Professional Documents
Culture Documents
GENERAL PRINCIPLES
TOLL
A
demand
proprietorship
Paid for the use
anothers property
Generally no limit on
the
of
of
TAX
Enforced contribution
assessed
by
sovereign
authority to defray
public expenses
Levied for revenue
LICENSE
Legal compensation
or
Reward of an officer
for specific services
Imposed
regulation
for
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Exercise of taxing
power
Imposed on persons,
property, exercise of
right or privilege
Generally no limit on
the amount of tax
that may be imposed
Based on necessity
and benefits
Has
general
application
SPECIAL ASSESSMENT
Levied only on land
TAX
Intended
revenue
to
raise
Exercise of police
power
Imposed on the
right to exercise a
privilege only
Amount should be
limited
to
the
necessary
expenses
of
inspection
and
regulation
Failure
to
pay
makes the act of
business illegal
PENALTY
Designated
to
regulate conduct
May be imposed by
the government or
private individuals
or entities
Q: Is the Universal Charge (UC) imposed on electricity end-users by distributors a tax or a fee?
A: The UC is a regulatory fee as it is levied to ensure viability of the countrys electric power industry.
The declaration of policy in the EPIRA law definitely focuses on the public welfare by ENSURING THE
VIABILITY OF THE COUNTRYS ELECTRIC POWER INDUSTRY. The SC also added that it has ruled
time and again that taxing power may be used as an implement of police power.
Given that it is a regulatory measure, the objection on it being levied not by Congress has no basis. In
addition, the SC ruled that the Energy Regulatory Commission is guided by sufficient standards provided
within the EPIRA law itself to calculate how much to impose as UC and, as such, there is no undue
delegation. Finally, it was stated that the imposition redounds to the benefit of the power industry and not
the public at large and that the rate is uniformly levied on electricity end-users unlike a tax which is
imposed based on a taxpayers ability to pay. [Gerochi vs. DOE, July 17, 2007]
Q:
Was the Motor Vehicle Registration FEE (MVRF) imposed against Philippine Airlines
considered a tax or a regulatory fee?
A: The MVRF was considered tax notwithstanding its designation as a fee. The SC upheld the previous
decision in the Calalang case and based its ruling on the fact that (1) the legislative intent clearly showed
that the imposition was primarily levied as a tax and (2) more importantly, only 1/5 of the amount levied
was reserved for the operating expenses of the collecting agency which is a clear indication that the main
purpose of MVRF was for revenue.
Q: How were direct taxes and indirect taxes distinguished in the recent case of CIR vs. PLDT ?
A: Direct taxes were defined as those that are extracted from the very person who, it is intended or
desired, should pay them while indirect taxes are defined as those that are demanded, in the first
instance one person in expectation and intention that he can shift the burden to someone else.
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Q: What principle related to taxes being levied for a public purpose was laid down in the case
of Planters Products, Inc. vs. Fertiphil Corporation (March 14, 2008)?
A: President Marcos issued an LOI which provided the imposition of a capital recovery component
(CRC) on the domestic sales of all fertilizer grades. The same LOI provided that the CRC shall be
collected until adequate capital is raised to make Petitioner PPI (a private company) viable. When
Marcos left, Fertiphil sought a refund of the amounts it paid under the LOI. The SC ruled that:
(1) The LOI is an exercise of the power of taxation. While it is true that the power of taxation can
be used as an implement of police power, the primary purpose of the CRC is revenue
generation given that the amounts collected were too excessive to serve a mere regulatory
purpose given that it was collectible until adequate capital is raised to make PPI viable. The
case cited PAL vs. Edu.
(2) Given its nature as a tax imposition, the fact that the ultimate beneficiary is PPI, a private
company, makes the levy invalid for not serving a public purpose.
Q: Can the power of taxation be delegated? If so, what is the legal basis for this?
A: The power of taxation can be delegated to the local government units, which power to delegate is
granted under Art. X, Sec. 5 of the Constitution. The delegation is consistent with the recognition of the
LGUs power to create its own sources of revenue. BUT the power is not inherent in the local government
unlike in the national government.
Q: What is the doctrine enunciated in the case of John Hay Peoples Alternative ?
A: In the John Hay case, it was stated that the exemption granted under RA 7227 only refers to Subic
entities, hence inapplicable to John Hay. The fact that an Administrative Order was passed by President
Ramos stating that the tax incentives available under RA 7227 should also apply to John Hay locators is
a violation of the requirement that tax exemptions must be strictly and expressly provided for and that the
power to grant tax exemption is only within powers of Congress. This same rule applied to the Clark
locators in the case of Coconut Oil Refiners Association, Inc. vs. BCDA.
Note that R.A. 9400 was passed in March 2007 granting incentives to locators in Clark, John Hay, Poro
Point and Morong economic zones.
Q: Are the land and buildings owned by Manila International Airport Authority subject to real
property tax and leviable ?
A: No. The recent case of MIAA vs. PARANAQUE (July 20, 2006) ruled that since MIAA is not a GOCC
but a government instrumentality vested with corporate powers or a GOVERNMENT CORPORATE
ENTITY (like Philippine Ports Authority, University of the Philippines, Philippine Fisheries Development
Authority (2007 case) and Bangko Sentral ng Pilipinas), it is exempt from real property tax. Likewise,
since the properties are owned by the government, they are outside the commerce of man and cant be
auctioned. However, the portion of the property leased to private entities (such as the hangars) are
subject to real property tax.
Q: Is the Expanded Value Added Tax Law unconstitutional for embodying a regressive system of
taxation?
A: Even if the VAT is regressive because it is an indirect tax, it is not prohibited since the Constitution
does not prohibit regressive taxes. What it simply provides is that Congress shall evolve a progressive
system of taxation, which means that direct taxes are to be preferred and indirect taxes minimized.
[Tolentino v. Secretary of Finance]
Q: What were the points discussed in the VAT case of ABAKADA GURO PARTY LIST VS.
ERMITA?
A: The following points were discussed in this case
(1) There is no undue delegation of legislative power on the provision allowing increase of the
VAT rate to 12% since what is delegated is simply the ascertainment of facts upon which the
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administration and enforcement of the increase rate under the law is contingent. Also, the fact
that no discretion is exercised by the President is evident in the use of the term shall.
(2) Petitioners contention that the 12% VAT rate is an unfair and unnecessary additional tax
burden is beyond the scope of review of the Court as it is a question of wisdom of legislation
(3) The law is equitable as it imposes safeguards/limits in the form of VAT exemption granted to
gross sales below P1.5 million.
Q: Was the classification freeze provision provided under RA 9334 and discussed in the case
of British American Tobacco vs. Camacho (August 20, 2008) constitutional?
A: Yes. The SC ruled that the provision passes the rational basis test and addresses (i) concerns on
the delegation of too much power to the DOF and BIR; (ii) simplification of tax administration of sin
products; (iii) elimination of potential areas for abuse and corruption in tax collection; (iv) buoyant and
stable revenue generation; and (v) ease of projection of revenues. It added that even if creates undue
advantage to its competitors, it is not enough to declare the law unconstitutional since it does not show
that Congress had this in mind but instead was moved by an earnest desire to improve tax administration.
Finally, it was ruled that RA 9334 does not violate GATT as it does not discriminate on just imported
products.
Q: Is the Attrition Law (RA 9335) constitutional?
A: Yes. In the case of Abakada Guro Party List vs. Purisima (August 14, 2008), the SC ruled that the
law giving incentives to BIR/BOC employees if the exceeded their collections was valid as there are
enough safeguard and penalties to ensure that the collectors do not become bounty hunters. It was also
ruled that there was no unequal protection since BIR/BOC are the only revenue collectors and are thus
differentiated from other government agencies. Likewise, it was found that sufficient standards existed for
the President to determine revenue targets as basis for rewards/penalties and thus did not create any
issue on undue delegation. Finally, the SC said that the provision empowering the Congressional
Committee to review the laws implementing rules is an invalid provision since this is a function of the
Executive (and review is by the Judiciary and not Legislature) and is thus a violation of separation of
powers.
Q: The YMCA is a non-stock, non-profit institution with religious, charitable and educational
objectives. It leased part of its premises to small canteen owners and charged parking fees on the
lots besides its building. The CIR wanted to tax YMCA for such income; however the latter claimed
that it is exempt from such. Which side is correct?
A: The CIR is correct that YMCA is liable to pay income tax. The assessment here was for deficiency
INCOME tax on income derived from rental of real property and NOT PROPERTY tax. Section 27 of the
NIRC provides that even if non-profitable clubs are exempted, the last paragraph expressly states that
profits realized from real property from whatever source and wherever used is taxable (It is also taxable
on income from profitable activities). On the other hand, the Constitutional exemption under Art. 6 Sec. 28
(3) of Constitution (charitable institutions, churches, non-profit cemeteries, etc.) refers to property taxes
only. The Constitutional exemption under Art. 14 Sec. 4 (3) which states that non-stock educational
institution whose assets are used actually, directly and exclusively for educational purpose is exempt from
tax applies to income tax BUT THIS DID NOT APPLY SINCE YMCA WAS UNABLE TO PROVE THAT IT
IS AN EDUCATIONAL INSTITUTION.
Q: What is the decision of the Supreme Court in the recent case of Lung Center Hospital vs.
Quezon City (June 29, 2004)
A: The Court ruled that even if the hospital leases out portions for commercial purposes and admits both
paying and non-paying patients, it
does not lose its character as a charitable institution as long as the proceeds are used to further
charitable purposes. However, even so, petitioner was deemed as not exempt from real property tax on
the portions of its property not actually, directly and exclusively used for charitable purposes. Thus,
portions leased out for commercial purposes are subject to real property tax while those used by hospital
even if used for paying patients are still exempt from the same tax.
Q: What is the effect of multiplicity of situs of taxation?
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A: Due to the variance in the concept of domicile for tax purposes, and considering the multiple distinct
relationships that may arise with respect to intangible personality and the use to which the property may
have been devoted, all of which may receive the protection of the laws of jurisdiction other than the
domicile of the owner thereto, the same income or intangible property may be subject to taxation in
several taxing jurisdictions.
A simple example is an American decedent who died while residing in Japan and who has properties in
the Philippines.
Q: How do we address multiplicity of situs?
A: The taxing jurisdiction may:
1) Provide for exemptions or allowance of deduction or tax credit for foreign taxes and;
2) Enter into treaties with other states.
Q: What are the elements of double taxation in its strict sense (direct duplicate taxation)?
A:
a.) taxing twice,
b.) by the same taxing authority,
c.) within the same jurisdiction or taxing district,
d.) for the same purpose,
e.) in the same year (or taxing period),
f.) some of the property in the territory.
Q: What are some examples of double taxation in its broad sense (indirect duplicate taxation)?
