333707271-2016-Pre-week-Notes-in-Taxation-Law.pdf

JURISTS BAR REVIEW CENTER™ PRE-WEEK NOTES IN TAXATION LAW ATTY. RIZALINA V. LUMBERA (2016 Bar Examinations) (1). Tax vs Other Impositions Tax

Special Assessment

enforced proportional contribution from persons and property

enforced proportional contributions from owners of land benefited by public improvements

levied on land, persons, property, income, business

levied on land only

personal liability of taxpayer

cannot be made liability of person assessed

based on necessity and partially on benefits

based solely on benefits

Tax

License Fee

based on power of taxation

based on police power

purpose is to raise revenue

purpose is regulation

amount is unlimited

amount is limited to cost of license, inspection, and surveillance

non-payment does not make business illegal but maybe a ground for prosecution

non-payments makes business illegal

Tax

Toll

enforced proportional contribution from persons and property

consideration paid for the use of property

demand of sovereignty

demand of proprietorship

taxes are levied for the support of the government

tolls are compensation for the use of another's property

amount is determined by sovereign

amount of toll is determined by cost of the property or of the improvement

imposed by the State

maybe imposed by the government or private individual

(2). Tax Evasion vs Avoidance tax evasion: use of illegal means to escape tax. It connotes fraud and bad faith to defeat taxes. In case of tax evasion, TX is subject to civil and criminal liabilities; tax avoidance: use of legally permissible alternative tax rates or methods of assessing property or income in order to reduce tax liability; tax saving device within the means sanctioned by law; no civil or criminal liability on the part of the TX; (3). Compromise vs Abatement

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 1 of 31

compromise: contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one commenced. Grounds for compromise: a. doubtful validity of the assessment (amount : 40% of the principal amount of tax) b. financial incapacity of TX (amount: 10% of the principal amount of tax) The following cannot be the subject of compromise: a. b. c. d. e. f.

withholding tax cases; criminal cases involving fraud; criminal cases already filed in court; delinquent accounts with approved schedule of payments; BIR cases where final reports of reinvestigation or reconsideration have been issued and the TX is agreeable; Cases with final judgments;

Abatement: involves the cancellation of entire tax liability when the tax or any portion thereof appears to be unjustly or excessively assessed; when the administration or collection costs do not justify the collection of the amount due; (4). Rules on Exemption of Various Institutions

CHARITABLE/ RELIGIOUS

NSNPEI

RPT

Income Tax

Estate/Donor's Tax

Deductibility from GI on the part of donor

exempt from RPT provided actually, directly, and exclusively used for charitable/religiou s purpose

exempt from IT for income "as such" but income of whatever kind and character from real or personal property, OR from an activity conducted for profit, shall be TAXABLE;

any gift received shall be INCOME, but EXCLUDED from GI; NOT SUBJECT TO ET/DT provided not more than 30% is used by institution for administration purposes;

DONOR if compensation income earner is not allowed to claim gift as deduction from GI; if business income earner, up to 10% of taxable net income prior to this deduction ( individual) and up to 5% of taxable net income prior to this deduction (corporation)

exempt from RPT provided actually, directly, and exclusively used for charitable/religiou s purpose

exempt from IT for all income derived pursuant to its purpose as an educational institution AND INCOME IS USED ADE for educational purpose; 2 requisites: school must be nsnp and income is ADE for educational purpose; (BIR RMO 44-2016)

any gift received shall be INCOME, but EXCLUDED from GI; NOT SUBJECT TO ET/DT provided not more than 30% is used by institution for administration purposes;

DONOR if compensation income earner is not allowed to claim gift as deduction from GI; if business income earner, up to 10% of taxable net income prior to this deduction ( individual) and up to 5% of taxable net income prior to this deduction (corporation)

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 2 of 31

exempt from RPT provided actually, directly, and exclusively used for charitable/religiou s purpose

subject to IT at the preferential rate of 10% provided the income from UTA does not exceed 50% of its total income; if UTA is 50% and more of total income, regular tax rate of 30% is applied;

any gift received shall be INCOME, but EXCLUDED from GI; NOT SUBJECT TO ET/DT provided not more than 30% is used by institution for administration purposes;

DONOR, if compensation income earner is not allowed to claim gift as deduction from GI; if business income earner, up to 10% of taxable net income prior to this deduction ( individual) and up to 5% of taxable net income prior to this deduction (corporation)

GEI

exempt from RPT provided actually, directly, and exclusively used for charitable/religiou s purpose

exempt from IT for income "as such" but income of whatever kind and character from real or personal property, OR from an activity conducted for profit, shall be TAXABLE;

any gift received shall be INCOME, but EXCLUDED from GI; NOT SUBJECT TO ET/DT ( considered as transfer for public us)

DONOR if compensation income earner is not allowed to claim gift as deduction from GI; if business income earner (individual or corporation), deductible in full;

GOCC’s

Subject to RPT but if instrumentality of the government without being a stock profit corporation, same is exempt from RPT ( ex: MIAA, Philippine Fisheries Devt Authority, Mactan Cebu International Airport Authority, UP, BSP)

Subject to ET/DT

DONOR, if compensation income earner is not allowed to claim gift as deduction from GI; if business income earner (individual or corporation), not deductible;

PEI/ PHospital

Subject to IT except SSS, GSIS, PHIC, and PCSO

(5). VIP; NEW RULES: NSNPEI (RMO 44-2016 dated 25 July 2016) All organizations under Section 30 of NIRC (except NSNPEI) are required to revalidate their tax exemption certificates. For NSNPEI, tax exemption rulings or certificates shall remain valid and effective unless recalled for valid grounds. NSNPEI are not required to renew or revalidate the tax exemption rulings previously issued to them; Tax exemption rulings shall be recalled if there are material changes in the character, purpose, or method of operation which are inconsistent with the basis for its income tax exemption; Validity of Tax Exemption/Revalidated Exemption: •

3 years from date of effectivity specified in the certificate/ruling;

(6). REQUIREMENTS FOR EXEMPTION under Section 30: a. non-stock corporation or association organized and operated exclusively for the purposes mentioned in Section 30; b. It should meet the ff tests: Organizational Test-corporation’s documents exclusively limit its purposes to Section 30; Operational Test- regular activities of the corporation be exclusively devoted to the accomplishment of the purposes in Section 30; c.

Net income or assets must be devoted to its purpose/s and no part of its net income or asset accrues to or benefits any member or specific person;

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 3 of 31

d. It must not be a branch of a foreign non-stock non-profit corporation. “Non-stock”: no part of income is distributed as dividends and any profit as incident of operations, shall be used for furtherance of its purpose; “Non- profit”: no net income or asset inures to or benefits any member, with all net income or asset devoted to purpose and all its activities conducted not for profit; (7). GOCC’s vs Instrumentality of the government

Mactan Cebu International Airport Authority vs City of Lapu-Lapu GR 181756 June 15 2015 Airfield, runway and taxiway and the lots on which the runway and taxiway are located, owned by the State or by the Republic of the Philippines and are merely held in trust by the MCIAA, notwithstanding that certificates of titles thereto may have been issued in the name of the MCIAA. MCIAA being an instrumentality of the government, NOT A GOCC, is exempt from RPT, Special Education Fund, penalty, and interest If government instrumentality is organized as a stock or non-stock corporation considered as GOCC which is not exempt from RPT. If instrumentality is not organized as stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers, thus exempt from RPT;

Examples of government instrumentalities exempt from RPT: MIAA, GSIS, Philippine Fisheries Development Authority, University of the Philippines, Bangko Sentral ng Pilipinas Only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax; Properties of public dominion are not subject to execution or foreclosure sale by the LGU;

(8). Nature and Application of Tax Laws/Rulings Tax Laws are civil not political in nature; Tax laws are applied prospectively except when the law itself provides for retroactive application; Tax Rulings are applied prospectively and shall not be given retroactive effect if the revocation, modification, or reversal will be prejudicial to the taxpayers; Exceptions: where the TX deliberately misstates or omits material facts from his return or any document required of him by the BIR; or where the facts subsequently gathered by the BIR are materially different from the facts in which the ruling was based; or where the TX acted in bad faith; (9). Basis of Taxability for IT, ET, DT IT source of income WITHIN

