PM Reyes 2015 Bar Supplement
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes
ITAD. The BIR denied the claim on the ground that the application for a tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual remittance of its branch profits to Deutsche Bank Germany, or prior to its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax Treaty. Is the BIR correct?
Q: Who is the proper party to question or seek a refund of indirect taxes? The proper party to question or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. (Silkair v. CIR, G.R. No. 166482, January 25, 2012; Diageo Philippines v. CIR, G.R. No. 183553, November 12, 2012)
No. The noncompliance with the 15-day period for prior application should not operate to automatically divest entitlement to the tax treaty relief especially in claims for refund as it would constitute a violation of the duty required by good faith in complying with a tax treaty. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. Thus, laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any prerequisite for the availment of the benefits under said agreement. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief. (Deutsche Bank AG Manila v. Commissioner of Internal Revenue, G.R. No. 188550, August 19, 2013)
N.B. But take note of the next case: Q: Caltex sold petroleum fuel and passed on the excise tax to PAL. Now, PAL seeks to refund the said excise taxes on the basis of the tax exemption privileges provided for in its franchise, which exempts it from both direct and indirect taxes. The CIR argues that PAL has no personality to file the claim because it is not the statutory taxpayer. Is the CIR’s contention correct? No. Where the law clearly grants the party to which the economic burden of the tax is shifted an exemption from both direct and indirect taxes, such party must be allowed to claim a tax refund even if it is not considered as the statutory taxpayer under the law. The propriety of a tax refund claim is hinged on the kind of exemption which forms its basis. If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax. On the other hand, if the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim. (Philippine Airlines v. Commissioner of Internal Revenue, G.R. No. 198759, July 1, 2013)
INCOME TAX Q: What is the income tax treatment of an OFW? An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income from sources within the Philippines. Thus, income arising out of overseas employment is income from sources without the Philippines and is exempt from income tax. Further, income earnings from business activities or properties of an overseas contract worker in the Philippines are income from sources within the Philippines and, as such, they are subject to income tax. (RR 1-2011)
Q: Deutsche Bank Manila remitted to Deutsche Bank Germany an amount representing the 15% branch profit remittance tax (BPRT) on its regular banking unit net income. Believing that it should be entitled to the preferential rate of 10% under the RP-Germany Tax Treaty, Deutsche Bank Manila filed a claim for refund and a Tax Treaty Relief Application with the
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes Q: Are director’s bonuses subject withholding tax on compensation?
withholding tax. Note, however, that this case did not rule on the validity of RM 65-2012 and did not deal with the issue of VAT.
Yes. For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation No. 12-86. An individual, performing services for a corporation, whether as an officer and director or merely as a director whose duties are confined to attendance at and participation in the meetings of the Board of Directors, is an employee. The non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List does not ipso facto create a presumption that they are not employees of the corporation, because the imposition of withholding tax on compensation hinges upon the nature of work performed by such individuals in the company. (First Lepanto Taisho Insurance v. Commissioner of Internal Revenue, G.R. No. 197117, April 10, 2013)
Q: What are the conditions for the exemption of capital gains tax on the sale by a natural person of his principal residence? 1. The 6% capital gains tax due shall be deposited in an account with an authorized agent bank under an Escrow Agreement. It can only be released upon showing that the proceeds have been fully utilized within 18 months. 2. The proceeds from the sale, exchange or disposition must be fully utilized in acquiring or constructing his new principal residence within 18 calendar months from date of its sale. Proof must be submitted. 3. The tax exemption may be availed of only once every 10 years 4. The historical cost or adjusted basis of his old principal residence sold, exchanged disposed shall be carried over to the cost basis of his new principal residence 5. If there is no full utilization of the proceeds of sale, exchange or disposition of his old principal residence, he shall be liable for deficiency capital gains tax of the utilized portion. (RR 13-99, as amended by RR 14-2000)
Q: Are association dues, membership fees, and other assessments/charges collected by a condominium corporation subject to income tax and withholding tax Yes. Association dues, membership fees, et al. paid to the condominium corporation forms part of gross income of the said corporation subject to income tax and withholding tax. This is because a condominium corporation furnishes its members and tenants with benefits, advantages, and privileges in return for such payments. They constitute as income payments or compensation for beneficial services provided to members and tenants. (RMC 652012)
Q: The shares of stock of ABC corporation is a publicly listed company. Its public ownership level however fell below the mandatory minimum public ownership of 10%. ABC sold shares of stock to Mr. X. What is the income tax treatment of the said transaction?
N.B. The same is also subject to VAT as they constitute income payment or compensation for the beneficial services it provides to members and tenants.
