exchange or lease of goods or properties, or the sale or performance of services for a fee, remuneration, etc 3. A uniform tax computed at the rate of 0% or 12% of the gross selling price of goods or of gross receipts realized from the sale of services 4. An ad valorem tax because it is based on the gross selling price or gross value in money, or gross receipts derived from the transaction 5. A tax on the value added by every seller as the goods, properties or services pass along the distribution chain, unless the seller is exempt. Purposes of VAT system: 1. realizing the system of taxing goods and services; 2. simplifying tax administration; and 3. making the tax system more equitable, to enable the country to attain economic recovery. Transactions subject to 12% VAT: (CR CB WILD FIRE FHM LS)
b.
For donors taxes paid to two or more foreign countries The total amount to the credit shall not exceed the same proportion of the tax against which such credit is taken, which the net gifts situated outside the Philippines taxable under the NIRC bears to this entire net gifts. Net gifts outside the Philippines x Phil. =Tax credit Entire net gifts Donors tax limit Donors Tax Return: To be filed within thirty (30) days after the gift is made. The return shall be under oath in duplicate setting forth: Each gift made during the calendar year which is to be included in computing net gifts; The deductions claimed and allowable; Any previous net gifts made during the same calendar year; The name of the donee; Relationship of the donor to the donee; and Such further information as may be required by rules and regulations made pursuant to law. The tax is paid at the time the return is filed within said period. Filed and paid: a. Resident Donor To an accredited agent bank, RDO, revenue Collection Officer or duly 13
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1. Sales / Services Contractors Restaurants Common carriers by sea or air Brokers Warehousing services Investors / lending Lessors of properties Dealers of securities Film lessors or distributors Non-life insurance companies Royalty fees Electric Companies Franchise holders Hotels, motels Milling, processing or repacking services Land transportation services Similar services 2. Transfers deemed sale for VAT purposes 12% (PS DOG) Transfer for Personal use or consumption Distribution or transfer to Shareholders, investors or creditors Dissolution and creation of a new partnership Properties Originally intended for sale or for use in the course of business Consigned Goods, if actual sale is not made within sixty (60) days NOTE:
Businesses where the aggregate sales or receipts do not exceed Php1, 500, 000 during any 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business, and shall be exempt from VAT. They shall, however, be subject to percentage tax equivalent to 3% of their gross quarterly sales or receipts, provided that the business is not VAT-registered. Transactions subject to 0% VAT: Actual Zero Rating a. Zero-rated transactions, services (EPOT IPIS) Exempt under special law or agreements Processing, manufacturing or repacking of goods * Other transactions Transport of passengers and cargo from the Philippines to a foreign country Services to Persons engaged in Industrial shipping Sale of Power generated through renewable sources of energy Industrial air transport operation services rendered in connection with it Subcontractors and other contractors in the manufacturing of goods 70% of its sale is for export Note: *Must be subsequently exported and paid for by acceptable foreign currency, it must be duly accounted for by the Central Bank. b. Zero-rated (EFP) transaction, goods
in the ordinary course of trade or business means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business.
1. Export sales (GORANG) Gold sold to BSP Those under the Omnibus 2.
investment code Raw material sold to export oriented enterprises Actual shipment of goods Sale of raw materials to Nonresident buyers Sale of Goods international buyers Foreign currency denominated sale Sales to whom: non-resident Of what: goods assembled or manufactured in the Philippines.
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3.
Except: automobiles and nonessential goods (jewelries, perfumes, yachts, etc.) To whom delivered: resident of the Philippines. Paid for in acceptable foreign currency duly accounted for in accordance with the BSP rules Persons or entity deemed exempt under international law ZERO-RATED
f. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; g. Sale of power or fuel generated through renewable sources of energy. ZERO-RATED EXEMPT 1. all VAT is removed 1. removes the VAT from the goods, only at the exempt activity or transaction stage 2. the taxpayer can claim the refund or 2. the taxpayer is not input taxes passed on entitled to credit or to him by the refund of the input tax supplier, etc. or credit passed on to him by such input taxes on the supplier, etc. his non-zero-rated transactions 3. generally, taxable 3. it is not taken into sales are taken into account in account in determining turn-over determining turn-over or VAT registration sales or sale for VAT purposes registration purposes Rules in lease of residential units for VAT purposes: 1. Lease of property situated in the Philippine shall be subject to VAT irrespective of the place where the contract of lease or licensing agreement was executed if the property leased or used in the Philippines.
EFFECTIVELY TRANSACTIONS:
Sales to whom: persons or entities exempted under special laws or international agreements to which the Philippines is a signatory 1. Zero-rated services: a. Processing, manufacturing or repacking of goods For: persons doing business outside the Philippines When: the goods are subsequently exported Paid for in acceptable foreign currency Duly accounted for in accordance with the BSP rules b. Services other than those provided in #2a rendered to: Persons engaged in business outside the Philippines or; Non-resident persons not engaged in business When the services were rendered Paid for in acceptable foreign currency Duly accounted for in accordance with BSP rules c. Services rendered to exempt entities under special laws and international agreements to which the Philippines is a signatory; d. Services rendered to persons engaged exclusively in international shipping/ international air transport operations; e. Those performed for an enterprise whose export sales exceed 70% of the annual production, by subcontractors and/or contractors duly accredited by the Board of Investments or the Export Development Council in processing, converting or manufacturing goods; 15
Residential units shall refer to apartments, houses, and/or lands on which anothers dwelling is located, used for residential purposes and shall include not only buildings, but also the parts or units thereof used solely as dwelling places (e.g. dormitories, rooms and bed spaces) except motels, motel rooms, hotel and hotel rooms. 2. It likewise includes apartment, houses, buildings, parts or units thereof used fro home industries, retail stores or other business purposes if the tenant thereof and his family actually live therein and used them principally for dwelling purposes. The term unit shall mean an apartment unit in the case of apartments, house in case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of room for rent.
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Exempt Transactions: (AFP BRIBE VOTE HELOO GARCI)
1.
Sale/ importation of Agricultural and marine food products in their original state; livestock and poultry generally used for human consumption; Note:
a.
products are considered in their original state even if they have undergone simple processes of preparation or preservation for the market freezing, drying, salting, broiling, roasting, smoking, and stripping (Code:FreDSBRoSS) b. rice, corn grits, sugar cane, molasses are always considered in their original state (Code: RiCo SuMo)
2.
S/I of Fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds; 3. Services subject to Percentage tax; 4. S/I, printing, publication of Books and any newspaper, magazine, review or bulletin, which appear at regular intervals with fixed price for subscription and which are not devoted principally for paid advertisements; 5. Services Rendered by regional or area headquarters established by Multinational Corporations; 6. Investments owned by foreigners 7. Services of Banks, non-bank financial intermediaries performing quasibanking activities 8. Services rendered pursuant to an Employer-employee relationship; 9. S/I or lease of passenger or cargo Vessels and aircraft including engine, equipment and spare parts thereof; 10. Importation of personal and household effects provided: a. the effects belong to Overseas Filipino workers/or non-residents coming to resettle in the Philippines. b. the effects are exempt under Tariff and Customs Code 11. Importation of (GSEF) goods, supplies, equipment and fuel by persons engaged in international shipping and air Transport operations; 12. Educational services rendered by government educational institutions and
private educational institutions accredited by DepEd, CHED, TESDA; 13. Medical, dental, Hospital and veterinary services except those rendered by professionals; 14. Export sales by persons who are not VAT-registered 15. Lease of residential unit with a monthly rental less than P10, 000; 16. Sale or lease of goods, properties or services where the gross annual sales and/or receipts is not Over P1, 500,000.00; 17. Other cooperatives 18. Services by agricultural contract Growers and milling for others of RiCo Su (rice, corn grits, sugar cane); 19. Sales by Agricultural cooperatives registered with CDA; 20. Sale of Real property utilized for low-cost and socialized housing; 21. Gross receipts from lending activities by Credit of multi-purpose cooperatives registered with the CDA; 22. Transactions exempt under special laws and International agreements to which the Philippines is a signatory except those under P.D. 529; Five (5) percent VAT Sale to the government
Computation of the VAT: 1. for the Sale of Goods or Properties 12% of the gross selling price or gross value in money (effective February 1, 2006) gross selling price means the total amount in money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the transaction, excluding the VAT such tax shall be paid by the seller or the transferor 2. for the Importation of Goods 12% of the total value used by the Bureau of Customs in determining tariff and customs duties, excise taxes and other charges or; 12% of the landed cost plus excise taxes where the customs duties are determined on the basis of the quantity or volume of the goods 16
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such tax shall be paid by the importer prior to the release of the goods from Customs custody 3. for the Sale of Services and Use or Lease of Properties 12% of the gross receipts derived from the sale or exchange of services gross receipts means the total amount in money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding VAT Deductions or Exclusions from the gross sales/receipts: 1. Discounts Must be determined and granted at the time of sale Expressly indicated in the invoice The amount thereof forms part of the gross sales duly recorded in the books of the seller The grant of which does not depend upon the happening of a future event
the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person.
Creditable input tax: any input tax evidenced by VAT invoice or official receipt on the following transactions: a. Purchase/Importation i. for sale ii. for conversion into or intended to form part of a finished product for sale including packaging materials iii. for use as supplies in the course of business iv. for use as materials supplied in the sale of services v. for use in trade or business for which deduction for depreciation or amortization is allowed b. Purchase of services on which a VAT has actually been paid Creditable to: i. the purchaser upon consummation of the sale and on importation of goods and properties ii. the importer upon payment of the VAT prior to the release of the goods from Customs custody iii. to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee, in case of purchase of services or lease or use of properties Rule on Input Tax on Capital Goods: 1. if the aggregate acquisition cost of the capital goods, excluding VAT, exceeds P1, 000,000.00; and 2. where such goods are purchased or imported in a calendar month for use in trade or business for deduction for depreciation is allowed; 3. then, the input tax shall be spread evenly over a period of 60 months, commencing from the month the acquisition was made 4. provided, however, that if the estimated useful life of such goods is less
2. Sales returns and allowances A proper credit or refund was made The sales previously recorded as taxable sales When may property dividends be subject to VAT? Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared as retained earnings on or after January 1, 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or fair market value at the time of distribution whichever is applicable.
Tax Credits: Output tax the value-added tax due on the sale or lease of taxable goods or properties by any person required to register Input tax 17
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than 5 years, then the input VAT shall be spread over such shorter period. A VAT-Registered person also engaged in non-vatable transactions shall be allowed tax credit as follows: a. total input tax directly attributable to vatable transactions; b. A ratable portion of any input tax which cannot be directly attributed to either activity; Excess Output or Input Tax a. if, O > I ; then, the excess shall be paid by the VATregistered person b. if, I > O; then, the excess shall be carried over to the succeeding quarters or quarters, provided: the input tax carried over from the previous quarter shall not exceed 70% of the output VAT the input tax attributable to zerorated sales may, at the option of the taxpayer, be refunded or credited against other internal revenue taxes The excess input tax to be carried over from the preceding month or quarter shall be reduced by: a. amount of claim for refund or tax credit for VAT b. other adjustments, such as purchase returns or allowances c. input tax attributable to exempt sales Transitional input tax credits is the input tax allowed to be credited against the output tax of a person who becomes liable to value-added tax or any person who elects to be a VAT-registered person, on his beginning inventory of goods, materials and supplies, equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher. Presumptive Input tax credits is the input tax credit allowed to persons liable for VAT where their purchases are not subject to input tax. The following persons are entitled to presumptive input tax credits: a. Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar, cooking oil and packed noodle-based instant meals, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. 18
b. Public works contractors, equivalent to one and one-half percent (1 1/2%) of the contract price with respect to government contracts only in lieu of actual input taxes there from. Refunds or Tax Credits for Zero-Rated or Effectively Zero-Rated Sales: a. taxpayer must be VAT-registered; otherwise, the transaction is exempt which does not entitle him to any refund or tax credit; b. application for a tax credit certificate or refund must be made within 2 years after the close of the taxable quarter when the sales were made; c. to the extent that the input tax has not been applied against output tax. d. the transactions are paid for in an acceptable foreign currency and duly accounted for in accordance with BSP rules. e. in the case of a person whose registration is cancelled due to retirement from or cessation of business, or due to changes in or cessation of status, the application may be made within 2 years from the date of cancellation, etc f. in other appropriate cases, the Commissioner shall grant refund or issue the tax credit certificate for creditable input taxes within 120 days from the date of submission of complete documents in support of the application Rule where the taxpayer is engaged in zerorated or effectively zero-rated transactions and also in taxable or exempt sales: a. the amount of the creditable input tax due or paid which cannot be directly and entirely attributed any one of the transactions shall be allocated proportionately on the basis of the volume of sales b. in case of a person making zero-rated and non zero-rated sales, the input tax shall be allocated ratably between his zero-rated and non zero-rated sales Withholding of VAT: the Government or any of its political subdivisions, instrumentalities or agencies, including GOCCs shall, before making payment on account of purchase of goods and services deduct and withhold a final VAT at the rate of 5% of the gross payment thereof
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the payment for lease or use of properties or property rights to nonresident owners shall be subject to 10% withholding tax at the time of payment oOo TAX REMEDIES Agencies Involved in Tax Administration 1. BIR 2. Bureau of Customs 3. Provincial, city, and municipal assessors and treasurers Powers and Duties of the BIR (Sec. 2, CTRP) (Key: AGEE)
Starts with the self-assessment by the taxpayer of his tax liability, filing of the tax return, and payment of the entire tax due shown on his return
Means Employed in the Assessment of Taxes (Sec. 6, CTRP) (Key: BETI-PPEA)
1. Examination of tax returns 2. Use of the best evidence obtainable 3. Inventory taking, surveillance and use of
presumptive gross sales and receipts 4. Termination of taxable period 5. Prescription of real property values 6. Examination of bank deposits to determine the correct amount of the gross estate 7. Accreditation and registration of tax agents. 8. Prescription of additional procedural or documentary requirements. The role of the government in assessment process includes the following: i) Examination of books of accounts and other accounting records of taxpayers by revenue officer to determine his correct tax liability (Letter of Authority- LOA)
1. Assessment
and collection of all national internal revenue taxes, fees, and charges 2. Give effect to and administer the supervisory and police power conferred to it by the Tax Code or other laws 3. Enforcement of all forfeitures, penalties and fines in connection therewith 4. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts I. NIRC Bar 96 - May the CTA issue an injunction to enjoin the collection of taxes by the BIR? Explain. Bar 01 - May the courts enjoin the collection of revenue taxes? Explain your answer. General Rule: Tax collection cannot be enjoined by court injunction. Tax Code provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code. (Sec. 18, NIRC) Exception: An injunction that may be issued by the CTA in aid of its appellate jurisdiction under RA 1125 TAX REMEDIES UNDER THE
Period: Letter of Authority must be served to the concerned taxpayer within thirty (30) days from its date of issuance otherwise it shall be null and void. Revenue officer is allowed only 120 days from the date of receipt of a letter of authority by the taxpayer to conduct the audit and submit the required report of investigation. Who may issue letter of authority? After a return has been filed, the commissioner or his duly authorized representative may authorize the examination of the books of any taxpayer and the assessment of the correct amount tax. (Sec. 6, NIRC) The revenue Regional Director shall approve and sign all LAs for all audit cases within his regional jurisdiction, EXCEPT (1) cases involving civil or criminal tax fraud under the jurisdiction of the tax fraud division of the enforcement service; 19
A. POWER TO ASSESS:
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(2) policy cases under audit by Special Teams in the National Office. (RAMO 36-99) If the taxpayer do not submit the documents or information requested by the BIR, the person may be required to testify or the document may be summoned and required to be presented to the BIR Q. Can the BIR issue LOA more than once within a taxable year? S. A. No. BIR officer are allowed to issue LOA only once. EXCEPT: 1. when BIR determines that there is fraud or irregularities was committed by taxpayer 2. taxpayer itself request for an examination of his accounts 3. when there is a need to verify the withholding taxes required by the BIR. 4. when capital gains tax must be verified. Power of the Commissioner to assess deficiency tax based on best evidence obtainable Sec. 6B of R.A. 8424 empowers the Commissioner to assess the proper tax and make or amend the return based on the best evidence obtainable (from his own knowledge and from such information as he can obtain through testimony or otherwise) when: 1. a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations; or 2. there is reason to believe that any such report is i. fals e ii. inco mplete iii. erro neous. The return made by the Commissioner, in this instance, shall be prima facie correct and sufficient for all legal purposes. ii) Preparation of tentative findings and holding of informal conference (Notice of Informal Conference-NIC)
Soon after the completion of the tax audit, the revenue officer will render a written report stating: a. the factual and legal basis of his findings b. whether the taxpayer agrees with his findings If the taxpayer is not amenable, the taxpayer shall be informed in writing by the Revenue District Officer of by the Chief of the Division of the discrepancies in the taxpayers liability for the purpose of informal conference, in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within 15 days from date of receipt of the notice for informal conference, he shall be considered in default In such a case, the Revenue District Officer of the Chief of the Division shall endorse the case to the Assessment Division for review and issuance of deficiency tax assessment, if warranted. iii) Issuance of Preliminary Assessment Notice (PAN) It is a communication issued by the Regional assessment Division, or any other concerned BIR office, informing a taxpayer who has been audited of the findings of the BIR officer following the review of these findings. must show in detail the facts and law on which the proposed assessment is based, otherwise its fatal to BIR. If the taxpayer disagrees with the findings stated in the PAN, he shall then have 15 days from his receipt of the PAN to file a written reply contesting the proposed assessment.
Instances wherein PAN is NO longer required: 1. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the 20
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2.
3.
4. 5.
face of the tax return filed by the taxpayer; 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; When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; When an excise tax due on excisable articles has not been paid; or When an article locally purchased of imported by an exempt person, such as, but not limited to vehicles, capital equipment, machineries, and spare parts, has been sold, treated or transferred to non-exempt persons.
1. the computation of the sum due; 2. giving notice to that effect to the taxpayer; and 3. the making, simultaneously with or sometime after the giving of notice, of a demand upon him for the payment of the tax deficiency stated.
Assessment contains not only computation of tax liabilities but also a demand for payment within a prescribed period. [CIR vs. PASCOR, 309 SCRA 402]
Notice of assessment is presumed valid. If the taxpayer contested such a determination, the burden of proving the determination wrong, together with the corresponding burden of first going forward with evidence, is on the taxpayer. [ Cyanamid Philippines, Inc. vs. CA, 322 SCRA 639] Q. When is an assessment deemed made? S. A. - An assessment is deemed made only when the collector of internal revenue releases, mails, or sends such notice to the taxpayer regardless whether the taxpayer received the notice within the prescriptive period. [Basilan Estates, Inc. vs. CIR, 21 SCRA 17] Q. On the basis of a Letter of Authority, for the examination of the books of accounts and other accounting records of Pascor Realty and Development Corporation (PRDC), BIR examiners recommended the issuance of an assessment notice in the amounts of P7 million and P 3 million for the years 1986 and 1987 respectively. On March 1, 1995, the BIR filed a criminal complaint with the Department of Justice against PRDC, its President and Treasurer alleging evasion of taxes in the total amount of P10 million. This was supported by an affidavit-report of the examiners detailing the computation of the alleged tax evasion. PRDC, its President and Treasurer filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability. On March 23, 1995, PRDC and its President and Treasurer received a subpoena in connection with the criminal complaint filed by the BIR against them. In a letter dated May 17, 1995, the Commissioner denied the urgent request for reconsideration/reinvestigation filed by PRDC and its officers on the ground that
Q. What is a pre-assessment notice and what is its importance? S. A. - A pre-assessment notice is a letter sent by the Bureau of Internal Revenue to a taxpayer asking him to explain within a period of fifteen (15) days from receipt why he should not be the subject of an assessment notice. As a general rule, the BIR could not issue an assessment notice without first issuing a pre-assessment notice because it is part of the due process rights of a taxpayer to be given notice in the form of a pre-assessment notice, and for him to explain why he should be the subject of an assessment notice. iv) Issuance of Formal Assessment Notice (FAN) and letter of demand if the taxpayer fails to respond within 15 days from date of receipt, he shall be considered in default in such a case, a formal letter of demand and FAN shall be issued, calling for payment of the deficiency tax liabilities, inclusive of penalties. shall be sent personally or through registered mail TAX ASSESSMENT- It is the official action of an officer authorized by law in ascertaining the amount of tax due under the law from a taxpayer. This action necessarily involves: 21
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formal assessment has as yet not been issued by the Commissioner. Do you agree with the decision of the Commissioner ? Explain briefly S. A. - Yes, the affidavit-report of the examiners does not constitute an assessment that may be the subject of a motion for reconsideration/reinvestigation. The affidavitreport merely contained a computation of the liabilities. It did not state a demand or a period for payment. It was not addressed to the taxpayers but to the Department of Justice. That the affidavit-report contained details of the tax liabilities does not ipso facto make the same an assessment. Its purpose was merely to support the criminal complaint for assessment. Clearly, it was not meant to be a notice of the tax due and a demand for the payment thereof. The fact that the complaint itself was specifically directed and sent to the Department of Justice and not to the taxpayer shows that the intent of the BIR was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner instead opted to file a criminal complaint. What was received by the taxpayer was notice of the filing of the criminal case not a notice that the BIR had made an assessment. (CIR v. Pascor, Ibid.) Q. What assessment? is meant by jeopardy
Q. - X Corporation filed its income tax returns in January, 1995 for its income for the year 1994. In October, 1997, March, 1998 and May, 1998, X through its authorized representative signed three (3) separate waivers of the Statute of Limitations under the NIRC. The waivers were not signed by the BIR Commissioner or his agents. In 1999, the BIR issued letters of demand, accompanied by assessment notices asking the corporation to pay the deficiency internal revenue taxes for its income for the year 1994. X disputed the assessment and requested a reinvestigation. The BIR Commissioner denied the protest. X appealed to the Court of Tax Appeals, on the ground of prescription. Decide. S. A. - The BIRs authority to assess already prescribed. The three (3) waivers did not suspend the running of the prescriptive period. The only agreement that could suspend the running of the prescriptive period for the collection of the tax in question is a written agreement between X corporation and the BIR entered into before the expiration of the three (3) year prescriptive period extending the said period. Since, what is required is the signatures of both the Commissioner and the taxpayer, a unilateral waiver on the part of the taxpayer does not suspend the prescriptive period. (CIR v. CA, G.R. No. 115712, February 25, 1999 (Carnation case) Q. What are the grounds for suspending statute of limitations or prescriptive periods for assessment, beginning or distraint or levy or proceeding in court. S. A. - Grounds for suspending statute of limitations or prescriptive periods for assessment, beginning or distraint or levy or proceeding in court. The holding in Commissioner of Internal Revenue v. Court of Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case) that the waiver of the period for assessment must be in writing and have the written consent of the BIR Commissioner is still doctrinal because of the provisions of Sec. 223, NIRC of 1997 which provides: (1) When the Commissioner is prohibited from making the assessment, or beginning distraint, or levy or proceeding in court and for sixty (60) days thereafter; (2) When the taxpayer requests for and is granted a reinvestigation by the commissioner;
S. A. A delinquency tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer, who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayers failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in his return. [Sec. 3.1 (a), Rev. Regs. No. 6-2000) Q. What is the period for making an assessment? S. A. - The prescriptive periods for making assessments are three (3) years from the last day within which to file a return or when the return was actually filed and ten years from discovery of the failure to file the tax return or discovery of falsity or fraud in the return.
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(3) When the commissioner could not be located in the address given by him in the return filed upon which the tax is being assessed or collected; (4) When the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and (5) When the taxpayer is out of the Philippines. Q. What is the rule in the construction of the period of prescription? S. A. - Law on prescription should be liberally construed in favor of the taxpayer. For the purpose of safeguarding taxpayers from an unreasonable examination, investigation or assessment, our tax law provides a statute of limitation on the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. (CIR v. B.F. Goodrich Phil., G.R. No. 104171, Feb 24, 1999) B. POWER TO COLLECT: Delinquent Taxpayer When the self-assessed tax per return filed on the prescribed date was not paid at all or was only partially paid, or The deficiency tax assessed by the BIR became final and executory. Deficiency tax The amount by which the income tax as determined by the BIR exceeds the amount shown as tax per return, or If no amount is shown or if no return is made, then the amount by which the tax as determined by the BIR exceeds the amounts previously assessed (or collected without assessment) as a deficiency C. PROTEST 1. Filing of administrative protest by the taxpayer against the assessment Within 30 days from receipt of the FAN Failure to make such protest would render the assessment final, executory and demandable The prescriptive period for assessment or collection shall be suspended.
2. Submission of documentary evidence and argument Within 60 days from date of filing of protest Failure to submit would render the assessment final, executory and demandable 3. Denial of protest The taxpayer may appeal to the Court of Tax Appeals (CTA) within 30 days from date of receipt of the decision Otherwise, the assessment shall become final, executory and demandable 4. Inaction of the CIR Failure to act on the protest within 180 days from date of submission of the required documents would give rise to the right of the taxpayer to appeal The appeal should be made within 20 days from the lapse of the said 180-day period Otherwise, the assessment shall become final, executory and demandable. Q. What are the requirements for a valid taxpayers protest? S. A. - The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect. If therer are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto. (Sec. 3.1.5, Rev. Regs. 1299) Q. Distinguish the remedies in the collection of deficiency tax and delinquency tax. S. A. In deficiency tax, the tax can immediately be collected administratively through the issuance of the warrant of distraint and levy, and by judicial action and the filing of a civil action for its collection in the ordinary court is a proper remedy, on the other hand, in delinquency tax, the tax can be collected also through administrative and judicial remedies but has to 23
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go through the process of filing the protest against the assessment by the taxpayer and denial of such protest, and the filing of a civil action at the ordinary court for collection may be the subject of a motion to dismiss. In addition, a petition for review must be filed with the CTA within the 30 days to toll the running of the prescriptive period. II. REMEDIES OF THE GOVERNEMNT FOR NON-PAYMENT OF TAXES Administrative remedies a. tax lien b. distraint (actual and constructive) c. levy d. sale of property of a delinquent taxpayer e. forfeiture of property f. compromise and abatement g. penalties and fines h. suspension of business operations. Judicial Remedies a. civil action b. criminal action
have been filed in the register of deeds of the province or city where the property is located. But effectivity against third persons-only when notice of such lien is filed by the Commissioner in the Register of Deeds in the province/city where the property is situated (Sec. 219) Note: Superior to judgment claim of private property. 2. Distraint The collection of taxes is enforced on the goods, chattels or effects and other personal property, including stocks and other securities, debts, credits and interest and rights to personal property.
Who may effect distraint? a. Commissioner or his duly authorized representative if the amount involved is more than P1,000,000.00 b. Revenue District Officer if the amount involved is P1,000,000.00 or less than Requisites of distraint: a. the taxpayer must be delinquent (except in constructive distraint) in the payment of tax; b. there must be a subsequent demand for its payment (assessment); c. the taxpayer fails to pay the tax at the time required; and d. the period within which to assess or collect the tax has not yet prescribed. Kinds: a. Actual distaint there is taking of possession of the property from the taxpayer by the government resorted to when at the time required for payment, a person fails to pay his delinquent tax obligation. Effected by: a. leaving a list of the distrained property, or b. by service of a warrant of distraint or garnishment Procedure 24
Note: One or all of the remedies may be pursued simultaneously in the discretion of revenue authorities. Note: Distraint or levy NOT availed of where the amount of tax involved is NOT MORE than P100 Enforcement of administrative fine
A. Administrative Remedies 1. Tax lien A legal claim or charge on property of the taxpayer as security for the payment of some debt or obligation. Accrues when the taxpayer neglects or refuses to pay his tax liability after demand with interests, penalties and costs that may accrue in addition thereto. Extent-upon all property and rights to property belonging to the taxpayer attaches not only from the time the warrant was served BUT from the time tax was due and demandable. The lien is not valid against any mortgagee, purchaser, or judgment creditor until notice of such lien shall
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a. Goods, effects, chattels and other personal property i. a copy of an account of the property distrained, signed by the officer, shall be left either from the owner or the person from whom the property was taken or at the dwelling or place of business of such person and with someone of suitable age and discretion ii. statement of the sum demanded iii. time and place of sale b. Stocks and other Securities i. serving a copy of the warrant upon the taxpayer AND upon the president, manager, treasurer or other responsible officer of the issuing corporation, company, association c. Debts and Credits i. leaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent ii. warrant shall be sufficient authority to pay the Commissioner the amount of such debts or credits d. Bank accounts (garnishment) i. serve a warrant of garnishment upon the taxpayer AND upon the president, manger, treasurer or other responsible officer of the bank ii. bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient (Sec. 208 NIRC) Bar 98 - Can the Commissioner of Internal Revenue inquire into the bank deposits of a taxpayer? If so, does his power of the Commissioner conflict with R.A. 1405 (Secrecy of Bank Deposits Law). S. A. Yes, the BIR Commissioner can inquire into the deposits of a taxpayer under two (2) instances: (1) To determine the Gross Estate of a decedent;
(2) When a taxpayer applies for a compromise of his tax liability by reason of financial incapacity. No, the BIR Commissioners power is an exception to the Bank Secrecy Law. (Sec. 6 (F), RA 8424) Bar 03 X dies in year 2000 leaving a bank deposit of P2 Million under joint account with his associates in a law office. Learning of Xs death from the newspapers, the Commissioner of Internal revenue wrote to every bank in the country asking them to disclose to him the amount of deposits that might be outstanding in his name or jointly with others at the date of his death. May the bank holding the deposit refuse to comply on the ground of the secrecy of Bank deposit Law? S. A. No, the bank cannot refuse to comply with the BIR Commissioners request. The NIRC gave the authority to the Commissioner to inquire into the bank deposit of any taxpayer to determine into the bank deposit of any taxpayer to determine the Gross Estate at the time of the death of said taxpayer. This is an exception to the Secrecy Law. (Sec. 6 (F), RA 8424) Note: Report on the Distraint by the distraining officer must be submitted within 10 days from receipt of the warrant to the Revenue District Officer and to the Revenue Regional Director. The order of Distraint may be lifted by the Commissioner or his representative (Sec. 207 A NIRC) b. Constructive distraint the owner is merely prohibited from disposing of this property issued even when there is no actual tax delinquency availed of when taxpayer is: a. retiring from any business subject to tax; b. intending to i. leave the Philippines; or ii. remove his property therefrom; or iii. hide or conceal his property; or c. he performs any act tending to obstruct the proceedings for collecting the tax due 25 Procedure
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a. Require the taxpayer or any person having control of the property to i. sign a receipt covering property distrained ii. obligate himself to preserve the same intact and unaltered iii. not to dispose of the property in any manner, without the authority of the Commissioner b. Where taxpayer or person in possession refuses to sign: i. distraining officer shall prepare a list of the property distrained ii. in the presence of 2 witnesses, leave a copy in the premises where the property is located (Sec. 206 NIRC) Q. Compare actual constructive distraint. distraint from
purpose being to prevent the taxpayer from disposing of his property pending final determination of his tax liability. Q. Distinguish lien from distraint. S. A. Lien is directed against the property subject to the tax, while distraint need not be directed against the property subject to the tax. In lien, the ownership of the property is not necessary of the taxpayer, while in distraint, the property seized must be owned by the taxpayer. 3. Levy It refers to the act of seizure of real property in order to enforce the payment of taxes. The requisites for the exercise of the remedy of levy: same as in the remedy of distraint When: before, simultaneously or after the distraint of personal property belonging to the taxpayer Effected by: a. writing upon an authenticated certificate showing: 1. the name of the taxpayer, 2. amounts of the tax and penalty due 3. description of the property upon which levy is made. b. written notice of the levy shall be mailed to or served upon: 1. the Register of Deeds of the province or city where the property is located, and 2. the delinquent taxpayer 3. if he is absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose 4. if there be none, to the occupant of the property in question. Real property may be levied upon before, simultaneously, or after the distraint of personal property belonging to the delinquent. The remedy by distraint and levy may be repeated if necessary until the full amount, including all expenses, is collected. Procedure:
S. A. (1) Both are summary remedies for the collection of taxes. (2) Both refer only to personal property; (3) Both cannot be availed of where the amount of the tax involved is not more than P100; (4) Actual distraint is made on the property only of delinquent taxpayer, while constructive distraint may be made on the property of any taxpayer, whether delinquent or not; (5) In actual distraint, there is a taking of possession or transfer of control over the property distrained, while in constructive distraint, the taxpayer is merely prohibited from disposing of his property; (6) Actual distraint is effected by leaving a list of the property distrained or by service of a warrant of distraint or garnishment, while contructive distraint may be effected by requiring the taxpayer to sign a receipt of the property or by the revenue officer preparing and leaving a list of such property; and (7) Actual distraint is an immediate step for collection of delinquent taxes, while constructive distraint is not necessarily so, its 26
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(a) internal revenue officer shall prepare a duly authenticated certificate showing the name of taxpayer, amounts of tax and penalty due. Enforceable throughout the Philippines (b) officer shall write upon the certificate a description of the property upon which levy is made (c) written notice of levy shall be mailed or served upon i. the Register of Deeds where the property is located and ii. the taxpayer or agent/manager of the business in respect to the tax liability or to the occupant of the property (d) If personal property of taxpayer is not sufficient to satisfy the tax due, levy on real property shall proceed within 30 days after distraint (e) Report on levy i. by levying officer (1) submitted within 10 days from receipt of warrant (2) submitted to the Commissioner or his representative ii. by the Revenue Regional Director-consolidated report, as may be required by the Commissioner (f) The warrant may be lifted by the Commissioner or his representative 4. Sale of property
after notice to the owner or possessor of the property and the publication or posting of such notice c. Sale of the property at i. public auction to the highest bidder for cash, or ii. through duly licensed commodity or stock exchanges, with the approval of the CIR
In case of distrained property: a. notification specifying the time and place of sale and the articles distrained shall be exhibited i. in not less than 2 public places (one place shall be at the office of the Mayor) ii. in the municipality or city where the distraint is made b. The time of sale shall not be less than 20 days 27
In case of levied Property: a. advertisement of the time and place of sale of the taxpayers property or so much thereof as may be necessary to satisfy the claim within 20 days after the levy, and it shall cover a period of at least 30 days i. posting a notice at the main entrance of the municipal building or city hall and ii. in a public and conspicuous place in the barrio or district in which the real estate lies and iii. by publication once a week for 3 weeks in a newspaper of general circulation in the municipality or city where the property is located. b. sale at public auction to the highest bidder i. at the main entrance of the municipal building or city hall, or ii. on the premises to be sols, as the officer conducting the proceedings shall determine and as the notice shall specify c. disposition of proceeds of sale i. In case the proceeds of the sale exceed the claim (taxes, penalties, and interest) and cost of the sale, the excess shall be turned over to the owner of the property. Redemption by the taxpayer
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Within 1 year from the date of sale, that is, from the registration of the registration of the deed of sale. By the taxpayer or anyone for him by paying the full amount of: Taxes Penalties Interests, and Costs of sale
Compromise a contract whereby the parties by reciprocal concessions, avoid litigation or put an end to one already commenced. Requisites: a. the taxpayer must have a tax liability; b. there must be acceptance (by the Commissioner or taxpayer as the case may be) of the offer in the settlement of the original claim; c. there must be an offer (by the taxpayer of an amount to be paid him)
Pending redemption of the property sold, the owner shall: a. not be deprived of the possession of the property b. be entitled to the rents and other income thereof 5. Forfeiture Effected when: a. there is no bidder for the real property in the public sale, or b. if the amount of the highest bid is insufficient to pay the taxes, penalties and costs The Register of Deeds concerned shall: a. Upon registration of the ii. declaration for forfeiture, transfer the title of the property to the government b. Without the necessity of an order from a competent court Enforced by: a. in case of personal property seizure and sale or destruction of the
i.
Officers authorized to compromise: a. Commissioner of Internal Revenue is the only official vested with such power and discretion; b. Subordinate officials may preliminarily enter into compromise. The effects are: acceptance of an offer of compromise: not final and may be reviewed by the Commissioner; rejection of an offer of compromise: final and binding unless revoked or set aside by the Commissioner.
i. ii. property i. ii.
b. in case of real property judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require Redemption by the taxpayer a. Same as that of redemption in case of sale b. The 1 year period starts from the date of registration of the declaration of forfeiture Compromise and
A. Compromise of civil cases: Grounds (civil cases) a. When a reasonable doubt as to the validity of the claim against the taxpayer exists; b. When the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
6. Abatement
Limitation as to amount of: a. In case of financial incapacity: 10% of the basic assessed tax b. Other cases: 40% of the basic assessed tax The approval of the Evaluation Board (composed of 28
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the CIR and the Deputy Commissioners) is required when: a. The basic tax involved exceeds Php1,000,000; or b. The settlement offered is less than the MCR Note: The MCR may be less than the prescribed rates of 10% or 40%, as the case may be, provided it is approved by the Evaluation Board
Limitation as to coverage: a. With respect to the liability of the taxpayer for surcharges as their imposition is mandatory b. In cases finally decided by the courts Bar 04 After the tax assessment had become final and unappelable, the Commissioner of internal revenue initiated the filing of a civil action to collect the tax due from NX. After several years, a decision was rendered by the court ordering NX to pay the tax due plus penalties and surcharges. The judgment became final and executory, but attempts to execute the judgment award were futile. Subsequently, NX offered the Commissioner a compromise settlement of 50% of the judgment award, representing that this amount is all he could really afford. Does the commissioner have the power to accept the compromise offer? Is it legal and ethical? Explain briefly. S. A. Yes, the Commissioner has the power to accept the compromise offered provided the case does not involve (1) Estate taxes or (2) the doubtful validity of the tax assessment. (RR No. 30-02, Sec. 3, Dec 16, 2002) The compromise offered also meets the minimum requirement of 10% of the assessment for cases involving financial incapacity. (Sec. 204 (A), RA 8424) B. Compromise in criminal violations:
preferential tax treatment under a special law. After investigation of its withholding tax returns for the taxable year 1997, the BIR issued a deficiency withholding tax assessment in the amount of P150, 000. On May 15, 1999, because of financial difficulty, the deficiency tax remained unpaid, as a result of which the assessment became final and executory. The BIR also found that, in violation of the provisions of the NIRC, Minolta did not file its final corporate income tax return fro the taxable year of 1998, because it allegedly incurred net loss from its operations. On May 17, 2002, the BIR filed with the RTC an action for collection of the deficiency withholding tax for 1997. May criminal violations of the Tax Code be compromised? If Minolta makes voluntary offer to compromise the criminal violations for non-filling and non-payment of taxes for the year 1998, may the commissioner accept the offer? Explain. S. A. Yes, the Commissioner may accept the offer to compromise the criminal violation for non-filing and nonpayment of taxes since the case has not been filed in court and no criminal tax fraud is involved. Only a criminal violation already filed in court or one involving criminal tax fraud cannot be compromised. (RR No. 30-02, Sec. 2 [Dec 16, 02])
Extent of discretion:
a. before the complaint is filed