WITHOUT

RC

✔

✔

NRC

✔

RA NRAETB

ET/DT location of the property WITHIN

WITHOUT

RC

✔

✔

✖

NRC

✔

✔

✔

✖

RA

✔

✔

✔

✖

NRA

✔subject to Section 104

✖

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 4 of 31

of the NIRC NRANETB

✔

✖

DC

✔

✔

RFC

✔

✖

NRFC

✔

✖

(10). Who are non-resident citizens? (1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis. (3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. (5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section. (11). Who are non-resident aliens engaged in trade or business (NRAETB) in the Philippines? A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines’; Indicators that an alien is engaged in T/B: a. Habituality/regularity in entering into commercial transactions; b. appointment of agents; c. hiring of employees; d. putting up a branch of business in Philippines; (12). GPP VS GCP

"General professional partnerships" are partnerships formed by persons for the sole

purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business; PARTNERSHIPS ARE TREATED AS CORPORATE TAXPAYERS WHICH ARE FURTHER CLASSIFIED INTO GENERAL PROFESSIONAL PARTNERSHIPS

(GPP) OR GENERAL CO-PARTNERSHIPS (GCP). A GPP IS EXEMPT FROM PAYMENT OF INCOME TAX AS A COPORATE TAXPAYER, WHILE A GCP IS LIABLE FOR INCOME TAX. GPP’S, Joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government, NOT SUBJECT TO INCOME TAX AS A CORPORATE TX; (13). TAXABILITY OF INDIVIDUALS AND CORPORATE TAXPAYERS

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 5 of 31

KINDS OF INCOME AND TAXES

KINDS OF TXPAYERS

SOURCE OF INCOME

W/IN

ALL INCOME OTHER THAN (B), ( C ), (D)

PASSIVE INCOME

CG ON SALE OF S OF S

CG ON SALE OF RP

(A)

(B)

(C)

(D)

W/OUT

INDIVIDUALS (including estates and trusts) RC

✔

✔

NIT

FWT

FWT

FWT

NRC

✔

✖

NIT

FWT

FWT

FWT

RA

✔

✖

NIT

FWT

FWT

FWT

NRAETB

✔

✖

NIT

FWT

FWT

FWT

NRANETB

✔

✖

FWT

FWT

GIT/FT

KINDS OF INCOME AND TAXES

KINDS OF TXPAYERS

SOURCE OF INCOME

W/IN

ALL INCOME OTHER THAN (B), ©, (D)

PASSIVE INCOME

CG ON SALE OF S OF S

CG ON SALE OF RP

(A)

(B)

(C)

(D)

W/OUT

CORPORATIONS ( including GCP) DC

✔

✔

NIT

FWT

FWT

FWT

RFC

✔

✖

NIT

FWT

FWT

N/A

NRFC

✔

✖

FWT

N/A

GIT/FT

ADDITIONAL TAXES FOR CORPORATIONS INTERCORPORATE DIVIDENDS DC

D-D Exempt

RFC

D-RFC Exempt

NRFC

D-NRFC 15% FWT

MCIT

IAET

BPRT

2% OF GI 2% OF GI

10% FWT

N/A

N/A

15% FWT

N/A

N/A

N/A

(14). List of Income NOT SUBJECT TO IT GENERAL RULE: all income subject to income tax (CGDIRAP):; Exception: unless specifically excluded from computation of GI or exempted by law; a. income from without of NRC, NRAETB, NRANETB, RFC, AND NRFC; b. income of GPP’s, Joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 6 of 31

operations pursuant to an operating consortium agreement under a service contract with the Government; c. gains from sale of assets (capital or ordinary) of NRC,NRAETB,NRANETB,RFC,NRFC which properties are located outside of the Philippines; d. Sale of real property located in the Philippines treated as capital asset shall be exempt from CGT of 6%, provided the ff requisites are complied with: The exemption applies to all kinds of individual TX only, not to corporate TX; i. The real property sold must be the actual principal residence of the taxpayer/seller; ii. Seller must inform the BIR of his intention to avail of the exemption (within 30 days from sale); iii. Seller must build or purchase another principal residence within 18 months from sale; iv. Proceeds from the sale should be used in building/purchasing new principal residence v. 6% CGT will be applied proportionately to proceeds not used for new principal residence. e. interest on time or long term bank deposits in local banks which TX did not preterminate for a period of five(5) years); f. PCSO/LOTTO winnings; g. Prizes and awards in sports competitions sanctioned by the national sports commission; h. Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievements but only if the recipient was selected without any action on his part to enter the contest or proceeding and the recipient is not required to render substantial future services as a condition to receiving the prize or award; i. Dividends issued by a DC in favor of another DC; j. Dividends issued by a DC in favor of a RFC; k. Proceeds of Life Insurance policy received by the insured, heirs, beneficiary but interest shall be subject to IT; l. Proceeds of property insurance to reimburse damage to property; m. Proceeds of medical, health and accident insurance to reimburse hospitalization expenses, sickness, or injury sustained; n. Return of premium; o. Gifts, bequests, devises, but the same shall be subject to ET or DT depending on the mode of transfer; p. Income exempt under a treaty; q. Actual damages as compensation for death, sickness, or injury. All other damages shall be subject to IT; r. Minimum Wage earners for SMW, OP,HP,HP,NSD, DMB within limits, and 13 th month pay and other benefits not exceeding P 82k; note: if prior to jan 1 2015, limit for 13 th month pay and other benefits is P 30k; s. Managerial/supervisory employees for DMB within limits and 13 th month pay and other benefits not exceeding P 82k; note: if prior to jan 1 2015, limit for 13th month pay and other benefits is P 30k; t. Employee benefits furnished by the employer for the convenience of the employer or necessary for the trade of business of the employer; u. Separation pay for causes beyond the control of the employee ( redundancy, retrenchment, illegal dismissal and in lieu of reinstatement); backwages, and damages in labor cases are subject to IT; compensation of loss of earning capacity, subject to IT; v. Retirement benefits from GSIS,SSS, US Veterans Act; w. Retirement benefits from private retirement plan maintained by the employer provided employee is at least 50 yrs old, with continuous service of 10 yrs, avails of retirement only once with the employer, the retirement plan is approved by BIR; x. Retirement benefits if without retirement plan maintained by the employer provided employee is at 60 yrs old with continuous service of 20 yrs; y. Benefits received from Pag-ibig and Philhealth; 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 7 of 31

z.

Campaign contributions received by political parties or candidates ( winning or losing) if not fully utilized by the party or candidate; aa. Association dues paid by homeowners in a subdivision: exempt from IT provided the following requisites are complied with: (1). HOA is duly constituted as defined under RA 9904; (2). LGU issues a certificate stating the basic community services and facilities supplied by HOA and that LGU’s lack of resources to provide, such as basic services which redound to the benefit of all HOA members, ie, security, street and vicinity lights , maintenance, repairs and cleaning of streets, garbage collection/disposal; (3). HOA shows proof that income and dues are used for basic services; But association dues paid by homeowners in a condominium corporation are subject to IT and VAT; (15). De Minimis Benefits (DMB) (IT) vs De Minimis Value (DMV) (Tariff and Customs) De Minimis Benefits – Privileges of small value provided by the employer to an employee; DE MINIMIS BENEFITS (DMB) (AS AMENDED BY RR 1-2015) MONETIZED UNUSED VL (private sector)

10 DAYS

MONETIZED VL/SL (government)

no limit

MEDICAL CASH ALLOWANCE TO DEPENDENTS OF EMPLOYEES

NOT EXCEEDING P 750/EMPLOYEE/SEM OR P 125/MO

RICE SUBSIDY

P 1,500/MO OR ONE SACK OF RICE OF 50KG/MO ( P 1,500.00)

UNIFORM/CLOTHING ALLOWANCE

P 5,000/YEAR (PER RR 8-2012)

ACTUAL MEDICAL ASSISTANCE

NOT EXCEEDING P 10,000/YEAR

LAUNDRY ALLOWANCE

NOT EXCEEDING P 300/MO

ACHIEVEMENT AWARDS

NOT EXCEEDING P 10,000/YEAR

GIFTS GIVEN DURING CHRISTMAS/ANNIVERSARY CELEBRATIONS

NOT EXCEEDING P 5,000/EMPLOYEE/YEAR

DAILY MEAL ALLOWANCE FOR OT/NIGHT/GRAVEYARD SHIFT

NOT EXCEEDING 25% OF BASIC MINIMUM

NEW (2015): BENEFITS RECEIVED BY AN EMPLOYEE PURSUANT TO CBA AND PRODUCTIVITY INCENTIVE SCHEME

NOT EXCEEDING P10,000.00/YR/EMPLOYEE (PER RR 12015)

