FINALS

I. DISTINGUISH (20%)

1. The grant of exemption by LGUs from local taxes, fees and charges from grant of exemption by LGUs from real
property tax (Section 234 & 192)

Section 192 Authority to Grant Tax Exemption Privileges - LGUs may through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.

In the provision thereof, LGUs have the power to grant tax incentives through ordinances. However the distinction
between the power of the LGU to grant exemption between local taxes, fees and charges from real property tax is that,
for Real Property Tax the LGU cannot add on to the exemptions stated in the LGC. While for local business taxes,
LGUs are free to grant exemptions.

Grant of exemption by LGC for Real Property:

There is no provision in the LGC which expressly empowers local governments to exempt real properties from
taxes. However, Section 234 of LGC provides that the following properties are exempt from real property taxes: 1. Real
property owned by ROP or any of its political subdivisions; 2. Charitable institutions, churches, parsonages or convents
etc. actually, directly, and exclusively used for religious, charitable or educational purposes; 3. All machineries and
equipment that are a,d,e used by the local water utilities and GOCCS engaged in the supply and distribution of water
and/or transmission of electric power; 4. All real property owned by duly registered cooperatives; and 5. Machinery
and equipment used for pollution control and environmental protection.

2. Customs Protest from Forfeiture and Seizure Proceedings in Customs Code

These are the two kinds of proceedings in BoC:

a. Customs Protest Cases – these are cases which deals solely with liabilities for customs duties, fees
and other charges. It is applicable only in case the liability of the taxpayer for duties, taxes and fees and
other charges is determined and the taxpayer disputes the said liability. Where there is no dispute,
customs protest is not required.
b. Forfeiture and Seizure Proceedings - These refers to matters involving smuggling. It is administrative
and civil in nature and is directed against the res or imported articles and entails a determination of the
legality of their importation. These are actions in rem.

3. Prescriptive period of collection and assessment of national internal revenue taxes from local taxes.

National Internal Revenue Taxes – Section 203 (NIRC) As a general rule Internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the return except those provided under Section
222 in cases of a false or fraudulent return with intent to evade tax or of failure to file a return where a collection may be
filed without assessment at any time within 10 years after the discovery of the falsity, fraud, or omission. Moreover,
internal revenue tax may be collected within 5 years.

Local Taxes – Section 194 (LGC) Assessment shall be within five (5) years from the late they become due and within
10 years in case of fraud or intent to evade the payment taxes, from time of discovery. Collection thereof is within five (5)
years from the date of assessment by administration or judicial action.

4. Itemized Deductions – The taxpayer has to substantiate his claim for deduction. If the taxpayer is claiming salaries and
wages from the business, he has to substantiate his claim whether it in rentals, utilities and so on. Without the necessary
required receipts as proof of the existence of this claim, the taxpayer will not be allowed to claim a deduction.

Optional Standard Deductions (OSD) – (Section 34) he is not required to substantiate his claim. So long as individual
taxpayer is engaged in business and that he must be a resident in the Philippines, he may be allowed (therefore,
nonresident aliens, whether engaged in business or not, cannot claim OSD).

Domestic corporations under RA 9337 are already allowed to claim/opt for OSD instead of itemized deduction; prior to
RA 9337, they were prohibited to claim optional standard deduction.
 The difference between corporations and that of individual taxpayers when it comes to claiming OSD lies on the basis.
The tax rate is the same at 40%. The basis however is different because for the individual taxpayer, it is on gross sales
(meaning there are no deductions – what he receives will not have any deductions) while for corporations, the basis for
OSD is gross income or gross profit.

5. Effect of Holding Period of a capital asset on the recognition of capital gain or loss if taxpayer is (a)individual;
(b) corporation:

If he is an individual taxpayer, you have to consider the holding period. If it is a corporation, do not mind the holding
period. Under Sec. 39(b), the percentages to be taken account for the gain or loss recognized from the sale or exchange
of a capital asset are whether it is short term or long term. It is short term when the holding period is for not more than 12
months – the gain or loss to be considered will be 100%. It is long term when the holding period is for more than 12
months – the gain or loss to be considered will be at 50%

TAKE NOTE: That if the gross income is not sufficient to cover the loss, the net loss may be carried over to the
succeeding taxable year under Sec. 39(d) which we call as net capital loss carry-over. It states that the loss (in an
amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a loss from the
sale or exchange of a capital asset held for not more than 12 months. Hence, the holding period is no longer applicable
here: it will be treated 100% as a loss deductible from that succeeding year’s gross income.

What makes this different from a corporation? For corporations, the holding period is NOT RECOGNIZED. (See pg 40
transcribed notes)

As to: INDIVIDUAL CORPORATION

Holding Period Holding period available No holding period
Extent Recognition The percentages of gain or loss to be taken into Capital gains and losses are taxable to the
(Taxability) account shall be the ff.: 100% - if the capital assets extent of 100%
have been held for 12 mos. or less; and
50% - if the capital asset has been held for more than
12 months
Deductibility of Capital Non- deductibility of Net Capital losses Non-deductibility of Net Capital losses
Losses
Capital losses are allowed only to the extent of the XPN: If any domestic bank or trust
capital gains; hence, the net capital loss is not company, a substantial part of whose
deductible. business is the receipt of deposits, sells
any bond, debenture, note or certificate
or other evidence of indebtedness issued
by any corporation (including one issued
by a government or political subdivision)
Availability of NELCO NELCO is allowed. (Net Capital Loss Carry Over) NELCO is not allowed.