A:
(1) income of corporation which is both subject to income tax and then to withholding tax when
declared as dividends to individual shareholders
(2) tax levied by two different states
Q: If a tax imposed is imposed on a taxpayers storage of copra (by the local government) and
another tax is imposed on the sale of taxpayers products such as soap, oil, margarine, etc. (by
the national government), is there a case of double taxation ?
A: No. The activities being taxed and the taxing authority are different. [Procter & Gamble case]
Q: What happened in the case of CIR vs. TODA (September 14, 2004) as to justify the Courts
finding that the taxpayers were guilty of tax evasion ?
A: CIC Corp. sold Cibeles building to Mr. Altonaga for 100 million who, on the same day, sold the same
building to Royal Match Inc. for 200 million. The assessment was based on the taxable gain not reported
by virtue of the scheme adopted by the parties. The Court ruled that the three factors in tax evasion are
all present in this case, viz: (1) end to be achieved (payment of less tax) (2) evil or deliberate state of
mind (not merely accidental) (3) course of action which is unlawful. The Court added that the two
transfers were tainted with fraud since the intermediary transfer (from CIC to Altonaga) was prompted
only by the desire to mitigate tax liabilities and not for any business purpose.
Q: What is the SUBSTANCE OVER FORM doctrine?
A: Taxability is determined by the reality of the transaction rather than the appearance which may be
contrived.
Q: Private respondents are locators within Subic Economic Zone and have been granted tax- and
duty-free incentives under R.A. 7227. Subsequently, R.A. 9334 was passed in 2005 which stated
that notwithstanding any special contrary, importation of cigarettes, spirits, liquors into the
Philippines even if destined for tax and duty free shops, shall be subject to all applicable taxes
and specific reference was made to goods destined for the Subic Economic Zone. Will the Subic
locators continue enjoying tax incentives even after R.A. 9334?
A: No. The revocation of the tax- and duty-free exemption of importation of cigarettes is valid because
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(1) There is no vested right in tax exemption and may thus be modified or withdrawn at will by
the granting authority.
(2) Tax exemptions are strictly construed against claiming party.
(3) While tax exemption may have been part of the inducement to carry on business within the
zone, this exemption is not contractual and, as such, the non-impairment clause of the
Constitution can not be rightly invoked.
(4) Whatever rights were granted in the certificates/licenses issued to the locators, the same
must yield to exercise of police power (taxation may be made the implement of police
power). [Republic of the Philippines vs. Caguioa, October 15, 2007]
Q: What is the LEGISLATIVE GRACE concept and how does it relate to the case of National
Development Company?
A: The concept provides that any tax relief provided is the result of specific acts of Congress that may
be applied and interpreted strictly. In the NDC case it was ruled that the fact the Secretary of Finance
guaranteed the loans of NDC, the payments of NDC to the Japanese creditors can not be exempt from
withholding since the fact that the loan was is not tantamount to waiver of collection of taxes which must
must be express.
Q: What are the requisites of a taxpayers suit?
A: The two minimum requisites for taxpayer suit are that (1) public funds are disbursed and (2) the law
violated affects the petitioner. This is why in the case of Lozada vs. BP, petitioners action mandamus to
call election to fill up BP vacancies was not considered a taxpayers suit because the failure to call
elections does not involve public expenditure and in fact seeks government to spend funds.
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B.
INCOME TAX
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A: Such income is no longer RETURNABLE, i.e.; it will no longer be declared as income in the Income
Tax Return, hence will no longer be subject to the schedular rates on income tax (for individuals) or to
30% (for corporations).
Q: What income items are considered as passive income subject to final tax in the hands of an
individual resident citizen?
A:
These are (i) interest from bank deposits; (ii) royalties; (iii) prizes exceeding P10,000; and (iv)
dividends.
Q: How are prizes taxed under the Tax Code?
A: The tax imposable will depend on the amount of the prize. If the prize is:
MORE THAN 10,000 = 20% FINAL TAX
10,000 OR LESS = forms part of gross income which is subject to the SCHEDULAR rate
However, winnings from the PCSO and LOTTO are EXEMPT from tax.
Q: What is the taxability of dividends received by individuals?
A: It depends. If the dividends are from a DOMESTIC COPRORATION, the recipients will be taxed as
follows:
Citizens and resident aliens = 10%
Nonresident aliens engaged in trade or business in the Philippines = 20%
Nonresident aliens engaged NOT in trade or business in the Philippines = 25%
If the dividends are from a FOREIGN CORPORATION, then it will form part of the gross
income of any type of taxpayer subject to scheduler rate (except NRANETB which is still
the 25%) BUT note that the situs of the income becomes material except for a resident
citizen who is taxed on worldwide income.
Q: What is the taxability of dividends received by corporations from a domestic corporation?
A: It depends. If the dividends are from a DOMESTIC CORPORATION, the recipients will be taxed as
follows:
Domestic or Resident Foreign corporation = 0% (as inter-corporate dividends)
Nonresident foreign corporation =
Tax treaty rate, if any
15% if no tax treaty but satisfies tax-sparing provision
30% if no tax treaty and does not comply with tax-sparing provision
If the dividends are from a FOREIGN CORPORATION, then it will form part of the gross
income of any type of taxpayer BUT note that the situs of the income becomes material
except for a domestic corporation which is taxed on worldwide income.
Q: May parents and siblings be claimed as ADDITIONAL exemption?
A: NO. Parents and siblings are considered dependents ONLY FOR PURPOSES OF QUALIFYING an
individual to become a head of a family but they CANNOT be claimed as additional exemptions.
Q: Are illegitimate children considered as additional exemption?
A: YES.
Q: Are SENIOR CITIZENS supported and living with a taxpayer included for purposes of claiming
additional exemptions?
A: According to a BIR Ruling, senior citizens do not qualify for purposes of claiming additional
exemptions because such does not have basis in law.
Q: What is the rule on senior citizen discounts granted by commercial establishments?
A: In Carlos Superdrug Corp. vs. DSWS (June 29, 2007) and M.E. Holdings Corporation vs. CIR & CTA,
the Supreme Court ruled that the rule will be -- (i) prior to March 21, 2004, the discounts are treated as
tax credit; (ii) after March 21, 2004 the same is treated as deductions.
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The Court distinguished tax credit vs. tax deduction by stating that a credit is a peso-for-peso deduction
from the taxpayers tax liability or a full recovery while a tax deduction only benefits the taxpayer to the
extent of 35% of the amount granted as discount. However, the Court ruled that the State, in promoting
the health and welfare of a special group of citizens, can impose upon private establishments the burden
of partly subsidizing a government program. The Court recognized that the law is a legitimate exercise of
police power. (Note that the 20% discount also applies to movie admission fees, transport fares, hotel
services, restaurant bills, etc.)
Q: What is the effect of a change in status of the taxpayer or the CHANGE-IN-STATUS rule?
A: The rule of thumb is THAT WHICH WILL BE BENEFICIAL TO TAXPAYER (e.g., if taxpayer marries,
thereby qualifying him for a bigger personal exemption of 32,000 instead of P25,000, then the law will
treat him as if he married at the beginning of the year; but if a married persons spouse dies, thereby
making him either a head of the family or single, in either case he will be entitled to lower personal
exemption, then the law will treat him as if he was widowed at the end of the year and still get his 32,000
personal exemption.)
Q: Is a nonresident alien entitled to personal and additional exemption?
A: It depends. If engaged in trade or business and country of residence allows exemptions to Filipinos =
allow the lower of two amounts (i.e., Philippines or foreign country). If NOT engaged, he will NOT be
allowed the exemption.
Q: Are employees of ROHQs, OBUs and FCDUs entitled to personal and additional exemptions:
A: No, these employees are subject to tax on gross income without the benefit of deduction/exemptions.
Q: What are the changes introduced by REPUBLIC ACT NO. 9504 (TAX EXEMPTION OF MINIMUM
WAGE EARNES AND INCREASING PERSONAL/ADDITIONAL EXEMPTIONS / CHANGE IN OSD)
(June 17, 2008)?
A:
Minimum wage earners shall be exempt from the payment of income tax on their taxable income.
Moreover, the holiday pay, overtime, night shift differential pay, and hazard pay received by such
minimum wage earners shall likewise be exempt from income tax. The term statutory minimum
wage refers to the rate fixed by the Regional Tripartite Wage and Productivity Board.
Increases the amount of personal exemption for all individuals to a fixed amount of P50,000.00, from
the previous varying amounts of P20,000.00, P25,000.00 and P32,000.00. Also increases the
additional exemption from P8,000.00 toP25,000.00 for each dependent, not exceeding four (4).
Amends Section 34(L) to --(1) Increase to 40% of gross sales or receipts the 10% Operational Standard Deduction (OSD)
previously allowed to individuals (except nonresident aliens) engaged in business or earning
income in the exercise of their profession; and
(2) Now allow corporations (except nonresident foreign corporations) to claim OSD, instead of
itemized deductions, in an amount not exceeding 40% of their gross income.
If the taxpayer did not indicate in his or her return his or her intention to elect the OSD, he or she shall
be considered as having availed (irrevocable for that year) of the itemized deductions. Hence, the
election can be made on a yearly basis. An individual who opts for the OSD shall not be required to
submit financial statements but a corporation availing of the OSD is still required to submit its financial
statements.
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Q: Who are the individuals who are NOT required to file an ITR?
A:
(1) A compensation earner whose income does not exceed the allowable exemptions;
(2) A compensation earner whose withholding taxes were correct EXCEPT if 2 employers OR
exceeds 60T;
(3) Those whose only income is subject to Final Withholding Tax;
(4) Individuals exempt from income tax;
(5) Those whose total compensation is below 60T.
However, an individual who is engaged in business is ALWAYS required to file an ITR regardless of the
amount of income generated
Q: How do you differentiate between Capital Gains Tax on sale of shares of stock not traded in
the local stock exchange and Capital GainsTax on sale of real property considered as
capital asset?
A: The sale of shares of stock not traded in the local stock exchange is subject to CGT at the rate of 5%
for the first P100,000 and 10% on the amount in excess of P100,000. The tax base shall be only
the GAIN on the sale. Such sale will always be subject to CGT without any possibility of
exemption. As for the sale of real property considered as capital asset, the rate is 6% and the tax
base is the ENTIRE SELLING PRICE, because under the law this is a PRESUMED GAIN from
the sale. However, there is a possibility of exemption as when the proceeds of the sale will be
utilized by the taxpayer to buy his principal residence, such purchase to be made within 18
months from the sale. The money in this case shall be put in escrow. The sale of real property
classified as capital asset to the government may be subject to either the 6% CGT or form part of
gross income of the taxpayer (in the latter case, only the gain forms part of the gross income),
subject to the taxpayers choice.
Note that SHARES OF STOCK IS DEFINED TO INCLUDE warrants and/or options to purchase
shares of stock, units of participation in a partnership (except general professional partnerships),
joint stock companies, joint accounts, joint ventures taxable as corporations, associations, and
RECREATION OR AMUSEMENT CLUBS (SUCH AS GOLF, POLO OR SIMILAR CLUBS), and
mutual fund certificates.