NOTE: IF NOT PART OF ABOVE LIST

NOT DE MINIMIS, IE, TAXABLE/SUBJECT TO WT

De Minimis Value (DMV): No duties and taxes shall be collected on goods with Free on Board (FOB) value or Free Carrier At (FTA) value of P 10,000.00 or below. (Section 423, RA 10863 or CMTA). But in case of articles which constitute prohibited importation or in case of habitual or intentional violation of tariff and customs law, the goods even if below P10,000.00 maybe seized by the BOC; (16). “Fringe Benefits” means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as, but not limited to, the following: (1) (2) (3) (4) (5)

Housing; Expense account; Vehicle of any kind; Household personnel, such as maid, driver and others; Interest on loan at less than market rate to the extent of the difference

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 8 of 31

between the market rate and actual rate granted; (6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations; (7) Expenses for foreign travel; (8) Holiday and vacation expenses; (9) Educational assistance to the employee or his dependents; and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

Fringe Benefits Not Subject to FBT – (1) Fringe benefits which are authorized and exempted from tax under special laws; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. Fringe Benefit Tax is NOT imposed on the following: 1. Rank and file employees – they do not receive fringe benefits 2. NRA not engaged in t/b under Sec 25 (c), (d), (e) NIRC – they are taxed on the gross at the rate of either 25% or 15%. 3. Filipino counterpart of the NRA under Sec 25 NIRC who chooses to be taxed at the rate of 15% on the gross.

(17). Taxability of Employee Benefits EMPLOYEE BENEFITS DMB

KINDS OF EMPLOYEES

Basic Pay

OT/HP/HP/NSD

M/S

C (NIT)

M/S are not entitled to these benefits

R/F

MWE

C (NIT)

SMW(Exempt)

w/in limits exempt exempt

exempt

excess

transfer to 82k limit

exempt

OTHER BENEFITS

w/in 82k limit

excess

exempt

FB

exempt

C (NIT)

exempt

not treated as MWE but R/F; apply rules for R/F

(18). Marginal Income Earners ( MC 7-2014) Marginal Income Earner (MIE) : individual (self-employed without any compensation income) whose business does not realize gross sales or receipts exceeding P100,000in any I2-month period; NOT EXEMPT FROM IT, EXEMPT ONLY FROM BUSINESS TAX; (19). Taxability of campaign Contributions NOT SUBJECT TO INCOME TAX NOR DONOR’S TAX provided: 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 9 of 31

Received during official campaign period; Donations utilized before/after campaign period: subject to DT, not deductible as political contributions on the part of donor; a. FULLY UTILIZED for campaign purposes; IF NOT FULLY UTILIZED: Excess is subject to IT and DT; b. Failure to file Statement of Expenditures with COMELEC: candidate not allowed to claim as expenses from campaign contributions and entire amount subject to IT; c. CWT of 5% should have been withheld and remitted to BIR by the party or candidate; 

Donations made by CORP in violation of Sec 39 of Corp Code ( ― no corporation,

domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity‖); SUBJECT TO DT AND NOT DEDUCTIBLE AS POLITICAL CAMPAIGN CONTRIBUTIONS ON THE PART OF DONOR CORP; (20). Who and what income are not allowed to claim any allowable deduction from GI? 1. Taxpayers or income subject to Gross Income Tax (GIT) 2. Income subject to Final Withholding Tax (21). Comparison between OSD in income taxation and SD for estate taxation: Optional Standard deduction OSD is in lieu of other deductions from gross income. 40% of gross income may be deducted

Standard deduction in estate tax Standard Deduction is in addition to other deductions from the gross estate Maximum amount of P 1M may be deducted

(22). SUMMARY OF ALLOWABLE DEDUCTIONS: (a). Individuals earning purely compensation income: (a) personal exemptions (PE), (b). additional exemptions (AE) , and ©. premium on health and hospitalization insurance (PHHI) Among alien individuals, it is the NRAETB allowed to claim PE subject to reciprocity rule; Change of Status: if TX marries, should have additional dependents, dies, or any of the dependents become disqualified during the year, the change in status will not affect the allowed exemptions and TX can still claim during the taxable period when change of status was effected; (b). Individuals engaged in trade or business: PE, AE, PHHI, plus Itemized deductions under Section 34; OR PE, AE, plus Optional Standard deduction (OSD) Among alien individuals, it is the NRAETB allowed to claim PE subject to reciprocity rule; ©. Corporate taxpayers (DC and RFC only; NRFC is taxed on the gross thus, not allowed any deduction Itemized deductions under Section 34 or OSD; 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 10 of 31

(d). Estates and Trusts as Income Taxpayers P 20,000.00 from the income of the estate or trust (23). Who are qualified dependents for purposes of AE ( P 25,000.00 per dependent not exceeding four)?

a. Children "Dependent": legitimate, illegitimate or legally adopted child chiefly b. c. d. e.

dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed; PWD child: If such dependent, regardless of age, is incapable of self-support because of mental or physical defect; Foster child under Foster Child Act of 2012; PWD related to TX by consanguinity within the 4th degree provided PWD is not gainfully employed and dependent on TX for chief support; PWD related to TX by affinity within the 4 th degree provided PWD is not gainfully employed and dependent on TX for chief support;

Note: Senior citizens are not qualified dependents for purposes of both PE and AE; (24). REQUISITES OF ITEMIZED DEDUCTIONS FROM GROSS INCOME (section 34 NIRC) (1). (2). (3). (4).

Necessary in Trade or Business of the taxpayer; Actually paid or incurred; Reasonable in amount; and Supported by documents/receipts.

(25). EXAMPLES OF EXPENSES AND THEIR DEDUCTIBILITY/NON-DEDUCTIBILITY UNDER SECTION 34: a. Illegal expenses whether business is legal are deductible or illegal but Legitimate expenses whether business is legal or illegal are deductible; b. Capital expenditures ( expenses to purchase assets, or to make an existing asset) ARE NOT DEDUCTIBLE; c. Expenses for major repairs: NOT DEDUCTIBLE; d. Rentals on lease of property provided taxpayer does not acquire interest other than as a mere possessor, thus rentals on lease to own scheme are not deductible as they are capital expenditures already: NOT DEDUCTIBLE; e. Real estate tax on the property leased and shouldered by the lessee is deductible expense on the part of the lessee BUT treated as taxable income on the part of the lessor; f. Cost of improvements introduced by lessee in an ordinary asset are not deductible expense on the part of the lessee as these are capital expenditures on his part but maybe depreciated by the lessee; g. Travel and transportation expenses or expenses while away from home incurred by employers and given to employees pursuant or trade or business when necessary and reasonable are deductible; h. Advertising expenses designed to stimulate/increase the current sale of merchandise or use of services are deductible business expenses; BUT advertising expenses to maintain the sales are NOT DEDUCTIBLE because in the nature of goodwill; i. compensation to public relations firm for services rendered in carrying on campaign to sell additional capital stock: NOT DEDUCTIBLE j. expenses relating to recapitalization and reorganization of corporation; NOT DEDUCTIBLE k. bribes and kickbacks; NOT DEDUCTIBLE l. expenses for major repairs are not deductible but expenses for minor repairs are deductible;

