Professional Documents
Culture Documents
TAXATI0N
by
ABELARDO T. DOMONDON
How to use the Notes: These Notes in the form of
textual materials and representative review questions were
specially prepared by Prof. Domondon for the exclusive
use of Bar Candidates who attended his 2009 lectures on
Taxation, and others he has personally authorized.
The purpose of these Notes is to test the candidates
ability to answer probable questions that may be asked in the
September 33, 2009 Bar Examinations in Taxation. The last
version to be released is Ver. 09.08.17 which may
substantially alter the contents of this Ver. 09.05.12 Be sure
to secure the last version to replace this version.
DO NOT MEMORIZE the suggested answers. Some of
the answers were purposely made to be lengthy in order to
serve as explanatory devices. This is so because you do not
have time anymore to refer back to your review materials.
The materials are arranged in accordance with the bar
examination coverage. The actual bar questions may not be
so arranged. Likewise, these Notes are only indicative of the
TAXATION, IN GENERAL
2.
Why are tax exemptions are strictly construed
against the taxpayer and liberally in favor of the State ?
SUGGESTED ANSWER:
continued existence of the State.
3.
Taxes are what civilized people pay for civilized society. They are
the lifeblood of the nation. Thus, statutes granting tax exemptions
are construed stricissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of tax exemption must be
clearly shown and based on language in law too plain to be
mistaken. Otherwise stated, taxation is the rule, exemption is the
exception. (Quezon City, et al., v. ABS-CBN Broadcasting Corporation, G.
R. No. 166408, October 6, 2008 citing Mactan Cebu International Airport
Authority v. Marcos, G.R. No. 120082, September 11, 1996, 261 SCRA
667, 680) The burden of proof rests upon the party claiming the
4.
Rationale for strict interpretation of tax
exemption laws. The basis for the rule on strict construction to
statutory provisions granting tax exemptions or deductions is to
minimize differential treatment and foster impartiality, fairness and
equality of treatment among taxpayers. (Quezon City, et al., v. ABSCBN Broadcasting Corporation, G. R. No. 166408, October 6, 2008) He
who claims an exemption from his share of common burden must
justify his claim that the legislature intended to exempt him by
unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the
clearest and most unambiguous language and not left to mere
implications. It has been held that exemptions are never presumed
the burden is on the claimant to establish clearly his right to
6.
Why
imprescriptible ?
is
the
right
to
collect
taxes
SUGGESTED ANSWER:
a.
As a general rule, revenue laws are not intended to be
7.
It is said that taxes are the lifeblood of the
government and any delay in its collection would impair the
rendition of government services. May the collection of
taxes be restrained by a court ?
SUGGESTED ANSWER: As a general rule, No court shall
have the authority to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge. (Sec. 218, NIRC)
However, the Court of Tax Appeals is empowered to enjoin the
collection of taxes through administrative remedies when collection
could jeopardize the interest of the government or taxpayer. (Sec. 11,
Rep. Act No. 1125)
8.
13.
Act ?
SUGGESTED ANSWER: The Sugar Adjustment Act which
increased existing taxes on sugar was enacted to stabilize the sugar
industry to prepare it for the loss of its quota in the U.S. market was
levied for a regulatory purpose to protect and promote the sugar
industry which is also for a public purpose. (Lutz v. Araneta, 98 Phil.
148)
The Philsugin fund, an imposition on sugar, to raise funds to
conduct research for the improvement of the sugar industry, is for the
purpose of stabilizing the sugar industry which one of the pillars of the
Philippine economy which affects the welfare of the State. The levy is
not so much an exercise of the power of taxation, nor the imposition
of a special levy, but the exercise of police power which is for the
general welfare of the entire country, therefore for a public purpose.
(Republic v. Bacolod-Murcia Co., et al., G.R. No. L-19824, July 9,
1966)
1.
What are the inherent limitations on the
power of taxation ?
SUGGESTED ANSWER: The inherent limitations are
a.
Public purpose. The revenues collected from taxation
should be devoted to a public purpose.
b.
No improper delegation of legislative authority to tax.
Only the legislature can exercise the power of taxes unless the same
is delegated to some other governmental body by the constitution or
through a law which does not violate any provision of the constitution.
c.
Territoriality. The taxing power should be exercised only
within territorial boundaries of the taxing authority.
d.
Recognition of government exemptions; and
e.
Observance of the principle of comity. Comity is the
respect accorded by nations to each other because they are equals.
On the other hand taxation is an act of sovereign. Thus, the power
should be imposed upon equals out of respect.
Some authorities include no double taxation.
2.
purpose ?
SUGGESTED ANSWER: The tax revenues are for a public
purpose if utilized for the benefit of the community in general. An
alternative meaning is that tax proceeds should be utilized only to
attain the objectives of government.
Public use is no longer confined to the traditional notion of use
by the public but held synonymous with public interest, public benefit,
public welfare, and public convenience. (Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April
16, 2005)
3.
4.
SUGGESTED ANSWER:
Locus standi is a right of
appearance in a court of justice on a given question. (Abaya v.
Ebdane, G. R. No. 167919, February 14, 2007)
It is a partys personal and substantial interest in the case, such
that the party has sustained or will sustain (Ibid.)direct injury as a
result of the government act being challenged. It calls for more than
just a generalized grievance.
A party need not be a party to the contract to challenge its
validity. (Ibid.)
5.
6.
7.
8.
What are the requirements that must be
met before taxpayers, concerned citizens and legislators
may be accorded standing to sue ?
SUGGESTED ANSWER:
a. The case should involve constitutional issues;
b. For taxpayers, there must be a claim of illegal
disbursement of public funds or that the tax measure is
unconstitutional.
c. For voters, there must be a showing of obvious interest
in the validity of the election law in question.
d. For concerned citizens, there must be a showing that
the issues raised are of transcendental importance which must be
settled early.
e. For legislators, there must be a claim that the official
action complained of infringes upon their prerogatives as legislators.
(David, et al., v. President Gloria Macapagal-Arroyo, etc., et al., G.
R. No. 171396, May 3, 2006)
9.
What are the requisites for challenging
constitutionality of law including a tax law ?
SUGGESTED ANSWER: The party bringing suit must show
not only that the law or act is invalid, but also that he has sustained
or is in immediate, or imminent danger of sustaining some direct
injury as a result of its enforcement and not merely that he suffers
to adopt that sense which harmonizes best with the context and
promotes to the fullest manner the policy and objects of the
Legislature.
The concept of inclusio unius est exclusio alterius does not find
application because the phrase tax and duty-free importations of raw
materials, capital and equipment was merely cited as an example of
incentives that the SSEZ is authorized to grant, in line with its being a
free port zone. Thus, the legislative intent is that consumer goods
entering the SSEZ which satisfy the needs of the zone and are
consumed there are not subject to duties and taxes in accordance
with Philippine law. (Coconut Oil Refiners Association, Inc., etc., et
al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005)
Guro Party List, etc., v. Purisima, etc., et al., G. R. No. 166715, August 14,
2008 citing
Bernas, Joaquin, THE 1987 CONSTITUTION OF THE
REPUBLIC OF THE PHILIPPINES: A COMMENTARY, 1996 edition, pp.
848-849) Thus, to be ripe for judicial adjudication, the petitioner must
13.
The power to tax should be exercised only within
the territorial boundaries of the taxing authority. In theory, it is
only within a states territorial boundaries that a state could give
protection, hence it is only within that territory that it could demand
support in the form of taxes.
14.
Situs of taxation is the place or the authority that
has the power to collect taxes. It is premised upon the symbiotic
relation between the taxpayer and the State.
12.
15.
The place that gives protection is the place that has
the right to demand that it be supported in the form of taxes so it
could continually give protection.
16.
The situs of real property taxes is the place where
the property is located because it is that place that gives
protection. The applicable concept is lex situs or lex rei sitae.
17.
The situs of taxation of tangible personal property is
the place where the owner is located because it is that place that
gives protection to the owner which protection extends to the tangible
personal property. The applicable concept is mobilia sequuntur
personam.
18.
Intangible personal property may have obtained a
business situs in a particular place even if located elsewhere.
Thus, the dividends earned from domestic corporations are
24.
BOAC, a foreign airline company which
does not maintain any flight to and from the Philippines
sold air tickets in the Philippines, through a general sales
agent, relating to the carriage of passengers and cargo
between two points, both outside the Philippines.
Is BOAC subject to income taxes on the sale of the
tickets ?
SUGGESTED ANSWER: Yes. The source of income which is
taxable is that activity which produced the income. The sale of
tickets in the Philippines is the activity that determines whether such
income is taxable in the Philippines.
The tickets exchanged hands here and payments for fares
were also made here in Philippine currency. The situs of the source of
payments is the Philippines. the flow of wealth proceeded from and
occurred, within the Philippine territory, enjoying the protection
accorded by the Philippine Government. In consideration of such
protection, the flow of wealth should share the burden of supporting
the government. (Commissioner of Internal Revenue v. British
Overseas Airways Corporation (BOAC), 149 SCRA 395 cited in
Bauer-Nickel)
c.
The tax authorities gave the term tax credit in
Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly
disparate from what R.A. No. 7432 provides. Their interpretation
muddled up the intent of Congress to grant a mere discount privilege
and not a sales discount. The Court, striking down the revenue
regulation, held that an administrative agency issuing regulations
may not enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional requirements not
contemplated by the legislature. (Ibid., Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, 15 April
2005, 456 SCRA 414)
d.
Commissioner
Jose
Ong
issued
Revenue
Memorandum Order (RMO) No. 15-91, as well as the clarificatory
Revenue Memorandum Circular (RMC) 43-91, imposing a 5%
lending investors tax under the 1977 Tax Code, as amended by
Executive Order (E.O.) No. 273, on pawnshops. The Commissioner
anchored the imposition on the definition of lending investors
provided in the 1977 Tax Code which, according to him, was broad
enough to include pawnshop operators. However, the Court noted
that pawnshops and lending investors were subjected to different tax
treatments under the Tax Code prior to its amendment by the
executive order; that Congress never intended to treat pawnshops in
the same way as lending investors; and that the particularly involved
section of the Tax Code explicitly subjected lending investors and
dealers in securities only to percentage tax. And so the Court
affirmed the invalidity of the challenged circulars, stressing that
administrative issuances must not override, supplant or modify the
law, but must remain consistent with the law they intend to carry
out. (Ibid., citing Commissioner of Internal Revenue v. Michel J. Lhuillier
Pawnshop, Inc., 453 Phil. 1043 (2003), at 1052 in turn citing Commissioner
of Internal Revenue v. Court of Appeals, G.R. No. 108358, 20 January
1995, 240 SCRA 368, 372; Romulo, Mabanta, Buenaventura, Sayoc & De
los Angeles v. Home Development Mutual Fund, G.R. No. 131082, 19 June
2000; 333 SCRA 777, 786)
e.
The then acting Commissioner issued RMC 7-85,
changing the prescriptive period of two years to ten years for claims
of excess quarterly income tax payments, thereby creating a clear
inconsistency with the provision of Section 230 of the 1977 Tax
Code. The Court nullified the circular, ruling that the BIR did not
simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress. [Ibid., Philippine Bank of Communications v.
Commissioner of Internal Revenue, 361 Phil. 916 (1999)]
f.
The Supreme Court ruled as invalid
had construed the amnesty coverage under E.O.
include only assessments issued by the BIR after
of the executive order on 22 August 1986 and
CONSTITUTIONAL LIMITATIONS
1. What are the constitutional limitations on the power of
taxation ?
SUGGESTED ANSWER: The general or indirect constitutional
limitations as well as the specific or direct constitutional limitations.
2.
1
0
1)
Bill should embrace only one subject expressed
in the title thereof;
2)
Three (3) readings on three separate days;
3)
Printed copies in final form distributed three (3)
days before passage.
h.
Presidential power to grant reprieves, commutations and
pardons and remittal of fines and forfeiture after conviction by final
judgment.
3.
limitation ?
SUGGESTED ANSWER:
a.
No imprisonment for non-payment of a poll tax;
b.
Taxation shall be uniform and equitable;
c.
Congress shall evolve a progressive system of taxation;
d.
All appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives, but the Senate may
propose and concur with amendments;
e. The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill, but the veto
shall not affect the item or items to which he does not object;
f.
Delegated power of the President to impose tariff rates,
import and export quotas, tonnage and wharfage dues:
1)
Delegation by Congress
2)
through a law
3)
subject
to
Congressional
limits
and
restrictions
4)
within the framework of national development
program.
g.
Tax exemption of charitable institutions, churches,
parsonages and convents appurtenant thereto, mosques, and all
lands, buildings and improvements of all kinds actually, directly and
exclusively used for religious, charitable or educational purposes;
h.
No tax exemption without the concurrence of majority
vote of all members of Congress;
i.
No use of public money or property for religious
purposes except if priest is assigned to the armed forces, penal
institutions, government orphanage or leprosarium;
j.
Money collected on tax levied for a special purpose to
be used only for such purpose, balance if any, to general funds;
k.