TAX ON CORPORATIONS
Q: What were the factors in the case of AFISCO that led the Court to consider the reinsurance
pool as a taxable entity separate and distinct from the individual insurance companies that made
up the pool?
A: The factors were:
(1) the pool had common fund from which admin. expenses were paid
(2) the pool had an executive board
(3) even if pool did not reinsure, it was indispensable for group members to set-up the pool for
them to get their premiums
What was crucial in this case was the fact that there was continuity of dealings.
Q: Are professional fees paid to general professional partnerships subject to withholding tax?
A: No, since the GPPs are exempt from tax, payments to them are also not subject to withholding tax.
However, payments made BY them (or any other tax exempt entity) are subject to withholding tax if the
payee/income recipient is not similarly exempt from income tax.
Q: What is a JOINT VENTURE and what is its taxability?
A: In a JV, there is:
(1) contribution of capital, skill
(2) shared profits
(3) mutual control
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Q: How is the income of a head office which transacts business independently of the branch
taxed?
A: The head office shall be treated as a nonresident foreign corporation with respect to the income it
generated from the transaction carried out independently of the branch [Marubeni case]. An example is
when a head office acquires shares of another company independently of its branch office in the
Philippines, the dividends received by the head office is taxes as one received by a nonresident foreign
corporation (i.e., (i) treaty rate or (ii) 15% if w/ tax sparing or (iii) 30% as part of gross income) and not a
resident foreign corporation (i.e., exempt as intercorporate dividends).
Q: How do you trace the ownership for purposes of determining whether corporation is closelyheld for purposes of determining exemption from the IAET ?
A: You trace it all the way up to the ultimate parent. An example would be if Company A improperly
accumulates earnings and the company is owned 100% by Company B who is in turn owned by
Company C who is in turn owned by Company D. Even if only Company D is a public company, the same
still inures to Company As benefit thus exempting it from IAET.
Q: Are there entities exempt from Improperly Accumulated Earnings Tax?
A: YES.
1. banks and other non-bank financial intermediaries
2. insurance companies
3. publicly-held corporations
4. taxable partnerships
5. general professional partnerships
6. non-taxable joint ventures
7. enterprises duly registered with the PEZA, BCDA, and those under special income tax regimes
Q: Are there ways by which to avoid liability from the IAET?
A: YES, when the accumulation of earnings is justified by reasonable needs of the business such as:
1. accumulation up to 100% of the paid-up capital
2. for definite corporate expansion projects or programs
3. for buildings, plants or equipment acquisitions
4. for compliance with a loan covenant or pre-existing obligation under a legitimate business
agreement
5. when there is a legal prohibition for its distribution
6. in the case of Phil. subsidiaries of foreign corporations, undistributed earnings intended or
reserved for investments within the Philippines
Q: When improperly accumulated earnings are subjected to the IAET, will it still be subject to the
tax on dividends when eventually declared as dividends?
A: YES.
Q: In justifying the required corporate liquidity to justify exemption from IAET, is the Bardahl
formula applicable to all corporations?
A: NO. The Bardahl formula may apply only to companies with shorter operating cycles. An operating
cycle of 288.35 days does not justify a high liquidity as opposed to companies with operating cycle of 3.33
months [CYANAMID (JANUARY 20, 2000)].
Q: What is the tax benefit rule?
A: This rule states that the recovery of an amount previously written-off but which was subsequently
collected is a taxable event TO THE EXTENT THAT IT BENEFITED THE TAXPAYER, i.e., to the extent
that the said deduction resulted in a lower taxable INCOME, hence a lower tax due. Thus, if the taxpayer
was already in a taxable loss position before deducting the bad debts, then subsequent recovery of the
bad debt will not be taxable since the bad debt did not benefit him with a reduced tax due.
Q: What is the rule on the taxability of STOCK dividends?
A: Generally, STOCK dividends are not taxable EXCEPT when
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(a)
(b)
(c)
(d)
(e)
(f)
(g)
Monetized unused VL not exceeding ten (10) days during the year
Medical cash allowance not exceeding 1,500 per year
Rice subsidy of P1,500.00 or one (1) sack of 50-kg. rice per month
Uniform and clothing allowance not exceeding P3,000 per annum;
Actual yearly medical benefits not exceeding P10,000 per annum;
Laundry allowance not exceeding P300 per month;
Employees achievement awards, e.g., for length of service or safety achievement, which must be
in the form of a tangible personal property other than cash or gift certificate, with an annual
monetary value not exceeding P10,000
(h)
Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;
(i)
Flowers, fruits, books, or similar items given to employees under special circumstances, e.g., on
account of illness, marriage, birth of a baby, etc., and
(j)
DAILYmeal allowance for overtime work not exceeding twenty-five percent (25%) of the basic
minimum wage."
Q: What is the taxability of the refund of taxes?
A: If the tax was previously claimed as deduction then subsequently refunded, it will form part of gross
income at the year of refund. However, if said tax was not claimed as deduction in the first place as they
are non-deductible types of taxes(such as income tax, estate tax, etc.), it will not constitute taxable
income [RMC 13-80].
Q: What is the taxability of terminal pay?
A: Terminal leave pay is NOT subject to income tax because
(1) It is receive at the time when the taxpayer is ALREADY RESIGNED and thus it is not considered
as salary, and
(2) Separation pay received for causes beyond the control of the employee is exempt from income
tax and compulsory retirement is deemed a cause beyond the control of the employee [RE
REQUEST OF ZIALCITA].
Q: Will separation pay received due to redundancy be exempt as well?
A: YES. Redundancy is also considered as a cause beyond the control of the employee.
Q: What benefits are exempt from the FBT?
A:
1. Benefits granted to rank and file employees
2. Benefits required by the business or for the convenience of the employer
3. De minimis benefits
4. Benefits exempted by law
Q: When are loans granted to employees subject to Fringe Benefit Tax?
A: When the interest on said loans are lower than the legal rate of 12%. In which case, the between 12%
and the stipulated interest rate shall be subject to FBT.
Q: When is educational assistance exempt from FBT?
A: When the following conditions concur:
(1) the education is related to employers business and
(2) Such assistance is coupled with a service contract.
If granted to relatives of the employee = it is subject FBT except if there is a competitive scholarship
scheme
Q: Are transportation allowances taxable?
A: If they are part of the salary and are given as a fixed amount, it is taxable as compensation. If it is
required by the nature of the work and the employee is required to liquidate, it is not taxable.
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paid or incurred
during the taxable year
related to the taxpayers business --- BUSINESS PURPOSE concept
supported by documents
withholding taxes, if required, were paid to the government
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if same funds are invested in revenue-generating activities (thus, margin is 12%). Another illustration of
this is when a taxpayer borrows money from the bank (interest payments on which can then be claimed
as expense and thus a 32% benefit) then deposits it in a bank (and subsequently suffers only a 20% final
withholding tax), thus benefiting by 12% representing the difference between the 32% deduction and the
20% withholding tax. It does not matter if taxpayer actually intended to save on taxes.
Q: Will interest payments between a parent company and its subsidiary be disallowed in view of
Section 34 (B)(2)(b) in relation to Section 36 (B) of the Tax Code?
A: No. The prohibition on non-deductibility of interest expense refers to a case where the creditor and
debtor are commonly owned by at least 50%. The case of a parent and subsidiary loan does not refer to a
case of commonly-owned entities but one where one entity owns the other.
Q: What is the treatment of interest paid to acquire property used for business?
A: Interest incurred to acquire property used for business may either be claimed as a deduction or
treated as capital expenditure
Q: Who may avail of tax credits for income tax purposes?
A: Only those subject to tax on worldwide income (resident citizen and domestic corporation) because
they pay taxes for foreign sourced income twice (in the Philippines and abroad), and the tax credit is
meant to lessen the impact of double taxation.
Q:
A:
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Q: Using the straight-line method, what is the annual depreciation of an equipment which was
acquired for 5M and an estimated useful life of 5 years and a salvage value of zero?
A:
The annual depreciation will be 1M pesos computed as follows: (5,000,000 less 0) divided by 5
years.
Q: When are forex losses and re-appraisal adjustments deductible?
A: The same are deductible only when there is already a close and completed transaction because it is
only at such point when the loss is realized. An example is when a $100 loan incurred when the
exchange rate was P50:$1 is subsequently paid when the exchange rate is already at P60:$1, the same
will result in a deductible forex loss of P1000 which represents the additional amount of peso the
borrower has to come up to pay the same amount of dollar loan (100). Before actual payment, there is as
yet no closed and completed transaction which may be claimed as a deductible expense.
Q: When are bad debts deductible?
A:
When they are ascertained to be worthless and after having gone through the process of
ascertainment such as by sending demand letters, etc. Note that in the cases of banks claiming the
expense, the BSP must approve. On the other hand, if the bad debt being written off is from an insurance
company, the insurance company must be proven as being insolvent
Q: Philex entered into an agreement with Baguio Gold entitled Power of Attorney whereby
Philex was made to manage and operate Baguio Golds mining claim in Sto. Nino, Benguet
province. In return, Philex was to receive as compensation 50% of the net profit of the Sto. Nino
project. In the course of the project, Philex made advances of cash and property until the mine
stopped operating due to losses. Subsequently, Philex wrote off the indebtedness to Baguio Gold.
The BIR disallowed the write-off as the same was considered as investment in a partnership rather
than as a loan. Is Philex entitled to the write-off of bad debts?
A: No. The amount advanced by Philex was meant to be investments (NOT loan) since (i) 50% share is
too big to be interest (ii) no requirement to repay for Baguio Gold (iii) no collateral (iv) sharing of profit and
creation of common fund are indicators of joint venture.
PHILEX MINING CORPORATION vs. CIR (April 16, 2008). As such they are not bad debts that could be
written off.
Q: When are donations deductible in full?
A: When the same are made to:
(1) Government for PRIORITY ACTIVITIES in education, health, youth & sports, human settlements,
science, economic development
(2) Foreign institutions and intl. Orgs.
(3) accredited NGOs, provided the following conditions are met:
th
rd
a. it utilizes the same w/in the 15 day after the 3 month from close of the year,
b. the administrative expenses of such NGO does not exceed 30%,
c. upon dissolution, the assets of such NGO are required to be transferred to another NGO,
and
d. its board members receive no compensation
Q: When is the amount of donation deductible subject to limitation? What is the limitation?
A: When the donation is made to:
(1) the government for public purposes
(2) accredited domestic corporations for religious, charitable, scientific, etc. purposes
(3) social welfare institutions
(4) NGOs (not accredited according to conditions above)
The limitations are:
10% of net income for individual taxpayers
5% of net income for corporate taxpayers
Q: Are interest and penalties paid on a deficiency tax assessment deductible for tax purposes ?