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 11 of 31

m. personal and living expenses of the taxpayer NOT DEDUCTIBLE as they are already allowed to claim for personal and additional exemptions; n. Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy. NOT DEDUCTIBLE; o. Losses from Sales or Exchanges of Property. In computing net income, no deductions shall in any case be allowed in respect of losses from sales or exchanges of property directly or indirectly – (1) Between members of a family. For purposes of this paragraph, the family of an individual shall include only his brothers and sisters (whether by the whole or halfblood), spouse, ancestors, and lineal descendants; or (2) Except in the case of distributions in liquidation, between an individual and corporation more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; or (3) Except in the case of distributions in liquidation, between two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for the same individual if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale of exchange was under the law applicable to such taxable year, a personal holding company or a foreign personal holding company; (4) Between the grantor and a fiduciary of any trust; or (5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust; or (6) Between a fiduciary of a trust and beneficiary of such trust. (26) . RECOGNITION OF GAINS/LOSSES IN EXCHANGES OF PROPERTY RULES: (1). All gains and losses realized or incurred in exchanges of ordinary and capital assets are RECOGNIZED; (2). In exchanges of capital assets with gains, the gains are not immediately included in the gross income but first charged against losses sustained in exchanges of capital assets. In recognizing the gains/losses, the taxpayer may apply the concept of holding period ( if held for more than one year- g/l recognized at 50%; if held for less than one year – g/l recognized at 50%); The holding period does not apply to a corporate taxpayer, thus, all gains/losses are recognized at 100%; (3). After charging the gains against the losses and the taxpayer realizes Net capital gains, the same shall be included in the gross income of the taxpayer. After charging the gains against the losses and the taxpayer realizes net capital loss, then a taxpayer, other than a corporation, is allowed to carry over the same for three succeeding years (NCLCO); (4). In exchanges of ordinary assets with gains, the gains are not immediately included in the gross income of the taxpayer but first charged against losses sustained in exchanges of ordinary assets. Holding period does not apply. After charging the gains versus the losses, if taxpayer realizes net ordinary gains, include the same in the gross income but if the taxpayer realizes net ordinary losses, no carry over will be allowed; (5). Rule Nos. 1 to 4, are not applied in the following instances: (NO GAINS/ NO LOSS RECOGNIZED)

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(a). In case of valid merger and consolidation; (b). In case a stockholder exchanges property for stocks in a corp wherein he, together with three others, acquires control over the corporation; ©. In wash sales of shares of stocks wherein the taxpayer sells shares of stocks wherein he realized gains, gains are always recognized but in case of loss sustained and 30 days prior to sale or 30 days after the sale, he acquires similar shares of stocks as the ones disposed of and for which sustained losses, ALL LOSSES WILL NOT RECOGNIZED; (d). In sale of shares of stocks (capital in character), not traded thru local stock exchange, gains are always subject to either 5% or 10% FWT. If traded, gains or loss, the tax is % tax under Section 127 of the NIRC; (e). In sale of real property located in the Philippines (capital in character), whether gains or loss, the taxpayer shall be subject to 6% CGT which is in the nature of FWT. (27). COMPARISON BETWEEN NET CAPITAL LOSS CARRY OVER (NCLCO) AND NET OPERATING LOSS CARRY OVER ( NOLCO) (1). NOLCO refers to net operating loss carry over which is applicable only to a corporate taxpayer. If a corporate taxpayer has more deductions than gross income, the corporation sustains net operating losses which maybe carried over to the succeeding year only. Consequently, if during the succeeding year, the taxpayer realized taxable net income, this maybe reduced by the net operating loss carried over from the previous year; (2). NCLCO refers to net capital loss carry over which is applicable only to individual taxpayers. This results from exchanges of capital assets wherein gains and losses have been recognized such that during the taxable period, after charging all capital losses from the capital gains, the taxpayer may either realize net capital gains (included in the gross income therefore taxable) OR net capital loss ( which maybe carried over for the succeeding 3 years); (3). NOLCO pertains to expenses and deductions from gross income while NCLCO pertains to exchanges of capital assets; (28). TRANSFER FOR INSUFFICIENT CONSIDERATION: IT, ET, DT [Please refer to Secs. 100, 85(B) and 24(D), NIRC] Transfers for Insufficient Consideration: Example:

X has the following real properties purchased at P 1M each and with FMV of P 3M each. Within the Philippines: In the United States:

House and Lot Parlor Vacation house Parlor

Tax consequences if each real property were sold at P50,000: 



Sale of House and Lot in Phils. - subject to CGT on sale of real property (6%) since it is a capital asset and CGT is tax on the presumed gains realized from the sale Sale of Parlor located in the Phils. - subject to donor’s tax or estate tax and not NIT since there is no income derived from the sale. If the transfer for insufficient consideration is at the same time in contemplation of death, in the nature of a revocable transfer, or property passing under a general power of attorney, we impose estate tax not Donor’s tax; Sale of Vacation house in the US - donor’s tax is imposed on the difference between the fair market value of P3M and the consideration of P 50,000; If the transfer for insufficient consideration is at the same time in contemplation of death, in the nature of a revocable transfer, or property passing under a general

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 13 of 31







power of attorney, we impose estate tax on the FMV at the time of death versus P 50,000.00 consideration; Sale of parlor in the US - donor’s tax is imposed on the difference between the fair market value of P3M and the consideration of P 50,000; If the transfer for insufficient consideration is at the same time in contemplation of death, in the nature of a revocable transfer, or property passing under a general power of attorney, we impose estate tax on the FMV at the time of death versus P 50,000.00 consideration; However, if the seller/taxpayer is a non-resident citizen or an alien, the sale of real property outside the Philippines for insufficient consideration is not subject to NIT. The same shall, however, will be subject to donor’s or estate tax taxable in the case of a non-resident citizen and a resident alien; Note: if subject property is any property other than real property ( example: car, furniture, jewelry), whether located in the Philippines or not, and sold for insufficient consideration, donor’s tax is imposed on the difference between the fair market value of P3M and the consideration of P 50,000; If the transfer for insufficient consideration is at the same time in contemplation of death, in the nature of a revocable transfer, or property passing under a general power of attorney, we impose estate tax on the FMV at the time of death versus P 50,000.00 consideration;

(29). Donor’s Tax a. donative intent is required; b. in case of waiver of inheritance which is generic, NO DONOR’S TAX, but if specific as to a co-heir, or specific as to the share, DONOR’S TAX IS IMPOSED; c. if net gift does not exceed P 100,000.00, the same shall be exempt from DT, thus, as long as the gifts per year do not exceed P 100,000.00 no DT; This rule, however, applies only if the donor and the donee are ―NOT STRANGERS‖; If donor and donee are STRANGERS, any amount of gift ( below or more than P 100,000.00) is subject to 30% DT; d. The following are not strangers: (i) Ascendants (without limit) (ii) Descendants ( without limit) (iii) Relatives in the collateral line within the 4th degree of relationship) (30). Transactions deemed sale (TDS) in VAT: There is no actual sale of goods but the law considers the goods sold, thus, subject to VAT, such as: (1). Transfer, use or consumption not in the course of trade or business of goods or properties originally intended for sale or use in the course of trade or business; (2). Distribution or transfer to shareholders or investors as share in the profits of Vat registered person or to creditors in payment of debt; (3).Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; and (4). Retirement from or cessation of business with respect to inventories of taxable goods existing as of the time of retirement or cessation; (31). ADMINISTRATIVE CLAIM FOR REFUND OF VAT ( Section 112 of NIRC) (MC 542014)

•

2:120:30 (VIP Periods)

•

Administrative claim: two (2) years from close of taxable quarter when sale is made;

•

In case of BIR non-action within 120 days from submission of complete documents, refund deemed DENIED; TX at the time of submission of claim for refund is required to

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state that he does not intend to submit additional documents, thus, filing of claim becomes the reckoning period of 120 days; •

TX MUST APPEAL to CTA DIV: within 30 days from receipt of actual decision (if BIR renders decision before 120 day period expires) or after the expiration of the 120 day period; then to CTA EB ( 15 days), then to SC (30 days);

•

The 30-day period provided for under Section 112 (C) of the National Internal Revenue Code (NIRC) within which to appeal the decision of the Commissioner of Internal Revenue (CIR) to the Court of Tax Appeals (CTA) need not necessarily fall within the twoyear prescriptive period;

(32). Examples of Transactions Exempt from VAT a. b. c. d.

sale of goods and services to PWD; sale of goods and services to Senior Citizens; if gross sales or gross receipts of TX do not exceed P 1,919,500.00 in a year; membership dues in homeowners association in a subdivision subject to certain requirements; e. lease of residential house with rentals not exceeding P 12,800; lease of commercial area regardless of amount of rentals ( below or more than 12,800) shall be subject to VAT; f. sale of low cost housing units regardless of amount; g. sale of real property not ordinarily held for sale or lease to customers regardless of amount; if real property held for sale or for lease to customers, threshold of P 1,919,500 applies; h. sale of house and lot property and residential dwellings with selling price not exceeding P 1,919,500.00;