It is subject to capital gains tax. Generally, a percentage tax of ½ of 1% is imposed on the gross selling price of shares of stock if they are listed and sold, exchanged or transferred through the facilities of the local stock exchange. (RR 06-2008)
Note that in Officemetro Philippines, Inc. v. CIR, CTA Case No. 8382, June 3, 2014, the CTA ruled that association/condominium dues, membership fees, et al., which are merely held in trust and are to be used solely for administrative expenses in implementing their purposes and from which the corporation could not realize any gain or profit, must not be subject to income and to
However, if traded through the stock exchange, a sale of shares by companies not complying with the 10% minimum public float shall be subject to capital gain tax (RR 16-2012) Q: Are campaign expenditures tax-exempt?
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes Central Luzon Drug Corporation, G.R. No. 159647, April 15, 2005, where the Court held that the 20% discount required by the law to be given to senior citizens was a tax credit and not merely a tax deduction from the gross income or gross sale of the establishment concerned. This ruling, however, was based on Section 4 of Republic Act No. 7432, which provides establishments may claim the discount as a tax credit. Note that Republic Act No. 9257, which amended Republic Act No. 7432, now provides that establishments may claim the discounts as a tax deduction. Republic Act No. 9994 retains this treatment of the 20% senior citizen’s discount as a tax deduction.
It depends. In order for the campaign expenditure to be tax-exempt, it must be fully utilized. If it is not fully utilized, it is subject to income tax. These contributions are intended to finance the operation expenditures of a candidate. Any unexpended balance from any contribution to a candidate or party shall be subject to income tax. Further, if the candidate fails to include certain campaign expenditures in the Statement of Expenditures to be filed with the COMELEC, such amounts will be automatically subjected to income tax. (RR 72011) N.B. Contributions given to candidates or political parties are not subject to donor’s tax (Section 13, RA 7166).
Q: ABC Law Firm availed of deductions in computing its net income. May Atty. Z, a partner, claim deductions from his share in the net income?
Q: What is the effect of the taxpayer’s failure to submit a “Sworn Declaration of Loss” on the deductibility of casualty losses as allowed under Section 30(d) of the Tax Code?
It depends. If the GPP availed of the itemized deductions in computing its net income, a partner may still claim itemized deductions from his share in the net income of the partnership. However, if the GPP availed of OSD, the partner can no longer claim (RR 22010 amending RR 16-2008)
A: The Sworn Declaration of loss is a mandated substantiation requirement under RR 12-77. The failure to submit the said declaration of loss will result in the disallowance of the casualty loss claimed in the taxpayer's income tax return. The Sworn Declaration of Loss is necessary to forewarn the BIR that it had suffered a loss whose extent it would be claiming as a deduction of its tax liability, and thus enable the BIR to conduct its own investigation of the incident leading to the loss. (H. Tambunting Pawnshop v. Commissioner of Internal Revenue, GR No. 173373, July 29, 2013)
Q:Filinvest Development Corporation (FDC) extended advances in favour of its affiliate. The BIR assesses FDC for deficiency income by unilaterally imputing an “arm’s length” interest rate on its advances. FDC disputes this by saying the CIR lacks authority to impute theoretical interest and the rule is that interests cannot be demanded in the absence of a stipulation to that effect. Is FDC’s contention correct?
Q: Is the 20% Senior Citizens’ discount a tax credit or a tax deduction?
Yes. Despite the seemingly broad power of the CIR to distribute, apportion and allocate gross income under Section 50, the same does not include the power to impute theoretical interest even with regard to controlled taxpayers’ transactions. This is true even if the CIR is able to prove that the interest expense was in fact claimed by FDC. The term in the definition of gross income that even those income “from whatever source derived” is covered still requires that there must be actual or at least probable receipt or realization of the time of gross income sought to be apportioned,
The 20% Senior Citizen Discount is a tax deduction. The 20% sales discount shall be treated as a tax deduction and no longer as a tax credit. (Carlos Superdrug Corp v. Department of Social Welfare and Development, G.R. No. 166494, June 29, 2007; M.E. Holding Corporation v. Court of Appeals, G.R. No. 160193, March 3, 2008) N.B. This reverses the ruling in CIR v.
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes distributed or reallocated. Finally, under the Civil Code, no interest shall be due unless expressly stipulated in writing. (CIR v. Filinvest Development Corporation, July 19, 2011)
insofar as its revenues from paying patients are concerned. Such revenue is subject to income tax at 10% under Section 27(B). (CIR v. St. Lukes Medical Center, September 26, 2012) Q: May a withholding agent file a claim for tax refund?