with the prosecutors office: the Commissioner has full discretion to compromise except those involving fraud; after the complaint is filed with the prosecutors office but before the information is filed with the court: the Commissioner can still compromise provided the prosecutor consented; after the information is filed with the court: the Commissioner is no longer permitted to compromise with or without the consent of the prosecutor.
b.
c.
All, except: a. those already filed in court b. those involving fraud.
Bar 02 Minolta Philippines, Inc. (Minolta) is an EPZA-registered enterprise enjoying 29
Remedies when taxpayer refuses or fails to abide by a tax compromise:
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a. enforce the compromise i. judicial compromise can be enforced by mere execution ii. extrajudicial can only be enforced by court action b. regard it as rescinded and insists upon original demand (Art. 2041, NCC) Compromise Penalty a. An amount which the taxpayer pays to compromise a tax violation b. Paid in lieu of criminal prosecution c. A taxpayer cannot be compelled to pay a compromise penalty d. If he does not want to pay, the CIR must institute a criminal action. Bar 05 State and discuss briefly whether the following cases may be compromised or may not be compromised: a. Delinquent accounts; b. Cases under administrative protest, after issuance of the final assessment notice to the taxpayer, which are still pending; c. Criminal tax fraud cases; d. Criminal violations already filed in court; e. Cases where final reports of reinvestigation or reconsideration have been issued resulting in the reduction of the original assessment agreed to by the taxpayer when he signed the required agreement form. S. A. a) Delinquent account cases may be compromised based on the BIRs revenue regulation on the matter. b) Pending cases under administrative protest, may be compromised based on the BIRs revenue regulation on the matter. c) Criminal tax fraud cases, confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative may not be compromised based on the BIRs revenue regulation on the matter. d) Criminal violation already filed in court may not be compromised based on the BIRs revenue regulation on the matter. e) Cases where final reports of reinvestigation or reconsideration have been issued, resulting in the reduction of the original assessment agreed to by the taxpayer when he 30
signed the required agreement form, may not be compromised. (RR No. 30-02, Sec. 3, Dec 16, 2002)
C.
Abatement cancellation of the tax liability
Grounds: a. When the tax assessed or any portion thereof appears to be unjustly or excessively demanded, or b. When the administration and collection costs involved do not justify the collection of the amount due
GEN RULE: the power to