The Supreme Court's power to review judgments or
orders of lower courts in all cases involving the legality of any tax,
impose, assessment or toll or the legality of any penalty imposed in
relation to the above;
l.
Authority of local government units to create their own
sources of revenue, to levy taxes, fees and other charges subject to
guidelines and limitations imposed by Congress consistent with the
basic policy of local autonomy;
m.
Automatic release of local government's just share in
national taxes;
n.
Tax exemption of all revenues and assets of non-stock,
non-profit educational institutions used actually, directly and
exclusively for educational purposes;
o. Tax exemption of all revenues and assets of proprietary or
cooperative educational institutions subject to limitations provided by
law including restrictions on dividends and provisions for reinvestment
of profits;
p.
Tax exemption of grants, endowments, donations or
contributions used actually, directly and exclusively for educational
purposes subject to conditions prescribed by law.
4.
Equal protection of the law clause is subject to
reasonable classification. If the groupings are characterized by
substantial distinctions that make real differences, one class may be
treated and regulated differently from another. The classification must
also be germane to the purpose of the law and must apply to all those
belonging to the same class. (Tiu, et al., v. Court of Appeals, et al.,
G.R. No. 127410, January 20, 1999)
11
the NIRC; and that they presented similar arguments and evidence
in their defense - yet, they were treated differently. (Santos, supra)
6.
The law grant of tax and duty-free status
under Rep. Act No. 7227, to retailers inside the SSEZ
without granting the same to those outside the SSEZ. Is
there a violation of the equal protection clause ?
SUGGESTED ANSWER: There is no violation of equal
protection because there exists a valid classification as shown below:
a.
Significant distinctions exist between the two groups.
Those outside of the SSEZ maintain their business within Philippine
customs territory while those within the SSEZ operate within the socalled separate customs territory. To grant the same privileges
would clearly defeat the statues intent to carve a territory out of the
military reservations in Subic Bay where free flow of goods and
capital is maintained.
b.
The classification is germane to the purpose of Rep. Act
No. 7227. As held in Tiu, the real concern of the law is to convert the
lands formerly occupied by the US military bases into economic or
industrial areas. In furtherance of such objective, Congress deemed it
necessary to extend economic incentives, in terms of a complete
package of tax incentives and other benefits, to the establishments
within the zone to attract and encourage foreign and local investors.
c.
The classification is not limited to the existing conditions
when the law was promulgated but to future conditions as well,
inasmuch as the law envisioned the former military reservation to
ultimately develop into a self-sustaining investment center.
d.
The classification applies equally to all retailers found
within the secured area. As ruled in Tiu, the individuals and
businesses within the secured area, being in like circumstances or
contributing directly to the achievement of the end purposes of the
law, are not categorized further. They are all similarly treated, both in
privileges granted and in obligations required. (Coconut Oil Refiners
Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527,
1
2
July 29, 2005 citing Tiu, et al., v. Court of Appeals, et al., G.R. No.
127410, January 20, 1999, 301 SCRA 278)
In the same vein, employees of the BIR and the BOC may by
law be entitled to a reward when, as a consequence of their zeal in
the enforcement of tax and customs laws, they exceed their revenue
targets. Public service is its own reward. Nevertheless, public
officers may by law be rewarded for exemplary and exceptional
performance. A system of incentives for exceeding the set
expectations of a public office is not anathema to the concept of
public accountability. In fact, it recognizes and reinforces dedication
to duty, industry, efficiency and loyalty to public service of deserving
government personnel. (ABAKADA Guro Party List, etc., supra)
1
3
1
4
11.
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 or violative of the
constitutionally guaranteed freedom of religion ?
SUGGESTED ANSWER: It is not valid because it violates the
constitutionally guaranteed freedom 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.
12.
A lawful tax on a new subject, or an increased tax on
an old one, does not interfere with a contract or impairs its
obligation, within the meaning of the constitution. Even though such
taxation may affect particular contracts, as it may increase the debt of
one person and lessen the security of another, or may impose
additional burdens upon one class and release the burdens of another,
still the tax must be paid unless prohibited by the constitution, nor can
it be said that it impairs the obligations of any existing contract in its
true and legal sense. (Tolentino v. Secretary of Finance, et al., and
companion cases, 235 SCRA 630)
13. Under the now prevailing Constitution, where there is
neither a grant nor prohibition by statute, the taxing power of
local governments must be deemed to exist although Congress
may provide statutory limitations and guidelines in order to
safeguard the viability and self-sufficiency of local government units
by directly granting them general and broad tax powers. (City
Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No.
127708, March 25, 1999)
14.
The Local Government Code explicitly authorizes
provinces and cities, notwithstanding any exemption granted
by any law or other special law to impose a tax on businesses
enjoying a franchise. Indicative of the legislative intent to carry out
the constitutional mandate of vesting broad tax powers to local
government units, the Local Government Code has withdrawn tax
exemptions or incentives theretofore enjoyed by certain entities. (City
Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No.
127708, March 25, 1999)
15.
Philippine Long Distance Telephone Company, Inc., v.
City of Davao, et al., etc., G. R. No. 143867, August 22, 2001, upheld
the authority of the City of Davao, a local government unit, to impose
and collect a local franchise tax because the Local Government has
withdrawn all tax exemptions previously enjoyed by all persons and
authorized local government units to impose a tax on business
enjoying a franchise tax notwithstanding the grant of tax exemption to
them.
16.
1
5
1
6
1
7
Davao, etc., et al., G. R. No. 155491, September 16, 2008 citing Philippine
Long Distance Telephone Company, Inc. v. City of Davao, 447 Phil. 571,
594 (2003)]
the rate of VAT to 12%. The effectivity of the imposition of the 12%
VAT was later moved from January 1, 2006 to February 1, 2006.
In consonance with the above survey of pertinent laws on the
matter, ABS-CBN is subject to the payment of VAT. It does not have
the option to choose between the payment of franchise tax or VAT
since it is a broadcasting company with yearly gross receipts
exceeding Ten Million Pesos (P10,000,000.00).
(Quezon City, et
al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408, October 6,
2008. The author opines that since practically all franchises granted to
telecommunications companies are similarly worded that the above
doctrine finds application to the others.)
20.
Double taxation in its generic sense, this means
taxing the same subject or object twice during the same taxable
period.
In its particular sense, it may mean direct duplicate taxation,
which is prohibited under the constitution because it violates the
concept of equal protection, uniformity and equitableness of taxation.
Indirect duplicate taxation is not anathematized by the above
constitutional limitations.
21.
taxation ?
SUGGESTED ANSWER:
a.
Same
1)
Subject or object is taxed twice
2)
by the same taxing authority
3)
for the same taxing purpose
4)
during the same taxable period
b. Taxing all of the subjects or objects for the first time
without taxing all of them for the second time.
If any of the elements are absent then there is indirect
duplicate taxation which is not prohibited by the constitution.
NOTES AND COMMENTS:
a.
Presence of the 2nd element violates the equal
protection clause. If only the 1st element is present, taxing the same
subject or object twice, by the same taxing authority, etc., there is no
violation of the equal protection clause because all subjects and
objects that are similarly situated are subject to the same burdens and
granted the same privileges without any discrimination whatsoever,
The presence of the 2nd element, taxing all of the subjects and
objects for the first time, without taxing all for the second time, results
to discrimination among subjects and objects that are similarly
situated, hence violative of the equal protection clause.
1
8
28.
The VAT is assailed as being regressive and
therefore violative of the mandate to evolve a progressive
system of taxation. Do you agree ? Explain your answer.
SUGGESTED ANSWER: No. The VAT does not violate the
progressive system of taxation. The mandate to Congress is not to
prescribe but to evolve a progressive system of taxation. Otherwise,
sales taxes which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of the constitutional
provision. Sales taxes are also regressive. . [Abakada Guro Party
List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005
and companion cases citing Tolentino v. Secretary of Finance, et al.,
G. R. No. 115455, August 25, 1994, 235 SCRA 630]
1
9
29.
All revenues and assets of non-stock, non-profit
educational institutions that are actually, directly and exclusively
used for educational purposes shall be exempt from taxation.
30.
Revenues and assets of proprietary educational
institutions, including those which are cooperatively owned,
may be entitled to exemptions subject to limitations provided by
law including restrictions on dividends and provisions for
reinvestments. There is no law at the present which grants
exemptions, other the exemptions granted to cooperatives.
OTHER CONCEPTS
1.
What is a tax amnesty ?
SUGGESTED ANSWER: A tax amnesty is a general pardon
or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a
revenue or a tax law.
It partakes of an absolute waiver by the government of its
right to collect what is due it and to give tax evaders who wish to
relent a chance to start with a clean slate. A tax amnesty, much like
a tax exemption, is never favored nor presumed in law. The grant of
a tax amnesty, similar to a tax exemption, must be construed strictly
against the taxpayer and liberally in favor of the taxing authority.
(Philippine Banking Corporation, etc., v. Commissioner of Internal
Revenue, G. R. No. 170574, January 30, 2009 citing Commissioner
of Internal Revenue v. Marubeni Corp., 423 Phil. 862, 874 (2001).
1-A. The purpose of tax amnesty is to
a. give tax evaders who wish to relent a chance to start
a
clean slate, and to
b. give the government a chance to collect uncollected tax
from tax evaders without having to go
through the tedious
process of a tax case. (Banas, Jr. v. Court
of Appeals, et al., G.R.
No. 102967, February 10, 2000)
2.
Distinguish tax amnesty from tax exemption.
SUGGESTED ANSWER:
a.
Tax amnesty is an immunity from all criminal, civil and
administrative liabilities arising from nonpayment of taxes (People v.
Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax
exemption is an immunity from civil liability only. It is an immunity or
privilege, a freedom from a charge or burden to which others are
subjected. (Florer v. Sheridan, 137 Ind. 28, 36 NE 365)
b.
Tax amnesty applies only to past tax periods, hence of
retroactive application (Castaneda, supra) WHILE tax exemption has
prospective application.
3.
Define tax avoidance and tax evasion.
SUGGESTED ANSWER: Tax avoidance is the use of legally
permissible means to reduce the tax while tax evasion is the use of
illegal means to escape the payment of taxes.
NOTES AND COMMENTS:
a.
Tax evasion connotes the integration of three
factors:
1)
the end to be achieved, i.e., the payment of less
than that known by the taxpayer to be legally due, or the nonpayment of tax when it is shown that a tax is due;
2)
an accompanying state of mind which is described
as being evil on bad faith, willful, or deliberate and not
accidental; and
3)
a course of action or failure of action which is
unlawful. (Commissioner of Internal Revenue v. The Estate of
Benigno P. Toda, Jr., , etc., G. R. No. 147188, September 14,
2004)
4.
Distinguish between the tax avoidance
and tax evasion.
SUGGESTED ANSWER:
a.
Tax avoidance is legal while tax evasion is illegal.
b.
The objective of tax avoidance in most instances is
merely to reduce the tax that is due while is tax evasion the object is
to entirely escape the payment of taxes.
c.
Tax evasion warrants the imposition of civil,
administrative and criminal penalties while tax avoidance does not.
5.
What are the reasons why national taxes cannot be
the subject of compensation and set-off with debts ?
SUGGESTED ANSWER:
a.
The lifeblood theory;
b.
Taxes are not contractual obligations but arise out of a
duty to, and are the positive acts of government, to the making and
enforcing of which the personal consent of the individual taxpayer is
not required. (Republic v. Mambulao Lumber Co., 4 SCRA 622)
c.
The government and the taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is no such
debt, demand, contract or judgment as is allowed to be set-off.
(Caltex Philippines, Inc. v. Commission on Audit, 208 SCRA 726, 756)
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6.
Compensation takes place by operation of law, where
the local government and the taxpayer are in their own right
reciprocally debtors and creditors of each other, and that the debts are
both due and demandable, in consequence of Articles 1278 and 1279
of the Civil Code. (Domingo v. Garlitos, 8 SCRA 443)
7.
In case of a tax overpayment, where the BIRs
obligation to refund or set-off arises from the moment the tax
was paid under the principle of solutio indebeti. (Commissioner
of Internal Revenue v. Esso Standard Eastern, Inc, 172 SRCA 364)
12.
Silkair
(Singapore)
PTE,
Ltd.,
an
international carrier, purchased aviation gas from Petron
Corporation, which it uses for its operations. It now claims
for refund or tax credit for the excise taxes it paid claiming
that it is exempt from the payment of excise taxes under
the provisions of Sec. 135 of the NIRC of 1997.
Silkair further anchors its claim on Article 4(2) of the
Air Transport Agreement between the Government of the
Republic of the Philippines and the Government of the
Republic of Singapore (Air Transport Agreement between
RP and Singapore).
Silkair likewise argues that it is exempt from indirect
taxes because the Air Transport Agreement between RP
and Singapore grants exemption from the same customs
duties, inspection fees and other duties or taxes imposed
in the territory of the first Contracting Party. It invokes
2
1
Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197
SCRA 771.which upheld the claim for tax credit or refund
by the National Power Corporation (NPC) on the ground
that the NPC is exempt even from the payment of indirect
taxes.