Note: if adjacent lots are purchased within 12 month period, threshold applied is P 1,919,500 for both lots; if adjacent house and lots are purchased within 12 month period, threshold of P 3,199,200 is applied per house and lot; (33). INDIVIDUAL TX NOT REQUIRED TO FILE RETURNS: (a) An individual whose gross income does not exceed his total personal and additional exemptions for dependents under Section 35: Provided, That a citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippine shall file an income tax return, regardless of the amount of gross income; (b) An individual with respect to pure compensation income, as defined in Section 32 (A)(1), derived from sources within the Philippines, the income tax on which has been correctly withheld under the provisions of Section 79 of this Code: Provided, That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return: Provided, further, That an individual whose compensation income derived from sources within the Philippines exceeds Sixty thousand pesos (P60,000) shall also file an income tax return; (c) An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A) of this Code; and (d) An individual who is exempt from income tax pursuant to the provisions of this Code and other laws, general or special. NOTE: The foregoing notwithstanding, any individual not required to file an income tax return may nevertheless be required to file an information return pursuant to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner. (34). Extension of Time to File IT Returns:

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The Commissioner may, in meritorious cases, grant a reasonable extension of time for filing returns of income (or final and adjustment returns in case of corporations), subject to the provisions of Section 56 of this Code. (35). SUBSTITUTED FILING applies to a compensation income earner who: 1. is employed only by one employer in a year; 2. there is no other form of income but compensation; 3. not received any investigation prior to said substituted filing; (36). No Preliminary Assessment Notice (PAN) is required (Sec. 228, NIRC): 1. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or 2. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or 3. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable yr; or 4. When the excise tax due on excisable articles has not been paid; or 5. When an article locally purchased or imported by an exempt person, such as, not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. (37). Prescriptive Periods of Assessment and Collection under the NIRC

DATE OF FILING OF RETURN Filed before due date

PRESCRIPTIVE PERIODS for ASSESSMENT

PRESCRIPTIVE PERIODS OF COLLECTION

3 years from due date

Filed on due date

3 years from due date

Fled beyond due date

3 years from actual filing

Fraudulent filing

10 yes from discovery of bad faith/fraud

Non-filing

10 years from discovery of nonfiling

WAIVER BY TX: Depends on the agreement of the parties provided that the agreement to extend is executed prior to expiration of the original period of assessment;

5 YEARS FROM RECEIPT BY TX OF FAN;

NOTE: IF TX FILES FRAUDULENT RETURN OR DID NOT FILE ANY RETURN, BIR MAY COLLECT WITHOUT ASSESSMENT WITHIN 10 YEARS FROM DISCOVERY OF FILING OF FRAUDULENT RETURN OR DISCOVERY OF NON-FILING

(38). Requirements of valid waiver

CIR vs STANDARD CHARTERED BANK, Respondent. G.R. No. 192173, July 29, 2015 1. With signatures of both the CIR and the taxpayer; 2. date of acceptance by the BIR is necessary in order to determine whether the parties 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 16 of 31

(the taxpayer and the government) had entered into a waiver ―before the expiration of the time prescribed in Section 203 (the three-year prescriptive period) for the assessment of the tax; 3. The waiver should be duly notarized; 4. CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated; 5. waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver (39). Service of FAN (RR 18-2013 dated Nov 18, 2013) ) a. Personal service to the party at his registered or known address or wherever he may be found. A known address shall mean a place other than the registered address where business activities of the party are conducted or his place of residence. b. If personal service is not practicable, the notice shall be served by substituted service or by mail. (ii) Substituted service can be resorted to when the party is not present at the registered or known address under the following circumstances: The notice may be left at the party’s registered address, with his clerk or with a person having charge thereof. If the known address is a place where business activities of the party are conducted, the notice may be left with his clerk or with a person having charge thereof. If the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein. If no person is found in the party’s registered or known address, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses to the address so that they may personally observe and attest to such absence. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. Should the party be found at his registered or known address or any other place but refuse to receive the notice, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses in the presence of the party so that they may personally observe and attest to such act of refusal. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. ―Disinterested witnesses‖ refers to persons of legal age other than employees of the Bureau of Internal Revenue. (iii) Service by mail is done by sending a copy of the notice by registered mail to the registered or known address of the party with instruction to the Postmaster to return the mail to the sender after ten (10) days, if undelivered. A copy of the notice may also be sent through reputable professional courier service. If no registry or reputable professional courier service is available in the locality of the addressee, service may be done by ordinary mail. The server shall accomplish the bottom portion of the notice. He shall also make a written report under oath before a Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the manner, place and date of 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 17 of 31

service, the name of the person/barangay official/professional courier service company who received the same and such other relevant information. The registry receipt issued by the post office or the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing and shall be attached to the case docket. Service to the tax agent/practitioner, who is appointed by the taxpayer under circumstances prescribed in the pertinent regulations on accreditation of tax agents, shall be deemed service to the taxpayer.‖ (40). RECEIPT OF FAN NEED NOT BE WITHIN THE PRESCRIPTIVE PERIODS

CIR vs GJM Philippines Manufacturing Inc. GR 202695 29 Feb 2016 The prescriptive period for issuance of FAN is 3 years from due date if return is filed on or before due date and if filed beyond due date, 3 years from date of actual filing. When an assessment is made within the prescriptive period, receipt by the taxpayer may or may not be within said period. It is a requirement that the taxpayer should actually receive the assessment notice, even if beyond the prescriptive period. If the taxpayer denies receipt of FAN, onus probandi has shifts to the BIR to show by contrary evidence that TX indeed received the assessment in the due course of mail. It has been settled that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion, the direct denial of which shifts the burden to the sender to prove that the mailed letter was, in fact, received by the addressee. (41). CIR vs Liquigaz Philippines GR 215534/215557 18 April 2016 When may a Final Decision on Disputed Assessment (FDDA) be declared void, and in the event that the FDDA is found void, what would be its effect on the tax assessment? An assessment is void if the taxpayer is not notified in writing of the facts and law on which it is made. The requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him applies both to the FLD/FAN and the FDDA. The invalidity of FDDA does not necessarily result to the invalidity of the FAN/PAN other— unless the law or regulations otherwise provide. A "decision" differs from an "assessment" and failure of the FDDA to state the facts and law on which it is based renders the decision void-but not necessarily the assessment. Tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided. (42).

Refund of Excess Input Vat on 0% Transactions

Administrative Protest on Deficiency Assessments

2: 12 : 30 (TX must go up to CTA DIV)

30 : 180: 30 ( TX may go up to CTA DIV)

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(43). REFUND OF EA, EC, IA, IC INTERNAL REVENUE TAXES ( Section 229, NIRC)

CIR vs Goodyear Philippines August 3, 2016 GR 216130 Requirements for refund under Section 229 of the NIRC: a. administrative claim with BIR should be filed within 2 years from date of payment of tax; It does not mean that the taxpayer must await the final resolution of its administrative claim for refund, since doing so would be tantamount to the taxpayer's forfeiture of its right to seek judicial recourse should the two (2)year prescriptive period expire without the appropriate judicial claim being filed before the CTA; b. judicial claim must be filed before CTA Division within the same 2 year period; Filing by Goodyear of administrative refund and judicial claims 13 days apart both within the 2 year period, is upheld as correct and timely sought judicial redress in compliance with the above requirements; (44). COURT OF TAX APPEALS (CTA)

a. Does the CTA EB have jurisdiction over petitions for annulment of judgment rendered by CTA DIV? (CIR vs Kepco Corporation GR 199422 21 June 2016) NO. Revised Rules of the CTA and Rules of Court are silent on this. A direct petition for annulment of a judgment of the CTA to the Supreme Court, meanwhile, is likewise unavailing, for the same reason that there is no identical remedy with the High Court to annul a final and executory judgment of the Court of Appeals. The remedy is to file a petition for certiorari under Rule 65 which can be filed before the Supreme Court and not before the CTA EB; CTA En Banc has no jurisdiction over original petitions for annulment of judgment/decision rendered by CTA Division. b. Can the CTA DIV allow the withdrawal of petition for review filed by TX after full trial on the merits before the CTA DIV? (CIR vs. NIPPON EXPRESS (PHILS.)

