Consolidated Taxation Law QQR.pdf
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CEBALLOS BAR TRENDS TAXATION LAW
(a) Capital loss limitation rule (applicable both corporations and individuals) (1 time)
BAR EXAMINATION QUESTIONS (TRENDING) COVERAGE – 2000 to 2014
- capital loss is deductible only to the extent of the capital gain - if there is no capital gain, no deduction is allowed because you cannot deduct capital loss from ordinary gain
II. National Internal Revenue Code (NIRC) of 1997, as amended (327 times)
- ordinary loss may be deducted from the capital gain
Income Taxation (147 times)
(b) Net Capital loss carry-over rule (applicable only to individuals) (1 time)
Gross Income (42 times) Sources of Income subject to tax (21 times)
- if any individual taxpayer sustains in any taxable year a net loss, such loss shall be treated in the succeeding taxable year as ]]] in the Philippines (1 time)
(v) Income from dealings in property (10 times)
- gain is considered income from the Philippines.
(b) Type of gains from dealings in property (8 times)
(8) Dealings in shares of stock of Philippine Corporations (1 time)
(1) Ordinary income vis-à-vis capital gain (2 times)
(b) Shares not listed and traded in stock exchange (1 time)
- Ordinary Income tax or regular corporate income tax, if property is an ordinary asset, regardless of the type of proceedings and personality of mortgagees or selling persons.
- subject to capital gains tax - what is controlling is whether the shares of stock are traded in the local stock exchange and not where the actual sale happened (Del Rosario v. CIR, CTA Case no. 4796, December 1, 1994)
- Capital gains tax if property is a capital asset. (Rev.Regs. No. 9-2012)
(9) Sale of principal residence (1 time)
(4) Net capital gain, net capital loss (1 time)
- The capital gains presumed to have been realized from the sale or disposition shall be exempt from the 6% capital gains tax, provided that the proceeds of the sale shall be fully utilized in acquiring or constructing a new principal residence within 18 calendar months from the date of sale or disposition. However, the tax
- Net capital gain is the excess of the capital gain over capital loss. - Net capital loss is the excess of capital losses from capital gain. (6) Income tax treatment of capital loss (2 times)
CEBALLOS BAR TRENDS exemption may be availed only once in 10 years (Sec. 24.D, NIRC)
not result in any tax benefit to the taxpayer or in a reduction of income tax liability.
(a) Types of Properties (2 times)
(d) Income from any source whatever (2 times)
- Ordinary Assets and Capital Assets - Capital Asset is defined by an exclusion of all ordinary assets.
- all income not expressly exempted within the class of taxable income under our laws (CIR c. AIR India, G.R. No. 72443, January 29, 1988, citing CIR v. British Overseas Airways Corporation, G.R. L-65773-74, April 330, 1987).
- Capital Assets also refers to the profits or losses on the sale or exchange of which are treated as capital gains or capital losses, including property held by the taxpayer whether related or not with his trade or business.
(ix) Pensions, retirement benefit, or separation pay (2 times) Included:
- Ordinary assets are property held by the taxpayer used in connection with his trade or business.
a. Those received by officials and employees of private in accordance with a reasonable private benefit plan under R.A 4917;
(2) Capital Assets (2 times) -
property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real property used in trade or business of the taxpayer. (NIRC, sec. 39 (A)(1)).
b. Those derived under R.A 7641 from private firms without a BIR-approved reasonable retirement plan; c. Separation pay due to death, sickness or other disability or any other cause beyond the control of the employee or the official (e.g., retrenchment); d. Social security benefits, retirement gratuities, pensions and other similar benefits received by citizens or aliens who come to reside permanently in the Philippines from foreign government agencies, private or public; e. Benefits due to residents under laws of the United States administered by the United States Veterans Administration; f. SSS benefits received in accordance with R.A. 8282; and
(x) Income from any source whatever (4 times)
g. GSIS benefits received under R.A 8291 (NIRC, Sec.32[B]).
(b) Recovery of accounts previously written-off–when taxable/when not taxable (2 times)
In order to avail of the exemption with respect to retirement benefits under a reasonable private plan, the following requirements must be met:
- recovery of amounts deducted in previous years from gross income become taxable income, unless the deduction did
CEBALLOS BAR TRENDS a. The plan must be reasonable
(iv) Income from business (1 time)
b. The benefit plan must be approved by the BIR;
-It refers to the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources. (Sec. 43, Rev.Regs. No.2)
c. The retiring official or employee must have been in the service of the same employer for at least ten (10) years and must at least be fifty (50) years old at the time of retirement; and
(vi) Passive investment income (1 time)
d. The retiring official or employee should not have previously availed of the privilege under the retirement benefit plan of the same or another employer (NIRC, Sec. 32 [B][a]; RR No. 02-98, Sec. 2.78.1[B]).
(a) Interest income - interests received or credited to the account of the depositor or investor are included in their gross income unless they are exempt or subject to preferential rate (1997 Tax Code) or under applicable tax treaty.
NOTE: It does not matter whether the retirement is voluntary. As long as the requirements are met, the retirement proceeds are excluded from gross income. However, if the retirement is compulsory, there is no need to comply with the above requirements before the retirement benefits would be excluded because the same would be excluded as separation pay beyond the control of the employee.
g) Exclusions from gross income (11 times) (3) Exclusions distinguished from deductions and tax credit (10 times) (a) Proceeds of life insurance policies (3 times)
The rule that retirement benefits may be availed only once, applies only to retirement benefits from a subsequent private employer and not to subsequent public employer as the benefits are still exempt under R.A. 8291.
- The life insurance proceeds must be paid to the heirs or beneficiaries by reason of death of the insured, whether in a single sum or installment (NIRC, Sec. 32[B]). (e) Amount received through accident or health insurance (3 times)
(i) Compensation income (1 time)
- This exclusion is applicable to group life insurance proceeds, death benefit payments under the workmen’s compensation insurance contract, and health or accident insurance contract having the characteristics of life insurance proceeds payable by reason of death.
- all remuneration for services performed by an employee for his employer under an employer-employee relationship unless specifically excluded by the Tax Code. (Sec. 2.78.3,Rev.Regs. No. 2-98, as amended) (ii) Fringe benefits (1 time) (b) Definition
(c) Amounts received under life insurance, endowment or annuity contracts (1 time)
- any good, service or other benefit furnished or granted in cash or in kind by an employee to an individual employee.
- The amounts must be received as a return of premiums paid by him under life
CEBALLOS BAR TRENDS insurance, endowment or annuity contracts (NIRC, Sec. 32[B]) - Where the total premium returns exceeds the aggregate premiums paid, the exceeds shall be included in the gross income (RR No.02-40 Sec. 62).
(i) Award of damages from litigation (1 time) (2) Taxpayers who may avail of the exclusions (1 time) - All kinds of taxpayers, individuals (citizens or aliens), estates and trusts, and corporate (residents or non-residents) may avail of the exclusions.
- In case of a transfer for a valuable consideration of a life insurance, endowment or annuity contract, or any interest therein, only the actual value of such consideration and the amount of the premiums and other sums subsequently paid by the transferee are exempt from taxation (RR No. 02-40, Sec. 62).
h) Deductions from gross income (6 times) Items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable income.
(d) Value of property acquired by gift, bequest, devise or (1 time)
(3) Itemized deductions (3 times)
-Only donated property is excluded from gross income. However, the income from such property, a well as gift, bequest, devise, or descent, of income, from any property, in cases of transfers of divided interest, shall be included in the gross income (NIRC, Sec. 32[B]).
(a) Expenses (2 times) (a) Nature: ordinary and necessary (2 times) - An expense is “ordinary” when it connotes a payment, which is normal in relation to the business of the taxpayer and the surrounding circumstances. An expense is necessary where the expenditure is appropriate or helpful in the development of the taxpayer’s business or that the same is proper for the purpose of realizing a profit or minimizing a loss (General Electric Inc., v. Collector, CTA Case 1117, July 14, 1963
(f) Income exempt under tax treaty (1 time) The Double taxation Convention (DTCs), or Double Taxation agreement (DTAs) negotiated between the Philippines and the other contracting States or jurisdictions for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income (RR No. 10-2010, Sec. 1[F]) Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines may be excluded from gross income (NIRC, Sec. 32[B]). The provisions of a tax treaty must take precedence over and above the provisions of the local taxing statute consonant with the principle of the international comity. Tax treaties are accepted limitations to the power taxation (USAFE Veterans Association, Inc. v. Treasurer, G.R. No. L-10500, June 30, 1959).
(d) Losses (1 time) (2) Other types of losses (1 time) (e) Net Operating Loss Carry-Over (NOLCO) (1 time) - Excess of allowable deductions over gross income of the business for any taxable year, which had not been previously offset as deduction from gross income. (sec. 34 (D)(3), NIRC) Rule: NOLCO shall be carried as a deduction for the next three (3) consecutive taxable years immediately following the year of such loss. However,
CEBALLOS BAR TRENDS in cases of oil and gas well, losses incurred in any of the first 10 years of operation may be carried as a deduction from the gross income for the next 5 years. (RR No. 14-2001)
- P50, 000.00 as basic personal exemption for each individual taxpayer - In case of married individual, only such individual deriving gross income may be allowed to claim personal exemption
(6) Items not deductible (2 times)
- An additional exemption of 25, 000.00 for each dependent not exceeding 4. However, in case of married individual only one of the spouse may claim the additional exemption.
(a) General rules (1 time) a. Advertising expense to maintain some form of goodwill for the taxpayer’s business (General Foods Corporation v. CIR, April 24, 2003).
- In cases where the spouses are legally separated, only the spouse who has custody of children may be allowed to claim the additional exemptions.
b. Payments made in exchange for the revelation of a competitor’s trade secrets is considered as an expense which is against law, morals, good customs or public policy, which is not deductible (3M Philippines, Inc. v. CIR, September 26, 1988)
d) Classification of income as to source (2 times) (i) Gross income and taxable income from sources within the Philippines (NIRC, Sec. 42[B]). (1 time)
c. Bribes, Kickbacks and Other Similar Payments
1. Interest derived from sources within the Philippines and interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise;
d. Taxes withheld from the employee’s salaries will not affect the former’s taxable income because they are not allowed as tax deductions but as tax credits. Tax deduction reduce the taxable income while tax credits reduce the tax liability (Central Drug Corporation v. CIR)
2. Dividends received from a: a. Domestic corporation; and
e. Personal, Living or Family Expenses
b. Foreign corporation, provided that at least 50% of its gross income for the 3-year period ending with the close of its taxable year preceding the declaration of such dividends was derived from sources within the Philippines.
f. Political Campaign Expenses g. Losses from sales or exchanges of property between related taxpayers (sec. 36 (B), NIRC) (c) Amount paid for new buildings or for permanent improvements (capital expenditures) (1 time)
Note: The amount of income from sources within is limited only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources.
- Periodic depreciation is the amount that is considered as deductible expense. (5) Personal and additional exemption (R.A. No. 9504, Minimum Wage Earner Law) (1 time)
3. Compensation for labor or personal services performed in the Philippines;
CEBALLOS BAR TRENDS 4. Rentals and royalties from property located in the Philippines or from any interest in such property;
corporation less than fifty percent (50%) of its gross income is from sources within the Philippines)
5. Gains, profits and income from the sale of real property, located in the Philippines; and
3. Compensation for labor or personal services performed without the Philippines;
6. Gains, profits and income from the sale of personal property, subject to the following rules:
4. Rentals or royalties for the use of or for the privilege of using without the Philippines, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises and other like properties; and
a. Income is treated as partly from sources within and partly from sources without Philippines if: i. Produced, in whole or in part within and sold without the Philippines, or
5. Gains, profits and income from the sale of real property located without the Philippines
ii. Produced, in whole or in part without and sold within the Philippines.
b) Concept of income from whatever source derived (1 time)
b. Income is treated as derived entirely from sources within the country where the property is sold if
c) Gross income vis-à-vis net income vis-à-vis taxable income (1 time) Gross Income refers to all income, gain, or profit subject to income tax under Sec. 32[A] of NIRC.
i. Purchased within and sold without the Philippines, or ii. Purchased without and sold within the Philippines
Net Income means gross income less statutory deductions and exemptions (Sec. 36, Rev.Regs.No.2)
The exception is gains from the sale of shares of stock in a domestic corporation, wherein the income is treated as derived entirely from sources within the Philippines, regardless of the place where the shares were sold (NIRC, Sec. 42[B]).
Taxable Income are items of gross income specified in the NIRC, less deductions and/or personal and additional exemptions if any , authorized for such types of income by this Code or other special laws (NIRC, Sec.31)
(ii) Gross income and taxable income from sources without the Philippines (NIRC, Sec. 42[C]). (1 time) 1. Interests other than those derived from sources within the Philippines (e.g., interest earned from deposits on banks located outside the Philippines, and interest on loans where the debtor is not a resident of the Philippines);
10. Taxation of resident citizens, nonresident citizens, and resident aliens (41 times)
2. Dividends other than those derived from sources within the Philippines (e.g., dividends received from a foreign
(iii) Deductions (5 times)
b) Taxation on compensation income (12 times)
CEBALLOS BAR TRENDS (a)Personal exemptions and additional exemptions (5 times)
- employer is the one required to pay income tax on fringe benefit because the valuation of benefits is easier and does not depend upon the self declaration of an employee (occupying supervisory or managerial position). (b) De minimis benefits (1 time)
- Basic personal exemption of P50,000.00 for each individual taxpayer. - Additional exemption amounting to P50,000.00 for each qualified dependent not exceeding 4 dependents.
- Facilities or Privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment and efficiency of his employees.