Is Silkair entitled to the tax refund or credit it seeks ?
Reason out your answer.
SUGGESTED ANSWER: Silkair is not entitled to tax refund or
credit for the following reasons:
a.
The excise tax on aviation fuel is an indirect tax. The
proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even if he shifts the burden thereof to
another. (Philippine Geothermal, Inc. v. Commissioner of Internal
Revenue, G.R. No. 154028, July 29, 2005, 465 SCRA 308, 317-318)
The NIRC provides that the excise tax should be paid by the
manufacturer or producer before removal of domestic products from
place of production. Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on
Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport
Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of
the tax, the additional amount billed to Silkair for jet fuel is not a tax
but part of the price which Silkair had to pay as a purchaser.
[Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,
127 Phil. 461, 470 (1967)]
b. Silkair could not seek refuge under Maceda v. Macaraig,
Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.which upheld the
claim for tax credit or refund by the National Power Corporation
(NPC) on the ground that the NPC is exempt even from the payment
of indirect taxes.
In Commissioner of Internal Revenue v. Philippine Long
Distance Telephone Company, G.R. No. 140230, December 15,
2005, 478 SCRA 61 the Supreme Court clarified the ruling in
Maceda v. Macaraig, Jr., viz: It may be so that in Maceda vs.
Macaraig, Jr., the Court held that an exemption from all taxes
granted to the National Power Corporation (NPC) under its charter
includes both direct and indirect taxes.
An exemption from all taxes excludes indirect taxes, unless
the exempting statute, like NPCs charter, is so couched as to include
indirect tax from the exemption. The amendment under Republic Act
No. 6395 enumerated the details covered by NPCs exemption.
Subsequently, P.D. 380, made even more specific the details of the
exemption of NPC to cover, among others, both direct and indirect
taxes on all petroleum products used in its operation. Presidential
FUNCTIONS
OF
THE
BUREAU
OF
2
2
2
3
12.
The insolvent debtor realizes income resulting from the
cancellation or forgiveness of indebtedness when he becomes
solvent. (Lakeland Grocery Co., v. Commissioner 36 BTA (F) 289)
13.
If a creditor merely desires to benefit a debtor and
without any consideration therefor cancels the amount of the debt it is
a gift from the creditor to the debtor and need not be included in the
latters income.
14.
If a corporation to which a stockholder is indebted
forgives the debt, the transaction has the effect of payment of a
dividend. (Sec. 50, Rev. Regs. No. 2)
15.
The Global system of income taxation is a system
employed where the tax system views indifferently the tax base and
generally treats in common all categories of taxable income of the
individual. (Tan v. del Rosario, Jr., 237 SCRA 324, 331)
16. The Schedular system of income taxation is a system
employed where the income tax treatment varies and is made to
depend on the kind or category of taxable income of the taxpayer.
(Tan v. del Rosario, Jr., 237 SCRA 324, 331)
17. Under the National Internal Revenue Code the global
system is applicable to taxable corporations and the schedular to
individuals.
18.
d.
An alien individual, whether resident or not of the
Philippines, is taxable only on income derived from sources within the
Philippines.
e.
A domestic corporation is taxable on all income derived
from sources within and without the Philippines.
f.
A foreign corporation, whether engaged or not in trade or
business in the Philippines, is taxable only on income derived from
sources within the Philippines. (Sec. 23, NIRC of 1997)
19.
Compensation income is considered as having been
earned in the place where the service was rendered and not
considered as sourced from the place of origin of the money.
20.
Payment for services, other than compensation
income, is considered as having been earned at the place where
the activity or service was performed.
21.
A non-resident alien, who has stayed in the Philippines
for an aggregate period of more than 180 days during any calendar
year, shall be considered as a non-resident alien doing business in
the Philippines. Consequently, he shall be subject to income tax on
his income derived from sources from within the Philippines. [Sec. 25
(A) (1), NIRC]
He is allowed to avail of the itemized deductions including the
personal and additional exemptions subject to the rule on reciprocity.
22.
2
4
24.
SUGGESTED ANSWER:
a.
Exclusions from gross income refer to a flow of wealth to
the taxpayer which are not treated as part of gross income for
purposes of computing the taxpayers taxable income, due to the
following reasons: (1) It is exempted by the fundamental law; (2) It
is exempted by statute; and (3) It does not come within the definition
of income (Sec. 61, Rev. Regs. No. 2) WHILE deductions are the
amounts which the law allows to be subtracted from gross income in
order to arrive at net income.
b.
Exclusions pertain to the computation of gross income
WHILE deductions pertain to the computation of net income.
c.
Exclusions are something received or earned by the
taxpayer which do not form part of gross income WHILE deductions
are something spent or paid in earning gross income.
25.
2
5
27.
What kind of separation (retirement) pay is
excluded from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Any amount received by an official, employee or by his
SUGGESTED ANSWER:
a.
Proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured whether in a single sum or
otherwise.
b.
Amounts received by the insured as a return of
premiums paid by him under life insurance, endowment or annuity
contracts either during the term, or at maturity of the term mentioned
in the contract, or upon surrender of the contract.
c.
Value of property acquired by gift, bequest, devise, or
descent.
d. Amounts received, through accident or health insurance or
Workmens Compensation Acts as compensation for personal injuries
or sickness, plus the amounts of any damages received on whether
by suit or agreement on account of such injuries or sickness.
e.
Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
f.
Retirement benefits received under Republic Act No.
7641. Retirement received from reasonable private benefit plan after
compliance with certain conditions. Amounts received for beyond
control separation. Foreign social security, retirement gratuities,
pensions, etc. USVA benefits, SSS benefits and GSIS benefits.
26.
What are the conditions for excluding
retirement benefits from gross income, hence tax-exempt ?
SUGGESTED ANSWER:
a.
Retirement benefits received under Republic Act No.
7641 and those received by officials and employees of private firms,
whether individual or corporate, in accordance with the employers
reasonable private benefit plan approved by the BIR.
b.
Retiring official or employee
1)
In the service of the same employer for at least
ten (10) years;
2)
Not less than fifty (50) years of age at time of
retirement;
3)
Availed of the benefit of exclusion only once.
[Sec. 32 (B) (6) (a), NIRC of 1997] The retiring official or
employee should not have previously availed of the privilege
under the retirement plan of the same or another employer. [1st
par., Sec. 2.78 (B) (1), Rev. Regs. No. 2-98]
heirs,
b.
From the employer
c.
As a consequence of separation of such official or
employee from the service of the employer because of
1)
Death, sickness or other physical disability; or
2)
For any cause beyond the control of said official
or employee [Sec. 32 (B) (6) (b), NIRC of 1997], such as
retrenchment, redundancy and cessation of business. [1 st
par., Sec. 2.78 (B), (1) (b), Rev. Regs. No. 2-98]
2
6
30.
What are the requisites
deductibility of business expenses ?
for
the
31.
What are the requisites for the
deductibility of ordinary and necessary trade, business, or
professional expenses, like expenses paid for legal and
auditing services ?
SUGGESTED ANSWER:
a.
the expense must be ordinary and necessary;
b.
it must have been paid or incurred during the taxable
year dependent upon the method of accounting upon the basis of
which the net income is computed.
c.
it must be supported by receipts, records or other
pertinent papers. (Commissioner of Internal Revenue v, Isabela
cultural Corporation, G. R. No. 172231, February 12, 2007)
32.
TMG Corporation is issuing the accrual
method of accounting. In 2005 XYZ Law Firm and ABC
Auditing Firm rendered various services which were billed
by these firms only during the following year 2006. Since
the bills for legal and auditing services were received only
in 2006 and paid in the same year, TMG deducted the same
2
7
33.
The fringe benefits tax is a final withholding tax
imposed on the grossed-up monetary value of fringe benefits
furnished, granted or paid by the employer to the employee, except
rank and file employees. [1st par., Sec. 2.33 (A), Rev. Regs. No. 3-98]
2
8
c.
Fringe benefits which are authorized and exempted from
income tax under the Tax Code or under any special law;
d.
Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization benefit plans;
e.
Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not; and
f.
De minimis benefits as defined in the rules and
regulations to be promulgated by the Secretary of Finance upon
recommendation of the Commissioner of Internal Revenue. [1 st par.,
Sec. 32 (C), NIRC of 1997; Sec. 2.33 (C), Rev. Regs. No. 3-98]
39.
e.
The fiduciary of a trust and the fiduciary of another trust
if the same person is a grantor with respect to each trust; or
f.
A fiduciary of a trust and a beneficiary of such. [Sec. 36
(B), NIRC of 1997]
41.
2
9
44.
Depreciation is the gradual diminution in the useful
value of tangible property resulting from ordinary wear and tear and
from normal obsolescence. The term is also applied to amortization
of the value of intangible assets the use of which in the trade or
business is definitely limited in duration.
45.
The methods of depreciation are the following:
a.
Straight line method;
b.
Declining balance method;
c.
Sum of years digits method; and
d.
Any other method prescribed by the Secretary of
Finance upon the recommendation of the Commissioner of Internal
Revenue:
1)
Apportionment to units of production;
2)
Hours of productive use;
3)
Revaluation method; and
4)
Sinking fund method.
46.
What are personal and additional exemptions ?
SUGGESTED ANSWER: These are the theoretical persona,
living and family expenses of an individual allowed to be deducted
from the gross or net income of an individual taxpayer.
These are arbitrary amounts which have been calculated by our
lawmakers to be roughly equivalent to the minimum of subsistence,
taking into account the personal status and additional qualified
dependents of the taxpayer. They are fixed amounts in the sense that
the amounts have been predetermined by our lawmakers and until our
lawmakers make new adjustments on these personal exemptions, the
amounts allowed to be deducted by a taxpayer are fixed as
predetermined by Congress. [Pansacola v. Commissioner of Internal
Revenue, G. R. No. 159991, November 16, 2006 citing Madrigal and
Paterno v. Rafferty and Concepcion, 38 Phil. 414, 418 (1918)]
c.
Property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business, or
d. Property used in the trade or business, of a character which is
subject to the allowance for depreciation; or real property used in the
trade or business of the taxpayer. [Sec. 39 (A) (1), NIRC of 1997,
capitalized words, numbering and arrangement supplied; Sec. 2.a,
Rev. Regs. No. 7-2003]
47-A.
3
0
49..
assets:
a.
The machinery and equipment of a manufacturing
concern subject to depreciation;
b. The tractors, trailers and trucks of a hauling company;
c. The condominium building owned by a realty company the
units of which are for rent or for sale;
d.
The wood, paint, varnish, nails, glue, etc. which are the
raw materials of a furniture factory;
e.
Inherited parcels of land of substantial areas located in
the heart of Metro Manila, which were subdivided into smaller lots
then sold on installment basis after introducing comparatively
valuable improvements not for the purpose of simply liquidating the
estate but to make them more saleable ; the employment of an
attorney-in-fact for the purpose of developing, managing,
administering and selling the lots; sales made with frequency and
continuity; annual sales income from the sales was considerable; and
the heir was not a stranger to the real estate business. (Tuazon, Jr. v.
Lingad, 58 SCRA 170)
f. Inherited agricultural property improved by introduction of
good roads, concrete gutters, drainage and lighting systems converts
the property to an ordinary asset. The property forms part of the stock
in trade of the owner, hence an ordinary asset. This is so, as the
owner is now engaged in the business of subdividing real estate.
(Calasanz v. Commissioner of Internal Revenue, 144 SCRA at p. 672)
3
1
3
2
a.
Commissioner of Internal Revenue v. Manila Jockey
Club, 108 Phil. 821 (1960) is different from Commissioner of
Internal Revenue v. Citytrust Investment Phils., Inc., G. R. No.
139786, September 27, 2006 and companion case. Manila Jockey
Club paid amusement taxes on its commission in the total amount of
bets called wager funds and did not include the 5% of the fund
which went to the Board on Races and to the owners of horses and
jockeys. The Supreme Court rules that the gross receipts of Manila
Jockey Club should not include the 5% because although delivered
to the Club, such money has been especially earmarked by law or
regulation for other persons.
Manila Jockey does not apply because what happened there
was earmarking and not withholding. Earmarking is not the same as
withholding. Amounts earmarked do not form part of gross receipts
because these are by law or regulation reserved for some person
other than the taxpayer, although delivered or received. On the
contrary, amounts withheld form part of gross receipts because there
are in constructive possession and not subject to any reservation, the
withholding agent being merely a conduit in the collection process.
(Commissioner of Internal Revenue v. Citytrust Investment Phils., Inc.,
G. R. No. 139786, September 27, 2006 and companion case)
b.
There are distinctions between the 20% FWT on
interest income and the 5% GRT on banks. Since the two are
different there is no double taxation.
1)
FWT is an income tax under Title II of the Code
(Tax on Income) while GRT is a percentage tax under Title V of
the Tax Code.
2)
Percentage tax is a national tax measured by a
certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross
receipts or earnings derived by any person engaged in the sale
of services while an income tax is a national tax imposed on
the net or gross income realized in a taxable year.
3)
Income tax is subject to withholding while
percentage is not. (Commissioner of Internal Revenue v.
