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Taxation Law
TABLE OF CONTENTS
I. GENERAL PRINCIPLES .....................................................................2 A. Power of Taxation.............................................................................2 B. Situs of Taxation...............................................................................4 C. Limitations on the Power of Taxation...............................................4 D. Double Taxation...............................................................................6 E. Forms of Escape from Taxation.......................................................6 F. Tax Enforcement and Administration................................................7 II. NATIONAL TAXATION........................................................................9 A. Income Tax......................................................................................9 B. Transfer Taxes..............................................................................14 C. Expanded Value Added Tax..........................................................17 III. LOCAL TAXATION...........................................................................19 IV. REAL PROPERTY TAXATION........................................................19 V. TARIFF AND CUSTOMS LAWS.......................................................20 VI. TAX REMEDIES...............................................................................22 A. Under the National Internal Revenue Code..................................22 B. Under the Local Government Code..............................................29 C. Under the Tariff and Customs Code.............................................30 VII. COURT OF TAX APPEALS............................................................33 VIII. ANNEX A: COMPARATIVE TABLE OF TAX REMEDIES............A-1 IX. ANNEX B: INCOME TAX TABLES...............................................B-1
I.GENERAL PRINCIPLES
THE POWER OF TAXATION Definitions:
1. Taxation: Power by which the sovereign raises revenue to defray the necessary expenses of the government from among those who in some measure are privileged to enjoy its benefits and must bear its burden. 2. Taxes: Enforced proportional contribution from properties and persons levied by the State by virtue of its sovereignty for the support of government and for public needs.
limits except those expressly stated in the Constitution. Marshall and Holmes Dictums Reconciled: Although the power to tax is almost unlimited, it must not be exercised in an arbitrary manner. We have courts to which people may seek redress in case of irregularities. 3. Benefits-Protection Theory There exist reciprocal duties of protection and support between State and its inhabitants. Inhabitants pay taxes and in return receive benefits and protection from the State.
Importance of Taxes
Taxes are the lifeblood of the government and so should be calculated without unnecessary hindrance; therefore, their prompt and imperious availability is an imperious need.
Characteristics of Taxes:
1. 2. 3. 4. forced charge; generally payable in money; levied by the legislature; assessed with some reasonable rule of apportionment; 5. imposed by the State within its jurisdiction; 6. levied for public purpose.
Aspects of Taxation:
1. Levy or imposition of the tax; and 2. Enforcement or tax administration
TAXATION
EMINENT DOMAIN
Property is taken by the State upon payment of just compensation It affects only the particular property comprehended Necessity of the public for private property
Classification of Taxes:
As to subject matter 1. Personal tax also known as capitalization or poll tax. 2. Property tax assessed on property of a certain class. 3. Excise tax imposed on the exercise of a privilege. 4. Custom duties duties charged upon commodities on being imported into or exported from a country; 5. Local taxes taxes levied by local government units pursuant to validly delegated power to tax; As to burden
Scope: It affects all persons, property, and excises Basis: Public necessity
It affects all persons, property, privileges, and even rights Public necessity and right of State and of public
1. Direct tax incidence and impact of taxation fall to one person and cannot be shifted to another. 2. Indirect tax incidence and liability for the tax fall to one person but the burden thereof can be passed on to another. As to purpose 1. General taxes taxes levied for ordinary or general purpose of the government. 2. Special taxes levied for a special purpose. As to measure of application 1. Specific tax- tax imposed by the head or number or by some standard of weight or measurement. 2. Ad valorem tax tax imposed upon the value of the article. As to rate: 1. Progressive taxes rate increases as the tax base increases. 2. Regressive taxes rate increases as tax base decreases.
1. franchise which must be exercised in the Philippines; 2. shares, obligations or bonds issued by a corporation organized and constituted in the Philippines in accordance with its laws; 3. shares, obligations or bonds issued by a foreign corporation 85% of its business is located in the Philippines; 4. shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; and 5. shares or rights in any partnership, business or industry established in the Philippines. (Sec. 104, R.A. 8424 or the CTRP)
LIMITATIONS ON THE POWER TO TAX A. Inherent Limitations The following are the inherent limitations
on the power to tax (SPINE): 1. Public Purpose of taxes; 2. Non-delegability of the taxing power; 3. Territoriality or situs of taxation; 4. Tax exemption of government; 5. International comity
SITUS OF TAXATION
Situs of Taxation - an inherent mandate that taxation shall only be exercised on persons, properties and excises within the territory of the taxing power.