- A dependent is any legitimate, illegitimate or legally adopted child upon dependent and living with the taxpayer who are not more than 21 years of age, unmarried and not gainfully employed or regardless of age is incapable of selfsupport because of mental or physical defect (R.A. 9504)
(c) 13th month pay and other benefits, and payments specifically excluded from taxable compensation income (1 time)
(b) Health and hospitalization insurance (4 times) - Only an individual taxpayer may claim a deduction on premium payments of health and hospitalization insurance. However, in case of married taxpayers, only the spouse claiming additional exemptions for dependents may claim (sec. 34 [M], NIRC).
e) Taxation of capital gains (12 times) (ii) Income from the sale of real property situated in the Philippines (6 times) -gain derived is subject to capital gain tax
(i) Inclusions (4 times) -no loss is recognized because gain is presumed
(a) Monetary compensation (4 times) (1) Regular salary/wage (3 times)
(i) Income from sale of shares of stock of a Philippine corporation (4 times)
- statutory minimum wage refers to the rate fixed by the Regional Tripartite Wage and Productivity Board as defined by the Bureau of Labor and Employment Statistics of the Department of Labor and Employment.(sec. 22 [GG])
(a) Shares traded and listed in the stock exchange (2 times) - stock transaction of ½% of 1 % on its gross selling price
(3) Bonuses, 13th month pay, and other benefits not exempt (1 time)
(b) Shares not listed and traded in the stock exchange (2 times)
- excluded from the gross income provided they do not exceed P 30,000.00 (sec. 32 B  e). (ii) Exclusions (3 times)
- subject to capital gain tax (iii) Income from the sale, exchange, or other disposition of other capital assets (2 times)
(a) Fringe benefit subject to tax (1 time)
CEBALLOS BAR TRENDS d) Taxation of passive income (7 times)
a) General rule that resident/NONresident citizens are taxable on income from all sources within and without the Philippines (6 times)
(i) Passive income subject to final tax (6 times)
(i) In general (4 times) (c) Dividends from domestic corporations (4 times)
- A citizen of the Philippines residing therein is taxable from all income derived from sources within and without the Philippines (sec. 23, NIRC)
- Dividend (cash or property) received by an individual from a domestic corporation is subject to a final tax of 10%.
(ii) Non-resident citizens (2 times) (a) Interest income (1 time) - Taxable only on income derived from sources within the Philippines (Ibid.,)
- Amount of compensation paid for the use of money from such use - Subject to final tax, except the following:
c) Taxation of business income/income from practice of profession (4 times)
> If it is from a bank deposits provided the recipients are either a foreign government, a financing institutions owned and controlled by foreign government, or a regional or financial institutions established by foreign government (sec.25 [A] (2), NIRC)
- Professional income refers to the fees received by a professional from the practice of his profession, provided there is no employer-employee relationship between him and his clients - Business income refers to income derived from merchandising, mining, or livelihood operations.
> Loans extended by any of the above > Certificate of Indebtedness received by any of the above such as bonds or debentures
13. Taxation of domestic corporations (20 times)
> Bank deposit maintained under an expanded foreign currency deposit unit
a) Tax payable (11 times) (i) Regular tax (6 times)
> Long term investment with maturity period of 5 years or more.
- Taxable Income of a corporation during each taxable year is multiplied with the applicable rate of 30%. The resulting amount should then be compared with the income tax payable on MCIT. Whichever is higher between the two shall be the tax due and payable.
(b) Royalties (1 time) - Amount received by a creator of an artistic work based on individual sales of their artistic work, provided the latter have a copyright or patent. - Subject to final tax
- It covers both domestic and resident foreign corporation.
(ii) Passive income not subject to final tax (1 time)
(ii) Minimum Corporate Income Tax (MCIT) (5 times)
CEBALLOS BAR TRENDS (b) Carry forward of excess minimum tax (3 times)
- Fixed percentage deduction which is allowed to certain taxpayers without regard to any expenditure.
- Any excess of the MCIT over the normal corporate income tax may be carried forward on an annual basis and credited against the Normal Corporate Income Tax for the three (3) immediately succeeding taxable years. (sec. 27 [E] (2)).
- An amount not exceeding 40% of the gross sales or gross receipts of a qualified individual taxpayer or 40% of the gross income of qualified corporation (sec. 34 [L], NIRC)
(a) Imposition of MCIT (2 times)
d) Taxation of capital gains (2 times) (ii) Income from the sale of real property situated in the Philippines (2 times)
- Resident Foreign Corporation and Domestic Corporation - Imposition is designed to forestall the prevailing practice of corporations of overstating their deductions in order to reduce their income tax payments.
- Gain derived is subject to capital gain tax. e) Tax on proprietary educational institutions and hospitals (2 times)
c) Taxation of passive income (3 times)
- They shall pay a tax of 10% on their taxable income, except those passive income covered by sec. 27 [D] of the NIRC. (sec. 27 [B], NIRC). However, if the gross income from unrelated trade exceeds 50% of the total gross income, the regular rate of 30% shall be imposed on the entire taxable income.
(i) Passive income subject to tax (3 times) (a) Interest from deposits and yield, or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties (2 times)
8. Income (13 times)
(d) Inter-corporate dividends (1 time)
c) When income is taxable (10 times) (i) Existence of income (6 times)
b) Allowable deductions (2 times) - The Supreme Court in CIR v. Manning, GR L- 28398, August 6, 1975, lay down the requisites for income to be taxable.
(i) Itemized deductions (1 time) a. Charitable and other contributions b. Research and Development c. Expenses (Ordinary and Necessary) d. Depreciation e. Depletion of Oils, Gas, Wells and Mines f. Bad debts g. Interest Expense h. Taxes i. Losses j. Pension Trust Contributions
a. Gain must be realized or received b. Gain must not be excluded by law or treaty from taxation c. There must be gain whether in cash or its equivalent (ii) Realization of income (3 times)
(ii) Optional standard deduction (1 time)
Revenue is generally recognized when both of the following conditions are met:
CEBALLOS BAR TRENDS amount. (CIR v. Isabela Cultural Corporation, February 12, 2007)
a. Earning process is complete b. Exchange has taken place (Manila Mandarin Hotels, Inc. v. CIR)
20. Withholding tax (5 times)
(b) Tests of realization (2 times)
b) Kinds (4 times)
(a) In general (1 time)
(i) Withholding of final tax on certain incomes (4 times)
(iv) Methods of accounting (1 time) (b) Installment payment vis-à-vis deferred payment vis-a-vis percentage completion (in long-term contracts) (1 time)
- Amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. In case of his failure to withhold or in case of under withholding, deficiency shall be collected against the payor.
- Installment method is used when collections extend over relatively long periods of time and there is strong possibility that full collection will not be made. - Deferred Payment happens when initial payments exceed 25% of the gross selling price and such transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale.
- The finality of the withholding tax is limited only to the payee’s income tax liability on the particular income. (sec. 2. 57 (A) , R.R. 2-98) a) Concept (1 time)
- Percentage Completion is used by persons whose gross income is derived from long-term contracts.
- Taxes imposed by the NIRC are to be deducted and withheld by the payorcorporations and or persons for the former to pay the same directly to the BIR. - It is not a tax but a means of collecting taxes in advance payment of tax.
(d) Tests in determining whether income is earned for tax purposes (3 times) 1. Realization Test 2. Claim of Right Doctrine 3. Economic Benefit Test, Doctrine of Proprietary Interest 4. Severance Test 5. All events test
6. Kinds of taxpayers (4 times) a) Individual taxpayers (2 times) (ii) Aliens (2 times) (a) Resident aliens (1 time) - individual whose residence is within the Philippines but who is not a citizen thereof (sec. 22 [F],NIRC)
(v) All events test (3 times) - Fixing of a right to income or liability to pay and the availability of reasonable accurate determination of such income or liability. The amount of liability does not have to be determined exactly, it must be determined with reasonable accuracy. Reasonable accuracy implies something less than an exact or completely accurate
(b) Non-resident aliens (1 time) (2) Not engaged in trade or business - alien who stays in the Philippines for 180 days of less (sec. 25 [B], NIRC) (2) Not engaged in trade or business (1 time)
CEBALLOS BAR TRENDS > taxpayer is an estate or a trust b) Corporations (2 times) 11. Taxation of non-resident aliens engaged in trade or business (3 times)
(ii) Foreign corporations (1 time) (a) Resident foreign corporations (1 time) -
a) General rules (3 times) - Non-resident aliens is taxed using scheduler rate (5-32%)
Corporation which is not domestic and engaged in trade or business in the Philippines is liable for income from sources.
- They may avail personal and additional exemptions subject to the rule on reciprocity.
(iii) Joint venture and consortium (1 time) -
19. Taxation of general professional partnerships (3 times)
Corporation for tax purposes shall not include a joint venture or consortium formed for purposes of undertaking construction projects engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government.
- General Professional Partnership is not subject to income tax. - Partners shall be liable for income tax in their separate and individual capacities. 12. Individual taxpayers exempt from income tax (2 times) a) Senior citizens (1 time)
15. Taxation of non-resident foreign corporations (4 times)
- provide he/she is considered a minimum wage earner under R.A. 9504.
a) General rule (4 times) d) Stockholders of dissolved corporations (1 time)
- Corporation which is not domestic and not engaged in trade or business or business in the Philippines is liable for income from sources within the Philippines. (sec. 22 [I], NIRC)
16. Improperly accumulated earnings of corporations (2 times) - refers to profits of a corporation that are permitted to accumulate instead of being distributed to its shareholders for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of another corporation (RR No. 2-2001, Sec. 2).
5. Taxable period (3 times) a) Calendar period (3 times) - 12 consecutive months starting on January 1 and ending on December 31. - It shall be the basis for computing net income when:
- If earnings and profits were distributed, shareholders would be liable to income tax thereon, whereas if there is no distribution, they would incur no tax in respect to the undistributed earnings and profits of the corporation.
> taxpayer is an individual > taxpayer does not keep books of account > taxpayer has no annual accounting period
CEBALLOS BAR TRENDS - If a taxable partnership does not declare dividends, it is not subject to IAET because under Sec. 73[D] of the NIRC, the net share of a partner is deemed constructively received (Constructive distribution).
b. mutual savings banks and cooperative banks; c. Fraternal Beneficiary Society, Order or Association d. Cemetery Companies
- The following are exempted from IAET:
e. Religious, Charitable, Scientific, Athletic or Cultural Corporations
1. Banks and other non-banks financial intermediaries (NIRC, Sec. 29);
f. Civic League
2. Publicly-held corporations (NIRC, Sec. 29)
g. Non-stock, non-profit educational institutions;
3. Insurance companies (NIRC, Sec. 29);
h. Government educational institutions;
4. Taxable partnerships
i. Mutual Fire Insurance Companies and Like Organizations
5. Enterprises duly registered with the Philippine Economic Zone Authority (PEZA) under R.A 7916 (Philippine Special Economic Zone Act of 1995), and enterprises registered pursuant to R.A 7227 (Bases Conversion and Development Act of 1992) as well as other enterprises duly registered under special economic zones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes, national or local;
j. Farmers, Fruit Growers or Like Associations 1. Income tax systems (1 time) c) Semi-schedular or semi-global tax system (1 time) - system provides that all compensation income, business or professional income, capital gain, passive income and other income not subject to final tax are added together to arrive at the gross income. After deducting the allowable deductions and exemptions from the gross income, taxable income is subjected to one set of graduated tax rate (individual) or normal corporate income tax rate (corporation).
6. Non-taxable joint ventures; 7. General professional partnerships 8. Foreign corporations (RR No. 2-2001). 17. Exemption from tax on corporations (2 times)
4. Types of Philippine income tax (1 time)
- The following corporations are exempted from income tax under the NIRC, provided that they are not organized for profit, neither shall any part of the net income inures to the benefit of any member or individual; no capital is represented by shares of stock; and they must be of educational character. a. Labor, agricultural or horticultural organization, not organized principally for profit;
a. Minimum Corporate Income Tax on Corporations b. Capital Gains Tax on sale or exchange of unlisted shares of stock of a domestic corporation classified as capital asset; c. Capital gains tax on sale of or exchange of real property located in the Philippines, classified as capital asset;
CEBALLOS BAR TRENDS d. Final withholding tax on certain passive income
Concept of assessment
e. Final Withholding tax on income payments made to non-residents f. Fringe Benefit Tax
Assessment - the notice to the effect that the amount therein stated is due from a taxpayer as a tax with a demand for payment of the same within a stated period of time (Commissioner v. CTA, 27 SCRA 1159). It also refers to the official action of an administrative officer in determining the amount of tax due from a taxpayer (Bisaya Land Transportation Co. v. Collector, 105 Phil. 1338).
g. Branch profit remittance tax h. Tax on Improperly Accumulated Earnings; i. Normal Corporate Income Tax on corporations; j. Graduated Tax on Individuals, and;
Contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay. An assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. Assessments made beyond the prescribed period would not be binding on the taxpayer (Tupaz v. Ulep, 316 SCRA 118).
k. Special income tax on certain corporations. 14. Taxation of resident foreign corporations (1 time) a) General rule (1 time) - Resident foreign corporation engaged in trade or business in the Philippines is liable for income from sources within and without. The following are the classes of taxes imposed on Resident Foreign Corporations: 1. 2. 3. 4. 5. 6. 7. 8. 9.
Assessment (42 times)
Requisites for valid assessment
Normal Corporate Income Tax Minimum Corporate Income Tax Gross Income Tax Final Tax on Passive Income Interest from Deposits and yields and royalties Capital Gains from sale of shares not traded in the stock exchange Income derived under the Expanded Foreign Currency Deposit System Inter-corporate dividends Branch profit remittance
1) The FAN (BIR Form 17.08) contains the name, address, and TIN of the taxpayer; the kind of tax, period covered, basic tax and penalties; signed by the authorized BIR official, and the date of payment of the tax. The demand letter (DL) contains the computation of the deficiency tax, including penalties, if any, the factual and legal bases of the assessment, and the demand for payment of the tax. Thus, the FAN and DL must always go together.
Tax Remedies under the NIRC (72 times)
2) The FAN/DL must be issued on account of or covered by a validly issued letter of authority.
Taxpayer’s Remedies (55 times)
3) The FAN/DL must state the factual and legal bases of the assessment and
CEBALLOS BAR TRENDS jurisprudence on which it is based; otherwise, the assessment shall be void;
(1) Issuance of a letter of authority; (2) Audit stage; (3) Issuance of notice of informal conference; (4) Informal conference; (5) Issuance of preliminary assessment notice; (6) Issuance of formal letter of demand and assessment notice. (Sec. 228, NIRC)
4) The FAN/DL must be signed by the Commissioner of his duly authorized representative; 5) The FAN/DL must be issued within the original prescriptive period prescribed by law or within the extended prescriptive period as validly agreed between the BIR and the taxpayer; and served by personal delivery or by registered mail; and
Issuance of preliminary assessment notice Pre-Assessment Notice (PAN) - a communication issued by the Regional Assessment Division, or any other concerned BIR Office, informing a taxpayer who has been audited of the findings of the RO, following the review of these findings.