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1. A domestic corporation
2. A foreign corporation, at least 50% of whose gross income for the three-year period ending with
the close of its taxable year preceding the declaration of such dividends (or for such part of such
period as the corporation has been in existence) was derived from sources within the Philippines
but pro rated (i.e., only in an amount which bears the same ratio to such dividends as the gross
income of the corporation for such period derived from sources within the Philippines bears to its
gross income from all sources.
If the income derived from sources within the Philippines is less than 50% of the total gross income,
the entire amount of income generated is NOT considered as Philippine-sourced.
Q: What is the situs of services?
A: It is considered as sourced within the Philippines when performed in the Philippines
Q: What is the situs of sale of personal property?
A: It situs is the place of sale EXCEPT:
(1) if what is sold are shares of a domestic corporation which is always considered as Philippine
sourced income
(2) if such personal property is manufactured abroad and sold here or manufactured here and sold
abroad in which case the amount shall be allocated
Q: What is the situs of rentals, royalties, and other intangibles?
A: It is considered as sourced within the Philippines when the same is used in the Philippines
Q: What is the situs of insurance contracts?
A: The situs of which is the place of activity (meaning the location of risk) and NOT the place of business
(which reinsurers do not have in the Philippines) [PHIL. GUARANTY].
Q: X Corp., a Philippine company, engaged Y Corp., a nonresident US company, to perform
services abroad. Will X Corp.s payments be subject to withholding tax?
A: No. Since Y Corp.s income is not subject to Philippine tax as it is earned by a nonresident foreign
corporation and is considered as non-Philippine source income, the same is not subject to income tax
and to the Philippine withholding taxes.
Q: What is meant by MOBILIA SEQUUNTUR PERSONAM as it relates to situs rules?
A: Taxation follows the property or person who shall be subject to tax.
SALE ON INSTALLMENTS - BANAS VS. C.A. (FEBRUARY 10, 2000)
Petitioner sold lots to Ayala and was paid less than 25%, the balance was covered by 4 checks.
On the same day, the checks were discounted (meaning exchanged for cash at an amount lower
than the face value) also to Ayala.
Petitioner reported as income for the year of sale only the cash amount received from sale and
excluded the amounts received from the discounted checks. The balance was reported as income
by the petitioner only in the next 4 years.
Petitioner claims it was correct because initial payment excludes evidences of indebtedness
including Promissory Notes.
SC = The transaction remains to be an installment (not cash) sale as the law expressly excludes
evidence of indebtedness in the determination of how much was paid for the year. However,
even if the proceeds of discounted note is not considered as part of initial payment, the income
realized from the discounting itself is still a separate taxable income in the year it was converted
into cash because it was at this year that there was actual gain on the discounted notes.
Q: When a taxpayer indicates in his ITR that the excess income tax paid shall be carried over to
the succeeding taxable years, may he subsequently apply for a tax credit or refund for the same
amount?
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A: NO. The option to carry-over, once exercised, is irrevocable [Section 76 of the Tax Code]. The same
rule will apply even if the taxpayer did not tick the carry-over box in the year when the excess payment
occurred but did indicate in the succeeding year that the excess amount was being treated as prior
years excess credits. (Philam Asset Management vs. CIR December 14, 2005)
Q: What are the elements required to successfully file a claim for excess CWT payments?
A: The elements required are:
a.) filing a claim within 2 years
b.) the income upon which the taxes were withheld were included in the return of the claimant
c.) the fact of withholding is established by certificate/s issued by the payor to the payee-claimant
[Filinvest Development Corp. vs. CIR (August 9, 2007) Nachura]
Q: May a withholding agent file a claim for a refund on its overpayments made on withholding tax
for payments to nonresident foreign corporations ?
A: YES. Considering that it will be the withholding agent who shall be liable for deficiency assessment
and penalties in case of failure to withhold, it should likewise be given the authority to file the claim for
refund.
Q: Who are required by law to withhold on income payments?
A:
agents, employees of withholding agents
persons having control of the payment and claiming the expense (ex. Utility bills paid to SM by
concessionaires)
payor having control of the payment where payment is made thru brokers (ex. Travel agents)
Q: When does the obligation to withhold arise?
A: Either when:
1. it is paid
2. it becomes payable (i.e., it is legally due, demandable or enforceable) or
3. it is accrued as an asset or expense
Q: Distinguish creditable withholding tax (CWT) from final withholding tax (FWT).
A: Payments under the CWT merely approximate the tax due on the payee while those under the FWT
constitute dull payment of the tax due. Under the CWT system, the income recipient is still required to
report the income from which taxes were withheld although it may claim the CWT as credit. Under the
FWT, the payments subjected to the same are no longer reported as taxable income.
Q: X Corp. pays Y Corp. regularly. The payments are generally subject to withholding tax but X
Corp. has refused to withhold on the basis that it (X Corp.) is exempt from tax. Is X Corp. correct?
A: No. The exemption has to pertain to the payee, in this case Y Corp., so that the withholding taxes
would not be due.
Q: When is a short period return due after a merger?
A: Within 30 days from the effectivity of the merger based on the SEC approval
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C.
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1,300
Case B
1,000
2,000
Case C
1,000
2,000
1,000
2,000
In determining whether there was sufficient consideration, compare the FMV of the property at the time of
transfer with the amount of consideration received at the time of transfer. However, the amount to be
included in the estate is computed by taking the difference between the FMV of the property at the time of
death and the amount of consideration received at the time of transfer.
Q: What is the reason behind allowing as deduction for estate tax purposes property which was
previously taxed (vanishing deduction)?
A: To mitigate the harshness of previous taxation.
Q: What are the conditions for the deductibility of property previously taxed or VANISHING
DEDUCTION?
A:
1. Present decedent must have acquired the property by inheritance or donation within 5 years
prior to his death
2. Property acquired formed part of gross estate of the prior decedent, or was a taxable gift of
the donor
3. Estate tax or donors tax due thereon must have been paid
4. The property must be identified as the one received from the prior decedent or from the donor
5. The estate of the prior decedent has not previously availed of the vanishing deduction
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BUT in both instances, the respective heirs may not be held accountable for more that the share
he/she inherited
Q: Who are considered as persons/officers who should require proof of payment of estate tax
before acting upon a request by an heir?
A: These would be the Register of Deeds, debtors, lawyers and banks all on transactions relating to
their business.
Q: For purposes of imposing the donors tax, is donative intent always necessary?
A: NO, as in the case of transfers for less than adequate consideration. However, for the donors tax to
be imposed in this case, the following requirements must concur:
1. Property donated is NOT realty that is capital asset (otherwise it will be subject to 6% CGT on
the entire gross selling price or FMV, whichever is higher)
2. the transfer is for less than adequate consideration
3. the transfer is inter vivos
Q: Mr. A sold his lot not used for business to his brother Mr. B for 500,000 when at that time the
lot was valued in the market at P1M. Mr. A bought it for P100,000. In addition, A sold some of the
shares of his company, X Corp., to his senior executives. He sold the X Corp. shares for P300,000
when the market value was at P500,000. His original cost in the shares is P100,000. Are the sales
subject to donors tax?
A: The sale of the lot is not subject to donors tax as it is a real property classified as a capital asset and
as such is subject to the 6% capital gains tax. The sale of the shares are, however, subject to the donors
tax of 30% based on the difference between the selling price and the market value.
Q: Are there deductions from the gross gift?
A: Actually, there are really no deductions, only exemptions which are as follows:
1. dowries up to a maximum amount of P10,0000, subject to the following conditions:
a. the donation is made before marriage or w/in 1 yr. thereafter
b. it is made by parents to their children, whether legitimate, illegitimate, or adopted
2. gifts to the national govt. or to other created entities not made for profit
3. gifts to religious, charitable, etc. provided that not more than 30% of the value of the gifts are
used for admin. purposes
4. encumbrance on the property if assumed by the donee
5. those specifically provided as diminution on property donated
Q: Are non-resident aliens entitled to all these deductions?
A: NO. Only 2 to 5 are allowable
Q: Which is a more tax efficient mode of transferring property via donation mortis causa or inter
vivos ?
A: While the rates for donors tax are lower (2% to 15%) compared to those imposed for estate tax (5%
to 20%), payment of donors tax are necessarily earlier than estate tax.
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D.
REMEDIES
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The remedies may be resorted to all at the same time but 3 and 4 not available if less than 100 pesos.
Q: May an assessment for deficiency estate tax attain finality when there is a pending case in the
probate court?
A: YES, when such assessment was not protested by the taxpayer administratively [MARCOS II v. CA]
Q: Will service of an assessment notice made to the agent of the decedent after the decedents
death be effective?
A: NO. Service of assessment notice on the trust officer/agent of the decedent made after the death is
invalid since at that time the legal relationship between the principal and his agent had been automatically
severed by the death of the principal even if the agent continued to act as such by filing the decedents
ITR. The fact of failure to file a notice of death will not alter this effect but will only expose the estate to
penalties and will not continue the relationship with the agent [ESTATE OF LATE JULIAN DIEZ VS. CIR
(JANUARY 27, 2004)]
Q: What is the significance of the taxpayers indicating in the previous years ITR its new
address?
A: Any service of assessment notice on the old address subsequent to such previous year invalidates the
assessment. [CIR VS. BPI AS
LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORP. (SEPTEMBER 23, 2003)]
Q: Does the dismissal of a civil action carry with it the dismissal of the civil aspect of tax
collection?
A: No, proceedings in tax cases are different since the tax liability not deemed included in criminal cases
filed.
Q: Should the filing of a criminal complaint be preceded by assessment ?
A: NO. In case of a false or fraudulent return, proceedings in court may be commenced without an
assessment since under the Tax Code, civil and criminal aspects may be pursued simultaneously
Q: When does the governments right to assess prescribe?
A: The general rule is that the governments right to assess prescribes in 3 yrs. from the date of the last
day of filing.
However:
1. If the return is filed after such date, the 3-yr. period is reckoned from the date of actual filing
2. If return filed before last day, then considered as filed on the last day.
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Q: May there be a proceeding in court when no assessment is made within such 3-year period?
A: NO. Except under Sec. 222 which provides for the following instances:
a) If --a. A false or fraudulent return is filed with intent to evade tax
b. There is a failure to file return
Then --a. tax may be assessed OR
b. proceeding in court for collection may be filed without assessment
--- at any time within 10 years from discovery of falsity, fraud or omission
(b) Waiver of PERIOD TO ASSESS is allowed before the end of period (Note: waivers must be
consented to by the BIR and is not a unilateral act)
Q: When is the running of the period of prescription suspended?