Delegable Legislative Power: 1. Authority of the President to fix tariff rates, import and export quotas (Art. VI, Sec. 28[2], 1987 Constitution). 2. Power of local government units to tax subject to limitations as may be provided by Local Government Code (Art. X, Sec. 5, 1987 Constitution). Situs of taxation as a limitation on the
power to tax: (See the subheading on Situs of Taxation, supra.)
As a matter of public policy, property of the State or any of its political subdivisions devoted to government uses and purposes are generally exempt from taxation.
6. Origin
Requisites:
a. The interests of the public generally as distinguished from those of a particular class require the intervention of the State; and b. The means employed must be reasonably necessary to the accomplishment of the purpose and not unduly oppressive.
the President to Fix Tariff Rates, Import and Export Quotas (Art. VIII,
Sec. 28(2) of the Constitution)
9. Tax Exemption of Properties Actually, Directly, and Exclusively Used for Religious, Charitable and Educational Purposes (See Art. VI, Sec. 28(3) of the
Constitution; Lladoc vs. Commissioner; Province of Abra vs. Hernando). This provision refers only to property taxes.
10. Majority Vote of all Members of Congress Required in Case of a Legislative Grant of Tax Exemptions
(Art. VI, Sec. 28 (4) of the Constitution) 11. Non-impairment
12. Tax
Definitions:
a. Uniformity: All taxable articles or kinds of property of the same class shall be taxed at the same rate. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. b. Equitability: Taxation is said to be equitable when its burden falls to those better able to pay. c. Progressivity: Rate increases as the tax base increases.
Exemption of Revenues and Assets of, including Grants, Endowments, Donations, or Contributions to, Educational Institutions (Art. XIV, Secs. 4(3) and (4) of
the Constitution)
2. 3. 4. 5. 6.
FORMS OF ESCAPE FROM TAXATION The following are the forms of escape
from taxation: 1. Shifting S
1. Constitutional: Immunities from taxation which originate from the constitution 2. Statutory: Those which emanate from legislation As to form: 1. Express: Expressly granted by organic or statute law 2. Implied: When particular persons, properties, or excises are deemed exempt as they fall outside the scope of the taxing provision itself. As to extent: 1. Total: Connotes absolute immunity. 2. Partial: One where a collection of a part of the tax is dispensed with.
1. Where no vested right will be impaired; 2. Where the law allows retroactive application; and 3. If there is bad faith on the part of the taxpayer.
Powers and Duties of the BIR (Sec. 2, CTRP): (AGEE) 1. Assessment and collection of all national internal revenue taxes, fees, and charges 2. Give effect to and administer the supervisory and police power conferred to it by the Tax Code or other laws 3. Enforcement of all forfeitures, penalties and fines in connection therewith 4. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts Assessment Defined:
It is a finding by the taxing agency that the taxpayer has not paid his correct taxes. It is also a written notice to a taxpayer to the effect that the amount stated therein is due as a tax, and containing a demand for the payment thereof. Burden of proof in pre-assessment proceedings: There is a presumption of correctness on the part of the CIR, thus the burden of proof is on the taxpayer. Otherwise, the finding of the CIR will be conclusive and the CIR will assess the taxpayer. Such finding is conclusive even if CIR is wrong if the taxpayer does not controvert.
3. failure to pay the tax within the time prescribed for its payment 4. failure to pay the full amount of tax shown on any return required to be filed under the Tax Code or regulations or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment
CLASSIFICATION OF TAXPAYERS:
a. Individuals 1) citizens 1 1.1. resident citizens (RC) 2 1.2. non-resident citizens (NRC) 1.3 OCW* 2) aliens I.1 resident aliens (RA) I.2 non-resident aliens 2.2.1.engaged in trade or business within the Phils. (NRAETB) 3 2.2.2.Not engaged in trade or business within the Philippines (NRANETB) b. Corporations
1) Domestic (DC) 2) Foreign 2.1 resident foreign corporation (RFC) 2.2 non-resident foreign corporation (NRFC) c. Estates d. Trusts
2. 3. 4. 5.
other energy operations pursuant to an operating or consortium agreement under a service contract with the Government; joint-stock companies; joint accounts (cuentas en participacion) associations; or insurance companies [Sec. 22(B)].