6) The FAN/DL must be addressed and served to the correct person in his/its registered or duly notified new address.
Jeopardy assessment - a valid ground to compromise a tax liability because of doubt as to the validity of the assessment.
Requirements of a Valid PAN: (1) In writing; and (2) Should inform the taxpayer of the law and the facts on which the assessment is made (Sec. 228, NIRC)
Tax Delinquency and Tax Deficiency Delinquency Tax – a taxpayer is considered delinquent in the payment of taxes when: (a) Self-assessed tax per return filed by the taxpayer on the prescribed date was not paid at all or only partially paid; or (b) Deficiency tax assessed by the BIR becomes final and executory.
Instances is PAN no longer required: 1) When the finding for any deficiency tax is the result of Mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or
Deficiency Tax – (a) The amount by which the tax imposed by law as determined by the CIR or his authorized representative exceeds the amount shown as tax by the taxpayer upon his return; or (b) If no amount is shown as tax by the taxpayer upon his return is made by the taxpayer, then the amount by which the tax as determined by the CIR or his authorized representative exceeds the amounts previously assessed or collected without assessment as deficiency.
2) When the Excise tax due on excisable articles has not been paid; or 3) When a Discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or 4) When an article locally purchased or imported by an Exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons; or
CEBALLOS BAR TRENDS 5) 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 year. (Sec 3.1.3, RR 12-99)
prescribed in a Revenue Memorandum Order issued by the Commissioner;
Disputed assessment An assessment is considered disputed when the taxpayer indicates its protest against the delinquent assessment of the RO and requests for reconsideration, through a letter. After the request is filed and received by the BIR, the assessment becomes a disputed assessment. (CIR vs. Isabela Cultural Corp., GR 135210, July 11, 2001)
4) When the taxpayer’s Capital gains tax liabilities must be verified; and 5) When the Commissioner chooses to exercise his power to obtain information relative to the examination of other taxpayers. (Secs. 5 and 235, NIRC)
A Revenue Officer (RO) is allowed only 120 days to conduct the audit and submit the required report of investigation from the date of receipt of a Letter of Authority (LA) by the taxpayer. If the RO is unable to submit his final report of investigation within the 120-day period, he must then submit a Progress Report to his Head of Office, and surrender the LA for revalidation.
When assessment is made
*Letter of Authority (LA) - an official document that empowers a Revenue Officer (RO) to examine and scrutinize a taxpayer’s books of accounts and other accounting records, in order to determine the taxpayer’s correct internal revenue tax liabilities.
When is an assessment deemed made?
When it is released, mailed or sent by the Collector of Internal Revenue to the taxpayer within the three-year or ten-year period, as the case may be. (CIR v. Pascor, G.R. 128315, June 29, 1999)
GN: A taxpayer can be subjected to examination and inspection only once for the same taxable year.
EXPS: 1) When the CIR determines that Fraud, irregularities, or mistakes were committed by the taxpayer;
When is a tax assessment made or deemed made?
There are three (3) important dates to be considered in cases of assessments. These are: (a) date of issue or preparation; (b) date of service or mailing; and (c) date of receipt.
2) When the taxpayer himself requests for the Re-investigation or re-examination of his books of accounts and it was granted by the commissioner;
1) Issue Date The “issue date” is necessarily anterior to the date of the actual release or mailing of the demand letter. It is not the issue date of the demand letter and the “issue date” is necessarily anterior to
3) When there is a need to verify the taxpayer’s Compliance with withholding and other internal revenue taxes as
CEBALLOS BAR TRENDS the date notice of the actual release mailing of the demand letter. It is not the issue date of the demand letter and/or notice of assessment that is the reckoning point in prescription but rather, the date when said demand letter or notice of assessment is released, mailed or sent to the taxpayer that constitutes actual assessment. (Republic v. Limaco & De Guzman Commercial Co., 5 SCRA 990).
Prescriptive period for assessment
Where a return was filed:
GR: The period for assessment is within 3 years after the date the return was due. If the return is filed after the due date, prescription will start on the date the return was filed. EXPNS: a) If there is failure to file the required return, the period is within 10 years after the date of discovery of the omission to file the return.
2) Date of service or mailing An assessment is deemed made when the notice to that effect is released, mailed or sent to the taxpayer for the purpose of giving effect to the assessment (Bautista and Tan v. Collector, G.R. No. L-12259, May 27, 1959). However, when an estate is under administration, the notice of assessment must be sent to the administrator. Since the administrator had not received the notice of assessment, he could not appeal the assessment to the CTA within 30 days from date of mailing of notice. (Republic v. Leonor dela Roma, G.R. No. L-21108, November 29, 1956).
* Date of discovery must be made within the three-year period following the general rule. b) If the return is filed but it is false or fraudulent and made with intent to evade the tax, the period is 10 years from the date of discovery of the falsity or fraud. *Nothing in Sec. 222 (A) shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree.
3) Date of receipt
c) Where the CIR and taxpayer, before the expiration of the 3-year period have agreed in writing to the extension of the period, the period so agreed upon may thereafter be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.
An assessment is deemed made on time when notice to this effect is released, mailed or sent by the Collector to the taxpayer, even though the same is actually received by the taxpayer upon the expiration of the prescriptive period (Basilan Estates, Inc. v. Collector, 21 SCRA 17). The law does not require that the demand or notice be received within the prescriptive period. (Republic v. Tan Kim En, CA-G.R. SP No. 28743, February 29, 1964).
d) Where there is a written waiver or renunciation of the original 3-year limitation signed by the taxpayer.
Receipt of the tax notice by the taxpayer’s attorney-in-fact is binding upon the taxpayer. (Gibbs vs. Commissioner, 15 SCRA 318)
Return was amended substantially – The prescriptive period shall be counted from the filing of the amended return.
CEBALLOS BAR TRENDS False, fraudulent, and non-filing of returns
within the period so agreed upon (Sec.222 [b], NIRC);
Prescriptive period - 10 years from the discovery of the falsity, fraud or from the omission to file the return. (Sec. 222, NIRC)
6) When the taxpayer requests for reinvestigation which is granted by the Commissioner (Collector vs. Suyoc Consolidated Mining Co., GR L-11527, Nov. 25, 1958); Note: A request for reconsideration alone does not suspend the period to assess/collect.
Distinction: false vs fraudulent returns False Return – a deviation from the truth or fact whether intentional or not.
7) When there is an Answer filed by the BIR to the petition for review in the CTA (Hermanos vs. CIR, GR. No. L-24972. Sept. 30, 1969) where the court justified this by saying that in the answer filed by the BIR, it prayed for the collection of taxes.
Fraudulent Return - intentional and deceitful with the sole aim of evading the correct tax due. (Aznar vs. CIR, GR L20569, Aug. 23, 1974)
Suspension of running of statute of limitations
Protesting assessment Protest - the act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as shown in the notice of assessment and letter of demand.
Grounds for suspension of the prescriptive periods: 1) When taxpayer cannot be located in the address given by him in the return, unless he informs the CIR of any change in his address thru a written notice to the BIR; 2) When the taxpayer is out of the Philippines (Sec. 223, NIRC)
Requisites of a protest: (1) In writing; (2) Addressed to the CIR; (3) Accompanied by a waiver of the Statute of Limitations in favor of the Government. Without the waiver, the prescriptive period will not be tolled; (BPI v. CIR, GR 139736, Oct. 17, 2005) (4) State the facts, applicable law, rules and regulations or jurisprudence on which the protest is based otherwise the protest would be void; and (5) it must contain the following: (a) Name of the taxpayer and address for the immediate past 3 taxable years; (b) Nature of the request, specifying the newly discovered evidence to be presented; (c) Taxable periods covered by the assessment; (d) Amount and kind of tax involved and the assessment notice number; (e) Date of receipt of the assessment notice or letter of demand; (f) Itemized statement of the
3) When the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative or a member of his household with sufficient discretion and no property is located (proper only for suspension of the period to collect); 4) Where the CIR is prohibited from making the assessment or beginning distraint or levy or a proceeding in court for 60 days thereafter, such as where there is a pending petition for review in the CTA from the decision on the protested assessment (Republic vs. Ker & Co., GR L-21609); 5) Where CIR and the taxpayer agreed in writing for the extension of the assessment, the tax may be assessed
CEBALLOS BAR TRENDS finding to which the taxpayer agrees (if any) as basis for the computation of the tax due, which must be paid upon filing of the protest; (g) Itemized schedule of the adjustments to which the taxpayer does not agree; (h) Statements of facts or law in support of the protest; and (i) Documentary evidence as it may deem necessary and relevant to support its protest to be submitted 60 days from the filing thereof.
review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure. Submission of documents within 60 days from filing of protest Supporting document - These are documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be submitted, otherwise, the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce. (Standard Chartered Bank v. CIR, CTA case No.5696, Aug. 16, 2001)
When to file a protest Procedure to be followed in protesting an assessment: 1. BIR issues assessment notice. 2. The taxpayer files an administrative protest against the assessment. Such protest may either be a request for reconsideration or for reinvestigation. The protest must be filed within 30 days from receipt of assessment.
1. The 60 day period is counted from the filling of the protest. 2. Non-submission of the documents renders the assessment final, executory and demandable.
3. All relevant documents must be submitted within 60 days from filing of protest; otherwise, the assessment shall become final and unappealable.
Effect of failure to protest It makes the FAN final and executory, and the taxpayer loses his right to contest the assessment, at the administrative and judicial levels. Thus the filing of the protest within 30 days from the receipt of the assessment would be mandatory for the taxpayer to use the other administrative and judicial remedies.
4. In case the CIR decides adversely or if no decision yet at the lapse of 180 days, the taxpayer may appeal to the CTA Division, 30 days from the receipt of the decision or from the lapse of the 180 days otherwise the decision shall become final, executory and demandable. (RCBC v. CIR, GR 168498, Apr. 24, 2007) 5. If the decision is adverse to the taxpayer, he may file a motion for reconsideration or new trial before the same Division of the CTA within 15 days from notice thereof.
Remedies of taxpayer to action by Commissioner In case of denial of protest
6. In case the resolution of a Division of the CTA on a motion for reconsideration or new trial is adverse to the taxpayer, he may file a petition for review with the CTA en banc.
The remedy is to appeal such decision to the CTA within 30 days from receipt of the decision otherwise, the assessment will become final, executory and demandable.
7. The ruling or decision of the CTA en banc may be appealed with the Supreme Court through a verified petition for
Note: If the taxpayer elevates his protest to the CIR within 30 days from date of
CEBALLOS BAR TRENDS receipt of the final decision of the CIR’s duly authorized representative, such decision will not be final and executory.
2. In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, a proceeding in court for the collection of such tax may be filedwithout assessment, at any time within 10 years after the discovery of the falsity, fraud or omission. (Sec.222 [a], NIRC)
In case of inaction by Commissioner within 180 days from submission of documents
The taxpayer has two alternative options:
1. The same exceptions relative to the prescriptive periods for assessment are also applicable.
1. File a petition for review with the CTA within 30 days after the expiration of the 180-day period; or
2. If the government makes another assessment or the assessment made is revised, the prescriptive period for collection of such tax should be counted from the date the last or revised assessment was made.
2. Wait for the final decision of the CIR on the disputed assessment and appeal the final decision to the CTA within 30 days from the receipt of the decision.
3. Where an action is brought to enforce a compromise, the prescriptive period is 10 years from the time the right of action accrues as fixed in the Civil Code. (Art. 1144 , NCC)
Collection (10 times)
Requisites Collection is only allowed when there is already a final assessment made for the determination of the tax due. Assessments are deemed final when: 1. The taxpayer fails to file a protest 30 days from receipt of the assessment
Note: When it comes to self-assessed taxes where a return is filed by the taxpayer, the taxpayer is the one to assess himself and such assessment is deemed to be adopted by the government. Thus, the filing of the return would also be the date of the assessment.
2. After the 180 day period and the CIR has not yet acted on the protest the taxpayer fails to appeal it 3. After 30 days from the receipt of the decision of the CIR the taxpayer fails to appeal.
Civil Actions Civil actions available to the taxpayer: 1. Appeal to the CTA in division – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the CIR. (Sec. 228, NIRC)
Prescriptive periods GR: 1. Where an assessment was made – the period for collection (by distraint or levy or by a proceeding in court) is within 3 years following the assessment has been released, mailed, or sent. (BPI v. CIR, GR 139736, Oct. 17, 2005)
2. Appeal to the CTA en banc – the party adversely affected by the decision of a CTA division may file a motion for reconsideration or new trial within 15 days from receipt of the decision with the CTA
CEBALLOS BAR TRENDS division. If the MR is denied file a petition for review with the CTA en banc.
2. Must be a categorical claim for refund or credit;
3. Appeal to the SC – within 15 days from the receipt of the decision of the CTA.
3. Must be filed within 2 years after the payment of the tax or penalty otherwise no refund or credit could be taken. No suit or proceeding shall be instituted after the expiration of the 2 year period regardless of any supervening cause that may arise after payment; and
4. By way of special civil action – Petition for certiorari, prohibition and mandamus to the SC in cases of grave abuse of discretion, lack or excess of jurisdiction. 5. Action to contest forfeiture of chattel, at any time before the sale or destruction thereof, to recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net proceeds realized at the sale (Sec. 231, 1997 NIRC); and
4. Present proof of payment of the tax.
Value-Added Tax (VAT) (40 times) VAT-Exempt Transactions
6. Action for damages against a RO by reason of any act done in the performance of official duty. (Sec. 227, 1997 NIRC)
Refers to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases.
7. Injunction – when the CTA is in the opinion that the collection by the BIR may jeopardize taxpayer. Criminal Actions
The person making the exempt sale of goods properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. (Sec. 4.109-1(A), RR 16-2005)
Criminal actions available for the taxpayer: Filing of criminal complaint against erring BIR officials and employees. Note: With the enactment of the new CTA law (RA 9282) amending RA No. 1125, CTA now has jurisdiction over criminal cases.
Exempt Transactions: (Sec. 109, NIRC) (1) Agricultural and marine food products in their original state.