N.B. But take note that the decision was made prior to the issuance of RR 2-2013 (Transfer Pricing Guidelines). There is a transfer pricing issue where one associated enterprise, entitled to income tax exemptions, is being used to allocate income away from a company subject to regular income taxes. The arm’s length principle requires the transaction with a related party to be made under comparable conditions and circumstances as a transaction with an independent party. Thus, The BIR has the authority to review controlled transactions among associated enterprises and to allocate or distribute their income and deductions in order to determine the appropriate revenues and taxable income of the associated enterprises involved in controlled transactions. (Section 50, NIRC; RR 2-2013)
Yes. Generally, the person entitled to claim a tax refund is the taxpayer. However, if the taxpayer does not file the claim, the withholding agent may file the same. A withholding agent has a legal right to file a claim for refund. First, he is considered a taxpayer under the Tax Code as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount withheld be finally found to be less than the amount that should have been withheld. Second, as an agent of the taxpayer, his authority to file the income tax return and remit the tax withheld to the government includes the authority to file a claim for refund and to bring an action for recovery of such claim. (CIR v. Smart Communications, G.R. No. 179045-46, August 25, 2010)
Q: St. Lukes Medical Center is a hospital organized as a non-stock and non-profit corporation. It admits both paying and nonpaying patients. The CIR claimed that St. Lukes was liable for income tax at 10% as provided under Section 27(B) of the NIRC. St. Lukes argues that it is a non-stock, non-profit institution for charitable and social welfare purposes exempt from income tax under Section 30(E) and (G) of the NIRC. Decide.
N.B. While the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund. (CIR v. Smart Communications, G.R. No. 179045-46, August 25, 2010)
St. Lukes cannot claim full tax exemption under Section 30 because it has paying patients and this is notwithstanding the fact that it is a nonprofit hospital. For Section 27(B) to apply, the hospital must be non-profit which means that no net income or asset accrues to or benefits any member or specific person and all the activities of the hospital are non-profit. On the other hand, Section 30(E) and (G), while providing for an exemption is qualified by the last paragraph which, in turn, provides that activities conducted for profit shall be taxable. Section 30(E) and (G) requires that an institution be operated exclusively for charitable purposes to be completely exempt from income tax. In this case, however, St. Lukes is not operated exclusively for charitable purposes
Q: A taxpayer was not able to withhold on certain income payments. During the audit investigation, the taxpayer made payments of withholding tax. Will he be able to claim the same as a deduction from gross income? No. No deduction shall be allowed notwithstanding payments of withholding tax at the time of the audit investigation or reinvestigation/reconsideration in case where no withholding was made. The taxpayer shall be liable to pay the deficiency withholding tax (including interest and surcharge) and the
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes deficiency income tax as a result of the disallowed deduction. (RR No. 12-2013)
creditable withholding tax must comply with the following requisites:
N.B. Previously, if the withholding tax, including interest and surcharges, is paid at the time of audit and investigation, the deduction may still be allowed
1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the return of the recipient that the income received was declared as part of the gross income; and 3) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld. (Commissioner of Internal Revenue v. TeaM (Philippines) Operations Corporation, G.R. No. 185728, October 16, 2013 )
Q: Section 52(c) of the NIRC requires a corporation contemplating dissolution to first secure a tax clearance from the BIR. Does this requirement apply to a bank placed under liquidation by the Monetary Board of the BSP? No. Section 52(C) of the 1997 Tax Code does not apply to a bank ordered placed under liquidation by the Monetary Board. Further, a tax clearance is not a requisite to the approval of the project of distribution of the assets of the bank under liquidation by PDIC. (Philippine Deposit Insurance Corporation vs. Commissioner of Internal Revenue, G.R. No. 172892, June 13, 2013)
ESTATE TAX Q: What are the responsibilities of the heir/administrator/executor in filing the estate tax return?
Q: What is the irrevocability rule?
A notice of death required to be given to the BIR:
Once the option to carry-over the excess and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed. (Section 76, NIRC; United International Pictures AB v. CIR, G.R. No. 166381, October 11, 2012)
1. In all cases of transfers subject to tax; or 2. Where, though exempt from tax, the gross value of the estate exceeds P20,000. If required, the notice of death shall be given 1. Within 2 months after the death of the decedent; or 2. Within a like period after the executor or administrator or executor qualifies as such. (RMC 34-2013)
N.B. The irrevocability rule in Section 76 of the Tax Code applies only to the option to carryover the excess income tax payment, and not to the claim for refund or issuance of a TCC. Nowhere in Section 76 was it stated that the option to claim refund or TCC, once chosen, is irrevocable. (United Coconut Planters Bank vs. Commissioner of Internal Revenue, CTA EB Case No. 725, August 23, 2012)
The estate tax return is required to be filed: 1. In all cases of transfers subject to estate tax; or 2. Where, though exempt from estate tax, the gross value of the estate exceeds two hundred thousand pesos (P 200,000.00); or 3. Where, regardless of the gross value, the estate consists of registered or registrable property such as real property, motor vehicle, shares of stocks or other similar property for which a
Q: What are the requirements for a claim for refund of excess creditable withholding tax? A taxpayer claiming for a tax credit or refund of
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes clearance from the Bureau of Internal Revenue (BIR) is required as a prerequisite for the transfer of ownership thereof in the name of the transferee.
associations that are subject to income tax. They are likewise subject to VAT (RMC 53-2013)
VALUE-ADDED TAX Q: What are the requirements for a claim for VAT refund?