H. A General Professional Partnership means: a) a partnership formed by persons for the sole purpose of exercising their common profession; and b) no part of the income of which is derived from engaging in any trade or business [Sec. 22(B)]. - if the requirements are met, it is exempt from income taxation. I. Domestic Corporation created or organized in the Phils. or under its law [ Sec. 22(C)] Foreign corporation a corporation which is not domestic [Sec. 22(D)]
J.
K. Resident Foreign Corporation engaged in trade or business within the Philippines [Sec. 22(H)] L. Non-resident Foreign Corp. not engaged in trade or business within the Philippines [Sec. 22(I)]
4.
5. 6. 7.
beyond the control of the official or employee; social security benefits, retirement gratuities, pensions and other similar benefits received by citizens and aliens who come to reside permanently here from foreign sources private or public; benefits due to residents under the laws of the U.S. administered by the U.S. Veterans Administration SSS benefits; and GSIS benefits.
Miscellaneous Items GROSS INCOME Definition: Includes but not limited to the
following : 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. compensation; business income; gains form dealings in property; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions; partners share in the net income of the general professional partnership (Sec. 32, CTRP) 1. Passive income derived by foreign government in the Philippines; 2. Income derived from any public utility or from the exercise of any governmental function; 3. Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement (C2LARES): Requisites: a. recipient selected without any action on his part; b. recipient not required to render substantial future services. 4. Prizes and awards granted to athletes in sports competitions and sanctioned by their national sports association ; 5. 13th month pay and other benefits up to P30,000.00; 6. GSIS,SSS, Medicare and union dues of individuals; 7. Gains derived from debt securities with a maturity of more than 5 years; 8. Gains from redemption of shares in Mutual Fund
Kinds of Deductions:
1. Optional standard deductions 10% of the gross income. 2. Itemized deductions (a) ordinary AND necessary expenses (b) interests (c) taxes (d) losses (e) bad debts (f) depreciation of property; (g) depletion of oil and gas wells and mines;
(h) charitable and other contributions; (i) research and development; (j) pension trust contributions of employees; and (k) premium payments on health and/or hospitalization insurance 3. Personal and additional exemptions
c. TAXES:
Requisites to be deductible:
1. must be in connection with taxpayers business; 2. tax must be imposed by law on , and payable by, taxpayer; and 3. paid or incurred during the taxable year.
Exceptions:
4. Special deductions applicable only to Insurance companies, whether domestic or foreign. (Sec. 37, CTRP). a. ORDINARY EXPENSES: helpful in business. the AND NECESSARY 1. 2. 3. 4. 5. income tax; estate and donors tax; special assessments; excess electric consumption tax; foreign income tax, war profits and excess profits tax, if the taxpayer makes use of tax credit; and 6. final taxes, being in the nature of income tax. - Taxes allowed as deductions, when refunded or credited, shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction (Tax Benefit Rule). - For NRAETB and RFC, taxes paid or incurred are allowed as deductions only if and to the extent that they are connected from income within the Philippines. d. LOSSES:
Capital Expenditure:
An expenditure that benefits not only the current period but also future periods. It is not deductible but depreciable, EXCEPT, if the taxpayer is a non-profit proprietary educational institution which may elect either to deduct the capital expense or depreciate it.
Requisites to be deductible: 1. actually sustained; 2. connected with the business, trade or profession; and 3. not compensated by insurance or otherwise.
The following losses are subject to special rules under the CTRP (take note of the pertinent provisions): 1. Capital losses 2. Securities becoming worthless 3. Wash sales 4. Wagering losses 5. Abandonment losses 6. Losses of mines other than oil and gas wells e. BAD DEBTS
b. INTEREST:
Requisites to be deductible:
1. debt belongs to the taxpayer; 2. debt must be related to the business or profession of the taxpayer; 3. interest should be legally due; 4. interest paid or accrued during the taxable year.
Requisites to be deductible:
1. Valid and subsisting debt; 2. Debt must be actually ascertained to be worthless and uncollectible; 3. Obligation is not between related parties (Sec. 36 b CTRP); 4. Debt is expensed within the year; and 5. Debt is connected with profession, trade or business.
f.
DEPRECIATION: 1. Must be reasonable; 2. Must be on property used in the conduct of the business; 3. Must be expensed during the taxable year;
Requisites to be deductible:
3. not more than 21 years old, unmarried AND not gainfully employed or where such dependents regardless of age are incapable of self-support because of mental of physical defect.