Refund (13 times)
(2) Fertilizers, seeds and feeds. (3) Importations of Returning Residents and Resettlers (provided, that such goods are EXEMPT from customs duties)
Tax Refund - actual reimbursement of tax. Requirements for Refund: 1. There must be a written claim with the CIR, as it would enable the CIR to correct the errors of his subordinate and to notify the government;
(4) Importation of Settlers in the Philippines (provided, for own use and NOT for sale, barter or exchange) (5) Services subject to the Percentage Tax
CEBALLOS BAR TRENDS (6) Services of agricultural contract growers and millers. (But the toll processing services which are exempt from VAT pertain only to services to clients from which growing of animals were contracted)
VAT on Sale of Goods or Properties (6 times) General Principle VAT is imposed and collected on every sale, barter or exchange, or transactions “deemed sale” of taxable goods or properties at the rate of 12% of the gross selling price or gross value in money of the goods or properties sold, bartered, or exchanged, or deemed sold in the Philippines. (Sec. 4.106-1, RR 16-2005, as amended by RR 4-2007)
(7) Medical, dental, hospital and veterinary services. (But sale of drugs or pharmaceutical items of the hospital pharmacy to in-patients of hospitals considered part of hospital service which is exempt from VAT) (8) Educational services rendered by private and government educational institutions.
Requisites of taxability of sale of goods or properties:
(9) Services rendered by individual employees to their employers pursuant to an employer-employee relationship.
1) The seller must be VAT-registered, or even if not, he/it is a VAT-registrable person and his/its gross annual sales (i.e., gross selling price) exceeds ₱1,919,500, 2) The goods or properties sold may either be tangible or intangible objects which are capable of pecuniary estimation; 3) The sale must be an actual or constructive sale or a transaction deemed sale; 4) The sale must be undertaken in the course of trade or business; 5) The sale must have been done in the Philippines; 6) The sale must be for use or consumption in the Philippines; 7) The sale must not be considered as a zero-rated sale; and 8) The sale must not be exempt from VAT under the Tax Code, special law, or international agreement
(10) Services being rendered by regional or area headquarters of multinational corporations. (11) Transactions which are exempt under international agreements or special laws. (President of the Philippines may not grant tax exemptions thru an Executive Agreement) (12) VAT-exempt transactions of cooperatives. (13) Export sales which are exempt from VAT. (14) Real property transactions which are exempt from VAT. (15) Sale, importation, printing, or publication of books, newspapers, magazines, reviews or bulletins. (16) Transport of passengers by international carriers.
Goods or properties which are subject to VAT
(17) Sale or importation of vessels and aircrafts, including engine, equipment and spare parts of domestic or international transport operations.
All tangible and intangible objects which are capable of pecuniary estimation and shall include:
CEBALLOS BAR TRENDS 1. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business
Requisites for Taxability In order that the sale of service may be subject to the 12% VAT, the following requisites must be complied with:
2. The right or the privilege to use patent, copyright, design or model, plan secret formula or process, goodwill, trademark, trade brand or other like property or right
1) The seller must be VAT-registered, or even if not, he/it is a VAT-registrable person and his/its gross annual receipts exceeds ₱1,919,500 (effective January 1, 2012); 2) The sale must be performed in the course of trade or business; 3) The sale of service must be for a valuable consideration actually or constructively received; 4) The sale must have been done and for use or consumption in the Philippines; 5) The sale must not be considered as a zero-rated sale; 6) The sale must not exempt from VAT under the Tax Code, special law, or international agreement. 7) In the case of lease of properties, the property being leased should be located in the Philippines irrespective of the place where the contract of lease or licensing agreement was executed.
3. The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment 4. The right or the privilege to use motion picture films, films, tapes and discs 5. Radio, television, satellite transmission and cable television time (Sec. 106[A], NIRC) Persons Liable (5 times) Any person who, in the course of his trade or business, sells, barter, exchanges, or leases goods or properties, or renders services, and any person who imports goods, shall be liable to VAT imposed in Sections 106 to 108 of the Tax Code. However, in the case of importation of taxable goods, the importer, whether an individual or corporation and whether or not made in the course of his trade or business, shall be liable to VAT imposed in Sec. 107 (VAT on Importation of Goods) of the Tax Code. (Sec.4.105-1, RR 162005)
Refund or Tax Credit of Excess Input Tax (4 times) Options available to a VAT-registered person, whose sales are zero-rated or effectively zero-rated: (1) To claim for tax credit; or (2) To claim for refund. (Sec. 112[A], NIRC)
VAT on Sale of Service and Use or Lease of Properties (4 times)
The taxpayer must prove the following: (1) That it is a VAT-registered entity; (2) It must substantiate the input VAT paid by purchase invoices or official receipts (Commissioner vs. Manila Mining Corporation, G.R. No. 153204, Aug. 31, 2005).
Sale or exchange of services, as well as the use or lease of properties, as defined in Section 108(A) of the Tax Code, shall be subject to VAT, equivalent to 12% of the gross receipts (excluding VAT). (Sec. 4.108-1, RR 16-2005, as amended)
CEBALLOS BAR TRENDS Period to file claim/apply for issuance of tax credit certificate
the case of importation, the importer is the one liable for the VAT.
The claim, which must be in writing, for both cases, must be filed within 2 years after the close of the taxable quarter when the sales were made apply for: (1) The issuance of a tax credit certificate; (2) Refund of creditable input tax due or paid attributable to such sales.
However, the incidence of the tax is on the final consumer where the tax comes to rest. The law provides that the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.
VAT on Importation of Goods (Sec. 107, NIRC) (2 times)
In case the taxpayer is engaged in
zero-rated and also in taxable or exempt sale, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.
VAT is imposed on goods brought into the Philippines, whether for use in business or not. The tax shall be based on the total value used by the BOC in determining tariff and customs duties, plus customs duties, excise tax, if any, and the other charges, such as postage, commission, and similar charges, prior to the release of the goods from customs custody.
Zero-rated Sale of Services In General, a zero-rated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credited in accordance with the Regulations. (Sec. 4.108-5(a), RR 162005)
In case the valuation used by the BOC in computing customs duties is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. If the goods imported are subject to excise tax, the excise tax shall form part of the tax base.
Impact and incidence of VAT.
The same rule applies to technical importation of goods sold by a person located in a Special Economic Zone to a customer located in a customs territory.
While the liability on VAT is imposed on one person, the burden may be passed on to another. (Sec. 4.105-2, RR 162005)
No VAT shall be collected on importation of goods which are specifically exempted under Section 109(1) of the Tax Code. (Sec. 4.107-1(a), RR 16-2005)
The impact of VAT is on the seller because it is the one who is statutory liable for the payment of the tax, but in
Transfer of goods by tax exempt persons
Incidence of Tax (2 times)
CEBALLOS BAR TRENDS wherein the TIN-VAT is not printed thereon, shall not hive rise to any input VAT. (Kepco Phils. Corp. vs. CIR, 636 SCRA 166)
In the case of goods imported into the Philippines by VAT-exempt persons, entities or agencies which are subsequently sold, transferred or exchanged in the Philippines to nonexempt persons or entities, the latter shall be considered the importers thereof and shall be liable for VAT due on such importation. The tax due on such importation shall constitute a lien on the goods, superior to all charges/or liens, irrespective of the possessor of said goods. (Sec. 4.107-1(c), RR 16-2005)
Characteristics/Elements of a VATTaxable transaction (1 time) 1) VAT is a broad based tax on consumption of goods, properties or service in the Philippines. 2) VAT is an indirect tax that may be shifted or passed on by the seller to the buyer, transferee or lessee of the goods, properties or services.
Invoicing requirements (2 times)
3) VAT is collected through the tax credit method.
Invoicing requirements for VATregistered taxpayers, in general
4) VAT is not a cascading tax. 5) VAT is not a tax on tax
A VAT-registered person shall issue:
6) VAT is a transparent form of sales tax.
1) A VAT invoice for every sale, barter or exchange of goods or properties; and
7) VAT adheres to the “Cross Border Doctrine / Destination Principle”
2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.
Impact of tax (1 time) While the liability on VAT is imposed on one person, the burden may be passed on to another. (Sec. 4.105-2, RR 162005, as amended)
Only VAT-registered persons are required to print their TIN followed by the word “VAT” in their invoice or official receipts. Said documents shall be considered as a “VAT Invoice” or “VAT Official Receipt”. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax.
The impact of VAT is on the seller because it is the one who is statutory liable for the payment of the tax, but in the case of importation, the importer is the one liable for the VAT.
VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (Sec. 4.113-1(A), RR 16-2005)
However, the incidence of the tax is on the final consumer where the tax comes to rest. The law provides that the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.
It was held that purchases supported by invoices or official receipts,
CEBALLOS BAR TRENDS Zero-rated sales of goods or properties, and effectively zero-rated sales of goods (1 time)
1) Change of business activity from VAT taxable status to VAT-exempt status 2) Approval of a request for cancellation of registration due to reversion to exempt status
A zero-rated sale of goods or properties (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund. (Sec. 4.106-5, RR 16-2005, as amended by RR 16-2011 and RR 3-2012)
3) Approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of 3 consecutive years from the time of registration by a person who voluntarily registered despite being exempt under Sec 109 (2) of the Tax Code 4) Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipt exceeding P1,500,000 but who failed to exceed this amount during the first 12 months of operations.
“Automatically zero-rated transactions” – generally refer to the actual export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transaction charges not output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.
The following are not subject to 12% output VAT: 1) Change of control in the corporation of as corporation by the acquisition of controlling interest of the corporation by another stockholder or group of stockholders. The goods or properties used in the business or those comprising the stock-in-trade of the corporation will not be considered sold, bartered or exchanged despite the change in the ownership interest. However, exchange of property by corporation acquiring control for the shares of stocks of the target corporation is subject to VAT.
“Effectively zero-rated transactions” – refer to the local sale of goods supply of services by a VAT-registered person to persons or entities who were granted indirect tax exemption under special laws or international agreement to which the Philippines is a signatory. Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The seller who charges zero output tax on such transactions can also claim a refund of or apply for a tax credit certificate for the VAT previously charged by suppliers. (CIR vs. Seagate Technology Phils., G.R. 153866, Fe. 11, 2005)
2) Change in the trade or corporate name of the business. 3) Merger or consolidation of corporations. The unused input tax of the dissolved corporation, as of the date of merger or consolidation, shall be absorbed by the surviving or new corporation.
Change or cessation of status as VAT-registered person (1 time)
Filing of return and payment (1 time)
The following are subject to 12% output VAT:
CEBALLOS BAR TRENDS Rules on the filing of VAT returns, In general
Items to be included in gross estate (8 times)
1) Every person or entity who in the course of trade or business, sells or leases goods, properties, and services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed P1.5 million for any twelve month period
1. Decedent’s interest 2. Transfers in contemplation of death 3. Revocable transfers 4. Property passing under general power of appointment
2) A person required to register as VAT taxpayer but failed to register
5. Proceeds of life insurance
3) Any person who imports goods
6. Prior interests
4) Professional practitioners
7. Transfers for insufficient consideration 8. Capital of the surviving spouse (Sec. 85, NIRC)
Note: Services of Professional Practitioners are subject to: VAT if the gross professional fees exceed P1.5 million for a 12-month period; or
Kinds of Property Embraced under Decedent’s Interest
3% percentage tax if the gross professional fees does not exceed P1.5 million for a 12-month period
1. Property owned. – The decedent possesses all the attributes of ownership. 2. Interest in property possessed. – The law contemplates any interest or right in the nature of property, but less than title having value or capable of being valued, transferred by the decedent at his death. If the decedent owns only a proportionate share in property, only the value of such share has to be included in the gross estate. If he is entitled only to the use of the property, it is the value of that use that has to be included.
(Revenue Regulation No. 16-2005)
Every person liable to pay VAT shall
file a quarterly return of the amount of his quarterly gross sales or receipts within twenty five (25) days following the close of taxable quarter using the latest version of Quarterly VAT Return.
3. Property or interest transferred.
Estate tax (35 times) Estate Tax (donation mortis causa) – Tax levied on the transmission of properties from a decedent to his heirs. It is the tax on the privilege to transmit property at death and on certain transfers which are made the equivalent of testamentary dispositions by the statute.
Transfer in Contemplation of Death GR: The transfer shall be considered as transfer in contemplation of death if, during the lifetime of the decedent, he still retained in the property the following: (a) possession or enjoyment thereof; (b) receipt of the income or the fruits notwithstanding the transfer; or (c) right either alone or in conjunction with any
CEBALLOS BAR TRENDS person, to designate person who shall possess or enjoy the said property or income therefrom.
Power of Appointment – refers to a right to designate the person or persons who shall enjoy or possess certain property from the estate of a prior decedent.
EXPN:Bona fide sale for an adequate and full consideration in money or money’s worth.
“general” – when it gives to the donee the power to appoint any person he pleases, including himself, his spouse, his estate, executor or administrator, and his creditor, thus having as full dominion over the property as though he owned it.
Circumstances taken into account include: 1. Age and state of health of the decedent at the time of gift, especially where he was aware of a serious illness;
“special” – when the donee can appoint only among a restricted or designated class of persons other than himself. (Morgan vs. Commissioner, 309 U.S. 78)
2. Length of time between the gift and date of death (Dizon vs. Posadas, 57 Phil. 465). A short interval suggests the conclusion that the thought of death was in the decedent’s mind, while a long interval suggests the opposite (Estate of Mary Aushman, 40 BTA 948);
GR: Property over which the decedent held a power of appointment is not includible in his gross estate unless such power is general.
3. Concurrent making of a will or making a will within a short time after the transfer (Roces vs. Posadas, 58 Phil. 108).
EXPN:Bona fide sale for an adequate and full consideration in money or money’s worth.
Revocable Transfers GR: A transfer is a revocable transfer where: (a) there is a transfer by trust or otherwise; (b) the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by: i. the decedent alone; ii. the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power, to alter, amend, revoke or terminate; or iii. Where any such power is relinquished in contemplation of the decedent’s death.
The general power of appointment may be exercised by the decedent: (1) by will; (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment, or after his death; or (3) by deed under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death: (a) the possession or enjoyment or the right to the income from the property; or (b) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income.
EXPN:Bona fide sale for an adequate and full consideration in money or money’s worth. Property Passing under General Power of Appointment
CEBALLOS BAR TRENDS Proceeds of Life Insurance
created, exercised or relinquished for a consideration in money or money’s worth.
Taxation of the proceeds of life insurance will depend on the designated beneficiary, the manner of designation of such beneficiary (whether revocable or irrevocable), and the period and source of the funds used in paying the premiums on the insurance contract.
EXPN: a bona fide sale for an adequate and full consideration in money or money’s worth.