Citytrust Investment Phils., Inc., G. R. No. 139786, September
27, 2006 and companion case)
61.
MBC was incorporated in 1961 and engaged in
commercial banking operations since 1987. On May 22, 1987, it
ceased operations that year by reason of insolvency and its
assets and liabilities were placed under the charge of a
government-appointed receiver. On June 23, 1999, the BSP
authorized MBC to operate as a thrift bank.
In 2000, It filed its tax return for the year 1999 paying the
amount of P33 million computed in accordance with the
minimum corporate income tax (MCIT). It sought the BIRs
ruling on whether it is entitled to the four (4) year grace period
for paying on the basis of MCIT reckoned from 1999. BIR then
ruled that cessation of business activities as a result of being
placed under involuntary receivership may be an economic
reason for suspending the imposition of the MCIT.
As a result of the ruling MBC filed an application for
refund of the P33 million. Due to the BIRs inaction, MBC filed a
petition for review with the CTA.
The CTA denied the petition on the ground that MBC is not
a newly organized corporation. In a volte facie the BIR now
maintains that MBC should pay the MCIT beginning January 1,
1998 as it did not close its business operations in 1987 but
merely suspended the same. Even if placed under receivership,
the corporate existence was never affected. Thus, it falls under
the category of an existing corporation recommencing its
banking operations.
Should the refund be granted ?
SUGGESTED ANSWER: Yes. The MCIT shall be imposed
beginning in the fourth taxable year immediately following the year in
which the corporation commenced its business operations. [Sec. 27
(E) (1), NIRC of 1997]
The date of commencement of operations of a thrift bank is the
date it was registered with the SEC or the date when the Certificate of
Authority to Operate was issued to it by the Monetary Board,
whichever comes later. (Sec. 6, Rev. Regs. No. 4-95)
Clearly then. MBC is entitled to the grace period of four years
from June 23, 1999 when it was authorized by the BSP to operate as
a thrift bank before the MCIT should be applied to it. (Manila Banking
Corporation v. Commissioner of Internal Revenue, G. R. No. 168118,
August 26, 2006)
NOTES AND COMMENTS:
a.
The MCIT and when should be imposed and the four
(4) year grace period. A minimum corporate income tax of two
percent (2%) of the gross income as of the end of the taxable year, as
defined herein, is hereby imposed on a corporation taxable under this
Title, beginning on the fourth taxable year immediately following the
year in which such corporation commenced its business operations,
when the minimum corporate income tax is greater than the tax
computed under Subsection (A) of this section for the taxable year.
[Sec. 27 (E) (1), NIRC of 1997]
b.
Period when a corporation becomes subject to the
MCIT. (5) Specific rules for determining the period when a
3
3
ESTATE TAXES
1.
2.
a.
Expenses, losses, claims, indebtedness and taxes;
b.
Property previously taxed;
c.
Transfers for public use;
d.
The Family Home up to a value not exceeding P1
million;
e.
Standard deduction of P1 million;
f.
Medical expenses not exceeding P500,000.00;
g.
Amount of exempt retirement received by the heirs
under Rep. Act Mo. 4917;
h.
Net share of the surviving spouse in the conjugal
partnership.
4.
Not every inter-vivos transfer in anticipation of death is
considered transfer in contemplation of death for purposes of
determining the property to be included in the gross estate of a
decedent.
5.
To be considered a transfer in contemplation of
death the decedent has at any time made a transfer, by trust or
otherwise, in contemplation of or intended to take effect in possession
or enjoyment at or after death [Sec. 85 (B), NIRC of 1997]. It is
clear that the properties are not transferred in contemplation of or
intended to take effect in possession or enjoyment at or after death.
6.
There is no transfer in contemplation of death if there is
no showing the transferor retained for his life or for any period which
does not in fact end before his death: (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the
right, either alone or in conjunction with any person, to designate the
person who shall possess or enjoy the property or the income
therefrom. [Sec. 85 (B), NIRC of 1997]
7.
3
4
DONORS TAXES
1.
stranger ?
SUGGESTED ANSWER:
When
the
donee
or
beneficiary is a stranger, the tax payable by the donor shall be 30% of
the net gifts.
2.
stranger ?
SUGGESTED ANSWER: A stranger is a is person who is not
a:
a.
Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or
b.
Relative by consanguinity in the collateral line within the
fourth degree of relationship. [Sec. 99 (B), NIRC of 1997]
NOTES AND COMMENTS: All relatives by affinity, irrespective
of the degree, are considered as strangers.
3.
4.
For purposes of the donors tax, what is meant
by net gifts ?
SUGGESTED ANSWER: The net economic benefit from
the transfer that accrues to the donee. Accordingly, if a
mortgaged property is transferred as a gift, but imposing upon
the donee the obligation to pay the mortgage liability, then the
net gift is measured by deducting from the fair market value
of the property the amount of the mortgage assumed. (last
par., Sec. 11, Rev. Regs.No.2-2003)
5.
How are gifts of personal property to be valued
for donors tax purposes ?
SUGGESTED ANSWER: The market value of the personal
property at the time of the gift shall be considered the amount of the
gift. (Sec. 102, NIRC of 1997)
6.
What is the valuation of donated real property
for donors tax purposes ?
SUGGESTED ANSWER: The real property shall be appraised
at its fair market value as of the time of the gift.
However, the appraised value of the real property at the time of
the gift shall be whichever is the higher of:
a.
the fair market value as determined by the
Commissioner of Internal Revenue (zonal valuation) or
b.
the fair market value as shown in the schedule of values
fixed by the Provincial and City Assessors. [Sec. 102, in relation to
Sec. 88 (B) both of the NIRC of 1997]
b.
Supposing that instead of a general
renunciation, B renounced her hereditary share in As
estate to X who is a special child, would your answer be
the same ? Explain.
SUGGESTED ANSWER: My answer would be different. The
renunciation in favor of X would be subject to donors tax.
This is so because the renunciation was specifically and
categorically done in favor of X and identified heir to the exclusion
or disadvantage of Y and Z, the other co-heirs in the hereditary
estate. (4th par., Sec. 11, Rev. Regs. No. 2-2003)
3
5
b.
The donation by a resident or non-resident of a prize to
an athlete in an international sports tournament held abroad and
sanctioned by the national sports association is exempt from donors
tax (Sec. 1, Rep. Act No. 7549)
c.
Political contributions made by a resident or non-resident
individual if registered with the COMELEC irrespective of whether
donated to a political party or individual.
However, the Corporation Code prohibits corporations from
making political contributions. (Corp. Code, Title IV, Sec. 36.9)
d.
Dowries or gifts made on account of marriage and
before its celebration or within one year thereafter by residents who
are parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first ten thousand pesos
(P10,000.00);
e.
Gifts made by residents or non-residents to or 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
subdivisions of the said Government;
f.
Gifts made by residents or non residents in favor of an
educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization
or research institution or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall be used by such
donee for administration purposes. [Sec. 101 (A), NIRC of 1997,
numbering and arrangement supplied]
g.
Gifts made by non-resident aliens outside of the
Philippines to Philippine residents are exempt from donors taxes
because taxation is basically territorial. The transaction, which should
have been subject to tax was made by non-resident aliens and took
place outside of the Philippines.
separated only by two days because the basis is the calendar year.
Leon would be enjoying the exemption for the first P100,000.00 net
gifts for each calendar year.
10.
1.
2.
3
6
activity, for a valuable consideration, and not exempt under the Tax
Code, other special laws, or any international agreement.
(Commissioner, of Internal Revenue v. American Express
International, Inc. (Philipppine Branch), G. R. No. 152609, June 29,
2005 citing various cases and authorities)
VAT is a percentage tax imposed on any person whether or
not a franchise grantee, who in the course of trade or business, sells,
barters, exchanges, leases, goods or properties, renders services. It
is also levied on every importation of goods whether or not in the
course of trade or business. The tax base of the VAT is limited only
to the value added to such goods, properties, or services by the
seller, transferor or lessor. Further, the VAT is an indirect tax and
can be passed on to the buyer. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408, October 6, 2008)
3.
4.
The VAT is a tax on consumption. Explain the
meaning of consumption as used under the VAT system.
Give an example.
SUGGESTED ANSWER: Consumption is "the use of a thing
in a way that thereby exhausts it."
Applied to services, the term means the performance or
"successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" Unlike
goods, services cannot be physically used in or bound for a specific
place when their destination is determined. Instead, there can only
be a "predetermined end of a course" when determining the service
"location or position x x x for legal purposes."
5.
SUGGESTED ANSWER:
a.
Any person who, in the course of his trade or business,
1)
Sells, barters, exchanges or leases goods or
properties, or
2)
renders services, and
b.
any person who imports goods xxx
However, in the case of importation of taxable goods, the
importer, whether an individual or corporation and whether or not
made in the course of his trade or business, shall be liable to VAT
xxx. (Rev. Regs. No. 16-2005,Sec. 4.105-1, paraphrasing supplied)
6.
What are the various VAT methods and
systems ?
SUGGESTED ANSWER:
a.
Cost deduction method. This is a single-stage tax
which is payable only by the original sellers. [Abakada Guro Party
List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1,
2005 and companion cases citing Deoferio, Jr. V. A. and Mamalateo,
V.C., The Value Added Tax in the Philippines (First Edition 2000)]
This was subsequently modified and a mixture of cost deduction
method and tax credit method was used to determine the valueadded tax payable. (Ibid.)
b.
Tax credit method. This method relies on invoices, an
entity can credit against or subtract from the VAT charged on its
sales or outputs the VAT paid on its purchases, inputs and imports.
[Commissioner of Internal Revenue v. Seagate Technology
(Philippines), G. R. No. 153866, February 11, 2005 citing various
cases and authorities; Abakada Guro Party List (etc.) v. Ermita, etc.,
et al., G. R. No. 168056, September 1, 2005 and companion cases)
If at the end of a taxable period, the output taxes charged by
a seller are equal to the input taxes passed on by the suppliers, no
payment is required. It is when the output taxes exceed the input
3
7
taxes that the excess has to be paid. If however, the input taxes
exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from acquisition
of capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer or credited against other internal revenue
taxes. [Commissioner of Internal Revenue v. Seagate Technology
(Philippines), G. R. No. 153866, February 11, 2005 citing various
cases and authorities]
7.
The VAT being imposed on the increase in
worth merit or improvement of the goods or services.
How is this done ?
SUGGESTED ANSWER: The VAT utilizes the concept of the
output and input taxes.
8.
9.
SUGGESTED ANSWER: The VAT due on or paid by a VATregistered person on importation of good or local purchases of
goods or services, including lease or use of properties, in the course
of his trade or business. (Rev. Regs. No. 4.110-1, 1st par.)
10.
273 imposing a 10% multi-stage tax on all sales, it was only then
that the crediting of the input tax paid on purchase or importation of
goods and services by VAT-registered persons against the output tax
was established. This continued with the Expanded VAT Law (R.A.
No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The
right to credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can limit. It should be
stressed that a person has no vested right in statutory privileges.
(ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207,
October 15, 2005, and companion cases, on the motion for
reconsideration)
12.
What is the concept of transitional input tax
credits on beginning inventories ?
SUGGESTED ANSWER:
Taxpayers who become VATregistered persons upon exceeding the minimum turnover of
P1,500,000.00 in any 12-month period, or who voluntarily register
even if their turnover does not exceed P1,500,000.00 (except
franchise grantees of radio and television broadcasting whose
threshold is P10,000,000.00) shall be entitled to a transitional input
tax on the inventory on hand as of the effectivity of their VAT
registration, on the following:
a.
goods purchased for resale in their present condition;
b.
materials purchased for further processing, but which
have not yet undergone processing;
c.
goods which have been manufactured by the taxpayer;
d.
goods in process for sale; or
e.
goods and supplies for use in the course of the
taxpayers trade or business as a VAT-registered person. [Rev.
Regs. No. 16-2005, Sec.4.111-1, (a), 1st par., arrangement and
numbering supplied]
14.
credits ?
SUGGESTED ANSWER:
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,
shall be allowed a presumptive input tax, creditable against the
output tax, 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.
As used in this paragraph, the term processing shall mean
pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form or inner
substance of a product in such a manner as to prepare it for special
3
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use to which it could not have been put in its original form or
condition. [Rev. Regs. No. 16-2005, Sec.4.111-1, (b)]
16. Explain
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19.
to VAT ?
business of the seller shall be subject to VAT. (Rev. Regs. No. 162005, Sec. 4.106-3, 1st par.)
Thus, capital transactions of individuals are not subject to
VAT. Only real estate dealers are subject to VAT.
20.
On Jan. 10, 2008, X, a domestic corporation
engaged in the real estate business, sold a building for
P10,000,000.00. Is the sale subject to the value-added tax
(VAT)? If so, how much? Explain.
SUGGESTED ANSWER: Yes. 12% on the gross selling price
because the sale was made in the ordinary course of trade of
business of X, a domestic corporation engaged in the real estate
business.
21.
VAT ?
SUGGESTED ANSWER:
The following sales of real
properties are exempt from VAT, namely:
a.