Clarificatory Illustrations:
1. If only 19 years old but married, not qualified as a dependent. 2. Even if 25 years old but physically incapacitated, qualified as a dependent. 3. Dependent does not include the parents, brothers and sisters of the taxpayer. 4. If there is any change of status at any time during the taxable year, the law expressly favors the taxpayer. 5. For a NRAETB, only to the extent allowed by his country to Filipinos not residing therein, but not to exceed the above amounts. Additionally, he must file a true and accurate return of the total income received by such NRAETB from all sources within the Philippines.
g. DEPLETION OF OIL AND GAS WELLS AND MINES - same requisites as depreciation h. CHARITABLE CONTRIBUTIONS AND OTHER
Partial Deduction:
not in excess of 5% of taxable income in case of a corporation not in excess of 10% of the taxable income in case of an individual
Deductible in Full:
1. Donations to the government 2. Donation to certain foreign institutions or international organizations. 3. Donations to certain accredited NGOs .
Qualifications of a dependent:
1. legitimate, illegitimate or legally adopted child of the taxpayer 2. chiefly dependent upon and living with the taxpayer
amount of minimum corporate income tax is greater than the normal income tax due from such corporation. 5. Optional Corporate Income Tax - The President, upon recommendation of the Secretary of Finance may, effective Jan. 1, 2000, allow corporations the option to be taxed at 15% of gross income subject to the following conditions: 1) A tax effort ratio of 20% of GNP; 2) A ratio of 40% of income tax to total tax revenue; 3) A VAT tax effort of 4% of GNP 4) A O.9% ratio of Consolidated Public Sector Financial Position to GNP. N.B.: Available only to firms whose ratio of cost of sales to gross sales or receipts from all sources does not exceed 55%.
INCOME TAX INCIDENCE ON SALES OR EXCHANGES OF PROPERTY Sale on Exchange of Ordinary Assets
General rules of income taxation apply to both as to the gain and as to the loss.
TRANSFER TAXES
TRANSFER TAX 1. Tax on transfer of property. 2. Rates are lower --5% to 20% estate tax -- 2% to 15 % donors tax 3. Lesser exemptions INCOME TAX 1. Tax on income 2. Rates are higher -- 5% to 32%
3. More exemptions
Gross Estate (Sec. 85) (1) Deductions (Sec. 86) (2) Net share of the SS in the CP Net Estate Less: Exemptions (first P200,000 exemption, Sec. 84) Net Taxable Estate X Tax rate (Sec. 84) Estate Tax due Less: Tax Credit [if any] (Sec. 86[E] or 110[B] Estate Tax Due, if any Less:
GROSS ESTATE (Sec. 85, CTRP) A. As to resident alien or Filipino decedent - all real, tangible personal, intangible personal property wherever situated. A. As to non-resident alien decedent - all real and tangible personal property situated in the Phil. - Intangible personal property with a situs in the Phil. Unless exempted on the basis of reciprocity. Inclusions in the Gross Estate (Sec. 85,
CTRP): a. Decedents interest b. Transfer in contemplation of death c. Revocable transfer d. Transfer under general power of appointment e. Proceeds of life insurance f. Transfers for insufficient consideration g. Prior interests
a. funeral expenses b. judicial expenses c. claims against the estate d. claims against insolvent person e. unpaid mortgages f. taxes g. losses 2. Transfer for public use 3. Vanishing deduction 4. Family home 5. Standard deduction 6. Medical expenses 7. Amounts received by heirs under RA 4917 (Retirement Benefits) B. For non-resident aliens (ELIT-TV) 1. Expenses, losses, indebtedness, taxes, etc. (FJCCULT) 2. Transfer for public use 3. Vanishing deduction DEDUCTIONS ON ESTATE TAX APPLICABLE TO RESIDENT ALIENS AND CITIZENS:
Funeral Expenses:
The amount deductible is the lowest among the following: 1. actual funeral expenses 2. 5% of the gross estate 3. P200,000
Taxes:
The following are not deductible: 1. income tax on income received after death 2. property taxes not accrued before death 3. estate tax
Losses:
Requisites to be deductible: 1. arising from fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement; 2. Not compensated by insurance or otherwise; 3. Not claimed as deduction in an income tax return of the taxable estate; 4. Occurring during the settlement of the estate; and 5. Occurring before the last day for the payment of the estate tax (last day to pay: six months after the decedents death).