The value to be included in the gross estate is the excess of the fair market value of the property at the time of the decedent’s death over the consideration received.
Requisites to be included in the Gross Estate:
(a) The decedent takes an insurance policy on his own life; and (b) The amounts are receivable by:
Capital of the Surviving Spouse
i. The estate, his executor, or administrator irrespective of whether or not insured retained the power of revocation; or
Refers to the exclusive property of the surviving spouse and shall not, for estate tax purposes, be deemed as part of his or her gross estate, such as: (a) that which is brought to the marriage as his/her own; (b) that which each acquires during the marriage by lucrative title; (c) that which is acquired by right of redemption or by exchange with other property belonging to only one of the spouses; (d) that which is purchased with exclusive money of the surviving spouse; (e) the sums collected by installments during the marriage from credit payable in a certain number of years are considered property of the spouse to whom the credit belongs; (f) the right to an annuity, whether perpetual or for life, and the right of usufruct, belonging to one of the spouses, form part of his/her separate property, but the fruits, pensions and interests, due during the marriage belong to the partnership.
ii. any beneficiary designated as revocable.
The proceeds of life insurance are not included in a decedent’s gross estate hence, not subject to estate tax when: (a) The beneficiary is other than the estate, his executor, or administrator; and (b) The designation is irrevocable. Note: Life insurance proceeds are always excluded from gross income of the recipient whether the designation of the beneficiary is revocable or irrevocable.
Transfers for Insufficient Consideration Transfers, trusts, interests, rights or powers (denominated as transfer in contemplation of death, revocable, transfer and property passing under general power of appointment) made,
Determination of Gross Estate and Net Estate (7 times) Gross Estate - refers to all properties and interests in properties of the decedent at the time of his death.
CEBALLOS BAR TRENDS Net Estate - refers to the value of the estate after all deductions have been made against the gross estate; but it will be subject to the graduated tax rates. (Sec. 86, NIRC)
As to right to usufruct, use or habitation, as well as that of annuity Shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality table, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner.
Gross Estate is determined: If the decedent is a resident or nonresident citizen, or a resident alien – All properties, real or personal, tangible or intangible, wherever situated.
Deductions from Gross Estate (5 times) The value of the net estate of a citizen resident alien of the Philippines shall be determined by deducting from the value of the gross estate the following items of deduction:
If the decedent is a non-resident alien – Only properties situated in the Philippines provided that, intangible personal property is subject to the rule of reciprocity provided for under Section 104 of the NIRC. (Sec. 85, NIRC)
I. Ordinary Deductions (1) Expenses , losses , indebtedness, and taxes – Such amount for :
Basis for the Valuation of Gross Estate As to real property - Whichever is higher between the fair market value: (1) as determined by the Commissioner (zonal value) or (2) as shown in the schedule of values fixed by the provincial and city assessors. * if there is no zonal value, use the FMV in the latest tax declaration.
(a) Actual funeral expenses or 5% of the gross estate, whichever is lower, but in no case to exceed P200.000; (b) Judicial expenses of the testamentary or intestate proceedings; (c) Claims against the estate; (d) Claims of the deceased against the insolvent persons;
As to personal property - Whether tangible or intangible, appraised at FMV. “Sentimental value” is practically disregarded.
(e) Unpaid mortgages or any indebtedness in respect to property (f) Taxes; and
As to shares of stock – (1) Unlisted (a) unlisted common - book value (b) unlisted preferred - par value (2) Listed - Arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself.
(g) Casualty losses. (2)
Property previously taxed (Vanishing deduction);
Transfer for public issue.
II. Special Deductions (1) (2) (3)
Family home; Standard deduction; Medical expenses;
CEBALLOS BAR TRENDS (4) Amount received by heirs under R.A. 4917 (Retirement Benefits of employees of private firms shall not be subject to attachment, levy, execution, or any tax.)
commissions for selling or disposing of the estate, and the like. (CIR vs CA, CTA & Josefina P. Pajonar, as Administratrix of the Estate of Pedro P. Pajonar, G.R. No. 123206, March 22, 2000)
III. Net share of the surviving spouse in the conjugal partnership or community property. (Sec. 6, RR 22003) *This is an exclusion rather than a deduction.
c.Claims against the estate - The term “claims against the estate” required to be presented against a decedent’s estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at the time of his death are significant to, and should be made the basis of, the determination of allowable deductions. (Rafael Arsenio S. Dizon vs CTA, G.R. No. 140944, April 30, 2008; Gutierrez vs. Barretto-Datu, 5 SCRA 757; Aguas vs. Llemos, 5 SCRA 959)
Ordinary Deductions Expenses, losses, indebtedness, and taxes (ELIT) a.Funeral expenses - Actual funeral expenses (whether paid or unpaid) up to the time of interment, or an amount equal to five (5%) of the gross estate, whichever is lower, but in no case to exceed P200, 000. [Sec. 86(A)(1)(a), NIRC] b.Judicial expenses of the testamentary or intestate proceedings - Expenses allowed as deduction under this category are those incurred in the inventory-taking of assets comprising the gross estate, their administration, the payment of debts of the estate, as well as the distribution of the estate among the heirs. In short, these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filling of the estate tax return. It may include: (a) fees of executor or administrator; (b) attorney’s fees; (c) court fees; (d) accountant’s fees; (e) appraiser’s fees; (f) clerk hire; (g) cost of preserving and distributing the estate; (h) cost of storing or maintaining property of the estate; (i) brokerage fees for selling property of the estate; and (j)
Requisites for the deductibility of claims against the estate
(a) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligation incurred incident to his death, such as unpaid funeral expenses (i.e. expenses incurred up to the time of interment) and unpaid medical expenses which are classified under a different category of deductions pursuant to these Regulations; (b) The liability was contracted in good faith and for adequate and full consideration in money or money’s worth; (c) The claim must be a debt or claim which is valid in law andenforceable in courts; and
CEBALLOS BAR TRENDS (d) The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed. (Sec. 6 (A)(3)(i), RR 2-2003)
legal impediment to recognize the same as receivable of the estate, said unpaid obligation/mortgage payable shall not be allowable as a deduction from the gross estate. (4) In all instances, the mortgaged property, to the extent of the decedent’s interest therein, should always form part of the gross taxable estate.
d.Claims of the deceased against insolvent persons Requisites for the deductibility of claims of the deceased against insolvent persons are as follows:
f.) Taxes Requisites for the deductibility of taxes from the gross estate: 1. said taxes must have been accrued as of the time of death of the decedent; 2. said taxes were unpaid as of the time of death; 3. these taxes will NOT include: (a) income tax upon income received after death; (b) property taxes not accrued before his death; or (c) the estate tax due from the transmission of his estate. (De la Vina vs. Collector of Internal Revenue, 65 Phil 520)
1. The value of the claims against insolvent person shad been included as part of the gross estate; and 2. It must be shown that the debtors are incapable of paying their indebtedness. (Sec. 6(A)(4), RR2-2003) e.Unpaid mortgages or any indebtedness in respect to property Requisites for the deductibility of unpaid mortgages or indebtedness: (1) Unpaid mortgages upon, or any indebtedness in respect to, property where the value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, should be included in the value of the gross estate.
g.) Casualty losses Requisites for the deductibility of losses from the gross estate: 1. losses must be incurred during the settlement of the estate; 2. losses arose from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement; 3. said losses are not compensated for by insurance or otherwise; 4. losses claimed must not have been claimed as deduction from gross income for income tax purposes under Section 34(D)(1)(c) of the Tax Code; 5. such losses were incurred not later than the last day for the payment of the estate tax. (Sec. 6(A)(5)(c), RR2-2003)
(2) The deduction herein allowed in the case of claims against the estate, unpaid mortgage s or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration of money’s worth. (3) In case unpaid mortgage payable is being claimed by the estate, verification must be made as to who was the beneficiary of the loan proceeds. If the loan is found to be merely an accommodation of loan where the loans proceeds went to another person, the value of the unpaid loan must be included as a receivable of the estate. If there is a
Property previously taxed (Vanishing deduction) Vanishing deduction - refers to the diminishing deductibility allowed from the
CEBALLOS BAR TRENDS gross estate of the decedent on the property left behind by the decedent which he had acquired previously by inheritance or donation. Thus, vanishing deduction is deducted only from the exclusive properties of the decedent which from part of his gross estate.
1) Family Home - the place where the family actually resides. Under the Civil Code, a family home has to be constituted judicially or extra judicially. Under the Family Code, there is no need to constitute it as a family home, as it is deemed constituted thereunder. Conditions for the allowance of family home (FH) as deduction from the gross estate: (1) the FH must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the FH is situated; (2) total value of the FH must be included as part of the gross estate of the decedent; and (3) the allowable deduction must be in an amount equivalent to the current fair market value of the FH as declared or included in the gross estate, or the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P1,000,000.
Requisites for Deductibility
(1) The present decedent died within 5 years from receipt of the property from the prior decedent or donor; (2) The property on which vanishing deduction is being claimed is located within the Philippines; (3) The property formed Part of the taxable estate of the prior decedent or of the taxable gift of the donor; (4) The estate Tax on the prior succession or donor’s tax on the gift must have been finally determined and paid; (5) The property on which the vanishing deduction is taken must be Identified as the one received or acquired; and (6) No vanishing deduction was allowed on the same property on the prior decedent’s estate. Transfer for public issue Requisites for the transfers for public use.
2) Standard Deduction - a deduction in the amount of P1, 000,000 shall be allowed as an additional deduction from the gross estate without need of substantiation. The full amount of P1, 000,000 shall be allowed as deduction for the benefit of the decedent.
(1) The disposition is in the last will and testament; (2) Disposition should take effect after death;
3) Medical Expenses
(3) In favor of the Government of the Philippines or any of its political subdivision;
Medical expenses; Requisites for the deductibility of medical expenses from the gross estate of the decedent.
(4) Exclusively for public purpose; and
(1) The medical expenses (cost of medicines, hospital bills, doctors’ fees, etc.) were incurred (whether paid or unpaid) within one (1) year to the death of the said decedent.
(5) The value of the property given is included in the gross estate.
CEBALLOS BAR TRENDS (2) The said medical expenses are duly substantiated with official receipts for services rendered by the decedent’s attending physicians, invoices, statements of account duly certified by the hospital, and such other documents in support thereof;
Basic Principles (4 times) Estate tax laws rest upon the principle that death of an individual is the generating source from which the taxing power takes itsbeing , and that it is the lower to transmit or the transmission from the dead to the living on which the tax is more immediately based. (Lorenzo vs. Posadas, 64 Phil. 353) Estate tax is paid by the estate represented by the administrator or executor.
(3) That the total amount thereof, whether paid or unpaid, does not exceed P500, 000. Any amount of medical expenses incurred within one (1) year prior to the death in excess of P500, 000 shall not be allowed as a deduction under this subsection. Neither can any unpaid amount thereof in excess of the P500,00 threshold nor any unpaid amount for medical expenses incurred prior to the one (1)-year period from the date of death be allowed to be deducted from the gross estate as a claim against the estate.
4) Amount received by heirs under R.A. 4917 – Any amount received by the heirs from the decedent’s employer as a consequence of the death of the decedent-employee in accordance with RA 4917 shall also be allowed as deduction from the gross estate, provided that such amount is included in the gross estate of the decedent.
The law in force at the time of death of the decedent governs. The taxpayer cannot foresee and ought not to be required to guess the outcome of pending measures. The tax may be made retroactive in its operation, but legislative intent that a tax statute should operate retroactively should be perfectly clear. (Lorenzo vs. Posadas, 64 Phil. 353)
The fair market value at the time of death of properties left by the decedent to his/her heirs shall be used in determining the amount of his gross estate. (Sec. 85, NIRC)
Exclusions from Estate (3 times) Net share of the surviving spouse in the conjugal partnership or community property
The following properties are excluded from the gross estate of a deceased person:
After deducting the allowable deductions appertaining to the conjugal or community properties included in the gross estate, the share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed.
(1) Proceeds of: (a) Life insurance policy taken out by the decedent upon his own life when the beneficiary is other than the estate, executor or administrator; and the designation of beneficiary is irrevocable;
CEBALLOS BAR TRENDS (b)
Group life insurance policy taken out by a company for its employees; Life insurance policies issued by the GSIS to government officials or employees, as they are exempt by law from taxes of all kinds;
(3) Regardless of the gross value of the estate, where the said estate consists of registered or registrable property, such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the BIR is required as a condition precedent for the transfer ofownership thereof in the name of the transferee.
(2) Death benefits received from SSS, accruing by reason of death; (3) Amounts received from the Philippine and U.S. Governments from the damages suffered during World War II.
(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;
(4) Benefits received beneficiaries residing in the Philippines under the laws administered by the U.S. Veteran Administration. (5) Properties decedent.
(2) The deductions allowed from gross estate in determining the net taxable estate;
(3) Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes; and
(6) Transfers by way of bona fide sales. (7) Capital or exclusive property of the surviving spouse is not deemed part of the gross estate of the decedent spouse.
(4) For estate tax returns showing a gross value exceeding P2, 000,000, there must be a statement duly certified to by a Certified Public Accountant containing the following:
(8) Share of the surviving spouse in the conjugal property.
Estate Tax Return (3 times)
a. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a nonresident , not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; b. Itemized deductions from gross estate allowed in Section 86; and
When and in what cases an estate tax return must be filed
Contents of the Estate Tax Return
An estate tax return is required to be filed in the following cases:
(1) In all cases of transfers subject to the estate tax;
(2) Where though exempt from tax, the gross value of theestate exceeds P200,000; or
The amount of tax due whether paid or still due and outstanding.
CEBALLOS BAR TRENDS
Time of filing of estate tax returns Composition of Gross Estate (1 time)
For purposes of determining the estate tax, the estate tax return shall be filed within six (6) months from the decedent’s death.
The gross estate of a decedent shall be comprised of the following properties and interest therein at the time of his death including: (1) Decedent’s interest; (2) Transfer in contemplation of death; (3) Revocable transfers; (4) Property passing under general power of appointment; (5) Proceeds of life insurance; (6) Prior interests; and (7) Transfers for insufficient consideration.
In case of judicial settlement of the estate, the Court approving the project of partition shall furnish Commissioner with a certified copy thereof and its order within 30 days after promulgation of such order.