Holding Period - governs the percentage of gains and losses taking into account in computing net capital gain, net capital loss
and net income.

II. Mr X and Y cancellation of debt problem (pg. 137 Ingles; Sec 50, R.R. 2-1940) (5%)

a. The cancelled indebtedness of Mr. X’s due to his services performed for Mr. Y forms part of his gross
income and is therefore taxable.
b. Had Mr. X did not perform any services for Mr. Y, and Mr. Y cancelled his debt without any
consideration, the amount thereof is a gift and is exempt from his taxable income. Not taxable.
c. Other tax consequences of cancellation or forgiveness of indebtedness is in cases when a corporation
forgives the debt of a stockholder, the transaction has the effect of payment of dividends.
III. Problem (20%)

a. The motion to dismiss is denied. Section 223 of the NIRC provides for the suspension of running of
the statute of limitations in case there is a request for reinvestigation of a taxpayer. In the present
case, the taxpayer’s request for reinvestigation tolls the period for him to appeal to the CTA within 30
days from lapse of 180 days after BIRs inaction for the request of the taxpayer’s reinvestigation.
Hence, BIR’s contention that the assessment was final and executory is of without merit.

Motion to dismiss shall be denied.

b. It depends. As a general rule, no court shall be allowed/shall have the authority to grant an injunction
or restrain the collection of any national internal revenue (NIR) tax. Taxes being the lifeblood of the
government shall collected promptly without necessary hindrance or delay. However, the law
provides an exception, if the case is pending before the CTA, the CTA may enjoin the collection of a
national internal revenue tax if in its opinion, it may jeopardize the interest of the government, or
the taxpayer, or both the government and the taxpayer. This power by the CTA (to enjoin) cannot be
exercised independently, if there is no appeal of the case pending before the CTA.

c. Yes. Tax liability of a taxpayer may be compromised during the pendency of the appeal except for
criminal violations and those involving fraud to encourage taxpayers to pay taxes.

Grounds when The Commissioner may compromise the payment of internal revenue
tax:

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists;
(2) The financial position of the taxpayer demonstrates a clear inability to
pay the assessed tax. (See pg 375 Co-Untian)
d. Criminal complaints need not be preceded by an assessment as provided for in Section 222 that in
cases where a false or fraudulent return with intent to evade tax is submitted or in cases of failure to
file return, proceedings in court may be commenced without an assessment.

However, the contention that judicial affidavit executed by revenue officers already serves as an
assessment notice of the taxpayer’s tax liabilities is not correct. It cannot be deemed equated to an
assessment to be questioned before the CTA.

IV. Problem (related to Allied Banking Corporation vs CIR: BAR Question)

The appeal will prosper. Generally, when a taxpayer does not protest an assessment (FAN) and appeals the
assessment itself to the CTA, the appeal is premature. However, when the taxpayer was made to believe by the BIR
that no other investigation or any matter would proceed from any further protest or appeal by stating that it was a “final
decision on investigation” in the FAN, the CIR is estopped from raising the argument that appeal is premature. Hence,
the CTA may take cognizance in favor of the appeal filed thereat since a taxpayer should not be prejudiced by the
actions of the BIR.

V. a. Excise Taxes Imposed under RA 10963 (3 examples)

1. Excise Tax on Automobiles - it has imposed ad valorem tax rates that are directly applied to the net
manufacturer’s price/importer’s selling price instead of imposing marginal tax rates;

Examples: hybrid cars, truck/cargo vans, special purpose vehicle

2. Excise tax on Petroleum Products - Asphalts, LPG, Kerosene, Lubricating Oils and Grease;
 3. Excise Tax on Sweetened Beverages - Sweetened juice drinks, All carbonated drinks, Energy and Sports
Drinks

4. Increase Excise Tax on Cigarettes and Mineral Products - Copper, Gold, Chromite, Indigenous
Petroleum

5. Excise Tax Non-essential products - Cosmetics, non-essential services.

b. See pictures J

NIRC Provision NIRC TRAIN

1 Sec 112 Refunds or The Commissioner shall grant a refund or
Tax Credits of Input issue tax credit certificate for creditable
Tax input taxes within 120 days from the date of
submission of complete documents.
2 Grants tax credit.
3 Failure on the part of the Commissioner to
act on the application within the period
prescribed shall be deemed a denial of the
application.
The period by granting by the
Commissioner of refunds is decreased
to 90 days from the date of submission
of complete documents in support of
the application.
The granting of tax credit instead of tax
refund is removed.
The deemed denial of failure to act on
the application is removed.