2. To take effect after death 3. In favor of the government of the Phil., or any political subdivision thereof 4. For exclusive public purposes.
b. More than one foreign country - The credit shall be that which is the lower amount between Limit A and Limit B Limit A. Whichever is lower between: 1. Estate tax paid to foreign country 2. NTE, foreign country X Phil. estate tax NTE, world Limit B. Whichever is lower between: 1. total of estate taxes paid to all foreign countries 2. NTE outside Phil. X Phil. estate tax NTE, world
Vanishing Deduction:
Requisites to be deductible: 1. the present decedent died within 5 years from transfer of the property from a prior decedent or donor. 2. The property must be located in the Phils. 3. The property formed part of the taxable estate of the prior decedent, or of the taxable gift of the donor. 4. The estate tax or donors tax on the gift must have been finally determined and paid. 5. The property must be identified as the one received from the prior decedent, or something acquired in exchange therefor. 6. No vanishing deduction on the property was allowable to the estate of the prior decedent.
Family Home:
Requisites to be deductible: 1. Said family home must have been the decedents family home. 2. Said fact must be certified to by the barangay captain of the locality where it is located. 3. Maximum of P1,000,000
Medical Expenses:
Requisites to be deductible: 1. incurred within one year prior to his death 2. Substantiated with receipts 3. Maximum of P500,000 DEDUCTIONS ON ESTATE TAX APPLICABLE TO NON-RESIDENT ALIENS 1. Expenses, losses, indebtedness and
FORMULA:
taxes (ELIT)
Formula: Phil. Gross Estate World Gross Estate X World ELIT
b. On donation of a subsequent date during the year: Gross gifts made on this date Less: Deductions from gross gifts Net gifts Add: All prior net gifts within the year Aggregate net gifts X Tax Rate Donors tax on aggregate net gifts Less: Donors tax on all prior net gifts Donors tax on the net gifts on this date xxx xxx xxx xxx xxx xxx xxx xxx xxx
c.
b. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said government. Gifts in favor of educational, charitable, religious, cultural or social welfare corporation, institutions, foundations, trust or philanthropic organization, research institution or organization, accredited non-government organization (NGO). Provided, that no more than 30% of said gifts shall be used by such donee for administration purposes. 2. Gifts made by a non-resident not a citizen of the Phil. a. same as (b) b. same as (c) except accredited nongovernment organization (NGO)
The allowable tax credit is the lower amount between the tax credit limit under (a) and (b).
Elements of VAT :
1. sale must be made in the Philippines; 2. sale must be of taxable goods, properties or services; and 3. sale must be made by a taxable person in the course or furtherance of his business.
FORMULA:
Output Tax--
VAT due on the sale of taxable goods or services by any person registered or required to register for VAT purposes.
1. Mandatory every person who in the course of trade or business, sells, barters, exchanges, leases goods or services for others, if the aggregate amount of actual or expected gross sales and / or gross receipts exceeds P550T for any 12-month period. 2. Optional -- any of the following persons may, at their option, apply for VAT registration: a. seller of goods or services whose taxable sale or gross receipts do not exceed P550T for any 12-month period; b. seller of agricultural or marine food products in their original state; c. seller of fertilizer, seeds, seedlings and fingerlings, fish live stock and poultry feeds, including ingredients whether locally produced or imported, used in the manufacture of finished foods; d. seller of non-food agricultural, marine and forest products in their original state; e. seller of cotton and cotton seeds in the original state, and copra. ( 550 FANC ) N.B.: Items b to e, refer to export sales only
VS.
EXEMPT
EXEMPT TRANSACTIONS Only removes the value added tax at the exempt stage
Claim for refund: Taxpayer can claim the refund of input taxes passed on to him by the supplier, etc. or credit such input taxes against his liabilities for output taxes on his other nonzero rated transactions Scope: Generally, taxable sales, and taken into account in determining turn-over or sales for sales for VATregistration purposes. Registration requirement: Zero-rated person may still register for VAT.
Taxpayer is not entitled to credit or refund of the input tax passed on to him by the supplier, etc.