Time and Transfer of Properties (2 times)
It shall also include the following: (1) Dividends declared by a corporation before death of stockholder although paid after death, if the decedent was still living on the record date; (2) Partnership profits even if paid after death of partner; (3) Right of usufruct if transferable to the heirs.
The properties and rights are transferred to the successors at the time of death. But the Register of Deeds shall not transfer to the properties without the Certificate Authorizing Registration (CAR) issued by the RDO evidencing the payment of the estate tax. (RR 24-2002)
Exemption of Certain Acquisitions and Transmissions (1 time)
Classification of Decedent (1 times)
The following acquisitions and transmissions shall be exempt from the estate tax.
The decedents who are covered by the Philippine estate tax law are the following: 1. Citizen (whether resident or nonresident), and resident alien. - The gross estate of a citizen (whether resident or nonresident) or a resident alien shall include his property, real or personal, tangible or intangible, wherever situated at the time of hisdeath.
(1) The merger of usufruct in the owner of the naked title; (2) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary; (3) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor, and
2. Nonresident alien.-The gross estate of a nonresident alien shall include only that part of the entire gross estate which is situated in the Philippines, provided that in the case of intangible personal property, its inclusion in the gross estate is subject to the rule on reciprocity provided for under Section 104 of the Tax Code, as amended. (Sec. 4, RR 2-2003)
(4) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided, however, That
CEBALLOS BAR TRENDS not more than thirty percent (30%) of the said bequests, devises and legacies or transfers shall be used by such institutions for administration purposes.
Basic Principles (3 times) A. Donor’s tax shall be imposed upon the transfer by any person, resident or nonresident, of any property by gift (Sec. 98, NIRC) B. Donor’s tax shall apply whether the transfer is by trust or otherwise, and whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible (Sec. 98, NIRC)
Donor’s Tax (27 times) Exemptions of gifts from donor’s tax (7 times)
Dowries to the extent of first 10,000.00 per parent if made out of conjugal funds.
Athlete’s Prizes and Awards in local and international sports tournaments sanctioned by their respective national sports associations (R.A.7549)
Any contribution in cash or in kind to any candidate, political party or coalitions of parties for campaign purposes shall be governed by the Election Code (Sec. 99 (C), NIRC). On the other hand, the Omnibus Election Code provides that any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes, duly reported to the Commission shall not be subject to any payment of gift tax (Sec. 13, RA 7166). Hence, the contributions will be exempt from donor’s tax if they are duly reported to the Commission.
C. Donor’s tax is imposed on donations inter vivos. D. Donations mortis causa partake of the nature of testamentary dispositions and are subject to estate tax (Art,728, Civil Code) Transfers which may be constituted as donation (3 times) Sale/Exchange/transfer of property for insufficient consideration (3 times) Note: Donation of a foreign corporation of its own shares of stock in favor of resident employees is not subject to donor’s tax, unless 85% of the business of the foreign corporation is located in the Philippines or the shares have acquired business situs in the Philippines the donation may be taxed in the Philippines subject to the rule of reciprocity. (BIR Ruling No. 018-87, January 26, 1987) Donation; definition (1 time) - an excise tax imposed on the privilege to transfer property by way of gift inter vivos based on a pure act of liberality without any or less than adequate consideration and without any legal compulsion to give.
Determination of gross gift (4 times) - Transfer of ownership or a quantifiable interest - If the taxpayer is a resident citizen gross gift includes real properties, tangible and intangible personal properties wherever located. - If gross gift includes real properties, tangible and intangible properties located in the Philippines.
Composition of gross gift (1 time) -
If the donor is a resident or citizen gross gift includes real properties, tangible and intangible personal properties wherever located.
CEBALLOS BAR TRENDS -
provisions of the NIRC. (Sec. 244, NIRC)
If the donor is a non-resident citizen alien, gross gift includes real properties, tangible and intangible properties located in the Philippines.
Non-retroactivity of rulings The rulings of the BIR are not retroactive. Any revocation, modification or reversal of any of the rules and regulations promulgated or any of the rulings or circulars promulgated by the CIR shall not be given retroactive application if it will be prejudicial to the taxpayers, except in the following cases:
Person liable (1 time) - Any person making a donation unless the donation is specifically exempted under NIRC, or special laws, is required to accomplish under oath a donor’s tax return for every donation, in duplicate copy. Tax basis (1 time)
1. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR; 2. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; or 3. Where the taxpayer acted in bad faith. (Sec. 246, NIRC)
BASIS: The total net gifts made during the calendar year. (NIRC, sec.99) RATES: Schedular rates of donor’s tax imposable on donation made to a donee who is not a stranger:
Tax payable by the donor if the donee is a stranger: 30% of the net gifts.
P 100,000 Exempt
NOTE: Stranger is a person who is not a brother, sister (whether by whole or halfblood), spouse, ancestor, and lineal descendant; or relative by consanguinity in the collateral line within the fourth degree of relationship (NIRC, sec. 99B)
Any contribution to any political candidate, political party or coalition of parties for campaign purposes, shall be governed by the Election Code.
P 100,000 200,000
1,000,000 3,000,000 44,000
Organization and Function of the Bureau of Internal Revenue (12 times)
6% 500,000 8% 1,000,000
3,000,000 5,000,000 204,000
5,000,000 10,000,000 404,000
Rule-making Authority of the Secretary of Finance (6 times)
BUT NOT THE TAX PLUS OF THE OVER SHALL EXCESS BE OVER
1,004,000 15% 10,000,000
III. Local Government Code of 1991, as amended (62 times)
Upon recommendation of the CIR, the Secretary of Finance shall promulgate all needful rules and regulations for the effective enforcement of the
Local government taxation (10 times) 37
CEBALLOS BAR TRENDS percent (50%) the maximum rates prescribed for municipalities (Sec. 144, LGC).
Specific taxing power of Local Government Units
Situs of tax collected For purpose of collection of the taxes under Section 143 of NIRC, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality.
Taxing powers of municipalities Tax on various types of businesses Tax on business: a. Manufacturers, assemblers, repackers, processors, etc. of any article of commerce of whatever kind or nature (Sec. 143[a]); b. Wholesalers, distributors, or dealers in any article of commerce (Sec. 143[b]); c. Exporters, and manufacturers, millers, producers, wholesalers, etc. of essential commodities (Sec. 143[c]); d. Retailers (Sec. 143[d]); e. Contractors (Sec. 143[e]); f. Banks and other financial institutions (Sec. 143[f]); g. Peddlers of any merchandise or article of commerce (Sec. 143[g]); h. Any business, not otherwise specified in the preceding paragraphs. On any business subject to excise, value added tax, or percentage tax under the National Internal Revenue Code, the rate shall be 2% of gross sales or receipts (Sec. 143[h]).
Taxing powers of provinces The province may levy only the following taxes, fees, and charges (Sec. 134): 1. Tax on transfer of real property ownership (Sec. 135); 2. Tax on business of printing and publication (Sec. 137); 3. Franchise tax (Sec. 137); 4. Tax on sand, gravel and other quarry resources (Sec. 138); 5. Professional tax (Sec. 139); 6. Amusement tax (Sec. 140); and 7. Annual fixed tax for every delivery truck or van of manufacturers or producers, wholesalers of, dealers, or retailers in, certain products (Sec. 141).
Fees and charges for regulation & licensing Fees and charges. – The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling (Sec. 147, LGC).
Nature and source of taxing power (5 times)
The municipality within the Metropolitan Manila Area may levy taxes at rates which shall not exceed by fifty
Grant of local taxing power under the local government code
CEBALLOS BAR TRENDS understood by the majority of the people in the local government unit concerned, and the secretary to the sanggunian shall record such fact in a book kept for the purpose, stating the dates of approval and posting.
LOCAL TAXATION Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. (Article X, Section 5, Constitution)
(c) The gist of all ordinances with penal sanctions shall be published in a newspaper of general circulation within the provinces where the local legislative body concerned belongs. In the absence of any newspaper of general circulation within the province, posting of such ordinances shall be made in all municipalities and cities of the province where the sanggunian of origin is situated.
The general principle against the delegation of legislative powers as a consequence of the principle of separation of powers is subject to one wellestablished exception: legislative powers may be delegated to local government units. (Pepsi Cola v. City of Butuan, L22814, August 28, 1968) Included in this grant of legislative power is the local taxing power.
(d) In the case of highly urbanized and independent component cities, the main features of the ordinance or resolution duly enacted or adopted shall, in addition to being posted, be published once in a local newspaper of general circulation within the city: Provided, that in the absence thereof the ordinance or resolution shall be published in any newspaper in general circulation.
Authority to issue local tax ordinances Section 59: Effectivity of Ordinances or Resolutions (a) Unless otherwise stated in the ordinance or the resolution approving the local development plan and public investment program, the same shall take effect after ten (10) days from the date a copy thereof is posted in a bulletin board at the entrance of the provincial capitol or city, municipal or barangay hall, as the case may be, and in at least two (2) other conspicuous places in the local government unit concerned.
Withdrawal of Exemptions Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Sec. 193, NIRC)
(b) The secretary of the sanggunian concerned shall cause the posting of an ordinance or resolution in the bulletin board at the entrance of the provincial capitol and the city, municipal, or barangay hall in at least two (2) conspicuous places in the local government unit concerned not later than five (5) days after approval thereof. The text of the ordinance or resolution shall be disseminated and posted in Filipino or English and in the language
Taxpayer’s Remedies (5 times) Protest of assessment When the correct tax, fee or change is not paid, the local treasurer shall issue a notice of assessment within the applicable prescriptive period (Sec. 194, LGC), stating the nature of the levy,
CEBALLOS BAR TRENDS amount of deficiency, surcharge, interest and penalty.
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person; 4. The revenue collected under the Code shall inure solely to the benefit of, and subject to disposition by, the local government unit levying the tax, fee, charge, or other imposition, unless otherwise specifically provided for in the Code; and 5. It shall be the responsibility of each local political subdivision to evolve a progressive system of taxation (Sec. 130, LGC).
Claim for refund of tax credit for erroneously or illegally collected tax, fee or charge The filing of a written claim for refund with the local treasurer is a condition precedent for maintaining a court action. If the local treasurer does not act on the written claim for refund and the two-year period is about to expire, the taxpayer should forthwith initiate the court action for refund and consider the treasurer’s inaction as a denial of his claim for refund. The Code failed to specifically provide for a period of appeal in the event a decision is made by the treasurer on the claim for refund, similar to that obtaining in the case of a denial on a written protest of an assessment. It would seem, therefore, that the Court may entertain the appeal so long as the case for refund is filed with it within the two-year period and a written claim for refund or credit had earlier been submitted to the local treasurer. The applicable Statute of Limitations for claims for refunds, not having been specifically provided for by that Law, could be filed within six (6) years from the payment thereof as a case of solution indebiti (Art. 1145, Civil Code of the Philippines; Puyat & Sons v. City of Manila, 7 SCRA 970).
Local Taxing Authority (3 times) Power to create revenues exercised through Local Government Units Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall exclusively accrue to it. (Sec. 129, LGC). All local government units are granted general powers to levy taxes, fees, or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue, as amended, or other applicable laws. The levy must not be unjust, excessive, oppressive confiscatory or contrary to a declared national economic policy (Sec. 186, LGC). No such taxes, fees or charges shall be imposed without a public hearing having been held prior to the enactment of the ordinance (Sec. 187, LGC). Copies of the provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three consecutive days in a newspaper of local circulation or posted in at least two conspicuous and publicly accessible places (Sec. 188, LGC).
Fundamental Principles (4 times) The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units: 1. Taxation shall be uniform in each local government unit; 2. Taxes, fees, and charges shall: a. Be equitable; b. Be levied and collected for public purposes; c. Not be unjust, excessive, oppressive or confiscatory; d. Not be contrary to law, public policy and national economic policy, nor in restraint of trade;
Collection of business tax (3 times)
CEBALLOS BAR TRENDS
To collect the assessed tax, the rule is that no action for collection of the tax shall be instituted after the expiration of such period (five  years) without such assessment having been made.
4. Customs duties, registration fees of vessel (except the fee that may be imposed on the issuance of licenses for the operation of fishing vessels of three tons gross or less by municipalities under Section 149, and by cities under Section 151 of the Code), and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues, except wharfage on wharves constructed and maintained by the local government unit concerned;
Scope of taxing power (2 times) Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall exclusively accrue to it. (Sec. 129, LGC).
5. Taxes, fees, charges and other impositions upon goods carried into or out, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise;
All local government units are granted general powers to levy taxes, fees, or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue, as amended, or other applicable laws. The levy must not be unjust, excessive, oppressive confiscatory or contrary to a declared national economic policy (Sec. 186, LGC). No such taxes, fees or charges shall be imposed without a public hearing having been held prior to the enactment of the ordinance (Sec. 187, LGC). Copies of the provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three consecutive days in a newspaper of local circulation or posted in at least two conspicuous and publicly accessible places (Sec. 188, LGC).
6. Taxes, fees and charges on agricultural and aquatic products when sold by the marginal farmers or fishermen; 7. Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, from the date of such registration; 8. Excise taxes on articles enumerated under the National Internal Revenue Code and taxes, fees or charges on petroleum products. However, the LGU may not impose a tax on the business of importing, manufacturing or producing said products (Petron v. Pililla, 198 SCRA 82);
Common limitations on the taxing powers of LGUs (2 times) 1. Income tax, except when levied on banks and other financial institutions;
9. Percentage tax or value tax on sales or exchanges of goods or services or similar transactions thereon except as otherwise provided herein;
2. Documentary stamp tax; 3. Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa, except as otherwise provided in the Code (i.e., tax may be levied on the transfer of real property owned by provinces [Sec. 135, LGC] and by cities [Sec. 151, LGC]);
10. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carries by air, land or water, except as provided in this Code;
CEBALLOS BAR TRENDS 11. Taxes on premiums paid for reinsurance or retrocession;
thereto, mosques, non-profit or religious cemeteries, and all lands, buildings and improvements actually, directly and exclusively used for religious, charitable, or educational purposes;
12. Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles;
3. All machineries and equipment that are actually, directly and exclusively used by local water districts and government owned- or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;
13. Taxes, fees or charges on Philippine products actually exported, except as provided by the Code; 14. Taxes, fees or charges on Countryside and Barangay Business Enterprises and on cooperatives duly organized and registered under R.A. 6810 and R.A. 6938; and
4. All real property owned by duly registered cooperative as provided for under R.A. 6938; and
15. Taxes, fees or changes of any kind on the National Government, its agencies and instrumentalities, and local governments (Sec. 133, LGC).