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business;
b.
Sale of real properties utilized for low-cost housing as
defined by RA No. 7279, otherwise known as the Urban and
Development Housing Act of 1992 and other related laws, such as
RA No. 7835 and RA No. 8763.
xxx
xxx
xxx
c.
Sale of real properties utilized for socialized housing
as defined under RA No. 7279, and other related laws wherein the
price ceiling per unit is P225,000.00 or as may from time to time be
determined by the HUDCC and the NEDA and other related laws.
xxx
xxx
xxx
d.
Sale of residential lot valued at One Million Five
Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot
and other residential dwellings valued at Two Million Give Hundred
Thousand Pesos (P2,500,000.00) and below where the instrument of
sale/transfer/disposition was executed on or after November 1,
2005, provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amounts stated herein shall be
adjusted to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO); provided, further,
that such adjustment shall be published through revenue regulations
to be issued not later than March 31 of each year.
If two or more adjacent residential lots are sold or disposed in
favor of one buyer, for the purpose of utilizing the lots as one
residential lot, the sale shall be exempt from VAT only if the
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22.
What is the VAT on services and lease of
properties ?
SUGGESTED ANSWER:
a.
There shall be levied, assessed, and collected,
b.
a value-added tax equivalent to ten percent (10%) of
gross receipts
c.
derived from the sale or exchange of services,
1)
including the use or lease of properties.
d.
Provided,
That
the
President,
upon
the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
1)
Value-added tax collection as a percentage of
Gross Domestic product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
2)
National government deficit as a percentage of
GDP of the previous year exceeds one and one-half percent
(1 1/2%). [NIRC of 1997, Sec. 108 (A), as amended by R.A.
No. 9337, arrangement and numbering supplied]
23.
i.
dealers in securities;
j.
lending investors;
k.
transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire
and other domestic common carriers by land relative to their
transport of goods or cargoes;
l.
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines;
m.
sales of electricity by generation companies,
transmission, and/or distribution companies;
n.
franchise grantees of electric utilities, telephone
and telegraph, radio and television broadcasting and all other
franchise grantees except franchise grantees of radio and/or
television broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos (P10,000,000.00),
and franchise grantees of gas and water utilities;
o.
non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and
bonding companies; and
p.
similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or
mental faculties. [NIRC of 1997, Sec. 108 (A), as amended by R.A.
No. 9337; Rev. Regs. No. 16-2005, Sec. 4,108-2, 1 st par.,
arrangement and numbering supplied]
24.
X
Corporation
rendered
technical
services through its work engineers to PNB and SSS in
the construction of their buildings. The work engineers
acted as overseers of X Corporation, rendering their
professional services as employees of X corporation.
Should X Corporation be subjected to VAT or should it be
subjected to tax on the professional services of those
employees themselves? Decide the case with reason.
SUGGESTED ANSWER: X Corporation is subject to VAT.
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c.
The supply of scientific, technical, industrial or
commercial knowledge or information;
d.
The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling the application
or enjoyment of any such property, or right as is mentioned in
subparagraph (2) hereof or any such knowledge or information as is
mentioned in subparagraph (3) hereof; or
e.
The supply of services by a non-resident person or his
employee in connection with the use of property or rights belonging
to, or the installation or operation of any brand, machinery or other
apparatus purchased from such non-resident person;
f.
The supply of technical advice, assistance or services
rendered in connection with technical management or administration
of any scientific, industrial or commercial undertaking, venture,
project of scheme;
g.
The lease of motion picture films, film tapes and
discs;
h.
The lease or the use of or the right to use radio,
television, satellite transmission and cable television time. (Rev.
Regs. No. 16-2005, Sec. 4.108-2, 2nd par.)
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2
29.
VAT ?
SUGGESTED ANSWER: As a general rule, the VAT system
uses the destination principle as a basis for the jurisdictional reach
of the tax.
Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are
taxed.
30.
principle ?
33.
4
3
40. A foreign Consortium composed of BWSCDenmark, Mitsui Engineering and Shipbuilding Ltd., and
Misui and Co., Ltd., which entered into a contract with
b.
Could it obtain a refund of the VAT it paid
through the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund
of the 10% output VAT it paid the based on the non-retroactivity of
the prejudicial revocation of the BIR Rulings which held that its
services are subject to 0% VAT and which BWSCMI invoked in
applying for refund of the output VAT. (Commissioner of Internal
Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc., supra)
4
4
41.
a.
The sale of goods or properties and/or services and the
use or lease of properties that is
b.not subject to VAT (output tax) and
c.
the seller is not allowed any tax credit on VAT (input
tax) purchases.
The person making the exempt sale of goods, properties or
services shall not bill any output tax to his customers because the
said transaction is not subject to VAT. [Rev. Regs. No. 16-2005,
Sec. 4.109-1 (A), arrangement and numbering supplied]
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5
(7)
Services rendered by fire, marine or
miscellaneous insurance agents of foreign insurance
companies. (Sec. 124)
(8)
Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing exhibitions
professional basketball games, jai-Alai and race tracks.
(Sec. 125). and
(9)
Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock exchange or
through initial public offering. (Sec. 127)
(F)
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into raw
sugar;
Agricultural contract growers refers to those persons
producing for others poultry, livestock or other agricultural and
marine food products in their original state.
(G) Medical, dental, hospital and veterinary services except
those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic
operates a pharmacy or drug store, the sale of drugs and medicine
is subject to VAT.
(H) Educational services rendered by private educational
institutions, duly accredited by the Department of Education
(DEPED), the Commission on Higher Education (CHED), the
Technical Education And Skills Development Authority (TESDA) and
those rendered by government educational institutions;
Educational services shall refer to academic, technical or
vocational education provided by private educational institutions
duly accredited by the DepED, the CHED and TESDA and those
rendered by government educational institutions and it does not
include seminars, in-service training, review classes and other
similar services rendered by persons who are not accredited by the
DepED, the CHED and/or the TESDA.
(I)
Services rendered by individuals pursuant to an
employer-employee relationship;
(J)
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which act
as supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region and do
not earn or derive income from the Philippines;
(K)
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under special
laws, except those under Presidential Decree No. 529 Petroleum
Exploration Concessionaires under the Petroleum Act of 1949; and;
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6
(L)
Sales by agricultural cooperatives duly registered with
the Cooperative Development Authority (CDA) to their members as
well as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct farm
inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing
of their produce;
(M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative Development
Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus ratably
distributed among the members;
Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
(O) Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business, or real property utilized for low-cost and socialized housing
as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws, such
as RA No. 7835 and RA No. 8765, residential lot valued at One
million five hundred thousand pesos (P 1,500,000) and below, house
and lot, and other residential dwellings valued at Two million five
hundred thousand pesos (P 2,500,000) and below: Provided, That
not later than January 31, 2009 and every three (3) years thereafter,
the amounts herein stated shall be adjusted to their present values
using the Consumer Price Index, as published by the National
Statistics Office (NSO);
(Q) Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P 10,000) Provided, That not later
than January 31, 2009 and every three (3) years thereafter, the
amount herein stated shall be adjusted to its present value using the
Consumer Price Index as published by the National Statistics Office
(NSO);
(R) Sale, importation, printing or publication of books and
any newspaper, magazine, review or bulletin which appears at
regular intervals with fixed prices for subscription and sale and
which is not devoted principally to the publication of paid
advertisements;
(S)
Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations; Provided,
that the exemption from VAT on the importation and local purchase
of passenger and/or cargo vessels shall be limited to those of one
hundred fifty (150) tons and above, including engine and spare parts
of said vessels; Provided, further, that the vessels be imported shall
comply with the age limit requirement, at the time of acquisition
counted from the date of the vessels original commissioning, as
follows: (i) for passenger and/or cargo vessels, the age limit is
fifteen years (15) years old, (ii) for tankers, the age limit is ten (10)
years old, and (iii) For high-speed passenger cars, the age limit is
five (5) years old, Provided, finally, that exemption shall be subject
to the provisions of section 4 of Republic Act No. 9295, otherwise
known as The Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport operations;
Provided, that the said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or
passenger from a port in the Philippines directly to a foreign port
without stopping at any other port in the Philippines; provided,
further, that if any portion of such fuel, goods or supplies is used for
purposes other than that mentioned in this paragraph, such portion
of fuel, goods and supplies shall be subject to 10% VAT (now 12%);
(U) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries; and
(V) Sale or lease of goods or properties or the performance
of services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed
the amount of One million five hundred thousand pesos
(P1,500,000): Provided, That not later than January 31, 2009 and
every three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price Index as
published by the National Statistics Office (NSO).
For purposes of the threshold of P1,500,000.00, the husband
and wife shall be cnsidered separate taxpayers. However, the
aggregation rule for each taxpayer shall apply. For instance, if a
profesional, aside from the practice ofhis profession, also derives
revenue from other lines of business which are otherwise subject to
VAT, the same shall be combined for purposes of determining
whether the threshold has been exceeded. Thus, the VAT-exempt
sales shall to be icluded in determining the threshold. [NIRC of
1997, Sec. 109 (1), as amended by R. A. No. 9337; words in italics
4
7
RETURNS AND
WITHHOLDING
1.
Income tax returns being public documents, until
controverted by competent evidence, are competent evidence, are
prima facie correct with respect to the entries therein. (Ropali Trading
v. NLRC, et al., 296 SCRA 309, 317)
2.
Married individuals, whether citizens, resident or
non-resident aliens, who do not derive income purely from
compensation shall file a return for the taxable year to include
the income of both spouses, but where it is impracticable for the
spouses to file one return, each spouse may file a separate return of
income but the returns so filed shall be consolidated by the Bureau
for purposes of verification. [Section 51 (D) of the NIRC of 1997]
3.
Individuals required to file an income tax return.
a.
Every Filipino citizen residing in the Philippines;
b.
Every Filipino citizen residing outside the Philippines on
his income from sources within the Philippines;
c.
Every alien residing in the Philippines on income derived
from sources within the Philippines; and
d.
Every nonresident alien engaged in trade or business or
in the exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC
of 1997]
4. Individuals who are not required to file an income tax
return.
a.
An individual whose gross income does not exceed his
total personal and additional exemptions for dependents, Provided,
That a citizen of the Philippines and any alien individual engaged in
business or practice of profession within the Philippines shall file an
income tax return regardless of the amount of gross income;
b.
An individual with respect to pure compensation income
for services in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items, derived from
sources within the Philippines, the income tax on which has been
correctly withheld, Provided, That an individual deriving compensation
concurrently from two or more employers at any time during the
taxable year shall file an income tax return: Provided, further, That an
individual whose pure compensation income derived from sources
within the Philippines exceeds Sixty thousand pesos (P60,000.00),
shall also file an income tax return;
c.
An individual whose sole income has been subject to
final withholding tax;
d.
An individual who is exempt from income tax pursuant to
the provisions of the NIRC of 1997, and other laws, general or special.
[Sec. 51 (A) (2), NIRC of 1997]
NOTES AND COMMENTS: Amendments under Rep. Act No.
9504 are not incouded.
5.
An individual who is not required to file an income
tax return may nevertheless be required to file an information
return. [Sec. 51 (A) (3), NIRC of 1997]
6.
A corporation files its income tax return and pays its
income tax four (4) times during a single taxable year. Quarterly
4
8
returns are required to be filed for the first three quarters, then a final
adjustment return is filed covering the total taxable income for the
whole taxable year, be it calendar or fiscal.
7.
An individual earning from the practice of his
profession or who engages in trade or business files his income
tax return and pays his income tax four (4) times during a single
taxable year. Quarterly returns are required to be filed for the first
three quarters, then an annual income tax return is filed covering the
total taxable income for the whole of the previous calendar year.
8.
The purpose of the above four (4) times a year
requirement is to make available sufficient funds to meet the
budgetary requirements, on a quarterly basis thereby increasing
government liquidity. It also eases hardships on the part of individuals
who are required to make this four time return. Thus, the taxpayer
does not have to raise large sums of money in order to pay the tax.
9.
An individual earning purely compensation income
files only one annual income tax return covering the total taxable
compensation income for the whole of the previous calendar year.
10.
Under the withholding tax system, taxes imposed or
prescribed by the NIRC of 1997 are to be deducted and withheld
by the payors from payments made to payees for the former to
pay directly to the Bureau of Internal Revenue. It is also known as
collection of the tax at source.
11.
A withholding agent is explicitly made personally
liable under the Tax Code for the payment of the tax required to
be withheld, in order to compel the withholding agent to withhold the
tax under any and all circumstances. In effect, the responsibility for
the collection of the tax as well as the payment thereof is
concentrated upon the person over whom the Government has
jurisdiction.
(Filipinas Synthetic Fiber Corporation v. Court of
Appeals, et al., G.R. Nos. 118498 & 124377, October 12, 1999) The
system facilitates tax collection.
12.
The two (2) types of withholding at source are the 1) final
withholding tax; and 2) creditable withholding tax.
13. Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as a
full and final payment of the income due from the payee on the
said income. [1st sentence, 1st par., Sec. 2.57 (A), Rev. Regs. No. 298]
The liability for payment of the tax rests primarily on the payor
or the withholding agent.. Thus, in case of his failure to withhold the
tax or in case of under withholding, the deficiency tax shall be
collected from the payor withholding agent. The payee is not required
to file an income tax return for the particular income.
14.
Under the creditable withholding tax system, taxes
withheld on certain income payments are intended to equal or at
least approximate the tax due from the payee on the said
income. The income recipient is still required to file an income tax
return and/or pay the difference between the tax withheld and the tax
due on the income. [1 st and 2nd sentences, Sec. 257(B), Rev. Regs.
No. 2-98]
15.
The two kinds of creditable withholding taxes are (a)
taxes withheld on income payments covered by the expanded
withholding tax; and (b) taxes withheld on compensation income.
16.
Payments to the following are exempt from the
requirement of withholding or when no withholding taxes
required:
a.
National Government and its instrumentalities including
provincial, city, or municipal governments;
b.
Persons enjoying exemption from payment of income
taxes pursuant to the provisions of any law, general or special, such
as but not limited to the following:
1) Sales of real property by a corporation which is
registered with and certified by the HLURB or HUDCC as
engaged in socialized housing project where the selling price of
the house and lot or only the lot does not exceed P180,000.00
in Metro Manila and other highly urbanized areas and
P150,000.00 in other areas or such adjusted amount of selling
price for socialized housing as may later be determined and
adopted by the HLURB;
2)
Corporations registered with the Board of
Investments and enjoying exemptions from income under the
Omnibus Investment Code of 1997;
3)
Corporations exempt from income tax under Sec.
30, of the Tax Code, like the SSS, GSIS, the PCSO, etc.
However, income payments arising from any activity which is
conducted for profit or income derived from real or personal
property shall be subject to a withholding tax. (Sec. 57.5, Rev.
Regs. No. 2-98)
4
9
17. A erroneously withheld the amount of 15% from the
selling price of books authored by W when the correct rate
should have been 10% only. Since W is out of the country, A
applied for a refund of the excess withholding of 5%. May A
properly apply for the refund ? Explain.
SUGGESTED ANSWER: Yes. In applications for refund, the
withholding agent is a taxpayer because if he does not pay the tax
shall be collected from him. (Commissioner of Internal Revenue v.
Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA
377, 383-386),
NOTES AND COMMENTS:
a.
For tax amnesty purposes, the withholding agent is
not a taxpayer because he is made to pay the tax where he fails to
withhold as a penalty and not that the tax is due from him.
(Commissioner of Internal Revenue v. Court of Appeals, et al., G.R.
No. 108576, January 20, 1999, the Anscor case)
the date prescribed for payment until the amount is fully paid. [Sec.
249 (A) (B), NIRC of 1997]
5.
Delinquency interest, defined. The interest assessed
and collected on the unpaid amount until fully paid where there is
failure on the part of the taxpayer to pay the amount die on any return
required to be filed; or the amount of the tax due for which no return is
required; or a deficiency tax, or any surcharge or interest thereon, on
the date appearing in the notice and demand by the Commissioner of
Internal Revenue. [Sec.249 (c), NIRC of 1997]
6.
After resolving the issues the BIR Commissioner
reduced the assessment. Was it proper to impose delinquency
interest despite the reduction of the assessment ? Why ?
SUGGESTED ANSWER: Yes. The intention of the law is to
discourage delay in the payment of taxes due to the State and in this
sense the surcharge and interest charged are not penal but
compensatory in nature they are compensation to the State for the
delay in payment, or for the concomitant tuse of the funds by the
taxpayer beyond the date he is supposed to have paid them to the
State. (Bank of the Philippine Islands v. Commissioner of Internal
Revenue, G. R. No. 137002, July 27, 2006)
7.
Compromise penalty, defined. The amount agreed
upon between the taxpayer and the Government to be paid as a
penalty in cases of a compromise.
8.
As a result of divergent rulings on whether it is
subject to tax or not, the taxpayer was not able to pay his taxes
on time. Imposed surcharges and interests for such delay, the
taxpayer not invokes good faith with the BIR countering by
saying that good faith is not a valid defense for violation of a
special law. Furthermore, the BIR further raises the defense that
the government is not bound by the errors of its agents. Who is
correct ?
ANSWER: The taxpayer is correct. The settled rule is that
good faith and honest belief that one is not subject to tax on the basis
of previous interpretation of government agencies tasked to
implement the tax, are sufficient justification to delete the imposition
of surcharges. (Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of
Internal Revenue, G. R. No. 166786, September 11, 2006)
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c. Within sixty (60) days from the filing of the protest, all
relevant supporting documents shall be submitted; otherwise the
assessment shall become final. (4th par., Ibid.)
5
1
8. The two (2) year period and the thirty (30) day period
should be applied on a whichever comes first basis. Thus, if the 30
days is within the 2 years, the 30 days applies, if the 2 year period is
about to lapse but there is no decision yet by the Commissioner which
would trigger the 30-day period, the taxpayer should file an appeal,
despite the absence of a decision. (Commissioners, etc. v. Court of
Tax Appeals, et al., G. R. No. 82618, March 16, 1989, unrep.)
9. Where the taxpayer is a corporation the two year
prescriptive period from date of payment for refund of income taxes
should be the date when the corporation filed its final adjustment
return not on the date when the taxes were paid on a quarterly basis.
(Philippine Bank of Communications v. Commissioner of Internal
Revenue, et al., G.R. No. 112024, January 28, 1999)
Generally speaking it is the Final Adjustment Return, in which
amounts of the gross receipts and deductions have been audited and
adjusted, which is reflective of the results of the operations of a
business enterprise. It is only when the return, covering the whole
year, is filed that the taxpayer will be able to ascertain whether a tax is
still due or refund can be claimed based on the adjusted and audited
figures. (Bank of the Philippine Islands v. Commissioner of Internal
Revenue, G.R. No. 144653, August 28, 2001)
10. Outline of tax remedies of a taxpayer and the
government relative to ASSESSMENT of internal revenue taxes.
a. The taxpayer files his tax return.
b. A Letter of Authority is issued authorizing BIR examiner to
audit or examine the tax return and determines whether the full and
complete taxes have been paid.
c. If the examiner is satisfied that the tax return is truly
reflective of the taxable transaction and all taxes have been paid, the
process ends. However, if the examiner is not satisfied that the tax
return is truly reflective of the taxable transaction and that the taxes
have not been fully paid, a Notice of Informal Conference is issued
inviting the taxpayer to explain why he should not be subject to
additional taxes.
d. If the taxpayer attends the informal conference and the
examiner is satisfied with the explanation of the taxpayer, the process
is again ended.
If the taxpayer ignores the invitation to the informal
conference, or if the examiner is not satisfied with taxpayers
5
2
taxpayer could not pay the tax, then apply for a refund, and if denied
appeal the same to the Court of Tax Appeals.
h. If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from the submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30) days
from receipt of the adverse decision, or from the lapse of the one
hundred eighty (180-) day period, with an application for the issuance
of a writ of preliminary injunction to enjoin the BIR from collecting the
tax subject of the appeal.
If the taxpayer fails to so appeal, the denial of the
Commissioner or the inaction of the Commissioner would result to the
notice of assessment becoming final and collectible and the BIR could
then utilize its administrative and judicial remedies to collect the tax.
i. A decision of a division of the Court of Tax Appeals
adverse to the taxpayer or the government may be the subject of a
motion for reconsideration or new trial, a denial of which is
appealable to the Court of Tax Appeals en banc by means of a
petition for review. .
The Court of Tax Appeals, has a period of twelve (12) months
from submission of the case for decision within which to decide.
j. If the decision of the Court of Tax Appeals en banc affirms
the denial of the protest by the Commissioner or the assessment in
case of failure by the Commissioner to decide the taxpayer must file a
petition for review on certiorari with the Supreme Court within fifteen
(15) days from notice of the judgment on questions of law. An
extension of thirty (30) days may for justifiable reasons be granted. If
the taxpayer does not so appeal, the decision of the Court of Tax
Appeals would become final and this has the effect of making the
assessment also final and collectible. The BIR could then use its
administrative and judicial remedies to collect the tax.
11.
Requisites for Formal Letter of Demand and
Assessment Notice. The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the facts, the law, rules
and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall
be void. The same shall be sent to the taxpayer only by registered
mail or by personal delivery.
11-A.. What is the burden of taxpayers seeking tax refunds
or credits ?
SUGGESTED ANSWER: It has always been the rule that
those seeking tax refunds or credits bear the burden of proving the
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5
4
14.
Applicability of Proton Pilipinas Corporation vs.
Republic, etc., G. R. No. 165027, October 16, 2006. The case was
decided on factual antecedents before R. A. No. 9282 which grants
criminal jurisdiction to the Court of Tax Appeals if the value of the tax
is P1 million or more.
Interpreting the provisions of Republic Act No. 8249, which
provides that the civil action for recovery of civil liability should be
jointly determined in the criminal proceeding by the Sandiganbayan or
appropriate courts, the prohibition of reservation of the criminal
aspect, the Supreme Court said that tax collection cases may be tried
separately, and not before the Sandiganbayan in Rep. Act No. 3019
cases. This is so because, Rep. Act No. 3019 is silent on the
definition of civil liability and the application of Art. 104 of the Revised
Penal Code does not cover taxes. Consequently, the Supreme Court
ruled that on the tax collection case the RTC would have jurisdiction.
Interpretation by the author in the light of Rep. Act. 9282. If
it is a criminal case cognizable by the Sandiganbayan, then this court
retains jurisdiction, with the civil jurisdiction being cognizable by the
CTA or the lower courts depending on the amount.
15.
On January 24, 1995, the then Secretary of
Finance, through the recommendation of the then
Commissioner of
Internal
Revenue
issued
Revenue
Regulations [Rev. Reg.] No. 1-95, providing the Rules and
Regulations to Implement the Tax Incentives Provisions Under
Paragraphs (b) and (c) of Section 12, [R.A.] No. 7227,
[o]therwise known as the Bases Conversion and Development
Act of 1992. Subsequently, Rev. Reg. No. 12-97 was issued
providing for the Regulations Implementing Sections 12(c)
and 15 of [R.A.] No. 7227 and Sections 24(b) and (c) of [R.A.]
No. 7916 Allocating Two Percent (2%) of the Gross Income
Earned by All Businesses and Enterprises Within the Subic,
Clark, John Hay, Poro Point Special Economic Zones and other
Special Economic Zones under PEZA. On September 27, 1999,
Rev. Reg. No. 16-99 was issued Amending [RR] No. 1-95, as
amended, and other related Rules and Regulations to
Implement the Provisions of paragraphs (b) and (c) of Section
12 of [R.A.] No. 7227, otherwise known as the Bases
Conversion and Development Act of 1992 Relative to the Tax
Incentives Granted to Enterprises Registered in the Subic
Special Economic and Freeport Zone.
On June 3, 2003, the Commissioner of Internal Revenue
issued Revenue Memorandum Circular (RMC) No. 31-2003
setting the Uniform Guidelines on the Taxation of Imported
Motor Vehicles through the Subic Free Port Zone and Other
Freeport Zones that are Sold at Public Auction,
which
provided for the tax treatments on the transactions involved in
the importation of motor vehicles through the SSEFZ and other
legislated Freeport zones and subsequent sale thereof through
public auction. This was later amended by RMC No. 32-2003.
Asia International Auctioneers and others filed a
complaint before the RTC of Olongapo City, to declare Void,
Ultra Vires, and Unconstitutional [RMC] No. 31-2003 dated June
3, 2003 and [RMC] No. 32-2003 dated June 5, 2003, Rev. Reg.
Nos. 1-95, 12-97 and 16-99 dated January 24, 1995, August 7,
1997 and September 27, 1999, respectively,
They contended that jurisdiction over the case at bar
properly pertains to the regular courts as this is an action to
declare as unconstitutional, void and against the provisions of
[R.A. No.] 7227 the RMCs issued by the CIR. They do do not
challenge the rate, structure or figures of the imposed taxes,
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5
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6
reconsideration.
(Commissioner of Internal Revenue v. Union
Shipping Corporation, 185 SCRA 547)
b.
An indication to the taxpayer by the Commissioner in
clear and unequivocal language of his final denial not the issuance of
the warrant of distraint and levy. What is the subject of the appeal is
the final decision not the warrant of distraint. (Commissioner of
Internal Revenue v. Union Shipping Corporation, 185 SCRA 547)
c.
A BIR demand letter sent to the taxpayer after his protest
of the assessment notice is considered as the final decision of the
Commissioner on the protest. (Surigao Electric Co., Inc. v. Court of
Tax Appeals, et al., 57 SCRA 523)
d.
A letter of the BIR Commissioner reiterating to a
taxpayer his previous demand to pay an assessment is considered a
denial of the request for reconsideration or protest and is appealable
to the Court of Tax Appeals. (Commissioner v. Ayala Securities
Corporation, 70 SCRA 204)
e.
Final
notice
before
seizure
considered
as
commissioners decision of taxpayers request for reconsideration who
received no other response. Commissioner of Internal Revenue v.
Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001 held that
not only is the Notice the only response received: its content and
tenor supports the theory that it was the CIRs final act regarding the
request for reconsideration. The very title expressly indicated that it
was a final notice prior to seizure of property. The letter itself clearly
stated that the taxpayer was being given this LAST OPPORTUNITY
to pay; otherwise, its properties would be subjected to distraint and
levy.
18.
The taxpayer seasonably protested the
assessment issued by the Commissioner of Internal
Revenue. During the pendency of the protest the CIR
issued a warrant of distraint and levy to collect the taxes
subject of the protest.
As counsel what advice shall you give the taxpayer.
Explain briefly your answer.
SUGGESTED ANSWER: The taxpayer should appeal, by way
of a petition for review, to the Court of Tax Appeals not on the ground
of the denial of the protest but on other matter arising under the
provisions of the National Internal Revenue Code. The actual
issuance of a warrant of distraint and levy in certain cases cannot be
considered a final decision on a disputed assessment.
To be a valid decision on a disputed assessment, the decision
of the Commissioner or his duly authorized representative shall (a)
state the facts, the applicable law, rules and regulations, or
5
7
20.
Instances where the Court of Tax Appeals
would have jurisdiction even if there is no decision of the
Commissioner of Customs:
a.
Decisions of the Secretary of Trade and Industry or the
Secretary of Agriculture in anti-dumping and countervailing duty cases
are appealable to the Court of Tax Appeals within thirty (30) days from
receipt of such decisions.
b. In case of automatic review by the Secretary of Finance in
seizure or forfeiture cases where the value of the importation exceeds
P5 million or where the decision of the Collector of Customs which
fully or partially releases the shipment seized is affirmed by the
Commissioner of Customs.
c. In case of automatic review by the Secretary of Finance of a
decision of a Collector of Customs acting favorably upon a customs
protest.
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5
9
d. When the excess tax due on excisable articles has not been
paid; or
e. When an article locally purchased or imported by an exempt
person, such as, but not limited to vehicles, capital equipment,
machineries and spare parts, has been sold, trade or transferred to
non-exempt persons. (Sec. 228, NIRC of 1997)
29.
The word assessment when used in connection with
taxation, may have more than one meaning. More commonly the
word assessment means the official valuation of a taxpayers
property for purpose of taxation. The above definition of
assessment finds application under tariff and customs taxation
as well as local government taxation.
For real property taxation, there may be a special meaning
to the burdens that are imposed upon real properties that have
been benefited by a public works expenditure of a local
government. It is sometimes called a special assessment or a
special levy. (Commissioner of Internal Revenue v. Pascor Realty and
Development Corporation, et al., G.R. No. 128315, June 29, 1999)
For internal revenue taxation assessment as laying a tax.
The ultimate purpose of an assessment to such a connection is to
ascertain the amount that each taxpayer is to pay. (Commissioner of
Internal Revenue v. Pascor Realty and Development Corporation, et
al., G.R. No. 128315, June 29, 1999)
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203, NIRC of 1997). The CIR has three (3) years from the date of
actual filing of the tax return to assess a national internal revenue
tax or to commence court proceedings for the collection thereof
without an assessment. [Bank of Philippine Islands (Formerly Far
East Bank and Trust Company) v. Commissioner of Internal
Revenue, G. R. No. 174942, March 7, 2008]
b. ten years from discovery of the failure to file the tax return
or discovery of falsity or fraud in the return [Sec. 222 (a), NIRC of
1997) ; or
c. within the period agreed upon between the government
and the taxpayer where there is a waiver of the prescriptive period for
assessment (Sec. 222 (b), NIRC of 1997).
34.
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1
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42.
What are the instances that suspends the
running of the prescriptive periods (Statute of Limitations)
within which to make an assessment and the beginning of
distraint or levy or of a proceeding in court for the
collection, in respect of any tax deficiencies?
SUGGESTED ANSWER:
a. When the Commissioner is prohibited from making the
assessment, or beginning distraint, or levy or proceeding in court and
for sixty (60) days thereafter;
b.
When the taxpayer requests for and is granted a
reinvestigation by the commissioner;
c. When the taxpayer could not be located in the address
given by him in the return filed upon which the tax is being assessed
or collected;
d. When the warrant of distraint and levy is duly served upon
the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be located;
and
e. When the taxpayer is out of the Philippines.
NOTES AND COMMENTS:
The holding in Commissioner of Internal Revenue v. Court of
Appeals, et al., G.R. No. 115712, February 25, 1999 (Carnation case)
that the waiver of the period for assessment must be in writing and
have the written consent of the BIR Commissioner is still doctrinal
because of the provisions of Sec. 223, NIRC of 1997 which provides
for the suspension of the prescriptive period:
43.
The signatures of both the Commissioner
and the taxpayer, are required for a waiver of the
prescriptive period, thus a unilateral waiver on the part of the
taxpayer does not suspend the prescriptive period. [Commissioner of
Internal Revenue v. Court of Appeals, et al., G.R. No. 115712,
February 25, 1999 (Carnation case)]
44.
The act of requesting a reinvestigation alone does
not suspend the running of the prescriptive period. The request
for reinvestigation must be granted by the CIR. The Supreme
Court declared that the burden of proof that the request for
reinvestigation had been actually granted shall be on the
Commissioner of Internal Revenue. Such grant may be expressed
in its communications with the taxpayer or implied from the action of
the Commissioner or his authorized representative in response to
the request for reinvestigation. [Bank of Philippine Islands (Formerly
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46.
47.
48.
What are the requirements for the validity
of a taxpayers protest ?
SUGGESTED ANSWER:
a.
It must be filed within the reglementary period of thirty
(30) days from receipt of the notice of assessment.
b.
The taxpayer must not only show the errors of the
Bureau of Internal Revenue but also the correct computation through
1)
A statement of the facts, the applicable law, rules
and regulations, or jurisprudence on which the taxpayers
protest is based,
2)
If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the
applicable law, rules and regulations, or jurisprudence in
support of his protest against some of the several issues on
which the assessment is based, the same shall be considered
undisputed issue or issues, in which case, the taxpayer shall be
required to pay the corresponding deficiency tax or taxes
attributable thereto. (Sec. 3.1.5, Rev. Regs. 12-99)
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4
c.
Within sixty (60) days from filing of the protest, the
taxpayer shall submit all relevant supporting documents. [4 th par.,
Sec. 228 (e), NIRC of 1997]
49. What is the procedure for suspension of collection
of taxes ?
SUGGESTED ANSWER: Where the collection of the amount
of the taxpayers liability, sought by means of a demand for
payment, by levy, distraint or sale of property of the taxpayer, or by
whatever means, as provided under existing laws, may jeopardize
the interest of the government or the taxpayer, an interested party
may file a motion for the suspension of the collection of the tax
liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with
the Court of Tax Appeals.
The motion for suspension of the collection of the tax may be
filed together with the petition for review or with the answer, or in a
separate motion filed by the interested party at any stage of the
proceedings. (Sec. 3, Rule 10, RRCTA effective December 15,
2005)
50-A.
compromise ?
6
5
composed of the
Commissioners.
Commissioner
and
the
four
(4)
Deputy
6
6
56.
The filing of an administrative claim for
refund with the BIR, before filing a case with the Court of
Tax Appeals, is necessary for the following reasons:
6
7
59. What
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8
provision in the Tax Code or special laws, that period would be ten
(10) years under Article 1144 of the Civil Code. (Commissioner of
Internal Revenue v. Philippine National Bank, supra)
61.
ABC Bank filed with the BIR an application for a tax
credit/refund for alleged excess payments of its gross receipts
tax (GRT) for the 3rd and 4th quarters of 2003 and the entire 2004
amounting to P14 million. Since no action was taken by the
Commissioner on its claim, ABC filed a case with the CTA on
October 18, 2005 to comply with the two-year reglementary
period and avoid the prescription of its action. Only July 30,
2007, the CTA rendered a decision denying the claim for ABCs
failure to file its formal offer of evidence in the CTA.
ABC Bank now seeks refuge in Onate v. Court of Appeals,
320 Phil. 344; 250 SCRA 283 (1995) where the Supreme Court
allowed evidence, not formally offered, to be considered on
condition that: (1) evidence must have been identified by
testimony duly recorded and (2) it must have been incorporated
in the records of the case.
Is ABC correct ?
SUGGESTED ANSWER: No. A tax refund s in the nature of a
tax exemption which must be construed strictissimi juris against the
taxpayer.
The taxpayer must present convincing evidence to
substantiate a claim for refund. Without any documentary evidenced
on record, ABC failed to discharge the burden of proving its right to a
tax credit/tax refund.
(Far East Bank & Trust Company v.
Commissioner of Internal Revenue, G. R. No. 149589, September 15,
2006)
62. A simultaneous filing of the application with the BIR
for refund/credit and the institution of the court suit with the CTA
is allowed. There is no need to wait for a BIR denial. REASONS:
a. The positive requirement of Section 230 NIRC (now Sec.
229, NIRC of 1997);
b. The doctrine that delay of the Commissioner in rendering
decision does not extend the peremptory period fixed by the statute;
c. The law fixed the same period two years for filing a claim
for refund with the Commissioner under Sec. 204, par. 3, NIRC (now
Sec. 204 [C], NIRC of 1997), and for filing suit in court under Sec.
230, NIRC (now Sec. 229, NIRC of 1997), unlike in protests of
assessments under Sec. 229 (now Sec. 228, NIRC of 1997), which
fixed the period (thirty days from receipt of decision) for appealing to
the court, thus clearly implying that the prior decision of the
Commissioner is necessary to take cognizance of the case.
(Commissioner of Internal Revenue v. Bank of Philippine Islands, etc.
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9
a.
The claim is filed with the Commissioner of Internal
Revenue within the two-year period from the date of the payment of
the tax.
b.
It is shown on the return of the recipient that the income
payment received was declared as part of the gross income; and
c.
The fact of withholding is established by a copy of a
statement duly issued by the payee showing the amount paid and the
amount of tax withheld therefrom. (Banco Filipino Savings and
Mortgage Bank v. Court of Appeals, et al., G. R. No. 155682, March
27, 2007)
NOTES AND COMMENTS:
a.
Proof of fact of withholding. Sec. 10. Claim for tax
credit or refund. (a) Claims for Tax Credit or Refund of Income tax
deducted and withheld on income payments shall be given due
course only when it is shown on the return that the income payment
received has been declared as part of the gross income and the fact
of withholding is established by a copy of the Withholding Tax
Statement duly issued by the payor to the payee showing the amount
paid and the amount of the tax withheld therefrom xxx (Rev. Regs.
No. 6-85, as amended)
The document which may be accepted as evidence of the third
condition, that is, the fact of withholding, must emanate from the
payor itself, and not merely from the payee, and must indicate the
name of the payor, the income payment basis of the tax withheld, the
amount of the tax withheld and the nature of the tax paid. . (Banco
Filipino Savings and Mortgage Bank v. Court of Appeals, et al., G. R.
No. 155682, March 27, 2007)
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66.
What are the requisites for the refund of
illegally deducted taxes from the income of an employees
trust fund ?
SUGGESTED ANSWER: What has to be established, as a
matter of evidence, is that the amount sought to be refunded to the
bank-trustee corresponds to the tax withheld on the interest income
earned from the exempt employees trust.
The need to be
determinate is important, specially if the bank trustee, in the ordinary
course of its banking business, earns interest income not only from its
investments of employees trusts, but on a whole range of accounts
which do not enjoy the same broad exemption as employees trusts.
(Far East Bank Trust and Company, etc., v. Commissioner of Internal
Revenue, et al., G. R. No. 138919, May 2, 2006)
NOTES AND COMMENTS:
a.
Employees trust fund, defined. An employees trust
fund is a trust established by an employer to provide retirement,
pension, or other benefits to employees - it is a separate taxable
entity established for the exclusive benefit of the employees.
(Development Bank of the Philippines v. Commission on Audit, 422
SCRA 459)
b.
Income of employees trust is tax exempt. Any
provision of law to the contrary notwithstanding, the retirement
benefits received by official and employees of private firms, whether
individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer shall be exempt from all
taxes and shall not be liable to amendment, levy or seizure by or
under any legal or equitable process whatsoever except to pay a debt
of the official or employee concerned to the private benefit plan or
that arising from liability imposed in a criminal action x x x (Sec. 1,
Rep. Act 4917)
A tax-exempt employees trust fund is referred to under the
NIRC of 1997 as a reasonable private retirement plan, which means
a pension, gratuity, stock bonus or profit-sharing plan maintained by
an employer for the benefit of some or all of his officials or
employees, wherein contributions are made by such employer for the
officials or employees, or both, for the purpose of distributing to such
officials and employees the earnings and principal of the fund thus
accumulated, and wherein it is provided in said plan that at no time
shall any part of the corpus or income of the fund be used for, or be
diverted to, any purpose other than for the exclusive benefit of the
said officials or employees. [Sec. 32 (B) (6 ) (a), NIRC of 1997]
c.