Not taxable sales and therefore not taken into account in determining turn-over or VATregistration purposes
Registration Requirements:
5. Shall not be contrary to law, public policy, national economic policy, or in restraint of trade 6. Collection of local taxes and other impositions shall not be let to any person 7. The revenues collected under the Code shall inure solely to the benefit of, and subject to disposition by, the LGU levying the tax or other imposition unless otherwise specifically provided therein 8. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Characteristics:
1. 2. 3. 4. Direct on ownership; ad valorem tax proportionate creates a single indivisible obligation 5. local tax Key: SAPOL O A P S L
Taxing Authorities:
1. Province, at the rate of not > 1% of assessed value; 2. City at the rate of not > 2%; and 3. Municipality within Metro Manila at the rate of not > 2%.
P 4. The appraisal, assessment, levy and collection of RPTax shall not be let to any private person. E 5. The appraisal and assessment of real property shall be equitable. Key: FEU-UP
Properties Exempt from Real Property Tax (Sec. 193, 1991 LGC):
1. Real property owned by the government except when the beneficial use thereof has been granted to a taxable person; 2. charitable institutions, churches, personages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes (Art. VI, Sec. 28, Constitution); 3. machineries and equipment that are actually, directly and exclusively used by local water utilities and GOCCs engaged in the supply and distribution of water and/or electric power; 4. real property owned by duly registered cooperatives as provided for in RA 6938; and 5. machinery and equipment used for pollution control and environmental protection.
Property
Owners
Real property owner must file with Assessors Office a sworn statement of real property value whether exempt or non-exempt. Every buyer of real property must make a new declaration thereof. (Failure to do so shall make the assessment in the name of the previous owner binding).
c.
Conditionally-free from tariff and customs duties (conditionally-free importation) d. Free from TC duties (duty-free)
It is a declaration to the BOC showing particulars of the imported article that will enable the customs authorities to determine the correct duties. An importer is required to file an import entry. It must be accomplished from disembarking of last cargo from vessel.
Special duties
Drawback
A device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign markets upon the same terms as if it had not been taxed at all (Uy Chiaco Sons vs. Collector of Customs, 24 Phil 562)
NATURE
AMOUNT/ RATE
Difference between the actual price and the normal value of the article.
5% ad valorem of articles
IMPOSING AUTHORITY
Special Committee on AntiDumping (composed of the Sec. of Finance as Chairman; Members: the Sec. of DTI; and either the Sec. of Agriculture if article in question is agri. product or the Sec. of Labor if non-agri.)
Sec. of Finance
Commissioner of Customs
G. Criminal Action (Secs. 220, 221, and 229) H. Suspension of business operations in violation of VAT (Sec. 115) I. Enforcement of Administrative Fine
A. Tax Lien
V. TAX REMEDIES
TAX REMEDIES UNDER THE NATIONAL INTERNAL REVENUE CODE
I. TAX REMEDIES GOVERNMENT OF THE
Importance
1. 2. They enhance and support the governments tax collection. They are safeguards of taxpayers rights against arbitrary action.
Tax collection cannot be restrained by court injunction (Sec. 219, CTRP) Justification: Lifeblood Theory.
Requisites (TAO):
The following are generally the tax remedies of the government to effect collection of taxes:
A. Tax Lien (Sec. 219) B. Compromise (Sec. 204) C. Distraint (Actual and Constructive) (Secs. 205-208) D. Levy (Sec. 207B) E. Forfeiture of Property (Sec. 215) F. Civil Action (Sec. 220)
1. The taxpayer must have a tax liability. 2. There must be an offer (by the taxpayer of 3.
an amount to be paid by the taxpayer) There must be an acceptance (by the Commissioner or taxpayer as the case may be) of the offer in the settlement of the original claim.
2.
civil cases arising from violations of the Tax Code (Secs. 7C and 204, CTRP). Subordinate officials may preliminarily enter into a compromise. The effects are: i. Acceptance of an offer of compromise: not final and may be reviewed by the Commissioner. ii. Rejection of an offer of compromise: final and binding unless revoked or set aside by the Commissioner. (Gibbs vs. Collector, 17 Phil. 232)
Compromise Penalty
It is an amount of money which the taxpayer pays to compromise a tax violation. This is paid in lieu of criminal prosecution. A taxpayer cannot be compelled to pay a compromise penalty. If he does not want to pay, the CIR must institute a criminal action.
2.
3.