compromise and abate cannot be delegated by the CIR EXCEPT: a. assessments issued by regional offices involving basic taxes of Php500,000 or less; and b. minor criminal violations. 7. Penalties and fines Refer to: a. surcharges b. deficiency and delinquency interest c. compromise penalty A. Surcharges: Not really a penalty as used in criminal law but a civil administrative sanction designed primarily to: a. protect the State revenue, and b. reimburse the government for the expenses in investigating and the loss resulting from the taxpayers fraud. Penalty of 25% of the amount due for: a. Failure to file any return and pay the tax due thereon; b. Filing a return with the wrong agent of the BIR, unless otherwise authorized by the CIR
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c. failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; d. Failure to pay the full or part of the tax as shown on the return on or before the due date B. Interest: a. Deficiency interest 20% per annum from the date prescribed for its payment until the full payment thereof C.
b. Delinquency interest Interest of 20% or the Manila Reference rate, whichever is higher, required to be paid in case of failure to pay: c. the amount of the tax due on any return required to be filed; d. amount of the tax due for which return is required; e. the deficiency tax or any surcharge or interest thereon, on the date appearing in the notice and demand of the CIR. Compromise: Similarities of compromise and compromise penalty: a. They both imply mutual agreement. A compromise penalty cannot be imposed in the absence of a showing that the taxpayer consented thereto. b. The CIR has no power to impose and collect the compromise penalties in the absence of a compromise agreement validly entered into between the taxpayer and the CIR compromise from
Bar 05 Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his income tax return and the payment of the tax due. The accountant filed a falsified tax return by underdeclaring the sales and overstating the expense deductions by Danilo. Is Danilo liable for the deficiency tax and the penalties thereon? What is the liability, if any, of the accountant? Discuss. S. A. Yes, Danilo is liable for the deficiency tax. But he may be excused from paying the 50% penalty for the falsified tax return. He did not willfully order the filing of a falsified return. Fraud, with the intent to evade tax payment, cannot be presumed but must be clearly established. The accountant can be held liable, criminally and civilly, as follows: (1) For willfully attempting to evade or defeat the payment of the tax: a. A fine of not less than PHP30,000 but not more than PHP100,000; b. Imprisonment of not less than two years but not more than four years; and c. A civil suit to collect the tax. (2) For willfully attempting to evade or defeat any tax: a. A fine of not less than PHP50,000 but not more than PHP100,000; and b. Imprisonment of not less than two years but not more than six years. (3) When the offender is a Certified Public Accountant, his CPA certificate shall be automatically revoked or cancelled upon conviction.
Q. Distinguish compromise penalty.
S. A. Compromise is defined as an amount of money paid by the taxpayer to settle his civil liability for tax assessed, while compromise penalty is defined as an amount of money paid to compromise a tax violation that he has committed, which may be the subject of criminal prosecution. In compromise, the basis of amount paid is the basic tax assessed, while in compromise penalty the basis is the gross sales or receipts during the year of the tax due. In compromise, the minimum amount depends on the legal grounds used by the taxpayer, while in compromise penalty, it depends on the nature of the tax violation and
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the minimum amount is generally not less than PHP 1,000. B. Judicial Remedies
1.
Civil Actions actions instituted by the government to collect internal revenue taxes. It includes filing by the government with the probate court claims against the deceased taxpayer. Enforced by: a. filing a civil case for the collection of a sum of money with the proper regular court (i.e. MTC or RTC); or Resorted to only when tax becomes: i. delinq uent ii. collec tible Collectibility arises when: i. Selfassessed tax shown in the return was not paid within the date prescribe by law; ii. Final assessment is not protested administratively within 30 days from date of receipt; iii. Noncompliance with the condition laid in the approval of protest; iv. Failur e to file a timely appeal to the CTA on the final decision of the CIR or his authorized representative on the disputed assessment. Defenses precluded by final and executory assessments: i. Invali dity or illegality of the assessment; and ii. Presc ription of the governments right to assess.
b. filing an answer to the petition for review filed by the taxpayer with the CTA The fact that no civil action was filed before the ordinary courts to collect the tax liability is no ground for claiming that the right to collect had already prescribed. The answer filed by the government in the CTA is tantamount to the filing of a civil action for collection the regular court and has the effect of tolling the prescriptive period. (Hermanos, Inc. vs. CIR, 29 SCRA 552) Bar 02 In the investigation of the withholding tax returns of AZ Medina Security Agency (AZ Medina) for the taxable years 1997 and 1998, a discrepancy between the taxes withheld from its employees and the amounts actually remitted to the government was found. Accordingly, before the period of prescription commenced to run the BIR issued an assessment and a demand letter calling for the immediate payment of the deficiency withholding taxes in the total amount of P250, 000. Counsel for AZ Medina protested the assessment for being null and void on the ground that no pre-assessment notice had been issued. However, the protest was denied. Counsel then filed a petition with the CTA to restrain the collection of the tax. Will the special civil action for prohibition brought before the CTA under Sec. 11 of R.A. No. 1125 prosper? Discuss your answer. S. A. No, the action for prohibition before the CTA will not proper. No appeal to the CTA from the Commissioner of Internal Revenue shall suspend the taxpayers payment of his tax liability. CTA will not suspend collection because that will jeopardize the interest of the government with no injury to the taxpayer. (Sec. 11, RA 9282, March 30, 2004) Bar 02 On March 15, 2000, the BIR issued a deficiency income tax assessment for the taxable year 1997 against the Valera Group of Companies (Valera) in the amount of P10 Million. Counsel for Valera protested the assessment and requested a reinvestigation of the case. During the investigation, it was shown that Valera had been transferring its properties to other persons. As no additional evidence to dispute the assessment had 32
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been presented, the BIR issued on June 10, 2000 warrants of distraint and levy on the properties and ordered the filling of an action in the RTC for the collection of the tax. Counsel for Valera filed an injunctive suit in the RTC to compel the BIR to hold the collection of the tax in abeyance until the decision on the protest was rendered. a. Can the BIR file the civil action for collection, pending decision on the administrative protest? Explain. b. As counsel for Valera, what action would you take in order to protect the interest of your client? Explain your answer. S. A. a) Yes, the BIR can file the civil action for collection. The BIRs warrant of distraint and levy on the properties and the filing of an action in the RTC for collection of the tax is the denial of the taxpayers protest. (FEBTC v. CIR, CTA Case No. 4832, Feb 6, 1997) b) As Valeras counsel, I shall file with the CTA, within thirty (30) days from receipt of the copy of the BIRs complaint filed before the RTC, a petition for review with urgent petition for issuance of injunction to restrain tax collection pending appeal together with the filing of a surety bond for the total amount of assessment, inclusive of penalties incident to delinquency. (FEBTC v. CIR, CTA Case No. 4832, Feb 6, 1997) 2. Criminal Action 2 Common crimes punishable under the Tax Code: a. Attempt to evade or defeat a tax Any person who willfully attempts in any manner to evade or defeat any tax or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished. The conviction or acquittal shall not be a bar to the filing of a civil suit for the collection of taxes. Bar 02 Mr. Chan, a manufacturer of garments, was investigated for failure to file tax returns and to pay taxes for the taxable year 1997. Despite the subpoena duces tecum issued to him, he refused to present and submit his books of accounts and allied records. Investigators, therefore, raided his factory and seized several bundies of manufactured garments, supplies and unpaid 33
imported textile materials. After his apprehension and based on the testimony of a former employee, deficiency income and business taxes were assessed against Mr. Chan on April 15, 2000. It was then that he paid the taxes. Criminal action was nonetheless instituted against him in the RTC for violation of the Tax Code. Mr. Chan moved to dismiss the criminal case on the ground that he had already paid the taxes assessed against him. He also demanded the return of the garments and materials seized from his factory. How will you resolve Mr. Chans motion? S. A. I shall deny Mr. Chans motion to dismiss his criminal case. His failure to file his tax return is a criminal act in the Tax Code. Mr. Chan can be criminally prosecuted for such an offense, at the BIRs option, despite his complete payment of the taxes. Any tax payment resolves the civil but not the criminal aspect of the case. The criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. (CIR v. Pascor; Ungab v. CIR, GR Nos. L- 41919-24, [May 30, 1980]) b. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation Any person required under the Tax Code i. to pay any tax ii. make a return iii. keep any record iv. supply correct and accurate information v. withhold or remit taxes withheld vi. refund excess taxes withheld on compensation, who willfully violates these duties at the time or times required by law shall be punished upon conviction in addition to other penalties Prima facie evidence of a false or fraudulent return 1. substantial underdeclaration of taxable sales,
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receipts or income or a substantial overstatement of deduction, as determined by the Commissioner pursuant to the rules an regulations promulgated by the Secretary of Finance; 2. failure to report sales, receipts or income in an amount exceeding 30% of actual deductions constitutes substantial overstatement of deductions. Note: No civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner. The approval of the Commissioner required for the judicial enforcement of tax liability is not jurisdictional; lack of such approval merely affects the cause of action or capacity to sue. When the civil action arising out of a tax delinquency is extinguished by prescription, it is still possible for such tax to be collected by criminal action inasmuch as actions of this kind prescribe only after the lapse of 5 years counted from the discovery of the crime. An assessment is not necessary before a criminal charge can be filed provided there is a prima facie showing of a willful attempt to evade taxes.
for violation of any provision of the Tax Code prescribes after five (5) years and, in this case, the period commence to run on March 30, 1996 when the pre-assessment was issued. How will you resolved the motion? Explain your answer. S. A. I shall deny the motion to dismiss because the BIR action to collect has not prescribed. The prescriptive period is three (3) years from the deadline of income tax filing or on April 16, 1997. With the BIRs final notice and demand letter served on April 15, 1997, the tax assessment can no longer prescribe. (Mambulao Lumber v. Republic, GR No. L37061, Sept 5, 1984) III. REMEDIES OF TAXPAYER
1.
administrative before payment i. protest ii. entering into a compromise. b. after payment filing of claim for refund or tax credit within two years from date of payment regardless of any supervening cause.
a.
2. a. i.
ii. iii. b. i. ii.
Bar 02 TY Corporation filed its final adjusted income tax return for 1993 on April 12, 1994 showing a net loss from operations. After investigation, the BIR issued a preassessment notice on March 30, 1996. A final notice and demand letter dated 15 April 1997 was issued, personally delivered to and received by the companys chief accountant. For willful refusal and failure of TY Corporation to pay the tax, warrants of distraint and levy on its properties were issued and served upon it. On January 10, 2002, a criminal charge for violation of the Tax Code was instituted in the RTC with the approval of the Commissioner. The company moved to dismiss the criminal complaint on the ground that an act 34
judicial civil action appeal to CTA within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the Commissioner; action to contest forfeiture of chattel; and action for damages criminal action Filing of criminal complaint against erring BIR official and employees; and Injunction when the CTA in its opinion the collection by the BIR may jeopardize taxpayer.
A. Protest of Assessment 1. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment request for reinvestigation-a plea for reevaluation of an assessment on the
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basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. Involves a question of fact or law or both. request for reconsideration-a plea for reevaluation of the assessment on the basis of existing records without need of additional evidence. Involves a question of fact or law or both. (Revenue Regulation No. 1285) 2. Within 60 days from filing of protest, all relevant supporting documents should have been submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228 NIRC) Appeal of Protest to the CTA (Sec. 228 NIRC) 1. Grounds: a) if the protest is denied in whole or in part or b) is not acted upon within 180 days from submission of documents 2. Appellate Court: Court of Tax Appeals 3. Period to appeal: a) within 30 days from receipt of decision denying the protest or b) 30 days from the lapse of 180 day period
B.
3.
Show payment.
proof
of
Tax credit - a claim for issuance of a tax credit certificate, showing an amount owing from the government to the taxpayer which the latter is legally authorized to credit or offset against national internal taxes payable by him, except withholding taxes. Starting date for counting the 2-year period: GEN. RULE: from the date of payment, regardless of any supervening cause that may arise after payment: EXCEPTIONS: 1. Corporate Income tax Where a corporation paid quarterly income taxes in any of the first 3 quarters during the taxable year but incurs a net loss during the taxable year, the 2-year period for the filing of the claim for refund or credit shall be counted from the date of the filing of the annual corporate ITR. 2. Income tax paid in installments Where the tax paid had been paid in installment, the taxes are deemed paid, for purposes of determining the commencement of the 2year period for filing a written claim for the refund or credit therefore on the date the last installment was paid. Note: A return filed showing an overpayment shall be considered as a written claim for credit or refund.
Effect of failure to appeal: the decision shall be final, executory and demandable Tax Refund or Tax Credit Grounds: 1. tax is collected erroneously or illegally; 2. penalty is collected without authority; 3. sum collected is excessive Requisites:
C.
1.
writing;
claim
must
be
in
2.
it must be filed with the Commissioner within two years (2) after the payment of the tax or penalty; and
Bar 05 a) State the conditions required by the Tax Code before the Commissioner of Internal Revenue could authorize the refund or credit of taxes erroneously or illegally received.
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b) Does a withholding agent have the right to file an application for tax refund? Explain. S. A. a) The BIR Commissioner can authorize a tax refund or credit when: 1) The taxpayer files a written claim for credit or refund with the BIR or shows in the tax return an overpayment; 2) The claim is made within two (2) years after payment of the tax or penalty; 3) The taxpayer did not avail of any incentives under special laws where no actual payment was made. (Sec. 204 (C), RA 8424) b) Yes, the withholding agent has the right to file for tax refund. He is a party in interest, having sufficient legal interest to bring a suit for refund of taxes illegally collected from him. (CIR v. CTA Feb 11, 1992) Bar 05 Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain. S. A. Yes, a deficiency tax assessment is a bar to a tax refund or tax credit. The taxpayer cannot be entitled to refund and at the same time be liable for a deficiency assessment for the same year. A refund assumes that the tax return is true and correct. A deficiency assessment creates doubt to the truth and accuracy of the Return. Said return cannot be the basis of a refund. (CIR v. CA, Citytrust & CTA [July 21, 1994]) Bar 02 a) What must a taxpayer do in order to claim a refund of, or tax credit for, taxes and penalties which he alleges to have been erroneously, illegally or excessive or collected? b) Can the Commissioner grant a refund or tax credit even without a written claim for it? S. A. a) A taxpayer shall file a claim with the Commissioner of Internal Revenue for the refund or for tax credit for taxes and penalties erroneously or illegally assessed or collected within two (2) years from the time the final adjusted tax return is file. (CIR v. Philam, GR No. 105208, May 29, 1995) b) Yes, the Commissioner may refund or credit any tax, even without a written claim, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Anscor Hagedorn Securities v. CIR, CA-GR SP No. 48907, Oct 3, 2003)
IV.
PRESCRIPTION
Purpose:
Prescription periods are designed to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are also beneficial to the government because tax officers will be obliged to act promptly.
General Rules:
1. when the tax law itself is silent on prescription, tax is imprescriptible; 2. when no return is required, tax is imprescriptible; 3. defense of prescription is waivable; and 4. provisions on prescriptions, being remedial in nature should be liberally interpreted to carry out its intent. Prescriptive period ASSESSMENT of taxes: for the
GENERAL RULE: three years after the date the return is due or filed, whichever is later. EXCEPTIONS: 1. failure to file a return: ten (10) years from the date of the discovery of the omission to file the return; 2. false or fraudulent return with intent to evade the tax: ten (10) years from the date of the discovery of the falsity or fraud; 3. agreement in writing: to the extension (not reduction) of the period to assess between the Commissioner and the taxpayer before the expiration of the three year period. NB: the extended period agreed upon can further be extended by a subsequent written agreement made before the expiration of the extended period previously agreed upon.
4. waiver or renunciation of the original