Extent of exemption. The tax exemption enjoyed by
employees trust is absolute irrespective of the nature of the tax. It
does not apply only to the tax on interest income from money market
placements, bank deposits, other deposit substitute instruments and
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[3]
Id. at 11.
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2
2.
When is importation deemed terminated
and why is it important to know whether importation has
already ended?
SUGGESTED ANSWER: Importation is deemed terminated
upon payment of the duties, taxes and other charges due upon the
agencies, or secured to be paid, at the port of entry and the legal
permit for withdrawal shall have been granted.
In case the articles are free of duties, taxes and other charges,
until they have legally left the jurisdiction of the customs. (Sec. 1202,
TCCP) The Bureau of Customs loses jurisdiction to enforce the
TCCP and to make seizures and forfeitures after importation is
deemed terminated.
OF
4.
Customs duties defined. Customs duties is the name
given to taxes on the importation and exportation of commodities, the
tariff or tax assessed upon merchandise imported from, or exported
to, a foreign country. (Nestle Phils. v. Court of Appeals, et al., G.R.
No. 134114, July 6, 2001)
ORGANIZATION AND
INTERNAL REVENUE
FUNCTIONS
OF
THE
BUREAU
SUGGESTED ANSWER:
Importation begins when the
conveying vessel or aircraft enters the jurisdiction of the Philippines
with intention to unlade therein. (Sec. 1202, TCCP)
7.
Dumping duty is an additional special duty
amounting to the difference between the export price and
the normal value of such product, commodity or article
(Sec. 301 (s) (1), TCC, as amended by Rep. Act No. 8752, AntiDumping Act of 1999.) imposed on the importation of a product,
commodity or article of commerce into the Philippines at less than its
normal value when destined for domestic consumption in the
exporting country which is causing or is threatening to cause material
injury to a domestic industry, or materially retarding the establishment
of a domestic industry producing the like product. [Sec. 301 (s) (5),
TCC, as amended by Rep. Act No. 8752, Anti-Dumping Act of 1999]
8.
7
3
301 (a), TCC, as amended by Rep. Act No. 8752, Anti-Dumping Act
of 1999)
16. The countervailing duty is equivalent to the value of
the specific subsidy.
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4
imposed.
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5
28.
Law ?
7
6
38.
Requisites
for
forfeiture
of
imported
goods:
a.
Wrongful making by the owner, importer, exporter or
consignee of any declaration or affidavit, or the wrongful making or
delivery by the same person of any invoice, letter or paper all
touching on the importation or exportation of merchandise.
b.
the falsity of such declaration, affidavit, invoice, letter or
paper; and
c.
an intention on the part of the importer/consignee to
evade the payment of the duties due. (Republic, etc., v. The Court of
Appeals, et al., G.R. No. 139050, October 2, 2001)
39.
On January 7, 1989, the vessel M/V Star Ace,
coming from Singapore laden with cargo, entered the Port of
San Fernando, La Union for needed repairs. When the Bureau of
Customs later became suspicious that the vessels real purpose
in docking was to smuggle cargo into the country, seizure
proceedings were instituted and subsequently two Warrants of
Seizure and Detention were issued for the vessel and its cargo.
Cesar does not own the vessel or any of its cargo but
claimed a preferred maritime lien. Cesar then brought several
cases in the RTC to enforce his lien. Would these suits
prosper ?
SUGGESTED ANSWER: No. The Bureau of Customs having
first obtained possession of the vessel and its goods has obtained
jurisdiction to the exclusion of the trial courts.
When Cesar has impleaded the vessel as a defendant to
enforce his alleged maritime lien, in the RTC, he brought an action in
rem under the Code of Commerce under which the vessel may be
attached and sold.
However, the basic operative fact is the actual or constructive
possession of the res by the tribunal empowered by law to conduct
the proceedings. This means that to acquire jurisdiction over the
vessel, as a defendant, the trial court must have obtained either
actual or constructive possession over it. Neither was accomplished
by the RTC as the vessel was already in the possession of the Bureau
of Customs. (Commissioner of Customs v. Court of Appeals, et al., G.
R. Nos. 111202-05, January 31, 2006)
NOTES AND COMMENTS:
a.
Forfeiture of seized goods in the Bureau of Customs
is in the nature of a proceeding in rem, i.e. directed against the res
or imported goods and entails a determination of the legality of their
importation. In this proceeding, it is in legal contemplation the
property itself which commits the violation and is treated as the
offender, without reference whatsoever to the character or conduct of
the owner.
The issue is limited to whether the imported goods should be
forfeited and disposed of in accordance with law for violation of the
Tariff and Customs Code. .(Transglobe International, Inc. v. Court of
Appeals, et al., G.R. No. 126634, January 25, 1999)
Forfeiture of seized goods in the Bureau of Customs is a
proceeding against the goods and not against the owner. (Asian
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1.
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2.
3.
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5.
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not form part of the public roads since the former are constructed over
the latter in such a way that the flow of vehicular traffic would not be
impaired. The carriageways and terminals serve a function different
from the public roads. Furthermore, they are not open to use by the
general public hence not exempt from real property taxes. Even
granting that the national government owns the carriageways and
terminal stations, the property is not exempt because their beneficial
use has been granted to LRTA a taxable entity. (Light Rail Transit
Authority v. Central Board of Assessment Appeals, et al., G. R. No.
127316, October 12, 2000)
c.
The Supreme Court of New York in Consolidated Edison
Company of New York, Inc., et al., v. The City of New York, et al., 80
Misc. 2d 1065 (1975) cited in FELS Energy, Inc., v. Province of
Batangas, G. R. No. 168557, February 16, 2007 and companion case,
held that barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which
supplied fuel oil to the power plant barges, and the accessory
equipment mounted on the barges were subject to real property taxes.
Moreover, Article 415(9) of the Civil Code provides that
[d]ocks and structures which, though floating, are intended by their
nature and object to remain at a fixed place on a river, lake or coast
are considered immovable property by destination being intended by
the owner for an industry or work which may be carried on in a
building or on a piece of land and which tend directly to meet the
needs of said industry or work.
8. The restriction upon the power of courts to impeach tax
assessment without a prior payment, under protest, of the taxes
assessed is consistent with the doctrine that taxes are the
lifeblood of the nation, and as such their collection cannot be
curtailed by injunction or any like action; otherwise, the state or, in this
case, the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled.
(Manila Electric Company v. Barlis, G.R. No. 114231, May 18, 2001)
Thus, the trial court has no jurisdiction to entertain a petition for
prohibition absent payment under protest of the tax assessed. (Ibid.)
NOTES AND COMMENTS: While the above May 18, 2001
decision was set aside by the Supreme Court when it granted the
petitioners second motion for reconsideration on June 29, 2004, the
author submits that the above doctrine in the May 18, 2001 decision is
still valid, because what was reversed in the second motion for
reconsideration was the garnishment of Meralcos assets. The
remand to the lower court was for the resolution of whether or not an
assessment was issued to Meralco.
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12.
The concurrent and simultaneous remedies afforded
local government units in enforcing collection of real property
taxes:
a.
Distraint of personal property;
b.
Sale of delinquent real property, and
c.
Collection of real property tax through ordinary court
action.
13.
The remedy of levy can be pursued by putting up for
sale the real property subject of tax, i.e., the delinquent property
upon which the tax lien attaches, regardless of the present owner or
possessor thereof. However this remedy is only one of the other
remedies. (Manila Electric Company v. Barlis, G.R. No. 114231, May
18, 2001)
NOTE: The above May 18, 2001 decision was set aside by the
Supreme Court when it granted the petitioners second motion for
reconsideration on June 29, 2004. The author submits that the above
ruling in the May 18, 2001 decision is still valid, not on the basis of the
May 18, 2001 decision, in the light of pronouncements of the
Supreme Court in other cases. Thus, do not cite the doctrine as
emanating from the May 18, 2001 decision.
14.
The LGU could also avail of the remedy of distraint
and levy of personal property subjecting any personal property
of the taxpayer to execution. thus, the issuance of the warrants of
garnishment over MERALCOs bank deposits was not improper or
irregular. (Manila Electric Company v. Barlis, et al., G.R. No. 114231,
May 18, 2001)
NOTE: The above May 18, 2001 decision was set aside by the
Supreme Court when it granted the petitioners second motion for
reconsideration on June 29, 2004. The author submits that the above
ruling in the May 18, 2001 decision is still valid, not on the basis of the
May 18, 2001 decision, in the light of pronouncements of the
Supreme Court in other cases. Thus, do not cite the doctrine as
emanating from the May 18, 2001 decision.
58.
Notice and publication, as well as the legal
requirements for a tax delinquency sale, are mandatory, and the
failure to comply therewith can invalidate the sale. The prescribed
notices must be sent to comply with the requirements of due process.
(De Knecht, et al,. v. Court of Appeals; De Knecht, et al., v. Honorable
Sayo, 290 SCRA 223,236)
16.
The reason behind the notice requirement is that tax
sales are administrative proceedings which are in personam in
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the taxpayer should file an appeal with the Local Board of Assessment
Appeals.
d.
The Local Board of Assessment Appeals has 120 days
from receipt of the appeal within which to decide.
e.
The adverse decision of the Local Board of Assessment
Appeals should be appealed within thirty (30) days from receipt to the
Central Board of Assessment Appeals.
f.
The adverse decision of the Central Board of
Assessment Appeals shall be appealed to the Court of Tax Appeals
(En Banc) by means of a petition for review within thirty (30) days
from receipt of the adverse decision.
g.
The decision of the CTA may be the subject of a motion
for reconsideration or new trial after which an appeal may be
interposed by means of a petition for review on certiorari directed to
the Supreme Court on pure questions of law within a period of fifteen
(15) days from receipt extendible for a period of thirty (30) days.
22.
A City Ordinance adopting a method of assessment
was nullified by the Supreme Court. A taxpayer who has paid
his real property taxes on the basis of the nullified ordinance
now posits that the return of the real property tax erroneously
collected and paid is a necessary consequence of the Supreme
Courts nullification of the ordinance and there is no need to
claim for a refund. Is this correct ?
SUGGESTED ANSWER: No. The entitlement to a tax refund
does not necessarily call for the automatic payment of the sum
claimed. The amount of the claim being a factual matter, it must still
be proven in the normal course and in accordance with the
administrative procedure for obtaining a refund of real property taxes,
as provided under the Local Government Code. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No.
154126, September 15, 2006)
NOTE: In the above Allied Banking case, the Supreme Court
provided for the starting date of computing the two-year prescriptive
period within which to file the claim with the Treasurer, which is from
finality of the Decision. The procedure to be followed is that shown
below.
23. Procedure for refund of real property taxes based on
validity of the tax measure or solutio indebeti.
a.
Payment under protest not required, claim must be
directed to the local treasurer, within two (2) years from the date the
taxpayer is entitled to such reduction or readjustment, who must
decide within sixty (60) days from receipt.
b.
The denial by the local treasurer of the protest would fall
within the Regional Trial Courts original jurisdiction, the review being
the initial judicial cognizance of the matter. Despite the language of
Section 195 of the Local Government Code which states that the
remedy of the taxpayer whose protest is denied by the local treasurer
is to appeal with the court of competent jurisdiction, labeling the
said review as an exercise of appellate jurisdiction is inappropriate
since the denial of the protest is not the judgment or order of a lower
court, but of a local government official. (Yamane , etc. v. BA Lepanto
Condominium Corporation, G. R. No. 154993, October 25, 2005)
c.
The decision of the Regional Trial Court should be
appealed by means of a petition for review directed to the Court of
Tax Appeals (Division).
d.
The decision of the Court of Tax Appeals (Division) may
be the subject of a review by the Court of Tax Appeals (en banc).
e.
The decision of the Court of Tax Appeals (en banc) may
be the subject of a petition for review on certiorari on pure questions
of law directed to the Supreme Court.
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30.
The Manila International Airport Authority
(MIAA) was subject to real property taxes by the municipality of
Paranaque on its airport lands, and buildings on the ground
that the Local Government Code has withdrawn exemptions
previously enjoyed by government-owned and controlled
corporations. MIAA contends otherwise as it claims it is not a
government owned or controlled corporation. Who is correct.
SUGGESTED ANSWER: MIAA is correct because it is not
a government owned or controlled corporation but an instrumentality
of the government that is exempt from taxation.
It is not a stock corporation because its capital is not divided
into shares, neither is it a non-stock corporation because there are
no members. It is instead an instrumentality of the government
upon which the local governments are not allowed to levy taxes,
fees or other charges.
An instrumentality refers to any agency of the National
Government, not integrated within the department framework vested
with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes
regulatory agencies chartered institutions and government-owned or
controlled corporations. [Sec. 2 (10), Introductory Provisions,
Administrative Code of 1987] It is an instrumentality exercising not
only governmental but also corporate powers.
It exercises
governmental powers of eminent domain, police power authority,
and levying of fees and charges.
Finally, the airport lands and buildings are property owned
by the government that are devoted to public use and are properties
of the public domain. (Manila International Airport Authority v. City of
Pasay, et al., G. R. No. 163072, April 2, 2009 citing Manila
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ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT
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