The estate tax return and the payment of estate tax shall be made:
A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites concur, namely:
1. The heirs/ authorized representative/ administrator/ executor shall file the estate tax return and pay the corresponding estate tax with the Authorized Agent Bank (AAB), Revenue Collection Officer (RCO) or duly authorized Treasurer of the city or municipality in the Revenue District Office having jurisdiction over the place of domicile of the decedent at the time of his death. 2. In case of a non-resident decedent, with executor or administrator in the Philippines, the estate tax return shall be filed with the AAB of the RDO where such executor/administrator is registered or is domiciled, if not yet registered with the BIR. 3. For non-resident decedent with no executor or administrator in the Philippines, the estate tax return shall be filed with the AAB under the jurisdiction of RDO No. 39–South Quezon City. (RMC No. 34-2013)
1) The taxpayer is VAT-registered; 2) The taxpayer is engaged in zero-rated or effectively zero-rated sales; 3) The input taxes are due or paid; 4) The input taxes are not transitional input taxes; 5) The input taxes have not been applied against output taxes during and in the succeeding quarters; 6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales; 7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; 8) Where there are both zero-rated or effectively zero- rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and 9) The claim is filed within two years after the close of the taxable quarter when such sales were made ( Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260, November 13, 2013)
DONOR’S TAX Q: Are gratuitous gifts, donations, and other contributions received by Homeowner’s Associations subject to donor’s tax? Yes. Gifts, donations, and other contributions received by the Associations are subject to payment of donor’s tax. Endowments or gifts received by such associations are not exempt from donor’s tax considering that gifts to Associations are not qualified for exemption under Section 101(A)(3) of the NIRC (RMC 53-2013)
Q: Luzon Hydro Corporation, is a renewable power generation company. It filed a claim for refund to cover its unutilized input VAT corresponding to the four quarters of taxable year 2001. It, however, did not produce evidence showing that it had zero-rated sales for the four quarters of taxable year 2001. Should ABC’s claim be denied?
N.B. If the donation is onerous as they are in exchange for goods, services and use of properties, these are income on the part of the
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes Yes. To be able to claim refund on the basis of zero-rated sales, taxpayer must prove the existence of zero-rated sales though its VAT returns and receipts issued for such zero-rated sales. Here, Luzon Hydro Corp did not produce evidence showing that it had zero-rated sales for the four quarters of taxable year 2001. It did not reflect any zero-rated sales from its power generation in its four quarterly VAT returns, which indicated that it had not made any sale of electricity. (Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260, November 13, 2013)
Q: May unutilized input VAT be treated as a deductible expense for income tax purposes? No. The unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit. Nowhere in the Tax Code is there a specific provision expressly providing for another mode of recovering unapplied input taxes, particularly that unapplied input taxes may be treated outright as deductible expense for income tax purposes. (BIR Ruling No. 123-2013; RMC 57-2013)
Q: What are the rules on prescriptive periods involving VAT?
N.B. Previously, taxpayers were allowed to deduct unutilized input VAT as expense in the following cases: (a) when the two-year prescriptive period has lapsed without any claim for refund or credit; (b) when the claim for refund or credit was denied; and (c) when the claim for refund is still pending with the BIR but voluntarily withdrawn by the taxpayer. (BIR Ruling [DA-(VAT-01) 121-10])
1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. 2) The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120day period may extend beyond the twoyear period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction. 3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR. 4) All taxpayers, however, can rely on BIR Ruling No. DA-489- 03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods. (CIR v. San Roque Power Corporation, G.R. No. 187485, Taganito Mining Corporation v. CIR, G.R. No. 196113, Philex Mining Corporation v. CIR, G.R. No. 197156, February 12, 2013)
Q: What is the effect non-compliance with the documentary and evidentiary requirements for a VAT refund claim? Failure to comply with the invoicing requirements provides sutt1cient ground to deny a claim for tax refund or tax credit. In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the claim but also compliance with all the documentary and evidentiary requirements therefor. (J.R.A Philippines v. Commissioner of Internal Revenue, G.R. No. 171307, August 28, 2013) Q: What is the difference between a VAT invoice and a VAT receipt? Only a VAT invoice might be presented to substantiate a sale of goods or properties while only a VAT receipt could substantial a sale of services. The two are not interchangeable. (Kepco Philippines v. CIR, G.R. No. 181858, November 24, 2010) Q: What is the effect on a taxpayer’s claim for refund or tax credit of failure to print the word “zero-rated” on the VAT invoices and official receipts?