A: It is suspended when --1. the CIR was prohibited from making the assessment or beginning distraint/levy and for 60
days thereafter (example: when injunction allowed under the CTA law is availed of)
2. taxpayer requests reinvestigation which is granted by CIR
3. taxpayer cannot be located in address
4. a warrant of distraint or levy is served (not only issued) and no property could be found
5. taxpayer is out of the Philippines
Regular ITR
Collection w/ prior assessment
Assess within 3 yrs. from actual filing or last
day to file (if the filing was done prior to said
last day)
Collection within 5 yrs. from date of
assessment by summary OR judicial
Q: Is there a need to prove that the taxpayer actually received the assessment notice within the
prescriptive period?
A: No. As a general rule, the assessment is deemed made once the notice is mailed. However, if the
receipt is disputed and for this presumption of receipt of mail to apply, CIR must prove that (1) letter was
properly addressed and (2) that it was mailed; otherwise, presumption of receipt cant apply.
Q: When may the collection of taxes be made?
A: It may be made within 5 years from assessment or within the period agreed in the waiver. However,
if the waiver refers to both assessment and collection and interpreting it as such will in effect shorten the
collection period, then it is deemed to refer to assessment only and not to collection [RP v. LIM DE YU]
Q: What is the effect of a reinvestigation on the period to collect ?
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A: The period utilized for reinvestigation is deducted from the period within which to collect. Thus, if the
assessment was made on 1/1/2000 and the collection was made on 1/1/2006 but it was shown that from
1/1/2001 to 1/1/2003, or a period of 2 years, the assessment was being reinvestigated, the action to
collect has not yet prescribed since deducting the 2 year period when reinvestigation was made will only
amount to 4 years (6 years total minus 2 years of reinvestigation) and is thus still within the 5 year period
to collect.
Q: What is the difference between a request for reinvestigation and a request for reconsideration
for purposes of tolling the running of the prescriptive period to collect?
A: A request for reconsideration is a reevaluation on the basis of existing records while a reinvestigation
is a reevaluation on the basis of newly-discovered or additional evidence. It is a request for
reinvestigation acted upon which suspends the prescriptive period to collect. (BANK OF THE
PHIL. ISLANDS VS. CIR (OCTOBER 17, 2005)
Q: What are the requirements of a valid waiver?
A: (a) specified period (b) signed by proper authority (for 1M or above = CIR must sign) and (c) taxpayer
must be furnished a copy of the waiver in order to perfect agreement since waiver is not a mere unilateral
act (Philippine Journalists Inc. vs. CIR (December 16, 2004)
Q: An informer filed a case with the CTA against the taxpayer and the BIR. The informer was
seeking to (1) declare the taxpayer as having an assessment and (2) as a consequence of (1), to
collect his informers reward. This case was filed by the informer within 3 years from the time that
the taxpayer filed its return. However, apart from this action initiated by the informer, no other
action was filed by the government seeking to collect against the taxpayer. Has the right to collect
already prescribed?
A: No, this is a unique case but the BIR is deemed to be compliant with the requirement collection within
5 years from time of assessment since if the Petitioner-informant won, the CTA would have ordered the
erring parties to pay the tax. At the very least, the filing by the informer of the case would have suspended
the running of the period because the BIR is prohibited from making collection because there was a
pending case. [PNOC vs. CA, April 26, 2005]
Q: Is there a difference between a false return and a fraudulent return?
A: YES. A false return merely implies deviation from truth, whether intentional or not, while a fraudulent
return refers to an intentional evasion of tax [AZNAR v. CTA]
Q: Where there is an assessment, when does the right to collect prescribe?
A: Where there is an assessment, the right to collect prescribes in 5 years. The 10 year period to collect
from discovery of falsity, fraud, etc. is NOT APPLICABLE [RP. v. RET]. Note that in this case the Court
ruled that the pendency of a criminal case against the taxpayer did not prevent the CIR from proceeding
to collect so any action that was lodged after 5 years from the assessment can no longer be valid as
being barred by prescription.
Q: When does the period of prescription with respect to the governments right to file a criminal
action begin to run?
A: Prescription begins to run from the date of commission, or if not known, from discovery AND actual
filing of judicial proceeding [SEC. 281 Tax Code].
Q: When is the prescriptive period interrupted?
A: It is interrupted when;
1. proceedings are instituted and
2. when the taxpayer is out of the country [SEC. 281 Tax Code]
Q: When quarterly tax returns are required to be filed, from where is the 3-year prescriptive period
reckoned?
A: It is reckoned from the date of filing of the final ANNUAL return even for percentage taxes.
[PROTECTORS SERVICES INC. v. CA (APRIL 12, 2000)]
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Note that quarterly VAT returns are final returns so the 2-year period to file the claim for refund is
reckoned from their filing.
For income taxes, the reckoning of the 2 year period is the filing of the final adjustment return and
not the quarterly income tax returns.
Q: What is the nature of the requirement that the assessment must state the facts and the law on
which the assessment is based?
A: Such is not merely a procedural requirement but a substantive requirement which determines
taxpayers ability to protest. Thus, the same must be complied with otherwise the assessment is void.
Thus, assessment notices which only have computations are invalid. This is the reason why the new Tax
Code provides that the taxpayer be informed and not merely notified. Given that this new rule benefits
the taxpayer, the same may be applied retroactively. (CIR vs. Azucena Reyes, January 27, 2006 upheld
in CIR vs. Enron Subic Power Corporation January 19, 2009)
Q: Is the RMC stating that the 2-year period to file a claim for refund is extended to make it 10
years correct?
A: NO. The RMC cannot go beyond what is provided by law; and the State cannot be put in estoppel.
[PBCOM v. CIR ]
Q: For refund case, may the taxpayer elevate its claim with the CTA even before a decision is
made by the BIR?
A: YES, similar to assessments, taxpayers may appeal the inaction of the BIR to the CTA even for refund
cases. However, the period is different since the BIR is given 120 days to act on a refund; otherwise, the
taxpayer may already appeal the inaction. However, if the 2-year period is about to lapse and no decision
has as yet been given, the taxpayer may already appeal to the CTA even if the 120 day period to decide
has not expired.
Q: In what instance is the Preliminary Assessment Notice not required?
A:
1) assessment is purely mathematical error
2) discrepancy between tax withheld and remitted
3) section 76 claim for refund is filed when it was previously carried-over
4) excise tax on excisable article not paid
5) goods imported by tax-exempt is sold not taxable entity
Q: May interest on the tax refund be awarded?
A: NO. Interest on the tax refund cannot be awarded unless
(1) authorized by law or
(2) the collection of the tax was attended by arbitrariness (inexcusable or obstinate disregard of legal
provisions). But there is no arbitrariness when there is room for two opinions [PHILEX MINING
CORP. VS. CIR (APRIL 21, 1999)]
Q: Will the filing of the Supplemental Petition be sufficient to toll the prescriptive period for the
claim for refund?
A: NO, the claim for refund has been barred by prescription since the Supplemental Petition was not
admitted. While retirement funds/employee trusts are still absolutely exempt from income tax regardless
of the nature of tax, Petitioners claim was barred by prescription since the filing of Supplemental Petition
(and not an original action) was not granted and therefore it did not have any judicial effect to toll the
running of the 2-year period. It was only when a subsequent Petition for Review was filed did the
prescriptive period toll. Also, this is not a case where 2-year period can be considered non-jurisdictional
since there are no exceptional circumstances to speak of such as that prevailing in the Panay Electric
Co. case (1958) where the taxpayer and CIR agreed to await the result of another analogous case prior
to having the taxpayer file an action for refund. FAR EAST BANK AND TRUST COMPANY vs. CIR (May
2, 2006) - TINGA
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EXTENSION OF 2-YEAR PERIOD ? PNB VS. CIR (OCTOBER 14, 2003 C.A. CASE)
TWO YEAR PERIOD TO FILE JUDICIAL CLAIM FOR REFUND IS NOT JURISDICTIONAL AND MAY
BE SUSPENDED OR REASONS OF EQUITY AND OTHER SPECIAL CIRCUMSTANCES SUCH AS
1) WHEN TAXPAYER MADE ADVANCE INCOME TAX PAYMENT (HEEDING PRES. AQUINOS CALL)
AND WAS MADE TO BELIEVE THAT ITS REQUEST FOR TAX CREDIT WILL BE ACTED UPON
FAVORABLY CONSIDERING THAT ITS CARRY-OVER WAS UNUTILIZED SINCE THE COMPANY
SUFFERED LOSSES FOR THE NEXT 4 YEARS (PNB CASE)
2) WHEN THE TAXPAYER AND THE CIR AGREED TO WAIT FOR THE RESULT IN ANOTHER CASE
HAVING THE SAME ISSUE (PANAY ELECTRIC CO. CASE)
3) WHEN THE CIR INITIALLY AGREED TO GRANT THE REFUND AND LATER DENIED THE SAME
(NAGUIAT CASE)
Q: Petitioner, an online international air carrier, filed with the BIR a claim for refund of excise
taxes it paid on its purchases of jet fuel from Petron Corporation. The CTA denied the claim and
ruled that since the excise tax was imposed on Petron as the manufacturer of petroleum products,
any claim for refund should be filed by Petron. It added that when the burden of the tax was
shifted to the purchaser, the amount passed-on to the latter is no longer a tax but an added cost
of the goods purchaser as decided in the Philippine Acetylene case. Petitioner could not be
considered a taxpayer because it merely shouldered the burden of the excise tax (which is an
indirect tax) and not the excise tax itself as Petron, being the manufacturer, still remains primarily
liable. Petitioner said that to have Petron be the claimant is to make their right to recovery
dependent solely on Petrons acts over which it has no control. Is Silkair the proper party to claim
a tax credit for the excise taxes it paid on its purchases of jet fuel from Petron Corporation?
A: NO, the proper party to seek a refund of an indirect tax is the statutory taxpayer, who is the person on
whom the tax is imposed by law and who paid the same, even if that person shifted the tax to another.
Thus, Petron Corporation being the statutory taxpayer (excise taxes being levied on manufacturers and
producers) is the entity that may claim a refund. When Petron passed on the burden of the tax to
petitioner, the additional amount can no longer be considered a tax but as part of the purchase price
which Petitioner had to pay as purchaser. Petitioners argument that it is entitled to the refund since it is
exempt from paying indirect taxes by virtue of the Air Transport Agreement between the Philippines and
Singapore is unavailing considering that, unlike the situation of NPC in the Maceda case, there is in this
case an absence of clear legislative intent of an exemption from indirect taxes based on Section 135(b) of
the Tax Code and Article 4(2) of the Air Transport Agreement. [SILKAIR (SINGAPORE) PTE, LTD. vs.
COMMISSIONER OF INTERNAL REVENUE (February 6, 2008 & November 14, 2008)]
Q: Is a final demand letter issued by the BIR reiterating the demand for immediate payment
considered as a final decision appealable to the CTA?
A: YES. The letter is deemed as the CIRs final act since failure to comply therewith exposes property to
distraint and levy [CIR VS. ISABELA CULTURAL CORP. (JULY 11, 2001)]. More importantly, section 228
allows direct appeal to the CTA if protest is not acted upon within 180 days.
