Reflecting on tax avoidance by: Olivier D.

Aznar
The Lenten Season has just passed. People had more time to reflect on what is just and what is
not at least on a spiritual point of view. Reflecting makes people realize that some things could
have been done in the past without flaws or some plans of action ma be done in the future in a
more fitting wa. !or some" all that is needed is a time to reflect.
#s for the ta$paers" lent might have made them realize to also take time to reflect on their
transactions. Recentl" not a few stories have been published wherein certain big%time
personalities were involved in alleged ta$ evasion issues while certain corporate%ta$paers have
been sued b the &ureau of 'nternal Revenue (&'R) for alleged unlawful avoidance of paing
ta$es. *ith this scenario" should the ta$paers start to be an$ious+
*e all know that the &'R will alwas be there" as ever government owes its e$istence to dues
collected from its citizens a principle established since time immemorial. Ta$ is the lifeblood
of the government. Thus" it is not inconceivable to see that the &'R is vigorous on its ta$
collection efforts. ,n whether this circumstance is daunting on the part of the ta$paer depends
on whether the ta$paer has a reason to fear or has something to hide. Remember that a ta$paer
could onl have valid disputes against the &'R if there is a violation of ta$ laws moreso" if the
violation involves an unlawful avoidance of ta$ constituting a ta$ evasion case.
#s cited in a Supreme -ourt (S-) case" ta$ evasion connotes the integration of three factors. (/)
the end to be achieved" i.e." the pament of less than that known b the ta$paer to be legall
due" or the non%pament of ta$ when it is shown that a ta$ is due0 (1) an accompaning state of
mind which is described as being 2evil"2 in 2bad faith"2 2willful"2 or 2deliberate and not
accidental20 and (3) a course of action or failure of action which is unlawful (-ommissioner of
'nternal Revenue" petitioner" vs. The 4state of &enigno P. Toda" 5r." 6.R. 7o. /89/::" September
/8" 1;;8).
Reading on the above three factors" it is undeniable that ta$ evasion is an act of avoiding ta$es
that is not acceptable" in whatever wa a ta$paer reflect on it" as such act is unlawful.
,n the other hand" in the same Supreme -ourt case cited above" the S- differentiated ta$ evasion
as against ta$ avoidance. 't went on to sa the following. <Ta$ avoidance and ta$ evasion are the
two most common was used b ta$paers in escaping from ta$ation. Ta$ avoidance is the ta$
saving device within the means sanctioned b law. This method should be used b the ta$paer
in good faith and at arm=s length. Ta$ evasion" on the other hand" is a scheme used outside of
those lawful means and when availed of" it usuall subjects the ta$paer to further or additional
civil or criminal liabilities.>
't can be inferred from the foregoing that there are lawful means of avoiding ta$es. #s a caution"
however" these means should be used b the ta$paers in <good faith>. Remember that the state
of mind of the ta$paer is not <evil> as described in the three factors constituting a ta$ evasion
case.
?ow about an e$ample of a ta$ avoidance that is permitted b ta$ rules+
-onsider this #n emploer has numerous emploees. ?e is evaluating on providing his
emploees a higher amount of take%home pa. # concern prompted him that if he raises the
salaries of his emploees" then there will be conse@uent higher withholding ta$es on
compensation" as higher salaries ma fall under higher withholding ta$ rate bracket. *hat then
could he do legall to avoid the higher ta$ rates+ 'n this situation" the emploer ma take into
account the provisions of the <de minimis benefits> rule (see recent Revenue Regulatio ns 7o. A%
1;//" Barch /C" 1;//" on de minimis benefits rule). The list of emploee benefits enumerated in
the said rule is considered e$empt from withholding ta$ on compensation. Thus" b giving de
minimis benefits to his emploees" the higher withholding ta$ rates on compensation could be
avoided" as permitted b the ta$ rules0 while at the same time" the emploer will be able to meet
his objective of providing higher amount of take%home pa for his emploees.
The above e$ample is just a simple illustration of a ta$ avoidance scheme that is allowed under
the rules. ,n whether there are other situations of legal ta$ avoidance" circumstances have to be
carefull evaluated on a case to case basis" to ensure that ta$ laws are not violated and to ensure
that the ta$paers are in good faith.
7ow" a ta$paer ma wonder whether he has done in the past" acts of ta$ evasion or acts of ta$
avoidance0 or whether he has current plans of future transactions wherein he is unsure to which
act would these fall under. Perhaps" a time is also needed to reflect. !or acts done in the past" a
ta$ compliance review of past transactions could be thought of to be a prudent course of action.