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes The absence of the word “zero-rated” on the invoices and receipts of a taxpayer will result in the denial of the claim for tax refund. (Western Mindanao Power Corporation v. CIR, G.R. No. 181136, June 13, 2012; Eastern Telecommunications v. CIR, G.R. No. 168856, August 29, 2012)
No. There is nothing in the NIRC which indicates that prior payment of taxes is necessary for the availment of the transitional input tax credit. All that is required is for the taxpayer to file a beginning inventory with the BIR. (Fort Bonifacio Developmen Corporation v. CIR, G.R. No. 173425, January 22, 2013)
Q: What is the effect on the claim for refund or tax credit if the words “zero-rated” was merely stamped and not pre-printed?
ORGANIZATION AND FUNCTION OF THE BIR
It is not fatal to the claim. Although the same was merely stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting of the word “zero-rated” was required merely to distinguish sales subject to 12% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other VAT provisions of the Tax Code. (Commissioner of Internal Revenue v. Toledo Power Company, G.R. No. 183880, January 20, 2014)
Q: May the CIR, pursuant to her power to obtain information under Section 5(B) of the NIRC, be provided certified copies of the SALNs of all incumbent justices of the Supreme Court and CTA? No. First, the request of the CIR lacks sufficient basis. Second, the power of the CIR to obtain information is limited by the Constitution and by law. Section 5(B) does not authorize the acquisition of information or an investigation prior to an assessment of tax deficiency. It should never be construed to authorize an unbridled search in the hope that something inculpatory would be stumbled upon. The power of the CIR to obtain information is limited only to acquiring documents used in connection with the filing of a return or those used in the ordinary course of business to enable the CIR to arrive at an assessment. Without a prima facie showing of fraud, the SALNs of members of the Judiciary are not covered. (A.M. No. 09-8-6-SC Re: Request for Copies of SALNs of Justices of the SC and Officers and Employees of the Judiciary and A.M. No. 14-4-01-CTA Re: Request for Copies of SALNs of Justices of the CTA)
Q: Bonifacio Water Corporation filed a claim for refund of unutilized input taxes. It changed its name to Bonifacio GDE Water Corporation. Thus, the corporation started using this new corporate name in its official receipts notwithstanding the fact that the SEC has not yet approved the same. What is the effect on the claim for refund? The change of petitioner’s name to “Bonifacio GDE Water Corporation,” being unauthorized and without approval of the SEC, and the issuance of official receipts under that name which were presented to support petitioner’s claim for tax refund, cannot be used to allow the grant of tax refund or issuance of a tax credit certificate in petitioner’s favor. The absence of official receipts issued in its name is tantamount to non- compliance with the substantiation requirements provided by law. (Bonifacio Water Corporation v. The Commissioner of Internal Revenue, G.R. No. 175142, July 22, 2013)
TAX REMEDIES Q: Must there be a prior payment of the amount offered as compromise settlement before a taxpayer’s application for compromise can be processed? Yes. The compromise offer shall be paid by the taxpayer upon filing of the application for compromise settlement. No application for compromise settlement shall be processed
Q: Is prior payment of taxes necessary for the availment of transitional input tax?
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes without the full settlement of the offered amount. (RR 9-2013)
the BIR should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 7. The taxpayer must be furnished a copy of the waiver as accepted by the BIR in order to perfect the agreement since the waiver is not a mere unilateral act, but a bilateral agreement between the parties.
Q: When does the government’s right to assess prescribe? General Rule: The government’s right to assess prescribes in 3 years from the date of the last day of filing. However: 1. If the return is filed after such date, the 3 year period is reckoned from date of actual filing 2. If the return is filed before the last day, then considered as filed on last day.
Q: What is the effect of failure to conform to the requirements of a waiver of the statute of limitations? A waiver of the statute of limitations under the Tax Code must conform strictly with the provisions of Revenue Memorandum Order No. 20-90 in order to be valid and binding. (Philippine Journalists Inc. v. CIR , G.R. No. 162852, December 16, 2004).
Exceptions: 1. False return 2. Fraudulent return 3. Failure to file a return
The period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the 3-year period. RMO 20-90 and RDAO 05-01 lay down the procedure for the proper execution of the waiver. If not followed, any assessment issued by the BIR beyond the 3year period is void. (CIR v. Kudos Metal Corp, G.R. No. 178087, May 5, 2010)
In such cases, the tax may be assessed or a proceeding in court for collection may be filed without assessment at any time within 10 years from discovery of the falsity, fraud, or omission. (Section 222, NIRC) Q: What are the requirements for a valid waiver of the statute of limitations?
Q: What is the effect of partial payment on the validity of the waiver?