Q: When is a decision appealable to CTA ?
A: So long as the tenor of the decision is that the dispute of Petitioner is denied, it is appealable. To let the
Petitioner defer the period is to unduly put in his hand the collection of taxes. The CIR should always indicate in
clear language the decision of the BIR [SURIGAO ELECTRIC v. CTA]
Q: Is the denial by the BIR of the protest on the PAN (not the FAN) appealable to the CTA ?
A: No. The denial of the CIR must be on a protest of the FAN.
Q:
PSPC acquired some TCCs through the One Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center (composed of DOF, BIR, BOC and BOI) from other BOI-registered entities. PSPC
then utilized the said TCCs for its excise taxes and were then issued TDMs by the Center and
ATAPs issued by the BIR. However, the BIR assessed PSPC for delinquency excise taxes alleging
that PSPC is not a qualified transferee of the TCCs. CA ruled that PSPC was not entitled to the
benefit of the TCCs and thus upheld the assessment. Were the use of PSPC of the TCCs valid?
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A: Yes. There is no suspensive condition for the validity of TCCs as they are effective immediately and
only computational errors are allowed as basis to invalidate TCCs. Also, even if the source is defective, it
does not affect PSPCs right as it acted in good faith and the agencies approved of the use of TCCs
[PILIPINAS SHELL PETROLEUM CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE
(December 21, 2007)]
PLEASE REMEMBER THE PERIODS IN AN ASSESSMENT PROCEEDINGS
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E.
CTA
R.A. 9282
ELEVATES CTA TO CA LEVEL
TWO DIVISIONS AND EN BANC
VOTES OF 2 IF DIVISION AND 4 IF EN BANC
EX-JUSTICES CANT APPEAR BEFORE COURT WITHIN 1 YEAR
JURISDICTION --A.
EXCLUSIVE APPELLATE JURISDICTION
1. DECISIONS OF CIR
2. INACTION OF CIR
3. DECISIONS OF RTC ON LOCAL TAX CASES
4. DECISIONS OF COC
5. DECISIONS OF CBAA (ON EXERCISE OF APPEAL OVER RPT TAX CASES
DECIDED BY LBAA)
6. DECISIONS OF DOF ON CUSTOMS CASES ELEVATED TO HIM ON AUTOMATIC
REVIEW DUE TO ADVERSE DECISION VS. GOVERNMENT
7. DECISIONS OF DTI (ON NON-AGRI. PRODUCTS) AND DA (ON AGRI.
PRODUCTS) INVOLVING DUMPING AND COUNTERVAILING DUTIES
B.
C.
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CTA denied the Motion to Quash and scheduled arraignment. Petitioner filed with the CTA en banc
a Motion for Extension of Time to File a Petition for Review to appeal the denial of her Motion to
Quash. Petitioner subsequently filed the Petition for Review with the CTA en banc. Is the
resolution of the CTA First Division denying Petitioners Motion to Quash a proper subject of an
appeal to the CTA en banc?
A: NO, the denial of a Motion to Quash is an interlocutory order which is not the proper subject of an
appeal or a petition for certiorari. The Revised Rules of Court provide that only final judgments or orders
shall be subject to appeal to avoid multiplicity of suits. The test to determine whether an order or
judgment is interlocutory or final is whether the order or judgment leaves something to be done in the trial
court with respect to the merits of the case. If it does, it is interlocutory; if it does not, it is final. The
remedy of the accused from the denial of her Motion to Quash is to proceed with the trial of the case in
court, and if final judgment is rendered against her, she could then appeal, and upon such appeal,
present the questions which she sought to be decided by the appellate court in a petition for certiorari.
Certiorari is an appropriate remedy to assail an interlocutory order only when: (a) the tribunal issued such
order without or in excess of jurisdiction or with grave abuse of discretion; and (b) the assailed
interlocutory order is patently erroneous, and the remedy of appeal would not afford adequate and
expeditious relief. The Court ruled that none of these circumstances were present in the case. The Court
also upheld the CTAs findings on the two points raised by the Petitioner, viz: (1) the filing of the
Information was approved by the Commissioner (which is the only requirement as the law does not
prescribe the form of approval) as indicated in his letter to the DOJ Secretary and (2) the more
appropriate recourse Petitioner should have taken, given the dismissal of similar charges against
Velasquez, was to appeal to the DOJ Secretary the Resolution of the Office of the State Prosecutor
recommending the filing of an Information against her. Petitioner cannot claim denial of due process
because she was given the opportunity to file her affidavits and other pleadings and submit evidence
before the DOJ during the preliminary investigation of her case and before the Information was filed
against her. [JUDY ANNE L. SANTOS vs. PEOPLE OF THE PHILIPPINES and BUREAU OF INTERNAL
REVENUE (August 26, 2008)]
Q: Are the remedies of (1) filing an appeal on the BIRs inaction and (2) filing an appeal on the CIRs
decision exclusive or alternative remedies?
A: the options are mutually exclusive and resort to one bars the other. In the case of RCBC vs. CIR
(APRIL 24, 2007), CIR failed to act on the disputed assessment within 180 days from date of submission
of documents. Thus, petitioner opted to file a Petition for Review before the Court of Tax Appeals BUT
FILED THE SAME MORE THAN 30 DAYS AFTER LAPSE OF 180-DAY PERIOD. After availing the first
option, i.e., filing a Petition for Review which was however filed out of time, Petitioner can not successfully
resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same
to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment
because of the Commissioners inaction.
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F.
VAT
(a)
Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business;
(b)
The right or the privilege to use patent, copyright, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;
(c)
The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
(d)
The right or the privilege to use motion picture films, films, tapes and discs; and
(e)
Radio, television, satellite transmission and cable television time.
Q: Is a profit element required for VAT to be imposed?
A:
No. The case of COMASERCO held that even if the arrangement is just a reimbursement of cost, the
payments are still subject to VAT
Q: National Development Corporation (NDC), in pursuance of the government-mandated plan of
privatization, sold to Respondent 5 of its ships. Is the sale of the ships subject to VAT?
A: NO, the sale is exempt for being an isolated transaction. The requirement of the sale being in the
course of trade or business of the seller is indispensable and the seller must be treated as having done
so not just from time to time but all the time. The Court added that if the VAT is imposed on isolated
transactions, there would be less chance of being able to recover the VAT on its sale since no input VAT
may have been passed-on to the seller given the nature of the transaction as not doing business.
Likewise, the Court clarified that the enumeration of what are deemed sale does not modify the
requirement of the sale being in the ordinary course of trade or business and is thus irrelevant. [CIR vs.
MAGSAYSAY LINES, INC. (July 28, 2006)]
Q: What is technical importation as it relates to VAT?
A: It is the subsequent sale, transfer or exchange of imported goods by VAT-exempt persons to nonexempt persons or entities. In these cases, the latter shall be considered the importers thereof and shall
be liable for VAT due on such importation.
Q: Distinguish VAT zero-rated and VAT exempt transactions.
A: They both do not yield any output VAT. However, the input VAT treatment is different such that (i) for a zerorated transaction, the attributable input VAT may be credited and/or refunded and (ii) for an exempt transaction,
the input VAT can not be credited/refunded. In addition, a VAT zero-rated taxpayer is required to VAT register
while an exempt taxpayer should not VAT-register.
Q: What are the notable VAT-exempt transactions?
A:
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(1) Sale of agricultural food products in their original state (such as freezing, drying, broiling, roasting,
etc.)
(2) Services provided by an R/AHQ but note that services by ROHQ are not VAT exempt but may be
zero rated if the services are performed for a nonresident and paid for in foreign currency
(3) Medical services (by hospitals, etc.) except that services rendered by professionals (individuals) are
already VAT-taxable
(4) Services from an employer-employee relationship
(5) Export sales of non-VAT registered taxpayers (Note: if they were VAT-registered these would be
zero-rated)
(6) Real property not held for sale to customers OR sales within the low-cost cap of below P1.5M for a lot
and P2.5M for a house and lot, and P10T per month for leases
(7) Banks and non-bank financial intermediaries
(8) Services subject to percentage tax
(9) Services by TESDA-accredited entities
(10)Sales NOT enumerated in 109 (A) to (V) and NOT exceeding 1.5M annually (Note: if the
services/sales are covered under (A) to (V), the amount is irrelevant)
Remember that the enumeration under the Tax Code is exclusive.
Q: What are notable VAT-taxable transactions under the new law?
A: Sale of electricity / Sale of non-food agricultural products / Services by doctors and lawyers
Q: What are notable zero-rated transactions already?
A:
Sale of goods & services to international shipping companies / Sale of power thru renewable sources
(biomass, solar, wind, etc.) / Transport of passengers and cargo by air and sea from the Philippines to a foreign
country
Q:
How is input VAT treated if the same related to purchase of assets subject to depreciation (or
ordinary assets)?
A: If the cost (excluding VAT) is more than 1M, the input VAT is also spread over life of the asset if the life of the
asset is less than 5 years, or over 5 years if the life of the asset is more than 5 years
Q: What are the only bases currently existing to refund unutilized input VAT?
A: Only the input VAT relating to zero-rated transactions, those erroneously paid and those which remain
unutilized at the close of the business may be refunded.
Q: Mirant generates power which it sells to the National Power Corporation (NPC) in which
connection it secured the services of Mitsubishi Corporation of Japan (Mitsubishi). In the belief
that its sale of power generation services to NPC is VAT zero-rated because of NPCs tax exempt
status, Mirant filed an Application for Effective Zero-Rating. The BIR issued a ruling stating that
the supply of electricity by Respondent to NPC shall be subject to 0% VAT. On April 14, 1998,
Mirant paid Mitsubishi the VAT component billed by the latter for services rendered. Mirant filed
its quarterly VAT return for the second quarter of 1998, where it reflected the input VAT paid to
Mitsubishi for progress billings of the latter for the period April 1993 to September 1996.
Subsequently, on December 20, 1999, Mirant filed an administrative claim for refund of unutilized
input VAT arising from (a) its purchase of capital goods from Mitsubishi, and (b) its domestic
purchases of goods and services attributable to its zero-rated sales of power generation services
to the NPC. Has Mirants claim for input VAT refund prescribed?
A: Yes, it has prescribed. Claims for VAT refund must be filed within 2 years from the time sales were
made even if payment for the VAT was made some quarters after that. The fact that there was a pending
request for zero-rating was not recognized as basis for late filing of return and payment of taxes (i.e., two
years after sales were made). Also, the Court ruled that the provision on erroneous payment can not be
applied as it is not the case here. [COMMISSIONER OF INTERNAL REVENUE vs. MIRANT PAGBILAO
CORPORATION (September 12, 2008)]
Q:
Being a PEZA exporter, can a taxpayer claim its unutilized input VAT?