three (3) year limitation, signed by the taxpayer. Bar 96 Distinguish a false return from a fraudulent return. S. A. False return merely implies a decision from the truth or fact whether intentional or not, while fraudulent return is intentional and deceitful with the aim of evading the correct tax due.
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Bar 02 What constitutes prima facie evidence of a false or fraudulent return to justify the imposition of a 50% surcharge on the deficiency tax due from a taxpayer? Explain. S. A. The tax return is prima facie false or fraudulent when there is: 1) Substantial underdeclaration of taxable Sales, Receipts or Income; or 2) Substantial overstatement of Deductions The indications of substantial underdeclaration of Sales, Receipts or Income or substantial overstatement of Deductions are: 1) Failure to report Sales, Receipts or Income in an amount exceeding thirty per cent (30%) of that declared per return; and 2) A Claim of Deductions in an amount exceeding thirty per cent (30%) of actual deductions. (Sec. 248 (B), RA 8424) Prescriptive period for the COLLECTION of taxes: Five (5) years - from assessment or within period for collection agreed upon in writing before expiration of the fiveyear period. Ten (10) years - without assessment in case of false or fraudulent return with intern to evade or failure to file return.
1.
the return is valid - it has complied substantially with the requirements of the law; and 2. the return is appropriate it is a return for the particular tax is required by law. Note: A defective tax return is the same as if no return was filed at all. Amended return 1. Allowed when: a. the amendment is made within 3 years from the date of filing the original return; and b. no notice of audit or investigation of such return has, in the meantime, been actually served upon the taxpayer. 2. Effect on prescription: a. The prescriptive period starts to run from the filing of the original return, if the same is sufficiently complete to enable the CIR to intelligently determine the proper amount of tax to be assessed. b. However, where the amended return is substantially different from the original, the right to assess is counted from the filing of the amended return. Prescriptive period for the filing of CRIMINAL ACTION: Five (5) years from the day of commission of the violation, and if known, from the discovery thereof and institution of judicial proceedings for investigation and punishment. the not the its
Grounds for suspension of the running of

prescriptive period for assessment and collection: 1. when the Commissioner is prohibited from making the assessment or beginning the distraint or levy or proceeding in court, and for sixty days thereafter; 2. when the taxpayer requests for a reconsideration which is granted by the Commissioner; 3. when the taxpayer cannot be located in the address given by him in the return, unless he informs the Commissioner of any change in his address; 4. when the warrant of distraint or levy is duly served, and no property is located; and 5. when the taxpayer is out of the Philippines.
Grounds for interruption of the period:

1. When proceedings are instituted against the guilty persons o Begin to run again if the proceedings are dismissed for reasons not constituting jeopardy 2. offender is absent from the Philippines
Retroactivity of BIR Rulings

General Rule: Prospective. Exceptions: 37
Requisites of a tax return for purposes of

starting the limitation: running of the period of
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1. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR; 2. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; and 3. Where the taxpayer acted in bad faith. oOo TARIFF & CUSTOMS CODE TARIFF custom duties, toll of tribute payable upon merchandise to the government. CUSTOM DUTIES which are assessed at the at the prescribed tariff rates which are likely imposed for both revenue raising and for regulatory purposes. It is the name given to taxes on the importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign country.[ Garcia vs. Executive Sec., G.R. no. 101273, July 3, 1992] N.B: Customs duties and tariffs are synonymous with one another. They both refer to the taxes imposed on imported or exported wares, articles, or merchandise. Purposes of tariffs:
thereto, but all other laws and regulations that are subject to the Bureau of Customs (BOC) or otherwise within its jurisdiction. As to the scope, Tariff and Custom laws extend not only to the provisions of the TCC but to all other laws as well the enforcement of which is entrusted to the BOC. BUREAU OF CUSTOMS (BOC) DUTIES, POWERS AND JURISDICTION OF THE BOC (PERAS)
1.
Prevention and suppression of smuggling 2. Enforcement of customs laws and regulation 3. Recommend needful rules and regulations to the Secretary of Finance 4. Assess and collect customs duties 5. Seizure and forfeiture ARTICLES SUBJECT TO CUSTOM DUTIES Articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, EXCEPT as otherwise specifically provided for in this Code or in other laws. [SEC. 100, TOC] MERCHANDISE- the Revised Administrative Code defines merchandise, when used with reference to importation or exportation, to include goods, wares and in, general anything that nay be the subject or exportation. Checks, money orders and dollar bills properly within the concept of merchandise as used in Revised Administrative Code, are merchandise. [Bastida vs. CIR] Kinds of Goods/Merchandise (FACC)
1.
Revenue tariffs those whose rates are relatively low so that goods may be readily imported and duties may be easily collected.
2.
Protective tariffs those whose rates are relatively high to keep certain imports out of the domestic market or to raise domestic price on certain imports so that they may be manufactured profitably at domestically;
3.
Bargaining tariffs those whose schedules include rates designed primarily for bargaining purposes or which contain some general provision for the imposition of higher duties upon products of countries whose tariff policies are considered unsatisfactory or unfair. Scope of Tariff and Custom Laws Include not only the provisions of the Tariff and Custom Code (TCC) and regulations pursuant 38
1. Freely importable / Articles subject to

duty (Dutiable Goods) 2. Absolutely Prohibited importation 3. Conditionally prohibited (Regulated articles) 4. Conditionally-free importation (Exempt importation) FREELY IMPORTABLE / DUTIABLE GOODS (Code: AFP VFA SMITH RAPE SOB MWAH)
1. Animals and animals product
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2. Animal or vegetable Fats; oil and their

cleavage products 3. Pulp or wood; 4. Vegetable products 5. Prepared Foodstuffs; beverarages, spirits and vinegar; 6. Arms and ammunitions 7. Substitute for tobacco and manufactured tobacco 8. Mineral products 9. Products of Chemical or allied Industries 10. Textile and textile products 11. Hides ( skin, fur, leather) 12. Plastic and Rubber articles 13. Artworks, antique 14. Pearls other precious stones 15. Electrical and mechanical machineries 16. Stone, plaster, cements and other related articles 17. Optical products, medical and surgical products 18. Base metals 19. Manufactured/miscellaneous articles 20. Wood and related articles 21. Aircraft, vessels, vehicles and all other mode of transportation 22. Footwear, Headgear, etc. [SEC. 104, Title 1, TCC] ABSOLUTELY PROHIBITED IMPORATTIONS [Code: GAPINGS]
1. 2.
equiptments
Animals and animal products Lottery and Sweeptakes Arms and ammunitions Regulated drugs Motorclycles and cars (used)
3. 4. 5.
CONDITIONALLY-FREE IMPORTATION (TEETH SHARP SCRAM STUPID)
1.
historical books
Technical,
vocational,
2.
1. 2. 3. 4. 5.
6. 7.
Gambling Devices Adulterated or misbranded drug in violation of the Food and Drugs Act.(SEC. 102,TCC) Pornographic and obscene materials Written or printed materials containing any matter advocating of Inciting Treason, sedition, rebellion materials. Heroine, marijuana and other dangerous drugs, Narcotics and pharmaceutical products EXCEPT when made by the government designed for medical purpose. Goods, articles in violation of copyright laws. All other articles Strictly prohibited by law
Equipment used in salvaging vessels 3. Experimental and scientific research of plants and animals 4. Trailer chassis by a shipping company 5. Household effects 6. Sea store supplies to the vessel or aircraft 7. Holders, containers and other receptacles for export 8. Aquatic products 9. Repacked or reconditioned articles 10. Public entertainment or public display articles 11. Salvaged vessels and aircrafts 12. Cost of repair of vessels and aircrafts (increase in value) 13. Returned articles without substantial increase in value 14. Awards, prices 15. Mining equipment (because mining industry is protected) 16. Sample items 17. Tourist and embassy personnels effect 18. Urns and coffins containing human remains 19. Parts, tools and other supplies for aircraft including the aircraft itself 20. Instruments and implements used by professionals in film production 21. Donated articles (ex. relief goods) Note: These articles which are exempt from import duties upon compliance with the formalities prescribed in or with regulations promulgated by the Commissioner of Customs Classification of Custom Duties
Note: All the above merchandise/goods cannot be brought in or out of the Philippines. CONDITIONALLY PROHIBITED REGULATED ARTICLES (ALARM) OR
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1. Ordinary or Regular Custom dutyimposed and collected merely as a source of revenue . a. Ad Valorem- the duty is based on the market value or price of the imported article. b. Specific- the duty is based on the weight or volume of the imported article. 2. Special Custom duties- imposed and collected in addition to ordinary customs duties usually to protect local industries against foreign competition. Basis of Dutiable Value The dutiable value of the imported article subject to an ad valorem of duty shall be transaction value. TRANSACTION VALUE- is the price actually paid or payable for the goods when sold for export to the Philippines. It is adjusted by adding certain expenses to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, the value of the materials, components, parts and items incorporated in the imported goods; amount of royalties and license fees; cost of transport; loading, unloading and handling charges; and the cost of the insurance.
2. 3. 4. 5. 6.
transaction value of identical goods transaction value of similar goods deductive value computed value other reasonable means or fallback value
Basis for dutiable weight for specific custom duties 1. gross weight 2. legal weight 3. net weight KINDS OF SPECIAL CUSTOM DUTIES Bar 95 - Under the Tariff and Customs Code, what are a. dumping duties b. countervailing duties c. marking duties d. discriminatory duties? Bar 97 - Explain briefly each of the special customs duties authorized under the Tariff and Customs Code.
1.
Dumping Duty imposed upon foreign products with value lower than their fair market value to the detriment of local products. Rate: difference between the actual price and the normal value of the article. Imposing authority: Special Committee on Anti-Dumping composed of the Sec. of Finance as chairman; members: Sec. of DTI, and either the Sec. of Agriculture if the article in question is agricultural product or the Sec. of Labor if nonagricultural product.
Bar 05 - State and explain the basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff and Customs Code. S. A. The dutiable value of an imported article for an ad valorem tax is its Transaction Value or the price actually paid or payable for the goods PLUS all other landing and incidental charges paid or incurred to bring the goods to a Philippine port of entry. In case the transaction value cannot be determined or used, then the other methods can be used in succession, to include: 1) Transaction Value of Identical Goods; 2) Transaction Value of Similar Goods; 3) Deductive Value; 4) Computed Value; 5) Fallback Value. Sequence in Determination of Value 1. transaction value 40
2.
Countervailing Duty imposed upon foreign goods enjoying subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated. Rate: equivalent to the bounty, subsidy or subvention Imposing authority: Sec. Of Finance
3.
Marking Duty- imposed upon those not properly marked as to place of origin of the goods. Rate: 5% ad valorem of articles Imposing authority: Commissioner of Custom
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4.
Discriminatory Duty- imposed upon goods coming from countries that discriminate against Philippine products. Rate: any amount not exceeding 100% ad valorem of the subject articles Imposing authority: president of the Philippines
Liability for Custom Duties GEN. RULE: All importations exportations of goods are subject to custom duties. (Sec. 105, TCC) EXCEPTIONS: 1. Exemption under the TCC 2. Exemptions granted government agencies or GOCCs with existing contracts, commitments, agreements, or obligations with foreign countries. 3. International organization pursuant to agreement and special law 4. Exemption granted by the President of the Philippines upon recommendation of NEDA. Liability of importers for duties The Code provides that all articles imported into the Philippines shall be held to be the property of the person to whom the same are consigned: and the holder of the bill of lading duly endorse by the consignee thereof therein named, or if consigned to order by the consignor, shall be deemed the consignee thereof. The under writers of abandoned articles and the salvors of articles saved from a wreck at sea, along a coast, or in any area of the Philippines, maybe regarded as the consignees [ Section 1203, Tariff and Custom Code] Unless otherwise relieved by laws or regulation, the liability for duties, taxes, fees, and other charges attaching on importation constitutes a personal debt due to the importer of the government which can be discharged only by payment of said duties and charge. It also constitutes a lien upon the articles imported which maybe enforced while such articles are in custody or subject to the control of the government. Government importations
DRAWBACK It is a device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign markets upon the same terms as if it not been taxed at all. It may be full or partial. OTHER CUSTOMS CHARGES PAYABLE FEES, DUES, OR
1. Harbor Fees- are imposed on vessels entering into or departing from a port of entry of the Philippines. 2. Wharfage duesare assessed against the cargo of a vessel engaged in foreign or coastwise trade, based on the quantity weight or measure received and/or discharged by such vessel. 3. Berthing duesare assessed against a vessel for mooring or berthing at a pier, wharf, or river at any port in the Philippines. 4. Storage duesare assessed on articles for storage in customs premises, cargo shed. 5. Arrastre duesare imposed on all imported and exported articles and baggage of passenger for their handling, receiving, and custody. 6. Tonnage duesare paid by the owner, agent, operator or master of a vessel engaged in foreign trade based on the net tonnage of the vessel or weight of the articles discharged or laden. 7. Other fees- charged and collected for services rendered and documents issued by the BOC. IMPORTATION UNDER TCC Who are authorized to make import entry? 1. The importer being holder of the bill of lading; 2. A customs broker acting under authority of the holder of the bill; or A person duly empowered to act as agent or attorneyin-fact. 41
All importations by the government for its own use or that of its own subordinates branches or instrumentalities or corporations, agencies or instrumentalities owned or controlled by the government shall be subject to the duties, taxes , fees and charges provided in the Tariff and Customs Code.[Section 1205, Tariff and Customs Code]
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Returning residents When importation terminated begins and deemed For the purpose of conditionally free importation of personal and household effects, they are nationals who have stayed in a foreign country for a period of at least six (6) months. BALIKBAYAN For the purpose of tax-free purchase at Philippine Duty-free shops, he must be: 1. Filipino citizen who has been continuously out of the Philippines for a period of at least one (1) year; or 2. Filipino overseas worker; or 3. former Filipino citizen and his family who had been naturalized in a foreign country and comes or returns to the Philippines
Bar 95 - When does importation begin and when does it end? S. A. Importation begins when carrying vessel or aircraft enters the jurisdiction of the Philippines with an intent to unload. Importation terminates upon payment of the duties and other charges due upon the articles, or secured to be paid, at the port of entry ant the legal permit for withdrawal shall have been granted. In the case of articles that are free of duties, taxes and other charges, importation is deemed terminated from the time they have-legally left the jurisdiction of the customs. Import Entry A declaration to the BOC showing the description, value, tariff classification and other particulars of the imported article to enable the customs authorities to determine the correct customs duties and internal revenue taxes due on the importation. Abandonment It is the renunciation by an importer of all his interest in the property rights in the imported article. It may be express or implied. Smuggling or Unlawful Importation Any person who shall fraudulently import or bring into the Philippines, or assist In doing so, any article, contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such article after importations, knowing the same to have been imported contrary to law, shall be guilty of smuggling. (sec. 3601 TCC) Fraudulent Practices (Criminal Offense) against Custom Revenues under Sec. 3602 1. Entry of imported articles by means of any false or fraudulent invoice. 2. Entry of goods at less than the true weight or measure. 3. Filling of any false or fraudulent entry for the payment of drawbacks or refund of duties.
The term family shall mean the spouse and children of the balikbayan who are not balikbayan in their own right traveling with the latter to the Philippines. FLEXIBLE TARIFF CLAUSE Authority of the President to adjust the tariff rates prescribed under the Tariff and Customs Code, which is the enabling law that made effective the delegation of the taxing power to the President under the Constitution. 1. The Congress may, by law, authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose: a. tariff rates, import and export quotas, tonnage and wharfage dues; and b. other duties or imports within the framework of the national development program of the government (Art. VI, Sec. 28(2), Constitution) Sec. 401, TCC: In the interest of national economy, general welfare and/or national security, the President upon recommendation of the NEDA, is empowered: 1. to increase, reduce, or remove existing protective rates of import duty, provided that the increase should not be higher than 100% ad valorem; 2. to establish import quota or to ban imports of any commodity; and 3. to impose additional duty on all imports not exceeding 10% ad valorem. 42
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Bar 01 - What do you understand by the term flexible tariff clause as used in the Tariff and Customs Code? S. A. This is a provision in the Tariff and Customs Code, which implements the constitutionally delegated power of the President of the Philippines, in the interest of national economy, general welfare and/or national security upon recommendation of the NEDA to increase, reduce or remove existing protective rates of import duty, PROVIDED THAT, the increase should not be higher than 100% ad valorem; to establish import quota or to ban imports of any commodity, to impose additional duty on all imports not exceeding 10% ad valorem. LIMITATIONS TO FLEXIBLE TARIFF CLAUSE 1. Conduct by the Tariff Commission of an investigation in a public hearing. The commission shall also hear the views and recommendations of any government office, agency or instrumentality concerned. The commission shall submit their findings and recommendations to the NEDA within 30 days after the termination of the public hearing. The NEDA thereafter submits the recommendation to the President. 2. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. In such case the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing foreign country for the most recent representative period shall be used as bases. (Sec. 401, TCC) THE TARIFF COMMISIONS (TC) POWERS OF THE TARIFF COMMISSION: (TARIFF)
4.
Industrial impact of tariff and customs code in coordination with NEDA 5. Furnish report on subjects under investigation and results thereof 6. Furnish report needed by NEDA, BOI, Sec. Of Finance, Central Bank TAX REMEDIES UNDER THE TARIFF AND CUSTOMS CODE (TCC) TAX REMEDIES OF THE GOVERNMENT A. ADMINISTRATIVE 1. 1204 TCC) Tax Lien (sec.
attaches on the goods, regardless of ownership, while still in the custody or control of the Government Availed of when the importation is neither prohibited nor improperly made.
2. Administrative Fines and Forfeitures applied when the importation is unlawful and it may be exercised even where the articles are not or no longer in customs custody .UNLESS the importation is merely attempted in which case it may be effected only while the goods are still within the Customs jurisdiction or in the hands of a person who is aware thereof. (sec. 2531 and 2530 TCC) Under Sec. 2530 (a), TCC in order to warrant forfeiture, it is not necessary that the vessel or aircraft must itself carry the contraband. The complementary if collateral use of there Cessna plane for smuggling operation is sufficient for it to be deemed to have been used in smuggling. [Llamado vs. Commissioner of Customs, G.R. no. L-28809, may 16, 1983] of
1.
TARIFF RELATIONS OF THE Philippines with other counties 2. Arrangements and classification of tariffs 3. Rates of duties (recommends only changes)
3. Reduction Custom Duties/ Compromise
Subject to approval of Sec. of Finance (sec. 709, 2316 TCC)
4.
Seizure, search, arrest (sec. 2205, 2210, 2211 TCC)
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B. JUDICIAL This remedy is normally availed of when the tax lien is lost by the release of the goods. Civil action (se. 1204 TCC) Criminal Action TAX REMEDIES OF THE TAXPAYER A. ADMINISTRATIVE 1. Protest Any importer or interested party if dissatisfied with published value within 15 days from date of publication or within 5 days from the date of importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment. Taxpayer within 15 days from assessment. (sec. 2308,2210 TCC)
Within 30 days from receipt of decision of the Commissioner or Secretary of Finance to the division of the CTA (sec. 2403 TCC, sec. 7 RA 1125, as amended by sec. 9 RA 9282) The CTA empowers to issue injunction, it would appear that an importer may appeal without first paying the duties, such as in seizure, but not in protest cases. Action to question Abandonment
2. the legality of seizure 3.
failure to file an import entry within 30 days from the discharge of goods or having filed an entry fails to claim within 15 days but it shall not be so effective until so declared by the collector. (sec. 1801 as amended by RA 7651)
Note: Payment under protest is necessary. 2. Refund A written claim for refund may be submitted by the importer in abatement cases on missing packages, deficiencies in the contents of packages or shortages before arrival of the goods in the Philippines, articles, lost or destroyed after such arrival, dead or injured animals, and for manifest clerical errors; and Drawback cases where the goods are re-exported (sec. 1701-1708 TCC)
REMEDIES IN THE BUREAU OF CUSTOMS (BOC) A. CUSTOM PROTEST CASES These are cases which deal solely with liability for custom duties, fees, and other charges. Note: Before filing a protest, there must first be a payment under protest. Requirements for making a Protest 1. must be in writing 2. must point out the particular decision or ruling of the Collector of Customs to which exception is taken or objection made 3. must state the grounds relied upon for relief 4. must be limited to the subject matter of a single adjustment 5. must be filed when the amount claimed is paid or within 15 days after the payment 6. protest must furnish samples of goods under protest when required. Bar 02 - Whenever the decision of the Collector of Customs is adverse to the government, it is automatically elevated to the commissioner fro review and, if it is affirmed by him, it is automatically elevated to the Secretary of Finance for review. What is the basis of the automatic review procedure in the Bureau of Customs? Explain your answer. S. A. procedure The Customs is intended automatic review to protect the
3. Settlement of any seizure by payment of fine or redemption But this shall not be allowed in any case where importation is absolutely prohibited or the release would contrary to law, or when there is an actual and intentional fraud (sec. 2307 TCC). Appeal Within 15 days to the Commissioner after notification by Collector of his decision (sec. 2313 TCC). B. JUDICIAL
4.
1.
Appeal
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Governments interest in collecting customs duties in seizure and protest cases. Without said automatic review, the Commissioner of Customs or the Secretary of Finance would not know about any seizure or protest cases. A Customs Collector would have absolute discretion to determine whether or not the goods seized are subject to payment of customs duties and taxes. (Yaokasin v. COC, GR No. 84111, Dec 22, 1989) B. SEIZURE AND FORFEITURE CASES These refer to the matters involving smuggling. It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of importation. Note: These are action in rem. Smuggling or Unlawful Importation Any person who shall fraudulently import or bring into the Philippines, or assist In doing so, any article, contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such article after importations, knowing the same to have been imported contrary to law, shall be guilty of smuggling (sec. 3601 TCC).
1. documents filed at the custom house 2. submission and acceptance of the documents 3. procedure of passing the goods through the custom house. [ Rodriguez vs. CA, G.R. no. 115218, September 18, 1995] Right of Custom Officers to Effect Seizure and Arrest 1. May seize any vessel, aircraft, cargo, article, animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under TCC, rules and regulation. 2. May exercise only in conformity with the laws and TCC.(sec. 2205 TCC) Articles subject to Seizures and Forfeitures (Code: FEU UE UP BIMBO)
1. 2.
Note: anything that was used for