1. The waiver must be in the prescribed form attached as Annex A. There should be no deviation from this form. 2. The waiver must indicate the specific kind of tax and the amount due. 3. The waiver must specify a definite agreed date between the BIR and the taxpayer within which the former may assess and collect revenue taxes. 4. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. 5. The waiver shall be signed by the Commissioner of Internal Revenue or his duly authorized representative, and the date of acceptance of the BIR must be indicated. 6. Both the date of execution by the taxpayer and the date of acceptance by
Partial payment of the assessment issued within the extended period to assess as provided in the Waiver of Defense of Prescription is an implied admission of the validity of the waiver. (RCBC v. CIR, GR No. 170257, September 7, 2011) Q: What is the effect if the PAN was not issued prior to the FAN? If the PAN is not issued before the FAN and the taxpayer only received the latter, it is tantamount to denial of due process. The taxpayer must be informed of the facts and laws upon which the assessment is made. It is not merely a formal requirement but a substantive one. However, the law recognizes several exceptions wherein the PAN need not be
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes issued. (CIR v. Metro Star Superama, GR No. 185371, Dec. 8, 2010)
additional evidence. It may involve both a question of fact or of law or both 2. Request for Reinvestigation – refers to a plea for reevaluation of an assessment on the basis of newly discovered evidence or additional evidence that a intends to present in the investigation. It may also involve a question of fact or law or both
Q: BIR issued a PAN to Allied Bank for deficiency DST. Allied Bank protested the PAN. Thereafter, BIR sent a FAN to Allied Bank. The letter provided: “It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.” Thereafter, Allied bANK immediately filed a petition for review with the CTA. Should the petition be dismissed?
N.B. For requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final. Q: What is the difference between a request for reinvestigation and a request for reconsideration for purposes of tolling the running of the prescriptive period?
No. Ordinarily, the procedure is that it’s the FAN that must be administratively protested, as a prerequisite to subsequently filing a PFR with the CTA. However, the SC ruled in this case that the CIR was estopped from claiming the need for a protest. Allied Bank can’t be blamed for not filing a protest against the FAN since the language used and the tenor of the PAN indicate that it is the final decision of the CIR on the matter. The CIR is required to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Thus, CIR is now estopped from claiming that he did not intend the PAN to be a final decision. Moreover in the Formal Letter of Demand with Assessment Notices, CIR used the word “appeal” instead of “protest”, “reinvestigation”, or “reconsideration”. Although there was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the word “appeal” under prevailing tax laws refers to the filing of a Petition for Review with the CTA (Allied Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 175097, February 5, 2010)
It is the request for reinvestigation acted upon which suspends the prescriptive period to collect. A request for reconsideration does not toll the prescriptive period (RR 18-2013; BPI v. CIR, G.R. No. 139736, October 17, 2005) Q: What is the taxpayer’s remedy if the protest is denied by CIR’s duly authorized representative? 1. Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the said decision; or 2. Elevate his protest through request for reconsideration to the Commissioner within thirty (30) days from date of receipt of the said decision. (RR 182013) N.B. No request for reinvestigation shall be allowed in administrative appeal and only issues raised in the decision of the Commissioner’s duly authorized representative shall be entertained by the Commissioner. (RR 182013)
Q: What are the two forms of protest?
Q: What are the remedies of the taxpayer if the protest is not acted upon by CIR’s duly authorized representative?
1. Request for Reconsideration – refers to a plea for reevaluation of an assessment on the basis of existing records without need of
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes 1. Appeal to the CTA within thirty (30) days after the expiration of the one hundred eighty (180)-day period; or 2. Await the final decision of the Commissioner’s duly authorized representative on the disputed assessment. (RR 18-2013)
hired who prepared and filed the ITRs. Is Gloria guilty? Yes, Gloria is guilty. First, her sole reliance on her husband to file their ITRs is not a valid reason to justify her non-filing considering that she knew that she and her husband are mandated by law to file their ITRs. Second, an experienced businesswoman ought to know and understand all the matters concerning her business. This includes knowledge and awareness of her tax obligation in connection with her business. Further, there are no affirmative acts on her part to make sure that her obligation to file her ITRs have been fully complied with. She does not know how much was her tax obligation and she did not even bother to inquire or determine the facts surrounding the filing of her ITRs. Such neglect or omission is tantamount to “deliberate ignorance” or “conscious avoidance.”(People v. Gloria Kintanar, CTA EB Crim. No. 006, Dec. 3, 2010, as affirmed by the Supreme Court in a minute resolution GR 196340, February 2012)
Q: What is the remedy of the taxpayer if the protest is denied by the CIR? The taxpayer may appeal to the CTA within thirty (30) days from date of receipt of the said decision. Otherwise, the assessment shall become final, executory and demandable. (RR 18-2013) Q: Will a motion for reconsideration of the denial of the protest toll the 30-day period to appeal to the CTA? No. A motion for reconsideration of the Commissioner’s denial of the protest or administrative appeal, as the case may be, shall not toll the thirty (30)-day period to appeal to the CTA. (RR 18-2013; Fishwealth Canning Corp. v. CIR, G.R. No. 179343, January 21, 2010)
Q: Judy Ann, an actress, was charged with violation of Section 255 of the NIRC for failure to supply correct and accurate information. Judy Ann contends that since she started working, it was her Manager who is in charge of filing her returns and paying her taxes. Her Manager hired an accountant for the preparation of her returns. Judy Ann stated her intention to settle the case were not for the opposition by her Manager and her counsel. Is Judy Ann guilty?