5. Machinery and equipment used for pollution control and environment protection. Except as provided, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all governmentowned or controlled evaporations corporations, are hereby withdrawn upon the effectivity of the Local Government Code (Sec. 234, LGC).
Real property taxation (28 times) Imposition of real property tax (8 times) The real property tax is imposed on real property such as land, buildings, machinery and other improvements not otherwise specifically exempted under the Local Government Code (Sec. 232, LGC).
Appraisal and assessment of real property tax (7 times) Actual use of property as basis of assessment
Exemption from real property tax
Actual use shall refer to the purpose for which the property is principally or predominantly utilized by the persons in possession of the property. (Section 3 (a), LGC)
The Real Property tax is imposed on real property such as land, buildings, machinery and other improvements not otherwise specifically exempted under the Local Government Code (Sec. 232, LGC). 1. Real property owned by the Republic of the Philippines or any of its political subdivisions, except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
Classes of real property For purposes of assessment, real property shall be classified as residential, agricultural commercial, industrial, mineral, timberland or special. The city or municipality within the Metropolitan Manila Area, through their respective
2. Charitable institutions, churches, parsonages or convents appurtenant
CEBALLOS BAR TRENDS sanggunian, shall have the power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or special in accordance with their zoning ordinances (Sec. 215, LGC).
a. For basic RPT and additional tax for SEF-Before January 31 of each year. b. for any other tax-any other date provided in the ordinance 2. Publication in a newspaper of general circulation in the locality for once a week for 2 consecutive weeks
All lands, buildings, and other improvements thereon actually directly and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local water districts, and government-owned or –controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power shall be classified as special (Sec. 216, LGC).
Date of accrual of real property tax and special levies Local taxes, fees and charges accrue on the first day of the calendar year; however, in case the effectivity of any new tax ordinance falls on any date other than the beginning of the quarter, the same shall be considered as failing at the beginning of the next ensuing quarter and the new tax levy or revised rate due shall begin to accrue therefrom (Sec. 166, LGC).
Rule on appraisal of real property at fair market value The appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental principles: (a) Real property shall be appraised at its current and fair market value; (b) Real property shall be classified for assessment purpose on the basis of its actual use; (c) Real property shall be assessed on the basis of a uniform classification within each local government unit; (d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and (e) The appraisal and assessment of real property shall be equitable. (Sec. 198, LGC)
Periods within which to collect real property tax The basic real property tax and any other tax levied shall be collected within (5) years from the date they become due. No action for the collection of the tax, whether administrative or judicial, shall be instituted after expiration of such period. In case of fraud or intent to evade payment of the tax, such action may be instituted for the collection thereof within 10 years from discovery of such fraud or intent to evade payment. The period of prescription within which to collect shall be suspended for the time which: 1. The local treasurer is legally prevented from collecting the tax;
Collection of real property tax (5 times)
Notice of time for collection of tax
2. The owner of the property or the person having legal interest therein request for reinvestigation and executes a waiver in writing before the expiration of the period within which to collect; and
1. To be posted by the city or municipal treasurer in conspicuous and publicly accessible places at the city or municipal hall:
3. The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located (Sec. 270, LGC).
Collection of tax
CEBALLOS BAR TRENDS policy is still followed in the Local Government Code. Taxpayer’s Remedies (2 times) Contesting an assessment of value of real property
Special rules on payment Condonation of real property tax
Where, however, the tax liability is imposed on the beneficial use of the real property, such as those owned by leased to private persons by the government (Sec. 234, LGC), or when the assessment is made on the basis of the actual use thereof (Sec. 199 and 217, LGC), the personal liability is on any person who has such beneficial or actual use at the time of the accrual of the tax (Nueva Ecija v. Imperial Mining Co., 118 SCRA 632).
a.By the Sanggunian upon recommendation of the Local Disaster Coordinating Council i. In case of a general failure of crops, or ii. Substantial decrease in the price of agricultural or agri-based products, or iii. Calamity in the province, city, or municipality (LGC, Sec. 276)
b. By the President of the Philippines – when public interest so requires (LGC, Sec. 277)
Appeal to the Local Board of Assessment Appeals
Where an assessment is illegal or void, the remedy of the taxpayer who has already paid the tax under protest is to sue for refund in the competent CFI. Where the assessment is merely erroneous, his recourse is to file an appeal in the Provincial Board of Assessment Appeals within 60 days from receipt of the assessment. An assessment is illegal and void when the assessor has no power to act at all. It is erroneous when the assessor has the power but errs in the exercise of that power (Victorias Milling Co. v. Court of Tax Appeals, ibid.)
Fundamental principles (4 times) 1. Real property shall be appraised at its current and fair market value; 2. Real property shall be classified for assessment purposes on the basis of its actual use; 3. Real property shall be assessed on the basis of a uniform classification within each local political subdivision; 4. The appraisal, assessment and levy of real property for taxation purposes and the collection of the real property tax shall not be let to any private persons; and 5. The appraisal and assessment of real property shall be equitable (Sec. 198, LGC).
Payment of real property tax under protest Where an assessment is illegal or void, the remedy of the taxpayer who has already paid the tax under protest is to sue for refund in the competent CFI. Where the assessment is merely erroneous, his recourse is to file an appeal in the Provincial Board of Assessment Appeals within 60 days from receipt of the assessment. An assessment is illegal and void when the assessor has no power to act at all. It is erroneous when the assessor has the power but errs in the
Basis of real property tax – The basis of real property taxation under the Assessment Law was ownership or interest tantamount to ownership. The Real Property Tax Code changed the basis of real property taxation and adopted the policy of taxing real property on the basis of actual use, even if the user is not the owner (Prov. Of Nueva Ecija v. Imperial Mining Co., 118 SCRA 632 ). This
CEBALLOS BAR TRENDS Doctrines in Taxation (25 times)
exercise of that power (Victorias Milling Co. v. Court of Tax Appeals, ibid.) Nature of real property tax (1 time) The real property tax is a tax on property. It has been considered as a national, not a local, tax. The realty tax is enforced throughout the Philippines and not merely in a particular municipality or city. The proceeds of the tax accrue to the province, city, municipality and barrio where the realty taxed is situated (Sec. 86, P.D. 464). In contrast, a local tax is imposed by municipal or city council by virtue of the Local Tax Code, P.D. 231 which took effect on July 1, 1973 (69 O.G. 6197) (Meralco Securities Industrial Corporation v. Central Board of Assessment Appeals, G.R. No. L-46245, May 31, 1982). It has always been imposed by the national lawmaking body. It is enforced through the Philippines and not in a particular political subdivision, although the bulk of the tax proceeds accrue to the various local government units where the property is located (Secs. 233 and 271, LGC).
Double taxation (5 times) Nature and Definition An “exemption from taxation” is a grant of immunity, express or implied, to particular persons or corporations or to persons or corporations of a particular class, from a tax upon property or an excise which persons and corporations generally within the same taxing district are obliged to pay. It is a freedom from a charge or burden to which others are subject (Greenfield v. Meer, 77 Phil. 394). Constitutionality of double taxation Local Business Tax Based on Gross Revenues amounts to direct double taxation. The imposition of local business tax based on gross revenue will inevitably result in the constitutionally proscribed double taxation – taxing of the same person twice by the same jurisdiction for the same thing – inasmuch as petitioner’s gross revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid.
Refund or credit of real property tax Payment under protest Where an assessment is illegal or void, the remedy of the taxpayer who has already paid the tax under protest is to sue for refund in the competent CFI. Where the assessment is merely erroneous, his recourse is to file an appeal in the Provincial Board of Assessment Appeals within 60 days from receipt of the assessment. An assessment is illegal and void when the assessor has no power to act at all. It is erroneous when the assessor has the power but errs in the exercise of that power (Victorias Milling Co. v. Court of Tax Appeals, ibid.)
Escape from taxation (5 times) Tax avoidance Tax avoidance and tax evasion are the two (2) most common ways used by taxpayers in escaping from taxation. “Tax avoidance” is the tax saving device within means sanctioned by law. This method should be used by the taxpayer in good faith and at arm’s length. Tax evasion “Tax evasion” on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax
I. General Principles of Taxation (51 times)
CEBALLOS BAR TRENDS evasion connotes the integration of three factors: (1) the end to be achieved; i.e., the payment of less than that known by the taxpayer to be legally due, or the nonpayment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith” “willful,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful.
mere vague implication or inference. It must be indubitably shown to exist, for every presumption is against it and a wellfounded doubt is fatal to the claim (Floro Cement v. Gorospe, 200 SCRA 480 ). Revocation of tax exemption Since Taxation is the rule and exemption is exception, the exemption may thus be withdrawn at the pleasure of the taxing authority (MCIAA v. Marcos, G.R. No. 120082, September 11, 1996). However, if the tax exemption constitutes a binding contract and for valuable consideration, the government cannot unilaterally revoke the tax exemption.
Distinction: avoidance vs evasion Tax avoidance and tax evasion are the two (2) most common ways used by taxpayers in escaping from taxation. “Tax avoidance” is the tax saving device within that means sanctioned by law. This method should be used by the taxpayer in good faith and at arm’s length. “Tax evasion” on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved; i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith” “willful,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful.
Compensation and set-off (5 times) Art. 1278 Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (Civil Code) Tax amnesty (1 time) Distinguished from tax exemption Tax exemption and tax amnesty distinguished: Tax amnesty is an immunity from all criminal and civil obligations arising from non-payment of taxes. It is a general pardon given to all taxpayers. It applies only to past tax periods, hence it is of retroactive application. (People v. Castañeda, G.R. No. L-46881, 1988) On the other hand, tax exemption is an immunity or privilege, a freedom from a charge or burden of which others are subjected. (Florer v. Sheridan, 137 Ind. 28, 36 NE 365) It is generally prospective in application.
Exemption from taxation (2 times) Nature of tax exemption An “exemption from taxation” is a grant of immunity, express or implied, to particular persons or corporations or to persons or corporations of a particular class, from a tax upon property or an excise which persons and corporations generally within the same taxing district are obliged to pay. It is a freedom from a charge or burden to which others are subject (Greenfield v. Meer, 77 Phil. 394).
Construction and interpretation: laws, exemption, exclusion, rules, penal provisions, non-retroactive application (6 times)
He who claims the exemption must point to some provision of law creating the right. It cannot be allowed to exist upon a
CEBALLOS BAR TRENDS 1. Not political in character; effective even under belligerent occupation (Hilado v. CIR, G.R. No. L-9408, October 31, 1956)
religious, charitable, or educational purposes shall be exempt from taxation. (Article VI, Section 28, Constitution)
General Rule Statues levying taxes are construed against the government.
Prohibition against imprisonment for non-payment of poll tax NON-IMPRISONMENT FOR NONPAYMENT OF POLL TAX No person shall be imprisoned for non-payment of a debt or poll tax. (Art. III, Section 20, Constitution) While a person may not be imprisoned for non-payment of a cedula or poll tax (People v. Linsangan, 62 Phil. 646), he may be imprisoned for nonpayment of other kinds of taxes where the law so expressly provides.
It is a general rule in the interpretation of statutes levying taxes or duties, that in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed beyond what the statutes expressly and clearly import. The purpose of imposing documentary stamp taxes is to raise revenue and the corresponding amount has already been paid and has become part of the revenue of government. There is no jurisdiction for the government which has already realized the revenue to require the payment of the same tax for the same documents (Collector v. Fireman’s Fund Insurance Co., 148 SCRA 315).
Prohibition against taxation of nonstock, no-profit institutions TAX EXEMPTIONS GRANTED TO NONSTOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS Section 4. (3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purpose shall be exempt from taxes and duties. Upon the dissolution and cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.
Scope and Limitation of Taxation (8 times) Constitutional Limitations (6 times)
Proprietary educational institutions, including those cooperatively owned may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestments.
Provisions directly affecting taxation Prohibition against taxation of religious, charitable entities, and educational entities TAX EXEMPTION OF PROPERTIES ACTUALLY, DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE AND EDUCATIONAL PURPOSE Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements actually, directly, and exclusively used for
(4) Subject to the conditions prescribed by law, all grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes shall be exempt from tax. (Article XVI, Section 4 and , Constitution)
CEBALLOS BAR TRENDS Grant of power to the local government units to create its own sources of revenue
passed without the concurrence of a majority of all members of Congress. Inherent limitations (2 times)
LOCAL TAXATION Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. (Article X, Section 5, Constitution)
Inherently legislative General rule Taxation as Legislative in Character. The power to tax is inherent in the State, and the State is free to select the object of taxation, such power being exclusively vested in the legislature, EXCEPT where the Constitution provides otherwise. (Art. VI, Sec. 28; Art. X, Sec.5). This is based upon the principle that “taxes are a grant of the people who are taxed, and the grant must be made by the immediate representatives of the people. And where the people have laid the power, there it must remain and be exercised.” (Cooley Taxation, 3rd Ed., p.43.)
The general principle against the delegation of legislative powers as a consequence of the principle of separation of powers is subject to one wellestablished exception: legislative powers may be delegated to local government units. (Pepsi Cola v. City of Butuan, L22814, August 28, 1968) Included in this grant of legislative power is the grant of local taxing power.
Nature of Taxation (4 times)
No appropriation or use of public money for religious purposes
1. It is an attribute of sovereignty The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people (PepsiCola Bottling Company of the Phil. v. Mun. of Tanauan, Leyte, 69 SCRA 460).
APPROPRIATION OF PUBLIC MONEY No public money or property shall be appropriated, applied, paid or employed directly or indirectly for the use, benefit or support of any sect, church, denomination, sectarian institution, or system of religion or of any priest, preacher, minister, or other religious teacher or dignitary as such EXCEPT when such priest, preacher, minister or dignitary is assigned to the armed forces or to any penal institution or government orphanage or leprosatium. (Article VI, Section 29 Constitution)
2. It is legislative in character The power of taxation is essentially a legislative function. The power to tax includes the authority to: (1) determine the (a) nature (kind); (b) object (purpose); (c) extent (amount or rate); (d) coverage (subjects and objects); (e) apportionment of the tax (general or limited application); (f) situs (place) of the imposition; and (g) method of collection; (2) grant tax exemptions or condonations; (3) specify or provide for the administrative as well as judicial remedies
LEGAL BASIS OF THE GRANT OF EXEMPTIONS Art. VI, Section 28(4) of the Constitution provides that: No law granting any tax exemption shall be
CEBALLOS BAR TRENDS that either the government or the taxpayers may avail themselves in the proper implementation of the tax measure (Petron v. Pililla, 198 SCRA 82).
the laws imposing such taxes. Even when it is not so under procedural laws, such an injunction may not be obtained as held in the case of Valley Trading Co. v. Court of First Instance, L-49529, March 31, 1989, where the Supreme Court ruled that the damages that may be caused to the taxpayer by being made to pay the taxes cannot be said to be as irreparable as it would be against the government’s inability to collect taxes.