Posting of Notice
Disposition
An immediate step for collection of taxes Both Are summary remedies for the collection of taxes; Refer only to personal property; and Cannot be availed of where the amount of the tax involved is not more than P100
property of any taxpayer, whether delinquent or not The taxpayer is merely prohibited from disposing of his property Effected by requiring the taxpayer to sign a receipt of the property or by the revenue officer preparing and leaving a list of such property Not necessarily so
notified of the levy (Sec. 207B, CTRP). Time and Place of Sale III Advertisement of the time and place of sale of the taxpayers property or so much thereof as may be necessary to satisfy the claim within 20 days after levy, and it shall cover a period of at least 30 days (Sec. 213, CTRP). IV Sale at public auction to the highest bidder (Sec. 213, CTRP). V Disposition of proceeds of sale. In case the proceeds of the sale exceed the claim (taxes, penalties and interest) and cost of the sale, the excess shall be turned over to the owner of the property (Sec. 213, CTRP).
Sale
Disposition
The right of redemption is granted in case of real property levied upon and sold, or forfeited to the government. Both Are summary remedies for the collection of taxes; and Cannot be availed of where the amount of the tax involved is not more than P100
Service of Notice
Rules on Prescription:
1. When the tax law itself is silent on prescription, the tax is imprescriptible; 2. When no return is required, tax is imprescriptible; NB: Remedy of taxpayer is to file a return. 3. Defense of prescription is waivable; 4. Provisions on prescription, being remedial in nature, should be liberally interpreted to carry out its intent.
2.
Prescriptive Periods for the Assessment and Collection of Taxes Rationale of herein prescriptive periods:
Such periods are designated to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are also beneficial to the
4. 5.
Filing of claim for Tax Refund or Tax Credit Grounds for filing a claim for tax refund or
tax credit: 1. Tax is collected erroneously or illegally. 2. Penalty is collected without authority. 3. Sum collected is excessive.
1. Claim must be in writing; 2. It must be filed with the CIR within TWO (2)
YEARS after the payment of the tax or penalty. Where the payment was made by wrongly crediting a prior over payment, the two year period should start from the date such credit was allowed. Show proof of payment.
3.
Judicial
1. Civil Action a. Appeal to the Court of Tax Appeals within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the Commissioner (Sec. 228, CTRP). b. Action to contest forfeiture of chattel (Sec. 231, CTRP); and c. Action for damages (Sec. 227, CTRP). 2. Criminal Action a. Filing of criminal complaint against erring BIR officials and employees.
Reglementary Periods in Income Tax Imposed by Law upon the Taxpayer (pursuant to Rev. Reg. No. 12-99, Sec. 228 of the CTRP, and Rules of Court)
BIR makes a tax assessment
If taxpayer is not satisfied with the assessment file a protest within 30 days from receipt thereof
Submit supporting documents within 60 days from date of the filing of the protest
If protest is denied, elevate the matter to the Commissioner of Internal Revenue (CIR) within
30 days from receipt of the decision of the CIRs duly authorized representative officer
Appeal to the Court of Tax Appeals (CTA) within 30 days from receipt of final decision of CIR or his duly authorized representative (the taxpayer has the option to appeal straight to the CTA upon receipt of the decision of the CIRs duly authorized representative)
If the CIR or his duly authorized representative fails to act on the protest within 180 days from date of submission by taxpayer, the latter may appeal within 30 days from lapse of the 180 day period
Appeal to the Court of Appeals (CA) within 15 days from receipt of the CTAs decision
Appeal to the Supreme Court within 15 days from receipt of the CAs decision
REMEDIES
OF
THE
- within 30 days from receipt when protest of assessment is denied (Sec. 195 LGC) - if no action is taken by the treasurer in refund cases and the two year period is about to lapse (Sec. 195 LGC) - if remedies available does not provide plain, speedy and adequate remedy. C. Action for declaratory relief D. Injunction if irreparable damage would be caused to the taxpayer and no adequate remedy is available.
C. Suit assailing validity of tax; recovery of refund of taxes paid (Sec. 64 PD 464). D. Suit to declare invalidity of tax due to irregularity in assessment and collection (Sec. 64 PD 464). E. Suit assailing the validity of tax sale (Sec. 83 PD 464)
REAL PROPERTY TAX REMEDIES I. TAX REMEDIES OF THE LOCAL GOVERNMENT TO EFFECT COLLECTION OF TAXES
1. Real Property tax lien (Secs. 246 and 251, LGC); 2. Distraint (Sec. 254, LGC); 3. Levy (Sec. 254, LGC); 4. Civil Action formal demand not required (Sec. 266, LGC); 5. Purchase of property by local treasurer for want of bidder (Sec. 263, LGC).