Q: What are the remedies of the taxpayer in case of the inaction of the CIR on the protested assessment? 1. File a petition for review with the CTA within 30 days after the expiration of the 180-day period; or 2. Await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days from the receipt of a copy of such decision. (RR 18-2013; Lascona Land Co. v. CIR, G.R. No. 171251, March 5, 2012)
No. The element of willful failure to supply correct and accurate information must be fully established as a positive act or stale of mind. It cannot be presumed nor attributed to mere inadvertent or negligent acts. She is only negligent and such is not enough to convict her. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. Fraud must amount to intentional wrongdoing with the sole object of avoiding the tax. Further, the intention to settle the case were it not for the opposition of her manager and her counsel negates any motive to commit fraud. (People v. Judy Ann Santos, CTA Crim. Case No. O-012,
Q: Gloria is a distributor of beauty and wellness products. She was charged with violation of Section 255 of the NIRC for failure to make or file her Income Tax Return (ITR). Gloria contends that she has no personal knowledge of the actual filing of her returns because it was her husband, Benjamin, who files their ITRs. Benjamin claims that it was the accountant he
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes January 16, 2013)
presupposes that the tax assessment has not become final and unappealable. Is the CIR’s contention correct?
COURT OF TAX APPEALS
No. The fact that an assessment has become final for failure of the taxpayer to file a protest within the time allowed only means that the validity or correctness of the assessment may no longer be questioned on appeal. However, the validity of the assessment itself is a separate and distinct issue from the issue of whether the right of the CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide. (Commissioner of Internal Revenue v. Hambrecht & Quist Philippines, Inc., G.R. No. 169225, November 17, 2010)
Does the CTA have jurisdiction over a Petition for Certiorari seeking the nullification of an interlocutory order of an RTC judge involving a claim for refund of local taxes? Yes. The power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. The CTA is vested with jurisdiction to issue writs of certiorari in these cases. The authority of the CTA to take cognizance of petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in the powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction. (The City of Manila vs. Hon. Caridad H. GreciaCuerdo, G.R. No. 175723, February 2, 2014)
Q: May the 30-day period to appeal the decisions of the RTC to the CTA be extended? Yes. Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule 42 of the Revised Rules of Civil Procedure provides that the Petition for Review of an adverse judgment or final order of the RTC must be filed with the Court of Appeals within: (1) the original 15-day period from receipt of the judgment or final order to be appealed; (2) an extended period of 15 days from the lapse of the original period; and (3) only for the most compelling reasons, another extended period not to exceed 15 days from the lapse of the first extended period. Following by analogy, Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3 (a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days (SM Land v. City of Manila, G.R. No. 197151, October 22, 2012; Metro Manila Shopping Mecca Corp., et al. v. Ms. Liberty M. Toledo, in her official capacity as the City Treasurer of Manila, and the City of Manila, G.R. No.
Does the CTA have jurisdiction to rule upon the validity and constitutionality of the issuances of the BIR? No. The CTA’s jurisdiction to resolve tax disputes in general does not include cases where the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function is challenged. (Egis Projects S.A. vs. The Secretary of Finance and Commissioner of Internal Revenue, CTA Case No. 8413, January 29, 2013; British American Tobacco v. Camacho , G.R. No. 163583, August 20, 2008) Q: A was assessed for income tax deficiency. The taxpayer failed to file a protest and thus the said assessment has become final and unappealable. Thereafter, the taxpayer filed a petition for review to the CTA arguing that the right of the CIR to collect the assessed tax has prescribed. The CIR contends that the CTA has no jurisdiction because when the law says that the CTA has jurisdiction over “other matters” it
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes 190818, June 5, 2013)
Marina Sales, Inc. G.R. No. 183868, November 22, 2010)
Q: May the CTA issue an injunction to enjoin the collection of taxes by the BIR?
N.B. No second MR or MNT is allowed (Section 7, Rule 15, RRCTA)
Yes. When a decision of the CIR on a tax protest is appealed to the CTA, such appeal does not suspend the payment, levy, distraint and/or sale of any of the taxpayer’s property. However, when in the opinion of the CTA the collection of the tax may jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of the proceedings may suspend or restrain the collection of the tax and require the taxpayer either to deposit the amount claimed or to file a surety bond for no more than double the amount with the Court.