Beanwhile" for plans in the future" a cautious ta$ stud ma have to be considered. The
objective is straightforward to recoil from the distressing conse@uences of unlawful avoidance
of ta$.
'ndeed" a ta$paer also needs time to reflect. !or in times of reflection" what is being pondered
about is what is just and what is not.
Understanding local taxes (RESCHEDUED fro! October "#$ "%&& to
'ove!ber &#$ "%&&(
7ovember /9" 1;//" 7ew *orld ?otel Bakati -it
-ompliance with ta$ laws should not be limited to national ta$es. Local ta$es are increasingl
becoming an important consideration in doing business for ta$paers. The amount of local ta$es
could be significant and man L6Ds have recentl been aggressive in enforcing and collecting
local ta$es in the e$ercise of the fiscal autonom granted to them under the Local 6overnment
-ode of /EE/. #s a result" there had been instances where the ta$paer is being demanded to pa
additional ta$es than what is legall re@uired.
#de@uate knowledge and understanding of the laws" regulations" and local ordinances on which
these local ta$es are based are critical in attaining the following objectives.
% #void non%compliance for which there are costl penalties. 'nterest on delaed ta$
paments is computed based on the unpaid ta$ and surcharge of 1AFG
% Pa onl the amount of ta$ that is due.
% 4nable the compan to protect and e$ercise its rights pertaining to local ta$ation including
the remedies available when under local ta$ assessment and refunding erroneous or e$cessive ta$
paments
% #llow the compan to enjo an relief and privileges offered under local ta$ laws
4$perts in the field of local ta$ation will help participants navigate the local ta$ maze" and share
their e$perience and discuss current issues on local ta$es.
The seminar will cover the following topics.
#. The ta$ing powers of L6Ds
/.4$tent of ta$ing power of L6Ds
1.Process of enacting local ta$ ordinance
&. Local business ta$ (L&T)
/. Dnderstanding the L&T
H 7ature and scope of L&T
H &ase of imposition % coverage of and e$clusion from gross receipts
H 4$emption from L&TIPreferential ta$ rates
H &usinesses operating in different jurisdictions (situs rules)
H Registration" transfer and retirement of business
H !iling and pament
1. -urrent local business ta$ issues
H #pplication of incorrect ta$ base (e.g." gross sales instead of gross receipts) and ta$ rate
H Latest rulings on L&T on essential commodities
H Dse of Presumptive 'ncome Level (P'L) as L&T base
H -omputation of gross receipts (additions and e$clusions)
H 'ncorrect classification of business
H Ta$ation of a sales office b more than one jurisdiction
H -omputation of L&T in case of retirement of business
3. Remedies of ta$paers
H ?andling local government e$aminations
H Protesting an L&T assessment
H #ppling for local ta$ refund
H 5urisprudence on local ta$ assessment and refund
-. Real propert ta$es
/. Real propert ta$ (RPT) and special educational fund (S4!)
a) 7ature and coverage
b) -lassification and situs of ta$ation
c) Properties e$empt from RPT
d) Jeclarat i on and appraisal of real propert
e) #mendments to ta$ declarations
% 4ffects of changes in !BK of propert % appraisal increments Iimpairment
% -hanges in use or classification
% Jepreciation of machineriesIe@uipment
f) -omputation and pament of RPT
% Jiscounts and installment paments
% Paments under protest
g) Remedies on collection of delin@uent RPT
h) Remedies of ta$paers on RPT assessments
% Protesting an RPT assessment
% Procedures for administrative protests
% #ppealing with Local &oard of #ssessment #ppeals (L&##) and
-entral &oard of #ssessment #ppeals (-&##)
1. Local transfer ta$
a) Sale of real propert
b) Transfers due to mergers and other business reorganizations
J. &usiness Permit and other Regulator !ees
/. #nnual renewal permits (i.e." maor=s permit on business" etc.)
1. ,ther regulator fees on business
Registration
Please download the registration form from the <4vents and Seminars> section at
http.IIwww.punongbaan%araullo.com through the link below.
The registration fee is.
H PE"A;;.;; plus /1F K#T includes handouts" snacks" lunch and -P4 accreditation
H AF discount if pament is made b ,ctober 1;" 1;//
Resource Persons
H Local treasurer andIor assessor" and other e$perts in the field of local ta$es
H PL# Ta$ PartnersIBanagers
Participants
This ta$ seminar is recommended for ta$ compliance officers" ta$ accountants" controllers" and
legal officers who handle their compan=s ta$ compliance re@uirements.