3. It is generally not delegated to executive or judicial department The power to tax is purely legislative, and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers (Pepsi-Cola Bottling Company of the Phil. v. Mun. of Tanauan, Leyte, supra).
Benefits-protection theory (Symbiotic relationship) Benefits-Protection Theory Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. (Commissioner v. Algue, 158 SCRA 9).
Characteristics of Taxation (3 times) Attributes or Characteristics of Taxes It is a forced charge, imposition or contribution. As such, it operates ad invitum; i.e., it is in no way dependent upon the will or contractual assent, express or implied of the person taxed. It is not contractual, either express or implied, but positive acts of government (Panay Electric Co. v. Internal Revenue, L10574, May 28, 1958).
Theory and Basis of Taxation (3 times)
Stages of Taxation (3 times)
Lifeblood theory The phrase “taxes are the lifeblood of government, etc” expresses the underlying basis of taxation which is governmental necessity, for indeed, without taxation, a government can neither exist nor endure. Taxation is the indispensable and inevitable price for civilized society; without taxes, the government would be paralyzed. This phrase has been used to justify the validity of the law providing for summary remedies in the collection of taxes. As a consequence of the above rule, an injunction against the assessment and collection of taxes is generally withheld by
Payment The three stages or aspects of taxation are: Levy – this refers to the enactment of a law by Congress, imposing a tax. Assessment and Collection – this is the act of administration and implementation of the tax law by the executive department through the administrative agencies. Payment – this is the act of compliance by the taxpayer, including such options,
CEBALLOS BAR TRENDS schemes or remedies as may be legally available to him.
a) A tax is levied in the exercise of the taxing power; License fees emanate from the police power of the state;
Kinds of Taxes (2 times)
b) The purpose of the tax is to generate revenues; License fees are imposed for regulatory purposes. (Vistorias Milling Co. v. Municipality of Victorias, L-21183, September 27, 1968)
As to burden or incidence Indirect Among the taxes imposed by the Bureau of Internal Revenue are income tax, estate and donor’s tax, value added tax, excise tax, other percentage taxes, and documentary stamp tax. Classify these taxes into direct and indirect taxes, and differentiate direct from direct taxes.
c) The amount of the exaction or charge if it is to be a license fee must only be of sufficient amount to include expenses of issuing a license; cost of necessary inspection or police surveillance. (Cu Unjeng v. Patstone, 42 Phil. 818; City of Iloilo v. Villanueva, 105 Phil.337)
III. Judicial Remedies (R.A. No. 1125, as amended, and the Revised Rules of the Court of Tax Appeals) (39 times)
Suggested Answer: Income tax, estate tax and donor’s tax are considered as direct taxes. On the other hand, value added tax, excise tax, other percentage tax, and documentary stamp tax are indirect taxes. A direct tax is demanded from the very person who, as intended, should pay the tax which he cannot shift to another, while an indirect tax is demanded in the first instance from one person with the expectation that he can shift the burden to someone else, not as a tax but as part of the purchase price (Maceda v. Macaraig, 223 SCRA 217).
Judicial Procedures (21 times) Civil Cases (12 times) Who may appeal, mode of appeal, effect of appeal Suspension of collection of tax
Principles of Sound Tax System (1 time)
Appeal to the CTA shall not suspend the payment, levy, distraint and sale of taxpayer’s property No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of the Customs or the RTC, provincial, city, or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture, as the case may be, shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law. When in the opinion of the Court, the collection by the aforementioned government agencies may
Fiscal Adequacy Sources of revenues must be adequate to meet government expenditures (Chavez v. Ongpin, 186 SCRA 331), and other public needs. This is in consonance with the doctrine that taxes are the lifeblood of the government.
Tax as Distinguished from Other Forms of Exactions (1 time) Tax vs. License
CEBALLOS BAR TRENDS jeopardize the interest of the Government and/or taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the court.
banc,through a verified petition before the Supreme Court, pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Who may appeal, mode of appeal
Institution and prosecution of criminal actions
Criminal Cases (9 times)
Who may appeal? Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, The Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Regional Trial Court, may file an appeal with the CTA: a. within thirty (30) days after receipt of such decision or ruling; OR
General Principles For failure of the State Prosecutor to comply with the order to submit to the CTA the written approval issued by the CIR to file the case and the records of the preliminary investigation, the case was dismissed, without prejudice (People v. Renne Samala, Crim. Case No. 0-214. September 1, 2011). Institution of civil action in criminal action
b. after the expiration of the period fixed by law for action referred to in Section 7(a) of R.A.9282,in which case the inaction shall be deemed a denial.
Criminal actions instituted on behalf of the Government under the authority of the Tax Code or other laws, enforced by the BIR, shall be brought in the name of the Government of the Philippines and shall be conducted by the Legal officers of the BIR. However, it does not preclude the BIR from seeking the assistance of experienced litigators from the Department of Justice in the prosecution of the criminal action. Criminal cases are filed in the name of “People of the Philippines versus the accused taxpayer” in order to differentiate it from civil cases for the collection of delinquent taxes which are filed in the name of “Republic of the Philippines versus the delinquent taxpayer.”
What is the mode of appeal? 1. Appeal may be made by filling a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 of Civil Procedure, within thirty (30) days from the receipt of the decision or ruling or from the expiration of the period fixed by law for the official concerned to act, in cases of inaction, before the CTA. A Division of the CTA shall hear the appeal. 2. Appeals with the respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction, may be made by filling a petition for review under a procedure analogous to that provided for under Rule 43 of the 1997 Rules of Civil Procedure, with CTA, which shall hear the case en banc.
Jurisdiction of the Court of Tax Appeals (16 times) Exclusive appellate jurisdiction over civil tax cases
3. Petition for Review on Certiorari may be filed by a party adversely affected by a decision or ruling of the CTA en
Rules on Assessment and Collection
CEBALLOS BAR TRENDS RETURN FILED WAS NOT FALSE OR FRAUDULENT
1. Appeal to the CTA in division – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the CIR. (Sec. 228, NIRC)
Collection with Prior Assessment Assessment should be made within 3 years from the date of filing of the return or from the last day required by law for filing, whichever is later (Sec. 203, NIRC)
2. Appeal to the CTA en banc – the party adversely affected by the decision of a CTA division may file a motion for reconsideration or new trial within 15 days from receipt of the decision with the CTA division. If the MR is denied file a petition for review with the CTA en banc.
Collection should be made within 3 years from the date of assessment or from the filing of the return, either by: (1) Summary proceedings; or (2) Judicial proceedings (Sec.222 [c], NIRC).
3. Appeal to the SC – within 15 days from the receipt of the decision of the CTA. 4. By way of special civil action – Petition for certiorari, prohibition and mandamus to the SC in cases of grave abuse of discretion, lack or excess of jurisdiction.
Collection without Prior Assessment Assessment should be made within 3 years from the date of filing of the return or from the last day required by law for filing, whichever is later (Sec. 203, NIRC)
5. Action to contest forfeiture of chattel, at any time before the sale or destruction thereof, to recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net proceeds realized at the sale (Sec. 231, 1997 NIRC); and
NO RETURN WAS FILED, OR THE RETURN FILED WAS FALSE OR FRAUDULENT Collection with Prior Assessment Assessment should be made within 10 years from the date of discovery of the failure to file the return, or the falsity or fraud in the return (Sec.222 [a], NIRC)
6. Action for damages against a RO by reason of any act done in the performance of official duty. (Sec. 227, 1997 NIRC)
7. Injunction – when the CTA is in the opinion that the collection by the BIR may jeopardize taxpayer.
Collection without Prior Assessment Assessment should be made within 10 years from the date of discovery of the failure to file the return, or the falsity or fraud in the return (Sec.222 [a], NIRC)
Taxpayer’s Suit Impugning the Validity of Tax Measures or Acts of Taxing Authorities (2 times)
Collection should be made within 10 years after the discovery of falsity or fraud or non-filing and it should only be by judicial proceeding (Sec. 222 [a], NIRC)
Taxpayer’s Suit - It is a case where the act complained of directly involves the
CEBALLOS BAR TRENDS illegal disbursement of public funds collected through taxation.
Territorial Jurisdiction: The BOC shall have the right of supervision and police authority over: 1. All seas within the jurisdiction of the Philippines a. Territorial waters – twelve (12) nautical miles from the baseline; and b.Contiguous zone – additional twelve (12) nautical miles beyond the aforesaid 12 nautical mile limit.
Requisites before a citizen may file a taxpayer’s suit: 1. That money is being extracted and spent in violation of specific constitutional protections against abuses of legislative power;
2. Exclusive economic zone (EEZ) – two hundred (200) nautical miles from the baseline; and
2. That public money is being deflected to any improper purpose; and 3. That the petitioner seeks to restrain respondents from wasting public funds through the enforcement of an invalid or unconstitutional law.
3. All coast, ports, airports, harbors, bays, rivers and inland waters whether navigable or not from the sea (TCCP, Sec. 603)
IV. Tariff and Customs Code of 1978, as amended (23 times)
Taxpayer (1 time) Protest
Remedies (8 times)
A. Administrative Remedies (PRSAA) 1. Protest Cases where the legality or correctness of assessment or appraisal is questioned by the importer.
Government (7 times)
General Rule: Any importer or interested party, if dissatisfied with published value may, within 15 days from date of publication, or within 15 days from the date the importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment, may file a protest. Otherwise, the action of the collector shall be final and conclusive against him, except as to matters collectible for manifest clerical error.
Administrative/extrajudicial Search, seizure, forfeiture, arrest Appurtenant to its power under the Tariff and Customs Code to enforce the provisions of such law, the Bureau of Customs may conduct searches and seizures even without the benefit of a considered an exemption from the probable cause. This is historically considered an exemption from the constitutional guarantee against unreasonable searches and seizures. There is probable cause when correct amount of customs duties was not paid by the importer.
Exception: No protest is necessary in seizure cases. Payment Under Protest: No protest shall be considered unless payment of assessed customs dues has first been made and the corresponding docket fee actually paid (TCCP, Sec 2388)
Powers of BOC
CEBALLOS BAR TRENDS 3. The fair market value or price in the principal market in the country of manufacture or origin, if it is not the country of exportation, or in a third country with the same stage of economic development as the country of exportation;
Classification of Goods (4 times) Conditionally-free importation Conditionally-free importation (TCCP, Sec.105) Articles which are exempt from import duties upon compliance with the formalities prescribed or with regulations promulgated by the Commissioner of Customs with the approval of the Secretary of Finance.
4. In case such value is not ascertainable the reports of revenue or commercial attaches or established or information value; or 5. If still not ascertainable, the domestic wholesale market price in the ordinary course of trade less import duty and not more than 25% for expenses and profits (TCCP, Sec. 201, as amended by EO No. 156 dated March 30, 1987; Commissioner v. Procter & Gamble, G.R. No. 56705, January 11, 1989).
The President may upon recommendation of the SOF, suspended, disallow, of completely withdraw, in whole or in part, any of the conditionally-free importations.
Classification of duties (4 times)
6. Upon reasonable doubt on the accuracy of the declared value, the Commissioner may also determine the home consumption value (now transaction value) from other reliable and available sources (Commissioner v. Court of Tax Appeals, G.R. No. L-72069, May 21, 1988).
Ordinary/regular duties (2 times) Regular Duties Taxes that are imposed or assessed upon merchandise from, exported to a foreign country for the purpose of raising revenue.
Special Duties (2 times) Countervailing duties
Ad Valorem; methods of valuation
Special Duties Additional import duties imposed on specific kinds of imported articles under certain conditions.
Ad Valorem – Properties: 1. Computed based on value of imported article.
Purpose: For the protection of consumers and manufacturers, as well as Philippine products from undue competition posed by foreign made products (VITUG & ACOSTA, supra at 364)
2. The tax rates are based on the cost (fair market value) or price of the imported articles, in wholesale quantities in the principal market of the exporting country or the country of origin, including expenses connected with the importation, such as insurance, freight, packaging loading and unloading charges, but excluding internal excise taxes to be remitted or rebated;
Requirements of Importation (3 times)
CEBALLOS BAR TRENDS Obligations of Importer (2 times) 2. Entry of goods at less than their weights or measures or upon a classification as to quality or value;
Cargo manifest Cargo Manifest - It is the document used in shipping, containing a list of the contents, value, origin, carrier and destination of the goods to be shipped. It refers to a written document required to be carried by merchant vessels, containing an account of the cargo, with other particulars, for the facility of the customs officers (Black Law’s Dictionary)
3. Payment of less than the amount due; 4. Filing any false or fraudulent claim for the payment of drawback or refund of duties upon the exportation of merchandise; and 5. Filing any affidavit, certificate or other document to secure to him or others the payment of any drawback, allowance or refund of duties on the exportation of merchandise greater than that legally due thereon (TCCP, Sec. 3602)
Beginning and ending of importation When importation begins Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload therein.
Flexible Tariff Clause (1 time) Basis: The Congress may, by law , authorize the President to fix within specified limits, and subject to such limitations and restrictions 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 (CONST. Art. VI, Sec. 28, par. 2)
Intent being a state of mind can be inferred from facts and thereof can only be proved by unguarded, expressions, conduct and circumstances generally (Feeder Int. Line v. CA, G.R. No. 94262, May 31, 1991).
Importation in Violation of Tax Credit Certificate (3 times) Smuggling (2 times) Smuggling - An act of any person who shall: (1) fraudulently import any article contrary to law; (2) assist in so doing; (3) receive, conceal, buy, sell, facilitate, transport, conceal or sell such article knowing its illegal importation (TCCP, Sec. 3601); or (4) export articles in a manner contrary to law (TCCP, Sec. 3519). Other Fraudulent Practices (1 time) 1. Entry of imported or exported article by means of any false or fraudulent practices, invoice, declaration, affidavit, or other documents;