CORPORATION G.R. No. 212920, September 16, 2015)

BIR issued Tax credit certificate pending TX petition for review before the CTA Division. TX filed a motion to withdraw the petition for review. An appeal may be withdrawn as of right at any time before the filing of the appellee's brief. Thereafter, the withdrawal may be allowed in the discretion of the court. In this case however, CTA DIV should not have granted the motion to withdraw considering that the Decision was rendered by the CTA Division after a full-blown hearing in which the parties had already ventilated their claims. Thus, the findings contained therein were the results of an exhaustive study of the pleadings and a judicious evaluation of the evidence submitted by the parties, as well as the report of the commissioned certified public accountant. Jurisdiction, once acquired, is not lost upon the instance of the parties, but continues until the case is terminated AND cannot be lost by the unilateral withdrawal of the petition. The CTA DIV found that TX was only entitled to refund the reduced amount of P2.6 M since it failed to prove that the recipients of its services were non-residents "doing business outside the Philippines"; hence, Nippon's purported sales do not qualify as 0% necessitating the reduction in the 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 19 of 31

amount of refund claimed. On the other hand, the tax credit certificate provides for the amount of P21,675,128.91 which is, in all, P19,060,832.07 larger than the amount found due by the CTA Division. c.

Does CTA have jurisdiction over petitions for certiorari of DOJ resolution rendered in a preliminary investigation case involving tax and tariff offenses?

BOC vs THE HONORABLE AGNES VST DEVANADERA, ACTING SECRETARY, DEPARTMENT OF JUSTICE, et.al G.R. No. 193253, September 08, 2015

CTA has jurisdiction over a special civil action for certiorari questioning an interlocutory order of the RTC in a local tax case. CTA has original jurisdiction over a petition for certiorari assailing the DOJ resolution in a preliminary investigation involving tax and tariff offenses. CA's original jurisdiction over a petition for certiorari assailing the DOJ resolution in a preliminary investigation involving tax and tariff offenses was necessarily transferred to the CTA and that such petition shall be governed by Rule 65 of the Rules of Court, as amended. Accordingly, it is the CTA, not the CA, which has jurisdiction over the petition for certiorari assailing the DOJ resolution of dismissal of the BOC's complaint-affidavit against private respondents for violation of the TCCR. d. What is the remedy in case CTA DIV issues interlocutory orders ( ex: granting motion to declare in default)? Can you file a petition for review before the CTA EB? CIR vs CTA AND CBK POWER COMPANY LIMITED G.R. Nos. 203054-55, July 29, 2015 CTA Order granting motion to declare petitioner as in default and allowing presentation of evidence ex parte, is an interlocutory order as CTA did not finally dispose of the case on the merits but will proceed for the reception of the evidence Even the CTA's subsequent orders denying motion to lift order of default and denying reconsideration thereof are all interlocutory orders since they pertain to the order of default. Since the CTA Orders are merely interlocutory, no appeal can be taken therefrom. Remedy is to file appropriate special civil action for certiorari under Rule 65 before the Supreme Court. Filing a petition for review before the CTA EB is not the proper remedy; e. What is the available remedy in case of BIR’s interpretation of tax provision versus decision on disputed assessment?

(i). CIR vs CTA (SECOND DIVISION) AND PETRON CORPORATION G.R. No. 207843, July 15, 2015 CIR's interpretation of a tax provision involves an exercise of her quasilegislative functions, the proper recourse against the subject tax ruling is a review by the Secretary of Finance and ultimately the regular courts. The power to interpret the provisions of NIRC and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under NIRC or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals

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(ii). Clark Investors and Locators Association Inc. vs Sec of Finance and CIR GR 200670 July 6 2016 BIR’s act of issuing RR 2-2012 is not in the exercise of any judicial or quasijudicial capacity, thus, petition for certiorari under Rule 65 of Rules on Civil Procedure is NOT the proper remedy. RR 2- 2012 was issued in the exercise of BIR’s quasi-legislative or rule-making powers, thus proper remedy is review by Sec of Finance and eventually by regular courts; f. Does CTA, NOT CA, have exclusive appellate jurisdiction over BOC tax collection cases decided by the RTC? Is it proper for CA to refer the appeal to CTA instead of dismissing the notice of appeal for lack of jurisdiction?

MITSUBISHI MOTORS PHILIPPINES CORPORATION VS BOC GR 209830 JUNE 17 2015

BOC filed collection case against Mitsubishi before the RTC, Manila. RTC granted Mitsubishi’s demurrer to evidence and dismissed the collection case. BOC filed a notice of appeal to Court of Appeals. CA, instead of dismissing the notice of appeal for lack of jurisdiction, referred the records of the collection case to the CTA for proper disposition of the appeal taken by respondent. Ruling: CTA has exclusive appellate jurisdiction over tax collection cases originally decided by the RTC. CA has no jurisdiction over respondent’s appeal; hence, it cannot perform any action on the same except to order its dismissal. Therefore, the act of the CA in referring respondent’s wrongful appeal before it to the CTA under the guise of furthering the interests of substantial justice is NOT PROPER; g. What is the jurisdiction of CTA over tariff and customs duties? Commissioner

of Customs Vs. Oilink International Corporation
 G.R. No. 161759. July 2, 2014

CTA: exclusive appellate jurisdiction to review by appeal ― Decisions of the BOC Commissioner in cases involving liability for Customs duties, fees or other money charges; seizure, detention or release of property affected; fines, forfeitures or other penalties imposed in relation thereto; or other matters arising under the Customs Law or other law or part of law administered by the Bureau of Customs; Decision that is appealable to the CTA is a judgment or order of the Commissioner of Customs that is final in nature, not merely an interlocutory order; h. Is the ruling of the CIR subject to review by the Secretary of Finance under Sec. 4 of the NIRC, and that of the Secretary to the CA via Rule 43?

Philippine American Life and General Insurance Company Vs. Secretary of Finance and the CIR
 G.R. No. 210987 November 24, 2014

CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of President but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi- judicial body with specialization over the controversy. CTA has the power to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases. i. VERY

IMPORTANT CASES:

Does CTA have the power to issue injunction against BIR tax collection cases. What is the requirement for CTA to fix the bond? Tridmaha Marketing Corporation vs CTA et al;

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 21 of 31

GR 215950 20 June 2016; SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J. PACQUIAO vs. THE COURT OF TAX APPEALS - FIRST DIVISION AND CIR G.R. No. 213394, April 06, 2016 CTA has power to fix the surety bond posted by the TX as a condition precedent to suspend the collection case filed by BIR. Fixing the bond five times more than the net worth of TX without conducting a preliminary hearing to ascertain whether there were grounds to suspend the collection of the deficiency assessment is not proper. CTA Division must consider other factors like whether or not the assessment would jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in determining the liability of the taxpayer was legal and valid. In the earlier case of Manny Pacquiao, Supreme Court deems it best to remand the matter involving the petitioner's plea against the correctness of the deficiency assessment to the CTA for the conduct of a preliminary hearing in order to determine whether the required surety bond should be dispensed with or reduced. Absent any evidence and preliminary determination by the CTA, the Court cannot make any factual finding and settle the issue of whether the petitioners should comply with the security requirement under Section 11, R.A. No. 1125. The determination of whether the methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for being patently in violation of the law is a question of fact that calls for the reception of evidence which would serve as basis. In this regard, the CTA is in a better position to initiate this given its time and resources. The remand of the case to the CTA on this question is, therefore, more sensible and proper. (45). JURISDICTION of ORDINARY COURTS AND CTA IN TAX COLLECTION CASES ( BIR, BOC, LGU) MTC and other lower courts

RTC

CTA

Within Metro Manila

P 0.00 to P 400, 000

More than P 400,000 to below P 1 M

P 1M & above exclusive of interest, penalties, surcharges

Outside Metro Manila

P 0.00 to P 300, 000

More than P 300, 000 to below P 1 M

P 1M & above exclusive of interest, penalties, surcharges

(46). In claims for refund of local taxes which was denied by the Treasurer, which court has jurisdiction? Chinabanking Corporation vs City Treasurer of Manila GR 204117 July 1