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A:
YES, Sekisui is entitled to tax refund. PEZA entities can avail of two alternative or subsequent
incentives of ITH and 5% GIE. It is only in the latter where the VAT is not imposed on the PEZA entity on
its sales. Being under ITH, it will be subject to VAT and should VAT-register. However, (1) sales to the
PEZA entity, regardless of incentive availed, is zero-rated on the part of the seller since PEZA is
considered foreign soil and thus sales to them are considered as export sales and (2) if the PEZA
entity is an exporter, its input VAT are subject to refund not by virtue of its PEZA status (and thus
regardless of whether its at 5% GIE or ITH) but due to the nature of its transactions (i.e., export
sales).[CIR vs. SEKISUI JUSHI PHILIPPINES, INC. (July 21, 2006)]
Note that services rendered outside PEZA zone are not accorded the same VAT zero-rated
treatment even if performed for PEZA companies, as the principle that they are rendered in
foreign soil does not apply. The most common examples would be the hotel accommodations
(outside PEZA zone) of PEZA employees.
Q:
Benguet treated its sale of gold to BSP as zero-rated on the basis of the then Tax Code
which gave zero-rated status to export sales. Benguet got a ruling confirming that sale of gold to
BSP are export sales. BIR then disallowed refund of input VAT stating that a subsequent ruling
was issued revoking the zero-rated status and that this could retroact since no prejudice would
result to Benguet since (1) Benguet can offset it against its output or (2) it can claim the same as
cost. Is the BIR correct?
A: No. (1) Benguet didnt have enough output to offset the input VAT it accumulated (precisely because
believing it was zero-rated it did not pass-on OUTPUT VAT) (2) Assuming that the right to refund
overpaid income tax (which would be the result if additional cost is taken up), it does not solve Benguets
other disadvantageous situations. Also, only 32% of the amount is recovered. Thus, retroactive
application of ruling was denied [CIR vs. BENGUET CORPORATION (July 8, 2005)]
Q: Are PhilHealths services considered medical services to entitle it to VAT exemption?
A: NO, but PhilHealth may exempt from VAT due only to a previously issued ruling.
(1) The VAT-exempt transaction involved is medical, dental, hospital and veterinary services except
those rendered by professionals. Given that Petitioner is not the entity providing medical services and
only (i) acts as a conduit; (ii) arranges for the provision of health care; (iii) contracts services of doctors,
etc.; and (iv) contracts and negotiates with hospitals, its services are not VAT-exempt.
(2) However, the Court ruled that the revocation of the 1988 ruling can not be applied retroactively since it
will prejudice the taxpayer who has not committed any of the acts (i.e., bad faith, omission of facts, etc.)
to merit retroactivity of rulings. The fact that the term health maintenance organization only took on a
technical definition in 1995 upon the passage of the National Health Insurance Act supports PhilHealths
good faith contention. [CIR vs. PHILIPPINE HEALTH CARE PROVIDERS, INC. (April 24, 2007)]
Q:
A foreign consortium, parent company of Burmeister, entered into an O&M contract with
NPC. The foreign entity then subcontracted the actual O&M to the Burmeister. NPC paid the
foreign consortium a mixture of currencies while the consortium, in turn, paid Burmeister foreign
currency inwardly remitted into the Philippines. BIR did not want to grant refund since the
services are not destined for consumption abroad (or the destination principle). Are the receipts
of Burmeister entitled to VAT zero-rated status?
A: Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to the filing of
CIRs Answer in the CTA.
The substantial basis of the petition has no merit since the consortium, which was the recipient of
services rendered by Burmeister, was deemed doing business within the Philippines since its 15-year
O&M with NPC can not be interpreted as an isolated transaction. In addition, the Court interpreted
Sections (1) (referring to processing, manufacturing, repacking) and (2) (services other than those in
(1)) of Sec. 102 (b) as both requiring (i) payment in foreign currency; (ii) inward remittance; (iii) accounted
for by the BSP; AND (iv) that the service recipient is doing business outside the Philippines. The Court
ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency.
The refund was allowed since Respondent secured a ruling from the BIR allowing zero-rating of its sales
to foreign consortium. However, the ruling is only valid until the time that CIR filed its Answer in the CTA
which is deemed revocation of the previously-issued ruling. The Court said the revocation can not retroact
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since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present. [CIR vs.
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. (January 22, 2007)]
Q: How is the VAT imposed on real property transactions?
A: VAT is imposed on real properties held for sale or lease as follows:
a.) If cash or deferred payment (i.e., payment is more than 25%), then the VAT on the whole amount is
already imposed
b.) If installment (less than 25% for year), then the VAT is imposed on each payment
c.) There is no VAT imposed on Section 40 (C)(2) exchanges (tax-free)
Q: Assuming a VAT-taxable transaction, is the advance payment in a real estate transaction
subject to VAT?
A: Of the amounts typically covering an advance payment, only pre-paid rent is subject to VAT. Other
forms of advance payment such as option money, security deposit, etc., are not subject to VAT.
Q: X Corporation had the following sales during the month:
Sale to private entities subject to 12%
P100,000.00
Sale to private entities subject to 0%
100,000.00
Sale of exempt goods
100,000.00
Sale to gov't. subjected to 5% final VAT Withholding 100,000.00
Total sales for the month
P400,000.00
The following input taxes were passed on by its VAT suppliers:
Input tax on taxable goods (12%)
P5,000.00
Input tax on zero-rated sales
3,000.00
Input tax on sale of exempt goods
2,000.00
Input tax on sale to government
4,000.00
Input tax on depreciable capital good not attributable to any specific activity P20,000.00
(monthly amortization for 60 months)
How much creditable input VAT is available for each of the respective type of transactions entered
into by X Corp.?
A:
1)
2)
3)
4)
For sales subject to 12% VAT --- (i) actual input VAT of P5,000 and (ii) ratable portion of P5,000
For sales subject to 0% VAT --- (i) actual input VAT of P3,000 and (ii) ratable portion of P5,000
For sale of exempt goods
--- no input VAT is creditable as the transactions are VAT exempt
For sales to government
--- no input VAT is creditable as the law imposes a 5% final withholding
VAT obligation on the government agency-payor
Q:
In the above problem, how was the ratable portion of creditable input VAT (for VAT-taxable
and zero-rated sales) computed?
A:
(1) for input VAT creditable on VAT-taxable sales
Taxable sales
____________
20,000 = 5,000
Total Sales
100,000
_______
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400,000
(2) for input VAT creditable on VAT zero-rated sales
Zero-rated sales
____________ x
Total Sales
100,000
_______
20,000 = 5,000
400,000
Q: When does the withholding VAT apply?
A:
The withholding VAT applies in cases where (1) payments are made to a nonresident whose
services are considered as VAT-taxable (ex. royalties) in which case the 12% VAT will be withheld by the
payor or (2) payments by government agencies, in which case the government entity will withhold 5% on
its payments. These are all considered as final VAT payments.
Q:
Is a party dealing with a government entity deprived of its entitlement to the input VAT it
accumulated considering the VAT withholding tax mechanism?
A:
The 7% difference (12%-5%) is the presumed input VAT cost of the entity dealing with the
government agency. If the actual input VAT is below 7%, then the taxpayer will realize additional income.
However if the if the actual input VAT is above 7%, then the difference between the actual input VAT and
7% is considered as additional cost.
Q: What are the effects of the failure to register for VAT if such registration is required?
A:
The taxpayer will be (1) required to pay VAT even if it did not register; (2) prohibited from availing of
input VAT on its purchases and (3) will be imposed administrative penalties of 50% surcharge.
Q: What are the effects of issuing VAT receipts is the taxpayer is a VAT-exempt seller?
A:
The taxpayer will be (1) subject to other business taxes (ex. percentage) plus the VAT; (2)
prohibited from availing of input VAT on its purchases and (3) will be imposed administrative penalties of
50% surcharge. Note that the buyer can avail of the input VAT in the transaction.
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G.
LOCAL TAXATION
Q: What is the basis of the Local Governments TAXING POWER? (SECTION 129)
A:
It is only granted by the Constitution (Sec. 5 Art. X, Constitution) and is not inherent in the Local
Government
Q: Who exercises the power of taxation for LGUs?
A: It is exercised by the Sanggunian through the passage of local ordinances
Q: What are the limitations on the taxing power of LGUs?
A: LGUs can not impose:
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
Q:
Is a municipal ordinance imposing fees on goods (corn) that pass through a municipalitys
territory valid?
A: No, it is void. While the LGU can tax the vehicles using the roads it can not tax the goods even in the
guise of police surveillance fees. [PALMA DEVELOPMENT CORP. VS. ZAMBOANGA DEL SUR
(OCTOBER 16, 2003)]
Q: Petron maintains a depot or bulk plant at the Navotas Fishport Complex where it engages in
the selling of diesel fuels to vessels used in commercial fishing. Navotas City thereafter levied
business taxes on its sale of petroleum products. Can LGUs levy local taxes on sale of
petroleum?
A: No, LGUs can not impose any type of local tax on petroleum products. The LGC provision provides
two possible bases for exemption when it states the LGCs can not impose --- (i) excise taxes on articles
enumerated under the Tax Code and (ii) taxes, fees or charges on petroleum products.
(1) The reference to excise taxes in the LGC is not for the performance, carrying on or exercise
of an activity. Rather it refers to those subjected to specific or ad valorem taxes under the
Tax Code.
nd
(2) The 2 basis for exemption refers not only to direct or excise taxes to be levied by LGUs on
petroleum products but on all types of taxes on petroleum products including business taxes.
The Court said that this could not refer again to the non-imposition of excise taxes on
petroleum products because otherwise it would be a redundancy. [PETRON CORPORATION
vs. TIANGCO (April 16, 2008)]
Q: Bulacan passed an ordinance imposing tax on minerals extracted from public lands BUT went
on to collect tax on minerals extracted from private lands. Since the LGC only provides for tax on
public lands, is the action of Bulacan valid?
A: Generally, LGC can impose even if not in LGC since Sec. 186 is sweeping. However, Bulacan cant
levy on minerals from private lands because it is an excise tax on an article already covered by the Tax
Code. This applies the PREEMPTION OR EXCLUSIONARY RULE wherein national government elects to
tax a particular area, impliedly withholding from LGU the delegated power to tax the same field
[PROVINCE OF BULACAN v. C.A.]
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recorded at
allocation
Yes
No
branch/sales office
principal
none
none
allocation to
principal
Yes
No
30%
30%
70%
factory 60%
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b) If there is fraud or intent to evade payment of tax, assessment may be made within 10 years from
discovery of fraud or intent to evade
Q: How does the taxpayer contest a local business tax assessment?
A: After the treasurer issues assessment, the taxpayer has 60 days to protest (NO PROTEST UNDER
PAYMENT REQUIRED). The taxpayer has 60 days to decide. An appeal to the RTC is then available
upon denial or 60-day inaction by the treasurer. RTCs decision is then appealable to the CTA.