Commissioner or Secretary of Finance to the CTA (Sec. 2403 TCC, Sec. 7 RA 1125) B. Action to question the legality of seizure C. Abandonment (Sec. 1801 TCC)
Hearing within 15 days from receipt of the duly presented protest. Upon termination of the hearing, the Collector shall decide on the same within 30 days
Appeal with the Court of Tax Appeals within 30 days from notice
If decision of Commissioner or Sec. of Finance is adverse to the protestant, he may appeal to the CA, and SC under the same procedure on the left
CTA, Appeal by certiorari with the Supreme Court within 15 days from notice
Smuggling
A. An act of any person who shall: 4 1. Fraudulently import any article contrary to 5 law, or 6 2. Assist in so doing, or 7 3. Receive, conceal, buy, sell, facilitate, 8 transport, conceal or sell such article 9 knowing its illegal importation (Sec. 3601, 10 TCC) 4. Export contrary to law. (Sec. 3514, TCC) B. The Philippines is divided into various ports of entry entry other than port of entry, will be SMUGGLING.
The Collector shall assess, liquidate, and collect the duties thereon, or detain the said goods if the party liable does not pay the same
The party adversely affected (the protestant) may file a written protest on his foregoing liability with the Collector within 15 days after paying the liquidated amount (the payment under protest rule applies)
Things subject to confiscation in smuggling cases: Anything that was used for smuggling is subject to confiscation, like the vessel, plane, etc. (Llamado vs. Comm. of Customs, 1983). EXCEPTION: Common carriers that are not privately chartered cannot be confiscated.
Persons having police authority to enforce the Tariff & Customs Laws and effect searches, seizures and arrests: a. officials of the BOC, district collectors, police officers, agents, inspectors, and guests of the BOC; b. officers of the Phil. Navy and other members of the AFP and national law enforcement agencies when authorized by the Commissioner of Customs c. officials of the BIR on all cases falling within the regular performances of their duties, when the payment of internal taxes are involved; d. officers generally empowered by law to effect arrests and execute processes of courts, when acting under the direction of the Collector. (Sec. 2203, TCC)
Report of seizure to the Comm. of Customs and the Chairman, Comm. on Audit
Formal hearing
2.
2. Customs compromise does not extinguish criminal liability (People vs. Desiderio, Nov. 26, 1965).
Abatement
The reduction or non-imposition of customs duties on certain imported materials as a result of: 1. Damage incurred during voyage; 2. Deficiency in contents packages 3. Loss or destruction of articles after arrival 4. Death or injury of animals Fraudulent Practices considered as Criminal Offenses against Customs Revenue Laws: a. Unlawful importation; b. Entry of imported or exported article by means of any false or fraudulent practices, invoice, declaration, affidavit, or other documents; c. Entry of goods at less than their true weights or measures or upon a classification as to quality or value; d. Payment of less than the amount due; e. Filing any false or fraudulent claim for the payment of drawback or refund of duties upon the exportation of merchandise; or f. Filing any affidavit, certificate or other document to secure to himself or others the payment of any drawback, allowance or refund of duties on the exportation of mdse. greater than that legally due thereon. (Sec. 3602, TCC)
Cargo, sea store, and provisions distinguished: 1. Cargo: Article of value (including foreign currencies), usually movables, other than those as part of sea stores or provisions. 2. Sea Store: It is where the passengers can buy their necessities. 3. Provisions: Those necessary for the subsistence of the crew.
Powers of the CTA: The following are the powers of the CTA:
1. 2. 3. 4. to administer oaths; to receive evidence; to summon witnesses by subpoena; to require production or papers or documents by subpoena duces tecum; 5. to punish contempt;
6. to promulgate rules and regulations for the conduct of its business; 7. to assess damage against appellant if appeal to CTA is found to be frivolous or dilatory; 8. to suspend the collection of the tax pending appeal; and 9. to render decisions on cases brought before it.
Other matters
Those controversies which can be considered within the scope of the function of the BIR / BOC under ejusdem generis rule (e.g. action for the nullity of distraint and levy; questioning the propriety of the assessment; collection of compromise penalties).