smuggling is subject to confiscation. [Lladoc vs. Com of Custom, R.R. L-28809, May 16, 1983] EXCEPT Common carriers that are not privately chartered cannot be confiscated. Note: Mere possession of the article in question is liable UNLESS defendant could explain that his possession is lawful to the satisfaction of the court (sec. 3601,TCC) Note: Payment of the tax due after apprehension is not a valid defences. [Rodriguez vs. CA, G.R. no. 115218, September 18, 1995] Port of Entry A domestic port open to both foreign and coastwise trade including airport of entry (sec. 3514, TCC). All articles imported into the Philippines whether subject to duty or not shall be entered through a customhouse at a port of entry. Three meanings of term ENTRY 45
False declaration on articles Entry of vessel in a port other than the port of entry allowed 3. Unlading of cargo before arrival on port of entry 4. Unauthorized or fraudulent removal of cargo 6. Excessive sea stores 7. Unmanifested articles 8. Prohibited importation or exportation 9. Boxes, containers and receptacles used to conceal articles that are contrary to law 10. Illegally unladed cargo at port of destination 11. Misdeclared articles 12. Beast 13. Offered articles or money to bribe customs officers Article NOT subject to Forfeiture or Seizure The forfeiture of vessel or aircraft or seizure of articles shall not be effected if it is established that the owner thereof or his agent in charge of the means of conveyance used as aforesaid has no knowledge of a participation in the unlawful act. In other words, no forfeiture or seizure in the absence of prima facie evidence. HOWEVER, that a prima facie presumption shall exist against the vessel, vehicle or aircraft under any of the following circumstances: 1. if the conveyance has been used for smuggling at least twice before;
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2. if the owner is not in the business for which the conveyance is generally used; and 3. if the owner is financially not in a position to own such conveyance. DOCTRINE OF PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE CASES The prevailing doctrine is that the exclusive jurisdiction in seizure and forfeiture cases vested in the collector of customs precludes a regular court from assuming cognizance of such matter. It is the settled rule that the BOC acquires exclusive jurisdiction over imported goods, for the purpose of enforcement of the customs laws, form the moment the goods actually in its possession or control, even if no warrant of seizure or detention had previously been issued by the Collector of Custom in connection with seizure and forfeiture proceedings.
the authority of a nation within its territory is absolute and exclusive. The power to secure itself from injury may certainly be exercised beyond the limits of its territory. Q - The Collector of Customs issued a Warrant of Seizure and Detention of 25,000 baga of rice, bearing the name of SNOWMAN, Milled in Palawan shipped on board the M/V Alberto which was then docked at Pier 6 at Cebu City. The warrant was issued on the basis of a report that the rice had been illegally imported as it was landed in Palawan by a foreign vessel and then placed in sacks marked SNOWMAN, Milled in Palawan. It was then shipped to Cebu City on board the M/V Alberto. Forfeiture proceedings were then started in the Cebu City customs office. The consignee then filed a civil suit for injunction before the Cebu City RTC, which issued the injunction because there was alleged lack of probable cause for customs to effect the seizure. Was the issuance of the injunction proper? S. A. - No. There is no question that RTCs are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. RTCs are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus. (The Bureau of Customs, et al., v. Ogario, et al., G.R. No. 138081, prom. March 20, 2000) Places where searches and seizures may be conducted 1. Right of police officer to entered enclosure WITHOUT a warrant, EXCEPT a dwelling house 2. Search with dwelling house must be with proper warrant 3. right to search vehicles or aircrafts and person or articles conveyed therein 4. Right to search vehicles, beast and person 5. Search of person arriving from foreign countries. SETTLEMENT OF FORFEITURE CASES
Thus, the RTC do not have jurisdiction over seizure and forfeiture proceedings conducted by the BOC. Even if a Custom seizure is illegal, exclusive jurisdiction still belongs to the BOC. [Jao vs. CA, G.R. no. 104604,October 6, 1995] DOCTRINE OF HOT PURSUIT Requisites: 1. Over Vessels a. an act is done in Philippine water which constitutes a violation of the TCC b. a pursuit of such vessel began within the jurisdictional waters which may continue beyond the maritime zone and the vessel may be seized on the high seas. 2. Over Imported Articles a. there is a violation of TCC b. they may be pursued in the Philippines c. with the jurisdiction over them at any place therein for the enforcement of the law. (2nd par. Sec. 603,TCC). Jurisdiction of the BOC The BOC has the right of supervision and police authority over all seas within the jurisdiction of the Philippines and over all coasts, ports, harbours, bays, rivers and inland waters whether navigable from the sea or not. (sec. 603,TCC). Note: In Assali vs. Commissioner, 27SCRA312, the SC held as a valid the interception and seizure of a vessel on the high seas, saying that 46
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GEN. RULE: Settlement of cases by payment of fine or redemption of forfeited property is allowed. EXCEPTIONS: 1. the importation is absolutely prohibited or 2. the surrender of the property to the person offering to redeem would be contrary to law or 3. when there is fraud. (sec. 2307,TCC) Note: Acquittal in criminal charged is not a res judicata in seizure or forfeiture proceedings. Since criminal proceeding are actions in personam while the latter is action in rem. Note: Burden of proof in seizure or forfeiture case is on the claimant. (sec. 2535, TCC) MANIFEST Manifest in coastwise trade for cargo and passengers transported from one place to another are required when one or both of such places are a port of entry (sec.906,TCC). Manifest is not only required to imported goods. It is also required for articles found on vessels or aircraft engaged in coastwise trade. Whether the act of smuggling is established or not under the principle of res ipsa loquitur. It is enough that the cargo was unmanifested and that there was no showing that payment of duties thereon had been made for it to be subject to forfeiture. Thus, unmanifested cargo is subject to forfeiture. B. SURCHARGE To overcharge or to charge again as in an accounting between parties. Articles Subject to Surcharge [Code: DEMI]
1. 2.
vessels
Failure to exhibit documents Unlawful navigation of unregistered
3.
Bringing of unmanifested war equipment 4. Unlading of cargo before arrival at port of destination 5. False statement of destination 6. Unlawful navigation without license 7. Breaking of placed by customs officials 8. Unlawful departure 9. Vessels navigating without compliment officer/ failure to produce manifest crew 10. Injury to voys 11. Vessel departing before entry is made 12. Unlading at an improper place after arrival 14. Disappearance of manifested articles 15. Obstruction to boarding officials 16. Miscellaneous offenses oOo LOCAL TAXATION Local Taxation The power of a local government unit to create its own sources of revenue and levy taxes, fees, and charges subject with the basic policy of local autonomy
Fundamental Principles of Taxation 1. Taxes should be uniform and equitable 2. Taxes should be based on the taxpayers ability to pay 3. Taxes should be levied and collected only for public purpose 4. Taxes should not be unjust, excessive, oppressive or confiscatory 5. Taxes should not be contrary to law, public policy or national economic policy 6. Taxes should be progressive, not regressive Local Taxing Authority The power to tax is exercised by the LGU concerned through an appropriate ordinance. LGU may grant tax exemptions, incentives or reliefs as it may be necessary.
1. Failure to pay Duties (sec. 2501,TCC) 2. Failure or refusal of a party to submit