Q: What is the rule on collection?
A: Collection must be within 5 yrs. from assessment.
Q: May the running of prescriptive period be suspended?
A: Yes, in the following instances:
1. Treasurer is legally prevented from assessing/collecting
2. Taxpayer requests for reinvestigation and executes waiver
3. Taxpayer is out of the country or can not be located
Q: What is the rule on refunds?
A: Must file written claim within 2 yrs. from the date of payment of tax OR from the date when the
taxpayer is entitled to refund. Thus, the SUPERVENING CAUSE doctrine applies.
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H.
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A: No, because it does not actually, directly and exclusively use the machineries and equipment in the
generation and transmission of electric power. NPCs basis for its claimed exemption, Section 234(c) of
the LGC, clearly provides that the RPT exemption shall apply to: (a) all machineries and equipment; (b)
that are actually, directly, and exclusively used by; (c) local water districts and GOCCs engaged in the
supply and distribution of water and/or generation and transmission of electric power. The machineries
and equipment are owned by BPPC, subject only to the transfer of these properties to NPC after the
lapse of the 15-year period agreed upon. Moreover, BPPCs use of the machineries and equipment are
actual, direct and immediate, while NPCs is contingent and, at this stage of the BOT Agreement, not
sufficient to support
its claim for tax exemption. In the same manner, the application of the lower 10% assessment level for
the properties cannot be used by BPPC, since it is not a GOCC engaged in the generation and
transmission of electric power, but a private entity. [NATIONAL POWER CORPORATION vs. CENTRAL
BOARD OF ASSESSMENT APPEALS, ET.AL. (January 30, 2009)]
Q:
Petitioner was granted a 25-year franchise to install, operate and maintain
telecommunications systems throughout the Philippines under a law which states that The
grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property
exclusive of this franchise x x x. As they were not being issued a Mayors permit, Petitioner paid
the RPT under protest. Petitioner argued that the phrase exclusive of this franchise means that
only the real properties not used in furtherance of its franchise are subject to RPT while those real
properties which are used in its telecommunications business are exempt from RPT. Are
Petitioners real properties used in its telecommunications business exempt from RPT?
A: No, Petitioners real properties, whether or not used in its telecommunications business, are subject
to RPT. Section 5 of RA No. 7678 categorically states that Petitioner is liable to pay the same taxes on its
real estate, buildings, and personal property exclusive of this franchise as other persons or corporations.
The phrase exclusive of this franchise qualifies the term personal property. This means that
Petitioners legislative franchise, which is an intangible personal property, shall not be subject to taxes.
This is to put franchise grantees in parity with non-franchisees as the latter obviously do not have
franchises which may potentially be subject to realty tax. There is nothing in the first sentence of Section
5 which expressly or even impliedly exempts Petitioner from RPT. Finally, Petitioners reliance on the
BLGFs opinion stating that real properties owned by telecommunications companies are exempt from
RPT is without basis as the BLGF has no authority to rule on claims for exemption from RPT. [DIGITAL
TELECOMMUNICATIONS PHILIPPINES, INC. vs. CITY GOVERNMENT OF BATANGAS (December 11,
2008)]
Q: FELS entered into a lease contract with NAPOCOR over two engine power barges at Balayan
Bay, Batangas. The lease contract stipulated that NAPOCOR shall be responsible for all taxes
(including RPT on the barges), fees and charges that FELS may be liable to except (i) income tax
of FELS and its employees; and (ii) construction permit and environmental fees. FELS was
assessed for RPT and the LBAA upheld the assessment by stating that while the barges may be
classified as movable/personal property, they are considered as real property for tax purposes
because they are installed at a specific location with a character of permanency. Are the power
barges considered as realty for RPT purposes?
A: Yes, the barges are real property subject to RPT.
(1) The remedy from the decision of the Provincial Assessor is an appeal to the LBAA and not a
Motion for Reconsideration. Failure to file the appeal to the LBAA within the 60-day period
provided by law makes the assessment final and unappealable.
(2) Further basis to consider power barges as real property is Article 415(9) of the Civil Code
which provides that docks and structures which, though floating, are intended by their nature
and object to remain at a fixed place on a river, lake or coast. As such they are categorized
as immovable property by destination.
(3) Neither can FELS claim exemption under Section 234 of the LGC given that the requirement
is that to be exempt the machineries and equipment must be actually, directly and
exclusively used by GOCCs engaged in the generation of power. Since the agreement
between FELS and NAPOCOR is that FELS will own and operate the barges and not
NAPOCOR, the condition is not met. The mere undertaking to pay real estate taxes does not
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infect the transaction with NAPOCORs tax exemption since, at best, it will be considered
rd
only as an arrangement between the parties not binding 3 parties.
[FELS ENERGY, INC. vs. PROVINCE OF BATANGAS (February 16, 2007)]
Q: Are equipment/machineries in cement or wooden platform and which were never used as
industrial equipments to produce finished products for sale nor to repair machineries offered to
the general public for business or commercial purposes considered as realty subject to RPT?
A: No. For equipment to be real property, they must be ESSENTIAL AND PRINCIPAL ELEMENTS (ex.
machineries for production of soft drinks in breweries). In addition, the machinery should be essential to
carry on business in a building or piece of land and this was not the case since it was proven that the
equipment was not essential because it is used only for repairs which could actually be done elsewhere.
[MINDANAO BUS COMPANY v. CITY ASSESSOR OF CAGAYAN DE ORO]
Q: Are tanks, pumps, etc. installed by Caltex in gas stations on leased land considered as realty
subject to RPT even if the lessor does not become the owner of the said assets?
A: Yes, because they are essential to the business of the taxpayer. The issue of whether the property
was installed by owner (Davao Sawmill case) does NOT apply since there the issue was on execution of
judgment against the lessee. [RPT - CALTEX PHILS. vs. CBAA of PASAY]
Q: How is a RPT tax assessment disputed?
A:
1. Owner pays tax
2. Annotation of paid under protest in receipt
3. Protest filed with the treasurer of the LGU within 30 days from payment
4. Treasurer to decide within 60 days
5. Treasurer decision or inaction within 60 days appealable to LBAA within 60 days
6. LBAA to decided within 120 days
7. LBAA decision appealable to CBAA within 30 days
8. CBAA appealable to CTA NOW UNDER RA 9282 (EVEN IF THE LAW STATES THAT IT IS FINAL
AND EXECUTORY)
Q: What are the rules on assessments?
A:
a) Assessment must be made within 5 years from the date they become due
b) If there is fraud or intent to evade payment of tax, assessment may be made within 10 years from
discovery of fraud or intent to evade
Q: What is the rule on collection?
A: Collection must be within 5 yrs. from assessment.
Q: May the running of prescriptive period be suspended?
A: Yes, in the following instances:
1. Treasurer is legally prevented from assessing/collecting
2. Taxpayer requests for reinvestigation and executes waiver
3. Taxpayer is out of the country or can not be located
Q: What is the rule on refunds?
A: Must file written claim within 2 yrs. from the date of payment of tax OR from the date when the
taxpayer is entitled to reduction or adjustment. Thus, the SUPERVENING CAUSE doctrine also
applies.
Q: What were the procedural issues addressed in the case of Lopez vs. City of Manila (February
19, 1999)
A:
1) Remedies on legality of tax ordinance ---
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I.
CUSTOMS
1.
Importation begins when goods enter RP jurisdiction with intention to unlade and terminates upon
payment of taxes or legal permit to withdraw has been granted.
2.
law.
All articles subject to duty even if previously exported from RP except if specifically exempted by
3.
4.
CONDITIONALLY-FREE IMPORTATIONS
If thereafter sold for purposes other than original intention = subject to forfeiture and importation
shall constitute a fraudulent practice
Examples
o Articles for repair, re-conditioning to be re-exported w/in 6 mos. (requires bond)
o Personal effects for balikbayans excluding cars, and must NOT be commercial quantity
and NOT exceed P2000 can be brought in 90 days after arrival
o Articles to be donated to relief organizations (certified by DSWD, DECS)
o Samples not for commercial sales, including medicines (but should not be available in
RP)
o Economical, technical, vocational, scientific, philosophical, historical, cultural
books/publications and bibles
5.
IN DETERMINING DUTIES TO BE PAID, TWO ELEMENTS REQUIRED (1) type of good to
determine duty rate and (2) dutiable value
7.
DUTIABLE VALUE
6 methods --- Transaction Value / Transaction Value of Identical Goods / Transaction Value of
Similar Goods / Deductive Value / Computed Value (methods 4 and 5 may be reversed) /
Fallback Value
ONE Transaction Value
o Price actually PAID/PAYABLE when exported to RP adjusted by adding --! Commissions / cost of containers / packing cost / cost of tools, engineering,
artwork if supplied free of charge / royalties
! Value of subsequent resale accruing to the seller
! Cost of transport & loading/unloading charges from port of exportation to port of
entry in RP (costs within RP already excluded)
! Insurance
o Method one is not to be used IF
! Buyer imposes restrictions on sale or use of goods except if imposed by law,
geographical limits, not affect value of goods
! Sale is subject to some condition/consideration which can not be valued
! Part of subsequent resale accrues to seller and amount indeterminable
! BUYER AND SELLER RELATED business partners; holds 5% equity; common
th
control; relatives up to 4 degree
8. Special duties
Anti-dumping
o Duty imposed on foreign article imported into the Philippines at a price less
than the fair value, the importation of which might injure the establishment of
an industry producing like goods in the Philippines (ex. TILES, CEMENT)
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10. GOVERNMENT REMEDIES enforcement of tax lien on unpaid duties AND seizure & forfeiture
Seizure rules
If vessel becomes subject to seizure, the pursuit may be continued even beyond RP seas
Doctrine of primary jurisdiction CoC has exclusive jurisdiction on seizure cases to the exclusion of
regular courts
Even vehicles used for transporting seizable articles may be seized except if owner has no knowledge of
its use
11. PENALTIES
(a)
Negligence When a deficiency results from an offenders failureto exercise
reasonable care and competence to ensure that a statement made is correct, it shall be
determined to be negligent = fine equivalent to to 2 times the revenue loss.
(b)
Gross Negligence When a deficiency results from an act or acts of omission or
commission done with actual knowledge or wanton disregard for the relevant facts it shall be
determined to be grossly negligent = fine of 2 to 5 times revenue loss.
(c)
Fraud When the material false statement or act in connection with the transaction
was committed or omitted knowingly, voluntarily and intentionally, as established by clear
and convincing evidence, it shall be determined to be fraudulent = fine of 5 to 8 times
revenue loss and imprisonment of 2 to 8 years.
12. TAXPAYER REMEDIES collector (within 15 days) Commissioner of Customs (within 15 days)
Secretary of Finance (if adverse to government) CTA SC
Commissioner of Customs and Secretary of Finance have 30 day to rule on appeal to them
Payment under protest is required
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