2015

Follow jurisdictional amount of first level court and RTC: In claim for refund of local taxes and after the Treasurer denies the claim for refund, where the amount sought to be refunded is below the jurisdictional amount of the RTC, the Metropolitan, Municipal, and Municipal Circuit Trial Courts are clothed with ample authority to rule on such claims; Under R.A. No. 9282, the authority to exercise either original or appellate jurisdiction by the MTC or the RTC over local tax cases depended on the amount of the claim. (47). TCC/CUSTOMS MODERNIZATION AND TARIFF ACT (RA 10863) (a). Agencies involved Department of Trade and Industry (DTI)

- dumping duties for non-agricultural products

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Department of Agriculture (DA) Department of Finance (DOF) Bureau of Customs (BOC)

- dumping duties for agricultural products - automatic review of decisions of COC - disputed assessments seizure and forfeiture cases

(b). Kinds of Importation/Exportation     

Free; Regulated; Prohibited; Restricted; Relief Consignment

©. Right of Police Officer to Enter or search any land or inclosure or any warehouse, store or other building, not being a dwelling house WITHOUT SEARCH WARRANT; A warehouse, store or other building or inclosure used for the keeping of storage of articles does not become a dwelling house merely by reason of the fact that a person employed as watchman lives in the place, nor will the fact that his family stays there with him alter the case; (d). If search is of Dwelling House, SHOULD BE WITH SEARCH WARRANT issued by a competent court; (e). Right to Search, inspect, examine Vessels or Aircrafts and Persons or Articles Conveyed Therein: should be within the limits of any collection district, if it shall appear that any breach or violation of the customs and tariff laws of the Philippines has been committed, whereby or in consequence of which such vessels or aircrafts, or the article, or any part thereof, on board of or imported by such vessel or aircraft, is liable to forfeiture, to make seizure of the same or any part thereof. No proceeding shall give rise to any claim for the damage caused to article or vessel or aircraft. (f). Right to Search Vehicles, Beasts and Persons. — It shall also be lawful for a person exercising authority to open and examine any box, trunk, envelope or other container, wherever found where he has reasonable cause to suspect the presence therein of dutiable or prohibited article or articles introduced into the Philippines contrary to law, and likewise to stop, search and examine any vehicle, beast or person reasonably suspected of holding or conveying such article as aforesaid. (g). Seizure and Forfeiture proceedings (exclusive jurisdiction of BOC) are available to the BOC in the case of smuggling which may refer to the following: Prohibited articles; Wrong entry of port; Export of goods contrary to law; Contraband; (h). VIP: Common carriers are generally not subject to seizure and forfeiture. In the absence of prima facie evidence, if the owner has no knowledge of or did not participate in the unlawful act, the vessel shall not be subjected to seizure and forfeiture. Presumption of knowledge of the owner of the vessel if (a). vehicle was used twice for the transaction; (b). Owner is not in the business for which the conveyance is generally used and (c). Owner is not in a position to use such conveyance; Conversely, if the vehicle is under a contract of private charter, the assumption is owner is aware that the vessel is used for unlawful act, thus, BOC may subject vessel or vehicle to seizure and forfeiture, unless the owner can prove otherwise. (i). WHAT ARTICLES ARE SUBJECT TO DUTIES? All articles, when imported to the Philippines, are subject to duty upon each importation, even though previously exported there except as otherwise specifically provided for in the Tariff and Customs Code, as amended, or in other laws. Note:

Balikbayan Box with contents not exceeding P 150,000.00: (NO TCD)

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 23 of 31

Goods with De Minimis Value (DMV) of not more than P 10,000.00 (j). Doctrine of Hot Pursuit If the act committed in violation of the TCC is done within Philippine waters, seizure and forfeiture may be pursued or continued beyond the territorial jurisdiction or the maritime zone and on the high seas (k). Flexible Tariff Clause under the constitution The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restriction as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government (Article VI, Section 28, paragraph 2)Section 28, Article 6, 1987 Constitution subject to limitations under the law; (l). Automatic Review powers by the Sec of Finance if decision is rendered by BOC Comm prejudicial to the government; (m). Procedure in Protest Cases: (a). Arrival of goods (b). Examiner/Collector issues assessment and collects the tariff and duties ©. Within 15 days TX pays under protest ands file protest before the Collector/Examiner (d). Hearing within 15 days from receipt of protest; (e). Collector either grants or denies the protest; Examiner issues an Assessment (import/export) Commissioner of Customs Rule against taxpayer

Appeal to CTA division within 30 days from receipt of decision denying protest

Rule for taxpayer

Automatic review by DOF

Reverse BOC decision

Uphold BOC (end)

If the BOC files a collection suit for deficiency, see jurisdiction of regular courts and the CTA on the amount. In case of criminal offenses, we follow the same rules provided above under NIRC. (48). LOCAL GOVERNMENT CODE OF 1991 a. All local taxes accrue on January 1 and are due on or before 20 January; b. Fundamental principles shall govern the exercise of the taxing and other revenueraising powers of local government units: i. ii.

Taxation shall be uniform in each local government unit; Taxes, fees, charges and other impositions shall:

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(1) be equitable and based as far as practicable on the taxpayer's ability to pay; (2) be levied and collected only for public purposes; (3) not be unjust, excessive, oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in the restraint of trade; iii. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person; iv. The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and, v. Each local government unit shall, as far as practicable, evolve a progressive system of taxation. c. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public Hearings: Issue: Validity of Ordinance 1. Any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal; 2. Appeal to the DOJ shall not suspend the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein; 3. Within thirty (30) days after receipt of the decision or the lapse of the sixtyday period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. 4. Within ten (10) days after approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places. 5. Copies of all provincial, city, and municipal and barangay tax ordinances and revenue measures shall be furnished the respective local treasurers for public dissemination. d. Important principles in local taxation (a). Residual Taxing Power: Power to levy taxes, fees, or charges on any base or subject not specifically enumerated under the LGC and not taxed under the NIRC or any other tax laws (b). Rule of pre-emption: If the national government elects a particular area as subject to tax, it impliedly withholds from the local government unit the delegated power to tax the same fields or area e. Common Fees/Charges for LGU’s: 1. Reasonable fees and charges for services rendered;

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 25 of 31

2. Public utility charges for operation of public utilities owned, operated and maintained by LGU’s within its jurisdiction; 3. Toll fees for use of any public road, pier, wharf,, waterway, bridge, ferry or telecommunication system funded/constructed by LGU except officers and enlisted men of the AFP/PNP, post office personnel delivering mail, and physically handicapped and disabled citizens who are 65 years old. f. Is the LGU empowered under the LGC to impose business taxes on persons or entities engaged in the business of manufacturing and distribution of petroleum products? Batangas City vs Pilipinas Shell Petroleum Corporation GR 187631 July 8 2015; Section 133 of the LGC is a specific provision that explicitly withhold from LGUs the power to impose taxes, fees and charges on petroleum products. Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or even the activity or privilege related to the petroleum products, such as manufacturing and distribution of said products, it is covered by the said limitation and thus, no levy can be imposed; Article 232 of LGC defines with more particularity the capacity of a municipality to impose business taxes on businesses except businesses engaged in the production, manufacture, refining, distribution or sale of oil, gasoline, and other petroleum products; g. Prescriptive Period for Assessment and Collection of ordinary local taxes ASSESSMENT

COLLECTION

5 yrs from due date ( Jan 1 every year)

5 yrs from receipt of Assessment

10 yrs from discovery of fraud or intent to evade payment

5 yrs from receipt of Assessment

h. Procedure in Protest Cases of Local Taxes; Issue: Validity of assessment

1. When the local treasurer or his duly authorized representative finds that correct

taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. 2. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. 3. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. 4. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable. i. Refund of Local Tax: No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 26 of 31

entitled to a refund or credit. j. VIP:

Redemption of property in case of forfeiture: City of Davao vs. Intestate

Estate of Amado Dalisay GR 207791 July 15, 2015;