evidence (sec. 2504,TCC) 3. Misclassification, misdeclaration or under evaluation of article 4. Failure to submit or supply invoice (sec.2502,TCC) C. FINES Subject to Fines (Code: FUBU FUBU VIVU DOM) 47
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Residual Power in Local Taxation LGU may levy taxes, fees, or charges on any subject not specifically enumerated in the LGC, taxed under the provisions of the NIRC or other applicable laws.
Limitations to the Residual Power in Local Taxation 1. Constitutional limitations 2. Limitations prescribed in Sec. 133 LGC 3. Ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for that purpose 4. Principle of Preemption Principle of Preemption or Exclusionary Doctrine When the national government elects to tax a particular area, it impliedly withholds from the local government the delegated power to tax the same field.
10. Estate tax, inheritance, gifts, legacies and other acquisitions mortis causa 11. Taxes, fees or charges of goods carried into or out of the territorial jurisdictions of the LGU 12. Percentage or Vat on sales, barters or exchanges or similar transaction of goods 13. Income tax except on banks and other financial institutions 14. Taxes on business enterprises certified by the Board of Investments as pioneer or non-pioneer for a period of 6 and 4 years respectively from the date of registration 15. Excise taxes on articles enumerated under the NIRC Taxes Imposed by Provinces 1. Tax on transfer of real property like sale, donation, barter or any mode of transferring ownership. But tax rate should not be more than 50% of the 1% of the total consideration or the fair market value, whichever is higher 2. Tax on the business of printing or publication not exceeding 50% of the 1% of the gross annual receipts for the preceding calendar year. Except newly started business, the rate of which shall not exceed 1/20 of the 1% of the capital investment Q: A fixed annual license fee on those engaged in the business of general enterprise was also imposed on the sale of bibles by a religious sect. Is this valid? S. A. No, because it violates the constitutionally guaranteed freedom of the press, and of religion.. As a license fee is fixed in amount and unrelated to the receipts of the taxpayer, such a license fee, when applied to a religious sect is actually imposed as a condition for the free exercise of religion. A license fee restrains in advance those constitutional liberties of press and religion and inevitably tends to suppress their exercise. Q: The EVAT Law imposes a VAT registration fee of P1,000.00 on non-VAT enterprises which includes among others, religious sects which sells and distributes religious literature. Is this violative of religious freedom ? S. A. No. The P1,000.00 VAT registration fee, although a fixed amount is not imposed for the
Excluded Imposition 1. Taxes levied under NIRC, unless provided by LGC 2. Taxes under the Tariff and Customs Code 3. Taxes which contravenes existing governmental policies or which violates the fundamental principles of taxation 4. Taxes under special laws Limitations on the Local Taxing Power 1. Taxes, fees or charges for the registration of motor vehicles and for the issuance of licenses or driving permits 2. Taxes, fees or charges on the national government or its agencies 3. Taxes, fees or charges on countryside and barangay business enterprises 4. Taxes, fees or charges on Philippine products exported 5. Taxes on premiums 6. Taxes on the gross receipts of transportation contractors or persons engaged in the transportation of passengers by air, land or water 7. Customs duties, registration of vessel, tonnage dues 8. Taxes, fees or charges on agricultural and aquatic products 9. Documentary stamp tax 48
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exercise of a privilege but only for the purpose of defraying part of the cost of registration. The registration requirement is a central feature of the VAT system. It is designed to provide a record of tax credits because any person who is subject to the payment of the VAT pays an input tax, even as he collects an output tax on sales made or services rendered. The registration fee is thus more of an administrative fee, one not imposed on the exercise of a privilege, much less a constitutional right. (Tolentino v. Secretary of Finance, et al., and companion cases, 235 SCRA 630) 3. Franchise tax not exceeding 50% of the 1% of the gross annual receipts for the preceding year, within its territorial jurisdiction. Newly started business shall not exceed 1/20 of the 1% of the capital investment. Q: Meralco was granted a franchise to operate an electric light and power service in Calamba, Laguna sometime in 1983 under P.D. No. 551. Under the franchise Meralco pays 2% franchise tax on of its gross receipts and any law to the contrary notwithstanding be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority or earnings, receipts, income and privilege of generation, distribution and sale of electric current. Pursuant to the Local Government Code, the province of Laguna enacted an ordinance imposing a franchise of 50% of 1% of the gross annual receipts of business enjoying a franchise realized during the preceding calendar year within the province including cities located therein. Rule on the validity of the tax ordinance. S. A. The tax ordinance is valid. Under the now prevailing Constitution, where there is neither a grant nor prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and selfsufficiency of local government units by directly granting them general and broad tax powers. The Local Government Code explicitly authorizes provinces and cities, notwithstanding any exemption granted by any law or other special law to impose a tax on businesses enjoying a franchise. Indicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has withdrawn tax exemptions or incentives theretofore enjoyed by certain entities. 49
In addition, the Local Government Code contains a general repealing clause. The phrase in lieu of all taxes has to give way to the peremptory language of the Local Government Code which specifically provides for the withdrawal of all exemptions. The Court has viewed its previous rulings as laying stress on the legislative intent of the amendatory law whether the tax exemption privilege is to be withdrawn or not rather than on whether the law can or cannot withdraw the tax exemption, without violating the constitution. (Manila Electric Company v. Province of Laguna, et al., G.R. No. 131359, May 5, 1999) The Local Government Code provisions on withdrawal of tax exemptions prescribes the general rule, viz. the tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons are withdrawn with the effectivity of the Local Government Code except with respect to those expressly enumerated. (City Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999) 4. Tax on sand gravel and other quarry resources extracted from public land not more than 10% of the fair market value in the locality Q: On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, to take effect on July 1, 1992, which levies a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, gravel, sand, earth and other quarry resources extracted from areas of public land within its territorial jurisdiction. It now collects the said tax upon quarry resources extracted from private lands by Republic Cement. It claims authority to do so under the provisions of the Local Government Code as well as under the Regalian theory of State ownership over all natural resources. Is the collection correct ? S. A. No, because the authority under the Local Government Code to collect taxes on quarry resources applies only to those extracted from public lands. (Sec. 134 in relation to Sec. 138, Local Government Code) Furthermore, the Local Government Code prohibits local government units from collecting excise taxes on articles enumerated under the NIRC, and taxes, fees or charges on petroleum products. (Sec. 133 [h], Local Government Code in relation to the Tax Code) The tax imposed is an excise tax upon the performance, carrying on, or the exercise of an activity. While the Tax
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Code levies a tax on all quarry resources, regardless of origin, whether extracted from public or private lands, the Local Government Code authorizes the local government unit to impose such taxes on those taken from public lands. Thus, those extracted from private lands are taxable under the NIRC and not by local government units. The Regalian doctrine may not be applied because taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed stricitssimi juris against the government. (The Province of Bulacan, et al., v. The Court of Appeals, etc., et al., 299 SCRA 442) 5. Professional tax reasonable rate determined by the LGU but shall not exceed P 300.00 6. Amusement tax not more 30% of the gross receipts from admission fees Q: Philippine Basketball Association contested the deficiency amusement tax assessed against it by the BIR for conducting the professional basketball games and for the cession of advertising and streamer spaces to Vintage Enterprises, Inc. a) Should the amusement taxes be paid to the local government instead of the BIR ? b) Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc. subject to the payment of amusement taxes ? S. A. a) No. Professional basketball games should pay the amusement taxes collected by the BIR and not the amusement taxes collected by the local governments. The amusement tax which provinces and cities are allowed to collect under Sec. 140 of the Local Government Code, refers to an amusement tax to be collected from proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement. The authority to tax professional basketball games is not included therein because it is a national tax provided for under Sec. 125 of the 1997 Tax Code which provides that, There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, JaiAlai and racetracks, a tax equivalent to: xxxx (d) Fifteen percent (15%) in the case of professional basketball games envisioned in Presidential Decree No. 971: Provided, 50
however, That the tax herein shall be in lieu of all other percentage taxes of whatever nature and description; xxx b) Yes. The second to the last paragraph of Sec. 125 of the 1997 Tax Code provides that, the term gross receipts embraces all the receipts of the proprietor, lessee or operator of the amusement place.. This term is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of the amusement place. It is thus, a national tax not a local tax. The recognition by the BIR of such income from cession as a local tax is of no moment because the Government is never estopped by the mistake or error on the part of its agents, specially on the matter of taxes. (Philippine Basketball Association v. Court of Appeals, et al., G.R. No. 119122, prom. August 8, 2000) 7. Annual fixed tax for every delivery truck or Manufacturers, Wholesalers, Retailers of certain products. Taxes Imposed by Municipalities 1. Manufacturers, repackers and compounders of liquor, distilled spirits and wines 2. Wholesalers, distributors or dealers of any article of whatever kind 3. Exporters, manufacturers, wholesalers, retailers of essential commodities 4. Contractors and Independent Contractors 5. Banks or other financial institutions 6. Peddlers engaged in the sale of any merchandise or article of commerce 7. Business which the LGU may deem proper tax. Businesses subject to VAT and excise tax, rate shall not exceed 2% of the gross sales of the preceding calendar year Taxes Imposed by Cities Cities may levy taxes and other charges which the province or municipalities may impose. It may exceed the maximum rates allowed but not more than 50% except rates of professional and amusement taxes.
Taxes Imposed by Barangays 1. Taxes on stores or retailers with the fixed business establishments with the gross sales for the preceding calendar year of P 50,000 or less (barangays in the cities) or P 30,000 or less (barangays in the municipalities)
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2. Services or charges 3. Barangay clearance Situs of Local Taxation 1. Businesses maintaining or operating a branch or sales oulet shall record the sale in the branch or outlet making the sale or transaction 2. No branch or sales outlet in the city or municipality where the sale is made sale shall be recorded in the sales office 3. Sales recorded in the principal office - 30% shall be taxed by the city or municipality where the principal office is located - 70% shall be taxed by the city or municipality where the factory, project office or plant is located 4. Plantation located at a place other than the place where the factory is located, the 70% shall be divided as follows: - 60% to the city or municipality where the factory is located - 40% to the city or municipality where the plantation is located 5. 2 or more factories, plants or project offices located in different localities the 70% shall be prorated among the localities where the factories, plants or project offices are located in proportion to their respective volumes of production
1. Diplomatic and consular representatives 2. Transient visitors when their stay does not exceed 3 months Place of payment residence of the individual or where the principal office of the juridical entity is located Time of payment on the 1st day of January of each year but not later than 1st day of February of each year Penalties for delinquencies 24% interest per annum from the due date until it shall be added on the amount due. Presentation of Community Tax Certificate on Certain Occasions 1. Individual a. When an individual subject to the community tax acknowledges any document before a notary public, b. takes the oath of office upon election or appointment to any position in the government service; c. receives any license, certificate or permit from any public authority; pays any tax or fee; d. receives any money from any public fund; e. transacts other official business; or f. receives any salary or wage from any person or corporation. The community tax certificate shall not be required in the registration of a voter.
Community Tax Cities or municipalities may levy a community tax in accordance with the provisions of Art. 6 chapter 2, title 1, Book 2 of LGC (sec. 156 LGC)
2. Corporation a. receives any license, certificate, or permit from any public authority, b. pays any tax or fee, c. receives money from public funds, or d. transacts other official business. The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their respective jurisdictions. The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. Proceeds of the community tax collected through 51
Individuals Liable for Community Tax 1. Inhabitants of the Philippines 2. 18 years old and above 3. Regularly employed on a wage or salary basis 4. One engaged in business or occupation 5. One who owns real property with an assessed value of P 1,000 or more 6. One who is required by law to file an income tax return RATE: P 5.00 and an annual tax of P 1.oo foe every P 1, 000 of income regardless of whether from business, exercise of profession or from property which shall not exceed P 1,000 Exemption from Community Tax
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the barangay treasurers shall be apportioned as follows: (Sec. 164) 1. 50% accrues to the general fund of the city or municipality concerned; and 2. 50% accrues to the barangay where the tax is collected. TAX REMEDIES UNDER THE LOCAL GOVERNMENT CODE A. Tax Local Government Units Remedies of
The treasurer of the concerned Local Government Unit shall file the collection case. The CTA has co jurisdiction over the tax collection cases of the LGU
Prescriptive Periods under the LGC:
1.
1. Impose penalties (surcharges and penalty interest) in case of delinquency; 2. Avail local governments liens; 3. Administrative action through distraint of goods, chattels and other personal property; and 4. By judicial action. Civil remedies for collection 1. tax lien; 2. distraint; 3. levy; 4. civil action; 5. purchase of property by LGUs for want of bidder; property distrained not disposed within 120 days from date of distraint considered sold to the LGU. Note: Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the local government unit concerned. Tax lien- Local taxes constitute a lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative of judicial action, not only upon any property or rights therein which may be the subject of the lien but also upon property used in business, occupation, practice of profession or calling, or exercise of privilege with respect to which the lien is imposed Judicial action
Assessment of Local Taxes General rule five years (5) from the date they became due. Exception: When there is fraud or intent to evade the payment of taxes, fees, or charges ten (10) years from discovery of the fraud or intent to evade the payment. Collection of Local taxes: Five (5) years from the date of assessment by administrative or judicial action.
2.
Interruption of the period of prescription: a. The treasurer is legally prevented from making the assessment or collection of the tax; b. The taxpayer requests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect; and c. The taxpayer is out of the country or otherwise cannot be located. B. Remedies Taxpayer under the LGC 1. ADMINISTRATIVE a) Prior to assessment: i) Administrative appeal to the Secretary of Justice; and ii) Action for declaratory relief b) After an assessment: i) Protest of the assessment within 60 days from receipt of assessment. Payment under protest is not necessary.; or ii) Action for refund within 2 years from payment of tax to local revenue taxes the 52 of the
civil action only; it precludes a criminal