LOCAL GOVERNMENT TAXATION Q: May LGCs impose amusement taxes notwithstanding the fact that they are, in essence, percentage taxes? Yes. Section 133 (i) of the Local Government Code (LGC) prohibits the levy by local government units (LGUs) of percentage tax except as otherwise provided by the LGC. Percentage Tax is a tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. Since amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain specified establishments, they are actually percentage taxes. However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of percentage taxes. Section 140 of the LGC carves a clear exception to the general rule in Section 133. Section 140 of the Local Government Code (LGC) expressly allows for the imposition by provinces of amusement taxes on “the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement.” (Pelizloy Realty Corporation vs. The Province of Benguet, G.R. No. 183137, April 10, 2013)
N.B. The CTA may issue injunction only in the exercise of its appellate jurisdiction. (CIR vs. J.C. Yuseco, G.R. No. L-12518, October 28, 1961) Further, the prohibition on the issuance of a writ of injunction to enjoin the collection of taxes is applied only to national internal revenue taxes, not to local taxes. However, the Supreme Court noted that such injunctions enjoining the collection of local taxes are frowned upon. (Angeles City v. Angeles Electric Corporation, G.R. No. 166134, June 29, 2010) Q: Is a prior Motion for Reconsideration with the Division required before the filing a Petition for Review with the CTA en banc? Yes. The mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals requiring that “the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.” The word "must" clearly indicates the mandatory -- not merely directory -nature of a requirement.” The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division. (Commissioner of Customs vs.
Q: What is the effect of filing the appeal to the Secretary of Justice beyond the 30-day period provided for in Section 187 of the LGC? The appeal will be dismissed. Failure to appeal to the Secretary of Justice within the statutory period of 30 days from the effectivity of the ordinance is fatal to one’s cause. (Cagayan Electric Power and Light Co. v. City of Cagayan de Oro, G.R. 191761, November 14, 2012)
2014 BAR TIPS ON TAXATION LAW Atty. Pierre Martin D. Reyes
REAL PROPERTY TAX
are not allowed by law. (Secretary of Finance v. Court of Tax Appeals and Kutangbato Conventional Trading, G.R. No. 168137, August 7, 2013)
Q: Who is liable to pay real property taxes? In real estate taxation, the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. (GSIS v. City of Treasurer of Manila, G.R. No. 186242, December 23, 2009)
Q: Who has jurisdiction to hear and determine questions touching on the seizure and forfeiture of dutiable goods? The Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and the regular courts cannot interfere with his exercise thereof or enjoin or interfere with it. The regular courts are precluded from assuming cognizance over such matters even through petitions for certiorari, prohibition, or mandamus. The rule that the RTC must defer to the exclusive original jurisdiction of the BOC in cases involving seizure and forfeiture of goods is absolute. (Subic Bay Metropolitan Authority, G.R. No. 160270, April 23, 2010)
Q: The Province of Quezon assessed Mirant for unpaid real property taxes. NAPOCOR, which entered a BOT with Mirant, protested the assessment before the LBAA, claiming the entitlement to tax exemption under Sec. 234 of the LGC. The RPT assessed were not paid prior to the protest. LBAA dismissed NAPOCOR’s petition for failure to make a payment under protest. Is NAPOCOR required o make a payment under protest? Yes. By claiming an exemption from realty taxation, NAPOCOR is simply raising the question of the correctness of the assessment. As such real property taxes must be paid prior to the making of the protest. On the other hand, if the taxpayer is questioning the authority of the local assessor to assess RPT, it is not necessary to pay the RPT prior to the protest. A claim for tax exemption, whether full or partial, does not question the authority of the local assessor to assess RPT (NAPOCOR v. Province of Quezon, G.R. No. 171586, January 25, 2010)
***nothing else follows*** Study as if everything depended on you; pray as if everything depended on God Prayer to St. Joseph of Cupertino for success in Examinations O Great St. Joseph of Cupertino who while on earth did obtain from God the grace to be asked at your examination only the questions you knew, obtain for me a like favour in the examinations for which I am now preparing. In return I promise to make you known and cause you to be invoked. Through Christ our Lord. St. Joseph of Cupertino, Pray for us. Amen.
TARIFF AND CUSTOMS DUTIES Q: What are the classifications of imports? 1. “Freely importable commodities” or those commodities which are neither “regulated” nor “prohibited” and the importation of which may be effected without any prior approval of or clearance from any government agency; 2. “Regulated commodities” or those commodities the importation of which require clearances/permits from appropriate government agencies; and 3. “Prohibited commodities” or those commodities the importation of which
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