Under LGC of 1991, in case of forfeiture of real property (sold at public auction and without any bidder), redemption period of 1 year is reckoned from date of purchase by LGU ( date of auction/sale) of the property for want of any bidder NOT from issuance by LGU of certificate of forfeiture. Forfeiture of tax delinquent properties transpires no later than the purchase made by the city due to lack of a bidder from the public. This happens on the date of the sale, and not upon the issuance of the declaration of forfeiture. k. VIP: Redemption of Property Sold in case of levy and distraint: Within one (1) year from the date of sale, the delinquent taxpayer or his representative shall have the right to redeem the property upon payment to the local treasurer of the total amount of taxes, fees, or charges, and related surcharges, interests or penalties from the date of delinquency to the date of sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of purchase to the date of redemption. Such payment shall invalidate the certificate of sale issued to the purchaser and the owner shall be entitled to a certificate of redemption from the provincial, city or municipal treasurer or his deputy. l. Personal Property Exempt from Distraint or Levy (a) Tools and implements necessarily used by the delinquent taxpayer in his trade or employment; (b) One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select, and necessarily used by him in his ordinary occupation; (c) His necessary clothing, and that of all his family; (d) Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding Ten thousand pesos (P10,000.00); (e) Provisions, including crops, actually provided for individual or family use sufficient for four (4) months; (f) The professional libraries of doctors, engineers, lawyers and judges; (g) One fishing boat and net, not exceeding the total value of Ten thousand pesos (P10,000.00), by the lawful use of which a fisherman earns his livelihood; and (h) Any material or article forming part of a house or improvement of any real property. (49). REAL PROPERTY TAX a. Two (2) aspects: a. Appraisal and Assessment by the Assessor’s Office;

"Appraisal" is the act or process of determining the value of property as of a specified date for a specific purpose; "Assessment" is the act or process of determining the value of a property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties; 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 27 of 31

b. Levy and Collection by the Treasurer’s Office; b. what constitutes real properties? -

properties covered by Article 415 of the Civil Code; Airfield, runway and taxiway and the lots on which the runway and taxiway are located; Underground tanks; Gasoline tanks permanently attached to the soil; Machineries and equipment; Underground cables; Submarine or undersea communication cables; Oil pipes; Boathouse if tied to the shore and used as residence

c. Idle lands maybe exempt from RET due to valid causes such as force majeure, civil disturbance, natural calamity, or any other reason which prevents the owner from utilizing the property d. Exemption from RET shall be based on the actual use not the ownership; e. Unpaid RET attaches to the land and not the owner, thus, the remedy of lien available to the government f. EXEMPTION FROM REAL ESTATE TAX (a). real properties owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration to a taxable person; (b). charitable institutions, churches, parsonages, convents, mosques, or religious cemeteries and all L, B, and I, ADE for religious, charitable, and educational purposes; ©. Machineries and equipment ADE by local water utilities and GOCC’s engaged in supply/distribution of water and/or generation of electric power; (d). real properties owned by cooperatives; (e). machinery and equipment used for pollution control and environment protection.

f. ASSESSOR’S OFFICE: APPRAISAL/LEVY OF RPT: Procedure if TX disagrees with Appraisal:

1. Assessor, within thirty (30) days, give written notice of such new or revised assessment to the person in whose name the property is declared. 2. Remedies Against Assessment/Appraisal of Real Property: Appeal to LBAA/CBAA a. Owner appeals to LBAA within sixty (60) days from the date of receipt of the written notice of assessment; b. LBAA shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal; c. The owner of the property or the person having legal interest therein or the assessor who is not satisfied with the decision of the LBAA, may, within thirty (30) days after receipt of the decision of LBAA , appeal to the Central Board of Assessment Appeals (CBAA), as herein provided. The 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 28 of 31

decision of the Central Board shall be final and executory. d. Aggrieved party appeals to CTA En Banc within 30 days from the receipt of the decision of the CBAA; e. Aggrieved party appeals to the Supreme Court from the CTA decision within 15 days from receipt of the prejudicial decision;

g. TRESURER’S OFFICE: Levy and Collection of RPT 1. Payment Under Protest is required; 2. Protest is filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt. 3. In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a), the taxpayer may APPEAL TO THE LBAA AND THEN TO CBAA; h. Repayment/Refund of Excessive RPT Collections File a written claim for refund or credit for taxes and interests with the provincial or city treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment. The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof. In case the claim for tax refund or credit is denied, the taxpayer may avail of the remedy of appeal to LBAA/CBAA, respectively, then to SC; i. Notice of Delinquency in the Payment of the Real Property Tax When the real property tax or any other tax imposed under this Title becomes delinquent, the provincial, city or municipal treasurer shall immediately cause a notice of the delinquency to be posted at the main hall and in a publicly accessible and conspicuous place in each barangay of the local government unit concerned. The notice of delinquency shall also be published once a week for two (2) consecutive weeks, in a newspaper of general circulation in the province, city, or municipality. j. Collection of Real Property Tax Through the Court AND Prescriptive Period for Assessment and Collection ASSESSMENT

COLLECTION

5 yrs from due date ( Jan 1 every year)

5 yrs from receipt of Assessment

10 yrs from discovery of fraud or intent to evade payment

5 yrs from receipt of Assessment

k. Action Assailing Validity of Tax Sale No court shall entertain any action assailing the validity or any sale at public auction of real property or rights therein until the taxpayer shall have deposited with the court the amount for which the real property was sold, together with interest of two percent (2%) per month from the date of sale to the time of the institution of the action. The amount so deposited shall be paid to the purchaser at the auction sale if the deed is declared invalid but it shall be returned to the depositor if the action fails. Neither shall any court declare a sale at public auction invalid by reason or 2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 29 of 31

irregularities or informalities in the proceedings unless the substantive rights of the delinquent owner of the real property or the person having legal interest therein have been impaired. l. REFUND OF LOCAL TAXES Refund of Local Taxes written claim for refund or credit must be filed with the local treasurer two (2) years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit; m. Requisites of Tax Delinquency Sale ( LGC of 1991): Corporate Strategies Development Corporation and Rafael R. Prieto Vs. Norman A. Agojo G.R. No. 208740 November 19, 2014. Burden to prove compliance with the validity of the proceedings leading up to the tax delinquency sale of real property is incumbent upon the buyer or the winning bidder. n. VIP CASE: NPC vs. MUNICIPAL GOVERNMENT OF NAVOTAS; GR 192300; 24 November 2014 FACTS: NPC entered into a BOT agreement with private corporation covering gas turbine power stations wherein the power stations are in the actual control and supervision of NPC. LGU issues an RPT assessment. NPC argues that the properties are exempt from RPT. Instead of exhausting administrative remedies of filing protest, then appeal to LBAA and CBAA, NPC filed declaratory relief with RTC assailing the validity of assessment NOT the reasonableness or correctness of assessment. RULING: A. When the legality or validity of the assessment is in question, and not its reasonableness or correctness, appeals to the LBAA, and subsequently to the CBAA, are not necessary. Stated differently, in the event that the taxpayer questions the authority and power of the assessor to impose the assessment, and of the treasurer to collect the real property tax, resort to judicial action ( ORDINARY COURTS) may prosper. In the case at bench, the petitioners are questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase. If the only issue is the legality or validity of the assessment – a question of law – direct recourse to the RTC is warranted. B. As a rule, administrative remedies (PROTEST, LBAA, CBAA) must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. The proceedings of the LBAA shall be conducted solely for the purpose of ascertaining the facts . . . ." It follows that appeals to this Board (LBAA) may be fruitful only where questions of fact are involved. Again, the protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. C. CTA Division has jurisdiction over decisions of the RTC in petitions for declaratory relief filed by TX assailing the validity of assessment on the ground of exemption from RPT.

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 30 of 31

D. The real property tax for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax. E. It is the City or Municipal Treasurer’s Office which collects RPT; F. Notice of Time for Collection of Tax. The city or municipal treasurer shall, on or before the thirty-first (31st) day of January each year, post the notice of the dates when the tax may be paid without interest at a conspicuous and publicly accessible place at the city or municipal hall. Said notice shall likewise be published in a newspaper of general circulation in the locality once a week for two (2) consecutive weeks. G. Payment Under Protest is required in protest of RPT: 30 days from payment of tax and filed before provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area. Treasurer decides within 60 days. If denied or after lapse of 60 day period TX may go to LBAA (60 days) then to CBAA (30 days). ___________________________________________________________________________ GOOD LUCK !!!!!! Thank you very much for reading the materials…… Please refrain from uploading in any website ………

2016 Pre-week Notes in Taxation Law by Atty. Rizalina V. Lumbera for Jurists Bar Review Center. All rights reserved 2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court. Page 31 of 31