case as a proper remedy for collection of delinquent local taxes.
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supervening cause applies in local taxation because the period for the filling of claims for refund is counted not necessarily from the date of payment but from the date the taxpayer is entitled to a refund or credit. iii) Right of redemption- 1 year from the date of sale or forfeiture. (SEC. 179, LGC) 2. JUDICIAL a) appeal within 60 days from assessment of provincial, city or municipal assessor to Local Board of Assessment Appeals; within 30 days from receipt of decision of LBAA to Central Board of Assessment Appeals; in case of denial of refund or credit, appeal to the Board of Assessment Appeals as in a protest case b) court action appeal of CBAAs decision to the Supreme Court by certiorari; c) suit assailing validity of tax, recovery or refund of taxes paid; d) suit to declare invalidity of tax due to irregularity in assessment and collection; e) suit assailing the validity of tax sale Appeal to the Secretary of Justice: Any question on the constitutionality or legality of tax ordinances may be raised on appeal within 30 days from the effectivity thereof To the Secretary of Justice Who shall render a decision within 60 days from date of receipt of appeal Such appeal shall not suspend the effectivity of the ordinance, as well as the accrual and payment of the tax In case of adverse decision or inaction by the Secretary of Justice, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. Protest within 60 days from receipt of assessment. Payment under protest not necessary.
Payment and subsequent refund or tax credit within two (2) years from payment of tax to local treasurer. Right of redemption one (1) year from the date of sale or from the date of forfeiture. Action for declaratory relief injunction if irreparable damage would be caused to the taxpayer and no adequate remedy is available. REAL PROPERTY TAXATION Characteristic of Real Property Tax 1. Direct tax on the ownership of real property 2. Ad Valorem tax. The value is based on the tax base 3. Proporti on - the tax is calculated on the basis of a certain percentage of the value assessed 4. Indivisib le single obligation 5. Local Tax Properties Liable Under Real Property Tax According to the Local Government Code, Real Property liable for Real Prop tax is: 1. Land, 2. Buildings 3. Machinery and 4. Other improvements not otherwise exempted under said code (Sec 232, LGC) Note: Although the term real property has not been expressly defined in the LGC, early decisions of the Supreme Court in Mindanao Bus Co. v City Assessor of Cagayan de Oro, 6 SCRA `97; Board of Assessment Appeals v Meralco, 119 PHIL 328; Manila Electric Co. v Board of Assessment Appeals, 10 SCRA 68 seem to suggest that Art 415 of the Civil Code could also be controlling. Classification of Lands for purposes of assessment [Sec 218 (a)] 1. Commercial 2. Agricultural 3. Residential 4. Mineral 5. Industrial 6. Timberland 7. Special Special Classes of Real Property (sec 216, LGC) 53
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1. Hospitals 2. Cultural and scientific purposes 3. owned and used by local water districts 4. GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. Properties Exempt from Taxes (Sec. 234) 1. Owned by the Republic of the Philippines or its political subdivisions Except: when beneficial use has been granted to a taxable person 2. Charitable institutions, churches, parsonages, and convents thereto, mosques, non-profit or religious cemeteries, buildings and improvements actually directly and exclusively used for religious, charitable or educational purposes. 3. Machinery and Equipment actually, directly, and exclusively used by local Water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power 4. Real property owned by duly registered Cooperatives under RA 6938 5. Machinery & equipment for pollution control and Environment protection Exemptions previously granted, (not falling within the above enumeration) are withdrawn. Fundamental Principles in Assessment Real Property Taxes (Art 198) 1. Current and fair market value is the basis of appraisal 2. Uniformity in classification in each local govt unit should be observed 3. Actual use of the property should be the basis of classification 4. appraisal, assessment, levy and collection should not be let to any private person. 5. equitable appraisal and assessment PROCEDURE: STEP 1 PROPERTY DECLARATION OF REAL
assessor within 60 DAYS from date of transfer a SWORN statement containing FMV and description of property If improvement on real property file w/in 60 DAYS upon completion or occupation (whichever is earlier) SWORN statement containing FMV and description of property
2. Declared by Provincial / City / Municipal

Assessor (Sec 204) only when the person under Sec 202 refuses or fails to make the declaration within the prescribed time No oath is required IF FILING FOR EXEMPTION (Sec 206) person claiming exemptions must file with assessor sufficient documentary evidence to support claim within 30 days from the date of DECLARATION of property If required evidence is not submitted within 30 days, the property will be listed as taxable in the roll. If proven to be tax-exempt, property will be dropped from the roll Note: IF PROPERTY DECLARED FOR THE FIRST TIME (Sec. 222) If declared for 1st time, real property shall be assessed for back taxes for not more than 10 yrs prior to the date of initial assessment taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods
STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENTROLLS (Sec 205, 207) All declaration shall be kept and filed under a uniform classification system to be established by the provincial, city or municipal assessor.
STEP 3: APPRAISAL AND VALUATION OF REAL PROPERY (Sec 212-214, 224-225) Determining Fair Market Value A. Land 1. Assessor of the province, city, and municipalities gives summons to owners of affected properties 54
1. Declared by Owner or Administrator (Sec

202-203) If newly acquired property files with
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2. Assessor prepares a schedule of FMV for different classes of properties 3. Sanggunian enacts an ordinance 4. the schedule of FMV is published or posted B. Machinery 1. For Brand New machinery: FMV is acquisition cost 2. In all other cases: FMV = Remaining eco. Life X Replacement Estimated Eco. Life Cost
Period: a.within five (5) yrs from the date they become due b.within ten (10) yrs. from discovery of fraud, in case there is fraud or intent to evade Prescription shall be suspended when: (Sec 270, LGC) a.local treasurer is legally prevented to collect tax b.the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect c. the owner of the prop is out of the country or cannot be located REMEDIES IN REAL PROPERTY TAXATION A. Remedies of Taxpayer 1. PAYMENT UNDER PROTEST (Sec 252) file protest with prov, city, or mun. treasurer concerned indicate amount contested annotate on tax receipt paid under protest Within 30 days, confirm protest in writing stating grounds therefor treasurer shall decide protest within 60 days Note: No protest shall be entertained unless THE TAX IS FIRST PAID. IF PROTEST DECIDED IN FAVOR of taxpayer, amount may either be a. refunded or b. applied as tax credit IF DENIED or NOT DECIDED WITHIN 60 DAYS BY TREASURER, a. taxpayer may appeal to board of assessment appeal or b. avail of remedies under Ch 3 title 2 Book II (Local Board of Assessment Appeals and Central Board of Assessment Appeals) 2. REFUND IN CASE OF EXCESSIVE COLLECTION (Sec 253) File a written claim for refund within two (2) years from date taxpayer is entitled thereto Remedies of Government Remedies may be enforced either through administrative or judicial action or both, alternative or simultaneously. Use or non55
STEP 4: DETERMINE ASSESSED VALUE (Sec 218) Procedure 1. take the schedule of FMV 2. Assessed value = FMV X Assessment level 3. Tax = Assessed value X Tax rate STEP 5: PAYMENT AND COLLECTION OF TAX Period: January 1 of every year (Sec 246) tax shall constitute as superior lien (Sec 246) HOW? a. basic real prop tax in 4 equal installments (Mar 31, June 30,Sept. 30, Dec. 31) b. special levy - governed by ordinance Note: INTEREST for LATE PAYMENT two percent (2%) each month on unpaid amt. until the delinquent amt is paid. provided in no case shall the total interest exceed thirty-six (36) months
Note: FOR ADVANCE and PROMPT PAYMENT a) advance payment -discount not exceeding 20% of annual tax (Sec 251, LGC) b) prompt payment -discount not exceeding 10% of annual tax due (Art 342 IRR) Who Collects? The provincial, city, municipal or barangay treasurer within which to collect. (Sec 270).
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use of one remedy shall not be a bar against the other (Sec 258) 1. ADMINISTRATIVE a) Levy on Real property (Sec 258 and 259) b) Sale of Real Property (Sec 260) c) Local Governments Lien (Sec 256) d) Further Distraint or Levy (Sec 265)
Within 30 days COURT OF TAX APPEALS Within 15 days SUPREME COURT oOo COURT OF TAX APPEALS COMPOSITION Presiding Justice and 5 Associate Justices May sit en banc or in two divisions, each division consisting of 3 justices. He presiding justice and the most senior associate justice shall serve as chairmen of the two divisions. POWERS of the Court of Tax Appeal
2. JUDICIAL (Sec 266)-civil action filed by the local treasurer within 5 yrs. from due date Condonation and Remission The PRESIDENT may remit or reduce real prop tax in any province, city, municipalities if he deems that PUBLIC INTEREST so requires (Sec 277) THE SANGGUNIAN concerned may CONDONE or REDUCE the tax in cases where a. there is a general failure of crops b. substan tial decrease in the price of products c. calamit y (Sec 276) by an ordinance - passed before Jan 1 of any year and upon recommendation of the Local Disaster Coordinating Council APPEALS IN REAL PROPERTY TAXATION OWNER OR INTEREST PERSON WITH LEGAL
1. 2. 3. 4.
Files within 60 days 1. Written Petition under Oath 2. With Supporting Documents Within 60 days LOCAL BOARD OF ASSESSMENT APPEALS (LBAA should decide win 120 DAYS from receipt of petition) Within 30 days CENTRAL APPEALS BOARD OF ASSESSMENT
to administer oaths; to receive evidence; to summon witness by subpoena; to inquire production of papers or documents by subpoena duces tecum; 5. to punish contempt; 6. to promulgate rules and regulations for the conduct of its business; 7. to assess damage against appellant if appeal to CTA is found to be frivolous or dilatory; 8. to suspend the collection of tax pending appeal; and 9. to render decisions on case brought before it. 10. to issue order authorizing distrait of personal property and levy of real personal property. DISTRAINT OF PERSONAL PROPERTY AND LEVY OF REAL PROPERTY Upon the issuance of any ruling, order or decision by the CTA favorable to the national government, the CTA shall issue an order authorizing the BIR, through the commissioner: 1. to seize and distrait any goods, chattels, or effects and personal property, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property and/or
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2. levy the real property of such persons in sufficient quantity to satisfy the tax or charge together with any increment thereto incident to delinquency. The remedy shall no be exclusive and shall not preclude the court from availing of other means under the Rules of Court. JURISDICTION OF THE CTA A. EXCLUSIVE APPELATE JURISDICTION TO REVIEW BY APPEAL 1. decision or inaction of the CIR in2. a) disputed assessment; refunds of internal revenue taxes, fees and other charges; penalties imposed in relation thereto; and b) other matters arising under the NIRC; or other law or part of law administered by BIR. 3. Decisions, order or resolution of the RTCs in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction. 4. Decisions of Commissioner of Customs in a. cases involving liability from customs duties, fees and other money charges; seizures, detention or release of property affected; fines, forfeitures and other penalties imposed in relation thereto; and b. other matters arising under the Customs Law or other laws or part of laws administered by the BOC. 5. decisions of the CBAA in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the LBAA;
B. JURISDICTION CRIMINAL CASES
OVER
1.
Exclusive original jurisdiction over all criminal offenses arising from violations of the NIRC or tariff and Customs Code and other laws administered by the BIR and BOC.HOWEVER, offenses a) where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than 1 million pesos, or b) where there is no specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. The criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filing of such civil action separately from the criminal action shall be recognized.
2.
appellate offenses:
Exclusive jurisdiction in criminal
a)
over appeals from the judgments, resolutions or orders of the RTC in tax cases originally decided by them;
b)
6.
decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the government; 7. decisions of the Secretary of Trade and Industry, in the case of non-agricultural products, and the Secretary of Agriculture in the case of agricultural products, involving dumping ad countervailing duties
over petitions for review of the judgments, resolutions or orders of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the MTC. C. JURISDICTION OVER TAX COLLECTION CASES 1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties. Collection where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than 1 million pesos 57
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shall be tried by the proper MTC and RTC; 2. Exclusive appellate jurisdiction in tax collection cases -a) over appeals from the judgments, resolutions or orders of the RTC in tax collection cases originally decided by them; b) over petitions for review of the judgments, resolutions or orders of the RTC in the exercise of their appellate jurisdiction over tax collection cases originally decided by the MTC. APPEAL WHO MAY APPEAL? Any party adversely affected by a decision, ruling or inaction of the CIR, Commissioner of Customs, Sec. of Finance, Sec. of Trade and Industry or Sec. of Agriculture or the RTC, may file an appeal with the CTA: 1. within 30 days after receipt of such decisions or 2. After the expiration of the period fixed by law for action referred to in Section 7(a) R.A. 9282, in which case the inaction shall be deemed a denial. MODES OF APPEAL
jurisdiction this appeal shall be heard by a CTA EN BANC. A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA En Banc. 3. Petition for Review on Certiorari may be filled by a party adverse affected by a decision or ruling of the CTA En Banc, through a verified petition before the Supreme Court, pursuant to Rule 45 of the Rules on Civil Procedure. GEN. RULE: New issues cannot be raised for the first time on appeal. EXCEPTIONS: 1. defense of prescription REASON: this is a statutory right (Visayan Land Transport vs. Collector) 2. errors of administrative officials REASON: State can never be in estoppel and Lifeblood Theory (CIR vs. Procter and Gamble Philippines, Manufacturing Corp.) NOTE: However, this was reversed by the SC in the case of Commissioner vs. Procter and Gamble, G.R. no. 66838, Dec. 2, 1991 Resolution, held that in the absence of explicit statutory provisions to the contrary, the government must follow the same rules of procedure which bind private parties. Collection of taxes may be SUSPENDED pending appeal to the CTA GEN. RULE: No appeal taken to the CTA shall suspend the payment, levy or distrait, and/or sale of any property of the taxpayer. EXCEPTIONS: 1. there must be a showing that collection of the tax may jeopardize the interest of the government and/or taxpayer; 2. deposit of the amount claimed or file a surety bond for not more that double the amount of tax with the Court when required; and 3. showing by taxpayer that appeal is not frivolous or dilatory. CAN THE CTA ENJOIN COLLECTION OF TAXES?
1. By filling a petition for review under a

procedure analogous to that provided for under Rule 42 of Rules on Civil Procedure Decision, ruling or inaction of the CIR, Commissioner of Customs, Sec. of Finance, Sec. of Trade and Industry or Sec. of Agriculture or the RTC this appeal shall be heard by a DIVISION of the CTA. Within 30 days from the receipt of the decision or ruling from the expiration of the period fixed by law for the official concerned to act, in case of inaction. A party adversely affected by a ruling, order of a division of the CTA may file a motion for reconsideration or new trial before the same Division. 2. By filling a petition for review under a procedure analogous to that provided for under Rule 43 of Rules on Civil Procedure Decision, ruling or inaction of the Central Board of Assessment and the RTC in the exercise of its appellate
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Sec. 11 of R.A. 1125 as amended by Sec. 9 of R.A. 9282 grants CTA power to suspend collection of tax if such collection works to serious prejudice of either taxpayer or government. HOWEVER, Sec. 218 of NIRC provides no court any grant injunction to restrain collection of any tax, fee, charge imposed by the Tax code. Note: The provision in Tax Code refers to courts OTHER THAN the CTA. [Blaquera vs. Rodriguez, G.R. no. L-11295, March 29, 1958] Note: Appeal to the CTA does not automatically suspend collection UNLESS CTA issues suspension order at any stage of proceedings. oOo
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Far Eastern University

1. Benefit-Received Theory -considers

2. Privilege Theory/State Partnership

3. Ability to Pay Theory receipt of

4. Redistribution of Wealth Theory - the

Tax Law Study Guide

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FMV(time of received Prior Interests

expenses, losses, indebtedness, taxes, etc. (E-L-I-T) i. Funeral Expenses:

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Transfer for Public

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1 million pesos Without need substantiation

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Exempt Transactions: (AFP BRIBE VOTE HELOO GARCI)

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Means Employed in the Assessment of Taxes (Sec. 6, CTRP) (Key: BETI-PPEA)

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